The challenge of adaptation

“Big companies that fail to innovate risk extinction. That’s the stark truth in the era of ‘digital disruption’.” (Wall, 2014)

Perhaps so, but this statement makes particular assumptions about the nature of the business environment facing most organisations.

There is little doubt that the business landscape has changed dramatically over the past 20 years, not only in terms of technological disruption but also in the needs and wants of customers (business or consumer), globalisation, near-instant communications, and the loss of control many organisations face in their relationships with their customers and clients. But at the same time we see the rise of new phenomena like lead users and co-creation in which they innovate with their customers and clients and not for them, an ability to set up national and international relationships at much greater pace than before, and so, the idea of open innovation.

However, innovation can be a double-edged sword for established organisations. Try something radically new, and more often than not they apply old knowledge and business models to new ideas such that the new product or service fails to take off. Worse still, why jeopardise brands and reputations thousands if not many millions have been spent building? Coupled with that, think of the investment needed. Longstanding, successful products and services have specialist resources and capabilities attached to them. Sacrificing that or going against all of that is not easy. After all, how else might we explain other big players in the consumer electronics and music industry failing to create iPod or iTunes before Apple?

Rising to the challenge

How can we create the right conditions for successful open innovation? Two things matter: absorptive capacity, and how we build our relationships. We’ll look at relationships later this week, but let’s now think about this in terms of absorptive capacity.

We have to be able to draw information and knowledge from our open innovation networks and be ready and able to take that into our business, inside our boundaries, and revise what we know and understand, then act on it. Without absorptive capacity, that won’t happen. Questioning what you know, your assumptions and the organisation’s stock of prior knowledge is not easy and requires the organisation to put in place routines, activities and processes to identify, acquire, assimilate and exploit new knowledge if it is to benefit from open innovation. It is nowhere near as simple as just starting relationships with others (and that in itself is not straightforward either). The organisation needs to change its learning capabilities to enable it to acquire, assimilate and exploit external knowledge together with and independent of its own internal stocks of knowledge.

So, how can this be done?

• Examine how your assumptions, prior knowledge, expertise and experience might lead you to see opportunities/threats, products and services and business models in particular (biased) ways.
• Develop activities and processes internally to learn from new events, new experiences, share knowledge widely and integrate that into and across parts of your organisation.
• Involve partners (or individuals) from your relationships into your business activity and make communication sharing a two-way activity.
• Concentrate on co-creating knowledge, not just acquiring or transferring knowledge among each other. Build social capital and trust.
• Invest in your relationships but appreciate that their value might diminish over time. This means your network of ties will need to evolve as some ties are let go and others are built – but appreciate the need to support ongoing relationships to prevent worry from entering your network.
• Network ties are almost always tied to existing products and services. Open innovation is about expanding beyond just extending products and services so consider whether your network of ties are too narrow in scope and breadth to achieve that.
• Do you foresee lock in and relational dependence in certain relationships? If so, can you build new ties to mitigate the risk associated with dependence?

Ultimately, open innovations through relationships are one strategic option and you will need to consider how it fits into your overall innovation strategy.

Reflection

Thinking about learning and innovating through relationships with the outside world and thinking about some of the issues we’ve been discussing, and the examples here, what do you think are the organisational characteristics when open innovation works? And similarly, can we recognise any characteristics when it doesn’t work? What can we learn from this?

Reference

Wall, M. (2014) ‘Innovate or Die: The Stark Message for Big Business’, BBC website 5 September 2014, available at http://www.bbc.co.uk/news/business-28865268, accessed 3 October 2016.