Given the fast pace at which new technologies are coming to market, the traditional approach of innovating only from within the company is becoming more difficult. Internal company regulations, processes, governance frameworks and organisational structures slow down innovation and paralyse the organisation. Some of the biggest killers of innovation are traditional financial processes, such as budgeting and business cases. If you look at the biggest innovations of the past decade, how many of these do you think were underpinned by a sound financial business case? Probably not one of them.
Real innovation requires “out-of-the-box thinking”, which employees with day-to-day operational jobs often can’t apply to the necessary extent. Tapping into the ecosystem of start-ups, the open source community, universities, research labs, venture capital firms, etc. can be an effective way to expand the pool of innovative ideas far beyond that which employees within the company can typically come up with. Most employees in operational roles consider only incremental improvements and “more of the same” ideas as innovative. There is a famous quote attributed to Henry Ford: “If I had asked people what they wanted, they would have said faster horses.” With more and more products and services being digitalised, technology becomes the pacemaker for innovation and therefore also defines the required speed to market for new product innovation. With open innovation having potentially the whole world contributing to driving innovation is a very attractive proposition that is difficult to beat.
I believe that most companies will not be able to innovate fast enough if they continue to rely on internal resources only. In particular, innovation through technology requires an approach different from the traditional company-internal innovation funnel of own ideas. Open innovation requires the company to open up its products and services, publish APIs, open-source its software codes, etc. and encourage the open-source community to co-create and co-develop additional features and functions to complement the company’s core products and services. This is pretty much what Google and Apple did with their smartphone ecosystems. It is not the phone itself or the operating system that represents the key value of the device but rather the apps developed by independent developers, which users can install and configure on their smartphone. With this approach, Apple and Google can tap into thousands of top-class developers whose apps enhance the functionality of the device and contribute to the value of the ecosystem and with it the device.
Corporate VCs have long discovered that by investing in start-ups outside of their company, they have far greater potential to drive real innovation without being constrained by company-internal processes, governance and limitations. By working closely with the innovation ecosystem in technology hot spots, such as Silicon Valley, London’s Silicon Roundabout, Berlin’s tech scene, etc., the potential for truly innovative ideas increases immensely. This also includes collaboration efforts with independent VC firms, incubators and universities. If tomorrow’s CIO wants to be seen as someone who drives innovation through technology, his/her key focal activities will be running hackathons together with these partners from the ecosystem and regularly participating in tech start-up “speed-dating” sessions, joining the advisory boards of VC firms, sponsoring research projects at leading universities, etc.
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Patrick Naef | 25.03.2020