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When is the right time to consider outside partners along the innovation pathway? Its really a question of leadership and culture
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When is the right time to consider outside partners along the innovation pathway? Its really a question of leadership and culture

As the speed of technology and market disruption advance, companies will need to decide where its core focus should lie in order to remain relevant in the Digital economy, to protect as well as enhance its market position and to keep the vital mechanics of innovation flowing. This article by Jeremy Simon highlights how companies navigate this challenge while deciding on the appropriate time to shift focus “outward”.

In the first two articles of this series I’ve started to make the case for Collaboration, which establishes cross-industry, cross-segment partnerships as the main competitive advantage in the 21st century for companies open (enough) to accept the value of welcoming in partners for co-creating dynamic solutions. As the speed of technology and market disruption advance, companies will need to decide where its core focus should lie in order to remain relevant in the Digital economy, to protect as well as enhance its market position and to keep the vital mechanics of innovation flowing.

This article highlights how companies navigate this challenge while deciding on the appropriate time to shift focus “outward”. Proper guidance and direction from its leaders will permit organizations to fully leverage the benefits of collaboration by establishing a suitable decision framework and creating an open culture to drive innovation and increase the likelihood of making a successful transition.

To gain a better understanding of this topic I interviewed a leading thinker on collaboration who offered to share his insights: Manfred Tropper CEO of mantro Inc.(Munich DE), a “Company Builder” presently working with large European corporates on developing new ventures and digital business models across several industrial verticals. Manfred provides a viewpoint from his first-hand experiences of how corporates best leverage the benefits of strategic partnerships amid the pitfalls of the process.

According to Manfred, active collaboration with external partners is quite unnatural for companies, especially those that have achieved past success due to a “self-sufficiency” trait that develops over time and is a great source of corporate pride. This leads to an internalization of core capabilities while the non-critical needs are outsourced to externals in a mostly transactional way; think customer-supplier, one-way relationships as compared with the more strategic shared objective approaches creating dynamic solutions today.

Manfred continues that a business operating in the 21st century with an antiquated philosophy of “not invented here” instead of “who else out there is already an expert” is at greater risk of falling behind due to the speed of technology shifts and market disruptions. It is now a requirement no matter the space for all companies to protect as well as enhance market position by becoming more open to collaborating with well-suited partners in order to keep up with trends and the corresponding demands from its customers.

With base parameters changing, leaders are forced to ask themselves (and their teams) what’s the role their companies will play in this new paradigm and what are the right product offerings for these evolving industry value chains. In the current age the very idea of a functional, effective, affordable product or service as a sufficient basis for economic exchange is dying. Where you might least expect it, products of every sort are being remade by new economic requirements of connection and needing to be “smart” devices which can be difficult to comprehend for established firms.

This adjustment of thinking brings an overall feeling of discomfort for many companies and requires that strong leadership proactively address any unsettlement rather than place it on a back burner.

So how do progressive leaders navigate these challenges in an effective way? A framework is required that helps leaders develop a revised “who we are” for an organization to compete in the new environment. According to Manfred it requires a change in both the focus and priorities of the organization for deciding a) which are the most critical core competencies to develop within the organization b) how partners can be accessed to fill gaps in market expertise or technology and for accelerating progress of a new venture c) how to align a culture open to partnerships with the proper leadership skill-sets to drive transformation into this new state.

Although this approach is more widely gaining acceptance, it seems many companies are making a crucial first mistake in how they attempt to create a framework for its execution. Instead of initially placing the fields of strategic interest in focus (whether close or far from today’s business) and identifying the best options for implementation by facilitating internal interest to support an ideation process, more time is spent on answering what’s the proper “vanity” methodology (ie....let’s have a ideation workshop! Or other Corporate Theatre that’s mostly for show and not real substance).

While the method is important key principles about how to go about developing and validating an early stage idea and whether this process should be performed inside or outside an organization is an even better first question to ask and provide answer. In fact, we find most companies that have a process for ideation and where it’s people are comfortable bringing forward new and interesting ideas tend to struggle with the execution step which can be a much greater challenge.

One model that’s instructive is how a leading German automotive manufacturer and partner of mantro follows an ideation and innovation process combining development of both internal innovation capabilities while leveraging the benefits of external collaboration. This includes a “decision tree” approach suggesting choices an organization makes along the pathway through various project phases.

As an initial step this company will first test new ideas inside the organization which ensures the core business remains connected to the conceptual growth opportunity while building up its capabilities to experiment and vet new opportunities through its validation and feasibility phases. Should positive results ensue backed by sufficient evidence to move an idea forward, a decision on whether it’s best to keep the project “inside” the organization to further develop the business model or if there’s greater benefit to now go “outside” with a more collaborative approach can be determined.

In practice this choice will have much to do with the actual product or target customer/market for the idea or new venture. It may make perfect sense to run these projects inside the business if it’s close enough to the core. However, experience tells us that transformative ideas or those that fall outside the existing domain require a higher level of specialized knowledge with sufficient room to fully develop so they can be permitted to flourish prior to being brought back inside for commercialization if successful. This will help avoid the squeeze of resources and lack of attention or even ambivalence by the organization’s hierarchy.

Should a collaboration approach with outside partners be selected, what is the model that best fits? This decision may also be project specific and utilize the traditional methods, such as setting up joint ventures with other corporate partners or delegating the project to the company funded accelerator or innovation site. In addition the relatively new method of company-building may also be considered. NOTE: I will discuss methods for collaboration in the next article in much greater detail.

What is company-building? Company or Venture Building is a structured approach to set up a new business with a new legal entity. The term is widely used in the VC world for startup hubs that generate multiple startups in parallel. In the corporate world “Company Builders” partner up with corporates in joint ventures to find and validate new business opportunities, followed by orchestrating their go-to-market outside of the corporate environment in a startup-like mode to ensure risk minimization and speed.

To summarize, there are three main reasons leaders reach the conclusion a collaboration model is the right approach as compared to keeping an early stage venture internal:

a) Speed: An ideal scenario is when leadership is honest about its own capabilities to act on a new business idea and can consider objectively which approaches lead to fastest learnings at the lowest cost. Therefore, that we are too slow or we need to rely on others is often not easy to admit! If it is determined that others outside can be more effective or offer advantages as compared to doing it internally, it should become standard practice in the innovation management toolkit

b) Risk mitigation: New ideas can be exciting and will unleash the creative fuel organizations require to drive innovation. However they also bring risk and for established brands “failure” of any type can cause lasting damage to their reputation that some traditional firms are not willing to chance. The opportunity to experiment with radical ideas “outside the house” is a good option for those sensitive to these possible effects.

Sidebar: however it turns out these “effects” may be quite mythical. When Manfred asked his partners about this point, they share a very different feedback and quite a contradiction: to progress on an innovation project you must first fail in order to learn before ultimately finding success. It’s also ironic that German companies are criticized for not being innovative enough yet when they try and fail they are denounced!

c) Exposure to outside experiences and viewpoints: We often operate with too narrow a focus when seeking solutions with non-diverse groups inside our organizations. No matter how big a business, limitation is based on the collective experiences of its people at that point in time and is no match for the diverse views of expertise and experience from multiple stakeholders including outside specialists or experts that complement tribal knowledge. “Scout and scale” is a great way to seek out experts so we don’t need to expend resources re-inventing the wheel or going down pathways already validated as the wrong direction.

At the same time and to fully benefit from these relationships, an organization must also focus attention inward so it has the right support structure in place to successfully collaborate and become a good partner, including hiring for the right leadership skills which will fundamentally influence HR practices of the organization.

For organizations willing to invest in this approach, these are the key dimensions to keep in mind:

a) Developing leadership in the organization for success in the digital economy requires a certain skill set for hired personnel. These “influencers” will come up with new ideas and innovative business models which will guide the company’s mission to fit within the modern value chain. New business models are quite challenging for those working inside the traditional business due to inertia or being too close to the existing business to imagine a different future which is exactly why new skill sets are often required. For this to become widely accepted, hiring for the right top leadership is also critical to ensure that a transformative change in hiring practices will be adopted to set a new course direction (Satya Nadella as Microsoft CEO is a great example).

b) Successful collaborators are typically those organizations with clear goals and an open culture well-aligned with this motivation that equitably reward their people when the company is successful. At the same time the organization must hire those that consider personal goals as just a means to this greater end, since lasting relationships both survive and thrive based on the goals of an organization, not necessarily individuals since people tend to leave companies over time.

c) There is conscious development within the company to build the right skills for collaboration. It should not be taken for granted that being a good partner is in our cultural DNA and will be an “automatic” result. In many ways this collaboration competence can be practiced first inside the company to build collective muscle prior to taking learned skills into external strategic relationships.

d) Lastly, is the conceptual metaphor “dig a deep hole” still relevant?(fans of the book Good to Great will recall this reference of having deep and intense focus on exploiting what your good at). I say yes as there are several examples where companies today believe the new economic imperative requires rapidly adding capabilities outside their comfort zone either from internal development or risky M&A which can lead to negative outcomes. As an example, traditional hardware businesses believe they must become software companies to stay relevant. However for several firms there are alternative options to add software capabilities to their offerings beyond investing in their own expensive data science teams as the first move or not investing enough in their traditional hardware business which are still highly relevant as a complement to software in the digital environment. Morale: Refine and focus what your best at and complement as needed from close partners.

In summary, businesses today operate in a time of fast-changing dynamics that requires a framework to help leaders manage their organizations in order to achieve successful innovation practices. This goes beyond having the right product at the right time since the right execution strategy is often more important to successfully implement a new business model. Having leaders adept at judging internal strengths as well as their weaknesses while knowing when outside partners are required and who are the right candidates is a key competence to deliver on the promise of great ideas.

The next article in the series will further explore the various collaboration approach options (JV, M&A, Corporate Venture….) that exist and when each is the best fit when utilized across the innovation landscape.

Thank you for reading and I hope your finding the series helpful. Please feel free to provide comments and if you have alternative ideas and perspectives!  

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