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Measuring the quality of an Open Innovation strategy

Currently I am working with one of Germany’s hidden champions (i.e. a SME that is world-market leader in a specialized market) in crafting its Open Innovation strategy.

Defining the Open Innovation strategy is a stringent process with five steps (by the way, this is one of the topics I teach in my Masterclass, see here and here). In step 1, you define where the firm could innovate openly by analyzing technology and business fields, by looking at the firm’s value chain (see here) and at the market/product newness sectors of the innovation road map. You then extend the list of the firm’s existing open approaches to innovation with benchmarks from other firms. In steps 2 to 5 you apply a series of testing questions to find out the best Open Innovation approaches.

What made the discussion so valuable was that my client insisted on checking if the Open Innovation strategy that came out of the process is really the right one. So I worked out eight questions for checking the quality of an Open Innovation strategy.

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Question 1: Will your OI strategy get you in the top spot of the innovation game?

In my experience few OI firms that are pursuing some open approaches to innovation ask themselves if they are really getting in the innovation top spot with what they are doing – “just getting along” seems to be good enough currently. But “just getting along” might be dangerous when the rules of the innovation game are suddenly changed by another firm.

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Question 2: Does the OI strategy fortify the pillars of the innovation advantage?

Innovation is a sports where one shoots at a moving target. So to evaluate an (open) innovation strategy one has to take on a dynamic view. Issues that need to be discussed are e.g. What could be done to increase competitive advantages that we built? How would an incumbent or a newly entering firm erode these? Which special capabilities can be built / enhanced with OI? Which of these might become vulnerable?

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Question 3: Is your OI strategy detailed about where to innovate openly?

As stated in the introduction to this post there is a stringent process that shows where the firm could innovate openly. A thorough analysis usually leads to 30-50 potential areas for open approaches to innovation. A good OI strategy lists them all. Furthermore it provides enough granularity for the responsible managers and clear (quantitative or qualitative) targets to aim at, so that these managers see a clear route to actions.

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Question 4: Does your OI strategy put you ahead of trends?

Working with trends is a daily business for every innovation practitioner. But many OI strategies place too much weight on the extrapolation from the past three to five years, a time frame too brief to capture the true dynamic of global innovation. The best OI strategists look to the edges and to other, comparable industries (e.g. a food firm should have some interest for what is happening in the cosmetics industry). How are early adopters acting? What are small, innovative entrants doing? What technologies under development could change the game? And how does all this line up with today’s innovation priorities?

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Question 5: Is your OI strategy built on privileged insights?

Most of the data supporting innovation decisions are cheap and accessible. But much of this is noise and widely available to competitors as well. Developing proprietary innovation insights is hard. In fact, this is where many companies stumble. To get started it is usually of help to break down the R&D issue into small chunks and install various open approaches to solve the individual point and to craft the firm’s innovation strategy.

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Question 6: Does your OI strategy explicitly address uncertainty?

A central challenge to innovation is that one has to make decisions now, but the payoffs occur in a future environment that cannot fully be known or controlled. Rigorously understanding the uncertainty the firm’s innovation faces starts with listing the variables that would influence a key decision and prioritizing them according to their impact. Good OI strategists would then think about OI approaches that improve the risk profile, increase time-to-market (which at the same time improves time-to-certainty) and also keep or improve the freedom to operate.

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Question 7: Does your OI strategy balance commitment and flexibility?

Commitment and flexibility exist in inverse proportion to each other: the greater the commitment you make, the less flexibility remains. This tension is one of the core challenges of innovation. One might even say that innovation is making the right trade-offs over time between commitment and flexibility.

Making the best trade-offs effectively requires an understanding of which decisions require which level of commitment. Good OI strategists watch these points very carefully and think in options that may provide them with flexibility yet at the same time limit the level of commitment necessary.

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Question 8: Is your OI strategy actionable?

In implementing the OI strategy, the people involved need to know clearly where the firm is moving away from and where it is moving towards to. A detailed view of the intended shifts in R&D priorities needs to be in place and responsible managers need to be defined. And since the size and scope of change often represents a major organizational transformation the firm’s senior innovation managers should have a clear view on how to start and how to manage the change.