Beyond the buzz of Open Innovation by Nico Valenti Gatto
Open innovation has been mentioned so many times it’s hard to understand what it refers to now as it’s been connected to just about anything, mostly as a buzzword for the old practice of partnerships between companies. The concept itself is an effective marketing tool, but managers will need more than that to foster growth and innovation in the long run. What they really need are business processes capable of changing short term management approaches and engaging the relevant people within the business. Open innovation is an opportunity but it is difficult and can take time to tame. It’s not a beginner’s recipe for cheap M&A deals that tick the PR box. That only leads to frustrated start-ups and a bad reputation for what should be a highway to new value.
I’ve worked on this topic from various perspectives: start-up, as general manager of an online booking engine for budget accommodation, corporate, as head of innovation at Edenred, and now VC, in charge of Partech’s portfolio and deal flow business development and our corporate investors. This has helped me learn a great deal and keep a balanced perspective.
The purpose of this piece is to shed light on the common sense and less obvious practices that are often overlooked when dealing with innovation with start-ups and external partners. This is potentially a huge topic so for the purpose of a relatively quick read, I focused on 5 really high priority must haves.
Heads of Innovation and Business Developers from large corporates should find applicable guidelines and best practices related to services and technology solutions. Start-up entrepreneurs on the other hand can use this material as a checklist or a warning system when choosing which large corporate to work with and when, which can be an enviable position to be in!
1. Start with effective corporate governance
First of all, the support of the executive committee is fundamental for optimal resource allocation and implementation. Basically don’t even bother without it! Open innovation structures need to be directly sponsored by CEOs who bring engagement and commitment.
Open innovation structures need to be directly sponsored by CEOs who bring engagement and commitment.That said, common to all successful open innovation strategies is a management setup capable of driving the company in an efficient manner with regards to external partners. The solution is not to appoint one isolated Head of Innovation or one Digital Transformation Manager who will find him or herself lost and powerless, surrounded by people going about their daily jobs.
Selected managers act as an interface with external partners, accelerators, incubators, start-ups and venture capitalists. Some of our most active corporate LPs, such as Groupama and Renault, have governance systems with dedicated entry points for information, knowledge and contacts. These are in charge of analysing and subsequently sharing this information with the relevant internal network of appointed “on the ground experts” on selected strategic topics. The responsibility of these experts is to understand how feasible projects are, further test new technologies and in time implement the best solutions. Successful open innovation relies on a network of engaged experts and champions throughout the business and who revert back to top management; this builds buy-in.
The entry point can be an individual or a team depending on size and needs, but it is always part of a process that actively involves more people. This means it’s easier to come to a decision on whether it’s worth to pursue a certain opportunity or not, leading to clearer feedback for start-ups.
Whenever there is a corporate innovation team, it should be cross-functional, allowing for a full end-to-end comprehension and testing of the opportunity at hand. This team has to work independently from the day to day operations of the business, being free to scout, learn, test, analyse and propose to the rest of the business once they’re onto something.
2. Test relentlessly together
How does it work, how does it fit with our existing IT and R&D, how will we sell it, where, how will this impact our customer journey? This is the most tangible phase of any open innovation project and involves working very closely with the start-up, hence the need for a dedicated workforce, not a lone innovation ranger.
This is the embodiment of the lean start-up approach which is inherently connected to the effective implementation of open innovation. Test-feedback-test loops are a continuous process which some might argue never really stop in online, mobile and software businesses. BNP Paribas has implemented an Open Up project that allows start-up founders to be put in direct contact with BNP Paribas project managers; these have been given the responsibility to evaluate and test new solutions together with the start-ups. This team more closely fits with the faster rotation times of start-up test cycles.
The test phase must also be interpreted as an opportunity to learn more about the technology and the start-ups. A negative test outcome is far from being negative in itself: the company will have gained crucial understanding of new technologies and entrepreneurs. Make sure the learning is debriefed and almost showcased as a project. I don’t buy the whole “celebrate failure” approach that much, but I do believe in the lost opportunity of not making sure it won’t happen again.
3. Set appropriate KPIs
Open innovation differs from traditional partnerships in that it involves different types of business structures and levels of maturity: KPIs must therefore be appropriate to each stage of the partnership.
A crucial element that open innovation can bring is speed, not necessarily in launching a finished solution in the market, but in deciding whether to do so or not. Does the company save development time as a result of working with a start-up? More than if it had simply relied on internal development? If so how much? How much less would it cost? How many tests/POCs has the company carried out and how much actionable feedback was collected as a consequence? How many new business contacts have been created (not just a list of meetings!)? These are quantitative, tangible measurements which must be included in relevant job descriptions as deliverables for those involved.
Employees’ ability to innovate must also be measured. Workforce commitment, skills development, motivation and knowledge acquisition are just as important.
Edenred has been working on implementing open innovation since the beginning of 2012 and has gathered valuable experience in the process. The innovation team has internal and external indicators that measure the levels of engagement of the internal community of business developers and returns on their investment in Partech. They look at open and click through rates of the Group’s Innovation Newsletter, the number of people wanting to join the mailing list, the level of involvement of people joining quarterly product development webinars, and the number of incoming requests for further information on new topics introduced by the open innovation team, all of which contributes to the material which enriches the content of executive committee meetings each quarter.
Softer indicators then lead to a harder, more traditional analysis: increased turnover, client acquisition and retention, cost savings. Edenred keeps track of all the documents received, introductions, meetings or calls that take place thanks to their relationship with us at Partech. Some of the above filters through to become innovation projects which are logged and tracked, requiring metrics such as time to market, cost savings and revenues. Co-investments with partners are another valuable metric, with Edenred co-investing with us in a deal that quickly brought a brand new service to several of their core products. Joint due diligence meant it was simpler and faster to reach an investment decision.
There comes a point where the company must switch KPIs: from measurable knowledge acquisition to financial. This is where it becomes tricky: switch too early and the project will be choked before it gets going, switch too late and it might never receive the necessary resources to continue and grow. The right moment for the switch is normally when one moves from testing to full scale launch.
4. Quickly understand if there’s a fit
We all know it, but let’s remind ourselves: business relationships, like any other, need a fit. There are two points to look out for to at least avoid the most obvious mistakes and succeed in building a fit.
The first is related to the difference in scale between large companies and start-ups. Start-ups may not be prepared to distribute a solution or a product in the quantities that a large company requires. The risk lies in asking a start-up to "scale up" too early and this is related to management of expectations. A way to avoid this is to launch a pilot project on a smaller scale, see how it fits with the local team (e.g. a country, a business unit), work closely with the teams involved both in the company and the start-up and work your way towards scaling up if required. Carrefour for example is currently piloting a crowdsourcing solution in Spain to test how effective micro-jobbing is in managing store layout and pricing policies. This local, albeit considerable, test is already giving Carrefour valuable feedback on how useful this approach is without radically changing many processes in the business, or asking the start-up to deliver beyond its capacity. Neopost approaches this through its own incubation zone called Neopost Labs, where small scale solutions can be tested.
A start-up that’s fundraising needs to find money, not an open innovation project.The second is timing. A start-up that’s fundraising needs to find money, not an open innovation project. One that is at the start of its solution development needs to nail the basics, not deliver a POC for someone else. Similarly, some internal corporate business development projects can be too young to involve a start-up as objectives will not have been clarified yet. Many of our corporate investors avoid this by making sure the start-ups they work with are involved in prioritised projects and topics of recognised strategic interest. Very rarely is an open innovation project launched to identify an unknown opportunity. Hackathons and call for projects for example, are based on a need broadly defined by the corporate, leaving developers and start-ups freedom to identify how to best meet the need, not the other way round. It’s a bit like saying that corporates should know the “what”, while start-ups offer the “how”, at least to begin with.
5. Capitalise on "quick wins"
Open innovation projects must be ambitious, but it doesn’t mean they should neglect innovations that are easy and quick to develop, even if their added value might seem marginal. Think of them as milestones: they won’t constitute long-term developments and aren’t necessarily disruptive, but they do help convince internal teams that value, time savings and new revenue can be achieved differently. Teams at JC Decaux are currently looking for connected mobility and smart city related opportunities. This is not to radically change their existing business model, but to address projects they’re currently working on anyway, therefore allowing the concept of open innovation to more closely resonate with the company’s priorities. This creates interest, curiosity, credibility and momentum for future projects. Quick wins are a great motivation tool to move onto broader scales.
Open innovation … a structured process requiring a long term vision and a short term implementation plan, supported by top management and measured throughout the business.Open innovation is therefore a structured process requiring a long term vision and a short term implementation plan, supported by top management and measured throughout the business.
Written by Nico Valenti Gatto.