Open Innovation and Network Orchestration

A recent study looked at collaborations between small and medium-sized enterprises (SME) firms in the Dutch medical sector and examined the relationship between product innovativeness and network characteristics. Because medical products can be very complex, small companies active in the sector tend to work together to develop new products. In part, this is also because they lack the scale and resources to do so independently. The study shows that external collaboration should not only be seen as “an act of filling resource gaps”, but also makes good strategic sense.

The article examines four factors that are all required for product development collaboration: (1) having similar goals, (2) having resources that complement each other, (3) working on a basis of trust, and (4) “network position strength”, also known as the tightness of the network.

It finds that:

• Individually, these factors do not lead to higher innovation performance – they have to all be in place to bring innovation success, which means that the combination matters.
• Higher network position strength  (above a certain level) was found to have a negative effect on innovation success. A “tighter” network of collaborating partners, with more intensive connections leads to lower innovation success. As such, the authors advise firms to adopt a “business-like attitude” toward their partners, and not become too friendly or close.

A follow-up study adds a third important dimension to innovation collaboration: having some sense of process. In an innovation network, who takes the lead? Who gives a sense of action and progress to streamline the process of working together? One main obstacle of turning open innovation into a success is often simple confusion about the process: who does what, what has to happen next?

These findings correspond quite well with a simple heuristic we have good experience with: when parties want to do something new together, they better think about “purpose, people, and process.”

“Goal complementarity and resource complementarity” are what we call common purpose. Purpose is the “why” – the raison d’être of parties coming together. Common purpose means the collaboration makes sense: business partners have the same goal and have synergy in pursuing this goal together. It makes business sense not to work together.

Christopher Bartlett and Sumantra Goshal explain that a difficult challenge is to define a clear end-goal. Especially, when it comes to innovation, you don’t know exactly where you’re heading or where you might end up.  Still, when you are not been able to define your goal you never know which direction to move to, nor whether you are making any progress.

Having common goals is even more difficult. Companies embarking on a collaborative innovation process might think they share the same dream but in reality have completely different expectations. Especially when the partners have complementary skills – which is jargon for companies being in different businesses – the risk of “not being on the same page” is very high. Finding a common purpose is not about articulating something both parties can agree on, but instead in immersing oneself in each other’s backgrounds, culture, aspirations and objectives, investing in understanding and talking each other’s language and in feeling enriched by it. Compare it to a romantic relationship, in which a couple goes through a period of dating and engagement before getting married.

Once the parties achieve a common purpose, other dimensions become of equal importance: the people and the process.

For any collaboration to work, it needs to “click” at the personal level. Venture capitalists Victor Hwang and Greg Horowitt compare open innovation networks to the Wild West. We tend to think of it as “a lawless place where what actually emerges is a body of culture and invisible rules, and a mechanism for trusting strangers”. According to them, the Wild West “relies on people from vastly different backgrounds and places, driven by passion, coming together to build environments of unusual trust and mutual support”. Hence, Hwang argues that an important focus of open innovation networks should be to build “tribes of trust”. He believes that this also explains the recent success of Israel in the start-up scene. With the entire world competing to become the next Silicon Valley, Israel is emerging as a budding hub of innovation. Why? According to Hwang, “Israel is an interesting dichotomy, a zero-sum culture of tough negotiators but with a start-up community based on collaboration and trust. The kibbutz was the foundational culture.” “Everyone works on a nickname basis,” says John Medved, one of Israel’s most preeminent entrepreneurs and innovation supporters.

Open-innovation collaboration between companies works when the individual leaders have commonality, like each other’s presence, have a personal “click”, and find it inspirational to work together.

This provides the basis for trust – which is crucial as innovation is too uncertain to be safeguarded through legal arrangements. More importantly it provides the basis for traction – parties will only embark on an innovation effort when they enjoy each other’s company along the journey.

Collaboration for innovation is too uncertain to lend itself to a well-defined plan with a clear number of consecutive steps, sequenced neatly over time.  In case of collaboration between independent parties, the organizational structure is often quite loose and non-committal.  Hence, there is a need for a process – a way of working together, an approach.

Having a clear process also ensures momentum is maintained during times of disappointment. Innovation efforts invariable go through a U-curve: after an initial phase of excitement, the collaborating parties enter a phase when the going gets tough, difficulties are encountered, some parties get distracted, and intermediate results are not as expected and frankly disappointing.  At this stage, the collaborating parties need to “pull through”. Having clearly defined process commitments –e.g., “we all agreed this pilot phase would last two years” – is crucial.

One study mentions the following elements of innovation processes to be managed when several collaborating partners come together:

• Repeated iteration cycles of exploration, ideation and rapid testing (instead of an ill-fated effort to try to get to a perfect outcome in one go).
• Full alignment on the process to be followed by everyone involved.
• Full sharing of  knowledge between the partners (as nothing undermines trust more than keeping information from each other), with a safe place to enable sharing of technology and IP.
• Clear agreements made up-front to enable parties to exit or enter the network, e.g., if new parties join along the way, all existing partners should give their consent.
• As innovation is a risky endeavor in itself, innovation partners should keep that into consideration when accepting the risk.
• The expectation that profits generated from the innovation will be shared in a fair way (instead of one party exploiting the other).

Who manages these processes?  Do networks come together through self-organization, or need one clear orchestrator?  The idea of needing one network orchestrator resembles intelligent design theory – a belief, not a validated theory – which assumes that the universe and living things are the cause of an intelligent cause, rather than the result of a long, undirected evolutionary process.  But then, business does not have the patience to wait a few millions of years for the next breakthrough innovation.

We were surprised that the study showed that loose ties might lead to higher innovation success. Could it be that too-strong ties would promote groupthink and limit room for creativity, which in turn would stifle innovation?  Could too-strong ties result in a cooperation that becomes too focused on and burdened by internal coordination?  Or could it be that it would limit flexibility?

We have experienced that if the overwhelming amount of work drags down a creative team, it can make sense to reduce the size of the team.  This makes it much easier to decide within the team what to do and can lead to a creative breakthrough. In the case of large teams working together, internal coordination on innovation can be a significant burden.

In our own experience, we have worked in innovation partnerships where some of the partners wanted to micromanage the entire process, mainly driven by anxiety regarding the risks involved.  This clearly stifled the effort: we lost our motivation and creative freedom, and as one team member stated, “ended up talking more about it than actually doing it.”