The Challenges of Corporate Open Innovation

Innovation has become a critical factor for the long-term success and competitiveness of organizations. That’s something we don’t need to prove anymore, right???

However, despite recognizing the importance of innovation, many companies struggle to effectively implement and sustain it within their operations. The realm of corporate innovation is full of challenges that can impede progress and hinder the transformational potential of new ideas.?

This article delves into the reasons why corporate innovation often falls short of expectations. By exploring the common roadblocks organizations face, we aim to shed light on the underlying factors that inhibit innovation and suggest easy-to-implement measures to overcome these hurdles.?

From processes that undermine innovation activities to a lack of clear strategy, this article examines various obstacles that can impede innovation initiatives. Additionally, we will discuss the role of leadership, collaboration, resource allocation, and monetary risk tolerance in fostering a culture conducive to innovation.?

By understanding these challenges and their underlying causes, organizations can gain insights into the factors influencing successful innovation implementation.??

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R&D vs. Open Innovation – R&D, really??

Open innovation is a collaborative approach that involves seeking external ideas, knowledge, and resources to accelerate innovation and solve complex problems. It recognizes that valuable ideas and expertise can be found both inside and especially outside of an organization. Open innovation encourages companies to actively engage with external partners, such as startups to co-create, share, and leverage knowledge and resources.??

At Wayra, we introduced an open innovation tool called the venture client model. The term venture client describes a corporation or organization that takes on the role of a client to work with startups. In this model, the venture client provides revenues and market access to startups in exchange for access to their innovative products or services. This approach allows the venture client to benefit from the startup's innovation and growth potential while providing support and resources to help the startup succeed. It is a way for established companies to tap into the entrepreneurial ecosystem and drive innovation within their own organizations.?

While the term R&D doesn’t need an explanation, there are various reasons why it might fail. Some common factors include:?

Costly Endeavour: R&D is notoriously expensive because…?

… it carries a significant risk of failure,?

… R&D projects often require substantial time investments,?

… protecting intellectual property can be challenging.?

Lack of Collaboration: R&D thrives in environments that encourage collaboration and knowledge sharing, which is often lacking in corporations.?

Uncertainty in Customer Needs: Predicting and keeping up with rapidly changing customer preferences is challenging and interdependent with the previous factors.?

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Why venture client works

Using the venture client model for open innovation, on the other hand, has clear advantages:?

• Access to external expertise: Open innovation allows organizations to tap into a broader pool of knowledge and expertise beyond their own internal resources. There are 8 billion people on this planet, so even the biggest corporation has fewer employees. By collaborating with startups, corporations can access specialized knowledge and skills that may not be available internally.?
• Increased speed and efficiency: Open innovation enables organizations to accelerate the innovation process by leveraging external resources and capabilities. By collaborating with external partners, organizations can benefit from their expertise, technologies, and market insights, leading to faster development and implementation of innovative solutions.?
• Reduced costs and risks: Open innovation can help organizations reduce costs and risks associated with in-house R&D. Organizations can share the financial burden of innovation projects and distribute the risks involved. Using the venture client approach means corporations only invest in the pilot project. All upcoming costs are not investments but rather operational costs.?
• Enhanced creativity and diversity of ideas: Open innovation fosters a diverse range of perspectives and ideas by involving a wider network of stakeholders. This diversity can stimulate creativity and lead to more innovative solutions by challenging traditional thinking and bringing in fresh insights. It therefore helps to meet customer demands.?
• Access to New Markets and Customers: Startups often cater to specific niche markets or customer segments that large corporations may not have penetrated yet. Partnering with startups enables large corporations to expand their market reach, tap into new customer segments, and diversify their offerings.?

Overall, open innovation provides organizations with the opportunity to leverage external resources, reduce costs and risks, enhance creativity, and explore new market opportunities, leading to increased competitiveness and innovation success.?

While open innovation easily beats R&D for most companies, it is still far from being straightforward. Let us, in the following paragraphs, list the main roadblocks and solutions to overcome them.?

Roadblocks?of Open Innovation

Corporate open innovation can sometimes face challenges and not work effectively due to various reasons. Some possible explanations include:?

Resistance to change: Many organizations have established processes and structures that resist innovation, making it challenging to implement new ideas. For example: The entire budget needs to be allocated to very specific projects, usually three years in advance. This leaves no room for innovative ideas or products.?

Lack of a clear innovation strategy: Without a well-defined strategy, organizations may struggle to prioritize and allocate resources to the right trends. This leads to either several departments pursuing the same trend or none at all.?

Fear of financial failure: Innovation involves risk-taking, but a culture that punishes monetary failure can discourage employees from taking innovative initiatives. Especially when it comes to budget, a company needs a culture where money wasted on the right initiatives is not even frowned upon. Side Hint: It is very important that the innovation community stops using the expression “fear of financial failure” without the important word “financial” or “monetary”, because without that word it is just a hollow phrase.?

Insufficient resources: Limited funding can hinder the development and execution of innovative ideas. Companies where innovative ideas need to be funded with the same money that the BUs need to run their daily business with will always prioritize today’s profits over tomorrow’s. This is true because most of the time today’s cash cows have higher margins, too, compared to the innovative solutions of tomorrow.?

Siloed mindset and lack of collaboration: When different departments or teams operate in isolation, it can hinder cross-functional collaboration and knowledge sharing, limiting the potential for innovation. Let’s be frank, we all know that in corporations, BUs sometimes work against each other.?

C-Level absence: If the C-level does not actively support, market, and champion innovation, it can be challenging to foster a culture of innovation throughout the organization.??

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Enabler of Open Innovation

Therefore, the success of the venture client model and corporate open innovation relies on the following factors:?

C-Level Support: To ensure success, there needs to be support and a clear demand for innovative solutions from top-level executives. They must encourage all employees to use the venture client model to solve internal problems or champion new products.?

Financial Resources: A dedicated budget is necessary to overcome obstacles such as insufficient resources in BUs and the fear of financial failure. The venture client department needs funding for two purposes:??

a. Paying for pilots with startups, incentivizing BUs and their product managers to choose startups over established suppliers.??

b. Independently selecting larger projects from applications submitted by BUs. This encourages competition between BUs for funding and prevents the money for innovation from being used solely for supporting existing business operations.?

This approach even uses the existing silos to compete against each other. So instead of solving the silo issue, we use it to foster innovation.?

Streamlined Innovation Processes: Resistance to change is often rooted in cumbersome processes rather than individuals denying the importance of innovation. To address this, fast tracks need to be established in various areas, such as procurement, legal, GDPR compliance, workers’ council, finance, and other relevant departments. When a supplier is identified as a startup/scaleup, they should not be subjected to the same extensive process steps traditional suppliers are. Additionally, long-term planning cycles should include ring-fenced budgets that can be allocated to selected innovative projects.?

By having these enablers in place, there is a high probability of achieving success in open innovation efforts. It's important to note that the roadblock of "Lack of a clear innovation strategy" has not been fully addressed. However, the venture client model offers the advantages of high speed and low budget demands. This allows corporations to rely on trial and error rather than trying to predict customers' future needs.?