How to manage Open Innovation in large organizations? Part 1: What can open innovation do for you?

Marisol Menendez & Wim Vanhaverbeke 

Marisol Menendez is Chief Open Innovation Officer at Spain Startup, a global open innovation platform that connects corporations, startups and investors in the Spanish-speaking world. Until December 2018 she was head of Open Innovation at BBVA. BBVA is an innovative Spanish multinational financial group. BBVA has been embracing open innovation in the last five years and Marisol was one of the leading OI managers driving BBVA to the forefront of open innovation in the banking industry. We had a fruitful conversation about how to manage OI in large firms, and we recount it into two blogs. This blog is the first part. You find the 2nd part here.

How do you start open innovation in your company? You face two types of challenges when you start with OI:

1.     You have to understand how OI can be useful for your company? On the one hand, t is obviously not the solution to all your challenges, and, on the other hand, many managers are skeptical about the potential of OI and don’t even want to examine how OI could provide a solution for specific problems. Managers should thus analyze what’s in there for them: What can open innovation do for you?

2.    Once you understand what the benefits are from OI for your company, you still have to organize your company to be prepared for OI and to be successful with it. OI is about being connected to the outside world and you have to be organized internally to connect successfully to the outside world.

We discuss the first challenge in this blog. The second one will be discussed in another blog that will be released 3 weeks after this one.

At the start BBVA relied on the main keywords about open innovation: Chesbrough  (2003) defined open innovation as “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively”.  In line with this definition BBVA was trying to create new interorganizational paths for innovation to flow, so that innovation can be developed in novel ways never done before. But OI managers quickly learned they also should apply these principles internally – breaking down the silos and to make innovation flow throughout the company. 

To answer the question what can open innovation do for you, you should start with another question: What is your company’s strategy? What are your strategic objectives?  The next question is then:  How do you decide whether you do it alone leveraging your internal skills or you call for support from other organizations? And how far do you want to relinquish control in the process to collaborate with others? There is still a tenacious misunderstanding that open innovation would imply that everything should be “open”, “public”, or “free” for everyone. On the contrary, open innovation implies that you still can keep control over the core knowledge and core business aspects. Once it is clear what is your core and what should not be shared with your partner, you can collaborate in building anything that can improve your services or products. 

Understanding what is your core and what you have to keep under control also gives you peace of mind in understanding and applying open innovation. Lets take an example: In financial services, payment processes is at the core of banking. You don’t want to collaborate on payment processes with anyone because that’s what is banking all about. However, when banks understand that for payment processes they essentially manage the channels that provide access to the customer, they have no problems working with an external partner on the underlying technology for payment processes. You collaborate to create new ways of paying with mobile phones for instance. So, at the very start you may say: “I don’t want to collaborate with anybody about payments. However, if you clearly understand you competencies, you keep control about these specific competencies and you can freely cooperate with technology partners”.

Understanding what is core and what you can share with partners gives you also peace of mind; You may have a mandate from the top management to advance OI practices, but you need to ensure that your OI activities in large companies don’t get blocked by legal teams, IP issues, business units with vested interest, etc. who will block your open innovation projects because of the potential risks. Showing what is exactly at risk and what isn’t helps to have that peace of mind. It’s all about the limits you don’t want to break and about defining the playing field in which you can collaborate with partners.  Take an example: sharing customer data in a banking environment may be one bridge to far, so searching for collaboration without sharing customer data will be the playing field you are looking for. Managing OI in large forms requires you find the managers that need help, that you identify where the supporting managers and employees are, and where there are the pockets of resistance in the company.

Managing OI successfully in large companies requires that you define the areas where a firm can benefit from OI, but you also have to understand who is establishing the limits for the use of OI in a company.  Even when you have a mandate from top management to advance OI practices, you still need to align your activities with the objectives of the rest of the organization. Managing open innovation in large companies this has two sides; First, the productive side where you create value from the OI projects, and, second, the need to shape the expectations of those who set the limitations for OI practices in the company.

Let’s illustrate this with an example: You want to collaborate with an external partner to develop a new insurance product. Most likely you want to work with the insurance department to explore this new approach. But in that process you will meet the “shapers” or “restrictors”  - legal, compliance, product definition, technology -  who will tell you what you can and what you can’t do or how to shape what you are working on to get aligned with the rest of the company. In other words, it is important to work on the two sides - the productive side and the shaper side. Understanding where you can create value and identifying the limitations, can help OI managers to drive the value from OI initiatives.

  It helps to explain the role of open innovation in a company using a framework. At BBVA, management distinguished three ways to innovate: First, there is organic innovation in which firms innovate internally with their internal teams. Second, firms can get access to new technologies and business models through acquisitions.  The third way is through partnerships and collaborations.  BBVA positioned open innovation in the third group. In collaborations and partnerships a firm can choose what it wants to do internally and what in collaboration with its partners. When OI managers positioned OI as an element in this framework, people understood that not all problems should be solved the same way. OI was one of he different alternatives to drive innovation in the company.

The next question is when should you go use open innovation and when not?  It is quite useful to work with a checklist before you engage in open innovation. First, a manager should ask whether a project is strategic for him or not? Do you really need this or not? This question is important because technologies may be eye-catching and cool, but they are of no use if they are not contributing to your strategic plan. Second, does the business unit have a budget for the project or not? Is the budget approved or not? If you don’t have enough budget then open innovation may be interesting as it may be cheaper. Similarly, you may want to use outside innovation when it is faster then internal innovation. Third, also you need the skills in your team. If you don’t have that then open innovation is essential.