Reinventing Innovation: A Pathway to the Future

In an era of technological advancements happening at breakneck speed, innovation itself is being reinvented. Businesses and industries worldwide are finding that traditional approaches to innovation, while important, are no longer sufficient to maintain a competitive edge. The need to reinvent innovation itself has become a critical imperative. This edition of the Business Reboot newsletter explores how innovation is being reinvented, the challenges involved, and what strategies can lead to enduring success.

Ely Lilly Reinvents Innovation

Eli Lilly, a prominent U.S.-based pharmaceutical company, employed approximately 6,050 researchers, including scientists and physicians, and had an R&D budget of $1.78 billion in 1999. Despite having a talented team and numerous successful products that were internally discovered and developed, there was an overarching sentiment that they were not being as effective in developing and bringing new products to market as they could be.?

The pivotal moment came in 1998 during a brainstorming session led by Dr. Alpheus Bingham and Aaron Schacht. They acknowledged a crucial insight: regardless of the internal talent within a company, there are always more diverse and potentially superior ideas outside its walls. This realization underscored the importance of external perspectives in effective problem-solving. They proposed the creation of an internal incubator at Lilly to leverage external talent and enhance their R&D capabilities.

Thus, InnoCentive, a groundbreaking incubator designed to crowdsource solutions to technical challenges by offering financial rewards, was founded in 2001. Although the concept of financial incentives for problem-solving is longstanding, InnoCentive was among the pioneers in creating a structured platform for connecting organizations with external problem-solvers. This platform, which became operational before the term “crowdsourcing” was coined in 2006, facilitated an innovative approach to problem-solving within the corporate structure.

InnoCentive proved its worth quickly, engaging solvers worldwide to address specific challenges. For instance, the Oil Recovery Institute of Cordova, Alaska, posted a challenge on InnoCentive to find a method for pumping highly viscous crude oil in sub-freezing temperatures, with a financial reward of $20,000. The solution, proposed by a chemist named John Davis, who was not from the oil industry, involved the use of ultrasonic agitators used for transporting cement in the construction industry.

This and hundreds of other successes illustrate the profound impact of open innovation—a term popularized by Henry Chesbrough in his 2003 book, Open Innovation: The New Imperative for Creating and Benefiting from Technology.

Following its acquisition by Wazoku, a UK-based idea management and software company, InnoCentive had grown into the world’s leading open innovation platform by 2020. It had nearly 500,000 registered solvers from 195 countries, with challenges that had awarded over $60 million in prizes for around 2,500 challenges, yielding 200,000 innovations.

Today, the model pioneered by InnoCentive has been widely adopted. Hundreds of organizations, including governments and non-profits, now use similar platforms to solve pressing challenges, demonstrating the transformative power of open innovation.

How to Reinvent Innovation

Innovation is often seen as a spark of genius, but in reality, it's a complex, iterative process that involves much more than just a good idea. ?It's a blend of creativity, strategic thinking, resilience, and collaboration.

Except when it happens serendipitously, innovation always requires conscious human effort. The Build|Buy|Ally framework encapsulates all such approaches neatly into a single model. Innovation at organization level occurs through internal development (Build), through M&A (Buy), and/or through partnerships (Ally). Of these approaches, the “Ally” model offers the greatest opportunities for reinventing innovation and will be discussed at length.

Figure: The Build|Buy|Ally Framework for Creating and Acquiring Innovations

Build: Innovation through internal development

Multinationals have employed some of the following structural approaches for creating innovations internally through their own efforts: R&D or a corporate innovation function, new-business development function, global innovation center, emerging-business-opportunity group, advanced-technology institute, innovation hub, and an in-house incubator or accelerator, among other approaches. This is how organizations have approached innovation for hundreds of years.

Buy: Acquiring innovation through M&A

Acquiring innovations through M&A, rather than doing innovation organically, is also a common method used by MNEs. Sometimes such acquisitions are opportunistic, but often an MNE waits for someone else to innovate and build a business around the innovation, and then attempts to acquire the whole company. Building innovation capabilities and acquiring innovations through M&A is undertaken by companies entering new markets, as well as by companies wanting to strengthen their existing product portfolio and innovation capabilities. For instance, Apple introduced iTunes in 2001, which was based on the SoftJam MP technology developed by Casady & Greene, a company Apple had acquired the previous year; SoftJam MP was an early Mac Operating System-compatible MP3 player. Apple’s iTunes, and its iPod introduced in 2003, eventually disrupted the digital music industry.

While pharmaceutical companies are among the largest investors in R&D, they routinely also acquire or invest in other pharma companies working on or with new and novel drugs. For instance, Pfizer merged with Wyeth in 2009 in a $64 billion combination, acquiring Prevnar 13, a vaccine for pneumococcal disease. In addition to their respective strong product pipelines, the merger brought to Pfizer new scientific and manufacturing capabilities for continued innovation.

ALLY: Acquiring innovation through alliances

From the perspective of reinventing innovation, this is the most important approach. An alliance is a partnership arrangement between two or more companies sharing resources in the pursuit of a common goal, such as innovation, while remaining independent. An alliance can be formed with suppliers, customers, universities, government agencies, even with direct competitors, and is often intended to enter new markets, acquire a resource, strengthen a specific capability, share the cost and risk of a major project, develop technology, and so on.

Alliances are increasingly common in industries such as life sciences, IT, automation, renewable energy, and automotive. In fact, more and more companies now seek resources, capabilities, and innovations externally, not just developing them internally or through M&A. Many innovations, especially those involving frontier science and technology, necessarily require collaboration among multiple partners having complementary capabilities, which any one of them is unable to undertake on its own. In addition to joint ventures, an alliance can take many forms, such as co-development, licensing, corporate venture capital (CVC), innovation ecosystems, outsourcing innovation, and open innovation, among others.

Joint ventures. An alliance may or may not involve equity investment by either party. If both parties in an alliance make an equity investment or contribute some other assets such as their IP or plant and machinery, and join to form a new legal entity, it is a joint venture (JV).

Microsoft and GE Healthcare entered into a 50:50 joint venture in February 2012, named Caradigm, designed to enable health systems and professionals to use real-time, systemwide intelligence for improving healthcare quality and patient experience. The two parent companies brought their respective technologies and intellectual property to the JV, designed to integrate Microsoft’s Amalga enterprise healthcare data with GE Healthcare’s eHealth, a health information exchange as well as other technologies. The Caradigm joint venture ended in 2016, with Microsoft selling its 50 percent stake to GE Healthcare; Caradigm then became a GE company. In June 2018, cancer informatics and digital pathology services provider Insparta acquired Caradigm from GE Healthcare.

Co-development. Co-development alliances are quite common in the life sciences industry where different collaborating partners have different capabilities. Development of the Pfizer-BioNTech COVID-19 vaccine is a case in point. In March 2020, Pfizer signed an agreement with Germany’s BioNTech to co-develop a potential vaccine for COVID-19, which the World Health Organization had previously declared a pandemic. Over the next nine months, the two companies worked at light speed by collaborating with academic and biopharma partners, across countries, to develop the Pfizer-BioNTech COVID-19 vaccine and scale up manufacturing to meet the unheard goal of manufacturing billions of vaccine doses in a short period of time.

Licensing. A licensing agreement gives a company the right to produce and sell another company’s goods in its market, sometimes a better approach to acquiring innovation than building it in-house. Under licensing, a company (the licensor) grants the rights to its intellectual property (such as patents, trademarks, copyrights, designs) and manufacturing rights to another company (the licensee) for a certain period of time in return for royalties. A licensing agreement typically specifies the geographic area where the licensee can sell the products manufactured under license, using the licensor’s brand name.

In life sciences, major pharmaceutical firms often license other companies’ drugs and compounds to market them through their own global network, rather than developing them inhouse. Many pharmaceutical firms, in fact, have lists of compounds and drugs on their websites that they are interested in licensing from others. For example, Takeda Pharmaceutical Company Ltd. of Japan lists many areas on its Israel website in which they are interested: “Takeda Israel is actively seeking to utilize its capabilities and partner up with pharmaceutical companies and biotech startups in order to assist them in distributing their products and allow them access to the Israeli market.”

Innovation ecosystems. An ecosystem is a group of companies from different industries offering bundles of products and services to meet specific customer needs. This concept is based on the idea that customers are not just looking for a specific product or service, but typically a solution to their needs. Ecosystems create value through relationships and networks—linking one group of users with another group of users.

There can in fact be many kinds of ecosystems, such as industry ecosystems, corporate ecosystems, and innovation ecosystems. An innovation ecosystem typically aims to develop technologies and innovations. It can include corporations, entrepreneurs, universities, governments, accelerators, venture capitalists, labs, and so on. The Swiss Food & Nutrition Valley is an industry innovation ecosystem for food and nutrition. It includes the Swiss Canton of Vaud, the Swiss Federal Institute of Technology in Lausanne (EPFL), the Swiss Hospitality Management School in Lausanne, and Nestlé. It aims to attract talent, startups, and investors to develop innovative, sustainable solutions for quality food and nutrition.

Corporate venture capital. Corporate venture capital, a subset of the traditional venture capital (VC) industry, involves major companies investing in nascent startups developing new or complementary technologies in which they are interested. This is a way for them to test ideas at a relatively low cost and acquire the innovations if the startups are successful. Many major MNEs have active CVC funds to invest in startups with promising innovations. Alphabet’s venture capital arm, Google Ventures (GV), provides seed, venture, and growth stage funding to technology companies. Since its founding in 2009 as Google Ventures, GV has funded over five hundred portfolio companies with an emphasis on enterprise, life sciences, consumer, and frontier technologies.

Outsourcing innovation. For decades, MNEs from developed countries have been outsourcing corporate functions such as manufacturing to developing and middle-income countries that offer skilled workers at low cost. In the 2000s, they began to offshore even core innovation and R&D functions to their captive centers and third-party vendors abroad. While MNEs have been performing R&D in foreign countries for a long time, what is relatively new is that they also now perform (and outsource) R&D in emerging markets. For example, dozens of major MNEs, including Cisco Systems, Computer Sciences Corporation, General Electric, and IBM have captive R&D centers in India; they also outsource innovation projects to local vendors such as Tata Consultancy Services, Infosys, and Wipro Technologies.

Open innovation. The concept of open innovation introduced in the InnoCentive case study involves leveraging the knowledge and expertise that exists outside the company. Some large organizations, including P&G and IBM, have their own corporate open-innovation platforms, while others use platforms like InnoCentive for their own innovation challenges.

My latest articles in Forbes.com

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This was the top performing post on LinkedIn for the week of April 15, 2024.

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Masterclass for Forbes Business Council

The Rules and Tools of Digital Business, May 28, 2024

I shall be presenting this online Masterclass for members of the Forbes Business Council on May 28. It will feature value creation and value capture in both B2C and B2B digital markets.

Opinion

Who's Asian? Good question.

https://www.washingtonpost.com/opinions/2022/12/29/defining-asia-isnt-simple/

Speaking

On February 16, I spoke at the 10th Georgia Tech Global Business Forum virtually about “Managing Business in the Age of Digital Disruption.”

A Blog Post

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The story of how the Cuyahoga River in Cleveland, Ohio caught fire on June 22, 1969, and which led to the establishment of the EPA in 1970 and passage of the Clean Air and the Clean Water Acts by the Congress.

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