Open Innovation Models Help Companies Disrupt Their Own Business
Even in traditional industrial companies, the pressure to renew their business is growing as software moves into the very core of the business in every industry. To shield themselves from disruption, more and more companies are looking at open innovation models – in other words, they strive to create partnerships with outside players via hackathons, startup investments or other avenues.
As software becomes more integral to all business, digital disruption has a significant impact on even the most traditional industries. There are plenty of good and bad examples of how to try and secure the future of your business. Rolls Royce is a good one - instead of just selling jet engines, they have developed their service portfolio and business model to rely primarily on selling lifecycle services using sensors and the Internet of Things.
According to an international survey produced by KPMG*, 65 percent of CEOs are afraid that newcomers will disrupt their company’s business model. Over half feel that they don’t do enough to disrupt their own business models.
The global startup scene is buzzing and CEOs in all industries all over the world are waking up to the need to renew their business. Now is the right time to invest in it, too. Statistically, startups are far less likely to succeed (0,002%) compared to projects by companies building new business on their established strengths (12,5%). **
Which begs the question: What is keeping large corporations from developing new business models?
It is not a question of will. According the to the aforementioned survey by KPMG, the three central strategic priorities for companies are developing innovation activities (21%), improving customer-centeredness (19%) and implementing disruptive (18%).
How to Facilitate Innovation
Based on our experience, innovation activities often meet one of the following obstacles:
- A company needs a culture that supports innovation, which, in turn, requires measuring the right things and operating at a higher clock speed than is customary for your average industrial company. Innovations are not born in the boardroom or the corner office. The whole organization has to be lean enough to create the company’s next success story.
- Traditional governance and decision-making processes do not support the development of disruptive business where the added value experienced by the customer may be a better indicator of potential business value than revenue streams.
- Business renewal is overly conservative, especially early on – investments are insufficient and failures frowned upon, which tends to dampen the desire to experiment and innovate. Typically, companies also look too close to home for their benchmarks. In a digitalization survey Futurice carried out on large Finnish corporations, almost all respondents mentioned only other Finnish companies as their competitors. ***
Open innovation processes that utilize players from outside the organization are one way to sidestep these issues. When an outside stakeholder becomes a part of a company’s business development activities, the organisation is forced to let go of their old thought models and change is accelerated.
Open innovation models can be utilised in renewing business on three levels:
Try Out Openness by Running a Hackathon
Organising hackathons with outside partners are frequently the first step companies take towards using open innovation models. A hackathon is an intensive, typically two-day event during which a group of people get together to solve problems. Often they involve designing and maybe even building software or apps. Hackathons are a good way to introduce an organisation to the concept of venturing outside to look for ideas, but if the organisation has not changed enough to exploit the nascent business models created during the event, the impact hackathons can have will be very limited. The question to ask when organising a hackathon is: What do we want to happen in the one to six months following the hackathon? What about on the next working day? What will be different?
Guard Your Back by Investing in a Startup
Another way to protect your company from a potential disruption is to invest in startups – directly or through funds. This requires a larger and more clearly defined budget, but because business development takes place outside of organisational boundaries, the pressure to change the company’s decision-making or budgeting processes is weaker. As approaches go, this is still fairly light, but it also means that some of the immaterial capital of an industry leader, such as customer networks and domain expertise, remains partially or even fully unexploited.
Find Suitable Partners and Create Your Own Ecosystem
The best thing to do is to build an open innovation model that efficiently exploits fresh thinking and expertise found outside the company and combines it with the company’s ability to utilise industry networks and other immaterial capital gained over the years. This way an outside party can use their expertise to fill needs like building digital or data-based business models. Furthermore, in a larger company the outside partner can drive projects in a way that prevents the development of nascent business from being left in the shadow of the established ways of doing things.
The Future Belongs to Ecosystems
In the future, even larger companies will have to rely on a combination of agility and versatility to survive. Ecosystems are a better way of ensuring access to a variety of expertise and resources than large investments in areas that are too far removed from the company’s core competence. They offer visibility far beyond one’s own domain and function as a platform for brave experiments.
The way Futurice’s new initiative, Futurce &startups works is predicated on the idea that the most effective business innovations of the future are created by combining organisational interfaces. In our case, our partners bring to the table their deep domain expertise, and we bring our 17 years’ worth of experience in software development, digital business models and service design. Becoming an equal partner, instead of a vendor, in selected projects is a big change for Futurice and a major opportunity for our clients.
Fortum is a company that has been actively looking for new value chains and business models in the field of energy. In a world where more and more people can make the change from producing and consuming clean energy, energy companies need to find new revenue models and new markets. In India, Fortum and Futurice &startups are looking at new ways of delivering solar energy in areas without dependable grids – or grids, period – using digital technology. Instead of selling energy, the new business model being developed offers local producers a platform they can use to sell their solar energy. There’s a potentially huge demand for platforms like this in the developing world, where lack of access to energy has been a hindrance to development and established ways of producing energy can be very polluting.
Hydrogen has the opportunity to become a critical part of a more sustainable and secure energy future, according to The Future of Hydrogen , a report produced at the request of the government of Japan under its G20 presidency, which analyses the current state of play for hydrogen and offers guidance on its future development.
Papermaking is about large volumes. The step from manufacturing in lab to industrial production therefore faces great challenges. Uncertainty regarding supply, demand and price often makes new concepts stick to the "valley of death". You don't want to build a factory until you know that everything works.