Business analysis: "The need for companies to innovate has arguably never been greater than at present"

With growth in most major industrialised countries likely to be modest for some time to come, organisations cannot rely on “business as usual” to see them through. They need to come up with products and services that are fresh and exciting. Above all, they need to capture the imagination of the public.

The problem is that even companies with well-established and successful product-development processes are unlikely to have all the skills and insights necessary to achieve this on a regular basis. PA Consulting, the management consultancy, says that rapid rate of scientific, technological and socio-political change over the last decade is forcing most global companies to access a much broader range of ideas, talent and intellectual property to drive their businesses.

Nor is it just big business that needs to look outside itself. There is a tendency to characterise large corporates as somewhat moribund and bureaucratic places while extolling smaller enterprises as being more innovative and entrepreneurial. But this is a simplification. Many big businesses have for many years worked with outside organisations, whether through corporate venturing – investments in smaller companies that are common in the pharmaceuticals industry as a way for big players to gain access to latest thinking in biotechnology and other areas, through direct links with academic research, or through joint ventures or other arrangements. At the same time, many smaller businesses have limited their progress by being reluctant to share information, know-how or insights for fear of losing control.

Accordingly, Open Innovation is increasingly being seen as a sensible approach for businesses of all sizes and in a variety of sectors. PA, which has its own technology development centre and has conducted extensive research in the area, defines Open Innovation as a model enabling businesses to create an innovation “eco-system” that uses networks of external partners and focuses on developing core internal competencies only in areas where they can add real value. As such, it builds on past management thinking, including business process re-engineering (with its emphasis on breaking a business down to its component parts in order to streamline the processes) and outsourcing (with its focus on highlighting core strengths and hiving the more commodity-like facets to specialist providers).

The difference is that the latest thinking involves not having total control over something that might be regarded as vital to the business, namely innovation and its results in intellectual property. It is therefore understandable that businesses can be reluctant to go down this road – they need to be sure that they are going to gain more than they lose.

The seeds of change are there, though. The male grooming products company Bulldog, for example, (as described elsewhere in this issue) has only four full-time employees and yet sells into several national UK retailers and is expanding overseas. In common with many other start-ups, it has outsourced its production and distribution, but, rather more unusually, its fragrances – arguably a key part of the offering – have been developed by leading perfume specialists working on a freelance basis. As co-founder Simon Duffy points out, the company would not have been able to take on such experts full-time.

At the same time, there is a growing realisation that the modern world is increasingly collaborative. Many developments in technology in particular are the result of combinations of different discoveries or insights that are unlikely to be found in a single company. Indeed, one of the criticisms levelled at Apple is that its go-it-alone philosophy is at odds with practice in other parts of the industry and is potentially limiting.

And, of course, recent technological developments in information technology and communications make such collaboration easier all the time. Thanks to social networks, for instance, like-minded individuals can stay in touch much more readily than they could in the past while they also have the tools in order to work together without being physically adjacent to each other.

That said, nobody should see Open Innovation as a quick fix. As with most things, a genuine strategy in this area will take time and effort to establish and will require investment in such areas as creating incentives to encourage staff to collaborate with counterparts elsewhere, developing a culture of openness and a readiness to investigate what is available elsewhere before developing something similar in-house and promoting a realisation that insights and technologies can come from anywhere in the world, not just the traditional industrialised areas.

It will take a lot of commitment and is not without risk but in times like these it has got to be worth considering.

For information on PA Consulting' report on Open Innovation, see paconsulting.com/open-innovation