How to effectively manage
Open Innovation partnerships
Dr Kevin McFarthing
23 January 2014
© Innovation Fixer Ltd 2014

1
Summary
• Open Innovation is an increasingly important
option for growth
• It depends on effective management of
partnersh...
Introduction

© Innovation Fixer Ltd 2014

3
Some of our clients

Several clients who wish to
remain confidential are not
shown here.

© Innovation Fixer Ltd 2014
© Innovation Fixer Ltd 2014
Hypothesis
• As OI becomes more prominent within
companies, we will become more reliant on
external sources
• The centre o...
Definition of Innovation
• Innovation is the introduction of new products
or services that add value to your business
• It...
Outside In OI
"Outside In" OI is when you access other
people's assets to add value to the products and
services that you ...
Collaborative comes before open
•
•
•
•

Collaborative or “silo” mindset
Customer focus or internal considerations
“My way...
A partner
A company or individual with whom one or
more projects are pursued together,
characterised by a joint commitment...
Getting the right partners
Identifying

Organizing

Competing

Integrating

Attracting

Retaining
© Innovation Fixer Ltd 2...
Who is the “right partner”?
• The one with the
– best solution to the need
– best culture fit
– best fit with your way of ...
What is the “best solution”?
•
•
•
•

Pick your criteria
Evaluate the alternatives
Include internal options
As much object...
Identifying and selecting partners
• Key criteria based on
– Hard facts
• Size
• IP position
• Potential conflict

– Soft ...
© Innovation Fixer Ltd 2014

15
•
•
•
•
•
•
•
•
•

EXISTING PARTNERS
Comfort
Familiarity
Easier
Experience
History
Accepted process
Shown to work
Faster

...
© Innovation Fixer Ltd 2014

17
So……
• How do you attract partners?
• How many new partners do you add each
year?
• How many partners do you have who don’...
Building relationships

© Innovation Fixer Ltd 2014

19
Perception

© Innovation Fixer Ltd 2014

20
© Innovation Fixer Ltd 2014

21
Goliath needs to work with David

© Innovation Fixer Ltd 2014

22
The large company view of the
small company……
•
•
•

•
•

POSITIVE
A great opportunity to
fill some product gaps
A great e...
The small company view of the
large company……
•
•
•
•
•

POSITIVE
Great infrastructure
Great market access
Lots of cash
Pr...
The reality of large companies
•
•
•
•
•

Yes, they are complex
Yes, negotiations will be tough
They’re very busy
They kno...
The reality of large companies
• Large companies are diverse
• Large companies with strong experience in Open
Innovation w...
• New goals for Connect & Develop (October 2010)
– C&D to triple its contribution to P&G’s innovation
development by deliv...
P&G investment in R&D (as % of sales) has halved
between 2000 and 2010
OI projects (external input >50%) reportedly achiev...
Managing OI relationships

© Innovation Fixer Ltd 2014

29
Key management factors
• Tangibles
–
–
–
–
–
–
–
–
–

Aligned objectives
Project plans and management
Resource expectation...
Key management factors
• Intangibles
–
–
–
–
–

Trust and suspicion
Corporate relationship
Attitude – master/servant vs pa...
Key management factors
• Clarity and openness on your goals and those of your
partner
– “What if you can’t/don’t want to b...
Structuring OI relationships

© Innovation Fixer Ltd 2014

33
Three alliances in one

Company
A

Company
B

Slowinski and Sagal
© Innovation Fixer Ltd 2014

34
Partnership governance
FACTOR

CONSIDERATION

Leadership

Who will represent each company?
Will the levels be compatible?
...
Contacts
R&D
Mktg

Mfg
OI
lead

OI
lead

Mktg

R&D
Mfg
© Innovation Fixer Ltd 2014

36
Contacts
Mktg

Mktg

R&D

R&D

Mfg

Mfg

OI
lead

OI
lead
© Innovation Fixer Ltd 2014

37
© Innovation Fixer Ltd 2014

38
Trust
• On both sides

• The gamble is worth it

© Innovation Fixer Ltd 2014

39
Partnership development
• Don’t forget the social side
• Get to understand the other company’s
culture
• How are your part...
Relationships

+
© Innovation Fixer Ltd 2014

41
“Win-win” is not just a platitude

© Innovation Fixer Ltd 2014

42
Improving partnerships
SUITORS

UNKNOWNS

FAMILIAR

TARGETS

They know you

They don’t know
you

You don’t know
them

You ...
Improving partnerships
SUITORS

UNKNOWNS

FAMILIAR

TARGETS

They know you

They don’t know
you

You don’t know
them

You ...
Improving partnerships

You don’t know
them

You know them

Welcome the
approach, using a
portal.

Publicity to increase
a...
So……
• Do you know what your current partners think
about you?
• Do you know what new partners think of the
initial experi...
To consider - Intellectual Property
• Do you really need to own the IP?
– Totally
– In your field
– In your geography

• W...
Alliance Framework
• Business plan summary
• Objectives
– Ours
– Theirs

• Roles
– Ours
– Theirs

• Overall resources
– Ou...
Moving to ecosystems?

A

B

© Innovation Fixer Ltd 2014

Nine Sigma via 15Inno

491
Nestlé
• “Sharing is winning” philosophy
• Partners include
– Barry Callebaut, BASF, Cargill, Cognis, DSM, DuPont, Firmeni...
Nestlé and Cargill
• Cargill won the
first “Nestlé
Research Open
Innovation Award”

Source: Nestlé

© Innovation Fixer Ltd...
• Network of
existing suppliers
• Invitations for new
ones to join
• Clear indication of
benefits
• Direct contact with
R&...
External research communities
• Eindhoven High Tech Campus
• 1998 – Philips relocates all NL-based R&D to
Eindhoven
• 2003...
Communities or ecosystems?

© Innovation Fixer Ltd 2014

54
Hypothesis

Quality of innovation

connectivity between
people

Degree of connectivity

intensity of community

© Innovati...
Communities
• Common purpose
• Clear and distinct identity
• Sense of belonging and contribution
• It’s how you feel
• It’...
User communities
• LEGO club
– ~3 million members
– >8 million visits a
month
– Average visit 28
minutes

•
•
•
•
•

Lugne...
• How do your partners feel?
• Are they connected emotionally as well as
contractually?
• Would they see themselves as par...
Barriers
• The way we’ve always done things
• The attitude of smaller companies
– Less likely to trust?
– More suspicious
...
Summary
From command and control, vertically integrated,
resource controlling
TO
A sense of community with diverse
partner...
Thank you

© Innovation Fixer Ltd 2014
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Kent Business School Open innovation Network (Presentation: 23 January 2014) How to effectively manage open innovation partnerships (Kevin McFarthing)

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Kent Business School Open innovation Network (Presentation: 23 January 2014) How to effectively manage open innovation partnerships (Kevin McFarthing)

  1. 1. How to effectively manage Open Innovation partnerships Dr Kevin McFarthing 23 January 2014 © Innovation Fixer Ltd 2014 1
  2. 2. Summary • Open Innovation is an increasingly important option for growth • It depends on effective management of partnerships • The relationship is crucial • Transactions evolve to partnerships; then to ecosystems; and potentially to communities © Innovation Fixer Ltd 2014 2
  3. 3. Introduction © Innovation Fixer Ltd 2014 3
  4. 4. Some of our clients Several clients who wish to remain confidential are not shown here. © Innovation Fixer Ltd 2014
  5. 5. © Innovation Fixer Ltd 2014
  6. 6. Hypothesis • As OI becomes more prominent within companies, we will become more reliant on external sources • The centre of gravity will move away from a transactional to a relationship approach • The quality of partners and the strength of the relationship will be sources of competitive advantage © Innovation Fixer Ltd 2014 6
  7. 7. Definition of Innovation • Innovation is the introduction of new products or services that add value to your business • It’s not just invention • It’s not just creativity © Innovation Fixer Ltd 2014
  8. 8. Outside In OI "Outside In" OI is when you access other people's assets to add value to the products and services that you deliver to the market. © Innovation Fixer Ltd 2014 8
  9. 9. Collaborative comes before open • • • • Collaborative or “silo” mindset Customer focus or internal considerations “My way or the highway” or listening mode Who is the hero? – Egos or products? – Inventors or implementers? – Networkers or keepers of secrets? • Incentives – material and motivational • Metrics • From the top….. © Innovation Fixer Ltd 2014 9
  10. 10. A partner A company or individual with whom one or more projects are pursued together, characterised by a joint commitment to pursue further opportunities in the future. © Innovation Fixer Ltd 2014 10
  11. 11. Getting the right partners Identifying Organizing Competing Integrating Attracting Retaining © Innovation Fixer Ltd 2014 11
  12. 12. Who is the “right partner”? • The one with the – best solution to the need – best culture fit – best fit with your way of working – most likelihood to deliver – most potential for the future • Use as much objectivity as possible © Innovation Fixer Ltd 2014 12
  13. 13. What is the “best solution”? • • • • Pick your criteria Evaluate the alternatives Include internal options As much objectivity as possible An idea meritocracy © Innovation Fixer Ltd 2014 13
  14. 14. Identifying and selecting partners • Key criteria based on – Hard facts • Size • IP position • Potential conflict – Soft factors • Can we work with these people? © Innovation Fixer Ltd 2014 14
  15. 15. © Innovation Fixer Ltd 2014 15
  16. 16. • • • • • • • • • EXISTING PARTNERS Comfort Familiarity Easier Experience History Accepted process Shown to work Faster • • • • • • • • • NEW PARTNERS New Risky Scepticism NIH Uncertain Who owns IP? Unproven Faster © Innovation Fixer Ltd 2014 16
  17. 17. © Innovation Fixer Ltd 2014 17
  18. 18. So…… • How do you attract partners? • How many new partners do you add each year? • How many partners do you have who don’t work in your industry? © Innovation Fixer Ltd 2014 18
  19. 19. Building relationships © Innovation Fixer Ltd 2014 19
  20. 20. Perception © Innovation Fixer Ltd 2014 20
  21. 21. © Innovation Fixer Ltd 2014 21
  22. 22. Goliath needs to work with David © Innovation Fixer Ltd 2014 22
  23. 23. The large company view of the small company…… • • • • • POSITIVE A great opportunity to fill some product gaps A great external resource Competency we don’t have Experts Act fast • • • • • NEGATIVE Immature technology A partial solution Cash limited Unrealistic expectations Limited resource © Innovation Fixer Ltd 2014
  24. 24. The small company view of the large company…… • • • • • POSITIVE Great infrastructure Great market access Lots of cash Proven innovation ability More often than not, open • • • • • • NEGATIVE Bureaucratic Will crush us Will steal our idea Paralysis by analysis Complex organisation Not pure distributors © Innovation Fixer Ltd 2014
  25. 25. The reality of large companies • • • • • Yes, they are complex Yes, negotiations will be tough They’re very busy They know what they’re doing The investment decisions are much bigger than your project • There may be competing internal options • They have limited budgets • They won’t steal your intellectual property © Innovation Fixer Ltd 2014
  26. 26. The reality of large companies • Large companies are diverse • Large companies with strong experience in Open Innovation will have people and processes in place • Differences in approach – Research and technology-driven companies – Pharmaceutical companies – Consumer goods companies © Innovation Fixer Ltd 2014
  27. 27. • New goals for Connect & Develop (October 2010) – C&D to triple its contribution to P&G’s innovation development by delivering $3 billion toward the Company’s annual sales growth – P&G to become the Partner of Choice for innovation collaboration by consistently delivering win=win relationships © Innovation Fixer Ltd 2014 27
  28. 28. P&G investment in R&D (as % of sales) has halved between 2000 and 2010 OI projects (external input >50%) reportedly achieve 70% higher NPV than internal projects © Innovation Fixer Ltd 2014 28
  29. 29. Managing OI relationships © Innovation Fixer Ltd 2014 29
  30. 30. Key management factors • Tangibles – – – – – – – – – Aligned objectives Project plans and management Resource expectations Contracts IP Meeting schedule Reporting Governance Cycle of initiation and termination © Innovation Fixer Ltd 2014
  31. 31. Key management factors • Intangibles – – – – – Trust and suspicion Corporate relationship Attitude – master/servant vs partner Personal relationships Openness © Innovation Fixer Ltd 2014
  32. 32. Key management factors • Clarity and openness on your goals and those of your partner – “What if you can’t/don’t want to be open?” • Well-structured and organized projects • Clarity on resource expectations, roles and responsibilities • Clarity on IP ownership and progression • Under promise and over deliver • Conflict and concerns are on the table © Innovation Fixer Ltd 2014
  33. 33. Structuring OI relationships © Innovation Fixer Ltd 2014 33
  34. 34. Three alliances in one Company A Company B Slowinski and Sagal © Innovation Fixer Ltd 2014 34
  35. 35. Partnership governance FACTOR CONSIDERATION Leadership Who will represent each company? Will the levels be compatible? Management Who is the main ‘go to’ person within each company? Project management Who manages which elements of which projects? Direct contacts Which areas will have direct contact e.g. legal to legal, technical to technical, marketing to marketing, sales to sales? Meeting structure How often will teams meet? Dispute resolution How will disagreements be settled? © Innovation Fixer Ltd 2014 35
  36. 36. Contacts R&D Mktg Mfg OI lead OI lead Mktg R&D Mfg © Innovation Fixer Ltd 2014 36
  37. 37. Contacts Mktg Mktg R&D R&D Mfg Mfg OI lead OI lead © Innovation Fixer Ltd 2014 37
  38. 38. © Innovation Fixer Ltd 2014 38
  39. 39. Trust • On both sides • The gamble is worth it © Innovation Fixer Ltd 2014 39
  40. 40. Partnership development • Don’t forget the social side • Get to understand the other company’s culture • How are your partners rewarded? © Innovation Fixer Ltd 2014 40
  41. 41. Relationships + © Innovation Fixer Ltd 2014 41
  42. 42. “Win-win” is not just a platitude © Innovation Fixer Ltd 2014 42
  43. 43. Improving partnerships SUITORS UNKNOWNS FAMILIAR TARGETS They know you They don’t know you You don’t know them You know them © Innovation Fixer Ltd 2014
  44. 44. Improving partnerships SUITORS UNKNOWNS FAMILIAR TARGETS They know you They don’t know you You don’t know them You know them © Innovation Fixer Ltd 2014
  45. 45. Improving partnerships You don’t know them You know them Welcome the approach, using a portal. Publicity to increase awareness using the portal. Cultivate and build existing relationships. Approach and engage (Scouts). They know you They don’t know you © Innovation Fixer Ltd 2014
  46. 46. So…… • Do you know what your current partners think about you? • Do you know what new partners think of the initial experience? • What steps do you take to strengthen your relationships? • Master, servant, partner? © Innovation Fixer Ltd 2014 46
  47. 47. To consider - Intellectual Property • Do you really need to own the IP? – Totally – In your field – In your geography • What is the commercial benefit? – What does the IP protect? – What is the expected product lifetime? • How easy can competitors develop around the IP? • Are you better off keeping it a trade secret? • Owner needs to maintain IP – Reversion clause is essential © Innovation Fixer Ltd 2014 47
  48. 48. Alliance Framework • Business plan summary • Objectives – Ours – Theirs • Roles – Ours – Theirs • Overall resources – Ours – Theirs • Boundaries • • • • • • • • Market model Strategic exclusivity Intersections Detailed objectives Detailed resources Financial split IP Working process and governance • Term and termination © Innovation Fixer Ltd 2014 Slowinski and Sagal 48
  49. 49. Moving to ecosystems? A B © Innovation Fixer Ltd 2014 Nine Sigma via 15Inno 491
  50. 50. Nestlé • “Sharing is winning” philosophy • Partners include – Barry Callebaut, BASF, Cargill, Cognis, DSM, DuPont, Firmenich, Fonterra, Givaudan, IFF, Kerry, Mane, Symrise, Tetra Pak • Nestlé shares its future needs for all its business units with innovation partners • Have a Master JDA, with project addenda • IP ownership principle – Every physical solution is owned by the competency-providing partner – The smart applications are owned by the receiving party (Nestle) • SiW has added $200M in revenue Source: Nestlé © Innovation Fixer Ltd 2014 50
  51. 51. Nestlé and Cargill • Cargill won the first “Nestlé Research Open Innovation Award” Source: Nestlé © Innovation Fixer Ltd 2014 51
  52. 52. • Network of existing suppliers • Invitations for new ones to join • Clear indication of benefits • Direct contact with R&D and packaging teams © Innovation Fixer Ltd 2014 52
  53. 53. External research communities • Eindhoven High Tech Campus • 1998 – Philips relocates all NL-based R&D to Eindhoven • 2003 – opens up the campus to other companies • 2010 - 100 companies and 8000 researchers “The hotspot for human-focused innovation” © Innovation Fixer Ltd 2014
  54. 54. Communities or ecosystems? © Innovation Fixer Ltd 2014 54
  55. 55. Hypothesis Quality of innovation connectivity between people Degree of connectivity intensity of community © Innovation Fixer Ltd 2014
  56. 56. Communities • Common purpose • Clear and distinct identity • Sense of belonging and contribution • It’s how you feel • It’s what you do © Innovation Fixer Ltd 2014
  57. 57. User communities • LEGO club – ~3 million members – >8 million visits a month – Average visit 28 minutes • • • • • Lugnet.org 1000steine.de Brickshelf.com (MOCs) Brickish.co.uk Brickmaster • Brickjournal.com • MasterBuilders • LEGO-certified professionals • Designbyme.lego.com • AFOLs • LEGO Ambassadors • FirstLEGOLeague.org • LEGO learning institute • BrickLink © Innovation Fixer Ltd 2014
  58. 58. • How do your partners feel? • Are they connected emotionally as well as contractually? • Would they see themselves as part of a community? © Innovation Fixer Ltd 2014 58
  59. 59. Barriers • The way we’ve always done things • The attitude of smaller companies – Less likely to trust? – More suspicious – Less patient • Management control • Number of “superconductors” • Not knowing what we don’t know….. © Innovation Fixer Ltd 2014 59
  60. 60. Summary From command and control, vertically integrated, resource controlling TO A sense of community with diverse partnerships, seamlessly integrated with the core company USING Networking, relationships, structures, processes and trust © Innovation Fixer Ltd 2014
  61. 61. Thank you © Innovation Fixer Ltd 2014

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