2 Ways to Reduce Open Innovation Risk: Convert the Naysayers and Bring on the Seasoned Veterans

Open Innovation is risky.  It’s like letting a stranger in your house to see what valuables are there for the taking, and letting them keep the key to your secrets even after you finish working with them.  For some, this perception of risk is enough to stop any attempts of Open Innovation in its tracks.  Other corporations respond to the risk by “lawyering up,” which, at a minimum, markedly increases the costs of proceeding or, at worst, causes the relationship to break down before any collaboration can occur.  And I, as IP counsel to a number of corporations in my prior life, must admit to being responsible for shutting down Open Innovation due to my role as IP risk the person responsible for mitigating my clients’ IP risk.

After leaving the Friendly Confines of defined roles and responsibilities set out in my corporate and law firm life where it was clear that my job was to stop risky behavior, I now realize that this approach to risk mitigation was, quite simply, wrong-headed and misdirected.  Indeed, halting or slowing third party collaboration as a result of perceived risk is actually more risky than taking the leap into Open Innovation.  I mean, how risky is it to assume that the smartest people are in your building, and that you can’t benefit from help by others not on your corporate payroll?  Ok, maybe you don’t need the smartest people ARE in your building if all of the following are absolutely true:

• You hire flawlessly
• Your consumer insights are perfect
• Your team’s execution of innovation–from inception to the shelf and beyond–will be 100 % on the money

But, when do all of the stars align to make this happen?  The data show that the failure rate of new products is shockingly high, the result being that, even in the best of times, corporations succeed in their product development efforts only a small amount of the time.   The odds are even lower today, as discussed in more detail below.  So, regardless of whether your company’s decision-makers believe that Open Innovation is risky, I believe that most organizations must bite the bullet and move forward to make it a go.  In order to be successful (and not only have a single chance to try Open Innovation), one must be able to navigate the corporate politics that would stop the process, as well being able to minimize the risk associated with going outside for new product ideas.  I think I have a solution to each of these concerns.

With regard to generally dealing with the “Naysaying Nellies” in your organization who might think Open Innovation is too risky, I have put together a case study for a workshop I am co-leading a workshop at the 2nd Annual Open Innovation Summit this week in Chicago with my good friend Deb Mills-Scofield and Mike Riegsecker of Menasha Packaging.  This is the second time I have participated in this event.  The organizers report that the number of attendees has doubled, with 150 people scheduled to attend.  I like the make up of this event because it is focused on providing folks with actionable insights about Open Innovation to take back to their organizations so they can better implement Open Innovation, as opposed to other gatherings where people discuss how great Open Innovation is, but not how to do it.  If you are interested in Open Innovation and its implementation, I suggest you keep an eye out for the Twitter feed this week:  #OIS10.  I will post some output from the case study, which we will work on with a group of 20 or more experienced innovation and product development professionals who are participating in the workshop.

In this workshop, we are going to discuss our experiences with corporate culture and incentives as these relate to achieving success in the world of Open Innovation.   Much of what I am going to talk about is how those seeking to implement Open Innovation in their organizations can understand the naysayers better–by way of incentives, thought processes and mind sets–so that they can reduce the possibility that decision-makers in their corporations will put the kibbosh on their efforts.  We are going to be using this case study to help attendees understand the roles and incentives of the senior members of their team to better help them achieve buy-in from those in their organization with decision rights.

Also, I look forward to hearing from others how Open Innovation is becoming more entrenched in US corporate management, as I predicted way back in 2008. It is becoming more clear to me that Open Innovation must be the way forward for US corporations now that there can be no dispute that the last couple of years of “extreme downsizing” has left many organizations without the necessary skilled professionals to create the viable innovations needed to fill their product pipelines.

Think about it:  as we know, even in the best of times–with the best teams and appropriate financial investment in place–the failure rate of new products is ridiculously high.  And, in what other area of modern life would we accept such a high failure rate?  Historically, companies have accepted this number because “that’s just the way things are,” and they would plan accordingly by establishing contingency plans that would help to spread risk of such a high failure rate.  Today, corporations are running extremely lean and, perhaps more significantly, have through layoffs or attrition scaled back the number of senior level people on their staffs.  In other words, in they don’t rebuild, they reload.  After several years of shrinking sales, many corporations are acutely feeling the need to see a big win in the marketplace, if only to demonstrate to investors that the company remains a good bet.  So, after years of “extreme downsizing,” many corporations are effectively fielding rookie innovation teams, just when they need to win the product development Superbowl.  Yes, they can get lucky, but as most coaches know:  in this situation, your odds are better if you rely on an experienced coaching staff and bring in some seasoned players.

Because of this “extreme downsizing,” however, the experienced coaches and seasoned players are not on the usual playing fields; that is, they are not in the corporations where they learned their crafts (on someone else’s dime).  Moreover, many of them–presumably the best and most entrepreneurial of them–are not sitting on the sidelines after being cut from the corporate teams for which they have been playing for many years.  In my experience in the past 3 years (since I myself was cut from my corporate gig), there is a huge pool of highly skilled product development and innovation professionals working outside of the confines of the formal organization who are enthusiastic about becoming entrepreneurs after many years working for “the Man.”  These are the folks who would have remained the backbone of their corporate innovation and product development management teams, if only they had not grabbed the chance to take early retirement or had been laid off to meet corporate cost cutting goals.

In the past year or so, I have seen countless numbers of start-up companies where seasoned corporate professionals are calling the product development and innovation plays.  While not all of the ideas that serves as the focus of these start-ups are the so-called “killer apps,” many may very well be.  Those corporate leaders who seek to capitalize on the value of Open Innovation can off by filling their innovation pipelines at a lower cost, while still minimizing the risk of going outside their organizations, could be well-served by seeking out and engaging these more senior folks.  Given their experience in the inner workings of corporations, it is likely that these experienced innovation professionals will be able to understand the needs of those still working inside the corporation to provide a better overall work product in a more efficient manner.  These seasoned professionals will also be more likely to have realistic expectations–both financial and otherwise–of what will happen when collaborate with a corporation.  I think that this knowledge will lead to a better up-front negotiation regarding Open Innovation opportunities and, I dare say, are less likely to think that litigation is the appropriate solution for business disappointments. Moreover, these “gray hairs” will provide added benefits by transferring their deep knowledge to a younger generation of innovation professionals.

For lean corporations seeking to see whether Open Innovation is the right approach for them, while still hoping to minimize the risk of going outside their organizations for new product ideas, I suggest that they look for “gray hairs” who are nonetheless young at heart.  It might take some work to find the appropriate collaborative match for your organization, but the payoff for your search could markedly improve the success rate of your current and future innovation and product development efforts.