Milestone Group Quarterly: July 2007

Articles

• Face to Face: Dinesh Wadhawan, CEO IndiaTimes
• Investment Viewpoint: Naren Gupta, NexusIndia
• By Invitation: Satish Nambisan and Mohan Sawhney: An Advance Look at Harnessing the Global Brain for Innovation and Growth: The Execution Challenge
• Milestone POV: Venture Math by Anurag Chandra of Milestone Group’s Advisory Board

By Invitation:

Satish Nambisan and Mohan Sawhney: An Advance Look at Harnessing the Global Brain for Innovation and Growth: The Execution Challenge

In recent years, many large companies - Dell, Kraft, Sony, and 3M come to mind - have found it difficult to drive growth. The two CEO-favored approaches to achieving growth - cost-cutting strategies and mergers & acquisitions - have lost their sheen. Given the nature of global competition (and the brutal commoditization of products and services that it unleashes) and the high visibility failures of several recent M&As, innovation has become the preferred pathway to achieve growth. As Sony Chairman, Howard Stringer recently noted, "We will fight our battles not on the low road to commoditization, but on the high road of innovation."

Such an innovation-driven growth orientation is also accompanied by a growing realization regarding the need to "look outside" for innovative product ideas and technologies - reaching out to customers, suppliers, independent inventors, academic researchers, innovation brokers, and a host of other external entities that constitute the Global Brain, the vast untapped creative potential that lies beyond company boundaries.

It is becoming clear that companies need to make a gradual shift from innovation initiatives that are centered on internal resources to those that are centered on external networks and communities - a shift from firm-centric innovation to network-centric innovation.

So, what is holding back companies from harnessing the creative power of the Global Brain for growth and performance? We find that executives have a very limited understanding of the landscape of externally-focused innovation, and how exactly their firm should take advantage of the dizzying array of opportunities to partner with external actors.

As recent examples from companies such as P&G, Boeing, IBM, and Apple illustrate, such network-centric innovation can take many forms. There are different types of entities that companies can reach and many different types of relationships and networks that can be developed to harness innovative ideas. There are new types of innovation intermediaries and new innovation infrastructures.

For example, in a recent Harvard Business Review article (see "A Buyer's Guide to the Innovation Bazaar", June 2007) we discussed a new type of innovation intermediary - the Innovation Capitalist - and its important role in facilitating external innovation sourcing. The wide range of entities, innovation networks, and approaches indicate the confusing landscape that companies are likely to face when embarking on a network-centered innovation strategy.

We identify three broad sets of challenges that companies will need to succeed in this: mindset and cultural challenges, contextualization challenges, and execution challenges.

Mindset and Cultural Challenges

The first critical issue that senior managers need to address relates to the broader implications of adopting a network-based approach to innovation. What type of broad framework or mindset should be developed that reflects the organization's intent to collaborate with outsiders and defines the broad parameters for such collaboration? How should senior managers communicate and encourage other members of the organization to adopt such a "mindset"? How should the company manage the cultural shift needed to overcome the "not-invented-here" (NIH) and the "we-know-everything" (WKE) syndrome? The company-wide adoption of such a collaborative mindset will be particularly challenging, especially for companies such as DuPont, Kodak, and 3M with a rich history of significant internal innovations and achievements.

Contextualization Challenges

The second set of challenges relate to the landscape of network-centric innovation - developing a deeper understanding of the various innovation opportunities that exist and relating them to the firm's own unique innovation context. There are some high visibility examples of network-centric innovation - P&G's Connect+Develop initiative and IBM's partnership with open source software communities are recent examples.

However, these are not the only approaches - instead they indicate the diversity and richness of the network-centric innovation landscape, and raise many questions: What are these different approaches or models of network-centric innovation? Is there a systematic way for a company to evaluate and select the most appropriate approach vis-à-vis a particular industry or market context? What role should a firm play in the innovation network - a lead role or a supporting role? Which internal innovation projects are most appropriate for such a collaborative approach?

The answers to these questions will help gain a view on the emerging landscape of network-centric innovation and contextualize or situate the opportunity offered by an external innovation network in the company's particular market and organizational context.

Execution Challenges

The third set of challenges relates to the actual implementation of network-centric innovation projects. When an appropriate network-centric innovation opportunity has been identified, how should an organization go about executing it? What are the organizational capabilities and competencies that a company needs, given the particular role it will be playing in the network? How should a company integrate its internal and external innovation processes? What benefits can be expected and how can they be measured? What are the potential risks of opening up innovation and how should those risks be managed? How should a company protect as well as promote its intellectual property assets?

These three sets of challenges - mindset and cultural, contextualization, and execution - represent the range of practical issues that CEOs and senior managers will need to tussle with in order to be successful in promoting and executing external network-centered innovation initiatives. In our forthcoming book from Wharton Publishing we analyze each of these challenges and provide a practical roadmap for companies to explore and exploit the network-centric innovation opportunities that reflect the power of the Global Brain.

Satish Nambisan is a professor of technology management and strategy at the Lally School of Management, Rensselaer Polytechnic Institute in Troy, NY. Mohan Sawhney is the McCormick Tribune Professor of technology management at the Kellogg School of Management, Northwestern University in Evanston, IL. They are the authors of “The Global Brain: Your Roadmap for Innovating Faster and Smarter in a Networked World” to be published by Wharton School Publishing in November 2007.