Last December at the Plante Moran webinar “Buying Innovation as an Option” collaboration was one of the salient innovation subjects discussed. A participant asked the panel a critical question for small and medium size businesses, “how do we, a small business with limited budget, develop a collaborative innovation program?”
It has been widely debated by the innovation community the capability of small and medium size business to participate in open innovation. This debate is mostly framed around the acquisition of technology through the lens of the acquirer. Yet, in order for this transaction to occur there needs to be a technology developer or provider and often these providers are a small business. Small and Medium size businesses are critical members of the collaborative open innovation ecosystem.
How does a company develop a collaborative innovation program? First they must understand why businesses participate in open innovation and their proposition in the innovation value chain. Our discussions with corporate innovation stakeholders’ shows that businesses engage in open innovation programs to (1) achieve sustainable revenue growth and (2) improve operational effectiveness.
In order to achieve sustainable growth companies need to identify and explore new technological and market trends, and the new business opportunities and business models associated to these trends. For the company to improve the operational effectiveness of innovation programs is essential to accelerate time to market of R&D projects while mitigating commercialization risks of these projects.
As a small company, we can develop a simple framework to understand our value proposition to our potential collaborator. (1) Where do we reside in the innovation value chain? Are we acquiring or providing knowhow or technology? (2) What is our value proposition to our partners? Are we providing revenue growth and/or operational effectiveness opportunities to our partners? (3) Is monetary exchange necessary?
Below are two real world experiences of small companies with minimal innovation budgets and how they used the proposed framework to leverage their value proposition to their partners.
CASE 1: A Small Business Administration company in the automotive industry needs to acquire new capabilities to expand offering to achieve revenue growth. However, it does not have the resources acquire or develop the technology, causing stagnant revenue growth and diminishing margins.
(1) A large company has the capability and resources required to develop new offering.
(2) There is significant share of the market set-aside to small and disadvantaged business that a large company does not have access to. This company offers a revenue channel into that market, creating new business opportunities to the large company.
(3) No monetary exchange was required to complete this partnership. A Joint Venture (JV) was completed. Key technology was provided by the large business while some value added work was completed by the small business. This JV not only allowed both companies to access current business opportunities but also allowed to grow into new areas that neither company alone would be able to.
There are a multitude of examples where a small entity can provide a revenue or funding channel to a large business that does not have access to a specific revenue pool. This is especially true in industries that are committed to working with small and disadvantaged suppliers such as automotive, defense, government etc.
CASE 2: A start-up company, with two scientists, believes they have developed a new process to increase the mechanical properties of cast iron. The business needs resources to cast and characterize material samples. The entrepreneurs have reached a point where they need a collaborator with resources to continue.
(1) The start-up identified parties interested in the technology. They approach a leading foundry with capabilities to develop and commercialize the material.
(2) The foundry has limited innovation resources due to their business model. A partnership with a material science company enhances their revenue potential and significantly reduces internal R&D cost and risks.
(3) No monetary exchange was required to complete the material development and characterization. The large company will complete all the development at their cost, if process works they will purchase required additives from the start-up and execute a revenue-share agreement.
This collaborative model works well in mature industries where the pace of innovation is slow and the companies are more focused on operational excellence than internal technology innovation.
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