The Next Frontier in Innovation – The Development and Nurturing of Innovation Ecosystems for Middle-Market Corporations
By Pedro Guillen
Industries are becoming continually more complex, as new technologies and disciplines are required to develop innovative products and services. To successfully deliver sustainable growth, most firms have to externalize their innovation process and support the development of ecosystems around both their industry and company. Industry complexity requires open innovation, enabling the true potential of innovation ecosystems.
As industries evolve and new companies and partnerships are created to support new needs, value is commonly generated at the periphery of science and commercialization. This value is being generated at innovation hubs where research institutions, start-ups, and commercial entities are co-developing new products, generating knowhow and designing transformational business models regenerating the industrial ecosystem.
It is becoming evident that no one company can completely innovate internally and provide long term results. The degree of knowhow, expertise and investment required to develop new products is not often found within companies. As such, increasingly more technology and R&D in areas that are not core to the business is being purchased or developed in partnership with specialists, competitors and other suppliers. The image 1 above show product space network, it show industry complexity and interdependency.
This is evidenced in the co-opetition and co-development programs with and between competitors and partners. Some competitors are working together in precompetitive R&D programs to understand basic and applied science behind new products or services. Moreover, suppliers and EOM’s are executing codevelopment programs of innovative new products to reduce time-to-market, risk and investment required to commercialize the technology.
Top firms are finding new capabilities and know-how is required to successfully execute product innovation programs. These are starting to look at external partners to access alternative pools of talent and know-how, while sharing the research, product development and/or marketing costs. Companies should develop IP exploitation strategies by commercializing their own products or services, but also by licensing and spinning off technology that is not core to the business.
The most basic open innovation processes we are observing today are the IP battles at the telecom industries, where IP is being purchased at wholesale. More classic open innovators are P&G, which require their team to identify or source 50% of their products from the outside and other corporate venturing programs, such as Siemens and Dow. While small firms will not commonly have the power to execute these programs, they can easily use similar principles and develop innovation cooperatives, alliances and regional clustering groups to drive innovation partnerships.
Complex ecosystems characterize themselves as self-regulating, organizing and adaptive. Firms that understand their innovation ecosystem, map and analyze current and future ecosystems, to determine where the value resides, and how it will evolve in the future. As part of this mapping exercise they then begin to understand gaps in the value chain, new enabling technologies and potential alternative business models that will transform their industry. The most innovative firms will lead and control the development and adaption of their industry ecosystems. The Wind Energy Ecosystem map showcases the different technical and business disciplines required to participate in the industry. It also provides a visual of the adjacent market where the ecosystem participants came from or could diversify to.
We are experiencing this in multiple ways. We see Intel Ventures developing a fund to accelerate new markets or Boeing partnering with both automotive and wind energy suppliers to support the development of cross industry tools, process and materials. The automotive advanced-materials industry, specifically plastics and composites are experiencing a major revolution. These suppliers are starting to link aerospace technologies, materials development, and advanced manufacturing to develop new lightweight, high efficiency vehicles.
Middle-market and small-cap companies can leverage these disruptive innovations tools to unleash the power of innovation by understanding, embracing and leading the development of future ecosystems which, when coupled with stronger business models will produce above-average returns and drive the value of the company.
Pedro Guillen is the managing partner at the Detroit office and founding member of Kinetik Partners. Pedro specialized in corporate innovation strategy and new technology commercialization.
Pedro received his MBA from the Ross Business School, University of Michigan, and holds a Master of Engineering in Manufacturing from the University of Michigan. He also received dual B.S. degrees from Columbia University with concentrations in Mechanical Engineering and Liberal Arts.
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1 Harvard’s Center for International Development (CID) and the MIT Media Lab have joined forces to create The Atlas of Economic Complexity: Mapping Paths to Prosperity.