There are few organizations that don’t wish to innovate, but whilst most aspire to develop creative new products, services and processes, the evidence is mixed as to their ability to do so successfully. A big contributor to this gap is the cost of innovation.
A recent study from the Stanford Institute for Economic Policy Research highlighted the growing costs involved in innovation. The research shows that companies are investing far more than their historic peers to achieve the same results. Organizations today are devoting approximately 20 times as many people to R&D as their peers did in 1930, but the output from all of this endeavor is not rising in unison.
“It’s getting harder and harder to make new ideas, and the economy is more or less compensating for that,” the authors explain. “The only way we’ve been able to roughly maintain growth is to throw more and more scientists at it.”
This tremendous investment has seen expenditure on R&D doubling every 13 years purely in order to maintain the same level of output. What’s more, this is not a case of particular laggards dragging the pack down, for this diminishing productivity is consistent across sectors. When it comes to innovation spending, the challenge for large companies seems to be about spending smartly. To be able to grow and innovate at an increased pace, companies need to reverse this predicament by spending less and innovating more.
Fruit getting higher and higher
This is probably the case because innovation is becoming harder to achieve. Previous research has highlighted how a growing proportion of innovations are what’s known as recombinative. This means that innovations take existing ideas and technologies, and apply them in unique ways. Over nearly 150 years, around 40% of all patents fall under this category of innovation, with the ratio changing considerably as we approach the present day.
The potential for such innovation to make a profound impact is highlighted by Martin Weitzman, who describes the potential for recombination in his seminal paper on the topic. He describes the ‘fixed factors’, including buildings and hardware, that exist throughout society, and the value we can derive when we find new ways to improve these assets.
Open innovation – collaborating with external companies toward innovation goals – offers tremendous potential for supporting just this type of innovation whilst also helping to tame the costs associated. Rather than inventing the wheel from scratch and in house each time a company wants to improve a product, service or process, organizations are partnering with a wide range of external parties such as startups and independent software vendors to tap into their ideas, insights and solutions.
As well as providing a broad range of ideas, perspectives and insights to tap into, there are also clear commercial advantages. By turning to open innovation approaches like running proof-of-concepts with startups and technology vendors, you’re reaching a large crowd of potential partners relatively easily. What’s more, you are usually only paying participants if a solution is found, thus giving you not only a practically risk-free source of innovation, but also one that has heavily reduced costs by not requiring you to fund the failures that are an inherent part of innovation.
Accelerating time to market
Data science platforms like Kaggle and Innocentive offer a great way to attract relatively standalone solutions, but there remain considerable hurdles in integrating these solutions into complex systems or scaling up ideas for a mass market.
Innovation obstacles like customizing testing environments, testing external technology solutions, dealing with security restrictions and complying with regulations cost an organization time, and time costs money.
At the recent European Institute of Innovation & Technology (EIT) INNOVEIT event, EIT Chairman Dirk Jan van den Berg highlighted the incredibly long timeframes to get new innovations to market, citing an average of seven years in energy and ten years in healthcare. Even in relatively agile industries, such as digital, the time to market is still typically measured in years rather than months.
It’s a gestation period that can see the risk of failure increase significantly, and one that open innovation can help to overcome.
Companies such as prooV are at the forefront of efforts to make open innovation more accessible, efficient and effective for companies. Their platform centralizes and streamlines the entire proof-of-concept process to make testing and evaluating new technologies faster, more customizable and more data-driven.
On the prooV platform, enterprises can test, evaluate and compare several technology solutions in the same proof-of-concept, rather than running a different proof-of-concept for each technology and having to compare the results afterward. This cuts out tons of logistics, time and effort, thereby slashing innovation costs.
“Proof-of-concepts should move innovation forward, not hold it back,” Toby Olshanetsky, Co-founder and CEO of prooV said. “Before adopting any technology, large companies with complex infrastructures and vast customer bases need to test and evaluate multiple solutions. Managing the entire process on one platform and being able to test and evaluate more than one vendor at a time cuts down on the time and money enterprises need to invest in PoCs while providing enhanced value.”
Beyond cutting the costs of innovation, such PoC’s can also help to generate the kind of data that helps to secure buy-in from across the organization. The politics of innovation is something that Tuck Business School’s Vijay Govindarajan has touched upon numerous times, not least in his book The Other Side of Innovation. The reality of scaling any innovation is that it will require buy-in from a much larger group of people than were involved in testing and developing the innovation.
Whilst securing things like board level buy-in and ensuring the financial and political power center of your business are represented in the innovation team, securing data to prove that your innovation really does what its supporters claim it does goes an awfully long way towards securing that buy-in.
“Chasing new horizons is the exciting part of innovation, but it is also the risky part,” Olshanetsky said. “Providing data about how solutions hold up to business and technical metrics that matter to your company showcases the benefits of open innovation and increases the chance of getting support from decision-makers.”
Innovation will never be free from risk, and we should never regard open innovation as a panacea to the various challenges associated with innovation, but when done effectively, it can help to mitigate many of those risks and give you a better chance of securing the results your organization needs. Open innovation with proof-of-concepts can solve core innovation challenges by ensuring internal buy-in, speeding up time to market and decreasing costs throughout the entire process.