SMEs and Open Innovation: Fireside chat with Wim Vanhaverbeke’s
Wim Vanhaverbeke is a professor of Innovation Management & Strategy at Hasselt University and a visiting professor at ESADE Business School and the National University of Singapore. He is a speaker, author, and consultant, specializing in organization and management in Open Innovation and Innovation Ecosystems.
Wim is one of the top experts in Open Innovation Management and his new book "Managing Open Innovation in SMEs" aims to spread the topic of Open Innovation among small and medium businesses.
With this interview, we consider some of the key insights highlighted in Wim’s latest book in order to understand his perspective on how Open Innovation is transforming the core business of many companies.
1. It is a pleasure and a great honor to interview Wim! We can say that you are one of the top European experts in Open innovation. How do you see the current situation and where are you finding a truly fertile ground for Open Innovation (OI) in Europe?
Open innovation is alive and kicking. It took off later in Europe than in America, because it was initially an American phenomenon. European companies really started to pick it up between 2005 and 2010 although companies such as Philips and DSM and some other multinationals were evolving in that direction as well. Nowadays, it is spreading all over Europe. For instance, France started popping up in the last two years only. England was already practicing it, as well as the Scandinavian countries and the Netherlands.
The most important thing we see today is a professionalization of OI. Open Innovation has to pay off, it has to become a real business practice with a return.
If there is no return, organizations will not continue it. Therefore, you get companies that have a very good level of maturity in OI: they become more and more mature and efficient over time. But in that process towards more maturity, which is not well illustrated in the literature yet, they are changing the structuring and functioning of OI. It has to become more effective, meaning you should have fewer costs related to OI.
This results in more and more companies (at least the bigger ones) that are externalizing part of the Open Innovation process through a number of intermediaries. I’m specifically talking about service organizations that help the companies in reaching out to specific disciplines (to specific institutions), who help solve problems up to a specific end, helping them to spend less internally on the process and have success.
Big organizations are expensive and slow. By externalizing, they can move quicker and have lower costs. And instead of two or three projects a year, one OI manager can do 8 to10 projects a year, because he is only doing part of the OI-process and the rest is taken on by other people in intermediaries. However, this new trend is not well illustrated yet.
So let’s say that in the last two to four years companies have realized that they have to become effective in OI.
You also see that on the front end of innovations, for example, when they start to work with smaller organizations and so on, they don’t work with big contracts or big IP (Intellectual property) arrangements. This is because, in 9/10 cases, these arrangements will lead to nothing interesting.
If you just have these kinds of explorative contacts with other organizations, you should not cement it into R&D contracts, which take too much time, stiffen creativity, and so on. So these businesses learn to be very agile in the early stages of the R&D process. It’s only when they see that something interesting comes out of the development on the commercial side that big businesses set up a formal contract including all the IP specifications.
In other words, the burden of contracting can be reduced as they only apply it in later stages in their collaboration with promising start-ups.
They don’t do it early on in the process when the failure rate is still too high. Therefore, efficiency becomes very important in open innovation to keep it sustainable.
The other trend I see in Europe is that OI is no longer only applied to bigger companies, but is also applied to SMEs, NGOs, communities, and governments. So you see that OI is applied to many areas that are not necessarily for-profit or businesses oriented, and that’s very promising. However, we also have to be careful about extending OI in new application areas without adapting it properly.
2. Open Innovation, Universities, and Businesses. Where does one field end and another begin? How are they connected?
If we talk about Open Innovation in different application fields, most people (including Henry Chesbrough) believe that OI has to be to the benefit of a specific organization (whether profit or non-profit) and some value should be created.
A company makes a profit, and a government has to realize societal goals, for example, national security or social security. OI, in this case, means that you have to open up with other partners to create value.
Joint value creation is one GOAL that you’re going to find back in all these circumstances, even for NGOs, governments, and so on; in order to realize their goal (creating value for their customers) they have to collaborate with other partners.
Another way to interpret this is looking at how they all connect with each other: big companies, small companies, universities, etc.
Connecting these partners means you have to ask a number of questions around your strategic objectives because OI usually looks at these connections from a single organization’s point of view. In order to make connections with outside partners, you must ask yourself some questions.
First, you have to look at your strategic objectives:
- What do you want to reach in general? What is your growth target or strategic objective?
- Second, what is the task of innovation in that whole process? If you want to change, you probably have to innovate. Next, you have to ask yourself if you want to do to things within your own organization–a point which is relevant for big companies given their vast resources and deep competencies. However, this is less relevant for small companies because they have fewer internal competencies. You have to focus on what you really want to do internally because sometimes it is important to keep innovations secret. Closed innovation is a valuable way of working under specific conditions, and building internal capabilities is sometimes a must. The other side is that you cannot do it yourself, and you prefer others to do the job because they have competencies you don’t have. Or you see that you only can realize things together by combining research, development, and commercializing skills across different organizations. The next question, once you have determined which type of partner you need, is:
- Who is a potential partner? That partner may be selected from the very best or the closest in geographical terms depending on the number of criteria. The next question is:
- How are you going to work with that company? There are a lot of possible ways to collaborate. Collaboration with another organization means that you can apply different models: an exchange/rotation of personnel, pure contracting, R&D contracting, licensing, corporate venturing, etc.
We have to keep in mind that nowadays all of these organizations connect with each other.
For example, a company with a university, a company with an NGO, or a company with a community can all work very well. However, before you get to that point, you have to go through a series of questions in a specific order. And by doing this exercise in a quite logical and rational way, you end up with fewer roadblocks. If you work in a random way, or just based on your personal network, you’re in for a disaster.
3. Businesses must constantly innovate to remain competitive, but above all, they must activate all the mechanisms necessary to capture the enormous opportunity offered by Open Innovation. I would even add that OI is a real momentous change for SMEs. What are the obstacles you face in spreading Open Innovation culture to SME managers and entrepreneurs?
There are many challenges and obstacles when we apply OI to SMEs.
Before we focus on those challenges, I would like to emphasize that very few SMEs in Europe are actually doing OI in a successful way.
One example is a consortium we are now working in. It’s called INSPIRE. We have 15-20 researchers, who are working on an extension of my book (Managing OI in SMEs - Cambridge University Press).
The first task in that project is to find 120 SMEs in Europe that have good practices in OI. However, we had some problems in finding them. It was not easy because sometimes they are just starting OI, so they don’t have any competence in managing it yet, or there are companies that don’t want to disclose their OI activities.
Just the fact that finding 120 companies was a problem, on the European scale, means that there aren’t thousands of SMEs that are already implementing OI successfully yet.
In bigger companies, OI is becoming a more routine issue, but in smaller companies, it is still very new. For instance, the cases in my book, are more exceptional than I thought. It took me a long time to find them as it is not obvious which companies are doing OI and also doing it successfully.
What you see in all of these cases is that OI is really an enabler for small companies to change, develop, and grow their business tremendously. There are a number of very interesting cases, showing that companies using OI can really transform the company and move into a higher gear. It’s really a positive sign for all those SMEs that still have doubts about OI. The potential is huge if you do it right.
So we have to look at the challenges and the barriers—yes, there is a number of them: most companies are still “asleep”. They aren’t aware of the need to change or innovate.
Most small companies are working day by day, carrying out only operational work; they are not considering the strategic needs of the SME in the mid- and long term.
It’s only when you have to rethink your strategy because it is no longer working, that you take this kind of action to change your company and to innovate. Then once you start changing your business model and strategy, you have to think about the competencies you’re going to need to realize them.
Companies that change strategy automatically end up in OI because they can’t realize the strategic change all by themselves.
The problem is that once they see the need to change, they experience a new problem: that is, reaching out to partners and organizing the network with these partners.
That’s relatively new for SME managers because most of them are working exclusively within the internal boundaries of the company and are not accustomed to strategically working with partners to share profits and open up their IP. So this is scary for most of them because sometimes they open up to external partners incorrectly or open up too much and give away critical knowledge. Or they don’t know how to make an interesting deal between the partners about, for instance, the IP that they are going to generate together.
OI is basically about being innovative about contracts and innovation practices, ensuring that there is a culture of sharing, cooperation, and trust between partners.
That’s not easy because most companies haven’t established these kinds of practices yet.
It’s mainly related to the culture created by the leader of the company. It all depends on whether these people understand how to build bridges, how to work with partners, how to support such a network, and how to eventually discipline partners if necessary.
The country’s cultural background also plays a role (although I’ve never done any research on this). In northern Europe and the UK, managers have an Anglo-Saxon way of thinking, and they try to find business opportunities, reaching out to partners to pursue these opportunities.
In Southern Europe, companies are still more closed and work in cliques or clans. Interactions with other organizations are based on personal networks. These types of networks are not always the best to reach out to the technologies you need. Personal networks don’t always work.
The way you trust people, the way you build trust, the way you deal with challenges or problems in working together is determined by the culture in a specific country.
For example, in Belgium I have some cases, where if there is a problem between companies, partners do conflict management pretty early, discussing problems immediately, but this can’t be done everywhere in Europe.
The question is then, how does the country culture affect how companies reach out to partners and how they deal with conflict management?
4. ...and what strategies do you think are important to overcome these obstacles?
I see that managers, who want to initiate a network of OI with partners, have to be careful in developing these networks. The people I have been talking to have been developing their skills by trial and error and learning from their mistakes.
You have to be careful because you could make big errors that lead to distrust and a breakdown of the network.
Not all cases are successful, but in the successful cases, you see that the CEO has to be skilled in developing and communicating the main objective, in bringing people together, and making people enthusiastic about the joint project.
You only should collaborate with partners when you want to do something you absolutely can’t do on your own; for example, entering a new product-market or coming up with a completely new business model.
OI becomes really interesting because you know you need partners and you can’t do it without them. So the glue between the partners is very strong because you can lose a lot if collaboration breaks down.
The benefits of value creation and working together should be so large that you don’t even want to talk about “untying”. Of course, OI is a complex process, and you have to keep track of partners who are not under your control.
OI is not easy, and it increases complexity. And you should only increase complexity if the rewards of doing so are very big.
I think that the biggest efforts should be made by governments. Let me give you an example. I think that on the European level we are not doing the right thing (at least for SMEs). Why is that? We have many Horizon 2020 projects, and OI is fashionable (so you see a lot of these projects, and millions of euros are going to OI), but in my view, there is still too much money going to the analysis of the problems.
So where is the money going? It is going to universities and consultants. And what is the result for SMEs? Not that much. My point of view is that we should change that into a tool from which SMEs can learn. How do SME managers learn? They don’t learn from people like me (professors or consultants). You can convince them to a certain point (talking to their rational thinking); they understand what you’re saying, but they don’t take any action. You’re talking “to their heads but not to their hearts”.
So I take several SME managers who have successfully implemented OI to an audience; when they talk, you see the managers in the room change. When their peers talk they react differently: “If this guy can do it, I can do it too”. So it’s a completely different way of convincing SME managers.
What I learned is that managers learn from other managers. It is believing by observing that OI can be implemented successfully.
We work with local networks because these managers do not have time and will not come to Brussels, London, or Paris to attend a 2-day seminar. In contrast, they will stay local because it is time effective and there are local networks (for instance, the chamber of commerce or other regional associations) that are trusted by SME managers.
So why not enable these groups? How? You can enable them through a set of videos.
I have come to the conclusion that videos work very well for SME managers. Via videos, they see how it works, how the managers make decisions, how they deal with specific OI problems. So the question is: how can we inspire thousands of SMEs across Europe with only several dozens of examples we have? It’s possible using the internet, making short videos of 10-15 minutes maximum and a guideline for the local coaches on how to instruct them.
We can put these videos on YouTube for free as a tool to empower local coaches in teaching OI to these SME managers. It will have an enormous impact on OI, changing the mindset among SME managers in adapting OI for their own purposes. It is completely different from most Horizon 2020 projects, where you do an analysis and come up with a report that only a few people read because SME managers are not reading 100-page reports.
5. "Managing Open Innovation in SMEs" collects profound studies that examine the various approaches available in Open Innovation for SMEs. Could you illustrate the main ones?
The approach you take as a manager toward open innovation depends on your strategic objectives.
What do you want to reach? What is the purpose of OI? Then depending on what you want, OI is going to take on many different shapes and colors.
For example, as a SME, it is possible to work with crowds. Sometimes when the pool of creativity is large, and you don’t know who has the answer to your specific question/problem, reaching out to a crowd can be interesting. But I don’t know many SMEs that are doing this. I have a number of cases in my book that are working with a limited number of strategic partners. Partners can be value chain partners or competitors.
Cross-Industry collaboration leads to the most interesting results.
An example of upstream is Curana, a small Belgian bicycle parts manufacturer. Curana could differentiate itself through design and innovation via an OI-network of partners. The company works mainly with upstream partners such as component manufacturers, design companies, raw material providers, mold makers, etc.
However, Curana also works a lot with partners from outside the value chain. Downstream is mainly working with customers, which can be B2B o B2C; for SMEs it is usually B2B, working with bigger companies. And here customer/user innovation is very important.
An example of cross-industry/cross-disciplinary innovation is Quilts of Denmark.
It is a small start-up that began in 2000, and their vision was to offer a healthy sleep with their quilts. The founders of QOD had a lot of knowledge about quilts but not about a healthy sleep. So they had to get information and knowledge from sleep scientists and hospitals. They got expertise from these people to understand what a healthy sleep is and then they translated it into technical aspects for the quilts. They found a technical solution that was already developed by NASA. So they licensed this technology in order to further develop it into a functional quilt. This company is thus connecting medical expertise with PCM technology (chemical industry).
It was applied by NASA, so the technology isn’t new, but the application is new.
6. Everyone is beginning to understand that Open Innovation is necessary for big companies but what do you think are that most interesting business case studies that can motivate SMEs?
There are, at the moment, relatively few good cases on OI in SMEs. The 120 cases we found in the INSPIRE project are new and will be online in a few months (http://www.inspire-smes.eu). I think these cases are very important. I already published the cases used in my “Managing OI in SMEs” book on the exnovate.org (OI in SMEs) website for free. I also have three teaching cases for MBA or Master’s students.
The most interesting cases from the book (although they all have different angles) are:
- PROF (Patient Room of the Future), which is a consortium of 30 companies that supply to the healthcare industry and 300 healthcare organizations, and yet it is managed by only one man. It is an amazing story of how you can leverage the innovative power of so many organizations with a very nimble organization.
- Jaga is a radiator company and has been active for 10 years in OI. It is very creative and has won all kinds of innovation and design awards because of their innovative designs and open innovation approach to new technologies. The OI story, in this case, is interesting because the applications are down to earth; every company can do it, and it’s a very interesting way to tap into creativity inside and outside the company. Their designs are the most successful radiators in years, and almost everything is done by other people; they don’t pay for it. They also work on reducing the ecological/carbon footprint of these radiators. This company has only a few R&D people, yet they got an award last year for the most energy efficient radiators in the world. So how do you do that if you only have a few technical people internally? They have a test facility, and everybody around the world can come and test their new technologies in these facilities for free. Testing means you have all the data, so you can compare. Before the competitors even know that there is a new technology around, they have already licensed and implemented the technology. The CEO is an anthropologist and thinks in a completely different way than business people. However, the implicit business logic is so interesting.
- Quilts of Denmark licensed technology from NASA to develop the first functional quilt.
7. “Patience Matters" is now a mantra for some of the best CEOs and entrepreneurs of the new post-crisis economy. In your opinion, what are the organizations that will most likely embrace Open Innovation and generate results, impacting in the shortest possible time?
That’s a difficult question, to be honest. There is no general pattern. I think bigger companies are going to continue working on it. We are going to see an efficiency improvement. They have been experimenting with it, and now they are going for an efficiency implementation.
More and more big companies will follow in Europe. And it will spread from manufacturing to services and to other types of organizations.
Open innovation was originally developed in large manufacturing companies, but it is moving very quickly to banks and logistic services. Even insurance companies are going to wake up in the next years.
In SMEs, we face the problem of managers, who don’t realize that they should innovate, not necessarily OI, but they should innovate and change. OI is introduced in SMEs on the initiative of the CEO.
OI will be introduced in SMEs by new generations of CEOs that we will lead small companies.
There are also a lot of high-tech startups, which are disrupting several industries. These are areas where OI is going to have a huge impact. It might be by small or medium-sized companies but not the big companies. The big companies might be interested in scaling it up (like Siemens and Philips) but will not be the initiators of it.
In my opinion, we are going to move from company to company relationships to more complex networks of innovation partners. For example, disruption in health care, driverless cars, etc. represent major shifts in the economy or society. They cannot be done by one company, one organization, or one government. You need a smooth collaboration between different partners who are all necessary to make a change.
We are going to end up with innovation ecosystems.
So we are no longer talking about 2 or 3 companies doing a specific innovation but a whole ecosystem that could be composed of 0 to100 organizations that jointly work on one objective. Innovation ecosystems also require new forms of management like ecosystem orchestrators, who are very important in making sure that everyone understands their role, that everyone is moving in the same direction, aligning their objectives and so on. That is a different level of OI, and that’s where it’s going to go in the future.
8. If you had a crowd of 100 SME managers and entrepreneurs in front of you, other than reading your book...what is the best advice you would give to begin elaborating the theme of Open Innovation?
I would say, go and visit one of the guys that have been doing it. Don’t go to seminars. Just have a look at people who have been doing it. You can even watch their videos online. However, it is still better to talk to one of these people or go to their speech or exposition, because they are the only ones that can convince you, as a SME manager, to start OI.
Rationally, professors can convince people, but they will not enact on what they hear. Many SMEs in Europe really need to change; we are talking about 80% of companies that are fighting commoditization of their products and fighting globalization and price competition. If they don’t change, we will see that they are going to be decimated.
So to avoid this deterioration of the competitiveness of many SMEs, they have to learn how to innovate, and they can’t do it on their own. They have to do it with partners and learn from other people.
Explore, as an SME manager, your own network and the possibilities you have. You will fail, nothing is perfect, but don’t give up. If you meet a bump in the road, try again.
Effective OI management can be learned. The big advantage of OI in SMEs is that if you do it right, it will lead to strong growth in revenues and profits.
Thanks to Wim’s outlook on OI in SMEs, we have been able to take a deeper look into the world of Open Innovation, especially from the point of view of a manager. His case studies are useful tools not only for SME managers and entrepreneurs but also for policy makers and graduate-level students.
As you can see, there is much to be explored and many businesses and organizations who still need to give OI a chance, but Open Innovation is the future.
It’s time to build a culture of Open Innovation!