Collaborate to innovate

C&I Issue 12, 2007

Within the web-based dictionary Wikipedia, the word collaboration has many different definitions. There is, in fact, a warning that it has many meanings, said BASF innovation spokesman Peter Wolf, speaking at a recent conference organised by the European Chemical Marketing & Strategy Association. While more usually it means the act of working together with one or more people in order to achieve something, it can also mean the betrayal of others by working with an enemy, ‘something that may sometimes be at the back of partners’ minds,’ he cautions.

In the area of product innovation, however, companies increasingly appear to be putting such fears to one side. The traditional approach of internal new product development, ‘based on a culture of “not invented here” and a sense that anything else outside is not seen as serious, is being replaced with collaborative innovation and a culture of “proudly found elsewhere”,’ says Joachim von Heimburg, director of corporate R&D, innovation and knowledge at Procter & Gamble.

The driving force behind this increased collaboration, comments Brian Chermside, chief marketing officer at Dow Corning, is a perceived slackening off of in-house innovation in recent years. Although internal innovation has been very successful in the past, over the past 15 years it was not renowned for its success. Among some of the problems, he continues, are the fact that the typical seven-10 year product life cycle means return on investment is slow, that the industry’s products are often ‘ingredients’ and that innovation is only seen in product development. By overcoming these factors, he adds, the industry ‘can show that innovation is rampant’, over the next 15 years.

P&G’s Heimburg also points to an acceleration in the pace of innovation, as well as its increasing cost and constrained resources, as other factors encouraging greater collaboration. Increased competition means that followers are now copying product concepts faster and consumers are becoming more demanding as a result of increasing choice and knowledge.

For P&G, two main reasons lay behind its original decision to collaborate, he added: a 50% drop in P&G’s share price in 2001, and the vision of P&G ceo Alan Lafley that P&G ‘will acquire 50% of our innovations from outside P&G’. A key driver for all forms of innovation is P&G’s requirement to generate an additional revenue of $80m/week to meet the company’s ambitious growth target of $4bn.

A culture change beginning at P&G in 2002 has resulted in an increasing number of products coming from external collaborations, Heimberg continues. In the period 2002/3, there were four such new products, rising to 137 by April 2005 and, by May 2007, 52% of pipeline products come from external collaborative innovation.

Behind this growth is the company’s switch from just internal R&D to its current approach known as connect and develop (C&D). One thing this is not, says Heimburg, is the outsourcing of R&D to save costs. ‘It is about leveraging the R&D capability of the outside world. We believe there is a ready-to-go solution for all our top needs.’ Identifying those needs is equally as important as finding solutions, he adds: ‘We also believe that a problem well defined is a problem half solved’.

The C&D approach is based on building external innovation networks, supported by fast screening methods with feedback for new ideas – to avoid what Heimburg describes as the ‘black hole phenomenon’ where ideas disappear. It is essential to determine from the start on a sharing of risks and rewards. And when partnering for the commercialisation of a successful idea, it is essential to create maximum value for both partners, he adds. While R&D converts knowledge into profits, Heimburg believes, ‘C&D increases the chance of this conversion’.

P&G operates in 150 sciences, ranging from analytical chemistry to nutrition and microbiology, and employs around 10 000 people globally in R&D, but over 1.5m high quality scientists are available externally. These idea generators can be found in academia and research institutions, among venture capitalists and investment banks, suppliers, former employees and even competitors. To access them, P&G has established a technology entrepreneur network, with over 70 members to act as ‘scouts’ for new ideas across 126 countries. In its first year of operation this so-called ‘product sensing’ network identified 1100 innovation leads.

P&G also uses organisations like YourEncore, of which it is a founder member along with Eli Lilly, and web-based services like NineSigma, a network of scientists, researchers and technology solution providers, and, which brings buyers and sellers of technologies together. US-based YourEncore is a network of high performing retirees who are provided administrative, marketing, and accounting support, allowing them to focus on solutions for member and non-member companies. More recent joiners include National Starch and Boeing, and, according to Heimburg, the organisation is looking to expand into Europe.

Innovation takes place at the interfaces between a company and its customers, science and the marketplace, adds Dow Corning’s Chermside. ‘At these interfaces, human dynamics, diversity of thought and market demands spur innovation.’

‘Outside partnerships have proven to provide a competitive edge,’ says Chermside. He quotes a 2006 study by IBM which discovered that companies with higher sales growth used external parties ‘significantly more’ than those with slower growth, that business partners and customers were the most significant sources for innovative ideas after employees, and that two out of three top ideas now come from outside sources.

But collaborative innovation can take different forms. It can be one-to-one, that is with two partners; one-to-few, with a small group of collaborators; or one-to-many, involving a large consortium. Chermside believes one-to-one joint collaboration is very efficient but can be harder to capture maximum value, and requires good joint project management to control investment and to make go/no go decisions on projects and their progress. He lists the challenges as intellectual property management, the cultural fit between the two organisations, information management within the project team and an understanding of the final market and the ability to speak the customer’s language, the latter two being critical to anticipating future needs.

Collaboration with more than one partner is much more complex, as it requires balancing the goals and approaches of the different parties, although Chermside believes participants can capture more value by working in larger networks. It is essential to maintain good information barriers within a company between each request, he notes, adding that it is important to get and keep one’s own team on board.

In looking for possible collaborators, Chermside says it is essential to identify partners with unique skills and competencies, with demonstrated skills and capabilities in co-development. It is also essential to define what everyone wants from the relationship and start collaborating early, taking time to explore comprehensively and sensitively the needs of all the parties involved and to develop a design for the whole process and the best total solution. ‘Anticipate, and avoid surprises,’ he adds. It is better to start with shorter term projects and to measure their progress, to ensure that all partners are involved and that they are all learning, but also so that it becomes obvious when a project is not working. ‘It is very important to have a very clear exit strategy,’ he says.

Collaboration means obtaining results, including patents and, often more important, know-how, as well as software and databases – intellectual property –says European patent lawyer, Jacques Warcoin. And, in the case of interesting results, ‘the principle of future negotiation in “good faith” is a fairy tale. Results mean determining who is the owner of those results and who will use those results?’ Intellectual property and its ownership is a key issue in successful collaborative innovation, and one with many pitfalls.

Involving IP lawyers too early in the formation of a collaborative project can slow or even stop it, but delaying their involvement in the establishment of formal contracts can have a disastrous effect on its future.

So the message for all potential collaborators is, according to Warcoin: ‘Be optimistic for your collaboration, but remember the good guy who negotiates the collaboration will be replaced in the future by the bad guy who will interpret the agreement.’

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