The Secrets to Making Open Innovation Projects Work

The Secrets to Making Open Innovation Projects Work
By: Dr. Bethany Valente

Open innovation often requires global teams with national culture differences to work together, which presents some challenges. Here’s how to navigate them.

Open innovation enables high-technology firms to reach beyond the confines of their local headquarters and collaborate with global internal and external ecosystem members to create, develop, build, market, distribute, service, finance, and support innovation projects. Effective implementation of open innovation strategies has a proven track record of yielding significant competitive advantages such as increased speed to market, shared risk, and increased profitability. Instead of R&D departments relying entirely on their internal resources to innovate, they can coordinate with their global subsidiaries and external ecosystem members to discover groundbreaking solutions at lower costs. Successful coordination often moves companies into more sustainable market positions than those that poorly implement open innovation strategies or ignore open innovation strategy altogether.

Open innovation often requires engaging global teams with stark national culture differences to work together, which presents some challenges. First, national culture attributes are either positively or negatively associated with innovation rates. On top of that, cultural silos — subgroups characterized by similar cultural attributes, such as a set of values, conventions, or societal practices associated with a societal characteristic, which operate independently and avoid sharing information — can inhibit open innovation. Geographical silos prevent knowledge creation and sharing. And a lack of embeddedness between corporate headquarters and the foreign subsidiary impacts the effective facilitation of global innovations. A final barrier is “not-invented-here” syndrome, in which people and organizations avoid things they did not personally create.

These roadblocks can be detrimental to R&D efforts without the proper resources or communication strategies. By examining each of these issues and identifying ways to mitigate them, research firms and other organizations can engage in more successful open innovation.

How These Challenges Impact Innovation and Collaboration Efforts

For organizations to understand how they can move forward from the above challenges, they need to know the root causes and how these challenges originate.

National cultural attributes significantly impact communication in open innovation projects, yet communication is one of the most important factors of effective collaboration and open innovation. The open innovation process can create informal cultural silos, as defined above, that inhibit knowledge sharing, collaboration, and creativity. Formally, language barriers mean that important information can be lost in translation.

In my research about open innovation, I examined how a Japanese corporate headquarters navigated cross-cultural projects. The headquarters kept a majority of its innovation activities in Japan and selectively requested input from its Western counterparts. The regions would exchange information, but sometimes the information never made it to the Japanese headquarters, or the Japanese headquarters discovered the knowledge and did not communicate it to their Western partners. This created several problems, including wasted resources and missed information that would have shortened development time and decreased cost.

Organizations often struggle with a lack of embeddedness, yet global innovation hinges on high embeddedness. Lack of embeddedness causes the headquarters of a global organization to overlook local innovations of foreign subsidiaries. There is also the risk of corporate headquarters becoming overly embedded to the extent they stifle the foreign subsidiaries’ ability to innovate locally. Successful organizations manage this dichotomy by embracing new opportunities while also having the flexibility to benefit from the foreign subsidiary’s innovations.

Finally, not-invented-here syndrome challenges the foundation of open innovation, despite its prevalence in cross-cultural projects. Outside knowledge is vital to innovation, yet NIHS prevents firms from utilizing relevant ideas. Sometimes NIHS arises for emotional reasons, such as pride or distrust. Organizations might prioritize gaining knowledge from outside subsidiaries but fail to implement new strategies due to pride.

The Impact on Middle-Market Companies

Larger enterprise-level companies typically understand the importance of open innovation and what makes it successful, but smaller, middle-market companies often neglect to prepare for the impact of cultural differences when joining forces with their global subsidiaries and external ecosystem partners.

Smaller middle-market companies might think of cultural differences as intangible investments and therefore only deal with issues once they arise. They might not have the time, resources, or risk tolerance to navigate open innovation. Middle-market firms do not proactively complete a risk assessment of cultural barriers and their potential implications when electing to engage in global open innovation projects.

Still, risk assessments of not considering the cultural barrier should be a part of the global expansion plan. If a small business owner understands the risks of failure (costs) in terms of profit versus loss or loss of market access versus revenue, they will likely account for cultural barriers in the future. For example, because specific national culture dimensions correlate with higher innovation rates, understanding which cultural dimensions are associated with higher innovation rates will help a business owner understand strategies for their global expansion.

Strategies for Effective Communication and Collaboration

Although some findings pertaining to global R&D and open innovation seem obvious, two surprising insights are the disconnect between aspirations and practices and the need for effective communication. Let’s apply these ideas to global R&D.

First, aspirations must have a path to success. Careful strategy helps companies prepare for knowledge sharing and avoid the pitfalls associated with the challenges discussed earlier. Leaders in global open innovation are proactive and utilize open innovation strategies in advanced scientific processes versus only basic scientific processes, such as what the world witnessed in the development of COVID-19 vaccines and Gilead’s hepatitis C therapy. Effective global innovators challenge their corporate cultures and national culture barriers to propel companies forward.

Second, in the world of global innovation, cultural differences and misunderstandings are practically unavoidable. Other issues, such as the four challenges associated with open innovation, fall within an organization’s control and can be mitigated with strategic communication and collaboration strategies.

At the end of the day, action plans are necessary for proactivity and agility in the marketplace, achieving innovation strategy goals, and creating an environment equipped to resolve cultural barriers. When creating action plans, here are the considerations that leaders and teams should keep in mind:

1. Understand national culture dimensions relative to innovation rates and intellectual property protections.

Investing in a global innovation strategy feels like entering the stock market: You take bigger risks if you enter into areas that do not culturally align with yours. This could lead to higher returns or a massive fallout. If you do not take the time to understand the cultural data of your operating environment, it’s like buying a high-risk stock while knowing nothing about it. Cultural information helps you anticipate where issues could arise and prepare to overcome them.

2. Designate observers on global development projects.

Time differences and cross-cultural communication barriers are inevitable, yet they cost companies a lot of time and money. To help overcome the barriers, each cross-cultural team should include one or two people in the role of observers. Observers will monitor meetings and exchanges and keep an eye out for tension points that block innovation. Once they notice these roadblocks, they should report the tension points to the appropriate leaders and develop action plans and human resource development programs to alleviate the burden. This provides opportunities for high technology firms to notice areas for improvement and growth, help the company become nimbler, and increase employee satisfaction on the projects.

3. Complete a corporate embeddedness assessment of your organization.

Corporate governance structures drive the level of embeddedness, so governance can be a major contributor to corporate culture. An embeddedness assessment will help you understand where your organization might be too embedded versus underembedded with the foreign subsidiary, which negatively impacts transforming a “local” innovation into global innovation. This assessment should be implemented at the onset of a global development project and performed periodically. This gives the leadership team meaningful information to ensure they are not missing global innovation opportunities.

When performing the assessment:

  • Evaluate the organization chart to identify how the subsidiary is being run;
  • Look for areas of opportunity to become more or less embedded;
  • Survey the foreign subsidiary’s team members about how they perceive corporate headquarters’ involvement; and
  • Compare successful and unsuccessful global open innovation projects to see what worked and what didn’t; and
  • Compare and contrast the differences in levels of embeddedness with outcomes.

When completing the assessment, don’t make excuses for failed projects and don’t treat success as an exception. The goal is to objectively identify success and failure factors in order to instill these success factors into the culture and organizational structure.

Global open innovation will be important to gaining and maintaining a competitive edge. Those cultural barriers can either result in a failure to innovate or can uncover opportunities for growth. Strategic direction, clear communication, and careful planning will lead to stronger outcomes, but that depends on accurately assessing national culture. What cultural factors are holding back your open innovation projects from reaching their full potential?

About the Author

Dr. Bethany Valente is the founder and managing partner of Tempo7 LLC, an innovation strategy consulting firm that develops strategic initiatives and uncovers growth opportunities through the Open Innovation Opportunity Program. Tempo7 LLC helps biotechnology, pharmaceutical, CROs, and legal professionals to become industry leaders in today’s global, dynamic marketplace. She is currently co-authoring an academic article on the topic of national culture, national innovation systems, and open innovation strategy.

Featured image via Pixabay.

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