Here is an excerpt from an article written by Nathan Furr, Kate O’Keeffe, and Jeffrey H. Dyer for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.
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On an October morning in 2015, inside an aging beer factory in the Tempelhof neighborhood of Berlin, a group of people assembled amid idle machinery in the hope of transforming their respective industries with a novel approach to innovation. Standing shoulder to shoulder around oil barrels converted into temporary tables were innovation mavericks and senior executives at large established companies—Airbus, DHL, Caterpillar, and Cisco.
The gathering, hosted by Cisco, the California-based networking and technology company, was a crucial point in a process carefully designed to tackle the most pressing challenges at the intersection of supply chain and digitization. The goal: launch partnerships for groundbreaking solutions to shared problems within the next six months.
In an increasingly digital and connected environment, leaders of established companies frequently find themselves facing opportunities that they—or even their industries—cannot seize alone. The Berlin “Living Lab” (the name Cisco gives to such events) was a unique model for addressing such opportunities. Instead of relying on start-ups to create innovations and then buying in to them, organizations taking part in this new process, which we call ecosystem innovation, collaborate to develop and then commercialize new concepts.
Cisco Hyperinnovation Living Labs (CHILL) differs from seemingly similar approaches, such as R&D alliances, because it focuses on the fast and agile commercialization of ideas without a complicated intellectual property agreement. It also differs from traditional partnership efforts, because it brings multiple partners together at a very early stage all at once. “We believe that no one company can deliver the full breadth of technology solutions that customers need at the pace the market requires,” says Chuck Robbins, Cisco’s CEO. “This process brings our teams together with partners, customers, and other companies working to find new business opportunities. Through intense analysis and collaboration, these lab sessions result in breakthrough ideas that can be implemented or invested in by those that participate, including Cisco.”
Learning from R&D Alliances
We’re often asked how ecosystem innovation differs from R&D alliances, another kind of collaboration we’ve studied in depth. R&D alliances usually focus more on developing innovations, whereas ecosystem innovation focuses on commercializing them.
Another fundamental difference is that ecosystem innovation is designed to discover, explore, and validate big opportunities across companies in a very short period of time. Often a start-up is launched within or across companies to pursue an opportunity. In contrast, R&D alliances are designed to explore and build knowledge that has been carefully defined by the collaborating firms at the outset, typically over a period of years.
A third difference is governance. R&D alliances typically rely on elaborate contracts or equity (in a joint venture) to protect IP. Cisco Hyperinnovation Living Labs (CHILL) takes a simpler approach, making a team’s discoveries available to all participants in proportion to their investment in them.
That said, our study of R&D alliances has produced insights that may be valuable to other forms of innovation and R&D partnership. The 353 companies participating in the 121 R&D alliances we have examined had better performance outcomes (measured by number of patent applications, commercialization of technology, and valuable knowledge generated) when:
o They devoted more technical personnel to the alliance. Companies that sent only one or two experts did not do as well as those that sent four to six. The additional participants improve brainstorming by helping the team see problems from multiple angles.
o They communicated frequently with their partners throughout the R&D process.
o They were strongly satisfied with IP protections—which increased their willingness to share ideas and knowledge more freely.
o The alliance did not include more than four companies, which cut down on coordination costs and free-riding.
o They did not have a competitor in the alliance (although those that did have one performed much better if they also had a university partner—presumably because the latter supplies more useful new knowledge than a competitor does).
o They pursued ambitious projects, which seem to create more excitement among players and thus attract higher-skilled participants and greater financial commitment.
Finally, we found that the company initiating the alliance achieves better performance outcomes than do companies that are invited to participate. We believe this is because the leader’s key players have a clearer vision of how the alliance can create value, are more committed to the project, and therefore are more likely to commit resources, both human and financial.
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Here is a direct link to the complete article.
Nathan Furr is an assistant professor of strategy at INSEAD.
Kate O’Keeffe is the managing director of Cisco Hyperinnovation Living Labs.
H. Dyer is the Horace Beesley Professor of Strategy at Brigham Young University’s Marriott School.
Jeffrey H. Dyer is the Horace Beesley Professor of Strategy at Brigham Young University’s Marriott School.