Magazine Summer 2020 Issue

Why Innovation’s Future Isn’t (Just) Open

Innovating with external partners doesn’t always give companies a competitive advantage. It needs to be balanced with internal efforts.

Neil C. Thompson, Didier Bonnet, and Yun Ye Reading Time: 16 min 

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Image courtesy of Sam Falconer/theispot.com

New digital technologies have upended conventional business models, organizational structures, and operating processes in most industries. Almost every aspect of business — customer relations, supply chain management, after-sales service — has been radically altered.

Nowhere is that more evident than in brick-and-mortar companies’ innovation processes. Facing tough competition from digital upstarts that are creating and capturing value in new ways, incumbents are trying to figure out how to keep up.

While the need for innovation in the digital age may be an open-and-shut case, CEOs of these companies aren’t sure whether their innovation processes should be open, shut, or both. Many businesses that used to depend only on internal innovation have begun to tap external innovation to quickly acquire the digital capabilities they need to navigate the constant stream of new technologies. However, forging partnerships and investing in startups doesn’t always confer a competitive advantage; often, we find, it only helps incumbents catch up with rivals. The need to acquire capabilities quickly is important, but companies must also continue to invest in developing key capabilities internally, even if that takes more time.

Most companies, our research suggests, should rethink their innovation systems and develop portfolios with a balance of innovation sources. They must treat external innovation as a way of broadening their portfolios, not as a substitute for internal innovation. Only then will they be able to execute the transformations that will allow them to win the digital future.

Reaching Out to New Partners

It’s beginning to dawn on many businesses, be they consumer-facing or industrial, that digital transformation isn’t just about investing more in IT, digitizing operations, and creating websites, mobile apps, and online channels to connect with customers and suppliers. All that improves efficiency, but it doesn’t alter the business model. A digital transformation is a deeper change.

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About the Authors

Neil C. Thompson (@profneilt) is a research scientist at the MIT Computer Science and Artificial Intelligence Lab (CSAIL) and the MIT Initiative on the Digital Economy, based in Boston. Didier Bonnet (@didiebon) is an executive vice president at Capgemini Invent and a professor of strategy at IMD Business School in Lausanne, Switzerland. Yun Ye is a senior manager in digital strategy at Adidas.

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Comments (5)
tagelsir gasmelseid
I add the emerging concern not only for revisiting innovation systems but also for reexaming and mainstreaming of the variables shaping the entire innovation(al) ecosystem especially in resource bounded environments
Nicolas Bry
Very sharp article, whose conclusion I fully share, balance in the key, co-innovation requires obviously internal innovation skills! I'm a bit surprise by the limited factor of innovating with customers and with startups compared to central R&D... I would have loved to see Monsanto mention environmental impact in his key innovation challenges...
Muthiah M
Very Good read and its insightful to know how to balance internal and external innovations.
Innovation  efforts  may not be helpful unless there is a significant and strategic shift in the business.
Dr. Muralee Menon
Good read! Experience seems to suggest the need to differentiate between information and knowledge, and how these are captured and utilised internally, and applied in the market can make a difference in developing a pliable business model.
Anonymous
I agree, innovation is a powerful driver of success, particularly internal innovation.  Does your company environment foster innovation?  Companies like Southwest Airlines, or private companies like Adams Beasley Associates, a design build company, treat their employees like trusted partners, driving and participating in the profitable growth of the company.  Innovation thrives.  They inevitably beat their competition, which drives change.