Innovation Perspectives – When to Co-Create

This is the sixth of several ‘Innovation Perspectives‘ articles we will publish this week from multiple authors to get different perspectives on ‘How should firms collaborate with customers and/or value chain partners to co-create new products and services?’. Here is the next perspective in the series:

by Mark Roser

With some apologies to Braden, I reconfigured this question to focus on the notion of “when” do you really need to collaborate & co-create to achieve new products or services? When is it better to manage it all in-house? When is collaboration the right idea?

Let’s start with the null hypothesis: projects that lie squarely within an organization’s “sweet spot” are better off developed in-house. In other words, for incremental improvements to a company’s existing product line it is better for division and group leadership to tell their internal teams to “just do it”.

I assert that this internal-only decision is justifiable. As open-innovation proponents, readers of Blogging Innovation know that collaboration and co-creation will provide new opportunities and additional benefits not available within a company’s four walls. However, for such programs is hard to justify the effort of establishing a co-creation development program, the commitment of resources to managing the relationship, the time required to gain approval of two product review boards, the exposure to IP risks, and the distraction of taking on a new way of doing business.

So, when should a division or group leader justify a more collaborative approach? I believe the key measure is to evaluate a project’s distance away from the sweet spot. Six key areas can be evaluated to see whether or not a project fits within an organization’s sweet spot:

• Strategic domain
• Core competencies
• Budget focus
• Existing organizational structure
• Investment magnitude
• Access to the distribution channel

To which I introduce the current hypothesis: as projects veer away from lying squarely within organization’s sweet spot boundaries – division & group leaders run a greater risk of failure by not collaborating. In other words, as projects require higher levels of effort outside of normal business routine, they benefit from higher levels of collaboration.

Strategic Domain Questions

• Is a new growth area inside of your organization’s current or future strategic domain?
• Is this new opportunity considered by your peers to be within your comfort zone?

Core Competencies Questions

• Do you have staff that are comfortable and agile with this new technology or marketplace?
• Do you have more expertise in this area than your competition?
• Could you hire sufficient talent quick enough to give you an advantage over your competition?

Budget Focus Questions

• Does this program have sufficient corporate attention to garner full budget focus (or is it lower on the list of funded projects)?
• Do you have enough funding to bring the project to completion (as well as reserves to accommodate the increase in set-backs and over-runs associated with embarking on a new and unfamiliar type of project)?

Existing Organizational Structure Questions

• Do you have existing business units in your group or division that this technology would clearly fit within (or would a cross-division or corporate-level investment be required to address this opportunity)?
• Do you have existing teams that focus on this market or technology,(or do you need to create a special team just to pursue this opportunity)?

Investment Magnitude Questions

• Can your organization suffer the consequences of failure without a material impact on your stock price (or do you need to socialize the risk in order to accommodate this magnitude of investment)?
• Can you invest in this one program without burdening other projects in the pipeline (or does it require you to bet the bank and take too much resource from other programs)?

Distribution Channel Access Questions

• Assuming you have (or can attract and retain) the right talent to develop this new product or service – is your organization ready to deploy and distribute it at a pace that will provide market leadership (or do you need greater access to the market to avoid being eclipsed by a rival)?

Exploring new growth paths is a priority. Companies must explore new growth paths to sustain themselves. Projects that stretch a division or group out of its sweet spot to explore a novel technology or market expose the company to more costly risks.

Risks are more costly in new areas because it is harder to recoup any value from failure. The great majority of new product ventures fail, but the lesson’s learned will help the next generation succeed. When a new program is outside a company’s sweet spot, the company may decide not to pursue the program any further. The lessons learned, therefore, don’t yield the same value because they can’t benefit a future program.

Partnering with a group that sees the project as closer to their strategic domain enables them to calculate the exact same market/technical risks much differently. A division leader in this organization will be able to absorb set-backs much more easily, as their organization’s future success depends upon the division overcoming these obstacles. The lessons learned have residual value to such a company.

Case – Nike collaborated with Apple to introduce the Nike Plus technology to link an athlete’s running experience with their media experience. This new media technology is more of a stretch for Nike, and lessons learned in the consumer electronics market would not have helped them make a better sole, upper or piece of athletic gear. Set-backs for Apple along the way, however, became stepping stones for the company to learn more quickly than any of its competitors in tackling this important consumer electronics niche.

Apple could assume the same technology risk more confidently in this space than Nike – so a collaboration was an ideal solution.

Conclusion

Division leaders, group leaders and CTO’s should evaluate investments in new product & service explorations to first understand whether they fit within their organization’s sweet spot. The closer to the sweet spot – the more programs should be run internally, the farther away from the sweet spot – the more programs should be run through a collaboration. Partners who are more closely aligned with a future program can bring a wide range of benefits, and can discount their investment in the area because the costs of failure are more tolerable and necessary to stay viable in their market.

You can check out all of the ‘Innovation Perspectives‘ articles from the different contributing authors on ‘How should firms collaborate with customers and/or value chain partners to co-create new products and services?’ by clicking the link in this sentence.

Mark Roser has been working with companies internationally for over 12 years to identify new markets, clarify product & service growth opportunities and lead exploratory development programs. He can be reached at mark.roser*at*openinnovators.com