The winner-takes-all thinking is losing relevance in the digital economy, which increasingly relies on connected business ecosystems.
While business ecosystems traditionally take the form of vertically integrated supply or value chains, they should now include competitors or players from other industries. This is based on the belief that collaborations will result in greater outcomes than what a single organisation could achieve alone.
As such, companies should embrace open innovation, wherein they cooperate with other organisations to achieve a common goal or get ahead in today’s business environment.
Open innovation enables organisations to ‘put their eggs in many baskets’ and reap the benefits of collaborating with external partners while pursuing their own innovation objectives at an overall lower cost.SzeKi Sim, executive director for Community & Brand at SGInnovate
"They have the opportunity to tap into a wider pool of ideas and resources — whether it’s academics, corporates, industry alliances or start-ups — and truly rethink the way products and services are designed and rolled out to stay ahead of competitors and disruption,” she adds.
Take deep tech innovation projects, like the development of messenger RNA (mRNA) vaccines or bioprinting technologies. Such projects call for wide-ranging and niche skillsets, which are challenging to acquire due to the acute global talent shortage.
Through open innovation, says Sim, organisations can work with partners like start-ups and academics to close the critical skills gap and accelerate a product’s time to market. She adds that working with partners that have already embarked on the product development process — from conceptualisation to testing, regulatory approval and the eventual rollout — can also reduce the innovation-related risks for any company that is starting from scratch.
Additionally, open innovation can help scale innovations, enabling organisations to build new businesses or revenue streams to sustain competitiveness. “While current innovation around the core business may deliver short-term impact and generate innovation theatres and corporate museums of prototypes, it is crucial that organisations shift beyond minimum viable product stages and hackathons,” says Andrew Roth, expert associate partner at Leap by McKinsey in Singapore, a business-building practice of management consulting firm McKinsey.
Building new businesses [through open innovation] focuses on a longer-impact horizon, with the potential to drive sustainable commercial growth and disrupt the market in purposeful ways.Andrew Roth, expert associate partner at Leap by McKinsey in Singapore
Interest in open innovation
More than half (55%) of the corporate executives in Asia Pacific considered building new businesses as one of their organisation’s top three growth priorities, according to a McKinsey Global Survey on business building in August 2020.
This is probably why organisations across industries are keen to adopt open innovation. Case in point: Market intelligence firm International Data Corp (IDC) predicts 75% of business leaders in the region, excluding Japan, will leverage digital platforms and ecosystem/open innovation capabilities by 2025.
Organisations that are most receptive to open innovation, notes Sim, are those that play in a highly dynamic and unpredictable landscape shaped by factors such as changing climate conditions, technological disruption, or highly disruptive global events. “Logistics and manufacturing are classic examples of this. They face a myriad of external challenges – from climate risks to labour shortages and digitalisation – necessitating an innovation approach that is agile and emphasises resilience,” she says.
Some countries in Asia Pacific are also encouraging open innovation on a national level to drive economic growth. Most notably, Singapore has various initiatives aimed at building and sustaining a vibrant innovation ecosystem.
“Through open innovation, corporates can forge partnerships and access external capabilities to develop innovative products and services, and accelerate their time to market,” says Lily Phua, vice president and head of Innovation at the Singapore Economic Development Board (EDB).
This is exemplified by the Surbana Jurong-NTU Corporate Laboratory. It combines Nanyang Technological University’s (NTU) strengths in engineering and sustainability research with Surbana Jurong’s expertise in the urban and infrastructure sectors to develop next-generation sustainable solutions that can help tackle industrial and complex urban challenges.
One initiative aimed at fostering collaborative innovation in Singapore is the Open Innovation Platform (OIP). OIP is a virtual crowdsourcing platform that connects and matches real business challenges or digitalisation opportunities of problem-owners to problem-solvers.
Besides that, SGInnovate launched the Open Innovation series with EDB. The series brings corporations with specific problem statements together with SGInnovate’s community of start-ups, which have the right expertise to solve those problems.
Taking it a step further, SGInnovate and EDB have also conducted two Reverse Pitches over the past few months for the supply chain and logistics industry and advanced manufacturing sector. Unlike regular pitch events or hackathons where start-ups present or create solutions, reverse pitches call for corporate leaders to showcase their internal problem statements and innovation needs, as well as identify the areas they would be open to working on with start-ups.
“Having clear problem statements takes out any of the guesswork with regard to the objectives of a corporate-start-up partnership. The start-ups that are interested in working on these challenges are then immediately encouraged to position and tweak their solution before engaging the organisation. This allows both parties to proceed to productive discussions faster and quickly ascertain if pilot projects may be possible,” explains Sim.
According to her, their corporate partners have presented 18 problem statements to hundreds of start-ups for the Reverse Pitch series so far. “We’re still in the early stages of this programme. However, a few start-ups have already embarked on proofs-of-concept with some of the corporate partners, and we are seeing healthy demand from the community for more similar initiatives,” she adds.
A clear strategy and measurable goals needed for open innovation success
Given the benefits of open innovation, how can organisations embrace it successfully?
Firstly, they must have a clear strategy with defined and aligned goals. Working with any partner, especially on pilot projects, can expose a company to a variety of risks. Sim therefore advises organisations to have “a clear alignment on objectives, reporting and communication processes from the start of the project, as doing so helps to maintain a certain degree of control while preventing the process from becoming too overwhelming for both parties”.
See: SGInnovate and WEF to jointly advance circular economy innovations in Southeast Asia
Providing a sandbox environment can also help reduce risks while allowing greater flexibility and experimentation. For instance, the Monetary Authority of Singapore’s (MAS) FinTech Regulatory Sandbox relaxes certain legal and regulatory requirements within well-defined parameters for fixed durations. This empowers financial institutions and FinTech players to innovate and test new models and solutions quickly, while enabling MAS to manage the risk and overall safety of the financial system with appropriate safeguards.
Secondly, organisations should be able to measure and communicate the effectiveness of their partnerships. “Failure to properly identify quantifiable metrics as the project progresses can lead to a range of internal challenges, such as a failure to secure buy-in from the top or difficulties around measuring success throughout the partnership. Proceeding without a way to monitor and measure these outcomes accurately will ultimately hinder the company’s likelihood of pursuing an expanded or subsequent collaborations,” explains Sim.
Thirdly, they will need to ensure their IT systems allow them to quickly innovate and easily adapt to changes. “[Open-source tools can help as they enable] faster implementation and provide improved flexibility to empower businesses to be more efficient, agile and innovative,” says Guna Chellappan, general manager for Singapore at enterprise open source solutions provider Red Hat.
He also shares that even organisations in highly regulated industries, like financial services, are increasingly embracing open source tools and approaches. DBS Bank, for example, is using Red Hat OpenShift Container Platform and Red Hat Ansible Automation Platform to empower its teams to innovate and respond to changes quickly to constantly deliver a delightful customer experience.
Building an open innovation culture
Since culture can shape attitudes and behaviours, organisations must ensure their internal culture supports open innovation.
Open innovation, notes Roth, goes beyond simple brainstorming workshops. “Routines and rituals shared within the organisation need to be codified and shared at every level, with leaders likened to be role models who display the right attitudes and actions to engender the ideal organisational culture,” he says.
Adding on to Roth’s point, Chellappan says: “Organisations will need to replace traditional, hierarchical management structures by convincing senior executives to adopt more collaborative interactions.
To ensure [open innovation] success, leaders need to rethink how they organise the company to get work done.Guna Chellappan, general manager for Singapore at Red Hat
He advises leaders to “create the context and provide conditions to enable their people to innovate and do their best work” by focusing on the three pillars that have been foundational in open source communities:
- Configuring constant change – Ensure processes are focused on experimentation and learning instead of planning.
- Enablement — Provide information and push the decision-making power to employees closest to the impact of the decisions.
- Engagement — Embrace new techniques to motivate the right behaviours. They should focus on enabling teams and individuals to collaborate to get their work done.
By having such an organisational culture, employees at all levels will be empowered to not only collaborate across teams within their organisation but also with external parties to co-innovate.
With changes coming at us rapidly, innovation is key for business survival. But it is not enough to innovate alone as organisations are no longer independent strategic actors. Success depends on collaboration with other firms in an ecosystem spanning multiple sectors.
As Roth puts it: “In the last decade, many organisations have built key corporate innovation capabilities such as design thinking, performance marketing and software engineering. The focus for the next decade is using these capabilities to scale through [open innovation to jointly develop solutions that contribute to new revenue streams].”
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