The Architecture of Collaborative Innovation

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    Copyright 2007 The Warren Company All Rights Reserved Page 1

    Harness t he Pow er o f Co l l abora t i ve I nnova t i on sm

    The Arch i t ectu re o f Co l labora t i ve I nnov a t ion

    Using Cross -Boundar y A l l i ances as I nnova t ion Eng ines to

    Un leash th e Pow er o f t he Va lue Cha in

    By Robert Porter Lynch

    Seek ing an A rch i tec tu re f o r Co l l abo ra t i ve I nnova t i on

    Over fifteen years ago, seeking an approach to reverse the terrible success-rate of strategicalliances, our team conducted a best practice analysis of alliances. This resulted in thecreation of anAllia nce Archit ecture that, for the first time, provided an applied system ofsolutions, strategies, structures, processes and metrics for creating, launching and managinghigh performance strategic alliances. This architecture has resulted in shifting the success ratesof strategic alliances from a dismal 25% in the early 1990s to a respectable 50-80% success ratenow. 1 Consider this statistic:

    In 1990, alliances contr ibu ted a m ere 2-3% of the revenues of For tu ne 100 0companies. Today alliances strengthen t heir revenues by a factor of 30% and

    that proportion is still climbing.

    Beginning in 2002, our team commenced an updating study of alliances that had sustainedthemselves over a period of more than five years. Based on this analysis, we concluded that thealliances ability to generate innovation was a significant factor in long-term sustainability.

    But more importantly, we found alliances were a powerful source of innovation as well. Bycapitalizing on the synergy of compatible differences, alliances hold unique potential asengines of innovation, enabling the transformation of new ideas into new products, services, andsolutions. (for full results from the study, see footnote2)

    Conc lus ions f r om Stud y

    Based on our study of innovation across business boundaries, we concluded that the bestcompanies have had a deep rethinking about how they think about their core business:

    a. I n t e r na l ve r sus I n t e r -O r gan i za t ion a l B us i nes s Mode l s : The best companies see theirbusiness as part of a more interconnected value chain or network and create a strategic system forcreating, aligning, and managing the creation of value. This involves a very intensive rethinking of

    what value means to their businesses and to their customers, and is clearly communicated intothe supply chain.

    b. Supp l ie r s a s a S t r a t eg i c Asse t : During the last 50 years spending on outside suppliers rosefrom a mere 20% of total corporate expenses, to nearly 70% (in some cases more) of expenses.This fundamental shift has made what is now called supply chain a major strategic asset thathas not been effectively addressed by scholars or businesses. Too many companies still see theirsupply chain as an expense and treat suppliers as vendors, reflecting an out-of-date mentality.The best companies segment their suppliers into at least two categories strategic suppliers andcommodity supplier, the former receiving special attention for the co-generation of innovationstreams.

    1 Percentages vary based on several studies in the US and Europe. Simple use of best practices tends to yield at least

    a 50% success rate, and a more disciplined approach tends to yield significantly higher rates.2 See http://www.enginesofinnovation.com/html/innovation_study.html

    http://www.enginesofinnovation.com/html/innovation_study.htmlhttp://www.enginesofinnovation.com/html/innovation_study.html
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    Robert Porter Lynch ___ The Architecture of Collaborative Innovation

    Harness the Power of Collaborative InnovationSM

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    c. Pow er o f Co l labor a t i ve I n nova t i on : As innovation becomes more pivotal in businessdecisions, and suppliers more critical to the generation of value, the best companies create moreeffective strategies, architectures, and models, for cooperative creativity than what has been reliedupon in the past. The best companies recognize that collaborative innovation is one of the mostpowerful means of creating new ideas that impact revenues as well as expenses. They recognizethat differentials in think ing are the primary source of innovation, and this can only come fromhaving a broad series of alliances both internally and externally.

    d. N ego t ia t i ons & R i sk Managem en t : Current models for cross-corporate negotiations, contractmanagement, and risk management are based on shedding risk, maximizing value for one party

    while minimizing for the other, and managing relationships tactically/transactionally. Thesemethods have diminished or even negative impact in this millenniums fast moving, inter-connected world when applied to both primary suppliers and customers. .

    e. R evenue I m pac t o f Supp l ie r s : The flow of innovation from suppliers can have major impactson revenue as well as cost for the modernenterprises. A strategic review of this impact isessential. The best companies look deep into their supply base for new ideas, products,technologies, services, solutions, and business models that could enlarge their top line. Supplymanagement links with R&D and Marketing to explore these possibilities.

    f. Im pa ct of Cr i t i ca l Dr ivers of Com pet i t ive Advan tage : With the change in the drivingforcesof competitive advantage, where the traditional drivers based on Size,Positional/Transactional Power, and Financial Clout have been superseded by Speed,

    Aligned/Collaborative Power, and Innovative Agility, a new model of competitive advantage isessential.3 In a new model, supply chain management develops greater skills in valuemanagement, organizational integration; and strategic alliances become an integral part of theempowerment of the value chain.

    The Ba t t l e o f Va lue Cha ins

    Ultimately, any corporation must deal with the fundamental issue of how to deliver value andcreate competitive advantage in the marketplace. No company is an isolated element, each ispart of a value chain.

    And, in the larger scope, w inning the com petitive gam e is more a question of how to create an

    entire value chain that is more comp etitive than that of other rivals. In our fast moving world,Collaborative Innovation is the most critical ingredient in generating sustainable competitiveadvantage.

    This cannot occur if the relationship with both our supplies at the sourcing end of the valuechain and the customers at the sales end of the chain is adversarial, transactional, ordisassociated. A collaborative relationship with primary suppliers and customers is essential ifinnovation is to flow and flourish; and creating this essential

    Too many of our current business and economic models are founded on the view thatcommercial enterprise is based on independent stand-alone organizations. The new order ofthinking challenges currently accepted wisdom and challenges its presumptions.

    Wh y S t ra teg i c A l l i ances as a Sou rce o f I nnova t i on? Alliances are particularly well positioned to produce innovation because they enable fluid accessto the fundamental source of innovation:Differentials in th inking. The old adage: if twopeople in the same room think alike, one is unnecessary, prevails:

    In nov at ion com es from people w ho see their w orld in new and d ifferent w ay s.

    3(see: Burt/Lynch Model of World Class Supply Management)

    http://www.enginesofinnovation.com/html/world_class.html#InnovationStepCharthttp://www.enginesofinnovation.com/html/world_class.html#InnovationStepChart
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    Robert Porter Lynch ___ The Architecture of Collaborative Innovation

    Thus, by tapping into the co-creative energies of differentials in thinking, and aligning thoseenergies positively, cross-boundary alliances can become the unique structure in anorganization to unleashing the innovative potential of the synergies of differentials.

    However, while new paradigm generation originates from people who do not think alike, all toooften people with different perspectives cannot synergize, or worse, they disregard or even

    destroy the value from those with whom they dont share a common perspective. An effectiveCollaborative Innovation Architecture must be designed to create vital synergies, not let otherforces destroy them.

    Def i n i t i on o f Co l l abo ra t i ve I nnova t i on

    We define Collaborative Innovation as:

    The recursive interaction of co-creativity, know ledge, and m utual learning

    between tw o or more people working together toward a comm on goal of

    generating n ew sources of growth or w ealth in an organization.

    Pow er o f Co l l abo ra t i ve I nnova t i on

    During our recent research, we asked scores of executives: What is the most sustainable sourceof competitive advantage? The conclusion was quite revealing. We found a wide concurrenceamong senior executives with this statement:

    In a Fast Mov ing, Rap idly Changing W orld, the Most Sustainable Source of

    Competitive Advant age is Collaborative Innov ation.

    Simply put, Collaborative Innovation is the most robust and regenerative way to create truevalue and growth.

    Th e W h y a n d W h a t o f I n n o v a t i on

    Invariably growth and innovation are top-of-mind priorities for every senior executive.Innovation is the critical difference between business success and failure; its one of the mostimportant elements in creating wealth. But, from our study, most senior executives indicatedthey struggle with two simple questions:

    1. Is there a clear architecture/ system to m anage for innovation?2. Preciselyw here do you expect growth an d innovation to come from :

    organic growth, acquisitions, or alliances?

    These questions typically fill the senior executive with ambiguity; puzzled over realities ofexecution and concrete action. Whats been needed is a coherent strategic system to transforminnovation from the realm of the ephemeral into the firm grasp of the dedicated practitioner.

    Prob lem s Execu t i ves Typ ica l l y Face

    In our many discussions with senior executives, we found three recurring themes:

    1. While Growth & Innovation are Top-of-mind, our Efforts are Falling Short: Were just not generating enough new revenue Innovation remains a set of scattered, tactical/small scale efforts Sadly, innovation is killed during our acquisitions Its occurring, but at a very slow rate too slow to impact the market R&D is just not paying off; it may be a waste of money

    2. Innovation is Ambiguous and Confusing:

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    Robert Porter Lynch ___ The Architecture of Collaborative Innovation

    Innovation appears to be nothing more than a pastiche of slogans, tools,techniques, aphorisms, and platitudes, with not enough real results

    Innovation doesnt seem like its based on any kind of concrete management system,so I cant seem to get my arms around what to do.

    Our approach seems to contain too many tools & techniques; its confusing what touse and when to use it

    We are only focusing on technology thats just too narrow.3. The Innovation Onslaught is a Massive Competitive Threat:

    Our competitors are out-innovating us it seems double, or even triple ours rate If we dont do something powerful, we might become extinct

    Any Collaborative Innovation Architecture must address these issues directly, thus puttingsenior management back in control of its innovation program with the expectation that theirinitiatives will result in a powerful Innovation Engine.

    Cla r i f y i ng t he Mean ing o f I nnova t i on Si x Types

    One of the biggest problems with innovation is its true meaning:

    Fundamentally, invention is a sub-set ofinnovation; but all-too-often invention isconfused with innovation resulting in both a mystification and exclusion of non-technical people from innovation.

    Innovation is far broader. Our study found there are six distinctive types ofinnovation powering the innovation engine, which can be used in combination

    with each other, to gain both strategic and operational advantage:

    1 . Tech n o lo g y I n ve n t i o n s2 . System So lu t ions3 . Pr o d u ct I m p r o v em e n t s4 . Pro cess I m p ro ve me n ts5 . Business Models6 . Marke t Extens ions

    The good news for business is that, with the exception of technology invention, an employeedoes not require an engineering degree making the majority of innovation available toeveryone no matter what rank or educational level!

    Elemen t s o f Co l l abo ra t i ve I nnova t i on A rch i tec tu re TM

    Collaborative Innovation Architecture TM is designed to manage the critical and complexprocesses that underpin innovation systems. Consisting off o u r k ey e lem en t s :

    1. S TR A TE GICEle m en t s Essen tial Best Practice Com ponents

    1A. St ra tegic Im per a t ive & Com pet i t ive Rat ion ale

    1B. Value Chain Linka ge & Networ k Des ign

    1C. St ra tegic & Inte rn a l Al liances1D. Pol ic ies , Pr inc ip les , & Pr ogra m s

    We have uncovered over400 Best Practices that

    support the CollaborativeInnovation Architecture.

    TM

    These are available in a

    variety of learning andapplication formats.

    Rat ion ale:STRATEGICElements. Se t D ir ec t i on , Pu r p ose , Va l ue Es t ab l ish Com pe t i t ive A dvan t age

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    2 . S Y S T E M I C E le m e n t s Essen tial Best Practice Com ponents:

    2A. Sen i o r Execu t ive Leade r s h i p

    2 B . I n n o v a t io n Ch a m p i o n i n g2C. Cr o s s -B oun da r y D yna m i cs

    2D . O r gan i za t i ona l D es i gn fo r I nn ova t ion

    2E. Cr ea t i ng t he I nn ova t i on Cu l t u r e

    Rat ionale: S YSTEMICElemen ts. P e r v a d e t h e I n n o v a t io n T e r r i to r y Ena b l e t he S t r a t eg ic E lem en t s E m p o w e r t h e Co r e E le m e n t s Al ign t he Supp or t E lem en t s Coor d i na t e & Synch r on i ze A ct i ons

    3 . PER FO R M A N CEEle m en t s Essen tial Best Practice Com ponents

    3A. Co l labor a t i ve I nnova t i on Pr oces ses , P r ac t ice s , Tools , & Techn ique s

    Filling the Pipeline w ith Joint Ideas and In nova tion flow s Triaging Innovation & Integrating Innovation Cross-Boundary Collaboration for Innovation Man ag ing t he Collaborat ive Innovat ion Portfolio Comm ercialization in the Collaborative Env ironm ent Man ag ing Coopera tion & Co-Creation Fast Tim e Processes & Non -Value Add Reduct ion

    Co-Creative Negotiations for Collaborative Innovation Man ag ing Breakdow ns & Turn ing Breakdow ns in to Breakthroug hs Com bating Not Invent ed Here, Overcoming Innovation Obstacles

    3B . P i lo t P r o j ec t s an d Sca l ing Pr oces ses3C. Coor d i na t i on & Synch r on i za t i on ac r os s Boun da r i e s

    Rat ionale:PER FORM AN CEElements .. Ar e t he C r i t ica l P r oces ses & Pr ac t i ce s t ha t ac t ua l l y p r odu ce i nnova t i on Ar e t h e L ink ages t ha t conn ec t t he P r o ces ses & Pr ac t ice s

    4. S UP P OR TE le m e n t s Essen tial Best Practice Com ponents :

    4A. Collabor a t ive Met r ics , Rewa rd s , R isk Ana lys i s & Diagnos t ics

    4B. Legal , Cont r ac tu a l , & In t e l lec tua l Pr ope r ty4C . H u m an R esou r ce Se lec t ion & Capa b i li t y B u i ld i ng

    4D. Sup ply & Al lian ce En gagem en t of Value Chain

    4E. Pe r sona l R e l a t ionsh i ps & Tr us t Bu i l d i ng

    Rat ion ale: SUPPORTElemen ts. Pr even t Mi sa li gnm en t , D ys f unc t i on , and D ysphor i a Augm ent t he S t r a t eg ic , Sys tem i c, and Cor e Ac t ion E lem en t s

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    App l i ca t i ons

    Collaborative Innovation ArchitectureTM

    is specifically designed for situations where thereare differential/trans-organizational boundaries, making it particularly applicable for:

    Alliances & Joint Ventures Supply/Value Chains/Networks Functional & Cross-Functional

    Teams

    Company to Company Business Unit to Business Unit Mergers and Acquisitions

    Steps t o Get S ta r t ed

    Our study also found that, invariably, obtaining lift-off for a collaborative innovation programrequired highly energized leadership, namely in the form of an innovation champion. 4 Thereason this championing is essential is that:

    1. All Innovation Creates Change2. Change is Disruptive3. Disruptions Cause Conflict4. Conflict Triggers Control Reactions

    Therefore, champions become essential to implement innovation to overcome the resistance tochange that will be inevitable. The typical champions is a passionate crusader who has theability to create trust, to be committed to a win-win approach with all parties, and will stand forthe greater good of the organization.

    Innovation must be a senior managements responsibility. Getting started means a companyshould engage by focusing on several key step:

    1. Start Thinking about Innovation Strategically2. Iden tify Busin ess Un its W here In nov at ion w ill ha ve an im pact

    1. Tech n i ca l I nven t i on 2. P r o d u c t I m p r o v em e n t 3. Sys t em So lu t i on s 4. P r o c e s s I n n o v a t io n & In t e g r a t i o n 5. M a r k e t E x te n s i o n 6. N e w B u s i n e s s M o d e ls

    3. Appoin t/ An oin t In novation Cham pions4. Design In novation Program Enga ge Peop le w ho w ill need to be par t of it5. Address S ix Leverage Poin ts Apply Best Practices

    1. St r a t egy2.

    Leade r sh i p & Re l a t ion sh i ps 3. Lega l & Con t r a c t ua l

    4. Organ i za t i on Des i gn 5. P e r fo r m a n c e P r o c es s e s6. E c o n o m e t r i c s

    6. Laun ch Innovation Pilot Project s7. Measure Resu lts, M ak e Adjustm ents, Exp an d & Prolifera te

    4See How to Foster Champions by Robert Porter Lynch in Druckers book: Leader for the Future Leading Beyond the Walls

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    Robert Porter Lynch ___ The Architecture of Collaborative Innovation

    Wh at W i l l Happen as a Resu l t o f t h e Co l l abo ra t i ve I nnova t i on Prog ram ?

    When applied to any of the six types of innovation:

    Corporate teams start thinking about innovation strategically Business units become enthusedand engagedin innovation Innovation champions launch a series of highly inspired innovationpilot projects Innovation begins showing up as:

    Revenues andprofit s increase Speedimproves things will happen faster Teams w ork togethersynergistically Business units collabora te outside their silos Newalliances form with suppliers, outsourcers,

    distributors, integrators, and customers and others.

    I n n o v a t i o n t e n d s t o f o l l ow a s er e n d i p it o u s p a t h :

    Managers can expect the co-creative spirit of the participants in collaborative innovation willgenerate new, but unpredictable, ideas, solutions, and opp ortun ities. As a companys internal

    business units, functional operations, and alliances jointly focus their efforts on innovation andsystematicallycreate alliance-based relationships both internally and across its value chain, thetotal organizational netw orks thinking, aw areness, and insights begin to shift:

    People become invigorated, generating new, as yet unseen, opportunities, A deeper, more common understanding of the linkage between value and competitive

    advantage evolves across the value chain,

    People and their organizations that had been stereo-typed into little boxes begin to opentheir horizons, developing contributions that were never before imagined,

    Customer and market opportunities are discovered that would otherwise have beenoverlooked, while

    A new level of collaborative innovation spawns greater opportunities.Secondary impacts are also likely to take the form of:

    Higher levels of innovation internally, Better internal/cross-functional collaboration, Better utilization of staff, and Greater alignment of internal and external stakeholders.

    Conclusion

    Collaborative Innovation is one of the most potent factors in creating real competitive advantagein todays corporation. It will be the foundation for solving the great problems companies face intodays hyper-competitive business environment.

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    Robert Porter Lynch ___ The Architecture of Collaborative Innovation

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    Cont act The W ar ren Com pany :

    Robert Porter Lynch401- [email protected]

    Al l Ma te r ia l Copyr igh t 2007 Rober t Por te r Lynch - A l l Righ ts Reserved