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CDX Innovation Resilience

Companies Respond to the Crisis with Open Innovation

Open innovation turns on its head the proprietary, vertically-integrated approach to innovation pioneered by many legacy R&D labs. Initially developed by UC Berkeley business professor Henry Chesbrough, it is a tool that companies increasingly will have no choice by to adopt, if they want to survive this frighteningly fast-changing and dangerous period.

A core advantage of open innovation is speed. Well-designed corporate open innovation labs feature “lean startup” characteristics that bring many operational advantages to the table, particularly in times of crisis and reduced human and financial resources.

We are seeing the benefits of open innovation today, in real-time, as companies across the pharmaceutical sector, for example, are leveraging such platforms and techniques in their quest to find a vaccine, anti-viral remedies and patient relief for the COVID-19 virus. One example is the recently announced joint effort between the Bill and Melinda Gates Foundation, Wellcome, Mastercard, and the Chan Zuckerberg Initiative to establish a new $150 million COVID-19 research accelerator to “help speed-up the response to the COVID-19 epidemic by identifying, assessing, developing, and scaling-up treatments”.

While open innovation does not replace the traditional closed R&D model, it is designed to augment a company’s overall innovation efforts by leveraging external strategic alliances, partnerships and start-up ecosystems to advance a corporate project. This is considered the “outside-in” form of open innovation. Many Global 2000 firms now have dedicated external innovation centers and labs, and even internal innovation SWAT teams, that manage a company’s open innovation efforts. Simultaneously, the “inside-out” form of open innovation involves a company offering unused internal innovations to external partners to help drive their own innovation efforts. It is intended to potentially create new joint ventures and capitalize on so-called “dead assets.”

As we enter this period of deep uncertainty while also struggling to envision both the mid-crisis and post-crisis worlds, the best practices and spirit of open innovation will increasingly be utilized by forward-thinking companies. More than ever they must respond quickly to changing market conditions and consumer behavior. We will surely see an explosion of product and business-model innovation in the coming weeks and months.

Moreoever, C-Suite executives at any corporate “mothership” also now have a strategic opportunity to go beyond enabling the acceleration of product and business model innovation. That’s because this is also a unique moment in which to drive fundamental organizational design innovation across the enterprise.

So what do we mean by organization design innovation? The most successful corporate innovation labs feature organizational structures are not only flat and follow lean start-up and agile best practices. Their people operate differently. Principals from engineering, design, marketing and even sales sit together from the beginning of the product incubation and development process. They remain together as a cohesive unit through launch and even, in some cases, taking products and services to market.

Of course, this approach to organization design is easier in a smaller innovation lab setting where everyone is drinking the innovation Kool-Aid. The real challenge for executives in bigger companies is how to scale an organization design revolution across the enterprise. A 2012 joint Harvard and NYU paper titled “Open Innovation and Organizational Boundaries” highlights the challenge and complexity: “Innovation and organizational design…must move beyond debates between open versus closed boundaries and instead embrace the notion of complex organizational boundaries where firms simultaneously pursue a range of boundary options that include ‘closed’ vertical integration strategic alliances with key partners and ‘open’ boundaries and open innovation.”

In other words, organizational design innovation is not a zero-sum game. Recognize the advantages of open innovation organizational design, but don’t throw the baby out with the bathwater. Plenty of tried-and-true theories of organizational design, leadership, and management theory will remain critical.

The world is changing fast. And to add to the complexity we are also now entering a period of deep uncertainty. Traditional organizational design theories and structures are not well-equipped to adapt to such shockingly rapid change, much less deal with such profound uncertainty.

The savviest enterprises, large and small, will use this crisis to double down on the best practices of open innovation. That can drive a fundamental organizational design revolution across companies so they can continue to constantly innovate.

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