Private companies will be better able to spot trends, capture ideas, and predict future needs if they tap into the data and knowledge of the external world.
“External collaboration really turned the tables on innovation and allows small and midsize businesses to keep up with larger companies,” says Eric Redifer, managing director in KPMG’s Strategy & Operations practice. “While large companies are generally more protective of their intellectual property, entrepreneurial companies don’t have the same barriers or resistance and actually need to collaborate outside.”
In this age of digital connectivity, sources of information and ideas from all over the world can share valuable insights that inform innovation activities, without much or any expense. Consider open innovation models, internet-based collaboration and research tools and ways to connect with consumers.
- Embrace open innovation. Open innovation models help private companies innovate cost-effectively by incorporating external ideas, feedback and support throughout the internal R&D process, and encouraging companies to share ideas externally to identify new ways to innovate with others. This open collaboration accelerates innovation by bringing in widely distributed knowledge that may not be available from internal engineers, designers and developers. Collaboration can take the form of joint ventures, licensing arrangements or informal networks of customers, inventors, business partners and universities. P&G has built a billion dollar business with its Febreze brand through many open innovation initiatives, such as licensing Febreze brand name and technology to Bissell for inclusion in a line of successful vacuum bags and filters. CEOs looking to accelerate innovation should assess if their R&D is adequately exploiting external knowledge by investigating what external sources teams are tapping into for feedback and how innovations are being shared externally with potential partners.
- Harness the power of social media. Tapping into social media and online communities is an inexpensive way to develop the customer insights necessary to bring relevant products and services to market. With social monitoring tools, marketers can “listen” to real-time customer conversations and feed findings to product managers, who can find inspiration for new features or new products. Companies should also consider crowdsourcing, the act of inviting communities to share ideas and feedback, as an incredibly powerful and low cost channel for product innovation. Online clothing startup Lolly Wolly Doodle crowdsources customer feedback from their Facebook page. If a style is a hit on Facebook, they produce more, but not until initial orders come in. This method for product innovation helped Lolly Wolly nearly double its revenues every year since 2009 and attract investment of $20 million.
- Leverage ideas from your stakeholders. Crowdsourcing, innovation challenges and co-creation models allow companies to connect directly with customers, innovators and employees to develop new ideas. Madison Electric Products created an online portal to collect product ideas from end users – electricians – and saw new product sales increase by 37% in less than two years. This co-creation model is a win-win. The community provides a wealth of new ideas and Madison provides the vehicle to bring their ideas to market. One key challenge for CEOs looking to source new innovations from the crowd is determining how they will incentivize and motivate the target community to participate. Managing the volume of ideas that come in can also be a daunting task. Idea management software platforms like KPMG’s Innovation Factoryand the accompanying Idea Challenge program allow organizations to harness the collective brainpower of the internal or external target crowd.
“For small to midsize companies, initiatives like this are a great way to get feedback and ideas relatively inexpensively and move an idea forward with few resources,” says Redifer.
CEOs of midsized companies should recognize that outside ideas and paths to market can be just as viable and valuable as inside ideas and paths to market. To optimize innovation, they should seek out low-cost, high-reward external collaboration models that align to their business model and risk appetite.
[i] Trademark Licensing, Source: P&G, Connect & Develop, Open Innovation Stories (January 1, 2013)
[II] The Startup that Conquered Faceboos Sales,Source: Inc. Magazine, Tom Foster (Junce 2014 issue)
[iii] B2B Crowdsourcing: Product development effort boosts sales 17% and new product sales 37%, Source: MarketingSherpa (February 15, 2012)