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Making open innovation work for SMEs

Simplification of processes, focus on common objectives, enthusiasm for and dedication to set goals are only a few of the basic elements required by SMEs to effectively and successfully apply the concept of open innovation (OI) to their business activities. These were amongst the key outcomes from the stimulating panel discussion on OI during the EuroSME2013 conference in Dublin on 11-12 June.

‘If we want to successfully apply OI, we need to redefine the term of innovation of public policy. Even though there should be no direct interference, the government can take quite a lot of actions to facilitate SMEs’ efforts to innovate,’ argued key-note speaker Dr Wim Vanhaverbeke, Professor on Strategy and Organisation at Hasselt University (Belgium) and visiting professor at both ESADE Business School in Barcelona and the NUS National University in Singapore. He explained that according to the traditional definition, OI is about the external knowledge that a company acquires from a third party and uses for the development of new services and products, or for the improvement of current ones.

The panel discussion entitled ‘Open Innovation Government Initiatives – Why are there so many which do not work?’ brought together experienced OI practitioners who highlighted the elements that help SMEs implement innovation and discussed the ways in which governments can facilitate the uptake of OI.

‘The case of OI should always be a win-win-win situation. The first win concerns the entrepreneur running the spinoff; the second is for the big corporates embedded in the process and the third for the financiers, the investors,’ underscored Jukka Rauhala, Managing Partner and CEO of Open Innovation Management OIM Oy, a company that offers corporations help to leverage spin-offs and various OI mechanisms as a possible trigger for growth and corporate transformation. However, in order for OI to be successful and beneficial for all parties involved, SMEs and their partners should work on a number of fronts. According to the panellists, possibly the most crucial element is the focus on common objectives right from the start. ‘When you build partnerships it is very important to know who you are dealing with. All partners involved need to understand upfront the common rules and goals. If these are not commonly agreed on, they need to accept that it’s not going to work,’ said Mr Rauhala.

Dr Vanhaverbeke expanded on this approach by arguing that the more diverse the partners, the more difficult it becomes to manage the consortium. ‘You need to know of the differences up front. This erases half of the problem. If you have larger consortia, you need to have an orchestrator – a neutral party that can be a public authority – to make sure that everyone dances in the same way,’ he concluded.

‘OI is not about speed-dating. This is about a bigger and longer commitment,’ added Carlos Malpica, CEO of MLP Vision Biotech S.L., a diagnostics and services company which offers a patented biochemical profiling platform.

The panel participants proceeded to emphasise the role of trust in OI. ‘If the consortium is very large it is difficult to understand all the motivations behind it. In those consortia people tend to not trust each other,’ said Kari Tilli of Tekes, the Finnish funding Agency for Technology and Innovation. ‘OI is related to partnership and partnership is related to trust. Trust then, is also related to reputation. If you start building on this ecosystem, trust is essential,’ he added.

The panellists highlighted two more elements they deem as crucial for the successful application of OI. The first is access to credit, which functions as a vehicle that leads to the launching platform where SMEs can kick-start their ideas. ‘You can have the best of ideas, but you also need the resources,’ underlined Mr Malpica. The second element is to keep the processes as simple as possible. In order to maintain a simple procedure to innovation, SMEs need to have a very clear agreement with their partners of what each of the involved actors wishes to get out of the collaboration. ‘You need to have goals that fit together,’ argued Hans Erik Schmidt, an entrepreneur for Quilts of Denmark, a company which produces high-quality down bedding. This will build the right ecosystem for effective innovation.

Andre Convents, section head for open innovation at Procter & Gamble, provided his insight on the nature of OI. He observed that some SMEs practice OI, but they don’t refer to it as such; they consider it as a normal part of their business dealings. ‘SMEs just try to find a solution and some of these solutions are to collaborate with external partners. So they might not call it OI, but essentially they practice it,’ he stressed.

Do government and policy-makers have a role in OI?

The panel discussion also highlighted the role of governments and policy-makers in facilitating OI. They found common ground concerning the role of government: it should not be directly involved in the process, but rather maintain the role of either the orchestrator or the facilitator of an OI-friendly environment, fostering collaboration. ‘We don’t want the government to be directly involved in the innovation process. It’s better for government to cultivate an environment where SMEs can thrive in,’ stated Mr Schmidt.

‘Don’t expect too much from government or a governmental organisation that has policies which are set to deliver results in the long-term. It’s all about the mentality for innovation and how this is brought up. Maybe the government has a role in education, universities and in general in setting the right mindset,’ claimed Mr Malpica.

This point was also raised by Dr Vanhaverbeke, who argued that ‘the government can provide for good educational systems, set the right incentives and highlight broader policy issues that should be focusing on innovation policy.’ An example brought up during the discussion was that governments can further promote OI with companies by implementing public-private-partnerships, which are already emerging both at the European and regional level.

In wrapping up the government’s role, Dr Vanhaverbeke called for the application of horizontal policy measures that include all policy fields. ‘We need horizontal policy measures connecting all the dots of innovation policy.’

What impedes OI and why?

Some elements that obstruct OI were also presented, and three issues were identified. The first obstacle is internal to the company and relates to the fear and uncertainty concerning the changes that OI will bring about. ‘Innovations change both the way the company works and the power balance within the company. Several company leaders will think that if they keep innovation in-house, they will be able to effectively control the process. OI gets externals coming into the company,’ explained Mr Schmidt.

The second hurdle is regulation. According to Mr Malpica, ‘very often success is highly related to the environment of the SME. Some innovations don’t become mainstream because they fail to pass regulatory hurdles.’

The third barrier concerns the low visibility of OI; there exist fine examples of OI, but they are not visible enough. ‘We have to push networking between academia and companies,’ mentioned Mr Tilli. ‘The big issue here is not that it is a matter of technology, but a question of knowledge. It could be market knowledge or any other kind which is shared by the relevant players.’