Creating new business requires a different process than the well-known product development and creates new solutions together with customers and partners.
To define what “open” means for companies, it might be good to describe first what “closed” means. A well-known example of “closed” is Kodak. It is closed because it closed its ears and eyes to what was happening in the world. It invented the digital camera in 1976, but did not launch the technology to protect its film business. Note that this was about 25 years before digital cameras started entering the market in 2000, which was at the peak of the global photo-film market. So excellent R & D was in place, but it did not lead to innovation. It is important to understand the difference between invention and innovation:
At the other end of the spectrum we find Fujifilm, which still employs over 80,000 employees and has a worldwide turnover of almost $ 24 billion. It also experienced how global demand for photo film peaked in 2000 and subsequently went into free fall. By 2013, global demand had plunged to just 1/20th of its peak level. Due to the rapid pace of digitization, the Fujifilm Group faced a dramatic decline in market demand for its main products, and hence Fujifilm needed to reinvent itself. Many of Fujifilm’s new products find their roots in technologies that stem from the company’s original product: photographic film. Using the experience and technological expertise from its imaging history, it has diversified into many new markets and applications, including areas like medical imaging using digital X-ray systems and endoscopes. Through acquisitions, Fujifilm is now active in pharmaceuticals too, working for example on drugs for suppressing the progression of Alzheimer’s disease. A somewhat surprising result of Fujifilm’s technological crosspollination has been a line of skin-care products and cosmetics building on capabilities nurtured during R & D on photo film: collagen formulation, light analysis and control, antioxidation, and nanotechnology. Fujifilm has established open innovation labs in Silicon Valley, in Tokyo and in the Netherlands, where it is working with customers to expand its scope.
Now the question arises whether this is just an isolated incident, or whether this can be seen as a trend. We therefore looked at companies’ value creation by comparing the development of their share prices over a period of five years with the development of the NASDAQ, as illustrated in Figure 1. On the left-hand side of this figure, we see the worst performers, and next to Kodak, we find Nokia. It failed in a similar way to Kodak. Historically, Nokia had been a surprisingly adaptive company, moving in and out of many different businesses – paper, electricity, rubber galoshes. It had successfully reinvented itself several times. Nokia was once the global leader in feature phones, and with such great power and size, the company should have been in a perfect position to retain global market leadership with the launch of a new version of the Symbian OS. Instead, Nokia perfected a cell phone for a market that had already vanished – and initially missed the revolutionary shift from voice/ SMS to smartphones like the iPhone and the Samsung Galaxy. The company profoundly underestimated the importance of software applications, including the apps that run on smartphones, for the experience of using a cell phone. Nokia also overestimated the strength of its brand, believing it would be able to catch up quickly.
In the second column, we see companies who are more or less experiencing business as usual. Their stock prices fluctuate around the same range, whereas the NASDAQ shows substantial growth. Nevertheless, we are talking about respected and successful companies, like IBM, Microsoft and Google, which make a lot of money. So these companies definitely demonstrate consistently good performance. However, they lack the power to innovate disruptively, which represents growth in the eyes of the stock market.
On the right-hand side, we see the successful disruptive innovators, who have managed to escape from business as usual. What differentiates companies like Salesforce.com, Apple and Amazon is that they have been able to create new markets. These companies have found the courage and patience to deal with the teenager type of new businesses and grow them into successful adult businesses.
This shows that companies’ performance is related to how they manage innovation, and one of the important aspects of that is how open they are to customers and partners. Together with Corina Kuiper, I have described this in our book: Corporate Venturing: Managing the Innovation Family in a Dynamic World (Fig. 1). The book describes how new business can be generated successfully within companies and how these innovations need to be managed both internally and externally.
One of the concepts the book describes is the different types of innovation. Innovation is plotted on two axes: one is the maturity of the market (emerging, growth, mature and declining) and the other is how disruptive the innovation is to the customer (whether the customer sees the product as an improved product, new in an existing category, a new category or new to the world), as depicted in Figure 2.
”Invention is turning money into ideas. Innovation is turning ideas into money.“
We see that innovations will happen mainly along the diagonal of the figure, and here we can distinguish the different generations of innovations, ranging from babies to seniors. In the upper part of the figure, we see that there is an important distinction between the left-hand side and the right-hand side of the diagram: the factor of whether a new product is in an existing category that customers will understand and be able to compare to other existing products, or a new category that customers are unable to compare. This is a very important difference, which leads to the requirement of fundamentally different approaches on the left-hand side and the right-hand side.
On the left-hand side, we have the well-known product development we see in all companies. On the right-hand side, the customer cannot compare and an open and iterative approach is required to co-create new solutions with the customer. Here the specs are not known from the start, and hence requirements on competences will vary as well. Thus, this also requires co-creation involving external partners.
Creating new business therefore requires a different process than the well-known product development and should be dealt with separately, applying an open approach to customers and partners. Using this approach, we start with baby innovations. We love babies, and we have the tendency to spoil them, which is not good for their health. Like humans, new businesses also need to go through the adolescent stage. We generally are not fond of this phase, in which these initiatives behave like adults but tend to do things differently from how we have always done them. Moreover, they have all kinds of strange friends outside. We tend to be too strict, and many initiatives fail in this phase because of this. Like raising children, developing these initiatives takes a lot of patience, and the progression to adulthood cannot be accelerated.
So, successfully creating new business requires similar skills to raising children to adulthood, and it necessitates openness with customers and partners, with the ambition not only to create new products but to create new ecosystems, expanding the scope and playing field of chemistry.