The second part of the series on the panel discussion about “Innovation Management – Possibilities and Limits”, which took place at this year’s Strategy Circle Maschinen- und Anlagenbau (Strategy Circle for Mechanical and Plant Engineering), will focus on administrative aspects of innovation management within the company and on problems that may arise from cooperating with competitors in the area of innovation (for part 1 of the series click here).
Companies need networks for successful innovation
In view of customers’ manifold demands, market trends, technological developments and the wealth of information available today, we must ask the question whether companies can successfully conduct innovation on their own in today’s environment. Do they need an external network? And if so, what are the opportunities and risks of such a network?
A network is doubtlessly necessary. Since companies’ resources and technological abilities are necessarily limited, they cannot be specialists in all areas – nor should they try to do everything by themselves. Networks are particularly necessary in machinery and plant engineering. Just take materials science. No company can employ specialists for all materials – metals, plastics, refrigerants, oils etc. Things are similar in the car industry. Take, for example, the dispute about refrigerants between France and Mercedes Benz. France was the only EU country which excluded new Mercedes A, B, CLA and SL cars from registration for some time due to a dispute about a refrigerant used in the cars’ air conditioning systems. While the car manufacturer is faced with the problem, it originated in the chemicals industry.
Intermediate products are another example. Vertically integrated companies are rare nowadays. All companies rely on suppliers or sub-producers for certain components. However, that makes them lose the technological ownership of the relevant fields. Mercedes, BMW or Audi no longer employ specialists who know all details about the electrical engines used in their cars. In case of any innovations in this field, seat producers will not know about them in detail – and neither will the final car producer.
Networks are necessary under another aspect, too: that of customer problems and procedures. Companies usually believe that they know about their own problems. However, they are often prisoners of their own logic. That means that they are ignorant of any innovative procedures or solutions of their suppliers which might make their lives easier.
These examples show that exchange within a network creates opportunities to close knowledge gaps, to resolve problems and to get input for new developments. However, it also harbours a risk. Companies will need to talk with third parties about their development plans, and these third parties might use the information they have gained for themselves or – even worse – on behalf of competitors.
Engaging in innovative activities together with competitors is a challenge
Since we are talking about competitors: Is it possible to engage in innovative activities jointly with them? How can a company protect its know-how in such a scenario? Where should the limits to cooperation be drawn? Formerly, competitors tended to form a joint venture if they wanted to cooperate in the field of innovation. At first, everyone was enthusiastic, and in the end, everyone was bitterly disappointed, as people no longer knew just who had control over the joint venture.
Protecting one’s know-how is almost impossible. If competitors try to invent new products together and if employees of companies A and B discuss a problem, they do so as a team. Protecting know-how in such a situation is not easy at all. The best solution is to try and create a win-win situation. Then, both companies will benefit from the cooperation. Still, potential antitrust issues have to be kept in mind. As soon as competitors discuss a new product, the question of whether this procedure might offset the market balance will be asked. That is why joint ventures were launched in the past. Overall, working together with competitors is very difficult.