The third 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 once again focus on administrative aspects of innovation management within the company and on problems that may arise from cooperating with third parties in the area of innovation (part 1 and part 2 of the series).
Cooperate with suppliers in the field of innovation: have problems defined by engineers
In many innovative industries, for example in car manufacturing, value creation is increasingly shifting from producers to suppliers. One reason is the high degree of specialisation needed for the development of innovative products. It is therefore only logical that innovations are often made in cooperation with suppliers. However, doing so causes companies to release knowledge from their own sphere. How is this joint innovation process with suppliers structured?In many cases the customer’s procurement department deals with the supplier. However, this department does not always remember Albert Einstein’s wise sentence: “If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.” Procurement usually likes to talk about solutions. However, that is sometimes counterproductive. If an innovative solution is what is needed, people should talk about the problem. If customers tell suppliers how the problem should be resolved, they drive them into a certain direction and may thus limit their innovativeness. It should be the suppliers who find the solution. It is not the customers’ task to think about how suppliers should resolve the problem. They only define the problem. Finding the solution is the supplier’s responsibility. However, there is another problem. To quote Einstein once again: “The formulation of the problem is often more essential than its solution, which may be merely a matter of mathematical or experimental skill.” Procurement usually does not know the problem as such, but only the specification. That suggests that it is not the procurement, but the engineering department which should talk with suppliers. It is the engineering department’s task to define the problem. However, such a procedure may trigger conflicts in many companies.
Open Innovation: the top management needs to lead
In a highly specialised economy companies cannot do everything themselves. They need to open their innovation process to the outside. Open Innovation lets them use their environment to increase their innovation potential. This works in both directions, from the outside to the inside in the form of integrating external knowledge, and from the inside to the outside by externalising internal knowledge. The central idea of Open Innovation is that, in a world where knowledge is highly diversified, companies cannot only rely on their own research. Rather, they should buy or license procedures and inventions from other companies.
So who takes care of Open Innovation projects which are launched jointly with customers or suppliers? Corporate development? R&D? Or the relevant business unit?
Of course, several corporate departments will be involved. However, each of them will have its own specific interests at heart. R&D is evidently more interested in technology, the business unit focuses on sales and revenues, corporate development wants to know who comes out better or has more employees in the long run. As usual, the management plays a key role in sifting through the mix. The top management has to agree on the direction in which it wants to take the company. Moreover, mutual trust is fundamental. Unfortunately, innovativeness is often hampered by distrust, which is expressed in a series of legal or compliance interventions.
Innovation will fail without good management
Since it is obviously necessary to mediate between different corporate interests, I can only emphasise again that good management is needed to ensure innovative success. Good resources alone are not sufficient. Ample financial, structural and human resources (R&D budget, number and qualification of employees, quality of equipment) are necessary, but not sufficient conditions for successful innovation. That is what a study on technology competence compiled by Ulm University has shown (“Technology competence creates competitive advantages”, part 1 and part 2). Technology competence consists of a bundle of abilities, which encompasses non-structural abilities (culture/ability to learn) and, above all, management abilities, both for technology and production-related processes and for ancillary idea and knowledge management processes.