Innovation: Build or buy or some combination?

One thing that comes with size and scale is that it definitely opens up new possibilities. Buying Innovation is one of them. Here are some ways companies approach innovation:

1. Internal Research and Development (R&D)

This is the most common form of innovation within a company. A separate division within the company is dedicated to create new products, take existing products to the next level, watch competition and decide when to retire non-performing products.

2. Outright acquisitions

You find a ocmpany with cool technology and cool people. Look at the opportunity cost and work the numbers. If everything looks good (or you are paranoid or both) make a compelling offer and acquire the company and integrate. Cisco is famous for acquiring companies for technology innovations. They have been acquiring companies since 1993. The acquisition price ranges from a few hundred thousand dollars to a few billion dollars.

3. Fast followers

Sometimes acquisition may not be an option. What if the product that is threatening you is introduced by one of your fierce competitors and thee is nothing similar to acquire. You setup a SWAT team and pour energy and resources to follow very fast. We all know what Microsoft did to get back into the Internet game when Netscape seemed like it would dominate the browser market. Agreed. Now they are being challenged again by Firefox. It will be interesting to watch Microsoft’s response to the new kind of attack.

4. Intrapreneurship

In simple terms, Intrapreneurship is basically creating an environment conducive to entrepreneurship within the corporation. The biggest struggle for entrepreneurs when starting up is the resources (money being #1) and support. If the corporation provides both of these and also lets the group be (almost) autonomous, wonderful things can happen. Whirlpool is famous for this. When I met the folks at Whirlpool leading Innovation over there a few years ago, they had more than a thousand projects being tracked in their “Innovation Pipeline.”

5. Licensing

There are times when it makes sense to acquire the “right-to-use” an Intellectual property and pay a royalty rather than acquiring it. In the recent past, several universities have put a process together to commercialize some of the innovations out of their research facilities.

Link: Stanford University -Inventions, Patents and Licensing

6. Asset sales

There are several reasons fro an asset sales. Here are a couple:

6.1 Company has cool technology but the business model is broken. The company folds. Investors want to make whatever they can to salvage their investments. They sell the assets for a song.

6.2 Company has lots of products lines. company decides to focus on a few of them and retire the rest. The retired products may be of interest to some other companies and a win-win asset transaction is negotiated.

7. Open Innovation

Get consumers (or anyone) to participate in the innovation efforts of a company. It can be as simple as inviting people to participate in a contest to design the next version of a company’s product. Offer bounties for winning entries. Think about it – for a reasonably small administration fee and the prize money, you get to see a few thousand ideas. Seems like a huge ROI. Here are a few articles on Open Innovation that I wrote a few months ago.

7.1 The world is your R&D Unit (April 27,2005)
7.2 Open Innovation – Nike Joins In (May 24, 2005)
7.3 Collaborating with your users to create powerful offers (June 14, 2005)

8. Innovation Marketplace

Look at Innocentive, a subsidiary of Eli Lilly. The company was founded with a simple idea of getting help (for a fee) from inventors all over the world to solve some of their R&D problems. Today Innocentive has grown to be an Idea Marketplace connectin the problems with solvers all over the world. Just so that you know – this is not eBay for ideas. The fee offered to solve some of the R&D problems can be over $100,000. Again, the ROI is huge because you pay one solver $100,000 but you get to see the problem solving approaches of ten or hundred more solvers for free.

9. Direct Connection

I had an opportunity to listen to Mohanbir Sawhney at TiEcon East recently and he talked about P&G’s new Initiative – Connect and Develop. Their current mission statement according to the website is:

Connecting with the world’s most inspired minds. Developing products that improve consumer’s lives.

Sawhney mentioned that Crest Spinbrush was one example of P&G’s Connect+Develop initiative. After searching on the Internet, I found the inspiring story of the invention and growth of Crest Spinbrush. You should also read about the other achievements of the inventor John Osher. Inspiring again!

10. Innovation Capitalists

Again, thanks to Mohan Sawhney for raising awareness on this new kind of businesses called Innovation Capitalists. These Innovation Capitalists (also known as Product Capitalists) will work with entrepreneurs to make their innovations or inventions to make them commercial success stories. Ultimately, when the timing is right, these Innovation Capitalists can find a home (large corporations) for some of these innovations. Sawheny quoted two companies in this space.

1. Evergreen IP
2. The Big Idea Group

I am not saying that the above list is complete. I am also not making a claim that one approach is better than the other. Every company follows a combination of approaches for their innovation strategy based on a number of internal and external factors. The point though is to have an innovation strategy within your own company.

May be it’s time to look at your company’s innovation strategy and refine it to ensure that you have a unfair competitive advantage?