- Email: [email protected]
Organizational leverage effect in innovation
ORGANIZATIONAL LEVERAGE EFFECT IN INNOVATION
organizationalLeverage Effectin Innovation PARNOUD DE MEYER, Assoczate Professor of Technology Management, I ?ance
Ln innovation cannot act m a vacuum, but should nlrst the help of ‘partners in innovation’ in order 3 improve the productivity of the mnovatron proess. In this paper, Arnoud De Meyer uses a .umber of case studies to show how this leverage f the innovation process can be used under ifferent circumstances, and how the leveraging lrocess can be organized.
I ntroduction R:esearch and mnovatlon t1ne problems, and the
often describes m great detail hard work of the mdlvldual 11lventor, or of the mnovatlve team, that came up with t1ne bright new idea that led to the new product and of the envlronP lrocess Al1 too often the contrlbutlons nnent m which the innovator or the inventor has worked re neglected m these almost hagographx descrlptlons ; ind one gets the ImpressIon that the mteractlon of the with his environment was of only mmor 11movator 11nportance to the end result Everybody knows that 1s lot true, and that one needs a lot of mformatlon commg : rom the outside, m particular from the market, to carry Cjut the mnovatlve task But the need to have access to
ZNSEAD, Fontaznebleau,
outslde mformatlon 1s taken for granted, and 1s consequently hardly mentioned As a consequence, superflclal analysis of these case descrlptlons could lead to the idea that the team, or the company which has developed the new item, has carrled out the mnovatlve work all by itself But mnovatlon 1s first and foremost an entrepreneurial act either by an mdlvldual, or by an entrepreneurial team operatmg wlthm the orgamzatlonal structure of a larger company One of the characterlstlcs we know about entrepreneurs IS that they hardly, If ever, work m lsolatlon Moreover, they seem usually masters at moblllzmg resources they do not own, or enhstmg help from outsiders not directly Involved m the company or the mnovatlve venture This 1s precisely the pomt we want to make here Even if we put the entrepreneurial Issue aslde and look at a more ‘regular’ mnovatlon process in a larger company, m order to innovate successfully it 1s reqmred that the Innovator, be it an mdlvldual or a team, enlists during the mnovatlon project the help of others who have a stake m the eventual success of the mnovator Innova-
c
EUROPEAN MANAGEMENT JOURNAL Vo19 No 4 December 1991
ORGANIZATIONAL LEVERAGE EFFECT IN INNOVATION
tlon does not happen m lsolatlon To produce that mnovatlve product, process or service, which meets the quality requirements of the potential user, and that at an acceptable cost and wlthm the required time hmlts, one has to leverage the potentzal benefzfs of the znnovatzon to others, to enlzst those others’ support and partzczpatzon
A Few Examples To understand better how this leveraging of the benefits of mnovatlon can work, let us look at a few examples Plant Genetic Systems 1s a successful Be&an firm carrymg out development of genetically engmeered herbicide and pesticide resistant plants The company started off as a venture between four agro-mdustrlal compames but with the very active mvolvement of a few of the top acadenuc researchers m the field of genetlc engmeermg
I
Users of a new product are often found to have been originators of the new innovation
These researchers were all lmked to some extent to a local Belgian university In the early negotlatlons It was decided that it would be very convement for the start-up company to have its laboratones close to, or even mwde, the umverslty premises In that way the company researchers would have direct access to the academic research, and would be able to remam a member of the network of speclahsts m plant genetic engineering worldwlde, and this m a very mformal way and with a muumum of transaction costs Though that local ii umverslty had only limited experience with such an agreement with a private company, m the end the umverslty opened up Its premises and provided the :ompany with laboratory and office space The arguments which seemed to convince the umverslty were hrst, that m return for access to its buldmgs, the uruvers&y researchers would benefit from the mdustrlal contacts m defmmg their research prolects Second, sophisticated laboratory equipment would be available during evening and night hours for the umverslty researchers, which otherwise the university would never have been able to afford Moreover, the uruverslty hoped that an eventual mdustrlal success of the private :ompany would have a synergstlc posltlve effect on the Fame of the umverslty Plant Genetlc Systems consequently used future benefits to the university such as Fame and relevance of the research carrled out by the unlverslty, to get an immediate benefit, namely easy access to a crucial network of state-of-the-art mformation md a first choice for recruiting graduate students (De Meyer, 1989) Let us look at a second type of example For more than ten years, Enc Von Hlppel(1988) has studied the contrlbutlon of users m the mnovatlon process In, for example, the sclentlflc instrument industry, he found that more than 77% of the mnovatlons originated m a pre-mdustnal prototype form designed by the users of 398
the instruments Instrument companies only had to keep their eyes open for the awkward constructions made by their customers, and use their lmagmatlon to transform these prototypes mto more generally apphcable mstruments He has found slmllar phenomena m other mdustnes, such as semiconductor and printed circuit board processes or mdustrlal gases In many of the cases, he shows that the original idea for the new product comes from the potential user of the new product But the mvolvement of users can take other forms than being the source of ideas Designers of workstations may give a preview of their design to some of the largest OEMers to have an input from the market m order to improve the design Textile machinery companies will install an mdustrlal prototype of their looms with sophisticated customers with which they have built up a long-term relation (De Meyer, 1983a) These customers take the role of m-field test sites What 1s m it for the customers7 First, they get insight mto the posslblhtles of the new machme at a stage when design changes are still possible, and they can eventually still influence the final design Second, they budd up experience with the new type of machinery, and this at an earlier stage than their competitors They can evaluate earlier the machme and can get an advantage m productivity unprovements Smular collaborations between users and producers can be found for other types of machinery Let us look at a third type of example BTMC, a subsidiary of ITT, later acquired by the European telecommumcatlons group Alcatel, built m Belgium a factory for custom-made chips In doing so, it was helped tremendously by a very posltlvely-mclmed local government, which went as far as taking a very considerable share m the company’s equity Fmanclally speakmg, this was a very good move for the company but, on top of that, it helped the company to smooth the bureaucratic redtape m selecting and acquumg the land for the construction of the factory, and overcommg some of the externahtles involved m setting up such a high-tech plant What was m it for the government? Perhaps some employment m a somewhat economically depressed region But much more Important was the public relations the local government got out of the whole affair, m an era where that particular government made tremendous efforts to trigger enthusiasm among the population for high technology, and for what it called the ‘thud mdustrlal revolution’ In the end, BTMC got an mnovatlve plant with a limited capital outlay, and had enlisted the government’s help by promlsmg them that this plant could be the trigger for further high-tech developments m the region On top of that, it probably speeded up the construction and start-up of the new production process A fourth type of example illustrates the role of suppliers m the innovation process Vanderwerf (1990) has studied the mvolvement of suppliers m the development of new products m those cases where parts and machines can be tied The contrlbutlon of the US alummmm industry
EUROPEAN MANAGEMENT JOURNAL Vo19 No 4 December 195
ORGANIZATIONAL
LEVERAGE
EFFECT IN INNOVATION
:o the development of new packagmg systems 1s wellsnown (HessIon, 1971) Less well-known 1s the effort 3y 3M as a chenucals company to develop flat cables and :onnectors for the computer mdustry (Vanderwerf, 1990) The mvolvement of the automotive component producers m the development of new subsystems for :ars 1s no secret either It 1s Bosch which developed for Daunler-Benz the electronic mlectlon system or an ABS braking system Im Clark (1989) has explored m detail the contrlbutlons made by suppliers m designing parts for car manufacturers He has shown convmcmgly that mvolvmg parts suppliers m the design process reduces both the total amount of engineering hours required to develop a new model, as well as the total development lead time needed during the planning phase of the development of the car His conclusion 1s not that one simply has to shift development work from the automobile supplier to the vendor or subcontractor It is, mdeed, not obvious that the subcontractor will have an equal or higher development produchvlty than the mam producer Involvmg supphers m the design process reqmres, according to Clark, a different approach to the orgamzatlon, the exchange of mformatlon with the supplier and the management of the procurement function, m order to transform the contrlbutlon of the supplier mto a tool to improve the overall productlvlty of the mnovatlon process
Many other reasons are conceivable why companies which compete with each other would collaborate on mnovatlon the costs of the project may be too high to be borne by one company as, for example, m the Alrbus consortium, or the companies have complementary competences as m some of the automotive lomt ventures The case of the Japanese consortmm to develop the VLSI technology provides an example where highly competltlve electronics firms overcame their feuds to share the burden of catching up with the US leading companies (Bower and Furukawa, 1982) In the development of Its new let engine for the nineties, General Electric has recently decided to make a consortium with the French Snecma and a Japanese partner, to bear not only the costs of the development, but also to pre-empt a market five to ten years down the road And m the begmnmg of the eighties m a move to resist the complete collapse of the garment manufacturing industry m Belgium, competing textile firms mcorporated cooperative companies m order to develop and mternahze new CAD/CAM technologies for pattern grading and cutting (Barbe et al , 1988) The literature on strategic alliances provides plenty of examples of collaborative efforts between competitors m the field of mnovatlon (Hamel et al , 1989)
In many cases also, suppliers of raw materials or components are highly motivated to make a development effort to solve some of the mnovator’s problems If the development 1s successful, a large market for their own components 1s waiting for them In my own research on shortenmg of development cycle times, I have found that mvolvement of suppliers during the development process appears to be one of the most effective avenues for shortening the tune between concept generation and the moment a product 1s ready for market mtroductlon (De Meyer, 1990)
All these examples have something m common In each case, an innovator has successfully enlisted the help of another partner, be It the government, a customer, a suppher or a competitor, to share some of the burden of the mnovatlon, or to shorten the development time needed to brmg the product to the market And this 1s the idea we would like to propose
After the mtroductlon of the consumer video recorder by Sony, the two electromc giants Matsushita and Philips developed their own competing system Though Sony was fwt, and Phllps’ system was generally considered to be techrucally better, Matsushita won by wide margins the market battle with its VHS system One of the reasons for Its success IS generally considered to be Its aggressive hcensmg pohcy By doing so the Matsushita video recorder system became quickly the virtual market standard Taught some wisdom by this experience, both Phlhps and Sony followed a different path during the mtroduction of the compact disc player, where they Joined forces to swamp the market as soon as possible with their common standard The same search for partners was clear when Sony introduced Its super8 video recorder At a particular moment m time Sony even proudly advertised how many other brands had already adopted then standard In this fifth type of example one sees corporate enemies collaboratmg with each other on a new concept or a new product m order to establish as quickly as possible a standard m the market EUROPEAN
MANAGEMENT
JOURNAL
Vo19 No 4 December
Organizational
Leverage Effect
Each time one innovates successfully, there will be parties m the market which will benefit, together with the mnovator, from this mnovatlon In many cases these parties are prepared to become partners, and to share some of the burden of the mnovatlon effort In fact, m many cases the burden will be mmlmal to them, but can be of great and valuable help to the mnovator Take the government example of BTMC Reducing the redtape IS no real cost to the government, but can shorten the development time tremendously In other cases, the partner will have to invest, but he will do so gladly because the promised returns match his return on investment criteria easily As we said above, the prmclple 1s simple use the potential benefits of the mnovatlon as a carrot to turn interested parties m the competitive environment mto partners m the mnovatlon process Since this process 1s a bit hke usmg the potential benefits of the mnovatlon as a lever to obtain the help of the other orgamzatlon, we called It the orgunuatzonal leverage effect zn wmovafton
What we propose here 1s m lme with some of Von Hlppel’s (1988) previous research, but goes well beyond It In his approprlablllty theory, he asserts that the most natural locus for the first concept of a new product 1s that partner m the value cham, who can reap the lughest 1991
399
ORGANIZATIONAL LEVERAGE EFFECT IN INNOVATION
benefits from the mnovatlon What I propose here goes beyond the locus of mnovatlon Rather than hmltmg themselves to a passive search for Ideas and mformatlon, I suggest that compames have actively to mvlte partner compames to carry out the problem solving for them Many partners m the value added chain are prepared to contribute to solving problems durmg the mnovatlon prolect, if they can be made aware of the potential benefits of the mnovatlon, m case it succeeds It 1s up to the innovator to demonstrate these benefits to those parties he wants to turn mto partners
I
Companies should actively znvite partners to solve problems for them m the innovation process
Every mnovatlon consists of different components or aspects By appropnatmg the benefits for these different components to different partners, the total benefit of the mnovatlon may be increased Indeed, If a company tries to develop every smgle component on its own, It may simply arrive too late on the market While if It enlists the help of outsiders, the development lead time may be conslderably shortened and as a consequence the mnovatlon may have a higher return to the innovator as well as to Its partners
Are There Any Disadvantages? First, there 1s of course a tricky questlon of secrecy How does the mvolvement of a partner affect secrecy, or the mnovator’s mtellectual property nghts’ If secrecy 1s of utmost unportance to your success, enllstmg the support of market partners IS, of course, dangerous As Lord Pllkmgton has said about the Pllkmgton float glass developer m the fifties ‘People easily fall to understand that the greatest secret about a new process IS not how to do it, but that It can be done’ (Qumn, 1977) But my own experience with more than forty m-depth case studies of mnovatlon projects (see De Meyer, 1983a, Barbe ef al , 1988) leads me to the conclusion that, m the huge majority of the cases, the competltlve edge provided by secrecy 1s related to less than 15% of the technological content of the new product It IS the core technical element or system that you want to keep secret, not the packaging or the outer design And even for that core element, collaboration with trustworthy outsiders, such as suppliers with whom the company has a longstanding relation, or certam umverslty teams, can be very beneficial Partners are often rational enough to understand that they have much more to lose than to gam by revealmg the secrets The second problem has to do w&h the project coordmatlon Involvmg partners to develop parts for you, or to provide access to sources of mformatlon increases the costs of coordmatlon Havmg more partners mcreases the number of mteractlons, and this will cost time and resources These coordmatlon costs will have to be entered m the trade-off welghmg the benefits versus the 400
costs of mvolvmg an outsider m the mnovatlon process But these coordmatlon costs do not necessarily have to be much higher than for coordmatlon with internal departments Sad as It is, I have observed through the case studies that due to internal pohtlcal confhcts It 1s sometimes less costly m tune and resources tocoordmate with a trusted outside partner than with another department wlthm the company Secondly, the coordmatlon costs can be reduced over time If the partnershlp relation develops and as we learn how to manage these partnerships Part of the coordmatlon costs for one mnovatlon project can be seen as an investment m learnmg or an investment m the leveraging capability of the company
How To Do It? Though it may sound somewhat tnvlal, the innovator has first of all to get a good Idea of where and how he can use help This goes beyond hstmg the obvious fields where the innovator lacks techmcal expertise It may be that you have the expertise m-house, but that you simply do not have enough capacity, or that you want to speed up considerably the pace at which certam problems are solved If you design a new extremely fast textile loom, with electronic controls, it may be that you need to get some know-how about the behavlour of certain materials under condltlons of high stress, and that expertise 1s available with one of your component suppliers It may also be that you have all the expertise m-house to write software apphcatlons for the control of the loom, but that the support of one of your potential customers m wrltmg or debuggmg the software can help you to shorten the time till market mtroductlon As this Illustrates, the analysis should not be hmlted to understandmg what the technical domains are where one needs help The innovator must also analyse where he can use help m a project management sense Even If the innovator has all the expertise m-house, he may need to look for outside support m order to shorten the development time or to reduce costs On the contrary, It can be that even though the Innovator does not have the expertise, It IS better to develop the expertise mhouse, since outside help may not have a considerable impact on the economics of the project If, for example, help 1s needed to reduce the development time, the appropriate partner 1s the one who can help with a task on the critical path of the prolect And if the help of a partner 1s needed to reduce costs, the appropriate partner 1s the one that has the capacity to help with the bottle-neck actlvltles Indeed, over the typical time span of an mnovatlon prolect, the resources such as engmeers or market researchers, which are necessary for the prolect, can often be considered to be fixed costs Costs of a development project are not determmed by mvolvmg partners where the innovator has spare capacity he IS going to pay for that capacity anyway On the contrary, even If the innovator has the necessary technical expertise, but has a constrained capacity to bmld upon that expertise, fmdmg a partner to carry out the bottle-neck task may help to alleviate the cost pressure Determmmg
these areas of need 1s an exercise where
EUROPEAN MANAGEMENT JOURNAL Vol9 No 4 December 1991
ORGANIZATIONAL LEVERAGE EFFECT IN INNOVATION
needs will have to be traded off with the degree of secrecy requned by the prolect It 1s m this stage that the innovator has to determme what part of the mnovatlon 1s absolutely core to the successful posltlonmg of the product Involvmg outsiders m the problem solvmg related to this core can be dangerous If one cannot escape that option, then the innovator has to involve the partner m such a way that this partner has a personal stake m secrecy, for example by creatmg a lomt venture But the mvolvement of partners with such a strategic importance goes beyond what we propose here The second step IS to determme who your potentzal partners are Again, ddferent criteria will play a role Who has a high stake m your success as an mnovator? I use the word stake rather than benefit, because the stake may be large m non-economical terms Pohtlclans have a stake m bemg seen as successful m attracting new busmess, or (m Europe at least) creating employment Umversltles have a stake m domg relevant and pubhshable research Some government research mstltutlons have a stake m simply feeling useful to the community Academic researchers may be interested m obtammg fresh emplrlcal data Generally, one can say that the parties with the highest stake will be the ones that create a value that will be affected m a stepwlse way by your mnovatlon Umverslty researchers may be much more interested If your company works at the forefront of technological evolutlon, than when you try to solve some routme technical problem The value they create, 1 e new mformatlon, will be affected more drastically by a malor breakthrough at the forefront of technology than by a minor run-ofthe-ml1 test Suppliers will have much more at stake If your mnovatlon would change the traditional portfoho of components used for the product that you produce, than when you simply add a new varlatlon of a slmllar type of product If you, for example, switch from mechanical components to electromcs, your electromc component supplier will have much more at stake than when you produce the umpteenth varlatlon of an exlstmg electromc product Potential partners who have something at stake are those who expect a stepwlse change m how the value they create 1s affected by the mnovatlon (By the way, If the innovator would come to the conclusion that no element of the value chain leading to the new product 1s changed m a stepwlse way by the mnovatlon, I would have serious doubts whether It 1s a real mnovatlon, and whether the innovator 1s not simply pursuing a better mousetrap ) Determining who can help you as an innovator 1s not only a question of who has a stake, but also depends on who has the technological or other expertise to solve your problems or to provide you with some additional problem solving capacity I have found it most useful to perform the first part of this exercise while hmltmg myself to generic groups, hke component suppliers, vendors, customers, users, research mslstutlons, government, etc Once these generic groups have been mapped with respect to their stake m the mnovatlon, one can
perform a simple Pareto analysis to fmd out who would be the 5 or 10% best partners wlthm these generic groups Best means m this context a combmatlon of available expertise and an infrastructure to commurucate with the potential partner The ‘best’ partner is, of course, the one that has expertise, an economical motivation to be mvoived m the mnovatlon and a willingness to collaborate with the innovator But we rarely live m such an ideal world where the potential partners reahze the benefit they can derive from collaboratmg with the mnovatlon Avallablhty of expertise and wlllmgness have to be managed The avallablllty of expertise 1s often obscured by what 1s usually called the parochlahsm of technology (Allen, 1977) Each firm develops its own Jargon to talk about technology, Its own history of development, its own blmd spots, and Its own way of classlfymg mformatlon In contrast to the universal language of science, technology 1s spoken m many dialects Expertise m one firm 1s not readily transferable to another firm, and the innovator who wants to leverage the technology of a potential partner will have to invest m some kmd of momtormg and translation facility to render the partner aware of the potential of the mnovatlon for him and to absorb the technology or management support he can provide Increasing the wlllmgness of the partner to collaborate IS often an exercise m showing the partner his potential benefits and the mmlmal costs at which he can get those benefits This leads me to a third pomt Knowing what his gaps are, having determined who the potential partners are, the innovator has to open up the channels to those partners I want to encourage the innovator to go beyond the obvious m this domain It seems that proposmg the potential partner sets up a common task force 1s the most straightforward approach There are, however, many other ways to momtor and involve others m your innovation effort Von Hlppel (1978) once made the proposltlon that to morutor users, the sales force (1 e the obvious contact with the customer) 1s far from the best channel for mformatlon transfer, when It comes to mnovatlon He proposed to allocate that task rather to the service after-sales force, which 1s confronted with the customer’s and user’s problems, and eventually solutions that user has found to the problem It 1s not only to approach customers we can use creative solutions One sports goods company which wrestled with the behavlour of some of the metallic components m Its products, came to the conclusion that Its suppliers should have the capablhty to solve the problem (De Meyer, 1983b) They proposed to three of their supphers a deal that they would exclusively purchase their components from the first supplier who could solve their problem Wlthm less than three months the problem was solved That same sports goods company also had the idea of granting a research contract to a researcher from the same uruverslty as where Its malor competitors had some research contracts gomg The idea was not to introduce a spy to know what the competltlon was
EUROPEAN MANAGEMENT JOURNAL Vo19 No 4 December 1991
401
ORGANIZATIONAL
LEVERAGE
EFFECT IN INNOVATION
doing I would trust the professional deontology of the academic researcher to avoid that sort of occurrence But havmg access to the same laboratories, the same network of ideas, the same sclentlflc environment as its competitors, was thought by this company to be beneflclal to its developments In the end, they actually set up common research prolects with their competitors and the particular university team A more common way of mvolvmg acadenuc researchers 1s to offer them a posltlon on a sclentlfic advisory board A risk of such a system 1s that we get only top researchers on that board, who have often already too manycomnutments to feel really involved m what your problems as a company are These top researchers are often m good positions to obtain grants, and have no or only a llmlted stake m your success as an innovator They might still be excellent advisors to comment on your research and development effort, but their stake to solve your problems might be less high In some cases, it 1s therefore necessary to build up stronger ties with the minor gods m academic research, who can provide you access to cheap laboratory equipment and motivated graduate students We do not make a case for getting rid of the high-powered sclentlflc boards, but rather for complementing them with other systems which create ties between your researchers and the grassroots acadenucs Involvmg the supphers can be done m a different way than by putting them mto competlhon A small chenucals plant has developed what it calls its suppliers’ club A bit m the same vem as user clubs for computer companies, every s1x months they mvlte technical people from their malor equipment suppliers, and walk them through the plant They also try to create some mformal ties between their suppliers The net effect of these guided tours and mformal networks was that fairly soon the supphers came up with proposals for plant redesign But, m contrast to previous proposals, the new ones were not necessarily product-oriented, m order to sell as many products from the suppliers as possible, but were systems-oriented Groups of suppliers proposed together improvement solutions, which m earher times would have to be worked out by the chemicals company’s own process engineering group or engineering subcontractor Given the parochlahsm of technological progress, it often seems wise to develop the relationship with a partner m mnovatlon mto a long-term and intense relationship The studies of the relation&ups of Japanese automobile compames with the= ancillary firms (Odaka et al , 1988) or the benefits that large computer companies such as IBM or Dlgltal Eqmpment Corporation have derived from loyal user clubs, stress the fact that the creation of a long-term relationship will lead to mutual confidence and understandmg of each other’s needs and potential
But I will argue that the relatlon-
ship between the partner orgamzatlons also has to be an mtense one, 1 e frequent and at all levels of the orgamzatlon For example, m the case of the collaboration between a company and a uruverslty laboratory, I 402
concluded that the best relationships were those where contacts exlsted at three levels the strategic level of the companywlth the semor professor, the project managers with senior academic researchers, and the company’s sclentlsts with the graduate researchers And furthermore, the relationship became more fruitful If the company was prepared to fund not only specific projects of problem-solving activities, but If it was equally prepared to fund the uruverslty laboratory over a longer period of time, even If this entailed fundmg of small projects with no lmmedlate relevance to the company These small prolects helped to nurture the intensity of the relatlonshlp, and made the company the obvious primary beneflclary of creative Ideas that umverslty researchers wanted to share with the world None of these solutions are ready made for other companies The message 1s that one has to be creative m setting up systems which can monitor and mvolve those partles which can be or should be turned mto partners in your innovation process
Conclusion The contrlbutlon that outsiders can make to the mnovatlon process has been studled m many different ways Some scholars focus on suppliers, some focus on customers, some on academic partnershlps I propose here that we have to go one step beyond this scattered approach and see the whole competltlve environment as a source of help m the mnovatlve effort Suppliers or customers are not good collaborators m mnovatlon per se For some types of mnovatlon they may be helpful, for others perhaps a burden What I propose here 1s that companies take a proactive attitude to their enwonment and scan it for those partners which nught receive the highest benefit from their mnovatlon They will be prepared to collaborate m your effort and share some of the burden of the development Doing this m a proactive way requires the mnovator to analyse his needs, to perform an ABC analysis of the competltlve environment to see who promises to be the most effective partner and to create mnovatlve forms of collaboration
Bibliography Allen, T J Managmg the Flow of Technology, MIT Press, Cambridge, MA, 1977 Barbe, J , R Moenaert, D Deschoolmeester and A De Meyer, The Turnaround ofCompames with an Agtng Technology, Report to the Intercollegiate Centre for Management Science, Brussels, 1988 Bower, J L and K Furukawa, The VLSI Research Assocratzon, Harvard Busmess School Cases, o-383-067, pp 13-39, 1982 Clark, K B ‘Prolect Scope and Prolect Performance the Effects of Parts Strategy and Suppher Involvement on Product Development’, Management Science, vol 35, no 10, October 1989 De Meyer, A ‘Management of Technology m Traditional Industnes a pilot study m ten Be&an compames’, R&D Management, vol 13, no 1, pp 15-22, 1983a De Meyer, A Brownmg (A) 6 (B), Insead Case Series, 1983b
EUROPEAN MANAGEMENT JOURNAL Vo19 No 4 December 1991
ORGANIZATIONAL
LEVERAGE
EFFECT
IN INNOVATION
-_ I re Meyer A. Plant Genetic Systems (A), Insead Case Series, Fontainebleau, 1989. I )e Meyer, A. ‘Shortening Design Cycle Times: a manufacturer’s perspective’, R&D Management, vol. 20, no. 3, 1990. I lamel, G., Y.H. Doz and C.K. Prahalard, ‘Collaborate with your Competitors - and Win’, Harvard Business Review, January-February 1989. I Iession, C.H. ‘The Tin Can Industry’, in W. Adams (ed.), The Structure ofAmerican Industries, Macmillan, New York, 1971. ( rdaka, K., K. Ono and F. Adachi, The Automobile lndust y in lapan: a Study of Ancilla y Firm Development, Kinokunya Co., Tokyo and Oxford University Press, Oxford, 1988. (.hnnn, Pilkington Brothers Ltd, Amos Tuck School of Business Administration, Dartmouth College, BP 78-0148, 1977. ‘. anderwerf, P. ‘Product Tying and Innovation in US Wace Preparation Equipment’, Research Policy, vol. 19, no. 2, pp. 83-96, 1990. 1,on Hippel, E. ‘Users as Innovators’, Technology RezCew, vol. 80, no. 3, pp. 2-11, 1978. 1 on Hippel, E. The Sources of Innovation, Oxford University Press, Oxford, 1988.
I
EL’ ,:OI’EAN
I
MANAGEMENT
JOURNAL
Vol 9 No 4 December
1991
403
organizationalLeverage Effectin Innovation PARNOUD DE MEYER, Assoczate Professor of Technology Management, I ?ance
Ln innovation cannot act m a vacuum, but should nlrst the help of ‘partners in innovation’ in order 3 improve the productivity of the mnovatron proess. In this paper, Arnoud De Meyer uses a .umber of case studies to show how this leverage f the innovation process can be used under ifferent circumstances, and how the leveraging lrocess can be organized.
I ntroduction R:esearch and mnovatlon t1ne problems, and the
often describes m great detail hard work of the mdlvldual 11lventor, or of the mnovatlve team, that came up with t1ne bright new idea that led to the new product and of the envlronP lrocess Al1 too often the contrlbutlons nnent m which the innovator or the inventor has worked re neglected m these almost hagographx descrlptlons ; ind one gets the ImpressIon that the mteractlon of the with his environment was of only mmor 11movator 11nportance to the end result Everybody knows that 1s lot true, and that one needs a lot of mformatlon commg : rom the outside, m particular from the market, to carry Cjut the mnovatlve task But the need to have access to
ZNSEAD, Fontaznebleau,
outslde mformatlon 1s taken for granted, and 1s consequently hardly mentioned As a consequence, superflclal analysis of these case descrlptlons could lead to the idea that the team, or the company which has developed the new item, has carrled out the mnovatlve work all by itself But mnovatlon 1s first and foremost an entrepreneurial act either by an mdlvldual, or by an entrepreneurial team operatmg wlthm the orgamzatlonal structure of a larger company One of the characterlstlcs we know about entrepreneurs IS that they hardly, If ever, work m lsolatlon Moreover, they seem usually masters at moblllzmg resources they do not own, or enhstmg help from outsiders not directly Involved m the company or the mnovatlve venture This 1s precisely the pomt we want to make here Even if we put the entrepreneurial Issue aslde and look at a more ‘regular’ mnovatlon process in a larger company, m order to innovate successfully it 1s reqmred that the Innovator, be it an mdlvldual or a team, enlists during the mnovatlon project the help of others who have a stake m the eventual success of the mnovator Innova-
c
EUROPEAN MANAGEMENT JOURNAL Vo19 No 4 December 1991
ORGANIZATIONAL LEVERAGE EFFECT IN INNOVATION
tlon does not happen m lsolatlon To produce that mnovatlve product, process or service, which meets the quality requirements of the potential user, and that at an acceptable cost and wlthm the required time hmlts, one has to leverage the potentzal benefzfs of the znnovatzon to others, to enlzst those others’ support and partzczpatzon
A Few Examples To understand better how this leveraging of the benefits of mnovatlon can work, let us look at a few examples Plant Genetic Systems 1s a successful Be&an firm carrymg out development of genetically engmeered herbicide and pesticide resistant plants The company started off as a venture between four agro-mdustrlal compames but with the very active mvolvement of a few of the top acadenuc researchers m the field of genetlc engmeermg
I
Users of a new product are often found to have been originators of the new innovation
These researchers were all lmked to some extent to a local Belgian university In the early negotlatlons It was decided that it would be very convement for the start-up company to have its laboratones close to, or even mwde, the umverslty premises In that way the company researchers would have direct access to the academic research, and would be able to remam a member of the network of speclahsts m plant genetic engineering worldwlde, and this m a very mformal way and with a muumum of transaction costs Though that local ii umverslty had only limited experience with such an agreement with a private company, m the end the umverslty opened up Its premises and provided the :ompany with laboratory and office space The arguments which seemed to convince the umverslty were hrst, that m return for access to its buldmgs, the uruvers&y researchers would benefit from the mdustrlal contacts m defmmg their research prolects Second, sophisticated laboratory equipment would be available during evening and night hours for the umverslty researchers, which otherwise the university would never have been able to afford Moreover, the uruverslty hoped that an eventual mdustrlal success of the private :ompany would have a synergstlc posltlve effect on the Fame of the umverslty Plant Genetlc Systems consequently used future benefits to the university such as Fame and relevance of the research carrled out by the unlverslty, to get an immediate benefit, namely easy access to a crucial network of state-of-the-art mformation md a first choice for recruiting graduate students (De Meyer, 1989) Let us look at a second type of example For more than ten years, Enc Von Hlppel(1988) has studied the contrlbutlon of users m the mnovatlon process In, for example, the sclentlflc instrument industry, he found that more than 77% of the mnovatlons originated m a pre-mdustnal prototype form designed by the users of 398
the instruments Instrument companies only had to keep their eyes open for the awkward constructions made by their customers, and use their lmagmatlon to transform these prototypes mto more generally apphcable mstruments He has found slmllar phenomena m other mdustnes, such as semiconductor and printed circuit board processes or mdustrlal gases In many of the cases, he shows that the original idea for the new product comes from the potential user of the new product But the mvolvement of users can take other forms than being the source of ideas Designers of workstations may give a preview of their design to some of the largest OEMers to have an input from the market m order to improve the design Textile machinery companies will install an mdustrlal prototype of their looms with sophisticated customers with which they have built up a long-term relation (De Meyer, 1983a) These customers take the role of m-field test sites What 1s m it for the customers7 First, they get insight mto the posslblhtles of the new machme at a stage when design changes are still possible, and they can eventually still influence the final design Second, they budd up experience with the new type of machinery, and this at an earlier stage than their competitors They can evaluate earlier the machme and can get an advantage m productivity unprovements Smular collaborations between users and producers can be found for other types of machinery Let us look at a third type of example BTMC, a subsidiary of ITT, later acquired by the European telecommumcatlons group Alcatel, built m Belgium a factory for custom-made chips In doing so, it was helped tremendously by a very posltlvely-mclmed local government, which went as far as taking a very considerable share m the company’s equity Fmanclally speakmg, this was a very good move for the company but, on top of that, it helped the company to smooth the bureaucratic redtape m selecting and acquumg the land for the construction of the factory, and overcommg some of the externahtles involved m setting up such a high-tech plant What was m it for the government? Perhaps some employment m a somewhat economically depressed region But much more Important was the public relations the local government got out of the whole affair, m an era where that particular government made tremendous efforts to trigger enthusiasm among the population for high technology, and for what it called the ‘thud mdustrlal revolution’ In the end, BTMC got an mnovatlve plant with a limited capital outlay, and had enlisted the government’s help by promlsmg them that this plant could be the trigger for further high-tech developments m the region On top of that, it probably speeded up the construction and start-up of the new production process A fourth type of example illustrates the role of suppliers m the innovation process Vanderwerf (1990) has studied the mvolvement of suppliers m the development of new products m those cases where parts and machines can be tied The contrlbutlon of the US alummmm industry
EUROPEAN MANAGEMENT JOURNAL Vo19 No 4 December 195
ORGANIZATIONAL
LEVERAGE
EFFECT IN INNOVATION
:o the development of new packagmg systems 1s wellsnown (HessIon, 1971) Less well-known 1s the effort 3y 3M as a chenucals company to develop flat cables and :onnectors for the computer mdustry (Vanderwerf, 1990) The mvolvement of the automotive component producers m the development of new subsystems for :ars 1s no secret either It 1s Bosch which developed for Daunler-Benz the electronic mlectlon system or an ABS braking system Im Clark (1989) has explored m detail the contrlbutlons made by suppliers m designing parts for car manufacturers He has shown convmcmgly that mvolvmg parts suppliers m the design process reduces both the total amount of engineering hours required to develop a new model, as well as the total development lead time needed during the planning phase of the development of the car His conclusion 1s not that one simply has to shift development work from the automobile supplier to the vendor or subcontractor It is, mdeed, not obvious that the subcontractor will have an equal or higher development produchvlty than the mam producer Involvmg supphers m the design process reqmres, according to Clark, a different approach to the orgamzatlon, the exchange of mformatlon with the supplier and the management of the procurement function, m order to transform the contrlbutlon of the supplier mto a tool to improve the overall productlvlty of the mnovatlon process
Many other reasons are conceivable why companies which compete with each other would collaborate on mnovatlon the costs of the project may be too high to be borne by one company as, for example, m the Alrbus consortium, or the companies have complementary competences as m some of the automotive lomt ventures The case of the Japanese consortmm to develop the VLSI technology provides an example where highly competltlve electronics firms overcame their feuds to share the burden of catching up with the US leading companies (Bower and Furukawa, 1982) In the development of Its new let engine for the nineties, General Electric has recently decided to make a consortium with the French Snecma and a Japanese partner, to bear not only the costs of the development, but also to pre-empt a market five to ten years down the road And m the begmnmg of the eighties m a move to resist the complete collapse of the garment manufacturing industry m Belgium, competing textile firms mcorporated cooperative companies m order to develop and mternahze new CAD/CAM technologies for pattern grading and cutting (Barbe et al , 1988) The literature on strategic alliances provides plenty of examples of collaborative efforts between competitors m the field of mnovatlon (Hamel et al , 1989)
In many cases also, suppliers of raw materials or components are highly motivated to make a development effort to solve some of the mnovator’s problems If the development 1s successful, a large market for their own components 1s waiting for them In my own research on shortenmg of development cycle times, I have found that mvolvement of suppliers during the development process appears to be one of the most effective avenues for shortening the tune between concept generation and the moment a product 1s ready for market mtroductlon (De Meyer, 1990)
All these examples have something m common In each case, an innovator has successfully enlisted the help of another partner, be It the government, a customer, a suppher or a competitor, to share some of the burden of the mnovatlon, or to shorten the development time needed to brmg the product to the market And this 1s the idea we would like to propose
After the mtroductlon of the consumer video recorder by Sony, the two electromc giants Matsushita and Philips developed their own competing system Though Sony was fwt, and Phllps’ system was generally considered to be techrucally better, Matsushita won by wide margins the market battle with its VHS system One of the reasons for Its success IS generally considered to be Its aggressive hcensmg pohcy By doing so the Matsushita video recorder system became quickly the virtual market standard Taught some wisdom by this experience, both Phlhps and Sony followed a different path during the mtroduction of the compact disc player, where they Joined forces to swamp the market as soon as possible with their common standard The same search for partners was clear when Sony introduced Its super8 video recorder At a particular moment m time Sony even proudly advertised how many other brands had already adopted then standard In this fifth type of example one sees corporate enemies collaboratmg with each other on a new concept or a new product m order to establish as quickly as possible a standard m the market EUROPEAN
MANAGEMENT
JOURNAL
Vo19 No 4 December
Organizational
Leverage Effect
Each time one innovates successfully, there will be parties m the market which will benefit, together with the mnovator, from this mnovatlon In many cases these parties are prepared to become partners, and to share some of the burden of the mnovatlon effort In fact, m many cases the burden will be mmlmal to them, but can be of great and valuable help to the mnovator Take the government example of BTMC Reducing the redtape IS no real cost to the government, but can shorten the development time tremendously In other cases, the partner will have to invest, but he will do so gladly because the promised returns match his return on investment criteria easily As we said above, the prmclple 1s simple use the potential benefits of the mnovatlon as a carrot to turn interested parties m the competitive environment mto partners m the mnovatlon process Since this process 1s a bit hke usmg the potential benefits of the mnovatlon as a lever to obtain the help of the other orgamzatlon, we called It the orgunuatzonal leverage effect zn wmovafton
What we propose here 1s m lme with some of Von Hlppel’s (1988) previous research, but goes well beyond It In his approprlablllty theory, he asserts that the most natural locus for the first concept of a new product 1s that partner m the value cham, who can reap the lughest 1991
399
ORGANIZATIONAL LEVERAGE EFFECT IN INNOVATION
benefits from the mnovatlon What I propose here goes beyond the locus of mnovatlon Rather than hmltmg themselves to a passive search for Ideas and mformatlon, I suggest that compames have actively to mvlte partner compames to carry out the problem solving for them Many partners m the value added chain are prepared to contribute to solving problems durmg the mnovatlon prolect, if they can be made aware of the potential benefits of the mnovatlon, m case it succeeds It 1s up to the innovator to demonstrate these benefits to those parties he wants to turn mto partners
I
Companies should actively znvite partners to solve problems for them m the innovation process
Every mnovatlon consists of different components or aspects By appropnatmg the benefits for these different components to different partners, the total benefit of the mnovatlon may be increased Indeed, If a company tries to develop every smgle component on its own, It may simply arrive too late on the market While if It enlists the help of outsiders, the development lead time may be conslderably shortened and as a consequence the mnovatlon may have a higher return to the innovator as well as to Its partners
Are There Any Disadvantages? First, there 1s of course a tricky questlon of secrecy How does the mvolvement of a partner affect secrecy, or the mnovator’s mtellectual property nghts’ If secrecy 1s of utmost unportance to your success, enllstmg the support of market partners IS, of course, dangerous As Lord Pllkmgton has said about the Pllkmgton float glass developer m the fifties ‘People easily fall to understand that the greatest secret about a new process IS not how to do it, but that It can be done’ (Qumn, 1977) But my own experience with more than forty m-depth case studies of mnovatlon projects (see De Meyer, 1983a, Barbe ef al , 1988) leads me to the conclusion that, m the huge majority of the cases, the competltlve edge provided by secrecy 1s related to less than 15% of the technological content of the new product It IS the core technical element or system that you want to keep secret, not the packaging or the outer design And even for that core element, collaboration with trustworthy outsiders, such as suppliers with whom the company has a longstanding relation, or certam umverslty teams, can be very beneficial Partners are often rational enough to understand that they have much more to lose than to gam by revealmg the secrets The second problem has to do w&h the project coordmatlon Involvmg partners to develop parts for you, or to provide access to sources of mformatlon increases the costs of coordmatlon Havmg more partners mcreases the number of mteractlons, and this will cost time and resources These coordmatlon costs will have to be entered m the trade-off welghmg the benefits versus the 400
costs of mvolvmg an outsider m the mnovatlon process But these coordmatlon costs do not necessarily have to be much higher than for coordmatlon with internal departments Sad as It is, I have observed through the case studies that due to internal pohtlcal confhcts It 1s sometimes less costly m tune and resources tocoordmate with a trusted outside partner than with another department wlthm the company Secondly, the coordmatlon costs can be reduced over time If the partnershlp relation develops and as we learn how to manage these partnerships Part of the coordmatlon costs for one mnovatlon project can be seen as an investment m learnmg or an investment m the leveraging capability of the company
How To Do It? Though it may sound somewhat tnvlal, the innovator has first of all to get a good Idea of where and how he can use help This goes beyond hstmg the obvious fields where the innovator lacks techmcal expertise It may be that you have the expertise m-house, but that you simply do not have enough capacity, or that you want to speed up considerably the pace at which certam problems are solved If you design a new extremely fast textile loom, with electronic controls, it may be that you need to get some know-how about the behavlour of certain materials under condltlons of high stress, and that expertise 1s available with one of your component suppliers It may also be that you have all the expertise m-house to write software apphcatlons for the control of the loom, but that the support of one of your potential customers m wrltmg or debuggmg the software can help you to shorten the time till market mtroductlon As this Illustrates, the analysis should not be hmlted to understandmg what the technical domains are where one needs help The innovator must also analyse where he can use help m a project management sense Even If the innovator has all the expertise m-house, he may need to look for outside support m order to shorten the development time or to reduce costs On the contrary, It can be that even though the Innovator does not have the expertise, It IS better to develop the expertise mhouse, since outside help may not have a considerable impact on the economics of the project If, for example, help 1s needed to reduce the development time, the appropriate partner 1s the one who can help with a task on the critical path of the prolect And if the help of a partner 1s needed to reduce costs, the appropriate partner 1s the one that has the capacity to help with the bottle-neck actlvltles Indeed, over the typical time span of an mnovatlon prolect, the resources such as engmeers or market researchers, which are necessary for the prolect, can often be considered to be fixed costs Costs of a development project are not determmed by mvolvmg partners where the innovator has spare capacity he IS going to pay for that capacity anyway On the contrary, even If the innovator has the necessary technical expertise, but has a constrained capacity to bmld upon that expertise, fmdmg a partner to carry out the bottle-neck task may help to alleviate the cost pressure Determmmg
these areas of need 1s an exercise where
EUROPEAN MANAGEMENT JOURNAL Vol9 No 4 December 1991
ORGANIZATIONAL LEVERAGE EFFECT IN INNOVATION
needs will have to be traded off with the degree of secrecy requned by the prolect It 1s m this stage that the innovator has to determme what part of the mnovatlon 1s absolutely core to the successful posltlonmg of the product Involvmg outsiders m the problem solvmg related to this core can be dangerous If one cannot escape that option, then the innovator has to involve the partner m such a way that this partner has a personal stake m secrecy, for example by creatmg a lomt venture But the mvolvement of partners with such a strategic importance goes beyond what we propose here The second step IS to determme who your potentzal partners are Again, ddferent criteria will play a role Who has a high stake m your success as an mnovator? I use the word stake rather than benefit, because the stake may be large m non-economical terms Pohtlclans have a stake m bemg seen as successful m attracting new busmess, or (m Europe at least) creating employment Umversltles have a stake m domg relevant and pubhshable research Some government research mstltutlons have a stake m simply feeling useful to the community Academic researchers may be interested m obtammg fresh emplrlcal data Generally, one can say that the parties with the highest stake will be the ones that create a value that will be affected m a stepwlse way by your mnovatlon Umverslty researchers may be much more interested If your company works at the forefront of technological evolutlon, than when you try to solve some routme technical problem The value they create, 1 e new mformatlon, will be affected more drastically by a malor breakthrough at the forefront of technology than by a minor run-ofthe-ml1 test Suppliers will have much more at stake If your mnovatlon would change the traditional portfoho of components used for the product that you produce, than when you simply add a new varlatlon of a slmllar type of product If you, for example, switch from mechanical components to electromcs, your electromc component supplier will have much more at stake than when you produce the umpteenth varlatlon of an exlstmg electromc product Potential partners who have something at stake are those who expect a stepwlse change m how the value they create 1s affected by the mnovatlon (By the way, If the innovator would come to the conclusion that no element of the value chain leading to the new product 1s changed m a stepwlse way by the mnovatlon, I would have serious doubts whether It 1s a real mnovatlon, and whether the innovator 1s not simply pursuing a better mousetrap ) Determining who can help you as an innovator 1s not only a question of who has a stake, but also depends on who has the technological or other expertise to solve your problems or to provide you with some additional problem solving capacity I have found it most useful to perform the first part of this exercise while hmltmg myself to generic groups, hke component suppliers, vendors, customers, users, research mslstutlons, government, etc Once these generic groups have been mapped with respect to their stake m the mnovatlon, one can
perform a simple Pareto analysis to fmd out who would be the 5 or 10% best partners wlthm these generic groups Best means m this context a combmatlon of available expertise and an infrastructure to commurucate with the potential partner The ‘best’ partner is, of course, the one that has expertise, an economical motivation to be mvoived m the mnovatlon and a willingness to collaborate with the innovator But we rarely live m such an ideal world where the potential partners reahze the benefit they can derive from collaboratmg with the mnovatlon Avallablhty of expertise and wlllmgness have to be managed The avallablllty of expertise 1s often obscured by what 1s usually called the parochlahsm of technology (Allen, 1977) Each firm develops its own Jargon to talk about technology, Its own history of development, its own blmd spots, and Its own way of classlfymg mformatlon In contrast to the universal language of science, technology 1s spoken m many dialects Expertise m one firm 1s not readily transferable to another firm, and the innovator who wants to leverage the technology of a potential partner will have to invest m some kmd of momtormg and translation facility to render the partner aware of the potential of the mnovatlon for him and to absorb the technology or management support he can provide Increasing the wlllmgness of the partner to collaborate IS often an exercise m showing the partner his potential benefits and the mmlmal costs at which he can get those benefits This leads me to a third pomt Knowing what his gaps are, having determined who the potential partners are, the innovator has to open up the channels to those partners I want to encourage the innovator to go beyond the obvious m this domain It seems that proposmg the potential partner sets up a common task force 1s the most straightforward approach There are, however, many other ways to momtor and involve others m your innovation effort Von Hlppel (1978) once made the proposltlon that to morutor users, the sales force (1 e the obvious contact with the customer) 1s far from the best channel for mformatlon transfer, when It comes to mnovatlon He proposed to allocate that task rather to the service after-sales force, which 1s confronted with the customer’s and user’s problems, and eventually solutions that user has found to the problem It 1s not only to approach customers we can use creative solutions One sports goods company which wrestled with the behavlour of some of the metallic components m Its products, came to the conclusion that Its suppliers should have the capablhty to solve the problem (De Meyer, 1983b) They proposed to three of their supphers a deal that they would exclusively purchase their components from the first supplier who could solve their problem Wlthm less than three months the problem was solved That same sports goods company also had the idea of granting a research contract to a researcher from the same uruverslty as where Its malor competitors had some research contracts gomg The idea was not to introduce a spy to know what the competltlon was
EUROPEAN MANAGEMENT JOURNAL Vo19 No 4 December 1991
401
ORGANIZATIONAL
LEVERAGE
EFFECT IN INNOVATION
doing I would trust the professional deontology of the academic researcher to avoid that sort of occurrence But havmg access to the same laboratories, the same network of ideas, the same sclentlflc environment as its competitors, was thought by this company to be beneflclal to its developments In the end, they actually set up common research prolects with their competitors and the particular university team A more common way of mvolvmg acadenuc researchers 1s to offer them a posltlon on a sclentlfic advisory board A risk of such a system 1s that we get only top researchers on that board, who have often already too manycomnutments to feel really involved m what your problems as a company are These top researchers are often m good positions to obtain grants, and have no or only a llmlted stake m your success as an innovator They might still be excellent advisors to comment on your research and development effort, but their stake to solve your problems might be less high In some cases, it 1s therefore necessary to build up stronger ties with the minor gods m academic research, who can provide you access to cheap laboratory equipment and motivated graduate students We do not make a case for getting rid of the high-powered sclentlflc boards, but rather for complementing them with other systems which create ties between your researchers and the grassroots acadenucs Involvmg the supphers can be done m a different way than by putting them mto competlhon A small chenucals plant has developed what it calls its suppliers’ club A bit m the same vem as user clubs for computer companies, every s1x months they mvlte technical people from their malor equipment suppliers, and walk them through the plant They also try to create some mformal ties between their suppliers The net effect of these guided tours and mformal networks was that fairly soon the supphers came up with proposals for plant redesign But, m contrast to previous proposals, the new ones were not necessarily product-oriented, m order to sell as many products from the suppliers as possible, but were systems-oriented Groups of suppliers proposed together improvement solutions, which m earher times would have to be worked out by the chemicals company’s own process engineering group or engineering subcontractor Given the parochlahsm of technological progress, it often seems wise to develop the relationship with a partner m mnovatlon mto a long-term and intense relationship The studies of the relation&ups of Japanese automobile compames with the= ancillary firms (Odaka et al , 1988) or the benefits that large computer companies such as IBM or Dlgltal Eqmpment Corporation have derived from loyal user clubs, stress the fact that the creation of a long-term relationship will lead to mutual confidence and understandmg of each other’s needs and potential
But I will argue that the relatlon-
ship between the partner orgamzatlons also has to be an mtense one, 1 e frequent and at all levels of the orgamzatlon For example, m the case of the collaboration between a company and a uruverslty laboratory, I 402
concluded that the best relationships were those where contacts exlsted at three levels the strategic level of the companywlth the semor professor, the project managers with senior academic researchers, and the company’s sclentlsts with the graduate researchers And furthermore, the relationship became more fruitful If the company was prepared to fund not only specific projects of problem-solving activities, but If it was equally prepared to fund the uruverslty laboratory over a longer period of time, even If this entailed fundmg of small projects with no lmmedlate relevance to the company These small prolects helped to nurture the intensity of the relatlonshlp, and made the company the obvious primary beneflclary of creative Ideas that umverslty researchers wanted to share with the world None of these solutions are ready made for other companies The message 1s that one has to be creative m setting up systems which can monitor and mvolve those partles which can be or should be turned mto partners in your innovation process
Conclusion The contrlbutlon that outsiders can make to the mnovatlon process has been studled m many different ways Some scholars focus on suppliers, some focus on customers, some on academic partnershlps I propose here that we have to go one step beyond this scattered approach and see the whole competltlve environment as a source of help m the mnovatlve effort Suppliers or customers are not good collaborators m mnovatlon per se For some types of mnovatlon they may be helpful, for others perhaps a burden What I propose here 1s that companies take a proactive attitude to their enwonment and scan it for those partners which nught receive the highest benefit from their mnovatlon They will be prepared to collaborate m your effort and share some of the burden of the development Doing this m a proactive way requires the mnovator to analyse his needs, to perform an ABC analysis of the competltlve environment to see who promises to be the most effective partner and to create mnovatlve forms of collaboration
Bibliography Allen, T J Managmg the Flow of Technology, MIT Press, Cambridge, MA, 1977 Barbe, J , R Moenaert, D Deschoolmeester and A De Meyer, The Turnaround ofCompames with an Agtng Technology, Report to the Intercollegiate Centre for Management Science, Brussels, 1988 Bower, J L and K Furukawa, The VLSI Research Assocratzon, Harvard Busmess School Cases, o-383-067, pp 13-39, 1982 Clark, K B ‘Prolect Scope and Prolect Performance the Effects of Parts Strategy and Suppher Involvement on Product Development’, Management Science, vol 35, no 10, October 1989 De Meyer, A ‘Management of Technology m Traditional Industnes a pilot study m ten Be&an compames’, R&D Management, vol 13, no 1, pp 15-22, 1983a De Meyer, A Brownmg (A) 6 (B), Insead Case Series, 1983b
EUROPEAN MANAGEMENT JOURNAL Vo19 No 4 December 1991
ORGANIZATIONAL
LEVERAGE
EFFECT
IN INNOVATION
-_ I re Meyer A. Plant Genetic Systems (A), Insead Case Series, Fontainebleau, 1989. I )e Meyer, A. ‘Shortening Design Cycle Times: a manufacturer’s perspective’, R&D Management, vol. 20, no. 3, 1990. I lamel, G., Y.H. Doz and C.K. Prahalard, ‘Collaborate with your Competitors - and Win’, Harvard Business Review, January-February 1989. I Iession, C.H. ‘The Tin Can Industry’, in W. Adams (ed.), The Structure ofAmerican Industries, Macmillan, New York, 1971. ( rdaka, K., K. Ono and F. Adachi, The Automobile lndust y in lapan: a Study of Ancilla y Firm Development, Kinokunya Co., Tokyo and Oxford University Press, Oxford, 1988. (.hnnn, Pilkington Brothers Ltd, Amos Tuck School of Business Administration, Dartmouth College, BP 78-0148, 1977. ‘. anderwerf, P. ‘Product Tying and Innovation in US Wace Preparation Equipment’, Research Policy, vol. 19, no. 2, pp. 83-96, 1990. 1,on Hippel, E. ‘Users as Innovators’, Technology RezCew, vol. 80, no. 3, pp. 2-11, 1978. 1 on Hippel, E. The Sources of Innovation, Oxford University Press, Oxford, 1988.
I
EL’ ,:OI’EAN
I
MANAGEMENT
JOURNAL
Vol 9 No 4 December
1991
403