The word “innovation” musters up images of newness, discovery, a leap forward into unchartered territories. But this type of storytelling can falsely position the concept of innovation in people’s minds as something that is only within the reach of a very exclusive cohort of “geniuses” and “taste-makers”. The truth is, innovation sprouts out of many different avenues, including corporate research hubs, incubators, accelerators, and University IP Technology Transfer activities. In fact, global innovation output is so staggering, in both speed and quantity, that it has given birth to an activity and career path known as innovation scouting.
Volatile global economic conditions coupled with the growing significance of technological discontinuities and radical innovations, have greatly increased the number of corporate organizations implementing scouting activities. In order to effectively tap into the treasure trove of emerging innovative products, these corporations must implement results-oriented scouting models.
We will dive into the implications of implementing such a model and provide a framework for implementation that covers both the internal, i.e. how to select the right method and tools, communicate goals and results within your organization, and external aspects, i.e. how to communicate your goals to innovators, support and work alongside startup culture efficiently, of innovation scouting.
The methodologies of innovation scouting vary greatly from company to company, but each project has one common goal: to spot novel innovations. Most scouting models have a dependence on 3 important variables:
Every corporate entity and industry organically tailors itself to the local environment, and scouting models should too. It is not enough to merely copy and paste a successful model from one context to another. In order to yield innovative results, a scouting model should, at the very least, consider the amount and skill level of human capital, the infrastructure, and the financial situation of the geographical region.
Every organization has its own corporate culture and specific characteristics that underscore and fuel the business. As a result, everything within the organization becomes influenced by that identity. This is also true for employees, human capital, and innovation scouting. Therefore, successfully integrating innovation into the organization requires consideration of the corporate culture. Conversely, one must also be aware of and prepared for the fact that successfully implementing innovation often triggers a cultural shift within the company.
A crucial variable, that drives and informs an innovation scouting model, is the type and domain of technology that the organization uses. One must consider and examine the level of technological implementation aiding the core and adjacent initiatives of the organization, as these will play a pivotal role in driving the model that will bring about the novelty. The incoming innovation must deeply align with the existing internal tech landscape in order to successfully achieve the intended results.
It is very difficult for organizations to keep up with all of the rapidly emerging innovations of business and technology whilst still focusing on their core business. The job of an innovation scout is to offer solutions to organizations’ problems by adapting novel approaches. They adapt the synergies and realities of the real world to propel the business into the future. They identify relevant technologies by:
These competencies, coupled with a passion for technology and the ability to make connections between entrepreneurial sources and internal players, are key to the success of an innovation scout.
It is essential to use a contemporary model of innovation scouting that goes beyond the typical, automated, legacy scouting approaches. There are two main contemporary models, within which, different aspects are localized:
The Scanning Model, as the name suggests, works similar to a fishing net. With assistance from scouting tools, organizations can tap into the innovation ecosystem of startups and universities and scan the different research and products that are in progress. From there, one must filter out the noise by using technology strength indicators, a small and large corporation filter and analysis, an organization social graph and collaboration, and a deep analysis that includes access to documented assets and comparative insights. This is a proactive approach, and is not necessarily triggered by an acute problem within a corporation but more often by their inherent desire for progress.
The targeting model, on the other hand, is triggered by a need from within an organization that requires a novel approach to solve it. Once informed of the problem, the scout taps into their network within the innovation ecosystem and begins targeting products and services that could be well suited for the organization.
Both of these models will generally produce three outcomes: Procurement, product development, and investment. The general process associated with these outcomes may be similar, but minute details of implementation are localized.
Consider these examples:
Both of these organizations are on the hunt for solutions for a well-defined need. In these situations, the Targeting Model of scouting would work best because it involves investigating, shortlisting and selecting players that have the capacity to build and/or sell technology that fits their needs. Usually, in procurement terminology, these players are known as “vendors”.
It is general practice that the Targeting Model excludes scouting for organizations like unfunded startups, university tech-transfer offices, and others that are not well structured to serve as a vendor. When scouting with this model, it is also general practice to consider the SLA (Service Level Agreement) that outlines the service delivery and overall customer support capacity of the vendor.
Companies and organizations may engage in innovation scouting because they perceive it as the most effective and resourceful way to complement their internal R&D activities and investments. Another reason, is that they may have the leverage to experiment with emerging technologies in sectors adjacent to their core business lines.
Organizations usually rely on their trusted and tested suppliers when it comes to the front-end of the product development. But when an industry is going through a period of massive technological innovation and restructuring, these suppliers may no longer have the capacity to deliver the solutions required to keep up. For example, the automobile industry is rapidly shifting to using renewable fuel sources. This has resulted in many suppliers shifting their product offering to adapt to the changes, but it has also resulted in many suppliers being left behind because they either refused to or could not offer renewable fuel solutions.
When scouting for product development, the range of the scouting activity is wide: technology can be obtained or co-developed with startups, universities, R&D labs and tech transfer offices of the educational institutes. As a result, licensing and IP management is critically important and must be explicitly taken care of.
Finally, there are companies that believe that the best and fastest way to advance their technology and customer penetration is by investing and acquiring high growth startups in new technological domains and markets.
Vetting companies for investment or acquisition involves a long list of assessments, including of the following parameters: valuation, growth potential/projections, deal financing, corporate structure and ownership, and the accessibility to crucial human resources after acquisition. This model requires a very thorough due diligence that is usually well beyond the competencies of an investment scout. Acquiring the services of lawyers, accountants, and other professionals, is essential during this stage.
One can reduce the total amount of effort required for successful implementation by ensuring compatibility with the acquiring company’s core business model, existing technology infrastructure and capacity, and post transaction integration constraints. However, there is always some luck involved: despite all the planning and investigation, the timing must be right for both the buyer and the potential seller.
In the 17th century, Europe’s six navel powers initiated a competition to figure out a precise and accurate way to navigate the open seas. In particular, they were searching for a more accurate method of measuring time and to find longitude. This competition inspired the great minds of the time, including Galileo and Christian Huygens, to contribute proposals. The problems were eventually solved in the 18th century by an English clockmaker. But this competition was the impetus for countless inventions, many of which can still be seen in timepieces today. This competition is a very early example of open innovation.
Over the last few years, the term “open innovation” has received widespread recognition and entered into business vernacular. But even before this term was coined, companies and organizations were collaborating with partners outside their business boundaries and engaging in tech scouting. Therefore, the term is simply a new way of describing an alternative but established method of procuring innovation. Core to this method is having a mindset that is open to sharing and receiving information.
Larger companies do not usually have the research capabilities or flexibility to bring about major, impactful innovation in their markets or business. The speeding up of technology advancements and increasing dissemination and commoditization of information makes it even harder to incorporate innovation into mature organizations.
A typical, open innovation program has three main objectives:
Critical to the open innovation method is securing buy-in from the top management. Without this, any program that aims to bring substantial change to the company’s culture and practices will fail. Buy-in is achievable if those who are in the top management are provided with the tools, guidance and awareness they need to understand how the intended innovation will be embedded into the system.
An ideal scouting methodology involves digging deep into the system and defining the cause and the particular manifestation of the problem at hand. Once this is defined, then one can begin working on solutions. In most cases, the main challenge becomes visible simply by writing down what parts and items are involved and what their respective functions are. As each part of the machine has a specific function, having a clear understanding of all of them is essential. Asking the right questions can make this potentially very cumbersome process much easier. Generally, questions should include:
Many people expect that they can easily outsource the work that follows on from a scouting action. However, it is important to remember that this is not the role of a technology scout. Their role is to maintain a very broad focus and the maximum possible exposure to innovative technologies. Therefore, proper management of expectations is important, not only for determining the workload but also in creating a realistic timeline.
Clearly, a technology scout faces a lot of challenges, but this is exactly what appeals to many who choose this path: the excitement that comes with searching for the latest technologies and the ability to problem solve using novel solutions.
An exciting, modern example of open innovation is Netflix, the famous media streaming platform. In 2006, Netflix launched an open innovation program named “Netflix Prize”, that was open to anyone from the public so long as they were not professionally affiliated with Netflix. The idea was to find a novel algorithm that improves user movie or series suggestion by 10% compared to the existing one. The cash prize for the winner was USD 1 Million. In just under 3 years, two teams had found ways to improve the suggestions by over 10%. One of the teams ended up winning the grand prize. However, as the algorithm of the winner was too costly to engineer, Netflix decided to implement the runner-up’s algorithm, that had an improvement of 8.43%.
Netflix’s R&D open innovation challenge was very successful: they achieved their overall goal, and furthermore, they established strong relationships with new, talented programmers and received a wealth of feature suggestions to improve their platform. The only problem was that the execution did not incorporate user privacy concerns and, because of this, they chose to refrain from hosting future competitions.
When done well, open innovation can be a cost-effective tool for outsourcing during tough economic times. When done badly, open innovation programs can be an embarrassing loss of reputation, costs, and resources. Classic mistakes include trying to ram innovation into areas where it doesn’t fit, and not defining the intended outcome before starting.
Innovation scouting is a complex activity. Online datasets, media exposure and investment signals are simply not enough to ensure non-obvious competitive advantages, innovation or partnership opportunities. Given the sheer volume and the accelerating speed with which innovations hit the worldwide market, a structured methodology and process are required to ensure success.
It helps to develop a scouting process by working backwards from the specific outcomes that a company wants to achieve. Once that outcome is defined, one can then start building a disciplined plan that focuses on relevant data sources and expert networks and discards approaches that are less likely to be productive. Working backwards in this manner makes it easier to execute focused, thorough searches, while also minimizing the risk of losing resources, effort and time chasing innovation opportunities that have a low probability of success.
Author: Uzair Shahid