Open Innovation = Corporate Venturing for Top Line Growth

Jay Paap

Dr. Jay Paap

A Candid Interview with Dr. Jay Paap

by Jackie Cooper, Management Roundtable

When I think of Jay Paap, two thoughts come to mind: 1) he was doing Open Innovation long before it was called Open Innovation, and 2) those that don’t learn from the past are doomed to repeat it. Jay is a rare breed – always up on the latest technologies and business practices but never swayed by buzzwords or hype. Like the jazz dancer who first studied classical ballet, or the English professor who is fluent in Latin, Jay’s insights are both rooted and timeless.

You can’t help but like Jay. He sincerely wants to help people succeed and believes in keeping it simple. No highfalutin consulting jargon or ‘execution programs’— he’s more like the neighbor who would lend you his lawn mower without hesitation and share tips on effective weed killers while he’s at it. He would also get his hands dirty. Not that his consulting and academic credentials aren’t impressive. His Ph.D. is from MIT’s Sloan School of Management, and he has served on the faculties of the Industrial Relations Center at Cal Tech and the Executive Program at The Sloan School (MIT). He has worked with top companies around the world including Apple, Boeing, 3M, Corning, Raytheon, Procter & Gamble, Mars, NASA, Abbott, Ford Motor, Johnson & Johnson, Pfizer, Baxter Healthcare, ExxonMobil, Chevron, GOJO, Nestle, Dow, AT&T and dozens more.

Basically, he’s seen it all, knows what works and what doesn’t, and is super-resourceful about how to apply lessons learned from one industry or instance to another. Not only is he one of our most highly rated instructors, he’s one of my favorite people. We go way back – though I can’t remember the exact year he started teaching for us. I just know he’s wise, so it seemed only fitting to ask him about the true essence of innovation, open or otherwise.

JC: How do you define innovation, and what do you see as the key success factors in doing it openly?

JEP:  Anytime you do something really new it is innovation. Innovation’s goal is to create value for customers and shareholders, to deliver great products and services.  The objective is not Open Innovation, it is Innovation.  OI can be an important tool to help you get there, but there’s nothing magical about it.

There are many paths to innovation – spin things out, partner, license in, acquire, technology scout, incubate, do internally, and the list goes on. You can seek other companies with problems similar to yours to learn from them and if non-competitive, partner to share risk and investment – but often it makes more sense to go it alone. Every company has a formal development process (stagegate © or other) which is optimized to reliably deliver routine enhancements, and can sometimes be used effectively for innovative ones. However, more often innovation requires going outside the routine. What makes an innovation new is not the process, but the output – a new connection between need and technology that is developed, valued and used.

JC: Since you were working with leaders to implement innovation strategies back when OI was known as corporate venturing, what has changed over the years?

JEP:  Basically corporate venturing involves any activity that goes outside the established development process when necessary to make innovation happen.  I got involved in the 70’s , but successful firms had been using it since at least the 60’s.  In the 80’s there was a huge focus on innovation and using new relationships to accelerate or manage the challenges inherent in innovative efforts.  Alliances, skunk works, corporate venture capital were part of most firms’ vocabulary, under the term ‘corporate venturing.’  This was followed by the 90’s economic downturn when cost reduction became the goal, innovation was pushed to the side and the tools of corporate venturing abandoned by most firms. Then at the turn of the century, top line growth again became the priority and the search was on for ways to do it better. Henry Chesbrough ‘rediscovered’ corporate venturing, relabeled it Open Innovation, and once again organizations learned of tools to help them achieve top line growth by leveraging external realtionships. Interestingly, the term corporate venturing is coming back into vogue, perhaps as a way of starting OI over with a clean slate. No matter what it is called, though, companies will always need a process for developing great ideas into viable products and services, and for over 50 years, OI, Corporate Venturing, or whatever you want to call it has been one of the best tools available.

JC: What do you see as the biggest misunderstanding firms have of this approach?

JEP:  Too often firms focus on doing deals, spinning out, licensing in, partnering; they see OI as actions you take. They miss the fundamental value of OI.  Innovation starts with information, and OI pushes you to collect information on the external environment so you can make better decisions and forge more effective development strategies.  Organizations need to gather as much information as possible on what customers value, what competitors are doing, and what technologies are out there – now and in the future. The key is not having external relationships, but considering them.  One of my heroes, Ben Gomes-Casseres (co-author of Mastering Alliance Strategy: A Comprehensive Guide to Design, Management, and Organization), says companies mess up when they commit to strategic alliances rather than having an alliance strategy. The same can be said for Open Innovationcompanies need to commit to an innovation strategy which may include but is not limited to OI.

“Innovation starts with information, and OI pushes you to collect information on the external environment so you can make better decisions and forge more effective development strategies. “

JC: One of the common barriers to innovation that comes up all the time is Not-Invented-Here (NIH) syndrome.  What are your thoughts on NIH? 

JEP:  Lots of misconceptions here. ‘We must eliminate our experts’ NIH’ is a mantra in many organizations, and indeed getting rid of NIH makes bringing in new technology easier.  But the goal is not to bring in new technology – it’s to be innovative, and often the best technology is the old technology.  Killing NIH can also kill passion, and passion is necessary for innovation. The key is to ensure that your internal experts do not have the final say on the technology to use, so that the organization doesn’t suffer from NIH. Ideally the external effort is managed by a separate group, with titles like Open Innovation, Corporate Venturing, or Scouting which collects information from the outside, decides on the best technologies, and manages your experts’ NIH without extinguishing their passion.

JC: If collecting information is the key, how do you know what specific information to gather?  More importantly, how do you interpret it? Today everyone is flooded with information, but judging validity and value is much easier said than done.

JEP: The 4 main information-gathering questions to ask are:

  1. What is really driving customer behavior? (using traditional approaches like market research and VOC, but also others like forecasting, problem research, lead user, leverage or Kano analysis, or ethnography)
  2. What are the technology options – current and future? Have a scouting mindset to find others with similar problems, inventory other industries, monitor what’s going on in government and university labs and the entrepreneurial community.
  3. What is the competitive environment? What others are doing or hope to do. How you can time your activities strategically. Who potential partners or competitors might be. What resources you need and where/whom to acquire them from.
  4. What is your company’s strategy? Gather internal information about goals, constraints, resources, values, and risk tolerance.

JC: Who owns this information and how do you use it to make the right decisions?

JEP: The information can be anywhere.  We typically go to Marketing for customer information, R&D for technology information, Strategy for trends and competitors, etc. While these groups may be in the best position to manage these flows, what really drives innovation is the involvement of all major functions in the processing of the information into usable inputs into planning. To make informed decisions, everyone needs to have the same vocabulary. Assessment becomes cross-functional. When people share raw information, it keeps them honest and purposeful. When information is abstracted or summarized; the richness is gone and innovative insights often get short-circuited.

The process involves piecing together customer information, competitive intelligence, technology information, and assessing opportunities in terms of your strategy. Innovation planning typically involves 15-20 people taking two days to share information, create landscape maps summarizing the key factors affecting innovation, and then jointly developing ideas for innovative products and services.  The activity can be eye-opening. Marketing and engineering frequently gain a completely new appreciation and understanding.

JC: How do you know which customer needs are the right ones to focus on? Customers rarely identify or articulate the ones that ultimately change the game.

JEP: There are six different techniques I use for identifying customer needs and only one involves asking the customer what they want! Dick Davis at Whirlpool, for example, anticipated the customer demand for wash-and-wear cycles not through VOC type techniques, but by looking at environmental factors affecting what customers would want, specifically, the emergence of new fabrics requiring new ways of washing.  The idea is to gather information on the customer as well as from the customer.  Also gather competitive intelligence on external trends and new technologies. Innovation happens when you can anticipate customer needs even before customers know them.

JC: What are some of the most innovative approaches you have seen to innovation? How would you recommend organizations create a successful Corporate Venturing/ Open Innovation/Innovation effort?

JEP: One of the most innovative companies I ever worked with was Abbott Diagnostics in the 80’s. They were #1 in most of their markets, the dominant and most innovative player in their industry. In an offsite meeting, we explored why they were so successful to try and find the key to their success. They identified the secret was not a single ‘best practice’ but having many approaches to draw on and knowing when to use each one.

Click image above to Download Article

Click image above to download Dr. Paap’s Article on Corporate Venturing

Essentially, once an opportunity is identified firms should assess the challenges and select a development strategy that will best address them. Consider using internal ventures like ad hoc venture teams, formal skunk works, intrapreneurship programs, and incubators; and external ventures including strategic alliances, joint ventures, VC fund investments, minority investments in small firms, venture spin-offs, university relationships, federal lab partnerships, industry incubators, and consortia.  And if the challenges are manageable, innovation can happen using traditional development practices.

To summarize, I see corporate venturing/open innovation as any activity that takes place outside the traditional structure. It often uses different management techniques, different planning, funding, decision making and communication practices. It starts with information, and ends in a decision to use the best tool for the circumstances.  It operates where there typically is more uncertainty and perceived risk – but venturing is not the source of risk, it is a response to it, a way to manage it. The risk of not creating new business, products or technologies is far greater.

For more about how to design a corporate venturing program, see Jay Paap’s article, “Designing a Corporate Venturing/Open Innovation Program: Factors to Consider”

For further reading:  Anticipating Disruptive Innovation 


Contact information:

Jay Paap
Paap Associates


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