How Companies can Successfully Outsource Innovation?
In ancient Roman myth, Janus was the god of gates, passages, and also the god of beginnings and endings. Janus is often depicted with two faces or two heads, one of which looks forward and the other in the opposite direction, that is, behind the head. It is believed that these two heads look at the future and the past.
Leaders should be able to act like Janus. They, too, should constantly look back and consider the products and processes made in the past, while also looking to the future and preparing for the innovations that will shape the future.
Creating this kind of mental balance can be one of the most difficult managerial challenges. It requires managers to explore new opportunities while working to exploit existing capabilities. And not surprisingly, few companies do it well.
Most successful companies are very capable of improving their existing products and services, but falter when it comes to creating entirely new products and services.
Kodak is one of the famous examples of companies that once dominated the market but failed to adapt to market changes. Kodak was the Number one brand in analog photography, but could not withstand the digital camera revolution. And interestingly, the digital camera was invented and patented in Kodak research centers.
In Iran, the Telecommunications Company was once one of the most valuable companies and people had to spend a lot of money to get a landline, but today it has reached a point where more than 50,000,000 USD of their buildings and properties are auctioned so that they can pay their employees.
Despite the pressure of marketplace and competitors on a company as well as rapid technological advances, if a company wants to survive in today’s world full of rapid changes, it must change the discourse of protection to the discourse of speed. Meaning, it should not just focus on its working business models and products but rather aim to find new business models and products. Such a new way of doing business requires the spirit and approach of explorers. To be able to reach new markets, acquire new technologies and create new solutions and finally new business models.
It is obvious that these two approaches are not compatible with each other and this is called the exploitation-exploration paradox.
There are many reasons why large companies cannot exploit their current business model and simultaneously explore new business models and innovate.
including:
- The nature of a mature organization is to take advantage of its market to increase its economic profit as much as it can. Such a company does not want to lose its cash cow and concentrates all its efforts and energy on maintaining the status quo and satisfying its current customers.
- In addition, large organizations are like giant cargo carriers that, before departure, their course must be precisely set in advance, and if they have to change their course en route, they must plan weeks ahead to get on the right route.
- Also, these organizations have many stakeholders such as employees, different layers of management, shareholders, customers and suppliers, etc., which limits the organization’s ability in making big decisions and big changes.
If we want to have an organization that can take advantage of its current business model while exploring new lands of opportunities, we must think of new structures that will solve this paradox. Such an organization is called Ambidextrous.
Moving towards an Ambidextrous Organization
One of the methods that organizations have used to achieve ambidexterity is creating innovation through connecting and attracting agile teams outside the organization, i.e. startups. Of course, creating such a connection is not easy and needs its own appropriate structures.
A number of large companies have tried to establish this relationship and have made a lot of investments, but because the culture of a startup is completely different to an organization, such investments do not come to fruition.
Therefore, as a solution, the approach of ex-cubation or fostering innovation outside the organization is suggested:
Ex-cubation
The approach of outsourcing innovation through excubators (as opposed to incubators), attempts to separate exploitation from exploration. This work can be implemented by creating a discovery engine next to the exploitation engine and in the form of separate but connected companies.
Innovation Engine and Execution Engine
Importantly, both types of engines support each other and in doing so they create a cycle of innovation flows. The core business (the exploitation company) presents its needs and problems along with the necessary inputs to the innovation teams (the startup) to explore innovative solutions to solve those problems.
The innovative company transforms these solutions into new business models and brings them back to the core business. And the task of the main company is to exploit these innovative business models.
