Project findings and impact
The Dynamics of Open Innovation for SMEs
Open innovation is a ‘tool’ that can be used in various stages of an SME’s lifetime and can accommodate a variety of business priorities and growth strategies. The OI partnerships involving SMEs are often built on 'personal chemistry' between the lead manager, while practice shows that setting a shared vision and a partnership model is a critical success factor.
This analysis confirmed that often SMEs which focus on developing resources reach the stage of scaling-up without having much impact on their business but, in the event of proposing a disruptive innovation, can become a unicorn, a future winner. The length of time and amount of effort that are dedicated to generating unique resources depend on a range of issues such as the nature and the maturity of the technology employed and the market conditions. However it must be clear that carrying out open innovation activities to generate unique resources is just a ‘stopover’ on a journey whose final destination is the generation of business results.
The challenge is the management of this transition phase and its implications on the company’s social capital – such as leaving behind trusted partners because their skills no longer fit the new requirements and revising other internal components, such as the business model, its internal organisation, human resources, or changing the company culture as the SME moves away from an exploration and development frame of mind to an approach which favours market alliances.
Which type of partners?
An interesting subject is which type of open innovation player is most often engaged in the different steps of the open innovation journey and which role they play. The engagement of other SMEs and PSRs is significant from the development to the scaling-up stage, where they play a role of knowledge provider or complement the core know-how. Large companies have a more prominent role when the activities are closer to market, especially in the scaling-up phase - a very critical transition for most SMEs.
Crowd and individuals are mainly engaged in the stages which have an impact on the SME's resources, for example providing a user's perspective, while in the commercialisation phase their role is quite limited as it is substituted by a relationship with real customers/adopters.
According to our research, Open Innovation for SMEs remains 'trapped' within national borders, dominated by partnerships with national parties (stronger in the case of SMEs with resource impact). Cultural issues, limited understanding of market conditions and 'psychological' distance can prevent collaboration with international players.
Resilience to Open Innovation
Open Innovation should not be perceived as a one-off activity since it may take several attempts before the SME finds the right open innovation project. In fact SMEs’ open innovation journeys, as in all other aspects of life, can also experience failure. Often SMEs may find it challenging to convert the outcome of a rather unpleasant experience (the failed open innovation project) into a sustainable business activity. Obviously, a failed open innovation project creates a situation where the confidence of the SME in collaboration with third parties is undermined.
Open Innovation is a multi-faceted process that involves several factors, some of them under the control of the SME (e.g. how to choose the right partners, how to foster trust in partnerships, how to protect an SME's interests in a partnership, etc.), some beyond, but in general SMEs need to develop their skills to reflect and plan how to properly embed the open innovation strategy within the company (including the required resources).
Our research has found several resilient SMEs which, although they experienced a failed open innovation venture in the past, managed to overcome their lack of confidence and attempt a new open innovation activity. Open innovation is a 'long road with few early wins' and thus the commitment of the entrepreneur to the merits of the approach is required to stay the course.
Part of this resilience is the ability to plan for and 'sail' through open innovation failures. Our research has identified several false failures in open innovation, where the actual project failed but the learning stock of the company increased (both technical and soft skills). The value may not become evident until later when a particular context emerges. Although these false failures are quite rare, when they occur, their relative impact on the firm can be very significant. The transition from a failed to a successful open innovation activity could become the focus of more research from the academic community, as well as more support from policy-makers and innovation support agencies.
A critical link in this process is the identification of outcome targets, ie. concrete and measurable targets that should take place as the consequence of the produced outputs and contribute directly to the expected impact. The five outcome targets identified by INSPIRE (see diagram below) have the ability to materialise the expected impact. The outcome targets address both ‘practical issues’ such as how SMEs can comprehend open innovation and put it in practice as well as how open innovation can help SMEs to become more competitive and generate new ways of capturing value.