The Organizational and Cultural Changes Required to Succeed in Ecosystem Partnerships

Author: Jelena Krgovic, Innovation Roundtable®

James F. Moore coined the term “ecosystem” in a seminal 1993 HBR article in order to provide a framework for those who seek to understand and harness the underlying changes brought upon by emergence of innovative business communities. Corporate ecosystems have become more prevalent since. Yet, changing from internal to an externally collaborative model which allows for flexibility and dynamism is no easy task, especially for established companies who are set in their innovation patterns.

For this reason, in the following the Innovation Roundtable® Research team explores key insights learned from previous events in terms of what organizational and cultural changes are necessary for companies to succeed in ecosystem relations.

Factors Driving Ecosystems

In order to determine whether to engage in ecosystem partnerships, organizations should first understand the business environment as well as future trends. For many an industry, market trends will indicate that traditional inside-out innovation processes can no longer deliver. With customer experience laying the groundwork for innovation, companies must increasingly venture outside of the funnel, as Bill Fischer, Professor of Innovation Management at IMD explained at Innovation Roundtable® Summit 2017. The focus on customer experience drives the development of platforms, making it more difficult for companies to achieve their goal alone. Ronald Wolf, Senior Principal Scientist - New Energy Product technologies at Shell, noted during a 2018 event hosted by DSM that as platforms evolve, organizations can become increasingly reliant on what other companies can deliver. The truth is that, to move toward services, a new ecosystem must be built.

The trouble is that established companies have a portfolio of products and businesses. However, as Venkat Venkatraman, David J McGrath Jr. Professor of Management at Boston University, explains at 2018 event hosted by Solvay, digital technology developments will result in the organizations of the future having a portfolio of capabilities and relationships, not necessarily of products. This will involve bringing a set of capabilities to the marketplace, as well as orchestrating a set of relationships in the ecosystem in which traditional technologies and digital technologies co-exist.

Therefore, companies seeking to make the shift towards such a future must adapt accordingly. Yet, it is not easy for companies to shift perspective and embrace outside-in innovation, especially since many employees have built behaviors profoundly based on technology-push mindsets. Furthermore, the inherent uncertainty in innovation contexts makes mobilizing for action challenging.

Organizing for Change

A common insight at our events is that, when considering external collaboration, understanding the external environment is not enough. Companies should also understand their internal needs. During the Innovation Roundtable® Summit 2017, Pierre Orlewski, Manager Open Innovation EMEA at Goodyear, explained Goodyear’s ecosystem journey. He stated that it was hard for the company to define its organizational wants, which came as a surprise for leadership. Yet, companies need to determine their aspirational business needs because this leads to a clear view of what their technological needs are as well as which external resources are necessary for success.

Wolf suggests that a way to address such missing areas is to build scenarios that, based on the business model chosen, paint a picture of the internal and external elements required. This discovery process allows the company to identify any potential hurdles within the organization that would need to be addressed. At an event hosted by Daimler in 2017, Simone Arizzi, Technology & Innovation Director EMEA at DuPont, added that it can also be helpful for the company to define the type of external collaborative model it requires.

Wolf suggests that companies should utilize the collaborative structures they already have in place. The big advantage with this is that this structure is already organized around the necessary company functions, business groups and business units. Companies, however, should not forget they need to organize to deal not only with a single, but rather with a sequence of opportunities. Wolf’s suggestion is to standardize the process to manage the stream and ensure that the ecosystem is managed at the highest practical level.

It is vital that the company is ready and committed to collaboration, adds Brian McClure, Director Global Innovation Sourcing at Johnson & Johnson at event hosted by Nokia in 2017. The reason for this is that in theory companies might be prepared for what co-creation is, but in actuality organizational inertia can create bottlenecks. For external collaboration to work, companies must become lean and ambidextrous, Andre Convents, Connect+Develop and Innovation Leader, stated at P&G at an event hosted by Bosch in 2019. This enables companies to talk both the language of established business and that of startups.

Changing the Company’s DNA

To be inclusive of what the external world has to offer in terms of innovation, silos within organizations have to become a thing of the past, explained Graham Cross, Director of Commercial Alliances at Unilever, at a 2019 workshop hosted by IBM. Acknowledging that no one is perfect in this, he stresses that becoming cross-functional is crucial for ecosystem engagement.

Orlewski agrees that, in the ecosystem journey, a vital step in opening externally is to first break down internal silos. To facilitate open innovation within Goodyear, the company has 11 open innovation managers across all geographical areas. These employees are in charge of developing a strong global network comprised of academia, public and private research institutions, startups, and small non-supplier specialty companies. These create a balance between engaging one’s network and creating joint ventures.

Therefore, Goodyear’s innovation managers are carefully selected to have the skills to break down internal silos as well as to facilitate external collaboration. Leadership support is required, needless to say, but companies must also have the ability to enable their employees to navigate the uncertainty and complexity of large organizations.

A helpful strategy to accomplish this can be to use the power of rhetoric, as Chris Coleridge, Senior Faculty in Management Practice at Cambridge, explained during a 2018 event hosted by DSM. Comprised of logos, pathos and ethos, which together form the rational argument, the emotional one, and the speaker’s credibility, rhetoric is a comprehensive method and can drive change. Logos is essential across the board as it provides the business rationale for engaging in an ecosystem. However, given the inherent degree of uncertainty in innovation, logos alone is not enough. It is also essential that those driving change are credible people who can ensure trust as well as that they have the skills to leverage the emotional side of managing uncertainty and change across the organization. This becomes particularly important when building an ecosystem, with value unfolding over time.

Proudly Found Elsewhere

An essential component for participating in ecosystems is the willingness to use solutions developed by external parties. Changing the company mindset from “not invented here” to “proudly found elsewhere” is a significant cultural shift. However, as Brigette Wolf, Head of SnackFutures Innovation at Mondelēz International, noted at an event hosted by Facebook in 2019, it is important to understand that there is much more knowledge outside of the company than inside. Rather than doing everything in-house, companies should recognize that external partnerships allow them to augment their capabilities, as Luis Allo, Global Director R&D, External Technology Innovaion at Johnson & Johnson, points out in a 2018 Innovation Roundtable® interview.

The second ingredient to embracing a “proudly found elsewhere” mindset is to focus on the robustness of the externally developed solution. As Allo explains, adoption of external solutions comes naturally provided those solutions match the company standards. If the internal and external R&D teams are working on the same problem and the external solution is of lesser quality, clashes may happen. Yet, if the internal R&D team finds the externally provided solution to match its standards, the team will recognize it as a good idea and adopt it.

In conclusion, companies should determine their organizational wants and future trends in order to determine whether to engage in ecosystems. When developing strategies for partnering externally, they should bridge silos and change mindsets to be prepared to establish relationships and alliances with external partners, rather than simply transactional collaborations.

 If you are interested in finding more about how companies can engage in ecosystem partnerships, we are organizing a workshop on December 5th hosted by DSM near Maastricht, where expert speakers and key people from the innovation world will delve deeper into this topic.

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