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Gunn & Twynmore Crown Business Center Keypoint Schipholweg 103 2316 XC Leiden The Netherlands Phone: + 31 6 28 98 66 60 / + 31 6 28 98 66 61 E-Mail: [email protected] Web: gunntwynmore.com

05 October 2015

INNOVATION TRENDS IN INDUSTRY

Whitepaper Series Part 2 – An overview of trends observed in industry

5 October 2015 INNOVATION TRENDS page 2

Introduction In Part 1 of this series of Whitepapers, an overview of different technology transfer tools was given that currently are being used by universities. However, not only universities are undergoing changes. Firms, too, have been evolving over the last few years regarding their innovation strategies. Therefore, this paper looks in more detail at the development and trends observed in industry regarding their innovation strategies and practices. Note: This is the second Whitepaper in a series of three. Part 1 focuses on the current models used by TTO’s across Europe and US. There are other variations known but as they are more specific to individual institutions and not as widely adopted as the models above, they are not discussed here. Part 2 of the Whitepaper series focuses on some of the trends in industry. Part 3 of the Whitepaper is a new collaboration model for academia and industry taking into account the issues that have been discussed in the Part 1 of the Whitepaper series and the trends as discussed in Part 2 of the series.


The Technology Revolutions In the last few centuries, we have seen a number of Industrial Revolutions. Both the first Industrial Revolution, starting in the late 18th century, and the second Industrial revolution, around 100 years later, brought us inventions that immeasurably improved many people’s lives through changing economic structures and transforming society. The innovations created allowed for new economic opportunities on a mass scale. The third great wave of invention and economic disruption was set off by advances in computing and information and communication technology (ICT) in the late 20th century including machine intelligence, the infamous world wide web commonly known as the Internet, and advanced robotics. The latest Revolution, the Information Age, closely followed the Third Revolution. Big data is the key word in this Revolution. Some believe, however, that the Fifth Revolution is already on its way: the Hybrid age which has been defined as a human-technology co-evolution. The Fourth Revolution has allowed, of course, for the world to interact more easily. What company does not have a website today? Social media, such as Twitter and LinkedIn, have become great sources of information as well. In fact, for many, there is too much information available and it is becoming increasingly difficult to keep up with everything. It has also changed the way businesses meet and interact. People reach out to each other more easily through connecting on social media but also through specialized platforms. Because of the speed that information is made available and the amount of information that is available, companies are facing new challenges.

From Closed to Open Innovation P&G was one of the first to drastically change things. Although they were not a pharmaceutical company but a personal care and household product company, they, too, had issues with finding and developing their new innovations and were suffering from lack of customer loyalty. Their new CEO, A.G. Lafley, first expressed the idea that no matter how good the staff was at P&G and how many ideas they had, it was only a fraction of the total intellectual pool available worldwide. Lafley’s new way of thinking led to P&D’s Connect & Develop program which has been very successful for them. With this program, P&G created an “open innovation” trend, which was followed by many others in some form. The pharmaceutical industry was quick to follow and as a sector, probably have had the most experience in open innovation practices. However, other sectors, including electric engineering, aviation and publishing companies are adopting similar practices.

Closed Innovation As described above, P&G’s Connect & Develop program took a completely different approach to creation and development. Until then, virtually all large multinationals operated the same way. They innovated from within their own R&D centers. There was a strong belief that a company should control the creation and management of ideas – and, therefore, its IP. There are 5 common beliefs related to closed innovation1:

1. The smart people in the field always work for us. 2. To profit from R&D, we must discover it, develop it, and ship it ourselves. 3. If we discover it ourselves, we will get it to the market first. 4. If we create the most and the best ideas in the industry, we will win. 5. We should control our IP, so that our competitors don't profit from our ideas.

1 Adapted from - Openinnovation.eu


Often, closed innovation paradigms are used interchangeably with “Not Invented Here” syndrome. It is also sometimes referred to by decision makers as “everything coming from outside is suspicious and not reliable”.

Open Innovation Although the term ‘closed innovation’ is well defined and understood by most companies to mean the same thing, there is a wide variation on the definition of open innovation. At the heart of all the definitions, there is a common basis namely involving externals for the acquisition of new ideas or products by sharing knowledge and IP. The extent to which these externals are used varies per company. For example, some companies will practice open innovation by having a portal on their website which externals e.g. citizens can submit their ideas to the firm. The firm will review and select those that they think will enhance their business and the submitter gets a small reward in turn. Other firms embrace the term more broadly and will go as far as sharing their campus or even their labs with external parties. Therefore, when a company claims they are involved in open innovation, it is worthwhile to investigate how they have interpreted the term. In a similar way as above, 5 principles have been defined for open innovation2.

1. Not all the smart people work for us, so we must find and tap into the knowledge and expertise of bright individuals outside our company

2. External R&D can create significant value: internal R&D is needed to claim some portion of that value. 3. We don't have to originate the research in order to profit from it. 4. If we make the best use of internal and external ideas, we will win. 5. We should profit from others' use of our IP, and we should buy others' IP whenever it advances our

business model.

Current innovation trends As mentioned above, one of the biggest problems is managing the relationships between the various partners and overcoming the different cultures, needs and priorities. As a result, some companies have started to apply the open innovation principles more internally. This would appear to revert back to the closed model. To some extent, it can be interpreted that way. However, there are some differences. In the closed model, the innovators were primarily dedicated scientists who worked in the R&D center, although some firms did have “suggestion boxes” for ideas from other staff members. The open innovation within the firms aims to involve a wider group more actively. Staff post challenges and ideas to solve issues can be submitted by other staff members regardless the Division or Department or country they are in as long as they are from the same firm– often with a reward for encouragement. The argument for looking more inward again is that the company staff knows the market and sector the firm is engaged in, they know its customer base etc. The end goal is often more aligned. This vast and valuable knowledge was perhaps underexploited in the pure externally directed Open Innovation paradigm. This new development doesn’t mean that open innovation practices involving external parties are replaced. No, it is merely adding to the toolbox as another way of collecting ideas. In fact, it’s taking the best of both worlds; the business model uses both external and internal ideas to create value. For SMEs the innovation trends are slightly different. In today’s fast-changing world, SMEs need to adapt quickly. Due to their size, they have an advantage over the multinationals in this respect as they can be more flexible. However, they have other limitations. When SMEs want to innovate, they often do not have the means 2 Adapted from - Openinnovation.eu


to scout for new inventions the same way as multinationals or to take up innovations from outside. Their absorptive capacity is generally less due to the knowledge and skillset available in SMEs, which is smaller than that in multinationals. Furthermore, SMEs have less financial means to invest in new R&D type activities and to commercialise the innovation. To overcome these challenges, SMEs can partner up with larger firms. However, this is easier said than done as this is regarded as an asymmetric partnership. This means that in addition to standard partnering challenges, a series of specific SME and/or startups challenges may need to be overcome as well. Examples of the latter are that, for example, that startups often do not have a fully developed business model yet, have little experience in deal making and have a less developed organizational structure.

Things to consider in Open Innovation partnering strategies In any partnering strategy there are a few things that need to be considered at the outset such as whether each organization is prepared to collaborate, what strengths each organization brings to the partnership, the objectives and performance criteria for the partnership, how the partners structure and manage their alliance and what benefit does each party hope to gain from the partnership. When engaging with powerful minds outside the organization powerful support roles within the firm are demanded. However, there is not one single Open Innovation champion. Innovation processes are complex and involve different persons, departments, and disciplines. Therefore, different roles are required to overcome inertia in complex innovation projects. Three types of roles or ‘promoters’ can help an organization to overcome the internal forces that can potentially hinder open innovation. These promoters can be differentiated according to their base of power: (1) the power promoter is a person who has the hierarchical power to drive a project, to provide necessary resources, and to help to overcome obstacles concerning will and bureaucracy that might arise during the course of a project. The second promoter, the expert promoter, describes a person who has the specific technical knowledge for the innovation problem at hand and overcomes barriers of ability. These barriers are often the result from a lack of knowledge in the field of a specific domain. Thirdly, the process promoter derives her influence from organizational know-how and intra-organizational social networks. This individual establishes and maintains the connection between the power promoter, the expert promoter, as well as other project members who are willing and able to contribute to an Open Innovation project but who do not have the permission to do so due to existing internal rules or limited capacity and resources3.

Other trends

Social Innovation The term ‘‘social innovation’’ refers to any innovation that is done with what Bright and Godwin (2010) call ‘‘virtuous intent’’4. Virtuous intent goes further than increasing employment and growth as a result of increased profitability may. Virtuous intent indicates that a firm specifically plans for its processes or products to have some positive impact on society and/or on the employees of the company. This concept is most apparent in consideration of charitable and other NGOs whose primary function is social good, however, that does not preclude the use of social innovation in profit-driven industries. Some examples might be a firm

3 http://www.mixprize.org/hack/global-solutions-local-failure-overcoming-barriers-implementing-open-innovation/ 4 Bright, D. S., & Godwin, L. N. (2010). Encouraging social innovation in global organizations: Integrating planned and emergent approaches. Journal of Asia-Pacific Business, 11(3), 179-196.


creating new shift patterns enabling employees to meet family responsibilities more easily or the use of flexi-time and home-working to increase efficiency, reduce the need for office space and reduce carbon emissions during periods of heavy commuter traffic. Social innovation might also mean creating a product that will really make a difference to people’s lives. Yet another type of social innovation that can be found in some companies, is that employees are allowed to spend some time doing charity work overseas. As can be seen, social innovation is a very broad term and can be applied in various settings.

Green Innovation Traditionally, innovation has been all about profit – how to improve existing products or create new ones that are better, cheaper or more widely available than similar products produced by competitors. While profitability remains a key focus, many businesses have discovered the importance of considering the ecological impact of their products from production to disposal, in other words using the ‘‘cradle to cradle’’ model or the “circular economy” principles. In summary, the “cradle to cradle” principle aims to fully recycle all material used in a product including materials from its manufacturing process. This requires significant design changes in many well-established manufacturing processes. Firms that have committed to green(er) innovation often direct their activities towards the reduction of green house gases, reducing energy consumption, better use of water or reducing water pollution, better waste disposal and the use of other resources.

Tools to interact with other non-sector specialists Many tools have been developed to connect firms with external parties. Some of these tools are embedded on the website of the firms but there are also specific service firms that facilitate this such as Innoget. Innoget allows firms to express what knowledge, expertise or technology they are looking for. However, the tool also allows these same firms, as well as others, and academia, to showcase technologies that they may have but do not fit (anymore) with their current and future product development strategy. These technologies are then offered for licensing. Other tools, such as dedicated ‘part-up’ or partnering events are of a more personal interaction between parties and aims to bring people who need expertise together with people who have the desired knowledge.

The Fourth Revolution As mentioned in the beginning, the Fourth Revolution is currently ongoing. Here, companies are looking to analyse Big Data - a collection of data from traditional and digital sources inside and outside a company that represents a source for ongoing discovery and analysis. In defining big data, it’s also important to understand the mix of unstructured and multi-structured data that comprises the volume of information. Unstructured data includes information such as metadata en social media posts. Multi-structured data includes a variety of data formats and types and can be derived from interactions between people and machines, such as web applications or social networks. Examples of multi-structured data include web log data, a combination of text and visual images along with structured data like form or transactional information. The insights gained at each step in the analyses can help improve customer engagement strategies. Big data information is often a reflection of society’s ideas, thoughts and behavior. It has given society a stronger voice – also towards firms.


In the last 10-15 years, the term Triple Helix was coined to indicate the complementary and interdependent relationship between the government, academia and industry. With the Fourth Revolution, a quadruple helix has now been formed – adding citizens and society as the fourth strand.

Conclusions The industrial sector has had its share of changes in the last decade. The changes in technology are requiring companies to be more flexible and adapt. The ways in which a company today can innovate have become dynamic and complex – with a multitude of factors and criteria e.g. environmental, health, technological, societal and profitability that need to be considered and/or met. Multidisciplinary interactions within firms and together with externals are becoming important. Creativity, transparency, collaboration and flexibility are a new set of capabilities that companies will need to embrace in the Information Age and beyond. In order for companies to transform their capabilities, the new workforce (today’s students) ideally need to be introduced and ‘raised’ with these capabilities. The role for Academia to transfer knowledge and the complementary adaptive and absorptive capacity is vital. The models discussed in Part 1 show there is movement within the universities to interact more and differently with industry. However, the directions in which Academia and Industry are moving in are not yet fully aligned and there is room for new collaboration and interaction models. Part 3 of this series will discuss such a model. Note: This is the second Whitepaper in a series of three. Part 1 focuses on the current models used by TTO’s across Europe and US. There are other variations known but as they are more specific to individual institutions and not as widely adopted as the models above, they are not discussed here. Part 2 of the Whitepaper series focuses on some of the trends in industry. Part 3 of the Whitepaper is a new collaboration model for academia and industry taking into account the issues that have been discussed in the Part 1 of the Whitepaper series and the trends as discussed in Part 2 of the series.


Background Bob Smailes, Partner Gunn & Twynmore

Background Hester Tak,artner Gunn & Twynmore

Contact details Crown Business Center Keypoint Schipholweg 103 2316 XC Leiden The Netherlands Tel. (H. Tak): + 31 6 28 98 66 60 Tel. (B. Smailes): + 31 6 28 98 66 61 E-mail: [email protected] Website: www.gunntwynmore.com Twitter: @GunnTwynmore Skype ID: Gunn Twynmore

Bob Smailes has 26 years experience in establishing and heading Research & Technology Transfer Offices in all scientific areas in both the UK and the Netherlands. He has extensive experience in company formation, licensing and wide knowledge of Intellectual Property Rights. He is also widely experienced in working with universities, government agencies, multi nationals and SMEs. Prior to the university sector he worked in chemical and material science industries in research, marketing and strategic planning roles. He has a PhD in Chemistry and his MBA dissertation was on the motivation of academics in research.

Hester Tak has been engaged in technology transfer for more than 10 years. Her work experiences include working for De Brauw in the patent department as a non-legal biotech specialist but also working for a CRO, actively engaged in clinical trial projects and responsible for the analyses and exports of data. In the last 9 years she has worked for a university tech transfer office. She holds 4 MSc degrees in Biomedical Sciences, Science Based Business, Business Valuation and Finance. She is currently doing a PhD on ‘Evaluating and improving efficiency in the Healthcare valorization chain for various stakeholders.’


Crown Business Center Keypoint Schipholweg 103 2316 XC Leiden

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