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Challenges in "Looking Outside"

Organizations embarking on a network-centered innovation strategy are likely to be faced with different types of networks and communities with different types of innovation opportunities. The three broad sets of challenges that companies will likely face are mindset and cultural challenges, contextualization challenges, and execution challenges.

Mindset and Cultural Challenges

Most large companies have considerable experience in partnering with a relatively small set of carefully identified firms—joint ventures, technological agreements, licensing agreements, and so on. However, when it comes to innovation collaboration on a greater scale—for example, a larger number and geographically more widely dispersed set of partners—most companies have limited experience. The first critical issue that senior managers will need to address relates to the broader implications of adopting such a network-centered approach to innovation. How should the organization view such collaboration opportunities? How can senior managers ensure a coherent set of innovation strategies that capture both external opportunities and internal capabilities? What type of broad framework or mindset should be developed that reflects the organization's intent to collaborate with outsiders and defines the broad parameters for such collaboration? And how should senior managers communicate and encourage other members of the organization to adopt such a mindset?

For companies such as 3M, DuPont, and Kodak with a history of significant internal achievements and with a vast array of resident scientists and technical specialists, the dominant threat is the feeling of "We know everything and everyone." This "Not Invented Here" (NIH) syndrome is a serious barrier to acceptance of new ideas from outside the company. The cultural shift needed to overcome the NIH syndrome and to adopt a collaborative mindset is significant. IBM has acknowledged the simple fact that to partner with open source communities and other such communities of creation, it needs to let go of some of the control it has traditionally exercised in all of its innovation initiatives. Indeed, a recent book by Linda Sanford, one of IBM's senior executives, succinctly captures this spirit through its title, Let Go to Grow.33 Although such a cultural shift might be easy to identify, achieving it in an organization—especially a large organization with a long history of success—is very challenging.

Contextualization Challenges

The second set of issues involves understanding the landscape of network-centric innovation and relating it to the firm's own unique innovation context.

It is evident that companies such as IBM and P&G have succeeded to different extents in leveraging innovation networks. For example, IBM has subscribed to the open source model and has invested significant resources to align its innovation initiatives in many of its product and service areas with the open source model. Similarly, P&G has garnered significant visibility through its Connect+Develop initiative to partner with external innovation networks such as those offered by InnoCentive and Nine Sigma.

Although these examples indicate specific approaches to a network-centered innovation, they are not the only approaches. The multiplicity of approaches raises many questions: Is there a systematic way to identify and analyze the different approaches (or models) of network-centric innovation? What are these different approaches? How should an organization evaluate and select the most appropriate approach vis-à-vis its particular context? Further, should an organization assume a lead role or a non-lead role in such a collaborative arrangement? What types of internal projects would be ripe for such a collaborative approach? All these issues relate to contextualizing the opportunity offered by the external innovation network or situating the opportunity in the company's particular market and organizational context.

Execution Challenges

Finally, the third set of issues relates to the actual implementation of collaborative innovation projects. When an appropriate network-centric innovation opportunity has been identified, how should the organization go about executing it? How should the organization prepare itself for network-centric innovation? What are the types of capabilities and competencies that the organization would require? How should the organization integrate its internal and external innovation processes? What types of licensing and other value appropriation systems should it employ? What is the appropriate set of metrics that it should use to evaluate its performance in such collaborative innovation projects?

The preceding three sets of issues—mindset and cultural, contextualization, and execution—represent the type of practical issues that most CEOs and senior managers need to address in order to be successful in championing and executing their external network-centered innovation initiatives. Because these challenges originate from the richness and variation that is present in the network-centric innovation landscape, we continue our discussion by examining the different "flavors" of network-centric innovation.

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