Implications of open innovation trends for HR
Katie Jacobs, July 21, 2014
Open innovation is changing how organisations think about the next big idea. But what are the implications for HR? Should the function get involved in the complex people management implications?
From pictures of breakfasts on Instagram to reviews of workplaces on Glassdoor, there’s no doubt we have entered an era of openness. Thanks to social media, it’s never been harder to keep a secret. So as a discipline that celebrates change, it’s only appropriate innovation is also evolving – moving from a ‘closed’ state, where companies fiercely guard the process behind locked doors, to open, with organisations working across traditional boundaries.
Open innovation (OI) is a relatively new concept, but one that is here to stay. According to OI expert Stefan Lindegaard, author of The Open Innovation Revolution: “We have a definite paradigm shift going on, from closed to open innovation. There’s going to be a big need for corporate innovation training programmes and upgrades in the coming years. It will be interesting to see how organisations tackle this – and the role of HR.”
Roland Harwood, co-founder of leading OI agency 100%Open, defines OI as “innovating with partners or other businesses, sharing the risk and reward”.
“It’s about distributed knowledge and people, creating value through networks, and not by doing it all yourself within a structure,” he adds. “Innovation has grown into this amorphous state where everybody wants it but no one quite knows what it is. OI is the next wave. It is touching other parts of the business because it has to.”
Innovation opens up
While it has its roots in R&D, innovation academics are noticing the concepts behind OI percolating. Lancaster University Management School’s Chris Ford, whose research focuses on the performance management aspects of OI, believes that talking about it as if it were exclusive to R&D is “unhelpful and unhealthy”.
The reasons behind the shift to open are the same as those severely disrupting many organisations: globalisation and technology, specifically social media. “Not only is it possible to tap into smart people and ideas anywhere in the world, it’s necessary to stay competitive,” says Harwood. “The world is changing so fast, you don’t know where the next threat or opportunity is going to come from.”
Harwood says this is more of an issue for large organisations, as smaller businesses tend to work together naturally. “Large organisations are still coming to terms with living in a connected world and need to be reminded they can’t do it all themselves,” he says.
Jonathon Hogg, head of the people and operational practice at PA Consulting, which supports clients’ OI activities, says large organisations are recognising they no longer understand customer behaviour. “They need to talk to people who understand it better – to reach out and get an injection of that thinking,” he adds.
It’s all in the mind(set)
Every OI expert agrees on one thing: this is about behaviour. “It isn’t a blueprint you can adapt; it’s about establishing a mindset in organisations and a philosophy that allows you to work as well with external and internal resources,” says Lindegaard. “That ties it to the HR and talent agenda.”
“Those that make it work find a blend of structure, process and people,” says Ford. “You don’t create an OI process without first thinking about the structure of the organisation: what kind of people are you bringing in and how are you training them?” Harwood believes it’s “a no brainer” that HR should be involved with OI strategy, partly down to the need to overcome ‘not invented here’ syndrome.
Toby Peyton-Jones, HR director for UK and north-west Europe at Siemens, acknowledges this issue. “With new technology, we shouldn’t think we are going to invent everything ourselves, but Europe has a big problem with a ‘not invented here’ culture,” he says. He compares it with China, where he once worked and where “our competitors knew our products better than us”.
“Collaboration based on risk-sharing is going to become very important,” he adds, and “HR should be right up there” in such partnerships. “Start with the obvious: university collaborations,” he adds. “HR has to be hugely involved, making sure it’s not just about graduate recruitment, but goes all the way to R&D.”
But traditionally, this level of HR involvement hasn’t been the case. According to research by Cambridge University’s Institute for Manufacturing (IfM), of the company groups most important for OI, HR is the least valued. Hogg says it is “ barren territory” from an HR perspective, making case studies hard to come by However, Harwood says his organisation is “starting to dip our toes into working with HR”, and mentions a top-secret project with a high-street retailer, which is being led by HR.
Lack of strategic focus
Perhaps this lack of HR expertise is why some organisations struggle with the people management aspects of OI – the IfM paper finds internal cultural issues are the biggest barrier to successful OI.
Katleen De Stobbeleir is associate professor in HR management and leadership at Belgium’s Vlerick Business School. She believes while the role of people in OI hasn’t been ignored, “a lot of companies are struggling with it” due to a lack of focus on strategy and neglecting to tie OI to people processes. “It requires HR to think strategically,” she says. “Rather than copying and pasting practices, HR needs to consider the structures required to create this mindset, and create a ‘giving culture’ rather than a ‘beating culture’. It requires rethinking selection, training and comp and bens.”
These points are familiar to Rob Jones, head of organisational effectiveness at the Crossrail project. Crossrail is delivered by an integrated team made up of nine different employers and has an extensive network of suppliers that requires an open approach to innovation. Imperial College London, which Crossrail is working with, believes this is the world’s first innovation programme within a temporary project-based organisation.
“We are not competing – it’s not like someone is going to come in and beat us to building one of the tunnels,” says Jones. “Our innovation is cross-programme and about the whole supply chain.” Crossrail has formed an innovation club with its contractors, asking them to jointly invest in innovation so they have “skin in the game”.
Working across companies was positioned as a strategic initiative and a “non-negotiable”. “Contractors are competitive souls, but we launched this at CEO level,” he explains. “Without the top-level buy-in, we might as well give up and go home. We have positioned the values for people working ‘on Crossrail’, not ‘for Crossrail’. If IP comes out of it, we’ll work out who gets it later. Let’s innovate and solve the problem first.”
OD and HR have played a significant role, he adds: “HR’s role is to remove barriers, not create them; find ways to solve problems and allow openness.”
A culture of giving
Crossrail’s innovation with its supply chain is an example of what De Stobbeleir calls “strategic giving”, and requires a change in thinking and reward strategies. “Buyers are traditionally rewarded on the amount of value they can create for their company – getting the most out of suppliers means squeezing them,” she says. “In OI, you need to come up with different comp and bens schemes, where it’s about creating value across the value chain.”
Harvey Wade, director of innovation strategy at innovation management firm Mindjet, agrees that for OI to work “there has got to be a win-win for both sides”. “You’d never work with a supplier on reducing your bills from them, but you could work on making your processes more efficient,” he adds.
It’s a view that Alan Bolchover, fundraising director at educational charity The Outward Bound Trust, has come around to over the past few years. He admits he used to be “isolationist”, taking an “Alex Ferguson approach with my team: ‘It’s us against the world’.” While he says the charity sector can be “untrusting”, he has moved to a more open approach, collaborating with competitors on innovative fundraising projects. “We don’t try and win,” he says. “We’re always trying to give a better deal to our partners.”
He has noticed a change in his leadership style. “I’ve moved from being a person who saw everyone else as competition,” he says. “On our own, there’s only so far we can grow. And why rely only on your own ideas? Other people bring so much more to the table.”
This change in mindset is a good demonstration of where HR could add value to OI initiatives. “There’s a lot of stuff about ways of working, externally and within an organisation, that HR could expand on in training,” believes Bolchover. “There’s more to do about thinking in this kind of way and challenging ‘us against them’ behaviour.”
HR’s role in open innovation
Lindegaard sees HR’s role as enhancing communication, networking and stakeholder management skills, which will become ever more critical in a connected world. “Innovation as a management discipline is going to become more important, so how are you going to turn it into a capability?” he asks. “If you don’t get the training right, who is at fault? I would like to see more HR people take interest in this.”
Harwood adds HR can play a “vital role” in fixing poor collaboration skills, educating employees in the role of “building and nurturing relationships”, as well as in identifying those natural “connectors” already present in the company.
At Cisco, UK & Ireland head of HR Caroline Griffiths says that although the term OI is more US-centric and not part of her day-to-day role, there’s an expectation that network building, internally and externally, is vital. “It’s a given that you do other stuff [internally and externally, outside of your job],” she says. “You’re not forced into it, but by not doing it, you limit your potential to move into a more senior role.”
Ford makes the point that even if OI activities are limited to a specific area of the business, HR still has a role to play in embedding the transferable learning across the organisation. “What have you learned from the process and how do you embed it through the workforce?” he asks. “Use it as a toolkit to help you do things differently and break through the structures.”
Bill Joy [co-founder of Sun Microsystems] once said: ‘No matter who you are, most of the smart people work for somebody else’. So should HR get involved in projects involving external talent?
With the rise of contingent, project-based workforces, Peyton-Jones believes “the edge of your organisation is going to become far more permeable”. PA Consulting’s Hogg says he has noticed a rise in use of interims, associates and temporary contracts. “It’s a creative way of engaging externally – getting more voices but not expecting them to join you permanently.”
“If you’re looking for really good people, you are going to have to be far more flexible in your approach,” predicts Wade. “If the key is getting talented people who are going to drive your business, there needs to be more flexibility about policies. That could create problems: do you want to create parity when some areas will be more highly valued?”
This could raise a plethora of legal issues, around contracting or IP ownership, for example. “Who owns the ideas?” he says. “HR has to be aware of who is being invited to participate and what that means.” James Froud, a partner at law firm Bird & Bird, believes there are “some difficult practical issues that haven’t been properly thought through”.
He cites IP: “If you think you’ve found the billion dollar idea, but you haven’t put in place any structures around who owns it, that’s a massive risk. It’s noble to want to work in this way and say everyone will enjoy the shared benefits, but I’m not sure our society works like that.” However, Harwood says in his experience, although “IP often gets trotted out as a block. If people want to work together, they’ll find a way” – echoing Jones’ view that at Crossrail, it’s important to innovate first, haggle later.
The social organisation
According to Ford, the rise of “more social organisations” makes managing in a non-bureaucratic way vital. “How do you make sure your contracts are loose and flexible enough that you don’t stifle innovation in the other firm?” he asks. “There’s an enormous amount of trust: trust in them and trust in your judgement.” He also points out that the high failure rate for innovation must be taken into account: “If you get a collaboration going and it fails, does that mean it was a genuine failure and you never work with those people again? It adds another layer of risk and complexity.”
From an HR point of view, an important thing to consider is accountability, he adds: “Who is accountable for what and to whom? I don’t think anyone is sure of that.” As people move about more, HR also needs to think about the frameworks required so that people understand where accountability lies.
This is where performance management becomes important. Ford tells the cautionary tale of one consultancy firm where leaders failed to align performance management with the strategic changes they wanted to make around OI. It failed. “You can come up with all these great ideas, but if the performance management system blocks it, it will fail,” he warns. “If [working in this way] isn’t in your performance criteria, you won’t do it.”
Of course, it is critical businesses don’t forget the internal aspects of innovation, and getting things right internally first is crucial for external success. But the shift towards external collaboration isn’t about to go backwards. Even those not in the business of inventing physical products can learn from the lessons of external collaboration, helping work across silos internally, for example.
“This isn’t about forgetting internal resources, it’s more about how you can merge them with the external,” says Lindegaard. “More companies are doing this and seeing the benefits. Those falling behind are scratching their heads, seeing their competitors being more agile. That’s because it’s not driven by one company, they have the whole ecosystem.”
And if HR hasn’t been aware of this shift, now is the time to jump in or risk falling further behind. As Lindegaard puts it: “If there’s already a missing link on the people side of innovation, how are we going to address that in future, when people skills are going to become even more important?”