Key ideas from the Harvard Business Review article by Satish Nambisan and Mohanbir Sawhney
The Idea
It’s smart to look outside your organization for sources of innovation. But the prevailing methods present unattractive trade-offs. For example, shopping for raw ideas costs less, yet it’s riskier and lengthens your time to market. Shopping for market-ready products (for example, through an acquisition) gets you to market faster, but it’s expensive.What to do? Nambisan and Sawhney recommend adding a third approach: shopping for market-ready ideas. This method falls between the two extremes of shopping for raw ideas and market-ready products. To use it, find an innovation capitalist firm to identify commercially viable ideas and to refine them so you can evaluate their manufacturing feasibility. Innovation capitalists reduce your risk by spending their money to develop a promising idea. And they help you avoid the up-front costs of acquiring fully baked products.Expand your shopping strategies, and you get first dibs on the most exciting ideas percolating outside your firm—without paying top dollar.
The Idea in Practice
Nambisan and Sawhney offer these suggestions for skillfully sourcing external innovation.Choose the Best Approaches to Outside InnovationYou don’t need to—and you shouldn’t—rely exclusively on one approach to source external innovation. Blend approaches based on your industry and company’s circumstances. To identify the right mix, locate where your company falls relative to factors like those listed in the left-hand column. Notice where your responses cluster.Use an Innovation Capitalist to Find Market-Ready IdeasHave you decided to shop for market-ready ideas? If so, build a productive relationship with an innovation capitalist firm through these means:• Understand its role. Innovation capitalists identify ideas with commercial potential through word of mouth. They chase down inventors behind the ideas, negotiate partial ownership of ideas, and fund ideas’ development. Throughout, they draw on their deep industry knowledge and maintain a sharp market focus. They then offer the fully developed product concept to interested companies. For their contributions, they share the revenues their client companies get from commercializing the new products. • Nurture a long-term, trusting relationship. Innovation capitalists contribute a unique combination of industry, market, networking, and innovation-management skills, as well as assume some development risk. To capitalize on their talents, share information about your innovation priorities, business goals, and internal processes. The more they know about you, the more they can offer value that complements your capabilities. • Educate your internal units about innovation capitalists. When internal units—particularly R&D—understand innovation capitalists’ unique role, they’re less likely to experience the “not invented here” syndrome.
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