Tuesday, August 16, 2011

Open Innovation is about to become a lot more open

In case you've been out of town or very busy with your workload, you haven't failed to miss the fact that the ongoing recession (or very slow recovery, if that's what it is) is not creating the atmosphere for a lot of hiring by larger corporations.  In fact, somewhere in the neighborhood of 10 million people are out of work, and the workforce participation rate is the lowest it has been since the Great Depression.

What this means is that there are a lot of people out of work, for whom there are few options in the traditional employment pool.  Large companies aren't hiring, government is actually shrinking, the military is overachieving its quotas.  So, what this means, and what it has meant in the last few recessions or depressions, is that many unemployed people will decide to start their own companies or create their own jobs.  In several recent recessions, there's been a flowering of entrepreneurship as those displaced from larger corporations started anew and created their own businesses.  I guess this is a logical progression, as new industries, new businesses and new corporations are formed by those who are let go, or never had a chance in larger organizations.  I suspect what we'll also see is a large but static set of firms and a growing number of smaller, more dynamic firms less interested in size and more interested in networking, agility and flexibility.

What this means is that innovation increasingly becomes a networking and connectivity exercise, as the smaller firms need access to markets and channels that larger firms provide and larger firms rely increasingly on smaller firms for new ideas and new technology.  This is the open innovation paradigm writ large, far larger than today.  Today, many large firms have a handful of corporations as partners and perhaps a few dozen smaller firms in their networks.  With over 10M unemployed, if only 20% start new businesses, there could be up to 2M new businesses with plenty of new ideas, products and services available in just a few months.  That means the scouting and business development portions of large businesses must increase.  Simply identifying the firms that have good ideas will become much more difficult, as the numbers increase and as new firms enter the marketplace.  Many of these new businesses will be started by corporate outcasts, who have toiled on new ideas and new technologies for years in larger firms, only to see their ideas stymied.  These new businesses will take advantage and push their long-stalled or rejected ideas forward in new businesses or as idea or technology generators for larger firms.

What's needed in the near future for innovation to accelerate is better networks, better connectivity and better communication.  As the number of new innovators and inventors grows, the number of ideas and technologies will grow as well.  Larger firms must do a better job communicating their needs and goals to this constellation of new entrepreneurs, and both small firms and large firms must create a marketplace for the exchange of ideas and needs.  Open innovation will get a lot more open, and a lot more interactive. I suspect that we'll see larger firms increasingly outsource innovation to entrepreneurs, and the large firms will acquire those ideas through open innovation or through outright acquisition of the entrepreneur.

Yes, we are in the middle of a tremendous economic slowdown, and the news doesn't look all that promising from a jobs perspective for larger firms.  History tells us that many of these displaced individuals will start new businesses which will spark new economic growth, but more importantly become the catalyst for innovation in firms of every size.  In fact, this has probably already started, we just aren't aware or paying attention.  It is time to pay attention, and the time for large firms to build the networks, connections and communication to identify, source and acquire the best ideas, and the means to convert the excellent ideas and technologies into new products and services.  If history is any guide, new entrepreneurs will flood our markets in the next few years with new companies, new products and new technologies.  Larger firms will constrain hiring to drive up stock prices, but will need new ideas to keep pace with change.  Open innovation will simply become even more important, and the people who can create the networks and connections between the innovators and the corporations will profit.
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posted by Jeffrey Phillips at 4:55 AM


Anonymous Gogo | Denver Business Consultant said...

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Anonymous Anonymous said...

I do also think that recessions can also be good and a way for economies to eventually grow through open innovation and improved technologies. Hopefully, it doesn't too long, though.

4:16 PM  
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