In Depth: Seven Key Steps to Successful Open Innovation in China

More and more Multinational companies are turning to China for open innovation for several obvious reasons: one is the fact that China is becoming more and more innovative as supportive government policies, increasing number of foreign-educated returnees and vibrant venture capital system all contribute to an ecosystem that encourage ingenious innovation; second is the fact that China is becoming an ever-more-important market for the MNC companies and the Chinese consumers are ever-more-demanding of products that tailor to their unique taste and habits Last but not least, during some years Chinese people had to be quite ingenious to improve their daily life. They are now applying those skills in developing new technologies and business models routed in very practical approaches to the market.

Gone are the days when MNC companies can make and sell same products they sell in US or Europe in China, and expect great revenue and little competition from local companies. While MNCs traditionally dominate high-end markets in many industry segments while local companies play at the low-end of the markets, now more and more Chinese companies are becoming innovative and can often compete fairly aggressively in the middle-market.

Successful open innovation in China – where MNCs can identify and work with innovative partners in China market well before they turn into a formidable competing force – has become absolutely critical to the long term success of MNCs in China, and also critical to harvest innovation power from one of world’s most populous, and fastest-growing countries.

So how can companies succeed at open innovation in China? We summarize seven key steps from our experience.

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Know your objectives and have internal alignment on the objectives1

Have a three-year plan and know where you are going2

Companies could have a variety of different objectives for open innovation in China Companies could be looking:

• for innovations that would work well in their home market, • for innovations that would work well in China and other emerging markets, • to establish beachhead relationships with key institutes and influencers, • to supplement internal R&D efforts.

All these objectives are valid and can be achieved. Key to success in our experience is that the objective, whatever it is, needs to be agreed upon by various stakeholders in the company so that when the innovation is sourced, there is a willing audience in the company to “catch” it.

Another benefit of having clear objectives is having the best approaches for achieving the goal. For example, establishing beachhead relationship with key institutes and influencers calls for mapping out the key opinion leaders and influencers who tend to be well-known, well-established players, while looking for innovations that work well in China market calls for finding the emerging leaders who tend to be not-yet-known smaller companies who are experiencing fast growth.

Success of open innovation anywhere depends on the quality of partnership. It is nowhere more true than in China where relationship often plays more important role than contracts. Chinese society values relationships that are built slowly over time and one-step-at-a-time. It is thus critical to have a long term plan for open innovation efforts in

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Be prompt at follow-ups and keep potential partners informed3

China so that a trustworthy network of innovation partners can be built and reinforced over time. Rushing in-and-out of an open innovation effort in China does more damage to a company’s reputation than not starting the effort at all. In our experience, companies who make clear OI roadmaps and those who have consistent goals and objectives have better success rates. Steadiness and consistency yield better results over time than an uneven approach of stop-and-go.

In general, decision-making style in Chinese businesses is very different than that in Western companies. Western companies tend to make consensus-driven, data and analysis-driven decisions in a meticulous fashion, and once decisions are made, they are not changed often. On the contrary, there is a famous saying in China which is “crossing the river while touching the stones” - Chinese companies tend to make decisions in a top-to-bottom fashion, in a much quicker way based on limited information. These decisions though are constantly re-evaluated as more information comes in and decisions can often be changed. The Chinese style of decision-making is a result of necessity – conditions in the market change so quickly and so often that decisions made too-slowly will often mean missed opportunities or mistakes.Needless to say that both decision-making styles are the results of local conditions and there is no right or wrong way of making decisions. However, as a result of the different decision-making styles, Chinese partners often find the time-to-decision painfully slow at MNCs. While it is often not possible to speed-up the decision-making in MNCs, it is very important to show active listening, give prompt feed-back and keep the Chinese partner informed of the decision-making process whenever possible.

It is also very important to close-the-loop whenever a conversation was initiated so that there is a positive feeling even when a collaboration relationship is not formed.

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Share background information and criteria for success4

Assemble and integrate5

It is no surprise that better-informed partners come up with better ideas. It is particularly important in the context of cross-culture communication. Many Chinese companies or institutes lack the intuitive grasp of the context in MNCs’ home market. It is therefore very useful for MNC companies to share as much as possible non-confidential background information about the company, about the particular innovation needs and topics, about how the innovation would fit into the company’s product development portfolio. It is also critical to share the criteria or boundary conditions for success so that the innovations solicited fit within a boundary that can be adopted by the MNC companies.

In our experience, we found it very helpful to have well-written introductory materials in Chinese that introduce the company at high level,the open innovation effort, the particular innovation needs and the processes for evaluating innovation proposals and the key criteria for success. It is also very helpful to have information about the MNC home market if innovations are sought for the home market: what a typical consumer in the home market is like? How does the company position its products in the market? What are the brand attributes? Etc. We define innovation as inventions that can create value in the market place. Thus without a good understanding of the end consumers targeted, it is very difficult for Chinese companies or institutes to come up with innovations that would suit the Western market. The reverse is equally true – Western companies making innovations for Chinese market must start with understanding of the Chinese consumers.

Because China is still a developing country, many companies and institutes lack sufficient resources and scale to make them into

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Be willing to train and guide6

multi-disciplinary innovation powerhouse. Often times, small companies can only afford one piece of key equipment or experimental platform so that they concentrate their core differentiation or innovation on what that platform allows them to do. And this is exacerbated by the fact that the China market potential in a given segment is often big enough for a small company with a single technology platform, reducing incentives for the owners to do more. As a result of this, it is very rare to find one-stop shop where innovation capabilities and talents are all housed under one roof and where innovative products squarely fit the needs of MNCs in a ready-made fashion. Companies often have to be willing to assemble different innovation capabilities to do a project. In this context, it is very useful to have a “map of talents and resources” that identify expertise and talents in various areas who can potentially partner-up with the company and transform individual innovative steps into a bigger innovation project.

In our work with Siprod, a French company manufacturing power tools, we worked with five different companies that each has one piece of key equipment to come up with a product that integrates the capabilities of all five companies (plus our own engineering services) to deliver an innovative product solution to Siprod.

Once you identify the right partners who have the potential to become your long-term innovation partners in China, investment in some training might be very worthwhile. We just completed six-course open innovation training for three of Bissell’s key strategic suppliers in China. In the training, we define “open” as “collaboration” and “innovation” as “creating value”, so the course is centered on “collaborate to create value” and the goal was to get the suppliers to be not only more innovative, but also have better alignment with Bissell’s goals. Besides key concepts such as collaboration, teamwork, cross-cultural communication, market-driven innovation, innovation methods and innovation management, Bissell’s particular consumer profile and innovation needs are woven into the courses so that the participants can practice on subjects close to their daily work. The training achieved the targeted results – the participants

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Be open to different forms of innovation7

now speak the same innovation language as Bissell employees, they look at consumer needs in the same lens as Bissell, and they are equipped with tools and frameworks to come up with innovations that can fit into Bissell product development roadmap right away.

Other forms of training could include inviting potential partners to visiting company facility, meeting with employees, attending product launches, participating in brainstorming sessions etc. It is also beneficial for an MNC to understand the way its partners look at the market, how they develop ideas on that basis, how does their trial and error mechanism work in their market. A demonstrated interest in learning from the partners encourages the partners to open up more and share more.

This phase of deep dialogues to train and guide is of key importance to foster mutual understanding between parties and ultimately increase success rate of OI in China.

Innovation is not limited to technological innovation, but also includes market innovation, product innovation and business model innovations. While China is getting better and better at fundamental technological innovations, China is even stronger in product innovation and business model innovations that suite particularly well the Chinese and other emerging markets. The reason for this is very simple – innovations only become innovations, rather than being just inventions, because these innovations meet market needs.Chinese companies in the China market every day are simply more attune to the Chinese market needs than a MNC can be. Therefore, be open to sourcing ideas and innovations in products as well as business models would be of great value to MNCs in China market, and some of these innovations, could even work well in MNC’s home markets after some modifications. The China market is also a great field for experimentation with new products and business models: there is a high level of receptivity of consumers for new

“Open ”

= Co l l abo ra t i on

“ I nnova t i on ”

= C rea t i ng va lue

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experiences and the market is big enough to be able to define and ring-off a proper test market without impacting negatively the global businesses in case of failure.

In our experience, open innovation in China works better if not only R&D department is engaged in it. When marketing, business development and commercial businesses are also engaged, open innovation efforts deliver results in a broader form, and quicker.