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The Power of Openness
Institutions and societies thrive when they’re open and stagnate when they’re not. The resilience of cities like New York and London is the product of openness and diversity. Residents of New York’s five boroughs speak eight hundred different languages, making the city the most linguistically diverse in the world.1 On the other side of the Atlantic, 30 percent of London’s residents hold a non-British passport.2
In a vibrant city, one encounters a multitude of differences in how individuals think, dress, worship, work, love, and play. This diversity creates an immense combinatorial space—a nearly limitless number of opportunities for mashing up ideas, talents, and resources in new ways.
Openness is also the secret to the resilience of the world’s leading universities. Oxford, Cambridge, the Sorbonne, and the University of Bologna have been attracting scholars for more than eight hundred years. Like cities, great universities benefit from positive feedback effects. Imagine you’re a brilliant young physicist who dreams of winning a Nobel Prize. Where do you want to do your postdoctoral research? Most likely in a university that already has a clutch of Nobel Prize winners. Clever people attract clever people—that’s why elite universities tend to stay that way.
Not surprisingly, cities and universities are wellsprings of innovation. Together, San Francisco, San Jose, New York, and London accounted for nearly thirteen thousand venture capital deals between 2015 and 2017, a quarter of the global total.3 Between 2013 and 2017, US universities claimed more than thirty-three thousand patents and spawned more than forty-eight hundred startups.4
The Allure of Open Innovation
In recent years, companies eager to reap the fruits of openness have launched an array of open innovation initiatives. Crowdsourcing has been one of the most popular variants. In a typical case, Zillow, the online real estate listing service, offered a $1 million prize for an algorithm that improved its ability to estimate property values. The tournament attracted thirty-eight hundred entries from ninety-one countries, and the winning team included innovators from Canada, Morocco, and the United States.
Companies have also reached out to customers. Lego, the Danish toy maker, supports co-creation through a website where ardent fans can submit ideas for future products. Proposals that attract more than ten thousand endorsements get reviewed by Lego experts, and those that go into production, like the DeLorean car from Back to the Future, generate a 1 percent royalty for the originator. In operation for over a decade, Lego Ideas has garnered more than twenty-six thousand submissions.
Incubators are another open innovation gambit. Often located in creative hot spots like Silicon Valley, Berlin, and Tel Aviv, corporate-backed incubators offer startups space, tools, and mentorship in return for equity. Airbus, Coca-Cola, Johnson & Johnson, Mastercard, and Walmart are just a few of the giants that have set up new business hatcheries.
Yet despite its popularity, there’s little evidence that open innovation has made large companies more inventive or adaptable. In practice, external crowdsourcing and co-creation often yield only marginal gains. Zillow’s innovation tournament, for example, produced a scant 13 percent improvement in the accuracy of the company’s “Zestimate” algorithm—enough perhaps to justify the million-dollar prize money, but unlikely to be a game changer. The impact of Lego Ideas has been equally modest. In the course of ten years, only twenty-three customer-proposed kits have made it to market—a tiny fraction of the seven thousand internally sourced products that were launched over the same time period.
We might expect more from incubators, since most are designed to support radical innovation. Walmart’s New Jersey–based incubator, Store No 8, was established in 2017 with the aim of developing capabilities that “transform the future of retail.”5 That’s a bold goal, but the odds of achieving it are long. The fault lies not with Walmart but with inherent limitations of dedicated venture units. Most incubators are located far from head office. In theory, this helps insulate them from stale, corporate thinking, but it also makes it difficult to leverage parent-company skills—a problem that becomes even more acute when the incubator is staffed by newbies who lack strong internal networks. In practice, while locating the incubator in Silicon Valley or Shoreditch, London’s startup hub, may make it easier to hire fresh talent, it doesn’t offer much protection from executive meddling. In our experience, corporate paymasters often saddle incubators with expectations, policies, and processes that are ill-suited to the risky and hard-to-script work of birthing a new business. Moreover, a single incubator, with a relatively small staff, is unlikely to work on more than a few ideas at a time. This limits the chance of stumbling on the next big thing. For all these reasons, incubators seldom have a catalytic effect on the parent’s fortunes.
Henry Chesbrough, whose 2003 book Open Innovation brought the idea to prominence, notes that open innovation programs typically lose steam when a supportive CEO moves on, a fact that suggests these initiatives often fail to produce the sort of results that would ensure they get institutionalized.6 Karim Lakhani, a researcher at Harvard’s Laboratory for Innovation Science, concurs: “Open innovation processes promise to enhance creative output, yet we have heard little about successful launches of new technologies, products or services arising from these approaches.”7
The irony, of course, is that large organizations are open. Employees interact with thousands or millions of customers each day. Executives and managers talk constantly with suppliers, consultants, regulators, and other stakeholders. Why, then, hasn’t open innovation made a bigger difference? Why isn’t the typical corporation as resilient and innovative as a city or a university? Because, to put it bluntly, they’re often run by people whose minds are hermetically sealed against unconventional ideas.
Closed Minds
As Thomas Kuhn argued more than a half-century ago, we are prisoners of our paradigms. Even scientists, a guild whose members loudly profess their allegiance to open inquiry, are often reluctant to jettison familiar theories in the face of new evidence. As Kuhn observed, “All significant breakthroughs are break-‘withs’ old ways of thinking.”
There are several reasons we get stuck in our thinking, but denial tops the list. As human beings, we tend to discount discomforting facts. In 2016, for example, a senior executive at Comcast, the US broadcaster and cable operator, told a conference that his company had little to fear from new media. YouTube, he claimed, was “basically a side bar,” and Netflix’s programming wasn’t “consistent enough to affect us in a meaningful way.”8 This, despite the fact that both streaming services were growing at near exponential rates.
Second, even when we’re not in denial, we’re often oblivious to data that doesn’t fit our existing mental categories. Before C. K. Prahalad’s pioneering work on the “bottom of the pyramid,” most businesses ignored the 3.5 billion human beings who live on less than $5.50 per day.9
Finally, most of us are consumed by the urgent. Eyes down, we scurry along the furrows of ritual and routine. There’s a world of wonder around us, but we frequently mistake the edge of our rut for the horizon.
There’s a reason, in other words, that we remind each other to “keep an open mind.” We know that denial, conventional thinking, and busyness shrink our peripheral vision. For several reasons, bureaucracy makes this worse: top-down power structures penalize heretical thought; near-term operational pressures leave little time for discovery; silos limit cross-boundary learning; an obsession with alignment truncates the search for new opportunities; and a penchant for secrecy bottles up valuable information. The net result: bureaucratically induced blindness.
Open innovation is a capital idea. Raise the windows. Open the doors. Blow off the roof. But don’t expect to see a great flourishing of imagination, or an organization reborn, until you and your colleagues open your minds to a world of near-limitless possibilities.
Open Minds
Why do some people see dazzling new possibilities where others see only the flat, gray tones of the familiar? Are some minds endowed with a unique creativity gene? Perhaps, but in most cases, enlightenment is less the product of a remarkable brain than of remarkable experiences.
Consider what Steve Jobs said in 2005 about his personal odyssey:
Because I had dropped out [of college] and didn’t have to take the normal classes, I decided to take a calligraphy class to learn how to do this. I learned about serif and sans-serif typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can’t capture, and I found it fascinating. None of this had even a hope of any practical application in my life. But 10 years later, when we were designing the first Macintosh computer, it all came back to me.10
Who would have thought that an unexpected experience in a calligraphy class could change how human beings interact with computers? But that’s how innovation works. Epiphanies can’t be programmed in advance. Lightning doesn’t strike on cue. You can, however, build a lightning rod. If you’re intentional about opening your mind to new possibilities, you can dramatically raise the odds of a creative flash.
Over years of research with some of the world’s most storied innovators, we’ve learned that four perceptual habits are particularly powerful in illuminating new opportunities.
Habit #1: Challenge Unexamined Assumptions
Let’s go back to Kuhn’s classic study of scientific innovation. Having reviewed decades of scientific progress, he concluded that:
Individuals who break through by inventing a new paradigm are almost always either very young … or very new to the field whose paradigm they change. These are [individuals] who, being little committed by prior practice to the traditional rules of normal science, are particularly likely to see that those rules no longer define a playable game and conceive another set that can replace them.11
Maybe you’re no longer young, but you can still cultivate what Buddhist priest Shunryū Suzuki famously called “a beginner’s mind.”12 Suzuki, who died in 1971, couldn’t have foreseen Innocentive, the crowdsourcing platform where companies bid out problems to an army of more than 390,000 “solvers,” yet a study of 166 Innocentive contests confirmed his thesis: most of the successful solvers came from disciplines that weren’t directly connected to the problem at hand.13 By applying knowledge from other domains, these lateral thinkers succeeded where the experts had failed.
Conventional beliefs yield conventional results. That’s why newcomers have an innovation advantage—their thinking isn’t constrained by years of industry experience. There’s a danger though: conventional wisdom is often right. In the airline business, it would be foolish to challenge the assumption that “safety is a priority,” or that “people want to get to their destination on time.” Yet, it was genius when Southwest flipped the assumption that competitive fares mean grim, impersonal service.
The challenge, then, is to distinguish between the laws of physics and the iron grip of dogma. This is a subtle task. How do you get started?
First, spot the similarities. Over time, the strategies of incumbents tend to converge. A useful exercise is to overlay the business models of companies in the same industry and then look for areas of overlap. Wherever you see competitors doing the same thing, ask yourself, “What’s the shared assumption behind this policy or practice?” and then, “What would happen if we challenged that belief?” For centuries, innkeepers assumed you had to own rooms to offer guests a bed for the night. Airbnb inverted this belief and now has more than six million listings across the world.
Second, focus on what hasn’t changed. What aspects of your strategy have remained stagnant for years or decades? Over time, legacy practices, like wallpaper, become invisible. Your job is to question whether those taken-for-granted practices still make sense. For example, though it endured a lot of pushback from traditional carmakers, Tesla challenged the long-held practice of selling cars through independent dealers. The company’s sleek stores, often located in luxury shopping venues, offer customers a hassle-free buying process. Tesla understands that the best orthodoxies to challenge are those that degrade the customer experience.
Third, go to extremes. Pick some parameter of performance—price, choice, availability, speed—and ask what would happen if we aimed for a 10X improvement? Fifty years ago, a retired physician, Dr. Govindappa Venkataswamy, launched an epic quest to eradicate unnecessary blindness in India. Millions of his compatriots had cataracts but couldn’t afford corrective surgery. How, Dr. V. wondered, could he reduce the cost of surgery by 90 percent or more? For inspiration, he looked at the fast-food industry. “If McDonald’s can sell millions of burgers,” he thought, “why can’t [we] sell millions of sight-restoring operations?”14 Today, Dr. V.’s network of specialty hospitals, the Aravind Eye Care System, performs half a million cataract surgeries annually. Each surgeon carries out 2,000 operations per year, versus an average of 125 for their American counterparts. These and other economies have reduced the price per surgery to roughly 5 percent of what is typical in advanced economies—and yet Aravind has complication rates that are often less than those found in the West.
For much of life, you simply go along with the conventional wisdom—there’s no shame in that. But every once in a while you need to step back and examine what you believe. Develop the habit of treating every assumption as a hypothesis that’s forever open to disconfirmation.
Habit #2: Be Alert to What’s Changing
Having an open mind means being open to what’s changing. Successful innovators pay attention to things that are peeking over the horizon—nascent trends that seem ripe with revolutionary potential.
Large companies often seem incurious about new trends. Why was it Lululemon, for example, and not Nike or Under Armour that capitalized on the growing passion of women for fitness in general and yoga in particular? Orthodox thinking was partly to blame. Traditional athletic-wear companies didn’t regard yoga as a sport. Yoga has no professional league and no superstar endorsements. Yet if a sport is something that requires athletic prowess, yoga definitely qualifies. (If you doubt this, open your browser and search “side crow pose.”)
Nike and others also failed to notice two accelerating trends. The first was the growing number of time-starved women who took fitness seriously and wanted great-fitting clothes that could go from the street to the gym and back. The second was a change in the definition of fitness. Being healthy was no longer just about dropping a few pounds, but about achieving better mind-body balance—hence Lululemon’s ubiquitous sloganeering: “Your outlook on life is a direct reflection of how much you like yourself.” As we’re writing this, Lululemon has a market value of $29 billion. For Nike and its peers, that’s the price of myopia.
So how do you open your mind to the future?
First, give yourself the chance to be surprised. This means hanging out in new places and talking to people with whom you don’t normally interact. It means expanding your news sources and following people online who work in fields that are new to you. As the novelist William Gibson observed, “The future is already here—it’s just not evenly distributed.” In other words, you may not be able to see it from where you’re sitting now, but if you go looking for it, you can find it.
If you want to glimpse the digital future, for example, you’re better off visiting China than Silicon Valley. China currently accounts for over 55 percent of global e-commerce sales, boasts the world’s largest digital payments systems, is leading in the internet of things, and is already running a trade surplus in digital services.15
So take a moment to reflect. What have you seen lately that’s new, surprising, and gathering speed?
Maybe it’s …
The growing preference to “subscribe” rather than “own”
The increasing use of augmented reality (AR) to bridge the digital and physical worlds
The shift in retailing from transactions to experiences
The increasing appetite for local brands
The expanding use of blockchain technology
The ever-shrinking center ground in European and American politics
The negative effects of digital technology on mental health
The declining trust in large institutions
Or perhaps something entirely different
Having zeroed in on an intriguing trend, ask yourself: Where does this lead? What’s the chain of consequences? Will it spawn a countertrend? It’s not enough to spot a trend; you have to anticipate the ripples.
Habit #3: Repurpose Skills and Assets
An open mind means rethinking the identity of your organization. You’re probably used to defining your business by what it makes or sells, but to see new opportunities, you have to look deeper. You need to ask, “What are the skills, or ‘core competencies,’ that underpin our success?” And then, “How might we use those skills to create new products and services?”
Time Out, the venerable publisher of city entertainment guides, is a great example of competence-based innovation. Its magazines are read by 7.4 million people each month, and more than 217 million access the company’s recommendations online. Like many publishers, Time Out has struggled to survive on advertising revenue alone. One of Time Out’s principal assets is its network of dedicated culture hounds. With noses on the ground in more than forty cities, it’s adept at sniffing out the best restaurants, clubs, and events. A couple of years ago, Time Out’s Lisbon team came up with an ingenious new way of exploiting the company’s talent for cultural curation.
Rather than merely reporting on the best new venues for food and drink, the team members wondered how they could make it easier for visitors and locals to enjoy the best fare the city had to offer. The answer: invite Lisbon’s coolest restaurants, bars, and food vendors to set up outposts in a single, fun-to-visit venue. That was the dream, and in less than a year it went from concept to reality. The Time Out Market in Lisbon covers seventy-five thousand square feet and boasts twenty-four restaurants, three Michelin-starred chefs, eight food kiosks, eight bars, four food shops, and a nightclub. In addition, there’s a cooking school, coworking spaces, and a nine-hundred-seat music venue. Time Out takes a 30 percent cut of the revenues and handles alcohol and soft-drinks sales. The Market attracted 3.9 million visitors in 2018—making it Lisbon’s second-most-visited attraction. Not surprisingly, the concept is now being rolled out to other cities, including Chicago, Miami, Boston, New York, and Montreal.
Look around your organization. Are there skills or assets that you could similarly repurpose? You won’t know until you look.
Habit #4: Unearth the Unmet Needs
Sometimes you have to open your heart to open your mind. You have to get close enough to customers to feel what they feel. Only then will you see opportunities to transform the customer experience in ways that lift the human spirit.
Bureaucracies value thinking over feeling. That’s why most businesses are astoundingly bad at reading customer emotions. Every day they irritate their customers in countless ways. You’ll know this if you’ve ever been stuck on hold waiting to talk to a customer service rep. What makes the hold time even more intolerable is the pointless prattle you have to endure—which seems to have been designed solely to increase the production of cortisol.
Luckily, there are examples of companies that get it—that upsize rather than downsize the customer experience, and do so profitably. When it set up its Prime subscription service, which offers unlimited two-day delivery on all orders, Amazon relieved its customers of the need to think about shipping costs each time they placed an order. Reducing friction in the customer experience is also the goal of Amazon Go, the physical stores Amazon is currently rolling out that do away with the checkout process—just scan the Amazon Go app when you enter the store, pick up what you need, and walk out.
Customer-pleasing innovation doesn’t have to be high-tech, or even expensive. Have you ever experienced the small nightmare of leaving your phone in a public bathroom? If not, lucky you, but it happens more often than you think. A Japanese company that manages motorway service stations found that their employees were spending as much as thirty hours a month trying to reunite customers with their phones. Its creative solution? A latch on the stall door that, when closed, is wide enough to hold a smartphone or a key ring—a simple hack that makes it pretty much impossible to leave your stuff behind. As Steve Jobs once said, “Things don’t have to change the world to be important.”
The key is to tune in to the emotional states that are produced, or not, at each stage of the customer journey. You have to look for the emotional cues—a pinched brow, pursed lips, confused look, clenched jaw—and then ask, “What’s generating that emotion? How have we let this person down?”
The future isn’t a lion in the veld. It doesn’t pad stealthily through the long grass and suddenly spring upon its prey—though to the inattentive, it may seem that way. The future can usually be seen, or imagined, a long way off. With training and practice, anyone can learn to open their mind to new possibilities, yet few organizations have helped their employees master these skills; few have invested in the creative capital of every team member. That’s a giant fail, but not impossible to remedy. The starting point is to acknowledge that everyone, whatever their role or title, deserves the opportunity to cultivate their creative gifts.
Closed Strategy
It’s not enough to have an organization awash in fresh thinking. Equally important is a process that forges all those insights into a coherent strategy. Some pundits would have you believe that in a world of accelerating change, strategy no longer matters. They’re wrong.
In earlier chapters, we argued that organizations need to become less monolithic and more sprightly. This means dividing big units into smaller, self-contained businesses, and empowering those on the front lines to make smart and speedy decisions. But while being nimble is essential, it’s equally important to know where you’re going.
To have any chance of outcompeting a mob of startups, large companies must harness the advantages of scale and scope. This often requires concerted action across multiple operating units. It can be tough to crack a new market, but when teams collaborate, they have the chance to share insights and investment and thereby increase the odds of success. Nucor’s multiplant campaign to grow its automotive business is an example. Similarly, by sharing skills and assets, operating units can reap cost advantages. This was the logic behind Haier’s companywide initiative to develop COSMOPLat, its world-beating platform for the internet of things. The goal of these tentpole strategies isn’t to constrain frontline innovation, but to help internal entrepreneurs scale faster.
Likewise, there’s still a need for directional stability—for goals that extend beyond the next planning period. It takes time to grow a new business or build a new competence. More than a decade ago, Apple committed itself to becoming a world-class chip designer. By developing proprietary computer chips, the company hoped to further differentiate its expanding product portfolio. Over the past dozen years, Apple has made a string of acquisitions aimed at bulking up its expertise in low-power chips. It has also poached dozens of top-flight designers and given them the resources they need to excel. This effort has paid big dividends. A recent Apple processor, the A12X Bionic, used in the iPad Pro, boasts more processing power than most laptops. Today, proprietary chips feature in all of Apple’s hardware products and are critical to delivering customer benefits like facial sign-in and extended battery life. If Apple’s chip design business were a stand-alone company, it would rank number four globally.16 That’s the power of persistence.
Consistency matters, but so, too, does creativity. The most important thing about a strategy is how it’s different from every other strategy. The point is, if your organization doesn’t have a unique point of view about the future, then it doesn’t have a strategy.
We live in turbulent times, but we don’t live in a post-strategy era. Any organization that hopes to stay relevant needs a point of view about the future that ensures consistency, spurs creativity, and inspires bravery. Of course, a strategy has to be robust enough to survive the unexpected, but without foresight, an organization is rudderless.
One of the most important questions any senior team can ask itself is this: “Over the next few years, how is our organization going to reinvent itself and the world around it?” As an exercise, each executive should write out his or her answer in the form of a few “from-to” statements. The top team should then ask itself:
Is there a consensus on key priorities? Do we have a shared point of view?
Would our agenda surprise competitors? Is it differentiated?
Does the strategy imply significant stretch? Are we being sufficiently ambitious?
We find the answer to these questions is often no. The putative strategy is muddled, unexceptional, and diffident.
In a 2018 survey by PwC, only 37 percent of the six thousand executives polled said their company had a well-defined strategy. Seventy-three percent doubted their company’s strategy was innovative, and a scant 13 percent felt their organization had a road map for building future-focused capabilities.17 None of this should be surprising. In most companies, the planning process is elitist, formulaic, and extrapolative. It’s a top-down, budget-focused ritual that harnesses only a tiny fraction of the organization’s collective imagination—in other words, pretty much the opposite of an exciting, participative quest to discover new opportunities. Until this changes, companies will keep whiffing the future.
Open Strategy
Ask a CEO, “Who’s responsible for setting strategy?” and she’ll likely tell you, “I am,” or “the executive committee.” That’s a problem. As we argued in earlier chapters, senior executives are often reluctant to divest themselves of old certainties and poorly positioned to see the future. But even if the top team were all brilliant seers, the sum of their creativity would be insufficient for the job at hand.
Since game-changing business ideas are rare, the probability of coming up with a breakthrough strategy depends on an organization’s capacity to generate a large number of strategic options. The problem with a top-down process is that there aren’t enough brains at the top to do this. What’s required is an approach that generates thousands, not tens, of novel ideas, and uses the wisdom of the crowd to distill them into a path-breaking strategy.
Companies rightly obsess over operational efficiency, but what about strategic efficiency? How would you know if your organization was achieving the highest possible return on its resources? How would you know if its assets and capabilities were deployed against the best possible opportunities? You wouldn’t—not unless your organization had explored a vast range of potential options before deciding where to bet.
In strategy making, you have to diverge—a lot—before you converge. This requires a process that encourages radical thinking and includes new voices. Strategy making should be a companywide conversation that is open to employees, customers, and external partners.
The goal, though, isn’t simply to generate a mountain of ideas. As we’ve argued, coherence is also important. When you look across all those options, you need to ask: “What are the themes? Where can we capture the advantages of scale and scope? What are the meta opportunities that could reshape our very identity? What’s the capstone aspiration that encapsulates our boldest dreams?
An open strategy process is messier and more time consuming than the top-down alternative, but the benefits are worth the effort. In our experience, these include:
MORE RADICAL AND AMBITIOUS IDEAS. The odds of conceiving a game-changing strategy go up when the strategy conversation encompasses a large and heterogeneous group of participants. You need new voices to discover new options.
HEIGHTENED COMMITMENT. Individuals feel a much greater commitment to a strategy if they’ve had a hand in creating it. A participative process yields a strategy that belongs to everyone, not just the CEO or the board.
GREATER CREDIBILITY. For most employees, strategy making is a black box. Occasionally it spits out a new priority, but why this one? What other options were considered? What criteria drove the final decision? Most employees haven’t a clue, but if you want people to trust a strategy, they need to know how it was built.
MORE GRANULARITY. Top-down strategies are inherently abstract. When a CEO says, “We have a big opportunity in health care,” what does that mean? How is it actionable? In contrast, when an open strategy process yields fifty or a hundred ideas related to health care, you can be sure the resulting strategy will be granular. Read below the headline and you’ll find specifics, not generalities.
FASTER IMPLEMENTATION. When strategy is made in secret, it can take months or years for employees to fully grok the new game plan—assuming there’s something to grok. In an open process, people see the strategy taking shape in real time. By the time the strategy gels, they’re primed and ready to act.
LESS INERTIA. As a company grows and bureaucracy multiplies, leaders start playing defense. Their motto: don’t screw with success. The result is inertia, and the only way to escape it is to create a constituency for the future that is larger and more powerful than the constituency for the status quo. An open strategy process gives rebels a share of voice and can be instrumental in breaking free of the timidity trap.
Open Strategy in Practice
If you’re not yet sold on the advantages of open strategy, consider the following short examples of open strategy in action.
3M: Open to Customers
There aren’t many companies that have been around for more than 115 years, and even fewer that are still thriving. That makes 3M a standout. With a catalog that includes more than fifty thousand products, it is, perhaps, the world’s most consistently innovative company. Consumers know 3M for such staples as Scotch tape and Post-it Notes, but 85 percent of its $32 billion in annual revenue comes from industrial products such as flexible circuits, reflective sheeting, medical fabrics, and an endless number of films, adhesives, and abrasives.
In a typical year, nearly a third of 3M’s sales is generated by products that didn’t exist five years earlier. Many of the breakthroughs can be traced to the company’s systematic approach to involving customers in the search for new opportunities. 3M thinks of itself less as a collection of businesses and more as a portfolio of competencies. Among the company’s forty-six core technologies are microbial detection, vapor processing, microreplication, nanotechnology, and ceramics. Innovation at 3M means finding novel ways of applying these capabilities to customer problems.
Much of this alchemy takes place in one of 3M’s ninety labs and technical centers. These facilities host more than a hundred thousand customer visits annually. A typical session starts with a presentation from the visiting company, followed by a slew of open-ended questions from 3M’s industry and technology experts. The goal is to uncover the customer’s deep needs. Next is a visit to the “World of Innovation” showroom, which highlights 3M’s forty-six technology platforms. This is followed by focused brainstorming aimed at matching competencies and problems. One such session with Visteon, an automotive supplier, sparked the idea of using film to give plastic interior parts a custom look and feel. Another breakthrough involved the use of 3M’s Thinsulate to provide lightweight acoustic insulation.
In thousands of open-ended conversations each year, 3M gives its customers the opportunity to co-create its strategy. The ever-recurring question is, “What should we do that we haven’t thought of yet?”
Cisco: Open to Entrepreneurs
San Jose–based Cisco has long relied on the Bay Area’s entrepreneurial ecosystem to sense and seize emerging opportunities. Over the years, it has acquired more than two hundred young companies, and its corporate venture capital arm is among the most active in Silicon Valley. More recently, Cisco has turned to open innovation as way of tapping entrepreneurial talent. Guido Jouret, a former executive who led Cisco’s early open innovation efforts, explains the logic: “We believed that by opening ourselves to the wider world we could harvest ideas that had so far escaped our notice and in the process break free from company-centric ways of looking at technologies, markets, and ourselves.”18
Unlike most other companies, Cisco’s open innovation efforts aren’t focused on solving narrow technical problems, but instead feed its corporate strategy process. Cisco launched its inaugural challenge, the I-Prize, in 2007 with the goal of unearthing the company’s next billion-dollar business. The I-Prize generated 1,200 ideas from more than 2,500 innovators in 104 countries. The winning team received $250,000 for a proposal focused on smart electricity grids.
In 2016, Cisco launched its Innovation Grand Challenge, a contest aimed at exploring opportunities for the internet of things. The six-month tournament offered $250,000 in prize money and attracted 5,713 submissions from 170-plus countries. A jury of more than a hundred industry experts helped narrow the field, and a panel of luminaries picked the three winners. The top-rated teams were invited to prototype their ideas in one of Cisco’s Innovation Centers and make an investment pitch to Cisco’s venture funding team.
Since 2017, Cisco has been running an annual Global Problem Solver Challenge that’s focused on using digital technology to tackle stubborn social problems. In 2018, the top-rated idea was a portable fetal heart monitor. Proposed by a Mumbai startup, the inexpensive device is designed to be used in rural areas to detect high-risk pregnancies. The yearly contest contributes directly to one of Cisco’s core strategies—harnessing the internet of things to positively impact 1 billion human beings by 2025.19
Through its various open innovation initiatives, Cisco continually tests and evolves its strategy. Says Jouret, “We [learn] how people around the world think about Cisco and the markets we ought to be pursuing. Like any other company, we tend to see the world in a certain way—we should be in this business, but not that one. Many of the entrants [have] a much more expansive view of what Cisco could do.”20
Adidas North America: Open to Employees
With more than $23 billion in annual revenue, Adidas is one of the world’s premier sports brands. While the company has long been a powerhouse in European football, it has often struggled in the United States. In 2014, determined to change that, the company appointed Mark King president of its North American division. King, who had led a successful turnaround at TaylorMade, the golf club maker, was charged with reinvigorating the brand and getting Adidas America back on track.
When he arrived in Portland, Oregon, the company’s US base, King found a capable but dejected team. The business had recently lost its number-two position to Under Armour and was on track for a second consecutive year of declining sales. It was losing retail shelf space, and its margins lagged far behind Nike, its cross-town rival. Located nine time zones away from corporate headquarters, the US team knew it needed to do better at tapping into America’s distinctive sports culture.
King’s first challenge was to convince the board to pump up investment in North America. In return for a boost in funding, King pledged to make Adidas the fastest-growing sports brand in the United States—a promise that sounded outrageous to those accustomed to the unit’s perennial underperformance. King got his investment, and in a move that was both practical and symbolic, Adidas relocated its global head of design to Portland.
As he made the rounds of the US operation, King discovered a lot of pent-up creativity. He reckoned that somewhere in the minds of the 3,500 salaried employees in North America, there was the raw material for a renaissance. The question was how to raise the quality of creative thinking, get new ideas to the surface, and build a growth strategy—and to do it in a matter of months, not years. The answer came in the form of the Adidas Innovation Academy, a ten-week initiative that taught employees how to think like game changers and invited them to help shape the company’s strategy. At the kickoff event, streamed to employees across North America, King was blunt: without new ideas, it will be impossible to reignite growth. “This,” said King, “is your chance to co-create the future of our business.”
At the heart of the training was a four-week module that introduced employees to the game-changer habits we described earlier. Each week, participants were challenged to come up with fresh insights and post them on a shared platform. In all, employees generated more than ten thousand insights, some of which directly challenged the existing strategy. Was it really true, for example, that the only path to success was competing head-on with Nike and Under Armour? Other insights highlighted trends that weren’t yet on the company’s radar, like the rapid growth of e-sports, where teams compete at video games, sometimes in front of cheering spectators.
Over the next four weeks, employees were challenged to turn their insights into business ideas. One insight highlighted the difficulty retailers had in interacting with the company’s siloed commercial teams. The proposed innovation: build a simpler and more consistent interface with offline and online retailers.
In the space of a month, participants ginned up nearly a thousand business ideas, each of which was peer-rated on its potential impact and doability. As with the insights, employees tagged their ideas to make them searchable and reduce duplication.
While the ideation process placed no constraints on the sort of ideas that could be submitted, most ended up clustering around a dozen or so strategic themes, such as winning with women and reinventing the relationship with retailers. Within these groupings, individual ideas were often complementary and, in aggregate, helped validate the broader opportunity.
In late 2015, all of those who had signed up for the academy were invited to help winnow the field of promising ideas. This process highlighted nine proposals that were subsequently pitched at an all-hands “shark tank.” Current North American president Zion Armstrong recalls the event: “Giving people the chance to pitch their ideas was very inspirational. I was at the back of the room with tears in my eyes. By opening up the conversation, we were saying, ‘We will listen to you and invest in you. You can make a difference.’ ”21 At the end of the event, several of the proposals were fast-tracked for development.
Mark King stepped down in July of 2018. During his four-year tenure, sales in North America grew by nearly 50 percent, and the operating margin tripled. King and Armstrong credit much of this performance to the newly unleashed creativity of their colleagues. While participation in the Innovation Academy was entirely voluntary, more than two thousand took part, and a thousand earned their game-changer certificates. The Innovation Academy not only opened up new horizons, it also opened up the culture. Looking back on the unprecedented effort, King remarked: “It really fostered a culture of curiosity and moved us more toward thinking and challenging. You can get compliance top-down, but you can’t get commitment top-down.”22
While these examples of open strategy are laudable, they don’t go far enough. We believe every organization should open its strategy conversation to all comers. There’s no shortage of original thinking in the world, but most companies aren’t harnessing it. They haven’t published an online catalog of skills and assets and asked the world, “What would you do with our capabilities?” They haven’t built an always-on platform where anyone—customers, suppliers, partners, entrepreneurs, industry experts, amateur inventors—can post their ideas. They haven’t devised clever solutions for safeguarding intellectual property and rewarding contributors for their work. They haven’t invited outside innovators to work alongside internal teams. They haven’t thought about how to build a giant magnet that attracts the world’s most radical thinkers and doers.
Does this sound fanciful to you—the idea of building a hub for an open, always-on, real-time conversation about strategy? If so, think about the extraordinary effort Apple has put into nurturing its vast community of developers. Anyone wanting to build an app has access to a dedicated development platform, dozens of training programs, a host of development tools, mentors, and global events. The payoff for Apple? More than 2 million apps running on iOS. The payoff for the innovators? More than $100 billion in compensation paid out by Apple. If an organization can build a global developer network, why not a global opportunity discovery network? Some companies, like Haier, with its Haier Open Ecosystem Platform, are moving in that direction, but no one has gone all in—that’s the opportunity for your organization.
Getting Started
So how do you embrace the advantages of openness? How do you go from a few, disjointed, open innovation initiatives to an organization that is open where it matters most—in how it thinks and how it plots its future?
- Tackle the climate of fear. In most organizations, there are penalties for disagreeing with your boss. The result is an echo chamber. You need to make it safe to dissent. That means taking every opportunity to ask, “Where is my thinking stuck?” “What other options do you see?” “What would you do differently?”
- Invest in building creative skills. Companies are often frustrated when they ask employees or customers for ideas. Much of what comes back is either small beer or undoable. To increase the signal-to-noise ratio, you have to train people to think differently, as Adidas did with the Innovation Academy.
- Crack open the strategy process in simple, low-cost ways. If the idea of a high-profile strategy hackathon seems daunting, start small. Make sure every future-focused meeting includes a disproportionate number of young people, newcomers, and individuals who’ve worked in other industries. In one company we know, managers present their plans before hundreds of young employees who live-tweet criticisms and suggestions. The point is, there are lots of ways of getting new people into the strategy conversation.
- Make it social. The power of open strategy isn’t merely the number of ideas that get generated, but the combinational magic that happens when ideas collide and curious people interact. On an online strategy platform, this means making it easy for innovators to find colleagues who are working on similar ideas and then collaborate if they choose to.
- Link ideas to action. Most organizations have some sort of online suggestion box, but submissions often disappear into the ether. Employees want to know, “Who is going to review my idea? When? Against what criteria? If it has merit, how will it get resourced? Will I get time to work on it?” If the answers to these questions aren’t clear, many contributors will opt out.
- Make outsiders feel like insiders. Wherever your role, you can build an open discovery network of your own. Invite in customers, suppliers, and industry experts and host a conversation about the future. Consider it a live demo of what happens when you bring in new voices and ask new questions.
- Stop looking to the CEO for strategy. This is a hard one. Senior executives need to surrender the conceit that they’re uniquely prescient strategists, and everyone else needs to stop pretending that they are. Only then will an organization get serious about open strategy.
Every organization must become open by default. The thick, dark line between insiders and outsiders must fade away, and the belief that strategy starts at the top must be forever banished. Only then will the organization have the chance to become as resilient as a great city or celebrated university.