Positive changes could once have been attributed to few creative individuals who pioneered ideas into action and certainly many of the great 19th century names conform to this. It was actually a linked system with sources of finance, of marketing etc. being part of the Innovation. But the 20th century essentially changed this to organized R&D and the rise of the firms as the unit of innovation. We can think of particular names and innovations in this context – Bell Labs, 3M, Ford, Hewlett-Packard. Here the role of creators is important but the stage on which they act is essentially defined by the firm. By the 21st century the game moved on again and it’s now very clearly a a team game. Making positive changes and increasing profitability involves trying to deal with an extended and rapidly advancing scientific approach, different markets came up right across the world, political uncertainties, adjusting various discrepancies in the country leading to instability and of competitors who are increasingly coming from unexpected directions. The competition has to be addressed by managing positive levels at the network level.
A technology push or demand pull process to one which saw increasing interaction across the firm with cross functional teams and other activities and increasingly outside the firm in its links with others. We now need to operate with diverse network linkages accelerated and enabled by an intensive information and communication technology.
A key driver of this is the division of labour in firms improving their core competencies and purpose. For example, one of the most successful firms in the 20th century its business in aircraft engines by thinking about selling power by the hour and as a result moved away from manufacturing activities like grinding turbine blades and into outsourcing these areas of competence. It increasingly became a coordinator and tried to find out how it could finance and provide support services with the result that it is now largely a service business offering a turnkey package to airlines who equally see their needs as buying power for lifting their aircraft rather than shopping for jet engines.
Similar examples include the running shoe firm Nike which sees its competencies in design and marketing rather than in manufacturing and Dell which has built a business out of computers to individual needs but which makes extensive use of outsourcing.
Procter & Gamble spent a couple of billion dollars each year as R&D but they actually source much of their ideas as input from outside the company. The future of R&D is C&D collaborative networks that are in touch with 99% of the research that we don’t do ourselves. P&G plans to keep leading innovation and this strategy is crucial for future growth. Similar strategy is adopted by firms like IBM, Cisco, Intel – they are all examples of open innovation where connections become as important as actual production and ownership of knowledge.
There is 100% possibility that outsourcing may not simply be one end of the traditional activity between doing everything in-house (vertical integration) and of outsourcing everything to suppliers. This does not mean that the benefits flow without effort unless the concerned in a network can solve the problems of co-ordination and management.
For example, participating in innovation networks can help firms get into new ideas and make them more creative even in established firms and businesses. It’s well known, that creativity will be more effective when the process involves making associations. At the organizational level networks indicate that getting together can help open up new and productive areas. For instance recent developments in the use of titanium components in Formula 1 engines have been significantly advanced by lessons learned about the moulding process from a company producing golf clubs.
Another way in which networking can help innovation is in providing support for shared learning. Much process innovation is about adapting what has been developed elsewhere and applying it – for example in the many efforts which firms have been making to adopt world class manufacturing and service. Whilst it is possible to do it alone in this process, an increasing number of firms are seeing the value in using networks to give them some extra traction on the learning process.