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June 6, 2014

How to Build an Innovation Ecosystem

Summary:

Operational excellence is table stakes. The barrier to entry for all industries has either already fallen or is falling now.

Innovation ecosystem. Open innovation.

The combination of these two empowers the sharing of knowledge, information and ideas that are accelerating innovation today, helping to reimagine industries and companies.

Why is an ecosystem so powerful and so critical? Because of day-to-day operational demands, insurers often don’t put the influencers of change for insurance into context. An ecosystem can enable the generation and integration of new thinking. An ecosystem — particularly one with outside resources — can provide a much-needed, outside-in perspective that helps to break down legacy assumptions. In today’s hyper-connected world, companies are moving from managing value chains to managing ecosystems.

Henry Chesbrough, author and academic, originated the term “open innovation” as “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.” Chesbrough notes that open innovation “is a more distributed, more participatory, more decentralized approach to innovation, based on the observed fact that useful knowledge today is widely distributed, and no company, no matter how capable or how big, could innovate effectively on its own.” No single person or entity possesses all the knowledge, insights, ideas or creativity. This is why crowdsourcing, a means of open innovation, is crucial for all companies to embrace.

From the dawn of the industrial age, and into the information age, companies seeking market-leader status through technology innovation developed internal, large and impressive R&D departments. Iconic examples include Bell Labs, Xerox, IBM, HP, Ford, BMW, BP, AT&T and GM. The advent of the Internet and other technologies enabled collaboration with people and resources around the world, dramatically changing how companies did R&D. By embracing open innovation and ecosystems, leading technology and start-up companies formed co-creation environments that embraced technology. Examples of these include Linux, Google, Apple and Cisco. Today, companies across all spectrums, even those with historically iconic R&D departments, see the power of open innovation and ecosystems and are embracing the concepts, including Ford, Heineken, Procter & Gamble, BMW, Dell and Starbucks. And there are start-ups that are using crowdsourcing to crowd-fund investment resources to bring innovative products to market.

The powerful combination of these two concepts — innovation ecosystem and open innovation — can be formidable for companies seeking market leadership. And it creates a chain reaction of innovation and success. Consider Linux and Apple. The Linux operating system was created in 1991 by Linus Torvalds for his new PC. He posted it online to a group of developers for feedback. The rest is history. Today, Linux is managed by a community. Thousands of programmers around the world who use Linux are sending their suggested improvements to the maintainers, and new companies have emerged that benefit from Linux. Likewise, Apple’s development of the iPod, iPhone and iPad has changed industries and created companies, changing market dynamics. Now, through open innovation and collaboration, whole communities of developers are creating apps that engage customers and change their experience daily.

Even some companies that are not considered predominantly high-tech, like Procter & Gamble, Starbucks, BMW, Heineken and Ford, have embraced ecosystems to fuel innovation and keep them relevant in a fast-changing marketplace. Procter & Gamble’s Connect+Develop open innovation, with an ecosystem of more than two million relationships, is a powerful force of collaboration, innovation and change. P&G’s launch time for new products has been halved, and the innovation rate has increased by 75%. Imagine the potential for insurance!

The potential of an environment of open innovation with access to a robust ecosystem is transformative. There is a “safe sandbox” innovation environment where you can discuss, debate and incubate ideas that then mature uniquely inside your organization. This type of co-creation allows companies to expand their business ideas and use of technology quickly and cost-effectively. While keeping competitive information confidential, companies can discuss ideas, challenges and opportunities to leverage the expertise and collaboration of the community. In essence, the community becomes an extension of your company’s innovation, strategy and R&D efforts that can inspire and activate change within your organization.

Even more exciting is the possibility of open innovation leveraging a broad ecosystem of inside- and outside-the-insurance-industry participants, letting us as an industry define our own future, rather than letting it be defined for us. For those insurers that are wary of this level of open innovation and collaboration, just look at the market leaders in other industries. These companies embraced open innovation and built ecosystems of inside and outside relationships — with customers, suppliers, partners, industry leaders, academia, technologists and others — to help them transform and gain or retain market leadership.

At the recent MIT CIO symposium on innovation and the digital revolution, panel discussions of leaders across different industries emphasized:

  • The ubiquitous connectivity of people via the Internet and emerging technologies such as social media, the Internet of Things, crowdsourcing, mobile and cloud are disrupting traditional business assumptions from how to engage customers, to the products and services offered and ultimately to revenue models.
  • There is a foundational change taking place in the way all businesses are approaching value creation.
  • Operational excellence is table stakes. The barrier to entry for all industries has either already fallen or is falling now.
  • Modern technology and digitalization must change how companies see themselves — no longer as value chains, but rather as enterprise ecosystems that must be connected.
  • The collective intelligence of ecosystems promotes an entrepreneurial spirit, provides a greater understanding of new technologies and stimulates creativity and life-long learning that together are key characteristics for future success.
  • The price of solving problems is innovation.

Insurance industry disruption has begun and will tear down the business assumptions and paradigms of the last 20 to 30 years, or more. Don’t protect and cling to those assumptions. Reenvision and reinvent the business. Most importantly, embrace open innovation and an ecosystem of outside-in thinking and collective intelligence to inspire and accelerate your transformation. Be a disruptor and an innovator.

From the dawn of the industrial age, and into the information age, companies seeking market-leader status through technology innovation developed internal, large and impressive R&D departments. Iconic examples include Bell Labs, Xerox, IBM, HP, Ford, BMW, BP, AT&T and GM. The advent of the Internet and other technologies enabled collaboration with people and resources around the world, dramatically changing how companies did R&D. By embracing open innovation and ecosystems, leading technology and start-up companies formed co-creation environments that embraced technology. Examples of these include Linux, Google, Apple and Cisco. Today, companies across all spectrums, even those with historically iconic R&D departments, see the power of open innovation and ecosystems and are embracing the concepts, including Ford, Heineken, Procter & Gamble, BMW, Dell and Starbucks. And there are start-ups that are using crowdsourcing to crowd-fund investment resources to bring innovative products to market.

The powerful combination of these two concepts — innovation ecosystem and open innovation — can be formidable for companies seeking market leadership. And it creates a chain reaction of innovation and success. Consider Linux and Apple. The Linux operating system was created in 1991 by Linus Torvalds for his new PC. He posted it online to a group of developers for feedback. The rest is history. Today, Linux is managed by a community. Thousands of programmers around the world who use Linux are sending their suggested improvements to the maintainers, and new companies have emerged that benefit from Linux. Likewise, Apple’s development of the iPod, iPhone and iPad has changed industries and created companies, changing market dynamics. Now, through open innovation and collaboration, whole communities of developers are creating apps that engage customers and change their experience daily.

Even some companies that are not considered predominantly high-tech, like Procter & Gamble, Starbucks, BMW, Heineken and Ford, have embraced ecosystems to fuel innovation and keep them relevant in a fast-changing marketplace. Procter & Gamble’s Connect+Develop open innovation, with an ecosystem of more than two million relationships, is a powerful force of collaboration, innovation and change. P&G’s launch time for new products has been halved, and the innovation rate has increased by 75%. Imagine the potential for insurance!

The potential of an environment of open innovation with access to a robust ecosystem is transformative. There is a “safe sandbox” innovation environment where you can discuss, debate and incubate ideas that then mature uniquely inside your organization. This type of co-creation allows companies to expand their business ideas and use of technology quickly and cost-effectively. While keeping competitive information confidential, companies can discuss ideas, challenges and opportunities to leverage the expertise and collaboration of the community. In essence, the community becomes an extension of your company’s innovation, strategy and R&D efforts that can inspire and activate change within your organization.

Even more exciting is the possibility of open innovation leveraging a broad ecosystem of inside- and outside-the-insurance-industry participants, letting us as an industry define our own future, rather than letting it be defined for us. For those insurers that are wary of this level of open innovation and collaboration, just look at the market leaders in other industries. These companies embraced open innovation and built ecosystems of inside and outside relationships — with customers, suppliers, partners, industry leaders, academia, technologists and others — to help them transform and gain or retain market leadership.

At the recent MIT CIO symposium on innovation and the digital revolution, panel discussions of leaders across different industries emphasized:

  • The ubiquitous connectivity of people via the Internet and emerging technologies such as social media, the Internet of Things, crowdsourcing, mobile and cloud are disrupting traditional business assumptions from how to engage customers, to the products and services offered and ultimately to revenue models.
  • There is a foundational change taking place in the way all businesses are approaching value creation.
  • Operational excellence is table stakes. The barrier to entry for all industries has either already fallen or is falling now.
  • Modern technology and digitalization must change how companies see themselves — no longer as value chains, but rather as enterprise ecosystems that must be connected.
  • The collective intelligence of ecosystems promotes an entrepreneurial spirit, provides a greater understanding of new technologies and stimulates creativity and life-long learning that together are key characteristics for future success.
  • The price of solving problems is innovation.

Insurance industry disruption has begun and will tear down the business assumptions and paradigms of the last 20 to 30 years, or more. Don’t protect and cling to those assumptions. Reenvision and reinvent the business. Most importantly, embrace open innovation and an ecosystem of outside-in thinking and collective intelligence to inspire and accelerate your transformation. Be a disruptor and an innovator.

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About the Author

Denise Garth is senior vice president, strategic marketing, responsible for leading marketing, industry relations and innovation in support of Majesco’s client-centric strategy.

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