The great Battle (1)

The great Battle (1): Knight Innovators versus Robber Barons

A new force has arisen: the neo-capitalists. These hedge funds and private equities are trading in companies, aiming for short-term financial gains. They are not intending to create sustainable value for the various parties involved. Focusing on fast deals with a lot of borrowed money, they raid the world market looking for financial profit. The process is as simple as it is effective: encouraged by huge rewards for performance, the management aims for a short-term increase in shareholder value. The approach consists of a sharp focus on internal efficiency (cost reduction, reorganisation, disposal) in combination with a hyperactive acquisition policy (take over or be taken over) – anything that will lead to an increase in the company’s share price. As a cherry on the cake, the company is split up and sold off piecemeal. This often gives the shareholder a higher return than if the company is sold as a whole. Clearly, huge amounts of money are involved. In the Netherlands alone, over 25 billion euros’ worth was bought up by the neo-capitalists last year, and this is expected to increase explosively. Among others, Maxeda (Hema), PCM, Corus and ABN AMRO are currently engaged with the hedge funds and private equities.

What are the consequences?
It may be obvious that, in the hunt for short-term profit, long-term investments more or less come to a halt. According to economics professor, A. van Witteloostuijn, the three Os of the Dutch knowledge economy (Onderzoek – research, Ontwikkeling – development and Onderwijs – education) are suffering as a result. The robber barons see human capital as a cost entry. For that reason, employees are exposed to extreme productivity demands and are marginally rewarded in comparison with their management. Room for personal development and job satisfaction disappears. The tightly run reorganisations that follow each other in quick succession cause severe disintegration of the organisation. Scope for innovation is removed, while a lack of innovation will eventually signal the downfall of an organisation.

For a sustainable economy, it is necessary for a new balance to be created between the various interests and values of the parties involved. The Dutch ‘polder model’, in which agreements could be made among the various interested parties via representation, appears no longer to work. People no longer let themselves be represented or have lost faith in those who represent them. It is as though the robber barons are facing no strong opposition and are able to carry out their raiding parties in complete freedom.

Is there a solution to this?
As in many cases, the legislator is looked to for action. But Dutch law, according to Van der Zwam, has gone to great lengths of liberalisation (De Volkskrant, 5 May 2007). Because of this, the legislator no longer creates a balance between the interests of the shareholders and those of the other stakeholders. It is high time for a change in the law that will make it possible to veto a takeover by declaring a company to be of strategic importance to the Netherlands. But changes in legislation take time and sometimes lead to knock-on effects that go beyond the original evil.
If the legislator cannot act adequately and the present cloned senior managers continue to join forces with the robber barons, a new force is called for.

The first impulse of this force is already apparent and will take an entirely new form that the robber barons will be entirely unable to grasp. In his book ‘Liquid life’ Zygmunt Bauman describes a new generation of people who deal differently with the traditional paradox of ‘safety versus freedom’. Previously, people sacrificed their (personal) freedom to organisations, institutions and society in return for safety. They accepted that senior managers, governments, financiers, etc., would take decisions on their behalf and were resigned to the consequences of this. The new generation of people are free thinkers and free doers, and no longer accept boundaries (global players). These are the basic ingredients for innovators! Bauman warns, however, against strong individualisation and with that a lack of social cohesion. In my view, the robber barons belong to this new generation that Bauman so accurately describes.

Where Bauman mainly sees the darker side of developments, in their book, ‘Generatie Einstein: slimmer, sneller en socialer’ (The Einstein Generation: smarter, faster and more social), Jeroen Boschma and Inez Groen describe the positive aspects. The new, innovative generation solves the great complexity of the world by opting for collectivism instead of individualism. They act on a basis of authenticity, integrity, and sincerity. Innovation means nothing new to them. They see it as a natural consequence of the way in which they work together. According to their perspective, the robber barons belong to a previous generation and they feel absolutely no connection with them. Robber barons are concerned with existing organisational forms and institutions. The Einstein generation does not feel itself at all at home in the existing organisational forms and creates its own new way of co-operating.

The Einstein generation will confront us with a new role distribution among those involved in our society. Differences between consumers, manufacturers, owners, financiers and developers will blur. Organisational forms in which managers are appointed to take decisions on behalf of others will be replaced by forms in which people possess knowledge and experience that are required for a specific decision at a specific time. There are already various concrete examples of these new forms. For example, innovation expert Charles Leadbeater in his book ‘We-think’ (Internet: http://www.wethinkthebook.net/) describes new organisational forms that are borne up by the concept of mass participation: innovation as a social, cumulative and collaborative process. The new organisations are characterised by linking habits from a small-scale community on a global scale through ‘low-cost connectivity’. Linux and Wikipedia are only the first examples of this.

It is in this new world that the knight innovators will arise. They are the leaders who self-confidently operate from authentic values and modesty. They are very open to mass participation for the further development of their initial range of ideas. And people will participate, not on the basis of a need for more safety, but on the basis of increasing their self-esteem and peer esteem. The outcomes are based on the contribution from every participant and are also freely accessible to every participant.

Robber barons are being confronted with an entirely new battlefield and a new opponent: the Knight Innovators!

In my following article, I will discuss in more depth the characteristics of the new organisational forms and means whereby innovation takes place.

A matter of connecting people

Innovation is a matter of connecting people, but how do you do that across the various disciplines within organisations?

Companies must innovate continuously in order to survive in an increasingly complex market, and many companies choose to have extremely high innovation ambitions. To be able to meet that ambition, the company will set up a central innovation department, appoint a senior VP Innovation, put aside a budget and set stiff targets. The question that remains is: how do we link up the rest of the organisation? An innovation platform offers the solution.

A reasonably sized organisation is neatly organised into various divisions, sectors, etc. Each part of the company has a management with responsibility for results. Within these parts, various disciplines such as Marketing & Sales, SCM and R&D are engaged in a range of innovation initiatives. Usually, these disciplines have their own focus, based on their own initiative. In practice, it appears to be quite a challenge to have these disciplines work cohesively within one division on the same innovation initiative. They know little about each other’s initiative, they do not speak the same (innovation) language, or there are simply no good support instruments for sharing ideas, knowledge and experience.

The challenge of getting an innovation initiative out beyond the boundaries of a company division is even greater, if anything. The fact that a division is accountable for its own separate profit goals, differences in culture and market-specific features, with its non-integratable information systems, would appear to present impenetrable barriers to the most dedicated knight innovators. Despite all these challenges, innovation ambitions are created that require us to work intensively with partners outside our own organisation (Open Innovation). The walls get higher and thicker: who will become the owner of the innovation? Who is going to make the investment and take the biggest risks?
The trick is to get people to work together on innovation, independent of their role and position in the company. New approaches and instruments are needed for this. Charles Leadbeater (http://www.charlesleadbeater.net/) speaks of mass-participation, whereby everyone can contribute to innovation. The concept that we, as Capgemini, are working on together with customers is the creation of an innovation platform. This platform connects people, and puts innovation in a broader perspective. The platform enables people within an organisation to look beyond the boundaries of their own department, division or even organisation. It is a means for thinking about innovation in a structural, effective and creative way, across the various disciplines. The innovation platform consists of the three following dimensions: Innovation Events (network meetings), a Digital Innovation Portal (marketplace where employees with “low entry barriers” and “easy-to-use technology” are supported) and Innovation Workspace (a place where it is possible to work on innovation projects).
For a platform like this, the organisation first of all needs to arrange regular network meetings, where people from different departments and divisions with varying perspectives come together to deal interactively with an innovation theme. In these themed events, a vision is presented and a case in practice is dealt with. The participants will then translate this into their own specific situation. In organising these events, the company is building a community. People who actively participate in these events eventually become the thought leaders or innovators in their organisation, division and/or department.

A digital innovation portal is then set up. This is a type of digital marketplace that provides access to people who have knowledge of innovation in various areas and who can thus easily exchange expertise. Means of communication include e.g. Skype, chatrooms, best practices, news facts on innovation, etc. Capgemini has an excellent eco-system with over four hundred services and application providers who are capable of setting up such portals.

Finally, an innovative idea – arising from one of the sessions – must be worked out. There should be a place within the organisation where a group can work in a structured and creative fashion on an innovation project. Capgemini offers this place in the form of various Innovation Workspaces, both at Capgemini and on site. When an organisation sets up such an innovation platform internally and has gained experience with it, eventually partners and third parties can also form part of it. This will shape and maintain the Open Innovation concept.

To achieve a successful result, you should not omit any of the above-mentioned parts, as they complement each other strongly. If only one or two of the dimensions are present in the organisation, the result will be significantly poorer.

Reputation is extremely important

Reputation is extremely important in Open Innovation network

Last Thursday, 29 March, I (Koen Klokgieters) was present as one of three guest speakers at the LogInn Event 2007. This annual conference is organised by and for the MBA students at the Erasmus University in Rotterdam. The theme was SCM and Innovation Management, and I was asked to indicate which issues relate to both SCM and innovation. I thought it would be a good idea to shine a light on the social consequences of Open Innovation Networks.
Following an opening speech by Martijn Lofvers (chief editor of SCM Supply Chain Magazine), Coca-Cola Logistics manager, Jan Broekhuizen, discussed the far-reaching consequences of the new Coca-Cola bottle for the organisation of the supply chain. Director Procurement of ASML, Hans Dijkhuis, then explained how important and complicated it is to involve suppliers in high-tech product development. The subject material of both gentlemen laid an excellent basis for my talk on open innovation networks.
From SCM to Open InnovationIn my speech, I explained that Supply Chain Management in combination with innovation alone is not the optimum co-ordination of business processes in the value chain. There is also the question of how, as a company, you organise your R&D to the best effect and what consequences such a setup will have for your company structure and business model.
A relatively new trend is that R&D and innovation are carried out together with, or outsourced to, suppliers or partners within the existing supply chain and beyond it. Companies that decide to carry out the innovation process on a structural basis with each other, or that choose to have it largely carried out externally, are operating in Open Innovation Networks.
PhilipsOne of the companies leading the field in this is Philips. Philips has outsourced a large part of its R&D and carries out innovation projects with an ecosystem of partners from within and outside of the existing supply chain. The best-known results of this are perhaps Senseo with DE and the Perfect Draft with various breweries. But many components and part-products are developed in this way on behalf of Philips.
If you opt for a sustainable open innovation network with partners, you not only need to adapt your business model, but you should also take account of the social consequences that such a network brings with it. First of all, one way or another, a kind of flexible input of R&D staff will be required. Also, as an organisation you will be dependent on the reputation of your network partners. As soon as one of your partners makes a mistake, this will have consequences for you. There are two developments that raise these modern network issues: Flexecurity and Reputation Management.
FlexecurityThe word ‘flexecurity’ is suggestive of both ‘flexibility’ and ‘security’. The flexible part refers to a flexible input of personnel and a flexible right of dismissal. ‘Security’ gives the employees some guarantee of work and income, despite a relaxation of the right of dismissal. This ‘security task’ must shift from the individual organisation to the network. The government must play a facilitating role in this by making people more widely deployable, by means of retraining and schooling and the encouragement of universities and schools. Motivating people to set up their own companies could also help here.
Reputation ManagementIt used to be that as an organisation you only had to worry about your own reputation and the perception the stakeholders had of you. If you operate in a network, each partner in your ecosystem can influence your reputation positively or negatively. An example of a branch that featured negatively in the news recently was the pension funds sector. An investigation by the VPRO news programme Zembla showed that some of the money in the pension funds was being invested without their knowledge in the manufacture of cluster bombs. If as an organisation you participate in an open (innovation) network, Reputation Management is therefore of vital importance.Together with universities and network organisations, we (Capgemini) carry out research into open innovation networks and the social consequences of these. I believe that we are well on the way to helping customers to solve issues in the area of open innovation, but we definitely need to undergo further development collectively. And as an organisation we are continuously developing an ecosystem (read I-network) of partners. But it will be necessary for us to take on even more responsibility ourselves on behalf of the value chain, the partners and the customer!