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Friday, January 01, 2010

Open Innovation Bullies

by Stefan Lindegaard

Open Innovation BulliesLarge companies have always used their size and power to get things their way. This is no different with open innovation. So I am not surprised when I listen to people from smaller companies complain about the behaviours of large companies when they start working together.

Such behaviours were confirmed by several large companies at the recent Open Innovation Summit. They shared stories on how they had used their size and corporate power to get deals that favoured themselves and they even admitted that some deals could be so lop-sided that they could discourage other smaller companies from working with them.

This made me wonder whether it is just human nature to be a bully and use the power at hand. I reached the conclusion this is often the case and in terms of open innovation this is just what smaller companies should expect when they engage with large companies.

This is not to say that I approve of such behaviour. I prefer an ideal world in which all companies get along and share the pie in a fair and nice manner. But the problem is that we do not live in an ideal world. So what should smaller companies do about this?

I do not think they can do much to change the behaviours of the large companies. But they can prepare better. They should expect a bully-like behaviour and prepare for this rather than cross their fingers and hope for the opposite. They need to analyze the level of resources needed to work with the larger company and they need to weigh the pros and cons on potential deals. Some deals might not be worth the trouble.

At least some larger companies are aware of this situation. They understand how important it is to be perceived as the preferred partner within their industry. This was illustrated by the fact that some of the companies that admitted to loop-sided deals at the recent summit work to rectify those.

No Room for Bullies in Open InnovationAt the summit, a representative from a large company also shared that increasing the leadership position that comes with the perception of being the "preferred partner of choice" is an area of improvement to them.

On this, he mentioned that the company recently commissioned a third party to conduct a blind survey in which they asked a range of potential partner companies that had not yet worked with the given company whether they would like to do so. A large majority replied positively. Later in the same survey they asked companies that had already worked with the given company by revealing their name. Would they like to work with them again in the future? Although still in the high end, the reply here was lower than the first one.

This gives reasons to worry. Hopefully, it seems as if this company is up for the challenge as they show a willingness to confront and rectify this. This is most likely not the case at many other large companies, but let's hope for the best - and tell smaller companies to prepare well...

Stefan Lindegaard is a speaker, network facilitator and strategic advisor who focus on the topics of open innovation, intrapreneurship and how to identify and develop the people who drive innovation.

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Blogger Jackie Hutter, Intellectual Property and Patent Business Strategist and "Recovering Patent Lawyer" said...

Stefan: I agree with your recommendation that smaller entities need to be prepared for the possible "bully-like" behavior of larger companies, however, I have a strong word of caution in this regard.

Behaving like the big guys is often perceived by smaller entities as "lawyering up." Companies will then call their existing IP or corporate counsel for help. Unfortunately, this counsel will typically have little, if any, experience dealing with corporate licensing. Moreover, this counsel will certainly not be attuned to the "relationship-based licensing" that drives most Open Innovation situations today. Lawyers, especially those in the US, are primarily motivated to mitigate risk. This posture will necessarily result in the smaller company taking an adversarial position against the larger company, as directed by their counsel. Moreover, the smaller company will likely not have the experience to tell its lawyer when to "back off." (It is also noteworthy that the lawyer will bill by the hour for her efforts, not by a measure of success.)

As I know from experience and as I confirmed with a number of folks at the Open Innovation Summit we attended together, nothing will shut down a negotiation with a larger company faster than a perception that the smaller company is being unreasonable. I have seen this happen many times with negotiations I have been involved in (and, admittedly, I have messed up a number of deals myself for smaller companies before I knew better). The smaller company may never perceive itself as being unreasonable because "it was just listening to it lawyer" and, lawyers know what they're talking about right?

To avoid this "lawyering up" problem, I tell my clients that if they are going to play with the big boys, they need to act like the big boys. And the big boys have business-focused in-house lawyers who are incentivized to get business done, not merely avoid risk and score a huge financial win for their clients. Of course, smaller companies can't afford to hire full-time in-house counsel, nor should they have to. Smaller companies seeking to play with larger companies in the Open Innovation space nonetheless need to seek counselors who understand the business issues associated with their relationships. Often, it is better to hire a non-lawyer licensing expert to make this happen, as least during the negotiation phase.

8:08 AM  
Blogger Frederic Baud said...

The apparent paradox lies simply on the premise that to perform Open Innovation you should base your cooperation on IP laws.

The whole IP system is biased towards big companies: It's easier for them to sue infringers than it is for small businesses (except patent trolls that specialize on exploiting a devious system). So small companies can not expect to see much of the economic benefits of Open Innovation if they base their cooperation on Open IP-Market Innovation. This approach is by design meant for larger companies to outsource R&D to their own advantage.

The only safe approach for smaller businesses is to engage in Open Collaborative Innovation based on the creation of commons. Commons can not be monopolized by larger companies and smaller businesses can see the benefit of recombining the intellectual assets in many situations.

10:22 AM  

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