SME Need Specific Strategies to Survive Open InnovationKazuyuki Motohashi
＜Series 2 / complete＞
Previously, Part 1 discussed the reasons why Japan’s industrial competitiveness has declined, explained from the perspective of productivity. We also saw some hints about how to improve our productivity and competitiveness as the world transitions from “things” models to a “solutions” models.
The next section discusses what steps companies need to take to improve productivity. Part 2: How SME Can Survive Open Innovation.
From Self-Sufficiency to Open Innovation
If you scrutinize society’s transition from “things” models to “solutions” models, you are sure to notice the change from a manufacturing economy based on factories to a digital economy based on big data and the fruits of science.
If you want to create something new in a digital economy (science economy), you don’t have to endure through trial and error like before. Your actions will be based on the predictions of data science, so you can get results faster than was previously possible. For example, if you needed to make high tensile strength steel plates, you would have experimented by adding compounds to steel through trial and error. Now we have a better understanding of the fundamentals of chemistry, so you already have a prediction of what result to expect as you work.
However, in order to utilize data and science, you will obviously need expert wisdom. Even major companies adhere to stubborn self-sufficiency and exclusive hoarding of technology and know-how, surrounded by their suppliers in a loop of closed innovation. This way of thinking will never succeed in a “solutions” model. It’s necessary to form strategies to expand beyond things into services, so they must seek open innovation by going beyond their own field and seeking partnerships with outside experts and business specialists.
For example, even Toyota is opening its fuel cell patents for free use, and spending huge amounts of money opening a research facility in Silicon Valley. They’re even collaborating with IT giants like Softbank. You can see that open innovation is really happening, right now.
When major companies are doing open innovation and steering towards a more advanced solutions model, what actions should SME take? What can they start doing now to survive the era of open innovation?
Grasping the Direction of Lead Customers
Even major companies like Toyota will find that the process of open innovation will lead them to switch away from their primary business. In this new era, SME who have major companies as their clients will probably not be able to keep their business going in the same way either.
So, the first thing that SME need to do is understand the business strategies of their clients, especially lead customers that have the biggest impact on their own business. This should give SME an idea of the direction and future of their own industry.
One example of a massive shift in the automotive industry is future progress in technology using non-carbon fuels like electricity and hydrogen gas. Japan already has hybrid technology, which is quite complicated and advanced. But even if we make a shift to electric cars, there’s no way that companies would abandon such an amazing technology. The businesses who are the lead customers of automobile makers will have to make a choice: either jump on the electric vehicle bandwagon immediately, or continue to work on technological innovation for gasoline and hybrid cars.
It’s important for SME to be aware of changes like these as soon as possible in order to forecast the future of their own company.
Grasping the movements of lead customs is the duty of company administration. The capability to do so is certainly questionable. What other issues should SME be working on?
Understanding Your Strengths
It’s absolutely important that SME with unique technologies fully understand their own strengths in order to appeal to clients. Most of them will probably say, “Of course, that’s so obvious, we already know!” but actually, there are few companies who really understand how well their technology compares to their competitors, or they aren’t able to explain it rationally. If they can clarify these fundamentals in a scientific matter, then they can expect to expand into new industries and explore new growth. One way to achieve this is through cooperation with universities and public institutions for research and investigation.
What’s more - and this isn’t just about SME - right now there are so many skilled and knowledgeable people facing retirement age. Their techniques and know-how need to stop being limited to a single person, and become something that the company can hold and maintain in the future. I think there are so many places that are worried about how to pass their business on. Of course, some of it can be recorded like an instruction manual, but I believe that there are details that don’t fit inside a manual, details that need to be explained directly from person to person.
If they can write it down in a manual, their techniques and know-how will become easily understandable to regular people, revealing their company’s unique strength. Even better, this make it possible to continue to refine those techniques. Eventually, they may establish an even more unique and amazing technology.
It can be very difficult to rationally explain your company’s strengths if you aren’t completely sure of how to define them. What do SME need to do in order to take the next step in continuing to pursue their own strengths?
Forming Strategies to Support the Right Journey
If SME can grasp the direction of their lead customer and fully clarify their own strengths, then they should form a strategy to proceed in a way that applies those strengths. Company presidents and other managers are responsible for making the decisions that actively direct their company’s path. They need to go beyond chasing quick orders and look beyond their current work.
For example, if their lead customer changes direction in the future, SME may find that their company’s own technology will become unnecessary. One strategy to address this situation is to find new clients now, before that happens. If they are only selling to domestic clients now, they might want to start talking to companies outside of Japan.
And if SME are able to explain their strengths well, they may be able to transfer their technology to new fields that they didn’t work with before. Applying a single technology can be applied across multiple industries will aid business risk management.
Expanding the reach of their technology towards new companies and fields also contributes significantly to productivity. I’ll get into more detail about methods for improving productivity in the next section.
Interview Date: January 15, 2019
SME Need Specific Strategies to Survive Open Innovation
Department of Technology Management for Innovation at the University of Tokyo
Joined the Ministry of Economy, Trade and Industry after finishing his Master’s degree at the School of Engineering, University of Tokyo in 1986. After working for the OECD, he accepted an assistant professor position at the Institute of Innovation Research, Hitotsubashi University in 2002. Next, he returned to the University of Tokyo as an assistant professor at the Research Center for Advanced Science and Technology in 2004. In 2006, he accepted his current professor position at the Department of Technology Management for Innovation, University of Tokyo. Meanwhile, he has also served as a World Bank consultant, OECD consultant, Research Institute of Economy, Trade & Industry faculty fellow, Japan Fair Trade Commission Competition Policy Research Center visiting researcher, National Institute of Science and Technology Policy (NISTEP) chief researcher, Stanford University Asia-Pacific Research Center visiting fellow, and East China Normal University visiting professor. MBA Cornell University & PhD Keio University School of Business and Commerce. Specialties include econometrics, industrial organization theory and technology management theory.
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・“Japanese Bio-Innovation” Hakuto-Shobo Publishing Company, November 2009.