Thinking outside the business is more than box clever

18 Sep 2008

Did you ever wonder why Apple’s Steve Jobs wanders onto a stage every few months to wild applause and collective gasps as he shows off a shiny new gadget?

Or ever wonder why young Irish companies like Havok are constantly seeing their branding emblazoned on the latest must-have video game or being credited as the enabler behind the mesmerising special FX in a new Hollywood movie? Or did you ever just wonder how Microsoft has managed to spread its tentacles into nearly every feasible aspect of the computer business, from the living room to the office?

There is a common DNA strand linking the activities of Apple, Microsoft and our own home-grown Havok. It isn’t just an insatiable appetite for banging out new products, it’s a realisation that you can’t do it on your own; that innovation is an open process which involves partners and is not just about keeping a closed shop.

Open innovation is a discipline which Michael Moriarty, the new head of innovation and global partnering at Enterprise Ireland, is keen to encourage. “Companies need to be linked to other outside organisations, and if they want to have truly innovative businesses, they need to think outside their own businesses.”

Havok, for example, benefits from companies like Nintendo, Microsoft and Sony having networks of partners to drive their technologies further and create new games. When Apple created the Apps Store for selling software for the iPhone, after a single month, some 60 million applications were downloaded generating $30m in revenues – 70pc of which Apple will redistribute to partners.

“People get caught up in product innovation but don’t think of the immense returns that could come from a change in their business model, brand or the usage model of the product,” notes Martin Curley, an Irishman who is global head of innovation at Intel. “Apple didn’t just create a music player, it created a model for recurring revenue.”

Last week, it emerged that Japanese mobile giant NTT DoCoMo paid $10m for an 11.5pc stake in an Irish mobile company called Blue Ocean Wireless, which specialises in maritime communications. Blue Ocean is the spin-off of a Kerry company called Altobridge, which realised its maritime wing needed to go further and formed a partnership with Claret Capital. The NTT DoCoMo investment values Blue Ocean at $87m.

“Altobridge’s core business model is to enable emergency services to set up low-cost mobile networks,” observes Moriarty. “But it has identified other niches such as communications on aeroplanes and communications out in the deep oceans and has migrated this technology into other companies and other applications.”

Moriarty’s point is that often an Irish company could be sitting on a wealth of innovation but hasn’t thought about either licensing out that technology or licensing in technology from other companies to expand its business further.

“Companies like Proctor & Gamble realised quickly that its closed model of innovation was costing it a lot of spend on R&D. Every year, Proctor & Gamble had revenues of $70bn but 4-6pc of growth came from 30 or 40 new products each year. This was hard to sustain. The company realised it couldn’t do it internally and adopted a model of open innovation – working with companies outside its company to help drive this growth – and it works.

“We are encouraging Irish companies to look at licensing out technology they may be just sitting on that’s going nowhere, which could allow them to be a part of such an ecosystem, or to look at licensing in technology from companies like Microsoft, Intel, HP or IBM. There may be technology these companies aren’t using that can be used to create new business opportunities and be part of a bigger ecosystem.”

Moriarty cites the example of Galway-based Crospon, which entered into a licensing deal with HP Labsto to take technology that wasn’t being used by HP and build it into a new product.

This has led to the commercial rollout of a drug delivery platform that use skin patches to administer drugs and helps to replace hypodermic needles. Under the agreement, HP will license its intellectual property to Crospon in return for royalty payments. Crospon, which recently received seed funding of €2.3m, will manufacture the skin patch and manage all marketing, sales and support of the technology.

Another example of how open innovation and alliances with the labs of large hi-tech companies has worked is the case of Zignals, a company led by Scott Tattersall and Irish Software Association chairman, Pat Brazel.

As part of Microsoft’s IP Ventures programme, Zignals uses Microsoft’s Solver technology and other technologies like Silverlight to provide retail investors with personalised decision-support tools over any kind of device. Zignals realised there was a major absence of these tools for the thousands of small investors who make up 90pc of the finance market.

“Microsoft was so impressed that it decided to assist Brazel and Tattersall in setting up the company and took a 15pc stake – a major vote of confidence in the company,” says Moriarty.

“The main message here is that innovation shouldn’t be expensive or time-consuming. It’s not about putting massive amounts of money into R&D, but about building a network of contacts and partners. There’s loads of clever people out there.

“Ideas can come from your own staff, followed by customers and suppliers. Find a way of getting that information, forming partnerships and make the ideas happen.

“Irish companies will be coming under pressure to compete with aggressive players from Asia. The only way to compete is to be more innovative, and that means doing things that add value, and the only way to find out is to talk to your workers, customers and partners,” Moriarty says.

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years