Building effective external innovation partnerships: An in-depth guide

According to a 2022 Accenture study, companies engaging in collaborations for external innovation are 6x more likely to experience higher revenue growth than those solely relying on internal processes.

Given the rapid technological advancement, this collaborative innovation approach widens the scope of possibilities and speeds up advancement. 

Meta’s partnership with BMW in augmented reality, followed by its collaboration with MediaTek, and GM’s venture with Lyft in autonomous vehicle technology is more than mere business deals. 

Meta’s groundbreaking advancements in augmented reality, combined with GM and Lyft’s joint endeavors in autonomous vehicle technology, create a blend of digital interaction and automotive engineering that drives future advancements.

These partnerships combine specialized knowledge and shared vision, drawing upon each partner’s unique strengths and expertise facilitating innovation beyond their individual capabilities. 

This study explores the roadmap for companies establishing and managing such dynamic partnerships. This includes handpicked industry-vetted best practices and strategies to empower your vision in no time.

External Innovation Partnerships: Key Benefits 

With external innovation partnerships, companies can combine their respective strengths and expertise. Here are the key advantages of such alliances:

The primary benefits of external partnerships for innovation:

1. Unbiased Insights and Specialized Skills

Collaborating with external partners can significantly enhance your innovation efforts, benefiting from their unfiltered insights and specialized expertise. You gain fresh perspectives that challenge internal assumptions and conventional thinking. These collaborators also provide access to specialized skills that may not be present within your own workforce.

2. Cost and Risk Sharing

Collaborating with partners can distribute the financial burden and risks associated with research and development, making ambitious projects more feasible.

3. Creation of Innovative Products

Such innovative partnerships often result in the creation of innovative products. 

For example, Meta has collaborated with a diverse range of over 50 companies in augmented reality, including prominent names like Ray-Ban, EssilorLuxottica, and Qualcomm.

This has led to the development of several groundbreaking products, including:

• Ray-Ban Stories

In partnership with Ray-Ban, Meta introduced smart glasses that blend classic design with innovative technology. These glasses feature built-in cameras and open-ear audio. They are also integrated with social media platforms, allowing users to capture and share their experiences effortlessly.

• Augmented Reality Eyewear with EssilorLuxottica

This collaboration aims to develop advanced AR eyewear. These glasses offer seamless integration of digital and physical worlds, enhancing everyday visual experiences.

• AR Chips with Qualcomm

Teaming with Qualcomm, Meta is developing specialized chips designed to power advanced AR devices. These chips are expected to enhance the performance and capabilities of AR technology, making it more efficient and immersive for users.

4. Try Innovative Ideas, Invest in Future Trends, and Explore New Business Models

General Motors’ (GM) $500 million investment in Lyft was primarily aimed at co-developing an on-demand network of autonomous vehicles. 

This strategic move allowed GM to grow deeper into the growing rideshare market and explore the potential of self-driving technology.

Additionally, the partnership provided opportunities for both companies to offer enhanced mobility services and experiences, leveraging GM’s extensive portfolio of vehicles and OnStar services.

Partnering with external companies: Drawbacks and potential challenges of external innovation

The benefits of external innovation partnerships are evident and signal a progressive evolution of contemporary research and development. However, considering the full picture, it comes with some unique challenges.

1. Intellectual Property Protection

When you collaborate, there’s a risk of sharing too much. Keeping your unique ideas safe is a big deal. 

A PwC survey highlighted that  42% of companies see IP protection as their top challenge in these alliances.

So, it can be a tightrope walk – between sharing enough to innovate and safeguarding your competitive edge. 

2. Misalignment of Goals and Cultural Differences

Each company has its way of doing things and what they want to achieve. Sometimes, these don’t match, which can cause complicated situations in the future.

3. Loss of Control over the Innovation Process

When you work with other companies, you might not have the final say in every decision about the project. This can be tough if you’re more used to having complete control.

4. Integrating External Technologies Into Existing Business Models

Sometimes, the technologies or systems just don’t combine well together. For example, Nokia’s failure to leverage its partnerships with Microsoft and Intel effectively illustrates this challenge. 

Nokia struggled to integrate partners’ technologies into its products, ultimately losing market share to competitors like Apple and Samsung.

Establishing and Managing External Innovation Partnerships: Strategies and Best Practices

Now, let’s discuss how you can override the challenges and leverage these external innovation partnerships to get the maximum benefits. 

1. Selecting the Right Partners

Choosing the right partners is crucial in external innovation partnerships. Here are some practical tips to follow:

• Look for partners with complementary capabilities, compatibility with your company’s values and goals, and proven credibility in their field.
• Utilize online platforms like Innoget, Innocentive, and NineSigma to explore a wide range of potential partners, from startups to research institutes.

Note: Here’s a list of startup databases to find potential partners.

• Conduct thorough due diligence to assess potential partners’ financial stability, legal history, and reputation. This can mitigate risks and liabilities.
• Create a partner scorecard similar to the one by the Alliance Management Group to systematically evaluate and compare potential partners’ strengths, weaknesses, opportunities, and threats (SWOT).

2. Defining Clear Objectives and Expectations

Having specific and measurable goals is an obvious step, but there are other factors you must keep in mind, for instance: 

1. Define Roles and Responsibilities

Clarifying each partner’s responsibilities is essential in any collaboration. This not only prevents misunderstandings but also solidifies who is accountable for what.

To ensure that these roles are goal-oriented, they should be reinforced by data-driven key performance indicators (KPIs). These serve as measurable benchmarks, allowing you to track the success and progress of the partnership objectively.

2. Draft a detailed partnership agreement.

Such a document ensures both parties have a clear understanding of their commitments and the boundaries of the partnership. This agreement should clearly outline:

• The scope of the collaboration
• Terms of Engagement
• How intellectual property rights are to be handled

3. Consider Robert Kaplan and David Norton’s Balanced Scorecard Approach

It is a widely used strategic management tool to measure the collaboration’s performance across multiple aspects and perspectives. The scorecard evaluates these aspects:

• Financial Metrics: How well the partnership is doing in terms of profitability and cost management.
• Customer Perspective: How customers view the partnership and its outputs.
• Internal Processes: The efficiency and effectiveness of the processes within the partnership.
• Learning and Growth: The partnership’s ability to innovate and improve.

3. Effective Communication

Effective communication drives a healthy and productive partnership. To achieve this:

I. Develop a communication plan

With clear communication goals, roles, and regular updates, you prevent confusion, so your partnership stays aligned and productive. 

Project Management Institute recommends specifying the frequency, mode, and content of communications in your partnership.

The plan should define:

• How often you’ll communicate
• What channels you’ll use (like email, meetings, or project management tools)
• What information will be shared

II. The SBI (Situation-Behavior-Impact) feedback model

Developed by the Center for Creative Leadership, The SBI model is designed to reduce the anxiety of giving feedback and minimize defensiveness in the recipient.

It involves the following:

• Situation: Clearly describe the specific situation where the behavior occurred, including time and place details.
• Behavior: Outline the actual, observable behavior without including opinions or judgments.
• Impact: Explain the behavior’s positive or negative effects, focusing on your feelings and observations.

III. Employ a conflict resolution model, such as Thomas and Kilmann’s

This popular conflict resolution model categorizes conflict resolution into five distinct styles:

• Competing: Assertive and uncooperative, useful for urgent decisions.
• Collaborating: Both assertive and cooperative, ideal for finding mutually beneficial solutions.
• Compromising: Midway in assertiveness and cooperativeness, suitable for finding a quick middle ground.
• Avoiding: Unassertive and uncooperative, best for trivial issues or when the cost of confrontation outweighs the benefits of resolution.
• Accommodating: Unassertive but cooperative, effective when one party is willing to give way.

Each type is useful depending on the situation and the relationship dynamics. 

‘Collaborating’ works well when both parties’ interests are important, while ‘Avoiding’ is best in trivial or potentially damaging situations.

4. Measuring the Outcomes and Impact of the Collaboration

To effectively measure the outcomes and impact of your collaboration, follow these methods:

I. Feedback through Surveys and Interviews

Tools like SurveyMonkey can help gather detailed feedback from partners and customers about the partnership’s effectiveness.

II. Financial Planning and Scoping

Track and analyze the financial contributions and returns of the partnership, ensuring it stays within budget and meets its financial objectives.

• Regular Tracking: Establish a schedule for regular financial reviews, such as monthly or quarterly, depending on the project’s scale and complexity.
• Use of Financial Templates: Utilize financial templates for budget tracking and forecasting. This includes Budget Templates, Cash Flow Forecast Templates, ROI Calculation Templates, and Profit and Loss Statement Templates.
• Key Financial KPIs: Focus on prime financial KPIs like ROI (Return on Investment), profit margins, cost savings, and revenue growth. These indicators give a clear picture of the financial health and success of the partnership.
• Financial Reporting Tools: Implement financial reporting tools or software, like QuickBooks, FreshBooks, SAP financial management, etc., for accurate and efficient tracking and analysis. This can help consolidate financial data from both partners and make informed decisions.

III. Use a Dashboard for KPI Tracking

Implement a dashboard similar to the one recommended by the Balanced Scorecard Institute. It involves tracking:

• Financial Performance: Track revenue growth, cost management, and profitability.
• Operational Efficiency: Monitor process improvements, time to market, and resource utilization.
• Customer Engagement: Assess customer satisfaction, retention rates, and feedback.
• Innovation Impact: Evaluate new product development, market disruption, and technology integration.
• Partnership Health: Review the collaboration effectiveness, goal alignment, and conflict resolution.

IV. Document Success with Case Studies

For this, you may follow HubSpot’s STAR method (Situation, Task, Action, Result) for creating case studies.

• Situation: Describe the context or background. Explain the environment and the challenges or opportunities faced.
• Task: Outline the specific task or objective. What needed to be accomplished?
• Action: Detail the actions taken to address the situation and achieve the task. This should include strategies, steps, and resources used.
• Result: Highlight the outcomes of the actions. What was achieved? Include data or metrics to quantify the success.

Key Takeaways

As the saying goes, “Innovation is a relay race, not a solo sprint.” External innovation partnerships can offer you the X-factor to stand out in a highly competitive landscape, offering advantages like access to specialized skills and market insights. Yet, they come with challenges like intellectual property concerns and integration issues.

Navigate these challenges and capitalize on the opportunities of external innovation partnerships by integrating the desired technologies seamlessly. Connect with our experts today.