Tools


Siemens Worldwide

Pictures of the Future

Contact

Contact

sts.components.contact.mr.placeholder Dr. Johannes von Karczewski
Mr. Dr. Johannes von Karczewski

Publisher

Tel: +49 89 636-83864

Fax: +49 89 636-31533

Otto-Hahn-Ring 6
81739 Munich
Germany


sts.components.contact.mr.placeholder Sebastian Webel
Mr. Sebastian Webel

Editor-in-Chief

Tel: +49 (89) 636-32221

Fax: +49 89 636-35292

Wittelsbacherplatz 2
80333 Munich
Germany


sts.components.contact.mr.placeholder Arthur F. Pease
Mr. Arthur F. Pease

Executive Editor English Edition

Tel: +49 (89) 636-48824

Fax: +49 89 636-35292

Otto-Hahn-Ring 6
81739 Munich
Germany

Pictures of the Future
The Magazine for Research and Innovation
 

Innovations

Why Mature Companies Need Open Innovation

Prof. Jerome S. Engel, internationally recognized innovation expert for entrepreneurship, venture capitalist, university professor, and founder and head of the Center of Entrepreneurship at the University of California, Berkeley.

Venture capitalist, company founder, and university professor Jerome S. Engel is an innovation expert and senior fellow at the University of California at Berkeley, where he established the Lester Center for Entrepreneurship in 1991. He has also founded startups, including Internet company Allbusiness.com, which has provided support to young companies with information and helpful links, and was acquired by TV broadcaster NBC in March 2000. Today, he manages a Silicon Valley based venture capital fund, and is an advisor to venture funds based in Europe and the Middle East. In recent years, Engel has been devoting much of his attention to innovation clusters, which tend to differ from regular industrial centers in their dynamism and willingness to call into question established business models. Engel edited the collection of essays titled Global Clusters of Innovation: Entrepreneurial Engines of Economic Growth around the World, a 409-page volume published by Edward Elgar Publishing Ltd in late 2014 and recently released in paperback. In our interview, he explains how large companies and startups can help one another to promote innovations.

Pictures of the Future: Professor Engel, in 1980 you moved from the northeastern U.S., which is dominated by large companies, to San Francisco and Silicon Valley. What were your impressions??

Engel: When I arrived in Silicon Valley, the personal computer revolution was in full swing. Many companies were involved in this wave, big companies like IBM and success stories like Apple — and all kinds of startups. There were lawyers and accountants who specialized in serving these start-ups; there were loads of inventors and venture capital providers. Silicon Valley was — and still is — a very lively ecosystem. One thing I noticed was that all the companies there shared an urge to dominate new and growing markets. They didn’t think regionally; they immediately thought globally. From the very beginning, for example, the design company Autodesk, which I helped found back in 1982, wanted to create design software that would be used around the world.

PoF: Is it possible for large, established corporations to be as innovative as the startups you describe?

Engel: No, not in such a disruptive manner. Innovations, such as the ones developed by startups in Silicon Valley and elsewhere, don’t fit easily into the relatively rigid structures of large companies, because they rely on constant experimentation, and they’re accompanied by a lot of uncertainty. Large successful companies are superb at execution. The innovations supplied by these established companies are most often incremental, consisting in small steps. They generally only improve on what’s already successful. As a rule, a successful incumbent corporation will also take care not to promote innovations that undermine its own business model. To make up for this, however, large companies are masters at putting plans into action – whether it be improving their products, manufacturing them efficiently, or global sales and marketing. If major incumbents can manage to use this backbone to take a more playful approach to innovation in individual fields — and pursue a strategy of relying on their strengths for support while taking some risk — then they can be very successful  at radical innovation as well. But courage is needed to take that step.

PoF:  Aren’t there also fields of innovation that simply can’t be served by startups?

Engel: It would seem so – but no, there essentially is no commercial market where statrups cannot participate. There are certainly intense barriers to entry in many markets where early collaboration with corpoarate incumbants is essential. Healthcare therapeutics comes to mind.  And there are capital intence applications, like nuclear power, where regulatory hurdles andd capital requirements are daunting.  But in all these fileds, entreppreneurs may build tools, like data annalytics, or theraputic compounds, that can gain a foothold and be e deployed in partnership with major corporations who bring not only capital, but may other valuable contributions such as complementary talents,  market knowlege, access, and international channels of distribution. But there are exceptions here too. As you can see in the case of electric car maker Tesla, a startup can be successful even in this capital intense area, if it doesn’tshow deference to existing business models — and has a unique value proposition, and the necessary startup capital, of course.

Innovations, such as the ones developed by startups in Silicon Valley and elsewhere, don’t fit easily into the relatively rigid structures of large companies, because they rely on constant experimentation, and they’re accompanied by a lot of uncertainty.

PoF: But established companies and startups can benefit from one another, as is the case with so-called open innovation models.

Engel: That’s right, corporations and startups can complement one another with their own particular strengths. But there is still room for improvement in the open innovation model with regard to the interaction of large companies and recently established market participants. Large companies have to learn to operate ambidextrously, and continue to pursue their core areas of expertise while experimenting elsewhere. Many companies have already started to go this route by acquiring startups that might not involve their core business and letting them develop largely on their own. Siemens, for example, does this very well with its Technology to Business (TTB) centers in Shanghai, Munich, and Berkeley. Whenever new technologies or new trends emerge whose development holds great potential, the TTBs’ scouts are on the lookout for startup companies that may be of interest to Siemens. This way, the company ensures that promising innovations from all sources, whether developed inside or outside Siemens, can be developed into new products and services to power their business. There has to be room in established companies for this kind of true open innovation. 

Everyone thinks of Silicon Valley when it comes to innovation in the digital age. Many have tried to copy it, but so far, no one has been as successful as the original. What characteristics of that innovation cluster can be transferred to other places?

Engel: Silicon Valley is not the only innovation cluster, although it’s a very successful one. There are also innovation clusters in Israel, Germany, Taiwan, and other places. They all have similar characteristics. And that goes beyond just a certain set of components and players, such as start-up founders, venture capitalists, and established companies. These ecosystems are characterized above all by a certain behavior: highly mobile resources, money, people, and knowledge. Think, for example, of Mark Andreessen, who founded the web browser company Netscape and is now a venture capitalist. The people involved in Silicon Valley are constantly striving to create and drive forward innovations that have the potential to change the world — and they are willing to experiment and also fail. And ultimately, they’re pursuing goals that they can’t achieve alone but only collectively. Entrepreneurship and innovation are the order of the day here, and it can pay off in a big way for many — not just those at the top. the Twitter IPO created about 1,600 millionaires at one stroke; the Facebook IPO over 1,000. Add to that the ripple effect as that wealth is consumed and you can see that it can have a massive effect in terms of energizing and motivating an entire community.


Jerome S. Engel is senior fellow at the University of California at Berkeley.

Venture capitalist, company founder, and university professor Jerome S. Engel is an innovation expert and senior fellow at the University of California at Berkeley, where he established the Lester Center for Entrepreneurship in 1991. He has also founded start-ups, including Internet company Allbusiness.com, which has provided support to young companies with information and helpful links, and was acquired by TV broadcaster NBC in March 2000. Today, he manages a venture capital fund with a partner. In recent years, Engel has been devoting much of his attention to innovation clusters, which tend to differ from regular industrial centers in their dynamism and willingness to call into question established business models. Engel edited the collection of essays titled Global Clusters of Innovation: Entrepreneurial Engines of Economic Growth around the World, a 409-page volume published by Edward Elgar Publishing Ltd in late 2014.

Interview by Hubertus Breuer
Picture credits: from top: 2. picture Privat