About Innovation Capital
Inspired by the words of U.S. inventor Charles Kettering, “if you have always done it that way, it’s probably wrong,” Innovation Capital, presented by PatSnap, was born out of a desire to go where no other innovation podcast has gone. Just as the world’s top innovators have pushed the boundaries of what’s familiar and accepted, host Ray Chohan takes a completely fresh and unfiltered look at some of the biggest topics shaping innovation today. From the key drivers of innovation, to its role in the economic value chain and groundbreaking outputs, Innovation Capital leaves no question unanswered. When it comes to innovation, we are your capital; your mecca for daring discussion and the fuel for your growth and scalability. Welcome to Innovation Capital.
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In this episode of Innovation Capital
Are you curious to know what it takes to create a best-in-class innovation culture? Kinney & Lange’s George Romanik joins us for this episode of Innovation Capital to share his insights. We also explore the future of open innovation and the challenges that will come with it.
- The future of patents as an asset class — will this increase and will patents become a more liquid asset in the years to come?
- Creating a best-in-class culture of innovation, why it matters, how it works, companies that do it well
- Why software is eating the world
- The future of open innovation and the challenges many companies face as they try to adapt
- The two challenges standing in the way of open innovation and how companies can overcome these challenges
- Get our #1 Amazon bestselling eBook, The Definitive Guide to Connected Innovation Intelligence (CII). In this white paper, we explore what CII is, who it’s for, and how the world’s disruptors are using it to win in hyper-competitive markets. Download your FREE copy.
Kinney & Lange
George J. Romanik is a shareholder, team leader, and member of the leadership group at Kinney & Lange. He applies his extensive experience as an executive-level in-house intellectual property counsel to offer Kinney & Lange’s clients a broad range of advice regarding intellectual property and commercial law, business transactions, and related matters. George has a particular focus on IP protection and portfolio development (e.g., patents, trademarks, trade secrets, copyrights), IP transactions (licensing and other commercial transactions), and information technology support (licensing, outsourcing, and other IT matters).
Before joining Kinney & Lange, George was Associate General Counsel, Intellectual Property at Chemtura Corporation (now LANXESS Solutions US) where he led the in-house intellectual property team. George began his legal career at United Technologies Corporation, where he served in a number of positions over the course of 21 years, notably as Chief Intellectual Property Counsel for both the Pratt & Whitney and Hamilton Sundstrand (now part of UTC Aerospace Systems) divisions. George also served as counsel to Pratt & Whitney’s information technology organization.
George holds a BS in Chemical Engineering from Lehigh University (Bethlehem, PA) and a JD from the University of Connecticut School of Law (Hartford, CT). He splits his time between the firm’s office in Minneapolis and residence in Connecticut where he is available to meet directly with the firm’s clients in the Northeast.
Connect with George Romanik on LinkedIn
Founder West & VP New Ventures, PatSnap
Ray is Founder West & VP New Ventures and the founding member of PatSnap in Europe. He started the London operation from his living room in 2012, growing the team to 70+ by 2015. Prior to PatSnap, Ray was BD Director at Datamonitor where he was an award-winning revenue generator across various verticals and product lines over an 8-year period. This journey gave Ray the unique insight and inspiration to start the PatSnap ‘go to market’ in London. Ray now leads corporate development where he focuses his time on creating new partnerships and go-to-market strategies.
Ray Chohan: George, welcome to Innovation Capital. We’re really looking forward to chatting with you today. I’d love to kick things off with hearing about your backstory and how you started and build your career in the wonderful world of IP.
George Romanik: I’m looking forward to telling you about all that. Currently, I’m a partner a boutique law firm called Kinney & Lange PA. We’re based in the US and primarily have offices in Minnesota. But we have a few of us who work remotely on a permanent basis—two of us in Connecticut, and then one in Denver so we’re geographically spread out.
I’ve been in the world of IP for a long time now, spanning several decades. I was one of the lucky people, from my perspective, who had the opportunity to start as an in-house practitioner. I have an engineering degree, experience working in the oil industry, and a law degree. Once I finished law school, I had the opportunity to work for what was then United Technologies Corporation. I started with them as a rookie patent attorney and developed my career from there.
Over time, I went from that position to working at a couple of businesses of United Technologies. Ultimately, I was the chief IP counsel at Hamilton sun strand, which is now part of what’s called Collins Aerospace. And then right after that, I was the chief IP counsel at Pratt & Whitney, which is still Pratt & Whitney. Now, both of those businesses are part of Raytheon Technologies, which was formed a year ago when United Technologies merged with Raytheon Company.
I left Pratt & Whitney about 10 years ago and ended up as the chief IP counsel at a specialty chemicals company here in Connecticut called Chemtura Corporation. I was there until that business was purchased by Lanxess, a German company. After that, we parted ways, and I joined Kinney & Lange. So that’s my overall story.
Ray: Thanks for the overview George. On a broader context, looking at a 30,000-foot overview of IP as an asset class, it seems we haven’t crossed the chasm yet on IP being understood at a broad level and across the C suite across more business and market facing teams. As of 2021, I think the study is 90% of the S&P 500’s value is derived from intangible assets like patents, trademarks, information software and so forth. So why do you think we haven’t crossed that chasm yet, and what’s the journey ahead in the next eight to nine years of getting there?
George: That’s a good question. So, there are some businesses where I’d say they’re already there. That would be largely the companies that rely on IP to support venture capital funding or to support their valuation in the market. So, you alluded to companies like that.
The companies that are I think still working on it, although they’re making great strides, those are the more legacy type companies that are large manufacturing organizations. In part, some of the companies I’ve worked for including Collins Aerospace and Pratt & Whitney, both in the aerospace industry, and Chemtura in the chemical space. The older the businesses, the more of a mixed bag it becomes. For these companies specifically, they all had a history of being very strong at obtaining IP rights. But, if you worked with the C suite or up to the board level, you may not have seen much of that. The questions were more around how to deploy capital, which new products to bring to market, best practices for engaging with customers and so forth.
But that has changed also. I think now, in part because there’s so much emphasis on the value of IP in the financial markets, those questions do come up. For example, when the financial analysts talk to people in the C suite and ask the question, “So where are you?” They have to have an answer.
Conversely, at the board level, it is almost impossible to read and be conversational in what’s going on in the financial markets and not have at least heard of intellectual property (IP). So, if you’re thinking about how that applies to your company, that would generate at least a question. In my opinion, it has generated a dynamic that is supportive of IP, generally speaking.
There are different threads for how it plays out, depending on which business you’re in and whether you have a business that wants to focus on very proprietary type solutions, or you have a business that wants to focus on more open type solutions, or more open innovation. And your view of IP, although you’re going to pay attention to it, may be a little bit different in those different types of businesses.
Ray: As an asset class as a whole, we always hear that patents in particular, their IP is a trillion-dollar asset class. But if you look at number from last year, this year, and even 2019, it’s a highly illiquid asset class. Only two percent of patents are involved in a transaction, and I believe the revenues last year or the year prior were about $180 billion dollars, which is really low. Where do you think we are on that front, in terms of getting some liquidity into the patent asset class, and getting transactions going?
George: Yeah, so that’s something that’s been looked at for a while. There’s been a number of businesses and consultants that want to talk about that. Going back about 15 or so years ago, Ocean Tomo was a company that worked on setting up a platform to foster the sorts of transactions you’re talking about around being able to buy and sell IP rights. It’s had mixed success. They’re still in business, and they still do that and broker transaction.
But I don’t think that’s really grown to the extent that they wanted to. Part of this is because a patent by itself is not sufficient to be able to practice a particular idea. And that’s consistent with the definition regarding what patents do—they don’t give you the right to do something, they give you the right to stop somebody from making use of innovation. But there’s almost an assumption there that you need more than what’s in the patent to be able to move forward. You need to have some know how to implement the IP that’s in the patent, and you need capital to make capital investments.
It’s not as simple as just saying, “I have a patent, I want to sell it.”
The best example I can think of right now is the discussion around what to do with patents for COVID vaccines. There’s the somewhat controversial decision by the US administration to make IP rights available, whatever that’s going to mean.
There are negotiations that need to happen, and the counterpart administrations in Germany and France aren’t really keen on that. They want to focus more on the IP. But if you get behind it, the real issue is even if you hand somebody the patent and say, “I’m going to give this to you as a donation, no charge,” going from having a patent in hand to actually making and distributing vaccines successfully and safely is a huge hurdle. That’s one of the big constraints.
Patents in particular and IP rights are really useful in regard to their underlying subject matter alongside the products to which they relate. But outside that context, it may be more difficult to figure out what you do with them. I think that’s, that’s really part of the issue. They’re not fungible assets like cash would be, for example. If you had cash, you could do all kinds of things with it, and no one will ask about the context in which you’re trying to use it. The big challenge is creating the sort of marketplace you’re talking about for IP rights.
Ray: Do you potentially see, say within this decade or the next, a new asset class forming where it’s a sort of bundled asset class? So, let’s say you have a patent, actual tacit knowledge on how to execute it, and an allocation of human capital to follow through and execute on the idea and it becomes more liquid and more attractive in the marketplace in terms of value proposition. Do you see that as a potential future state?
George: You know that is a really interesting concept. So broad brush, I’d say that happens, but it happens in the notion of buying or selling a business right now.
For example, if a company wants to spin off one of its product lines, what you’re talking about is pretty much what happens in that transaction. There’s a a bundle of assets that get offered to the potential buyer and if the transaction goes forward to an actual buyer, it includes the formalized intellectual property rights, patents, and trademarks, and copyrights and things like that. It also includes know how, manufacturing plants (although not always). When it does include manufacturing plants it usually brings with it the people who work in those plants who themselves have that know how.
That’s kind of how it’s done right now. But the notion of bundling that in a different way into some sort of asset that could be traded is worth taking a look at. It would work better in some industries than others, but I think it’s an interesting concept to follow up on.
Ray: You mentioned the word fungible a few minutes ago, and it piqued my curiosity. Being close to the market and as a deep practitioner in this space, what is your opinion around the tokenization of assets using blockchain and non-fungible tokens (NFTs), to make patents and other types of IP more liquid, tradable and transparent?
George: This is something to really think about. Based on my understanding of how it works, the idea would be to focus on something like the bundle of rights you were talking about earlier that includes some of the less formalized IP rights.
In terms of a patent, anybody in the world can go find copies of patents that are issued in any country. If the patent is not in a language you speak, you can translate it and then understand the scope of the patent. So that part probably doesn’t need to have something that ties into blockchain to verify or validate what it is.
However, if you had a pool of know-how which would be represented by electronic documents that you’d want to verify the authenticity and the origin of that’s something I can see using blockchain technologies to help foster, and to show the origin was really the source you think it is. Then when it moves through the chain, this package you have has been unaltered along the way. That sort of thing could potentially be useful if you were to buy and sell IP rights that included something like the in-house know-how or trade secret information.
Ray: Do you see anything like that emerging soon? Do you think it’s a clear unmet need or has some form of immutable ledger and it’s time stamped? Right now, there’s so much conjecture around this topic, specifically, in the last two or three weeks. I think it’s down to a number of macro reasons. But it seems to be moving quick from what we can assess. We could be wrong, but it seems like it’s picked up some compelling velocity.
George: It’s something you could add in a security layer to in order to prohibit transfer to certain parties downstream without permission from the originator. I’m thinking something that’s more like a classic license that says, “I’m transmitting this information to you – the buyer or the licensee, and you could use it for your purposes, but you cannot sell it or further licenses without my permission.”
So, that would be interesting.
But, circling back to the COVID vaccine, if there were a good vehicle like that, that maybe included some blockchain for a company like a Pfizer or Moderna, or one of the other companies that that are working on the vaccines, to bundle up their know-how and be able to communicate that to a counterpart in an area that that they want to serve. I’ll pick India as an example, because India has a pretty robust pharma community and technology base that you think that they’d be a place that could use that. But you wouldn’t necessarily want that information to flow beyond India to some other place that you might have some concerns about such as Russia because you don’t want knockoffs coming out of Russia. So, it’s easy to transmit your bundle of information in a way that you can identify it’s complete, the recipient can confirm the origin. And if there’s this security tail on it to prevent further distribution beyond that, that would make an interesting use case and actually might be able to facilitate that sort of IP transfer transaction.
Ray: I think we could talk about this topic for hours because it’s definitely an emerging debate. Thank you for your insight, George.
Now, switching lanes slightly to another commonly talked about phrase, “Best in class innovation culture.” We’ve all probably read many different points of view on this topic and come across a variety of schools of thought, but in your professional experience over the years across so many different industries, what are the traits of companies that share a great innovation culture and execute well?
Have you identified certain traits and patterns that emerge in companies that are world-class at building out a strong innovation culture? If yes, what does that look like?
George: I do have some thoughts on that. Part of it comes back to an overall understanding or other value of innovation. Let’s maybe put innovation first and put IP to the side because IP would be kind of how you identify and formally protect innovation.
A culture that identifies the desirability of innovation from all levels of management so from the top, down through the entire organization. This means everyone understands and ‘gets it’ as far as what you’re trying to do. All employees can articulate the value of what they’re working on and why they’re working on it, as well as why it’s a benefit to their enterprise and potentially society at large.
They have the permission, understanding and resources to be innovative. This motivates the individuals to innovate, and then the question becomes, “How do you capture innovation in a way that makes sense?”
How to capture innovation is an interesting topic because I’ve been involved with some companies that are very innovative. But they’re innovative for their clients on a for hire type basis. So, they’re more the consultant or think tank sorts of things meaning they’re not trying to be innovative for their own sake, but rather to keep that part of the business modeling going. In essence, they’re not trying to capture IP around it, because that’s something that they hand off to their customers.
And then there’s the other ones who take the view that they’re very proprietary and try to keep as much of the IP for themselves as they can. And there’s a business model around that with what the value is. But regardless of those situations, what you do with the IP, it helps to have the management push and the understanding to everyone involved.
The bottom line is the entire organization needs to have a clear understanding of what you’re doing, why you’re doing it, and what the benefit of the innovation is.
Ray: Very insightful. Looking at the leadership side, specifically at the C suite, what types of industry do well in prompting a best-in-class culture of innovation? Especially public companies that are driving towards a quarterly number and at the same time trying to chase down a long-term goal on product innovation and build a culture of innovation. Have you seen examples of this balancing act done well? If so, how have they pulled it off?
George: Yes, there are some companies that are inherently really good at it. I’ll talk about a company in companies in the technology or it electronics type space, so I’ll use Apple as my example.
Part of Apple’s business model is to introduce new products or new generations of products annually. They’re constantly on the lookout for the next best phone, the next best thing, in order to sell more products. This is what keeps the cycle going.
As a result, companies such as Apple are inherently focused on innovation. They need to have a pipeline that stretches back several years so as a manager, you can say with a high degree of predictability, “Every year I’m going to have something new and great to introduce and pitch to our existing customers as something they should buy.”
I think companies that don’t have that sort of cycle and instead focus on mid-term to long-term customer cycles, such as the automobile industry. There’s a history of introducing new models, but that might not be an every year thing, it might be every three to five years, or even longer. These longer cycled companies many take their eye of the innovation goal and focus more on other issues.
So, back in the history of the automotive industry, there was a focus on being a financial company, and selling products by having very low loan rates or very attractive leases. They moved products based on that and didn’t necessarily need to be terrible innovative. Instead of having the latest and greatest, the focus was on having a price customers are willing to pay.
When you get in that mode, you can see that there are companies that have ended up getting left behind over time because they really haven’t thought about improving the products. They may be innovative in other ways such as lowering manufacturing costs and all that but that’s another extreme.
There’s a lot of change dynamics that are that are going on. In automotive, there’s the projected switch over to electric vehicles, and a lot of innovation that needs to happen to make that a reality. You can build an electric car now and drive an electric car, but batteries need to be better and less expensive. You need to have more mobile charging stations; you need to figure out how to create an electric grid that is going to be able to support that level of distributed electricity demand that you know that those are the things that don’t really exist right now.
You know that people have ideas about them, and those ideas are driving a lot of innovation through old line manufacturing type companies. So, that’s kind of how I see it. There are some companies that are inherently there (with innovation), and others are no. But I think there are some trends (at least right now) that are driving a big focus on innovation.
Ray: We’re also seeing most businesses, even really traditional businesses, trying to become a software company. If you look at the Fang Group, they are basically a software company build off network effects, in essence Metcalfe’s law.
But when it comes to IP and software, we still find that area really messy. When we speak to our community in this space, no one really understands what’s going on. Where do you think we are in terms of creating a robust framework and system which can effectively protect novelty, which is more intangible like software, rather than a physical asset? For example, as opposed to the actual design of a PC monitor, microphone or seat in a car, it protects an algorithm within a piece of software or a line of code. Where do you think we are on that front? Because it seems really fragmented and messy right now but is clearly a big need in the market.
George: Yeah, that’s a major challenge now. Especially here in the US— the patentability of straight-out software and algorithms are kind of questionable based on a number of court decisions.
So, if you incorporate the software into a tangible product, as you’re talking about, then you can have a high likelihood of being able to protect it. But that’s not protecting the software or the algorithm itself so that’s hard. There has historically been some use of copyright to protect that. But we recently had the decision in the Google and Oracle case at the US Supreme Court that puts a big question mark around the utility of copyright protection for software. So, I think what we’re going to see is a big struggle to look for effective ways of protecting software and at the same time being able to market it.
The thing that comes to mind is the current framework we have around trade secret, which means you essentially need to keep the information a secret and not share it broadly. This concept sort of contradicts a lot of trends in the software industry that look either to open innovation or more open source code and opening licensing.
In that world, it’s really hard to protect your innovation. Trade secrets to me suggests more closed type systems, or systems to the extent that appear to be open are only open because they have software that’s licensed to them under fairly restrictive rules.
So, I think that’s kind of where we are for the moment. It’s a little bit different in other parts of the world that have better access to patent protection for software implemented inventions. But even in areas that are currently a little more patent friendly, they still run into limitations that if you just get down to the algorithm side, that’s not really protectable as such by patents.
That particular topic has been an issue as long as I’ve been practicing the IP arena and before that, and I think it’s going to keep on going. There hasn’t really been a good durable answer to that. But having said that, there’s tremendous innovation in that space.
That’s based on what limited protections there are. The other concept to think about, and I do talk to clients about this, is to really understand what your business cycle is. If it’s a fast-moving business cycle, is it something you can get protection by having a first mover advantage? This way by the time someone gets around to copying what you’re doing, you’re on to the next generation or two generations down the road. And if you can live in a world like that then part of your protection is just to focus on very rapid innovation and keep obsoleting your older innovations.
Ray: See, this is interesting but also a concern. There’s a famous phrase coined in 2011 by Marc Andreesen, and boy was he right. He said, “Software’s eating the world.”
Ten years on, he was right.
If you look at the market gap and all of the plays, and you look at companies like Tesla—it’s a software business. It’s an iPhone on wheels. It’s accelerating beyond recognition. You can see what’s happening around digital assets. I know people talk about Bitcoin every minute on CNBC, but putting Bitcoin aside, just this new era of web 2.0, which was the internet of information. We’ve done spectacular on that paradigm.
But we’re now entering an era which was the original promise of the internet, the internet of value, where value is digitally exchanged across all types of asset classes, looking at smart contracts, different forms of currency, which is digital and nonphysical. As we’re accelerating into that world, where software just eats into literally everything, isn’t this a big concern on protecting novelty? And could it potentially make the classic patent system really inefficient and in time, potentially redundant?
George: I think that’s a possibility. And I think there are a couple threads. So, you mentioned Tesla being like an iPhone on wheels. Part of what Apple has done in their iPhone environment is protect their software very jealously.
And I believe Tesla’s similar. It’s a largely a closed environment that they control. And that’s how they protect innovation. You add to that this notion that they protect their innovation by having a closed environment, but they introduced new features and new devices rapidly. So, they’re constantly reinventing.
I think those types of businesses are the ones that, at least in the environment that’s going to be very software driven, are the ones that will prosper because they’ve figured out how to do that. On the side of open innovation, I think it’s a little bit harder to see how you how you do that. Although it’s not impossible.
I mean, take a look at Google and the Android operating system and their electronic devices. It’s a much more open system, and they have a different business model as far as how they get value out of it. A lot of it has to do with their size and reach. What you see across those areas, as you’re seeing with the Apple vs. Epic games lawsuit, is you bump into antitrust laws or at least people making antitrust type assertions.
I’ll leave it open as to whether anybody’s actually violated any laws there. But boy, that that’s kind of the backlash that you’re too big and we need to break you up, or we need to control you, or do something.
You mentioned the Fang businesses, and it’s them and some others are the size they are because they need to be able to exercise control over their space but show at least some aspect of what they’re doing. So, they’re kind of open themselves to copying and they take various measures to control their environment.
Ray: This is a fascinating one, George. We’re really looking at this closely here at PatSnap. Now, if you look at the next generation of biotech companies, so the likes of Moderna, Talima Therapeutics, all spectacular next generation biotech companies. Their business models are very much like a software company. They have this core IP asset, and then they build out a software layer which enables external organizations, other biotech’s and players within the ecosystem to build on top of their platform. This is no different from what some of the Fang guys have done where people build on top of the platform.
Do you see that as a feature across all markets? It’s already happening in life sciences (LS) which has surprised a few folks. Those companies are moving quick and creating an immense amount of value. So, we one day get to the point where IP is fundamentally open, and you can use technologies like cryptography, time stamping, blockchain to accrue that value back to the originator, hence why they’re open. And they don’t need a patent because the technology tracks the value creation and programmatically can accrue it back to the originator so no one’s upset. We’re seeing that in life sciences already. Do you see a future state where we’re living in that world across all major industries like automotive, life sciences, the chemical space? Is that something you all are observing or are you familiar with that type of model?
George: I’m familiar with it. We work largely with very traditional businesses who have not really seen that too much right now. But there are clearly changes, so this notion of being able to build on a platform and connect into that platform to provide additional functionality, but still being able to track something back to the originator is a really interesting concept.
Biotech is fascinating, and I think in the chemical space, that’s something that is a possibility. It helps to be in a space where there’s pretty rapid innovation so you could build the value on that, and continue to innovate, and then maybe push out a platform and have others innovate around that. Not all businesses are a great fit.
On the surface, I’d say cars may not be a great fit for that, but I’ll say not yet. There’s a trend in a lot of big car companies to want to create very large closed environments. You kind of alluded to this earlier on in the call, when you spoke about how car companies seem to want to become software companies, or along the lines of what Tesla has done.
As an example, if a car company said, “You know, we really don’t need to be the software creators. We just need to have a platform that will allow the software to run and improve our devices. We’ll open our platform to innovators, and perhaps have a safety check on top of it to be sure that what happens is safe. But we’ll open up to that innovation.”
Think about the Apple App Store as an example, which of course is that Epic versus Apple antitrust case right now. Or on the Android side, it’s a bit more open.
I could see a car company like Ford or Toyota allow more open innovation on their platform, and possibility even opening up their vehicles for additional equipment that can add on, but connect right into the vehicle system. So, if you put an accessory on, there’s a port that you connect in, it runs through the overall vehicle control system. So, you display something about your new device on those nice screens that all cars gave these days. I can absolutely see something like that happening. It just hasn’t quite gotten there yet.
Ray: How far do you think we are, George? Just having some fun with this — if you were to place a bet, would you say this decade? Two or three years?
George: I think we’re probably a little ways off on that, unless someone who is a serious player in that space says, “I’m going to take a risk. I’m going to do something different and create this platform. I’m going to provide the basic transportation, the basic functionality, and the ability to accessorize the product yourself where you can plug in your (outside) accessories and they will operate integrally within the product.”
That’s a combination of software and hardware. And perhaps they offer some of that themselves or maybe they license some but then they open it to others.
At the moment, I don’t see that any companies really that keen on it because they want to dominate that themselves and have their own integrated product, but I could see that.
Now, one other area that I could see it for sure and this is something driven more by customer than by the manufacturer would be in the defense industry. The defense industry sells super highly engineered products to a country’s military. They at the time where they’re innovative, and they may be state of the art. But because of the high cost of updating and maintaining, they tend to get old and stay in serve forever and ever. A classic example in the US is the B52-bomber. The original designs were created in the late 1940s, and the current fleet that’s flying was built in the early 1960s. At this point it’s about 60 years old, and it looks like it’s going to be in service for another 20 to 30 years or even longer. It may hit a century and surface, which is absolutely incredible for something like that.
But if you take a look at what’s happening, those products have been updated over time. More by need than any notion of rapid innovation. But the concepts of rapid innovation are starting to be looked at for some of the newer generation products. This would be the Department of Defense, or the Ministry of Defense, depending on which country you are in.
They’re saying, “I recognize when I for 30 to 60 years. But I need to remain relevant in an era rapid innovation, especially in the IoT, and electronics space, and potentially other sorts of things coming down the road. I need a platform that is easy to make changes or add on to, as opposed to the classic ones where everything is built in and hardwired to one particular function.”
So, there you have a customer who is the only customer for those products. There’s a lot of pressure pushing back down on the supplies and directing them to think about how to do that and how to create open platforms. That’s a different dynamic. That’s an example where if it flows over into the general commercial world, it will have an impact as well. So, it’s just a really interesting poll between different thoughts about how to grow, how to be innovative, and how to capture value around innovation. I think there’s a real opportunity over the next 10+ years to see a lot of changes in how things are done.
Ray: George, you’ve touched upon open innovation throughout your descriptions, and this all links to bringing in external players and wider ecosystems into product development.
But open innovation is a term which has been absolutely butchered in the last decades. Everyone talks about it, everyone’s around it, underneath it. Some people who talk about it, actually really do it. And the ones who do really do it don’t really talk about it publicly, they just do it. So that’s what we’ve seen. It’s a mixture.
But where do you think we are on that chapter on open innovation truly being one of the best-in-class methodologies to innovate well and efficiently? Where do you think we really are, across all industries?
George: I think we’re really early in that. I’ve been in a bunch of businesses that have talked about it, in part because it’s the buzzword out there and the engineering organizations get introduced to it by people going to conferences that talk about the value of open innovation, and then the engineering VP’s come back and say, “Hey, we’ve got to do open innovation to get new ideas in here and blah, blah, blah, blah, blah.”
So yeah, I’ve been through that. The big challenge, and this kind of circles all the way back to where we began, about how to have an innovative company you need to have the buy in across multiple levels of an organization to really make it work.
So, you can say you want to do open innovation, and maybe even do one or two pilots on it. But if it’s not part of your DNA so to speak, it’s a struggle. The stumbling block that I’ve seen is a lot of companies have a “not invented here” syndrome where it’s like, “Well it’s really nice that so and so has that idea, but that’s not how we do it here” or “We had an idea like that five years ago and it didn’t really work out because of X, Y, Z.” And not even asking whether the current version or that new idea fixes the reasons why you couldn’t incorporate it five or 10 years ago.
That’s a huge level of inertia for most organizations, and even organizations that are themselves small and innovative and integrally look outside and invite new ideas in and figure out how to incorporate them.
So that that is a huge challenge, and part of the fundamental challenge is just human nature. The idea that “I’m an expert at knowing what I know, no one else knows what I know. So, what do I have to learn from them?”
I think that is the biggest hurdle.
Ray: Are there particular sectors who are nudging slightly ahead and doing that well? Any emerging markets where you think, “Yeah they’re getting there.”
George: In terms of something that really looks like open innovation, I can’t think of one that has really been successful. I’ve been on a bunch of innovation platforms where companies put out the problem they need solved, and they offer rewards — sometimes significant amounts of money — tens of thousands of dollars for people who can solve their problems.
But that’s not that widespread and even those ideas, if they come in, they’re hard to implement. Because it’s the “it’s not invented here” mindset.
I think the way it’s been done most successfully, up to now, is by targeted acquisitions. Companies recognize they have a gap in their technology or product portfolio scout for other companies such as startups who might be able to solve that and bring the innovation in house by basically buying the company or buying all the IP that goes with it.
I think that’s probably the word happens the most right now. The truly open innovation thing, I think it just gets stuck. Even the people who are the most open-minded to it, it’s still really hard to integrate someone else’s concept into what you’re working on without such a concerted effort that you get to the point of essentially buying that technology.
It’s a big challenge, but the opportunity is there and something that should be explored. Especially in those where an enterprise recognizes maybe it wants to be innovative, but the current setup isn’t really focused on innovation, instead it’s focused on efficient product or service delivery or something like that. If this type of enterprise wants to take a leap into something else, they need to think about how to bring some dynamic from outside their enterprise into it and figure out how that works. I don’t know if anybody who’s done that all that well.
Ray: Yeah, that’s fair George. We see similar things. Sadly, it’s people who are the problem in those scenarios especially around the “it wasn’t invented here” mentality. This mindset still has a strong grip in the marketplace.
Now, you mentioned platforms, George. We’ve seen a couple as well over the years. I’ve gone to several websites and registered. I’m curious, have you had any direct experience with online platforms that are like an eBay of innovation? Or do you see these platforms gaining market share in the future? I’ve seen so many come and go, and I’m wondering what the future looks like — will we have an Amazon for innovation where you go online and shop around for external technologies swiftly and effectively? What are your thoughts?
George: I have had some direct experience with that. In the past I’ve worked with companies that have said, “We’re going to do this. We’re going to pick whatever the platform de jour is.”
There are two main challenges with this. The first challenge is the “not invented here” mentality. Although these companies say they’re open to innovation, but maybe they’re not. Or perhaps they’re open to innovation, but only if it comes from the right people (the right university or the right external organization. The second challenge is how ideas are packaged. A lot of times the ideas that could be really good ideas are not packaged in a way that make them seem useful to you. As a result, you look at it and say, “Yeah, I get it. But that’s not what we’re doing right now. Perhaps it’s something we could think about, but we’d have to put a lot of resources into modifying it so it fits into whatever our product is.”
The question then becomes, “Is it worth it or should we continue to do what we’re doing?”
On the other hand, a company might be interested in the idea, but because of how the IP rights work, access (or lack thereof) may present a problem. So, even if you are open to it, you run into the issue of not being able to make it fit.
It’s like getting on an airplane and flying from the US to the UK. If you bring your electronics with you, but forget the converter, not matter how hard you try you can’t make the US style plug work in a UK outlet. You need the converter.
It sounds simple, but that’s part of the challenge too. For the outside innovation to be effective, it has to be presented in a way that fits into what the potential acquiring organization is looking for. It has to be packaged in a specific way or adapted to work in a certain environment. And if it’s an idea, but it needs a lot of engineering to make it really useful, that’s a real challenge also.
I could think of some ways around that, but that would require folks to be more expressive about what they’re looking for about what interface they want something to work with. Additionally, there could be some sort of standard interface an idea has to be compatible with — say XYZ standard interface, or XYZ just standard. Then one you have it, you know how to incorporate it. It’s a multilayered challenge.
Ray: Yeah, we see that too. The ones who have tried haven’t yet gotten their arms around the nuance. We share your sentiment where if there was some form of standardization, then you can work within that framework and if that framework is a compelling fit you can charge for it and maybe ingest some technology in a bite sized frame. Then you could take baby steps as opposed to trying to boil the ocean and trying to do an entire piece of technology transfer online in a consumerized fashion. We’re seeing some of that play out as well.
Well George, it’s been a brilliant talk — we could go on for hours! We’ve covered a lot of ground, and now we’ll go off piece and have a bit of fun. Can you tell us your top two reads you’d recommend to our audience?
George: You kind of hit a weak spot for me. I’m not big into technology blogs, I’m a real history bluff. Recently, I’ve been reading about Roman history in particular. There’s this whole serious that’s absolutely intriguing. It starts out with Rubicon: The Last Years of The Roman Republic by Tom Holland, and goes forward from there.
This is the classic of Caesar and the end of the Roman Republic and beginning of the Empire. But then he moves forward to a book that is focused on the end of the Roman Empire, and the beginning of other things such as the rise of Islam and the Arab conquest of what was what was part of the Roman Empire.
In his third book, he takes things up to 1000 AD and takes a look at what’s going on at that point. So that’s a little different view of history with the continuity and discontinuity that occurred more than 1000 years ago, so that to me is fascinating.
And actually, in a sense, I guess it plays back into technology because there’s been this history of the continuity and discontinuity. You view those as points of innovation. So, you know, so if you go back to the start of the Industrial Revolution, and look at the different cycles, I think you’ll see something like that.
Ray: Excellent, and my last question — extraterrestrial life form believer or non-believer and why?
George: I am completely agnostic about that. I think there’s possibility. There are intriguing hints that come up about it. I guess the big challenge is, assuming you mean intelligent extraterrestrial life, is it close by that we can have contact to and know something about? Or is it so far away that there’s no plausible opportunity we could have contact with it then I don’t know? That’s kind of the metaphysical question.
If a tree falls in the woods, and there’s no one there to hear it, does it make a sound? I don’t know. You don’t really know because you’re not there to censor. So, I’m open either way. It’d be really interesting if we had contact and figured that out. And if not, then I guess we keep going on speculating about it. And it’s an opportunity to create some marvelous stories about the possibility.
Ray: Brilliant George. Well, thank you for your insight and we really appreciate your perspectives here on Innovation Capital. It’s been great connecting with you, and I look forward to part two one day!
George: Thank you for having me, Ray. This was great!