Many telcos have visited Silicon Valley in search of new and “open” innovation opportunities, but the returns often seem fleeting. We talked with a 20-year veteran of the circuit to understand why, and what needs to change if they are to embed and operationalise such innovation.
Silicon Valley: The promise of “Open” Innovation and agile experimentation
Until the early 2000s, Closed Innovation, based on a model of internal, centralised research and development, was the de facto way for companies to protect intellectual property and gain a competitive advantage. Latterly, assisted by the tailwinds of increasing connectivity, there has been a shift in mindset towards Open Innovation – sourcing and acquiring external expertise, scanning the environment, and tapping into ideas and input from beyond the four walls of the business. Today, the array of innovation models is varied and ever-expanding: scouting, crowdsourcing, idea competitions, collaborative design and development, spin-outs, corporate ventures, incubators, joint ventures, in- and out-licensing of intellectual property, consortia, innovation platforms and ecosystems to name but a few. Increasingly, this activity is taking place in clusters – auspicious geographic concentrations of interconnected companies and institutions – the most famous of which is Silicon Valley.
Thanks to a unique confluence of assets – the presence of tech giants and leading research universities, an abundance of venture capital and skilled labour, a disruptive culture, and a relatively benign regulatory environment – Silicon Valley is one of the world’s leading hotbeds of innovation.
Hundreds of organisations of various sizes and industries – even those with plentiful local R&D talent in their home markets – have been drawn to the Valley in the hope of importing outside-in innovation, identifying new products and partners, and harnessing its ecosystem to solve strategic problems. Telcos are no exception: since the early 2000s, telcos’ core businesses have come under increasing pressure from OTT players as well as wider market forces to innovate and grow. Open Innovation is the antithesis of telcos’ traditional, vertically integrated approach of translating their own R&D efforts into internally-developed products and services, typically tightly linked to their existing customer bases and offerings. Operators are hoping some of the Valley’s magic dust of disruptive thinking and speed of execution will rub off on them.
However, insiders sometimes quip that the Boeing 747s flying out of San Francisco International Airport have “amnesic” properties. The executive groups that typically descend upon the Valley, hoping to learn from its incumbents both large and small, take copious notes and leave fired up about re-energising innovation in their home base. But once back within the corporate environment, the seeds of innovation struggle to germinate and the majority of initiatives fail to generate any substantial return on objectives. There appears to be a degree of cognitive dissonance between the expectation of such engagements, and their impact.
Other approaches to the Valley, from CVCs (Corporate Venture Capital investments in start-ups) to environmental scanning and venture-building, are better established, with hundreds of corporate outposts currently in place. Four major routes to outside-in innovation, with illustrative examples, are shown below.
Four major routes to outside-in innovation
Unfortunately, truly transformational success stories are few and far between (gains tend to be small or incremental in nature) and there is a long tail of failures and missed opportunities.
For STL Partners, this raises a series of questions:
- What are telcos hoping to learn from Silicon Valley and how are they going about it?
- What are the challenges they face in implementing and operationalising what they learn?
- What can they do differently to overcome some of the common pitfalls of Open Innovation to drive more significant successes?
In addition to its own primary and secondary research, STL Partners explored the challenges and opportunities in-depth with Jean-Marc Frangos – Executive Fellow at INSEAD, Executive in Residence at the Plug and Play Tech Center, and Advisor to the Telecom Council of Silicon Valley and former Senior VP of BT’s Innovation function. Located in the Bay Area, Jean-Marc benefits from a 360° view of the disruptive technologies, revenue opportunities and shifts in the Valley landscape, and advises European and Asian players on how to integrate such innovations into the incumbent telecoms environment.
What are telcos hoping to do in Silicon Valley?
There are currently somewhere between 300 and 500 corporate outposts in Silicon Valley, as varied in their industries, size and depth of operations as they are in their motives, which are not exclusively tech-focused. The majority have a relatively small footprint, such as those acting as an innovation “antenna” or corporate venture capital (CVC) office, although some have established a more structured presence, for example, an innovation lab or R&D centre.
Despite the diversity of these outposts, their common goal is to sense and respond to technology shifts, whether they be disruptive opportunities or disruptive threats. Many of these corporations may be struggling to keep pace with innovation in their own industry and are looking to infuse their organisation with a more entrepreneurial mindset and attract creative talent to gain a competitive advantage. In the case of telcos, most are already facing disruption while the remainder can see it looming on the horizon.
The key drivers for innovation outposts include:
- Keeping a finger on the pulse of trends originating in the Valley;
- Scouting emerging technologies with a view to investment, incubation, acquisition or some form of collaborative partnership and identifying new channels to market, new business models or new people/processes;
- Acquiring expertise or best practices from outside the organisation that can be internalised (e.g. to evolve the corporate culture) with a view to accelerating the innovation cycle from start-up through Minimum Viable Product (MVP) to initial production.