Searching for New Forms of Business Management Requirements for Success in Open Innovation

Aiming to achieve speedy development of new products and services, businesses have been focusing on collaborating with startups while capitalizing on human resources who have various technological knowledge and skills. As open innovation's spread picks up momentum, it has become clear that many Japanese corporations are not yet embracing these new trends, so we searched for solutions aimed at alleviating the problems Japanese corporations face.
[Fujitsu Forum 2017 Conference Report]

Defining the "Search for Knowledge," a Crucial Step in Achieving Innovation

The first half of the conference focused on the topic of "cultivating innovation in corporations." Panelists Akie Iriyama of Waseda Business School, Go Takizawa of Ministry of Economy,Trade and Industry (METI), and Hiroyuki Sakai of Fujitsu joined moderator Mitsuru Takamatsu of Quantum in the discussion.

Mitsuru Takamatsu
President & CEO,
Quantum Inc.

To start the discussion, moderator Takamatsu introduced the results of a survey that concluded: "80% of Japanese businesses are dismissive of open innovation." Although many of these companies understand that innovation is necessary, they argue that they cannot fully embrace innovation for reasons such as insufficient talent or an inability to carry out corporate reform.

Akie Iriyama
Associate Professor, Waseda Business School
(Graduate School of Commerce)

Mr. Iriyama explained that, from a business administration perspective, innovation serves "to propel a company forward by starting something new. The first step towards achieving this is creation of new knowledge." He defined "new knowledge" as the constant combination of one's existing knowledge with that of others.

Companies and organizations that cannot inspire innovation have already tried all combinations of existing knowledge to which they have access. These companies must search widely for knowledge that was previously out of reach, and combine it with the knowledge they currently possess. This search for knowledge is called "exploration." Collaboration with venture companies is a typical form of exploration.

That said, exploration costs time and money, and it is not a foolproof approach. For large companies, for which expectations of results are high, it is important to further pursue existing knowledge in the process called "exploitation" while carrying out exploration. In the world of business administration, it is common knowledge that companies which take a well-balanced approach towards exploration and exploitation are more likely to inspire innovation.

However, if exploration does not lead to results, companies tend to focus more resources on exploitation. This approach of further exploiting fields that are currently producing profits may lead to short-term gains, but it bogs down innovation over the mid- to long-term. This phenomenon is referred to as the competency trap, and it is a problem facing many Japanese companies today.

Leaders' Long-term Corporate Visions Are the Key to Innovation

To generate innovation, company leaders must shift their focus towards exploration. To do so, those in management positions must prepare for the future 20 or 30 years away, and embrace a shared corporate vision that meets future trends in society. Many Japanese companies may have mid-term goals going out several years into the future, but they lack a long-term vision, which puts management out of step with innovators and thereby stifles innovation. Mr. Iriyama explained: "It is crucial for the management level to be conscious of its duty to establish a long-term vision, and to inspire all employees to work towards such a shared vision."

On the topic of exploration, Mr. Takizawa stated that from a human resources perspective, "exploration is not just a job for the management level; each and every employee can take on this task as well." Specifically, it is important for employees to explore what is outside their own companies and to communicate with people from various backgrounds as well as to establish informal connections as a means of human resource development.

METI is developing a reform measure together with the IT software industry aiming to limit the average monthly number of overtime hours to 20. In addition to the goal of improving the appeal of IT software companies, this reform also makes it possible to increase the number of opportunities for external communication.

Finding New Fields Yet to Be Explored

Go Takizawa
Director, Information Service Industry Division,
Commerce and Information Policy Bureau,
Ministry of Economy,Trade and Industry

Moreover, among the projects that Mr. Takizawa oversees, one aims to discover and develop human resources in unexplored areas of IT. This project started in 2000 with the aim of discovering notable talent in heretofore unexplored ideas and technologies, and training such personnel under renowned project managers who are active across various industries. Out of the 1,650 people trained under this program, 255 have gone on to start their own businesses, and many more have joined companies such as Fujitsu to effectively put their skills to use.

At this point, to present a specific example of innovation in action, Mr. Takamatsu invited Tatsuya Honda to the stage. Honda was trained under the aforementioned METI project, and he joined Fujitsu in 2016. He currently works on Sakai's team. Since his university days, Honda has developed user interfaces that allow people with hearing disabilities to sense sound.

Tatsuya Honda
Experience Design Department
Brand Design Strategy Division,
Marketing Strategy Unit,
Fujitsu Limited

By wearing a device called "Ontenna" in one's hair like a hairpin, sounds can be translated into vibrations and light to communicate sound for the hearing impaired. The intensity of vibrations and light changes according to the rhythms and patterns of the sounds, enabling users to differentiate between various sounds such as those of vacuum cleaners, doorbells, and text message alerts.

When Honda finished his prototype, he traveled around Japan to schools and organizations for the hearing impaired and conducted workshops on hearing. He used the feedback he received to develop a new model of Ontenna.

How to Make Innovation Succeed

Hiroyuki Sakai
Corporate Executive Officer,
Fujitsu Limited

Sakai has actively engaged in new ICT businesses leveraging cloud technology. Speaking from his background in building a corporate group of agricultural businesses, he raised two points about how to nurture innovation from a management standpoint: to start small and to have leaders keep their positions for at least five years.

Though the corporate group of agricultural businesses Sakai was in charge of successfully formed into an organization, it did not achieve profitability. Too much money was spent developing reliable applications, which raised the break-even point. Sakai reflected on this experience: "We should have adopted a cycle of starting small and worked to achieve one small success after another."

Sakai also made a point about personnel changes, which are an inevitable element in major corporations: "When a leader who has been assigned at the start of a new enterprise changes, the same vision is not passed on, which is ultimately detrimental to the enterprise's success." To put an enterprise on a successful trajectory, the leader must serve for at least five years; some consideration must be given to personnel.

Furthermore, Sakai raised three points for the management level to bear in mind. First is the existence of spectacular talent such as Honda, who joined Fujitsu after being trained under the METI project. It is important to recognize the fact that human resources in high demand exist in abundance outside the company as well.

Second is for project managers to allow a certain degree of freedom. Finally, it is important to provide initial capital in an amount that is not too much nor too little. Sakai also remarked that managers should foster an atmosphere of co-creation by encouraging others to search for collaborators inside and outside the company.

In the conference's second half, the discussion continued around the topics of leveraging external resources and successful co-creation, especially co-creation with startups (venture firms).

Collaboration with Startups Requires Focused Examination with Correct Timing

In his opening remarks, Mr. Takamatsu mentioned a few facts about the current state of startups in Japan. First, those who operate startups work in completely different ways than people in conventional companies, and they view collaboration differently. Another fact is that the population ratio of people who build startups in the US compared to Japan is about two to one. He also noted that the number of venture capital firms and the amount of money invested in Japan lag far behind that of the West and even of China.

Mitsuru Takamatsu
President & CEO,
Quantum Inc.

Mr. Takamatsu emphasized the importance of "the exit" when discussing startups, explaining that "in Japan, IPOs are viewed as the mainstream, but in the US, over 80% are M&As in which corporations buy startups." This means that in Japan, if the number of startups that realize exit strategies in which they are purchased by major corporations increases, a positive cycle will be set into motion wherein the startup formation rate will rise.

Moreover, Mr. Takamatsu used the metaphor of a romantic relationship to comment upon the co-creative relationship between corporations and startups, explaining that the process of two people meeting, dating, and finally marrying (and sometimes separating) requires preparation. He then asked for an opinion from Sakai of Fujitsu--a company that carries out this process systematically.

Hiroyuki Sakai
Corporate Executive Officer,
Fujitsu Limited

Sakai, who has explored solutions for collaboration between startups and Fujitsu's business divisions since early in his career, explained how his efforts did not succeed at first because of bad timing and the inability of management to adjust to situational needs. Against this backdrop, he introduced the MetaArc Venture Program, which began in 2015.

In this program, the process starts by soliciting applications from startups to begin a collaborative enterprise with Fujitsu, offering opportunities to make presentations to Fujitsu Group's business divisions in the form of a business pitch contest. Then, time is set aside to examine possible collaboration with such business divisions until final decisions are made. This program has been carried out four times to date; 150 companies have submitted applications, and final decisions to collaborate were made with 20 companies.
Naomi Tokunaga, the program leader at Fujitsu, explained the strategy that has consistently led to success and the issues that corporations face.

Naomi Tokunaga
Senior Director(in charge of venture programs),
Strategy Planning Division, Marketing Strategy Unit,
Fujitsu Limited

Tokunaga explained that to achieve success, first it is important to ensure that there is a process in place to conduct a focused examination at the correct timing. Previously employed methods for examining collaboration with startups on an individual basis often failed because the business divisions were too busy handling their main tasks. To alleviate this, time was set aside for multiple business pitch contests in which multiple startups presented their proposals all together. Then, a six-month examination period was given lasting from assignment of personnel in charge until a decision on collaboration was reached, after which the final results were announced.

Furthermore, as another important factor behind success, Tokunaga raised the issue of putting in place a support team to be in charge of promoting business matching. Such a support team acted as a liaison between the Fujitsu Group companies and venture firms, which operate under completely different values and business styles.

Tokunaga continued by saying that when collaborating with venture firms, corporations should bear in mind that pointing out all the risks without laying down what they want to achieve through collaboration is detrimental to success. She explained the importance of discussing the future with venture firms and thinking of ways to overcome risks, rather than examining proposals without reaching a conclusion, then turning down the request for collaboration without providing the reasons for doing so. She also explained that people with the ability to make prompt decisions should be put in charge, and if a proposal is not feasible, those in charge should clearly explain why and not waste any of the venture firm's resources.

The Knowledge Required to Collaborate with Startups

Go Takizawa
Director, Information Service Industry Division,
Commerce and Information Policy Bureau,
Ministry of Economy,Trade and Industry

Mr. Takizawa talked about the wake-up call he experienced while assigned to Silicon Valley to examine collaboration between major corporations and startups. He explained that Silicon Valley has businesses called accelerators that support startups, but many of these are averse to working with Japanese companies.

One major reason is the fact that Japanese corporations are slow decision makers. Businesses based in the West as well as those elsewhere in Asia, such as China, Korea, and Taiwan, send representatives with decision-making authority to meetings and decide on action plans spanning several months on the spot over a handshake. However, representatives from Japanese companies often cannot make such decisions without consulting with headquarters first.

Mr. Takizawa raised another reason why Japanese corporations are not chosen as partners: "Corporations and startups are supposed to be on equal terms. However, in Japan, corporations tend to assume the upper hand and do not consider startups' resources."

Mr. Takizawa raised an example in which a startup entered a capital tie-up with a Japanese corporation but received a massive number of legal documents from Japan. Although corporations have some concerns such as NDAs and intellectual property, a startup with so few employees cannot process so many documents. Mr. Takizawa explained that to collaborate with a partner with substantially fewer resources and time capacity, "contracts should be formatted so as not to exceed a few pages, and a decision-making line other than a standard contract should be prepared. Such considerations are essential."

Akie Iriyama
Associate Professor, Waseda Business School
(Graduate School of Business and Finance)

On the topic of which personnel should be put in charge of collaborating with startups, Mr. Iriyama listed three qualities they should possess. The first quality is the ability to share in the dreams and passions of those in the startup. The second quality is the ability to establish trust between the two parties in order to alleviate any concerns about the startup's technology or know-how being stolen by the corporation. The third quality is the ability to work proactively in an environment with a high degree of freedom, rather than simply handling assigned tasks. Mr. Iriyama refers to people who have these three qualities as "eccentric weirdos," explaining that "they are usually very skilled, but sometimes go overboard and have a hard time settling down in an office." He explains that such characters can be found in any major corporation, and they are the ones who have the best chance of succeeding.

In addition, Mr. Iriyama raised three points regarding how to pursue long-term reform to cultivate innovation: the evaluation system, investor relations, and information systems. First, he stated that conventional evaluation systems based on a "success or failure" model only stifle the process of knowledge exploration due to fear of failure. To encourage employees to actively engage in innovation, a system such as GE's FastWorks, in which failure is assumed from the start, is necessary in personnel evaluation systems.

Next, although striving to innovate can have beneficial effects on corporate value over the long-term, it is often difficult to obtain the support of analysts and institutional investors, which can impact stock prices and lead to decreased corporate value. Thus, the importance of retaining the support of analysts and institutional investors through effective investor relations must be considered.

Finally, so that management can focus energy on conveying the long-term vision to employees, an information system that reduces the workload imposed by daily tasks is necessary. For instance, a highly functional information system that provides immediate access to information needed to make operational decisions from anywhere in the world is highly effective.

Mr. Takizawa explained that "management alone cannot cultivate innovation. Each individual can pick up the phone and call an old friend from their university days." By expanding networks and making connections with people outside one's own company, or by reviving old relationships, each individual has the power to change their company by exploring for knowledge on an individual level.

To conclude, Sakai presented the following four haiku-style poems written by himself and his MetaArc venture program team.

Innovation Haiku

[On How to Cultivate Innovation in Companies]

  • A nail that sticks out / Is watched so attentively / By a caring mom (dad)
    (Management should not simply force its thinking on employees, but rather lend them a helping hand when in need.)
  • Will it yield profit? / Those few simple syllables / Kill the seeds of growth
    (A project can be killed with this short phrase, even if uttered unintentionally.)

[On How to Collaborate with Startups]

  • How should we proceed? / This is strictly forbidden. / Then how about this?
    (Don't be passive; speak up and assert your dreams.)
  • Speed is picking up / A bit past the limit is / What innovation needs
    (If you are trying to inspire innovation, going a little too fast is just the right pace.)
Presenters
Panelists
  • Go Takizawa Director, Information Service Industry Division,
    Commerce and Information Policy Bureau,
    Ministry of Economy,Trade and Industry

  • Akie Iriyama Associate Professor, Waseda Business School
    (Graduate School of Business and Finance)

  • Hiroyuki Sakai Corporate Executive Officer,
    Fujitsu Limited

Moderator
  • Mitsuru Takamatsu President & CEO,
    Quantum Inc.

Guest speakers
  • Tatsuya Honda

    Experience Design Team,
    Brand and Design Strategy Division,
    Marketing Strategy Department,
    Fujitsu Limited

  • Naomi Tokunaga

    Senior Director(in charge of venture programs),
    Strategy Planning Department, Marketing Strategy Office,
    Fujitsu Limited