Vertical integration is becoming a buzz-word in the business world. Wall Street Journal recently had a good article, Companies More Prone To Go Vertical, in which they gave many examples on how companies as diverse as PepsiCo, Oracle, Boeing, Apple, General Motors and ArcelorMittal have chosen vertical approaches.
According to the Wall Street Journal, the moves toward vertical integration are a departure from the past half-century, when companies increasingly specialized, shifting functions like manufacturing and procuring raw materials to others. Today, many companies want more control over their value chain. This also creates many more internal silos.
How does this affect innovation leaders who also find themselves in the midst of a paradigm shift in which we move from closed to open innovation?
I believe that in order to be able to do open innovation well, companies need to make internal innovation work first. Many companies struggle on this. A main reason is that they have not developed an innovation strategy that sets the direction and height – as in their focus on incremental, breakthrough and radical innovation – of their innovation efforts.
It is my experience that the interesting opportunities arise in what I call the white space between such silos. This is a space in which you can work across not only different business functions, but also with different – but hopefully complementary – products and services while still operating within the same corporate foundation.
The challenges for innovation leaders working at companies with vertical strategies become more complex, but on the other hand than, they also get a new range of opportunities. A clear innovation strategy can help them develop the processes needed to exploit these opportunities and thus help reach the overall corporate goals envisioned by the executives when they chose vertical strategies.
More importantly, if innovation work across internal silos, the move towards open innovation becomes easier. It is to some extent the same issues and approaches in terms of working with ‘external’ partners that apply.
Once internal innovation works, open innovation can be a great tool to increase the innovation productivity by bridging internal and external resources. However, if companies cannot make innovation work internally – and across silos – they should not expect to succeed with open innovation.
On vertical integration, you should also check out this article by Rita McGrath: Why Vertical Integration Is Making A Comeback
Stefan Lindegaard is a speaker, network facilitator and strategic advisor who focus on the topics of open innovation, intrapreneurship and how to identify and develop the people who drive innovation.