Innovation dilemmas: internal vs external focus

As an innovative company, you often face decisions on how to structure innovation for your business. There simply isn't one right path to successful new products or services.

In this series of blogs, we address the dilemmas you may encounter when establishing your innovation strategy, so that you can make an informed choice.

Today: internal versus external focus

Are you at home, in your own kitchen, experimenting with a beloved family recipe, or are you taking cooking classes to explore a new cuisine? It depends on who you're cooking for and what you aim to achieve. This dilemma revolves around the decision of where innovation activities take place: internally or externally.

Internal vs external focus

Internal focus can be compared to tweaking a family recipe in your own kitchen. The emphasis is on using resources, capabilities, and expertise within the organization to generate new ideas and innovations.

The cooking lesson outside your own familiar environment, that is the external focus. When the focus is external, you seek ideas, knowledge, and collaboration opportunities outside the organization. This may involve working with partners, suppliers, universities, startups, or customers to explore new concepts and technologies.

Both have advantages and disadvantages, and it's not a black-and-white choice. It is important, however, to find the right balance that aligns with the situation and goals of the organization.

Examples

An example of a company that has an external innovation focus is DSM. They collaborate extensively with innovative start-ups and scale-ups in the health and food industry. They have established various innovation platforms where they invite external innovators to propose ideas and projects. Additionally, they form partnerships with academic institutions to finance joint research and innovation projects.

In this way, they manage to explore and harness new ideas and technologies, even if these lie outside their own organization.

On the other hand, ASML has an internal focus. ASML invests significantly in research and development to create lithography technology. They have a team of technical experts who continually work on improving the performance of their machines. Many crucial components of their equipment are designed and produced internally.

In this way, they retain complete control over the development process. Renewal and innovation are therefore essential components of their business strategy and culture. By relying on their internal innovation activities, they have achieved technological leadership and a competitive advantage in a demanding industry.

Impact and applicability of this innovation choice

Different strategies provide different benefits and demand different things from your organization.

Where an external focus on innovation can lead to radical innovation, involving the design of entirely new products, services, or business models, internal innovation is more likely to help continuously strengthen your current business.

Internal innovation demands from the organization a context where this can take place. The right skills, culture, and processes need to be in place. Sometimes, this is already ingrained in the DNA of an organization, but it can also be a long journey to get there.

Then you might think, 'well, let's go for external innovation.' However, collaborating with external partners and managing relationships brings more risks, complexity, and challenges with it.

The choice of the right focus, or rather the right balance, starts with the innovation strategy of the organization. What goal are you pursuing with the innovation activities? Are you in a rapidly developing market and do you want to be able to respond more quickly to what is happening? Then focus on internal matters. This way, your organization becomes more flexible and quicker to respond. If there isn't enough growth potential in the market you're in and you're looking for business models that are far from your own knowledge and expertise, then focusing externally is more appropriate.

This article is part of a series on innovation dilemmas. Also read the blogs on the dilemmas of explore vs exploit and small budgets vs big budgets.

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