In today's and tomorrow's business environment, no single company will make it alone.
Innovation happens in ecosystems, with various players of all sizes contributing their part to the collective result. As a corporate, you must play your role too, and that means you have to understand what it takes to successfully engage in these environments.
We talked with Itay Zetelny, heading up EY's Israel Cleantech Advisory Practice and the Global Incentives Advisory Practice, a leading voice on corporate innovation in Israel, how to do just that.
How do you define open innovation? I know it has been around for two decades or so, but what is open innovation to you?
It may be due to the ecosystem that I'm in, but to me open innovation involves big organizations working with disruptive startups, with investors, with the technology ecosystem in order to bring innovation in from outside of the organization.
There were a few stages in the evolution of open innovation in Israel. The first stage was mainly focused at acquisions; so, buying external technologies and IP and solutions. In the second stage, corporate VC's became more involved and active. We're now in the third stage, which started 5-6 years ago, where companies themselves are initiating and operating open innovation programs.
We have had incubators here in Israel for twenty years, that in itself isn't new, but they were all owned by investors wanting to invest in early-stage startups. Today, the incubators are owned and run by large Israeli companies and multinational corporations, and a significant number of them are not in the high-tech sector. Israel started growing its high-tech sector around 25 years ago, and now new ecosystems are evolving - automotive, for example, is a dominant disruption here.
Several accelerators and incubators by multinationals have been shut down - Coca-Cola, for example. It sounds like you are working with companies under a model that works. Could you share a bit more about your approach?
When we say incubation here in Israel, we usually mean a physical place where you work with the company for a period of time. You also invest in those companies, early-stage companies. The details may differ depending on whether it's a government-based incubator or not, but in general you work with the company for a period of time: six months to two years. You have your own team that works with those companies. The incubator basically attaches to the company and supports them in their business and technology development during their early stage. You also assist them in fundraising. The incubator then receives a stake in the company, some shares.
I'm not saying that this is the most efficient model. It really depends on the company. It's a case by case. It also depends on the market.
If you are a food company, for example, this model might be more efficient than if you are a software company or you're looking for disruption in analytics or AI.
We also have innovation labs that are designed for faster cycles. It's still some kind of physical place or a team that works with the companies, but the cycles are much faster. We have innovation labs for a variety of technologies, like automotive and construction technologies. Small teams from your company will work with the startups to validate and evaluate the technology based on their needs and then assist the startup in proof of concept. If that's successful you can move to the next phase, which is basically doing an MVP.
What would you say is the one thing that makes a corporate-startup relationship work vs. fail?
Something we find more effective now than before in terms of creating confidence and trust is that while you are doing most of the validation and everything with your team, you are outside of the large company.
You don't throw an early-stage startup into your company and ask your executives to start working with it.
You find champions in your company, and they work with the startup without integrating these new technologies back into the company. You validate it quickly efficiently, and sufficiently. Only then, when you've demonstrated that confidence has been earned, do you move to the next stage and integrate it.
You can't start throwing startups too early into the company. People are very, very busy in the large companies and they have their own road map and tasks. They might be very enthusiastic, especially at the beginning, but after they see failures in startups and get a sense of the risk, they get cold feet and then they don't collaborate with you. So I think it's important to test and evaluate before you integrate.
What is the story you're most proud of that you have been involved in?
Well, it's too early to know if the outcome will be successful because it only began a few years ago, but it's very interesting to see the collaboration between IBM and Medtronic, one of the largest medical technology companies. They won a government grant to open an incubator in Haifa to help Israeli startups develop digital health products that will be competitive in the global market.
One of the most interesting success stories, at least to me, is in the food industry. We've worked with the Israeli food manufacturing company Strauss-Group for many years, and with them we've recently initiated a food incubator called The Kitchen Food Tech Hub. I believe it's one of the first food-focused incubators in the world, focused on early-stage investment in food-tech ventures that can disrupt the global food system - basically, make it more affordable, more sustainable. The government is also participating.
It really pushed the ecosystem here. It is really a strong step forward and it created an interesting community. You have an investment arm, the large corporate that can evaluate the companies. You have many companies that were already involved in the food sector, but now more investment from other VCs that are starting to look at food. The timing was right, because it started around four years ago and now food is going through a disruption. They got in early and it's a big opportunity for them. They are doing amazing things, and it was fantastic to be on this journey working with them.
As you said, it can take several years to see if an initiative is successful. How do you measure progress or success after one or two years?
I've been asked this a lot by the CEOs and C level people.
Do we look at the money, the returns? People must understand that innovation is not a linear thing. It's not something that you start and then you're successful.
To me, you're successful if you put innovation on the CEO's agenda. If it's on their agenda, it is now part of the corporate agenda and then it is easier for it to become successful. Why? Because you have enough people from your own company that are willing to collaborate, once it's on the management team's agenda to do it.
On the other side of the equation, you see companies that are doing open innovation but the company itself is not involved. They initiate an incubator or a CVC or whatever, but it's solely external to the company. The people involved might be extremely knowledgeable and skilled but, because their organization is not involved, it won't be successful.
Success comes from becoming more innovative as a company, changing your thinking, understanding that you need to move faster. All that, as I said, needs to be on the agenda.
Many organizations now understand this. Banks, with the financial sector, understand that disruption is coming very fast. They also see that the bank moves very slow. It's impossible to innovate with just the bank itself, so you basically need to open a new organization that is connected with the IT system, with everything. You pick the right people from your bank and move them to the new organization and you start developing your digital bank, which works much faster with the new ecosystem, new technology. It is a viable solution in cases that you can't change the organization and you're industry is already disrupted.
Why should people come from all over the world to visit Tel Aviv and explore the innovation ecosystem?
I like this question! I think today it has become obvious - it's not a question anyone asks anymore.
Something amazing is happening in Tel Aviv. Over the past 20-25 years Tel Aviv has been known as one of the leading high-tech hotbeds. Second only to Silicon Valley in terms of the level of investment, the number of VCs, the number of patents, the number of startups.
The way that the ecosystem works here, people are used to moving very fast. We do not move linearly, and we always look for solutions. It's part of our culture here.
Companies around the world find it very, very efficient to come here with their problem, with their needs, and start working within this ecosystem. They get a lot of new solutions very, very quickly. It's also not very expensive to work with the companies here.
The number of companies that are coming here every week - not every year, every week - it's unbelievable. You won't find a large company that didn't come in the last year. I'm talking about the C level people. For us it's fascinating to see, because it's not just the high tech companies like Google, Apple, Microsoft, though that still continues. Half of the Israeli high tech sector is owned by multinationals that are doing R&D here.
But now, it's far more than just high-tech. For example, look at what's happened to the automotive ecosystem here in Israel in the last three years.
We never had even one automotive company in Israel doing more than just selling cars, ever. We don't know anything about manufacturing cars! But disruption is coming from things like AI, image recognition, communication… and Israel is now one of the largest ecosystems for automotive, without having even one automotive manufacturer in Israel.
Companies like Renault, Nissan, Daimler, General Motors, Ford, they have centers in Israel and it's huge. We started three years ago with 150 companies. There are now around 500 companies active here in Israel around this ecosystem. It shows that technology is disrupting all industries - regardless of the industry your company is currently in, your playing field will look completely different in a few years from now.