Cisco's Failures in Corporate Alliances

Posted by: Michael Arndt on December 04, 2009

One of the truisms in innovation is that it’s OK to fail—most ideas never become a real-life product or service. Yet few executives are willing to fess up to their mess-ups. Cisco Systems’ Greg Fox is one of the few. Today, at the final day of the Open Innovation Summit, Fox, who is marketing director of strategic alliances, labeled a couple of Cisco’s partnerships with big-deal companies failures. And he told me later that a couple more seem likely to fall apart.

The summit, which I chaired in Orlando, had success stories in open innovation, too, from Clorox and Xerox. The audience also heard more how-to tips from executives and consultants. (You can get a sampling from this Twitter stream.) I’ll get back to them, after I pass along Fox’s soul-bearing.

Cisco’s two failed alliances were with Motorola and Ericsson. Fox said both imploded for the same reason: The partners had turned into competitors because of acquisitions. “The disadvantages outweighed the advantages,” he told me. Two others are heading that way, with Dell and Hewlett-Packard. The reason is the same, he said: Acquisitions, this time in servers, are turning allies into adversaries.

Sometimes the computer-network giant can continue to work with rivals, however. Fox noted that Cisco and Microsoft overlap in providing data centers. But they’ve been able to partition off that conflict to maintain their alliance.

Now for the success stories.

At Clorox, partnerships have become a necessity, said Ed Rinker, who manages the consumer-products company’s technology brokerage group. Clorox is simply too small in revenue and intellectual property to compete without outside help. So Rinker’s group surfs for technology that could extend product lines or, better yet, create products in new markets.

Since this outreach began 10 years ago, Clorox has introduced a breakout product every year. Its latest is the Green Works line of natural cleaners, which hit the market in 2008. Clorox licensed the Family Pure brand from a Japanese company and tapped European partners to help come up with cleaners that are made from plant-based ingredients and work as well as harsh chemicals like bleach. (Clorox changed the name to Green Works and co-branded it Clorox after tests with consumers.)

The eco-friendly line, which has been endorsed by the Sierra Club, threatened some Clorox executives, Rinker admitted. “This is a case where the antibodies of a company heavy in disinfectants could kill a great idea,” he said. But the new products seem more complementary that cannibalizing.

From 2004 through 2008, Clorox’s sales have grown by 4% to 9% a year. Rinker said a third to half of that rise is from innovation. Moreover, 80% of new products involved at least one partner.

Executives at Xerox also believe that it must work with external companies to get ahead these days, especially since revenue has plunged during the recession. For instance, the company is now asking outsiders to fund product research without subsidies from Xerox, said Stephen Hoover, VP of global software solutions. In exchange, Xerox promises a cut of future sales.

Hoover acknowledged that Xerox is giving up profits in the deals. But since it no longer has enough cash to support research on its own, it’s the best (and maybe only) way to get new products.

The company has partnerships with the likes of Procter & Gamble on printing consumer-products packaging. It also has turned increasingly to suppliers and customers for ideas and technology,

For example, a customer figured out that by tinkering with his Xerox machine, he could print on magnets. The company now sells magnetized paper that can be stuck on refrigerators to display personalized messages. Similarly, Hoover said, Xerox has signed up 200 partners to develop apps for its copiers and scanners, taking a page from Apple and its apps for iPhones.

These apps are also creating a problem, he said. (What silver cloud doesn’t have a gray lining?) Competitors are quickly copying the open-source apps and using them for their machines. That just means Xerox has to innovate faster, Hoover said, or be smart about what it patents.

Here are a few last tidbits from the Open Innovation Summit:

* Innovation consultant and author Robert Brands: The return on business model innovation is much bigger than product innovation. He also singled out Herb Kohler, chairman and CEO of Kohler, as a role model in inspiring innovation.

* Software inventor and innovator James Todhunter: “An idea is not innovation.” Innovation happens only when someone delivers a new product to the market.

* Weyerhaeuser’s VP of open innovation, John Tau: No company has the brainpower or budget to go it alone. “We need open innovation.”