The “Local Brain” and the “Global Brain”

Last week I gave the keynote address at the national summit of R&D and technical directors at Henkel North America. One of the interesting questions that came from the audience related to how companies can find the right balance between its internal innovation capabilities and external innovation opportunities.

This is an issue where companies often make an incorrect assumption: the increased opportunity to leverage the Global Brain (external innovation sources) does not imply investing less in the Local Brain (internal innovation capabilities). It is true that, in the short term, you might be able to substitute internal innovation resources with cheaper external innovation resources, and thus pursue your innovation agenda with lower levels of R&D investments. However, in the long term, your ability to derive returns from external network-centric innovation will depend on the quality of the innovation assets and capabilities that you possess. In general, the greater the value of such internal assets, the greater the potential returns from participating in external innovation initiatives. 

Thus, the focus should not be on decreasing your company’s innovation budget but on finding the right balance between internal and external innovation efforts. As discussed in my new book, The Global Brain (Wharton School Publishing, 2007), finding such a balance might require you to reallocate your innovation dollars – perhaps emphasizing downstream rather than upstream product development capabilities and processes – but always keeping in mind the specific role your company has decided to pursue in external network-centric innovation. The bottom line here? In your eagerness to pursue the opportunities posed by the Global Brain, do not forget to make the right investments in your Local Brain!