To find the best sources of innovation and maintain competitive advantage, it makes sense to include a look beyond your own boundaries.
This is open innovation, as defined by a University of California-Berkeley professor, Henry Chesbrough. Companies are increasingly seeking out previously untapped knowledge, finding it in hidden corners of their own business along with actively pursuing the best ideas from outside their four walls.
This inflow and outflow of innovation speeds up product time to market, allows access to the most cutting-edge technologies and provides cost-effective access to additional competencies.
“The older model is closed innovation, where organisations had their own R&D departments to ‘home-grow’ their technology,” says Bill Chorba, CPA, CGMA, the CFO of NineSigma, based in Cleveland. “The entire innovation process was kept in-house – ideation, development and testing, prototyping and transition to commercialisation. As technologies increased in complexity, it became prohibitively expensive for companies to employee specialists in each scientific discipline.
“The open innovation model allows organisations to be exposed to the newest ideas and integrate them faster, which allows them to go to market faster. This helps to fill product pipelines, create new revenue streams and reduce costs. Open innovation is a way of de-risking R&D, reducing the likelihood that you are missing something crucial and increasing the chance that you will arrive at the best solution to maintain competitive advantage.”
Where to begin?
Open innovation is applied in different ways in different industry sectors in different countries, sometimes even within different business areas of the same company.
A common obstacle, Chorba adds, is the “not invented here” syndrome.
“This is when companies take pride in the fact that they do everything in-house,” he explains. “To change this to the opposite mentality, the whole organisation needs to buy into it, because there has to be a dedication of resources and some idea of expected outcomes and goals. It must become an institutionalised approach and a natural part of the R&D cycle.”
NineSigma has been working with global electronics conglomerate Philips to overcome its internal engineering culture and fully implement open innovation, by using NineSights, a social innovation platform. NineSights allows enterprises to create their own open innovation communities from NineSigma’s global network and has enabled Philips to tap into global inventor networks, allowing for faster product development and access to market – in often a more cost-effective way, Chorba contends.
Also, to directly harness open innovation and pull together its R&D activities, in 1998 Philips converted its NatLab industrial facility in Eindhoven, Netherlands, into the High Tech Campus. This highly successful move attracted a knowledge bank of start-ups, with more than 90 businesses interacting and sharing resources. Philips sold the campus in 2012 but remains a tenant.
Philips also runs competitions and challenges, to which anyone can respond, via “Innovation Open,” which allows finalists to present their ideas to company executives and rewards those who place in the top three. Philips Innovation teams then assess the future potential for the concepts.
Another method to overcome “not-invented here” syndrome is to kick off the journey towards whole-scale adoption of open innovation by beginning with a solid in-house centre. For instance, before looking out with your business, front-line areas such as customer services can be a rich resource of first-hand experience and insight into what is and is not working and what could perhaps be done better. In-house competitions and challenges encourage employees from all areas to put forward their ideas, with incentives given to those who come up with the most workable concepts.
Getting your people on board
Looking at your own organisation’s human resources has the added benefit of providing fresh knowledge before an open innovation culture is fully integrated. Tools such as crowdsourcing or incentivised ideas contests can help companies make the most of their employees’ potential, while hopefully getting them excited about the opportunities that could arise from casting the net wider.
“One of the challenges of doing anything new is cultural resistance,” says Letizia Mortara, a senior research associate within the Institute for Manufacturing at the University of Cambridge. “Another hurdle is that of discussing and agreeing on [intellectual property] control and ownership between partners. Also, as the open innovation model is very broad, covering many potential approaches, each firm needs to consider what route might work best for them. “There are several very different ways to approach the transition,” she adds. “Some organisations started doing open innovation before they knew what it was, whereas others have tried to implement the model after Chesbrough defined it. Many of this latter group rely on open innovation implementation teams – groups of managers tasked to organise an open innovation approach. “As open innovation presents an array of potential advantages, individual groups inside a firm will be more inclined to adopt the process if they can see a direct benefit for their own particular position. The open innovation teams often have to provide relevant motivation and eliminate obstacles.”
Centralising open innovation activities in this way is a top-down, strategically driven approach in which leadership is crucial to successfully achieving whole-scale culture change. The process can, however, happen more organically.
In 2009, as the smart TV market was emerging, Toshiba France felt it was important to have a smart TV portal, the web-based interface for viewing content that is standard on smart TVs. As innovation in this area was not at that time an aim of the broader corporation, the French division was given the okay to outsource the work to an external provider, rather than using Toshiba engineers as was standard. The resulting portal is now used in the company’s smart TVs all over the world.
Toshiba France has now formalised this approach as open innovation and recently announced five new partnerships around its key strategic areas – two in the energy market, one in mobility, one in health and one in document management. “At present, the process is unstructured,” says Alain Kergoat, strategic marketing director at Toshiba Systèmes France. “We leverage on existing business relationships and make contacts at seminars, exhibitions and so on. Once you have a vision of the solutions required, you can rapidly identify the best people for the job.
“A start-up does not exist unless it is more advanced than the base industry. So working with start-ups means working at the forefront of technology and solutions, accessing ideas much faster than we could do otherwise as such a large company.”
The organic approach taken by Toshiba France is directly linked to the success seen, Kergoat says. “If there is too much formal process, it kills open innovation. I would say that the serendipity in how we have gone about this is what has made it work so well.”
Scalable for small and medium entities
For smaller companies that want to apply an open innovation strategy, or for organisations wishing to minimise exposure risk, it can be helpful to use an intermediary. “When putting your need into the public domain, there is a real art in making it scientific and direct, while avoiding the jeopardy of exposing what you are trying to do to competitors,” Chorba said.
For small and mid-size enterprises, whose innovation strategies in general can be immature, there are benefits to tapping into the support of science parks or business hubs. In South Africa, the Open Innovation Solution Exchange has been formed out of the Innovation Hub, the region’s first science and technology park. “The idea is to complement what happens within the park in a virtual model, to improve competitiveness of companies within the province as they share ideas and technologies,” said Paul Plantinga, who heads the exchange. “The other aspect is to connect small-solution providers to larger companies, so they can achieve growth objectives by providing solutions to these companies.”
In several countries, government-funded initiatives are being used to encourage smaller firms to utilise open innovation. In the US, as part of the Ohio Third Frontier Open Innovation Incentive, NineSigma has received a grant to help middle-market companies leverage open innovation strategies.
“We are seeing strong demand among middle-market companies for open innovation as a means to perfecting their technologies and expanding their markets,” said Andy Zynga, the chief executive of NineSigma. “What’s exciting is that we are creating new connections that wouldn’t otherwise exist between these companies and large and small solution providers around the globe.”
No matter the size or complexity of a business and whatever the desired outcome, open innovation is an evolutionary process with no single route to success. When embarking on the journey, it seems that what is required above all else is an open mind to possibilities.
Overcoming OI obstacles
A report published by the University of Cambridge analysed enablers and obstacles to open innovation (OI) and revealed four main issues that companies have to tackle before successfully implementing the approach:
OI culture: For almost all the companies in the study, the shift towards an open approach to innovation required the direct involvement of top management. This often translated into a shift of culture, where working with other companies became accepted and endorsed throughout the organisation.
OI procedures: Independent OI teams working within the traditional company configuration are a very popular choice for OI implementation. Moving people around within an organisation may also be used to improve the intensity of internal networks and increase cross-functional working.
OI skills: There is no “right” blend of skills that is considered a definite enabler of OI. However, the lack of an appropriate skills blend is seen as an obstacle to its implementation. This suggests that training is essential, rather than merely desirable, when preparing the company for OI.
OI motivation: Appropriate changes in the incentive structure are essential to implement OI successfully.
The full report, How to implement Open Innovation, contains a range of company case studies and insight on topics such as how to build an open innovation culture.