Open Innovation comes across as a complex and dry subject when someone reads the existing literature around it. This post will attempt to make the subject more accessible, fun to read and provide a conceptual binding overview.
In the conventional business models, all ideas are generated within the company, R&D is centrally conducted and Intellectual Property (IP) is tightly controlled or fully owned by the company. The cycle time to innovative products and services is long and innovation lags. The lag occurs as company insiders may not have the information to rapidly innovate or they are re-inventing the wheel in R&D or other areas. This model is called “Closed Innovation” and some companies still practice this model successfully.
Open Innovation is a business concept coined and developed by Henry Chesbrough, a professor at the Haas Business School and UC Berkeley who encourages a shift in mindset by harvesting the vast knowledge of people, system and communities outside the conventional boundaries of the organization.
As organizations move outwards towards the open public zone, they find that the untapped long tail of solutions dispersed across communities, enthusiasts and problem solvers offer significant revenue and growth opportunities. I also call it surfing free on the gradient as the costs are minimal while the advantages may outweigh them. It is similar to how experienced skateboarders carry out “duck and rolls” on gradient slopes while the untrained ones usually end up in a wipeout.
Open innovation is thus the process of harnessing the vast wisdom of outsider parties, user-crowd and non-conventional partners in a more collaborative manner. In this type of innovation, the IP may be owned by one party, developed by the second party and commercialized by the third party.
As companies move outward from their epicentre (see figure below), they can explore and tap into the vast ocean of distributed knowledge. They can extract value from the eco-system using multiple vehicles including bi-lateral partnerships, collaborative crowdsourcing, competitive contests, licensing rights and IP sharing.
Open innovation can be conducted on site as in hackathons or be conducted virtually through digital means. Many open innovation platforms exist such as Spigit, InnoCentive, Lego Ideas, BrightIdea and Hype. More vertically specialized organizations such as Nine Sigma exist to whom companies can outsource the last mile of the innovation process.
However, as written in great detail in another article “Corporate Hackathons need a serious rethink“, it is important for companies to understand that open source platforms or outsourced services are not a proxy for high impact open innovation. A high-level strategy is required with a sense of ownership and clarity for the initiative. These platforms are a means to an end and not the other way around.
Generating value from what is considered free and accessible to everyone is not easy and requires a reflective practitioner approach. Due to challenges associated with harvesting value from the ecosystem, some companies have a dedicated Open Innovation (OI) departments manned by OI specialists and domain experts.
Each organization may have specific strategic objectives with respect to its innovation pathway. A sound capture strategy is required to harvest their inbound/outbound opportunity leads. Although innovation is too complex to be force fitted into matrices or grids, the below grid provides an abstract overview so that organizations can align their initiatives to capitalize on their strengths and to offset their weaknesses.
As we move to the right of the grid, there are more long tail solutions (possibilities), proportionally more IP risks and if not well structured, things can become unmanageable very quickly. As we move from the bottom to the top of the grid, organizations need to be ready to spend time, space, resources and/or money to extract the best value.
The bottom left of the grid is the closed innovation space. There are pros and cons of staying in the insulated, legacy zone versus the untapped, greenfield outside their comfort zone. Organizations such as former AT&T Bell Labs generated big breakthroughs (Infographic below) using a closed innovation model. Bell-Labs was, however, an exception as it attracted and retained the very best from the eco-system.
As Bill Joy, co-founder of Sun Microsystems prophetically claimed: “No matter who you are, most of the smartest people work for someone else“. This concept is explained in detail in the post titled “The Long Tail of Expertise“.In today’s world, the smartest people are not inside a firm, but, are dispersed unevenly geographically and will be the source of long tail disruption.
In a separate graphic (scroll below), I have depicted which companies are active in a specific grid. It is not a good strategy to be active in all the grids and a pointed frame is required to carve out a competitive edge from this initiative.
There are too many inter-dependent variables to keep track of in each grid, as organizations get ready to move away from their epicentre towards the open seas. On a high level, these variables are Incentive Policies, Intellectual Property management and Problem Framing.
a) Incentive Policies – Participants will expect and need to be incentivized properly to generate win-win solutions. A well-known equipment manufacturer faced backlash and reduced participation as they tried to penny pinch the participants.
b) IP Management Strategy – Companies can tap into the hidden knowledge embedded in open networks, however, IP risks can create litigation burden offsetting any gains. As such, it is important to create a clear IP framework, transfer rights, licensing rights policies, T&C’s and jurisdiction-specific disclosure policies for both parties. The need for a good documentation trail cannot be underestimated here. Researching around half a dozen case law around litigation’s originating from open innovation, it is evident that some organizations did not think deeply about litigation risk or did not seek IP law experts before venturing out. Using in-house general counsel’s generic advice may not be the best strategy to set the organization up for open innovation over the long term. A robust IP management strategy is very important here.
c) Problem Framing -There are few companies such as Robert Bosch, Thales and GM which spend significant time/effort in framing the problem statement effectively and outlining clear rules for the open innovation engagement. To ensure that participants do not suffer from solution bias, the problem statement is stripped of all solution cues and is processed to a high level of abstraction to widen the solution space. In a recent case, Robert Bosch went further ahead and released the innovation challenge through intermediaries such as Nine Sigma, while staying anonymous to ensure high-quality solutions.
Some examples of companies conducting long-term open innovation initiatives with a different focus are highlighted below in the grid.
If used effectively, open innovation can be a low-cost, swift way of reducing R&D costs and outcompeting your competitors. NASA and DARPA have already significantly gained harvesting solutions through global solvers as have big players like P&G, Bosch and Eli Lilly.
Read the next article in this series “The Long Tail of Expertise in Open Innovation” which discusses the key reasons why open innovation works very well if managed properly. You may also like to read the new post “How to generate breakthrough Innovation using the LEAD user-process”
In a follow-up article, I will discuss some real open innovation cases and how few organizations have structured the problem statements and peripheral policies in a watertight manner extracting millions of dollars in revenue from taking the open innovation outputs to market.
About me: I am a process, product and service innovator, design and reverse engineer by trade. I set up Indian Navy’s first “CNC Reverse Engineering Lab“, headed “Business Process Innovation” and “Enterprise Innovation Office (EIO)” for a global MNC. On a finish line to a Masters in Innovation & Entrepreneurship (MMIE) from Queens University, I have also a been an Innovation Consultant specializing in Breakthrough Inventing, Open Innovation and Enterprise Transformation (Infographic CV). I frequently write about the less popular ideas in Innovation, Strategy, Intuition and Intelligence. Feel free to connect with me on LinkedIn or follow me.