David Simoes-Brown, Head of Corporate Open Innovation at The National Endowment for Science, Technology and the Arts (NESTA), reviews the defining features of Corporate Open Innovation, making the case for its widespread adoption in the 21st century
Corporate Open Innovation (COI) enjoys high-profile proponents, such as Procter & Gamble, Philips, the BBC, Nokia and Apple, and has been the subject of dozens of scientific papers and several books. Despite this, COI remains a rare practice and faces many barriers.
WHAT IS COI?
To be an open innovator, a company employs external collaborators to originate or develop innovations. This is different from traditional ?closed? innovation, where in-house research and development (R&D) departments collaborate to produce new products and services. Many companies engage sub-contractors, but this is not COI as the client retains the intellectual property (IP). In COI, the patent holder of an innovation is usually a supplier and during the second phase of innovation, unwanted inventions can be adopted outside a company. New ways of implementing COI will no doubt be devised as the concept develops. COI is still experimental and new collaborations and structures are constantly emerging.
WHY IS COI ESSENTIAL FOR 21ST CENTURY SUCCESS?
First, innovation is expensive. Companies are finding it increasingly difficult to justify increasing R&D costs as product revenues decrease in shorter product lifecycles. COI addresses both these issues as it shares origination costs and increases potential revenue from new markets, for example, through joint ventures. Globalisation means greater knowledge is required to compete in more markets. However, in practice, companies are narrowing their knowledge bases in an effort to specialise and focus. COI increases knowledge and as companies rationalise the number of brands they invest in, they hold dormant IP that COI can tap into.
As companies recognise that their value lies in their brands rather than their ability to invent or manufacture, the ?outsourcing? of innovation becomes more logical. Secondly, no single company knows everything. Useful knowledge has become distributed in universities and web-based communities. No matter how well funded and expert an R&D operation is, it cannot compete with linked-up scientific and user communities. Thirdly, networking is a growing trend. In some sectors of industry there is evidence of new forms of organisational structures emerging, which are reminiscent of social networks like MySpace. The notion of such ?creation nets? is becoming popular to bring together competencies to engage in collaborative innovation.
It is for these three reasons that COI has seduced companies such as Procter & Gamble, whose successful COI products include Olay Regenerist, Swiffer Dusters, the Crest SpinBrush and the Mr Clean Magic Eraser.
HOW DOES COI WORK?
Wider connections give companies access to more knowledge. But COI can also build creative communities, which help companies access more smart, creative people than they could employ. Technology companies such as IBM, HP, and Cisco are starting to adapt their internal product lifecycle and development to accommodate open innovation.
The growth and popularity of blogs and wikis show that sharing is ?in?, and there is growing evidence that the grassroots can make significant contributions by developing better products. COI requires different structures, but also a new mindset that is more co-operative and less command-and-control.
THE SO-CALLED BARRIERS TO COI
I have argued that COI is imperative for future business success and that it is still a minority sport. The notion of barriers to COI is gaining familiarity and these three are often cited:
Who will gain reward from the exploitation of patents? Who will underwrite the risks of their development? There is a perceived imbalance of power between collaborators where larger companies take the lead, and an IP regime that is too strong can be inefficient. It adds time and other costs into the equation and can put a relationship on the defensive.
In open-source software development, a virtual community develops new programmes, their collective intelligence often unhindered by IP concerns. However, the uncomfortable fact remains that with more companies working across corporate boundaries, protecting intellectual property is becoming a much hotter issue.
If those involved in COI cannot communicate, this new process will be less productive than the old one. Managing diverse teams is a key issue for open innovation projects. There is no doubt that innovations are generated within these new collaborative spaces, yet they are not easy to accomplish in practice.
Understandably, many companies are reluctant to place their fortunes in the hands of others. There arise the emotional issues of power and control. But in practice, companies often operate in markets that are heavily dependent on others. When they do not include the whole innovation ecosystem, innovation can be a costly failure.
High-definition televisions have been ready for the mass market since the early 1990s. Yet the category failed in the 90s because critical complements, such as studio production equipment, were not developed or adopted in time.
THE OPEN INNOVATION GLASS CEILING
IP, complexity and interdependence can be thought of as hard structural barriers to innovation. Less obvious challenges are contained in the attitudes of people responsible for innovation. There are ?human factors?, which can form a glass ceiling to the innovative potential of a company.
Rather than take leaps into the unknown, it is often easier and more predictable to eke out a little bit more performance or profit from an existing product or to shave costs off production. Furthermore, there aren?t yet that many persuasive COI case histories for innovators to take to their boards, so there is still an element of bravery involved that does not often sit well with today?s risk-averse businesses.
Companies have much invested in their innovation processes. The innovation tradition and sequential ?stage gate? model of project management is popular, tried and tested. An open innovation model opens up this traditional funnel, which needs to be adapted to encompass flows of technology and ideas outside an organisation. Subsequently, a fundamental shift in thinking is required.
It can also be difficult for a business steeped in the principles of competition to embrace co-operation. There is a suspicion of outsiders and an ingrained habit of secrecy. Employees are rarely trained to exploit external innovations. A final factor is short-termism. This is the innovation paradox in which companies do not innovate frequently, even though they recognise its importance, because of short-term financial performance measures.
The extent to which each of these barriers is insurmountable depends largely on the corporate will to surmount them. Taking a more ?glass half full? viewpoint could help companies overcome their structural, cultural and emotional issues. Three types of potential COI accelerator emerge from this process of positive thinking:
Thinking outside the company box
This is vital to COI. For example, InnoCentive connects a virtual global community of 50,000 qualified scientists to help its clients seek solutions to high-tech problems. They tap into inexpensive, but talented problem-solvers in Russia, China, India, the EU, and North America. A seeker company such as Dow or Eli Lilly posts problems anonymously on a website. Solutions are submitted and Inno- Centive, as the go-between, provides problem-definition assistance and will vet ideas that do not meet the brief.
If a company is to place innovation at its heart, it needs a flexible strategy. COI needs support mechanisms and behaviours that encourage it. A more flexible approach to IP is often a cultural challenge. There are practical steps that underpin a successful innovation network and can help protect intellectual property such as getting to know your partners better, giving a clear definition of the mutual benefits and establishing performance targets.
Setting an innovation culture is also about personal transformation, starting at the top. Do organisations have enough polymath leaders ? multi-skilled individuals who combine designer flair, engineering skill and marketing imagination? Training and recruitment will play a part. Employees need to learn to implement collaborative approaches successfully and enjoy the personal rewards of partnering with other creative minds.
Seeing through the illusion of barriers
It is always tempting to point out barriers that stand in the way of achieving something that we are not particularly motivated or equipped to do. Looked at in this light, barriers to COI are largely illusory. Therefore the real barrier to COI is largely negative thinking which gives an excuse for inaction. Instead, a new mindset of innovation accelerators is required and today, more than ever, business needs to keep its foot on the gas.
David Simoes-Brown is Head of Corporate Open Innovation at The National Endowment for Science, Technology and the Arts (NESTA). At the time of writing, David was an innovation consultant to the creative industries, Director of Applied Emotions. Formerly Director of the Foresight division of Seymourpowell, the renowned product design consultancy, his career has covered senior strategic planning roles in major communications networks such as DDB, Grey and Publicis.
For more information, visit: Website: www.nesta.org.uk
Added the 27 August 2009 in category Innovation UK Vol5-1