While we have been spending time dealing with innovation and innovation management, a new trend has snuck up on us called ‘open innovation’. The term was first coined by author Henry Chesbrough in his path-breaking book Open Innovation: The New Imperative for Creating and Profiting from Technology.
The book brought to attention the growing but subtle trend of companies drifting away from closed R&D and adopting a more open innovation process. Enterprises have always worked hand-in-glove with external partners like universities to match steps with the latest and greatest in research. But open innovation brings in a whole another dimension.
Open innovation integrates the external resources into a company’s innovation processes. It combines internal competencies of a company with its external associations to enhance development of new technologies. So great is this marriage-like union that at times it’s difficult to separate out external from the internal.
Principles of Open Innovation
What open innovation implies is a change in the mindset of enterprises and their people. It’s a whole another point of view that companies are slowing warming up to. But the most fundamental ideas that drive open innovation are presented here as principles.
Work with Smart People: The old school of thought insisted that all the smart people of a field worked ‘for’ an enterprise as in-house team. But that is not true today. Enterprises have learnt to accept that not all smart people of their field are going to work for them. These people exist even outside the company. Enterprises will have to work ‘with’ them instead to benefit from their knowledge.
External R&D Holds Value: Again a deviation from the old school thought which insisted that innovation meant discovering, developing, and shipping – all singlehandedly. Now enterprises show surprising level of acceptance to externally performed R&D. In fact, they even see value in it and are ready to leverage it further with internal R&D for their own purpose.
You Don’t Always Have to Be Initiator: The old school believed that in order to benefit from an innovation you need to be the originator of its research. But open innovation rebuffs this belief. Under open innovation you don’t always have to be the originator. You can adopt someone else’s research and work on it to develop a product out of it.
Business Model & Not Innovation Ensures Success: The classical theory insists that a company that conceives and launches a product first becomes market winner. But that is again not the case. In modern times, it’s the business model developed for the product that determines its success. If you have an excellent product on hand but don’t have a plan in place to market it, then the product can turn out to be a market dud.
Best Use of Ideas and Not the Best Ideas Win: You may have a huge repository of the best ideas but if you cannot use them wisely then they are of no use. That’s the thought promoted by open innovation. You don’t need to reinvent the wheel every single time for innovation. You can simply make smart use of someone else’s ideas and still win.
Intellectual Properties Can Be Mutually Beneficial: In the past, enterprises closely guarded the confidentiality of their intellectual properties from their head-on competitors. But now changing times require that companies share their ideas and create collective value for the industry.
Some Open Innovation Examples
Like mentioned earlier, open innovation has snuck up to us – literally. It has been around for more than a decade now but has gone unnoticed. Now that we know of it, we can find examples of open innovation all around us. Let’s recount a few here.
GE Capital & Hyundai Mutually Benefit
This is a classic example of open innovation in the financial industry. The case of GE Capital and Hyundai was initially just a merger of activities. But soon Hyundai acknowledged that GE’s risk management and financial knowhow made a huge difference in the joint venture. Similarly, GE capital gained from Hyundai’s superior marketing skills which helped them break out of the stagnant growth period.
InnoCentive and its Challenge Platform
This is again a great example of open innovation. InnoCentive operates an online community of challenge solvers. Companies from around the world pose challenges to this community and seek solutions. Interestingly, this online community has successfully solved almost half the challenges posed by companies looking for practical solutions.
Procter & Gamble the Pioneer of Open Innovation
P&G is often heralded as one of the first enterprises to open up its innovation processes for external resources. Today, the company operates a ‘Connect + Develop’ website where their customers submit new product ideas. P&G then takes these ideas forward and develops concrete products out of them. The website today routes almost one-third of P&G’s new products. The success of P&G’s open innovation initiative shows that more often than not good ideas for new products originate at the end user level.
LG Joins Hands with CrowdSpring
LG recently initiated a partnership with CrowdSpring to conduct a competition that encouraged users to design the next LG phone. The competition successfully generated a lot of design ideas for LG’s in-house R&D team to develop further.
All these examples show that ‘open innovation’ is not a matter of if but when. The sooner enterprises embrace it the better possible partnerships lay ahead for them.