How to Set up an Open Innovation Program
Forming Partnerships for Growth
So you thought crowdsourcing was a recent business innovation? Think again!
As far back as 1714, the British government set up the Longitude Prize, a huge cash reward for anyone who could devise a simple, accurate way to measure a ship's true position at sea. The competition was designed to tap into the ideas of independent inventors and experts to solve this historic navigation problem, a process known today as crowdsourcing.
The Longitude Prize's main award of £20,000 – equivalent to $3.74 million today – was never paid in full, but smaller amounts were given to people whose work made a valuable contribution to finding the solution.
The prize and crowdsourcing are forms of "open innovation," a concept that says the best ideas are rarely concentrated in a single organization. In a business setting, it means that companies should consider looking beyond their own walls to speed up their research and development processes.
In this article, you'll learn what open innovation is, and find out how to set up an effective exchange of ideas.
What Is Open Innovation?
Henry Chesbrough, a professor at the University of California at Berkeley's Haas Business School, coined the term "open innovation" in his 2003 book, "Open Innovation: The New Imperative for Creating and Profiting from Technology."
He says open innovation has two facets: "outside in" and "inside out." "Outside in" is when an organization brings external ideas and technologies into its processes, and "inside out" is when it shares its ideas with others. Both the internal and the external flows of information can accelerate the innovation process.
Your business model may determine what knowledge and information you choose to bring in, or share with others. And your model can be based on some of the conventional approaches for acquiring technologies, such as licensing, joint research and development, and crowdsourcing.
Many organizations have shifted away from self-sufficiency to open innovation for several reasons:
- It can reduce the costs and risk of research and development. Your organization can reap the rewards of innovation without "bearing the brunt" of going it alone in R&D.
- Knowledge is rarely concentrated in any one organization. The number of highly educated people has increased enormously over the years, and they are located in many different places. And when people leave their job, they take their knowledge with them to their new employers.
- The venture capital market has encouraged entrepreneurialism and the growth of start-up businesses generating new ideas and technology. The number and sophistication of external suppliers has increased as a result.
- As business becomes more global, companies have a wider reach and the Internet has made it easy for them to collaborate around the world. Foreign partners can often provide cheaper labor and materials, and different forms of technology.
How to Set up an Open Innovation Program
There is no one right way to launch an open innovation program, but following the five steps outlined below can improve your chances of success:
1. Build a Receptive Culture
The switch to open innovation can create a culture shock in organizations that are used to being self-reliant. Some people may be reluctant to accept external ideas or technology. Others may be unwilling to share information that they have developed.
The key to breaking down barriers to change and fostering an environment that welcomes open innovation is to get top-level managers onside. Once they support the concept, they can champion your efforts, and their enthusiasm will trickle down the company's hierarchy.
One way to convince your managers or team members about the benefits of open innovation is to highlight the success stories of your industry peers. And when your own innovation team achieves a win, let people know about it, inside and outside your organization. As people recognize the benefits of open innovation, they could be more willing to forge external partnerships.
Carefully evaluate what can be shared, and what should remain confidential – this will need to be decided at a senior level, as intellectual property is a core asset of many businesses. You risk losing competitive advantage if you share too much in the wrong circumstances, while others may be reluctant to share with you if you share too little.
2. Establish an Internal Team
Open innovation involves more than simply researchers and developers. If you invite colleagues from various departments and levels to join your team, you could speed up acceptance of the initiative. Including a broad range of experience could also be useful. For example, someone from the legal department could spot potential issues in licensing deals with partners, or a member of the communications team could trumpet your success.
3. Identify Key Problems to Solve
Your first task is to define what "innovation" means to your organization. What is your overall goal? Do you want to collect new ideas or technologies, for example? Once you identify your goal, it will be easier to determine what projects and partners can help you achieve it.
Clearly, not all projects are suited to open innovation. For example, if a project is progressing well with your internal resources, and you don't need any external help, then little would be gained from working with an outside partner. And some, core technologies may give you competitive advantage, and you may not want to share these.
4. Decide Who to Approach
Your choice of potential partners depends on your goals and strategy. If you want to protect sensitive information, for example, you should limit your search to organizations that you know you can trust.
To build your product portfolio or enable a flow of ideas, you could follow the example of companies like P&G™ (see the case study, below), and create a portal on your website that advertises your open innovation program and asks people to submit their ideas.
You may prefer to conduct a more targeted search for strategic partners. If so, you can draw up a formal request for proposals and solicit bids. Or, you might use a networking website such as LinkedIn® to find people or organizations with the specialized knowledge that your project needs.
Some other criteria to look for in a partner include whether it is a good fit with your business culture, and the potential to build an ongoing relationship. But these will be less important if you are looking for a short-term collaboration for a speedy turnover of ideas.
5. Adopt the Right Business Model
Open innovation differs from other models, such as collaboration on open source software. While both strive to use diversity and participation, there are far fewer restrictions on the use of open source material, and open innovation retains a traditional contractual element.
When you're choosing which business model to use for an open innovation program, it's important to consider how permanent the arrangement will be, how familiar you are with the market, and how limited your use of intellectual property will be. As we mentioned above, there are several options you could consider:
- "Conventional" models. These are tried-and-tested methods of sharing technologies and information, such as crowdsourcing, licensing, joint ventures, joint R&D agreements, and acquisitions.
- Product platforming. With this approach, an organization shares a partially completed product with contributors, who come up with ideas to improve it and complete its development.
- Idea competitions. You could offer rewards for successful contributions by setting up competitions, sometimes known as "hackathons," which are common when developing software. These are short-term events, usually lasting between a day and a week, but organizations can access a large number of ideas this way.
- Customer immersion. In this model, you consult extensively with your customers. When your development is nearly finished, good customer feedback can improve your product's final design and usability.
- Innovation networks. Much like idea competitions, an organization can create a network of contributors to the design process by offering rewards or incentives. The difference is that the network is asked to come up with solutions to existing problems, rather than provide ideas for new products.
A Case Study in Open Innovation
Many global companies now rely on contributions from others to extend their brands. For example, Procter & Gamble™, a multinational consumer goods company, has established more than 2,000 open innovation arrangements through its "Connect + Develop©" program.
One of its most successful initiatives involved its Febreze® brand. P&G used Connect + Develop to turn Febreze fabric refresher into a billion-dollar line of products. It granted external partners a license to use the Febreze brand name in different product categories, such as air filters and vacuum bags. It also partnered with other companies to co-develop new products, such as Febreze® Set & Refresh.
For Febreze Set & Refresh, P&G worked with Zobele™, an Italian manufacturer of air-fresheners. Their combined resources and expertise resulted in an innovative new product, which reached the market two years ahead of schedule.
Henry Chesbrough developed the concept of open innovation in his 2003 book, "Open Innovation: The New Imperative for Creating and Profiting from Technology." The idea behind it is that firms should not depend solely on their own resources for innovation, as external partners can offer ideas and inspiration that can foster innovation.
When you form a strong relationship with the right partner, open innovation can offer many benefits. For instance, it can lower the risk and cost of research and development, and it can speed up the delivery of new products and services to the market.
To set up a successful open innovation program, you'll need to build a receptive culture, establish a strong internal team of champions, select the right problems to solve with external help, choose the right partners, and adopt a workable business model.
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