The term Corporate Open Innovation (COI) was coined in 2003, but the practice itself goes back much further.
It enjoys high profile proponents, such as Procter & Gamble, Philips, the BBC, Nokia and Apple, and has been the subject of dozens of scientific papers1 and several books.
Despite this, COI remains something of a minority sport. Why is this? The idea of barriers to COI has gained credibility2. David Simoes-Brown reviews the defining features of COI, making the case for its widespread adoption in the 21st century.
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), production engineering and marketing departments collaborate to produce new products and services.
Many companies engage a design studio or other sub-contractor, but this is not counted as COI as the client retains the intellectual property (IP). In COI, the patent holder of an innovation is usually a supplier. In development, the second phase of innovation, unwanted inventions can be taken up outside a company. In 2005, for example, IBM pledged open access to innovations covered by 500 patents to anyone working on the development of freely available software.
New ways of implementing COI will no doubt be devised as the concept develops. COI is still highly experimental and new collaborations and structures are constantly emerging.
Firstly, efficiency. Innovation is expensive. Companies are finding it increasingly difficult to justify increasing R&D costs as product revenues decrease in shorter product lifecycles3. COI addresses both these issues as it shares origination costs and also increases potential revenue from new markets - through joint ventures, for example.
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 focus4. COI augments this knowledge. As companies rationalise the numbers of brands they invest in, they hold dormant IP. COI can wake it up.
As companies recognise that their value lies in their brands rather than their ability to invent or manufacture, the 'outsourcing' of innovation becomes as logical as the well-established trend to divest production. Companies are also expressing concern5over their ability to meet growing demand fast enough. COI can address invention-to-innovation velocity.
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. We are witnessing nothing less than the obsolescence of R&D in many industries,6 but this change provides new ways to create value outside corporate boundaries.
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. A study of the creative industries in Manchester7 showed that film companies are small, but they have an extensive network of experts to draw upon, across several niche markets. The notion of such 'creation nets' is becoming popular to bring together competencies8 to engage in collaborative innovation.
It is for these three reasons that COI has seduced companies such as Matsushita, whose new product development capability was founded on the formation of a number of strategic communities. Another example is P&G whose successful COI products include Olay Regenerist, Swiffer Dusters, the Crest SpinBrush and the Mr. Clean Magic Eraser.
Yet most companies are still clinging to bricks-and-mortar R&D infrastructure.9
Wider connections give companies access to more knowledge. But COI can also build creative communities, which help companies access far more smart, creative people than they could ever 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 products10. External collaboration is linked to radical innovation11. But why?
It could be that innovation is stimulated by previously unconnected bodies of knowledge colliding. These collisions cause a creative chaos out of which crystallise new ideas, which are way beyond the abilities and imaginations of many hidebound corporate cultures.
If COI requires different structures, it also requires a different way of thinking. The new mindset needs to be more cooperative and less command-and-control - and its new innovators need to be literally open-minded.
I have argued that COI is imperative for future business success and that it is still a minority sport. What could be holding it back? The notion of barriers to COI is gaining familiarity and these three are often cited:
Intellectual property. Who will gain reward from the exploitation of patents? Who will underwrite the risks of their development? As Trevor Bayliss said when launching a programme to teach innovation in schools, “Art is pleasure. Invention is treasure. Nobody pays you for a great idea but they might pay for that little bit of paper the patent or copyright.”
This illustrates the perceived imbalance of power between collaborators where larger companies take the lead, set the rules and can afford better lawyers. On the other hand, an IP regime that is too strong can be inefficient12. 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.
Complexity. If those involved in COI cannot communicate, collaborate and share information, this new process will be less productive than the old one13. Managing diverse teams is a key issue for open innovation projects14. There is no doubt that innovations are generated within these new collaborative spaces. However, just as with the language, cultural and distance issues encountered by global teams, this is not so easy to accomplish in practice15.
Interdependence. 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 ecosystem16, innovation can be a costly failure.
High-definition televisions should be a huge success. Philips, Sony, and Thompson, which all invested billions of dollars to develop TV sets with astonishing picture quality, have been ready for the mass market since the early 1990s. Yet the category has been an unmitigated failure, because critical complements, such as studio production equipment, were not developed or adopted in time.
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 a set of three 'human factors', which can form a glass ceiling to the innovative potential of a company.
Inertia. Discontinuous innovation is a lot of effort for a potentially exciting but uncertain reward. Rather than take leaps into the unknown it is often easier and more predictable to eke out a 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. There is still an element of bravery involved that does not often sit well with today's businesses, which are largely managed to minimise risk.
Culture and tradition. Companies have much invested in their innovation processes. The innovation funnel and sequential 'stage gate' model of project management is popular, tried and tested.
An open innovation model opens up the funnel that needs to be adapted to encompass flows of technology and ideas outside an organisation. The funnel can be compared to old-fashioned analogue technologies and COI to a digital regime with fewer 'bandwidth' constraints and more emphasis on connections. This analogy illustrates the fundamental shift in thinking that is required.
Psychology. It can be difficult for a business steeped in the principles of competition to embrace cooperation. There is a suspicion of outsiders and an ingrained habit of secrecy. Employees are rarely trained to exploit external innovations.
In fact, COI requires a different set of motivations. Will people really give their all for a 'not invented here' invention? What incentivises people to supply a flow of high-potential innovations to a huge corporate machine?
A further and all-pervasive factor is that of short-termism. This is the innovation paradox in which companies do not innovate frequently or ambitiously, even though they recognise its importance, because of short-term financial performance measures17.
A final, powerful psychological factor is trust - known18 to be a crucial component in the development and effectiveness of a team.
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. The collective conventional wisdom19 of companies proves ineffective when there are significant changes in the business environment. Open innovation can provide flexibility.
For example, InnoCentive20 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, or North America. A seeker company such as Dow or Eli Lilly posts problems anonymously on a website. Solutions are submitted and InnoCentive, as the go-between, provides problem-definition assistance and will vet ideas that do not meet the brief.
Cultural change. If a company is to place innovation at its heart, it needs a flexible strategy. COI needs support mechanisms and behaviours that encourage it. Whose responsibility is innovation? How is innovation rewarded? When and where does it happen?
A more flexible approach to IP is also a cultural challenge. There are practical steps that underpin a successful innovation network and can help protect intellectual property21 such as getting to know your partners better, giving a clear definition of the mutual benefits and establishing performance targets.
Personal change. 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.
Innovation leaders at Nokia and Spalding are already proving22 the worth of broadening their outlook and placing a premium on learning, not just results. Employees learn to implement these collaborative approaches successfully and enjoy the personal rewards of partnering with many other creative minds.
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. It is attractive to think of storming barricades and smashing down barriers and yet the reality is more prosaic.
The notion of barriers to COI is a kind of pernicious negative thinking. It gives an excuse for inaction. Instead, let's coin a new phrase - Innovation Accelerators. And today, more than ever, business needs to keep its foot on the gas.
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 covered senior strategic planning roles in major communications networks such as DDB, Grey and Publicis.
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