A lot has happened in Open Innovation since Henry Chesbrough coined the term in his 2003 book. The term appears to be well understood, many companies have implemented it and a lot has been published. And yet…….
I have the impression that Open Innovation still does not get the chance its potential deserves. There are many reasons for this. They range from overly generous definitions that enable companies to point to a small number of activities and then tick the Open Innovation box, to the success of Not Invented Here syndrome. In between I know of several companies cutting back on dedicated Open Innovation resource.
On the positive side there are two recent publications worth noting. The first is a survey on Managing Open Innovation in Large Firms by Henry Chesbrough and Sabine Brunswicker. The overall conclusions are quite positive with most of the indicators trending in a direction that indicates a stronger role for Open Innovation. The share of projects with an inbound component is 35 % on average, with customer co-creation, informal networking, and university grants as the three leading practices in 2011. Crowdsourcing and Open Innovation intermediary services were rated lowest in importance.
Some of these practices are still a little “soft”. For example the definition of an inbound “component” can be very broad; and informal networking is a relatively low risk, low commitment activity that nevertheless should be encouraged. Surprisingly, Chesbrough and Brunswicker’s report shows that Open Innovation is still not very formalized, relying very much on cultural norms; and companies find the transition from closed to open very challenging.
The second article is an academic paper by Luca Berchicci of RSM Erasmus University in the Netherlands. Berchicci shows that companies that rely more on external R&D activities perform better on innovation. There is an optimum point beyond which there is no further gain, equating to 34% of investment. There is much more to Berchicci’s paper, and it certainly does not mean that all heads of R&D should immediately reorient budgets to a 34% “sweet spot”. But it does confirm that Open Innovation is under-exploited by many companies.
Much Open Innovation activity is at the front end with co-creation and crowdsourcing; just look at the explosion in the number of companies selling these systems. I believe that one of the richest Open Innovation seams to mine is further on in the process, when an external organization has taken an idea to proof of concept stage, ideally with Intellectual Property (IP) protection. This is still an area where many companies appear to struggle, and intermediaries are just one approach.
So what can we do about it? Optimizing Open Innovation does not happen overnight, it’s much more about a journey. Here’s some food for thought:
1. Put “stars” into the Open Innovation team. Every organization can easily identify the best performing and most respected people. Putting one or two into the Open Innovation team sends a strong message.
2. Integrate the Open Innovation group. Often the Open Innovation team is organized as a “bolt-on”. I know of one Open Innovation team that resides in a shared services group; this doesn’t exactly say that it’s important. Instead, the Open Innovation team should be as much a part of the mainstream as possible.
3. Focus and align rewards on output. Numbers of patents and projects are examples of input metrics. The launch of new products and services is output. Focus teams and their targets on output, and don’t distinguish between internal and external activity; that’s input. Instead reward the whole team on output; I’ll discuss this more in another blog.
4. Don’t get hung up about IP ownership. Arguments over IP can hinder Open Innovation, as many companies and universities still have strict policies about IP ownership. Customers rarely buy a product on the basis of IP ownership. Ultimately what matters is the ability to use the IP in a preferred position in the market of choice.
5. Be bold. Setting tough targets on innovation output makes teams look at all the options for growth, whether internal or external.
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Kevin McFarthing runs the Innovation Fixer consultancy, helping companies to improve the output and efficiency of their innovation, and to implement Open Innovation. He spent 17 years with Reckitt Benckiser in innovation leadership positions, and also has experience in life sciences.