As a response to rapid technological change, knowledge transfer and talent migration, many companies have started to look for new ways to increase the speed and effectiveness of their approaches to innovation. To provide a competitive edge, many are turning to “Open Innovation” (broadly defined as “how a company works with partners, agencies and other companies outside their organisation to foster innovation”.) as a strategic platform to access new technologies, know how, intellectual property and ideas from external sources such as other companies, universities, inventors and innovation “brokers”.
Such a range and complexity of partnering, licensing and joint-venture activities can bring its own challenges in terms of the effort required to make Open Innovation (OI) effective, often drawing on the valuable time of key staff in developing relationships and stretching the organisation in a variety of new directions.
In their recent survey, PA Consulting Group conducted interviews with business development and R&D directors from 30 global companies across several sectors including manufacturers of medical devices, pharmaceuticals, chemicals and consumer products. PA’s aim was to gauge the current status of Open Innovation in these companies rather than their future aspirations. The findings provide insights into current attitudes to, and challenges resulting from, Open Innovation: from the potential pitfalls, to the opportunities presented by working with external expertise.
In general, most companies agree that OI is key to the future success of the business, but relatively few have so far adopted a structured or company-wide approach to it. Several companies mentioned that some of their units or businesses are much further advanced than others with respect to leadership, strategy, processes and other fundamentals of OI. Indeed, talking to representatives of two different parts of the same group often gave widely different perspectives on OI capabilities and activity.
The survey confirmed that the vast majority of organisations firmly believe that OI deserves management attention and resources with the consensus that Open Innovation is here to stay and will eventually become “business as usual”. Despite this, many admitted that there are several issues to address before this status is achieved.
Few companies have OI strategy and action plans in place: perhaps of most concern is that many respondents indicated that a lack of a strategy for OI has caused their OI efforts to progress slowly or even stall. While a few companies have a clearly stated and well-disseminated OI strategy, others believe that a strategy is missing or that it needs much more clarity and focused ownership. Illustrative of this concern is that some organisations are undertaking OI in an ad hoc manner “trying it to see if it sticks” in one respondent’s terms.
Interestingly, while nearly 90% of respondents from medical device companies are “highly satisfied” with their company’s progress in terms of the commitment to OI as a strategic necessity and a key role for senior leaders, only 20% feel the same about progress in making OI plans explicit and integral to business strategy. This indicates a significant lag between general enthusiasm and encouragement for OI and actual commitment to budgeted investment in specific OI activities.
OI approaches vary according to business context and maturity: within each sector there are OI leaders and late starters, potentially linked to technology leadership and follower positions, although the vast majority of issues raised are common to all sectors. There is evidence, however, that medical device companies are ahead of the game, possibly owing to their established expertise in integrating device component technologies from external suppliers with core in-house technologies to generate innovative new product platforms.
In addition, there is a contrast between the few companies that have dedicated OI teams, with clear objectives and defined scope, compared to the majority that are approaching OI in a relatively unstructured way, in the hope that these experiences provide guidance on future strategy and tactics. A particularly progressive example in medical device manufacturing involved setting up a dedicated organisational unit to focus on major innovation projects and ensure synergies in OI practices are shared across business units.
Concerns exist over sharing know-how with OI partners: there is uncertainty over when to adopt open or closed policies to IP and know-how sharing and this is impeding development of OI. Critical influencing factors are seen to be the company’s relative dominance, the rate of technological change and the potential extent of IP-related applications. That said, the survey indicated that medical device companies in the survey sample are more inclined to ensure that staff are conversant with IP practices compared to those from other sectors. To quote one respondent, “we have specific training courses that are set up by our IP council and there are meetings every month to look and new inventions and make (IP) decisions”.
OI investment decisions pose unique questions: few companies have developed rigorous “business cases” to support their investment in both project-based and company-wide OI. This is a complex challenge involving assessment of the cost/benefit impact of factors such as projected value, timescales, risk, licensing costs, opportunity cost of using key staff, technology integration challenges and the likely impact on broader strategic objectives.
OI processes are evolving but metrics lag: most companies have invested time in defining OI processes for activities such as IP management, technology scouting, licensing and partner search. Many are not satisfied with existing ways of measuring OI performance, however, and the resulting lack of focus and opportunity for effective management of the OI system.
IT infrastructure for OI needs step-change development: apart from “ideas portals” most companies are frustrated with the lack of progress in introducing more extensive IT system support for the management of OI along with knowledge sharing internally and with external partners. Approximately 60% of the medical device companies surveyed are, at best, less than satisfied with supporting IT solutions aimed at facilitating engagement between the management team, the OI project teams and its external partners. Clearly, there is much to do in developing IT infrastructure for OI including external portals, sites for sharing ideas, evolving concepts and reporting of OI-related management information.
OI culture is emerging: there is clear recognition of the need to build the global outward-facing culture so essential to OI success. As with most sectors, the medical device manufacturers interviewed are generally taking measured steps in OI and gaining value from strategic technology partnerships and licensing activities. However, few, if any, of the respondents (including those in consumer goods) are presently aspiring to the wholesale, company-wide top-down OI change programme adopted by Procter & Gamble. For now, the development of OI culture therefore tends to be evolutionary and fragmented rather than transformational.
Despite these challenges, several OI success stories were highlighted, mostly relating to project-level transfer of technologies through partnering and licensing from organisations in other sectors that have resulted in innovative new products and manufacturing processes.
In summary, PA’s survey indicates that Open Innovation (OI) is in a relatively turbulent state of flux as companies gain experience in the various routes available and begin to assess what works for them. Most of the companies surveyed are already gaining benefits from OI and virtually all intend to further develop, scale up and refine their OI capabilities and approaches. Nevertheless, they do not underestimate the challenges ahead in creating significant competitive advantage from what is essentially “innovative innovation”.
Paul Barrett heads up PA Consulting Group's Technology Strategy & Innovation skill group and leads PA's Transforming Innovation Performance service. He is an experienced manager of assignments in innovation, new business development and technology management for international clients in a variety of sectors including healthcare, manufacturing, government, chemicals, defence, consumer goods and transport. Barrett's current areas of activity include R&D transformation, delivering step change in innovation performance, design and implementation of approaches to open innovation, development of technology and innovation strategies, new business development and technology sourcing. Prior to PA, his industrial experience was with process, analytical and medical instrumentation companies in R&D and marketing management and business-unit leadership.
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