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Open innovation: Practitioners speak

"Businesses need to increase their innovation potential if they are to make the most of the hoped-for upturn. Among the most radical, and potentially most effective, options for doing so is Open Innovation (OI)."
Paul Barrett
European CEO
June/July 2010

Companies are well aware of the attractions of Open Innovation, but research reveals that many are struggling to make it happen in a controlled way, reports Paul Barrett, specialist in Innovation Consulting with PA Consulting Group.

Businesses need to increase their innovation potential if they are to make the most of the hoped-for upturn. Among the most radical, and potentially most effective, options for doing so is Open Innovation (OI). OI is a strategy for accessing new technologies, solutions, know-how, intellectual property (IP) and ideas from external sources (such as other companies, universities, inventors and innovation ‘brokers’) in order to foster innovation. That approach has obvious appeal since it makes it possible to respond rapidly and effectively to innovation opportunities and maximise the return on investment. But it brings challenges of its own.

An acknowledged key to success
PA recently conducted a survey to investigate the current status of OI. We interviewed business development and R&D directors from 33 leading global companies across several sectors including consumer products, medical devices, pharmaceuticals, advanced engineering and chemicals. The findings afford valuable insights into current attitudes to OI, the challenges and pitfalls, and the opportunities.

In general, most companies agree that OI is key to the future success of the business and as such deserves management attention and resources. There is a consensus that it is here to stay and will eventually become business as usual: a fully integrated business process.

Several early OI success stories were highlighted. Most of these related 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.

However, relatively few companies have so far adopted a structured or company-wide approach. Indeed, talking to representatives of two different parts of the same group often gave widely different perspectives on OI capabilities and activity.

Implementation challenges
The survey reveals several specific issues that need to be addressed before OI achieves the central status that most respondents believe it should have.

Few companies have OI strategy and action plans in place. While a few companies have a clearly stated and well disseminated OI strategy, others believe that strategy is missing, or needs much more clarity and focused ownership. In other cases, the OI strategy is not integrated with the company’s overall innovation strategy. Some organisations are undertaking OI in an ad hoc manner, ‘trying it to see if it sticks’ in one respondent’s terms. This issue could be the biggest single obstacle to progress. Many interviewees report that lack of strategy has caused their OI efforts to progress slowly, or even stall.

The lack of a clear strategy is coupled with a noticeable lag between general enthusiasm for OI and commitment to budgeted investment in specific OI activities. Tellingly, although more than 80 percent of respondents are ‘highly satisfied’ with their company’s commitment to OI as a strategic necessity and a key role for senior leaders, only half as many are as satisfied with progress in making OI plans explicit and integral to business strategy.

Some OI approaches are more mature than others. Although the majority of OI issues are common to all sectors, there are some differences. Consumer products companies, for example, tend to be more advanced than average with their OI initiatives. Their advantage is probably due to their history of encouraging suppliers to innovate, which means their staff are already skilled at collaborating with third parties. Within each sector there are OI leaders and late starters. There is a possible correlation with technology leader¬ship and follower positions: technology leaders appear more likely to be ahead with OI.

Even within a single company, there can, as already noted, be a range of maturity with respect to leadership, strategy, processes and other OI fundamentals. One respondent commented, ‘We have business units where OI is very well done, but overall OI is not incorporated into our goals, and it’s not well executed across the organisation as a whole.’ 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.

The majority of companies are approaching OI in a relatively unstructured way, in the hope of gaining experience to guide future strategy and tactics. In marked contrast, a few companies have taken steps to formalise their OI approach. One progressive player, in medical devices, has created a dedicated organisational unit to focus on major innovation projects and ensure that OI experience is disseminated across business units.

There are concerns about sharing know-how. Another common impediment to advancement in OI is uncertainty over the sharing of IP and know-how with partners. Companies are unsure about when to adopt open policies and when to be more protective of ideas. Their degree of openness appears to be influenced by the company’s level of dominance in its marketplace, the rate of technological change, and the perceived potential of the specific IP under consideration.

A few organisations have taken steps to address this issue systematically, for instance by providing training in IP-related practices. More typical, however, was the respondent who said, ‘We have got as far as identifying which skills are most necessary, but there is no training yet.’ 

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...

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 businesses have invested time in defining OI processes for activities such as IP management, technology scouting, licensing and partner search. Circa 70 percent of respondents believe they have made good progress at tracking and acquiring external technologies and integrating them into the business, for example.

However, many respondents are dissatisfied with current approaches to measuring OI performance, and at a loss as to how they could be improved. ‘If you can tell me a way to measure the incremental value of my OI efforts – all the tiny successes over time – then I want to hear it,’ was one interviewee’s crie de coeur. Adequate metrics must be identified and captured if OI is to be managed effectively.

IT infrastructure for OI needs step-change development. Despite being satisfied with implementation of their OI processes, nearly half of the respondents are frustrated by a lack of progress in introducing IT support for the management of OI, for sharing knowledge internally and externally, and for supporting collaboration.

Clearly there is much to do in this area. Portals and other systems for exchanging ideas are a possible area for focus; in fact, some of the companies surveyed have already initiated such portals, albeit at a somewhat rudimentary level in most cases. Other worthwhile IT applications include software for evolving concepts and for reporting OI-related management information.

OI culture is emerging – but only in patches. Success in OI requires a global, outward-facing culture of the kind espoused by Procter & Gamble, which has adopted a wholesale, company-wide top-down OI change programme. The majority of our respondents recognise the need for this kind of culture, while emphasising that it must be adapted to their specific requirements. However, so far their development of OI culture has tended to be evolutionary and fragmented rather than systematic and transformational in the P&G vein.

Culture comes down to the attitude, energy and commitment of the top management. As one respondent put it, ‘Trying to generate the innovation culture from the bottom up creates enormous stress.’

Making OI work
Our survey results confirm that there have already been significant achievements in OI. 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.

However, our survey findings also suggest that OI is still in a fairly turbulent and underdeveloped state in most organisations. The picture was adeptly summarised by an interviewee who said, ‘We do not have a coherent and well defined strategy for OI – but we want to do it.’ As this quote suggests, companies themselves are well aware of the challenges involved in creating significant competitive advantage from what is essentially ‘innovative innovation’. In particular, they recognise the need to implement a practical, company-wide approach to OI.

How can businesses set about achieving such an approach? There is not a single answer to this question and we believe that there are several items that need to be put in place, including:
• A stretching ambition and distinctive strategy for OI, strongly linked to business objectives and overall innovation strategy;
• An effective internal innovation system to provide a firm foundation and conduit for OI;
• An outward-looking culture of collaborative innovation, instilled by company leaders;
• The right tools and infrastructure to support this culture, including OI-specific business case frameworks, IT and collaboration tools;
• Active management of external relationships for long-term benefit.

Although satisfying these requirements may sound like a challenge in itself, there will be worthwhile benefits along the way, since most of these are also requirements for any form of innovation, open or closed.

Ultimately, though, there is no real alternative to OI, as the overwhelming majority of our survey respondents agreed. For leading enterprises in a post-recession economy, the ability to think two steps ahead of the competition is not just an advantage, but a necessity. Especially in a climate of rapid technological change, knowledge transfer and talent migration, it is an ability that can only be fully attained through cross-fertilisation of ideas between organisations.

This article was reproduced with kind permission of European CEO

To visit PA's open innovation pages click here

Contact the innovation team

Frazer Bennett

Frazer Bennett

Anita Chandraker

Anita Chandraker

Andy Katz

Andy Katz

Hsiu Mei Wong

Hsiu Mei Wong

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