Organizations are discovering that open innovation is a viable route to R&D success.
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The concept of “open innovation” and the buzz surrounding it may be a mystery to some. Others see it as just another type of outsourcing. However, more companies are relying on open innovation for R&D because it represents a different value equation.
In practice, open innovation encourages companies to use external, as well as internal, ideas and paths to market as a means to advance technology. Enabled by information and communication technologies, companies can buy or license innovations from other organizations anywhere in the world, instead of relying entirely on their own research efforts.
Likewise, inventions developed internally that are not being used or marketed by an organization can find new life through licensing, joint ventures, or collaborative efforts with other companies.
In traditional outsourcing, an entire support function, such as IT or distribution, may be farmed out to a third party that can perform the work more efficiently and cost effectively. In open innovation, by contrast, a company reaches out to innovation resources that expand internal capabilities and become an asset for the company.
Beyond outsourcing
Open innovation is a different process and leads to a different outcome. It is an investment in a company’s own capability, as well as a way to reduce the risk of developing a technology that already may have been superseded.
Often, when a company is moving to a new product or service space, it doesn’t know exactly what enabling technologies or expertise are out there. Open innovation is more front-end than outsourcing, but that front end can be very fuzzy. When a company reaches out to seek specific partner expertise, it is a form of scouting—to find out what is already available. Thus, while open innovation affords benefits across a company’s value chain, it is ideally suited for R&D and also can work for marketing ideation initiatives. It is not uncommon for companies to rely on outside parties for basic research, but external collaboration is now expanding to include the acquisition and licensing of core and enabling technologies.
In an open innovation environment, neutral intermediaries can perform a vital role in protecting the intellectual property of both the solution seeker and the innovation provider, thus increasing the likelihood for successful connections.
Open innovation can change the culture of a company and stimulate its capacity to innovate. Instead of rewarding the R&D staff for developing a breakthrough technology, an open innovation culture rewards them for achieving an innovation in the company’s products and services, regardless of where the technology comes from. This shifts the R&D focus from “first-to-invent” to “first-to-market”, thus aligning R&D more with the company’s primary objectives.
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AkzoNobel, a Netherlands-based Global 500 leader in coatings and specialty chemicals, developed a company-wide networked program to help drive strategic innovation across its business units. Innovation leaders at the company wanted to better leverage existing knowledge and capabilities, both within and outside the business.
NineSigma, an innovation service provider based in Cleveland, worked with AkzoNobel to create the processes and mechanisms needed to collaborate more effectively. As a result, there have been more than 70 internal, cross business searches launched to find new solutions or expertise, and all but 10% resulted in valuable knowledge sharing across the organization.
Another example is Dallas-based Frito-Lay, which was looking for ways to reduce sodium in their potato chips. Through the open innovation process, the company issued their need broadly to potential solution providers outside the company. Ultimately, Frito-Lay was able to identify researchers with a method for producing halide nanoparticles that resulted in the invention of a more soluble form of sodium chloride. The result: Less salt is used in the snack food but consumers still taste the same salty flavor.
A search for solutions
Sometimes, a company may not know exactly which development path to follow. Open innovation helps in the initial ideation process and in identifying potential partners. The intelligence gleaned from open innovation can also steer a company away from a particular path because others have already found that it is a dead end.
Because it is open, this process can even enable companies seeking the same solutions to innovate together for the “common good.” For instance, companies in the chemical, food, and consumer goods industries can collaborate to find ways to more efficiently repurpose water used in manufacturing and identify improved water treatment technologies. Their solution can become a global one that benefits not only their bottom lines, but the planet as well. While sharing both costs and risks, companies can join together to tackle the largest and most complex global challenges more quickly and efficiently.
Another consequence of these successes is a change in the role of the chief technology officer. R&D shifts from being a cost center to becoming a strategic component, adding value to the company in a more proactive manner.
Open innovation is a powerful tool for today’s companies. It goes well beyond traditional outsourcing in the way that it engages the company with resources that are available outside its four walls, while transforming the organization and adding substantial new assets and capacity.
