Open Innovation: Harnessing a Vast Reservoir of Assets

Open Innovation: Harnessing a Vast Reservoir of Assets Patrick Reinmoeller How can companies tap into the vast reservoir of assets available in the wider world? Many argue that to stay ahead, companies can no longer afford to simply rely entirely on their own resources. Some people use the term ‘open innovation’ to describe the growing trend to draw ideas and resources from a much deeper well than would be available to a single company. What is Open Innovation? Open innovation is a relatively new term for a fundamental truth that has long been recognised: organisations do not own and cannot employ all the bright minds. There will always be precious resources outside the boundaries of organisations and tapping into them is a challenge. If you conceptualise innovation as having three phases; creating variety, selecting ideas and retaining them, i.e. implementation, then open innovation can be useful in several ways. Mostly people think in terms of capturing ideas that lie outside. While it makes sense to use external resources to enhance variety, it leaves much potential unexploited. Open innovation can do more than just enhance variety; organisations are replete with ideas that employees dare not mention because they know the selection criteria, i.e. key performance indicators, are overly restrictive. Using open innovation to allow for better selection, giving a new idea room to be considered and possibly bringing that idea to fruition, can be a breakthrough for organisations set in their ways. Similarly, where what works tends to be retained, leveraging innovative approaches practised by other parties may well offer new, promising performance opportunities. In sum, open innovation can support all of these three main phases of the evolutionary process of breakthrough products and services. With this upside, comes the increasing complexity involved in managing external resources as well as internal resources. A common mind‐set of Not Invented Here There is a common corporate mind‐set that implicitly says we have got the best brains and we invent the best ideas. Contrast this with how IBM has transformed itself and now espouses more permeable organisational boundaries and a more open culture. Using external resources to create ideas requires the organisation to be open enough to draw in outside ideas–and for most organisations that is still very hard to do. I have seen many an organisation where an internally focused mind‐set, even if not explicitly expressed, was clearly a constraining barrier for outsiders. This often applies to taking on board new ideas www.cranfieldknowledgeinterchange © Cranfield University 1 from within the corporation, too; consider all the great ideas hatched inside well‐respected organisations that have been stifled by their organisational cultures, structures and systems. This has led people with perfectly viable ideas to set up successful new businesses that would never have seen the light of day within their original organisations. Hatching ideas using external resources Whilst it is hard for organisations to take on board new ideas particularly from outside, Proctor and Gamble is a shining example of accepting ideas from the outside and selecting and developing them. More than 50 percent of product initiatives at Procter & Gamble now involve significant collaboration with over 1000 outside innovators. Much of the social media space today is fuelled by external ideas: millions use Wikipedia, the “free encyclopaedia that anyone can edit” which relies on the ideas and information contributed by users and enthusiasts. Challenging, but productive Using external resources to select the best ideas is an even more challenging use of external resources for innovation, because it gives away part of the control. Certainly having external parties, such as external experts and external lead users, making the decision on how the organisation should use its resources is a challenge, but ultimately it can be very productive. In our book, Strategic Management: Competitiveness and Globalization1, I and my co‐
authors observed best practice companies, including Alessi and Muji. Muji, the Japanese retailer, is successfully and profitably applying this philosophy: Muji's customers have co‐
designed a number of products that have generated sales far beyond comparable items developed using conventional methods. The most successful of these is a type of beanbag sofa with a special filling that combines stability with comfort and takes up less space than a traditional sofa–all thanks to active consumer input. Open innovation examples There are many examples where open innovation is currently in action. Idea awards have started to emerge where ideas are evaluated by the general public selecting ideas that have come from themselves. If you now look at the apps world, you will see apps being suggested by amateurs, semi‐professionals and professionals and selected by a world audience. Apple has grown a new successful business unit by tapping into these external resources. www.cranfieldknowledgeinterchange © Cranfield University 2 Concerns over control and ownership Some people express concern about intellectual property rights, control and confidentiality, but there are well‐established ways to overcome these problems; if the rules are transparent from the start about who owns the intellectual property and if that is expressly clear from the start there shouldn’t be a problem. There are different ways to handle these issues and each is appropriate under different circumstances. Some people may send in ideas and are passionate about those ideas, not necessarily financial gain. For many, it may be important to have a contract that allows them to feel secure in a stable institutional environment. With planning, substantial benefits Open innovation is not simply about getting new ideas for new products. Open innovation offers a plethora of opportunities to reach higher levels of performance by managing in new ways, but it needs to be carefully tailored to the needs, processes and structures of each organisation. It does not offer an easy and ready‐made solution. If set up and managed in the correct way, with a well thought‐through strategy and with careful consideration of cultural and structural issues, then the prospects of reaping the benefits from open innovation can be realised. Patrick Reinmoeller is Professor of Strategic Management at Cranfield School of Management 1
Strategic Management: Competitiveness and Globalization, Cengage Learning EMEA 2011, ISBN 9781408019184 www.cranfieldknowledgeinterchange © Cranfield University 3