Open Innovation – What You Said

As companies are looking for ways to fuel innovation without burning cash and other resources, one method of idea generation that has been garnering a lot of buzz is open innovation.  In pursuing open innovation, companies attempt to leverage members of their value network (customers and partners) to harvest more concepts around which innovation initiatives can be mounted.  But is open innovation effective?  That was the question behind our latest Innovating To Win Innovation poll.  You were asked to characterize the nature of the results you were achieving (or expected to achieve) from your open innovation programs.  The results are quite interesting.

Just under 43% of you expect get either breakthrough innovations or significant new market opportunities through open innovation.  Fully one third of respondents anticipate that the results of open innovation will be incremental in nature.

At one level, these results are not too surprising.  It is a well understood concept that customers are subject to the same forces of mental inertia that product designers must overcome.  The current use model of the product or service you are providing your customers creates a lens through which they see what is possible.  This is what makes listening to customers to indentify directions for breakthrough innovation especially difficult.

However, what is particularly surprising is the number of respondents that find their open innovation programs are not yielding valuable results.  Almost 24% feel the results of open innovation are not adequate.  This speaks to the challenges of successful open innovation.  Some companies make the mistake of believing if you build an open innovation portal, the high value concepts will come.  But, this is hardly the case.  Like any other strategic initiative, open innovation requires great attention and effort to drive its success.

Among the key challenges companies face in making open innovation initiatives work are alignment, authority, and actualization.

Alignment is an issue because your goals and the goals of your customers and partners are not the same.  Don’t fool yourself into thinking otherwise.  As a result, there is a need to create optimal alignment of participants in the open innovation process. Communication and goal sharing are key.  So too, is building affinity in the innovation team.  Customers and partners have limited loyalty.  I recently had the opportunity to talk about this issue with Michael Chui of McKinsey & Company.  The risks of investing in a partner relationship when the partner can realign with a competitor at any time are all too real.  This is an area often overlooked in the open innovation process design.  Consider how your open innovation program creates a bi-directional flow of value.

Once you establish a flow of concepts through your open innovation program, you must still validate the authority of the source and concept as it relates to your business and market objectives.  This often means considerable analysis and research to vet concepts.  The need for this type of secondary research should not be underestimated.  At Clorox, an early leader in the successful application of open innovation processes, high value is placed on the validation of concepts as they emerge from the open innovation partner network.  Make sure you have properly invested in the infrastructure to support deep concept validation and research to ensure the best quality of innovation platforms choices.

Actualization is another piece of the open innovation process that is frequently overlooked.  It’s not enough to find a high-value concept; you need to do something with it.  The challenge of moving from concept to revenue generating product is among the biggest challenges companies face according to a recent Boston Consulting Group report on the state of corporate innovation.  In many cases, great concepts are passed over because the company doesn’t see the path to monetization.  What a waste!  Make sure that you are ready to extract to the maximum value of your open innovation concept stream by equipping your innovation workers with the skills and tools for repeatable, high performance innovation.

The bottom line is that open innovation is not a panacea to anyone’s innovation problems.  It’s merely another available tool.  Like any tool, you need to understand how to use it to produce desirable results.  Understand the participants and dynamics of your value creation network; keep your eyes on the issues of alignment, authority, and actualization; and you will be starting off on the right path.

Don’t forget, a new poll is now open.  Many companies are identifying that the loss on institutional knowledge due to the mass exodus of more experienced workers is having a serious impact on the innovation capacity of the organization.  With that in mind, our new poll probes to see how you are coping with the issues of generational turnover.  You can find the poll in the left hand sidebar. Please remember to vote.

Comments

[Andrea Meyer]

Good points you raise, Jim, especially about the point that open innovation initiatives require a process and structure to validate/evaluate the ideas submitted and then decide how (and whether) to implement the ideas. I especially like the notion of not just discarding an idea that doesn't mesh immediately with the corporate mission or doesn't have an immediate path to monetization. Those ideas could be reshaped (or at least archived) for future consideration. It might be that later technologies/developments make previously infeasible ideas workable or relevant. Have you seen cases where companies open up discussion of ideas to employees, to find ways to enhance externally-submitted ideas?

[James Todhunter]

Hi Andrea,

Thanks for the insights. Personally, I maintain a list of interesting concepts from the past that were rejected because they didn't meet the metrics of the moment. I revisit this list periodically to see if some of the concepts have grown old and moldy and thus should be tossed away, or if there are concepts that have ripened and now are ready for harvesting.

I do see other example in organizations where ranking of concepts contributes the concept disposition and potential for future consideration.

As to enhancing OI concepts, I see this as a common model. In bound concept are vetted and modified by the disciplined OI organization. The value network is also further leveraged to grow seed idea beyond their initial value. This is one of the key concepts that Chui espoused in our discussion. An arms-length dialog is not as effective in surfacing value potential as a more complete engagement with value network constituents.

[Christian DE NEEF]

Open Innovation is not limited to a company's value network. Of course clients and suppliers are important in the innovation game, but so are competitors, external research centers, universities, etc. Open Innovation is also not new: it's been ongoing as long as research and development existed, which is several thousands of years now... What is new is the approaches one can take to Open Innovation thanks to enabling technologies! Think collaboration, crowdsourcing, simulation, etc.

As for the 24% of respondents that feel the results of Open Innovation are not adequate... is that really such a high number? I mean, what is the return on internal innovation? And why would we expect the return on Open Innovation to be significantly higher? Despite spending fortunes on R&D, most companies demonstrate miserable return on their innovation initiatives. If I remember well, data from BCG and Doblin (a few years ago already) suggested that the industry-wide success rate of innovation initiatives was about 5%!

Indeed, some companies are naïve and believe that Open Innovation is a panacea! It isn't. It's a complementary technique to the more traditional in-house innovation initiatives. It should be aimed at well-targeted (and well-suited) challenges, and it requires focus and follow-through. Moreover, Open Innovation can only work if trust can be built between the partners. Lacking sufficient trust, there will be disputes (about ownership of IP or sharing of risks and benefits), partners will turn to the competition, etc.

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