INNO WP Open Innovation - Streamlining Open Innovation

2014

Identifying New Technology Partnersand Streamlining the Open Innovation Process

2014 Innography, Inc. All rights reserved. 2

Table of Contents

Introduction .................................................................................................................................................. 3

Looking for Opportunities ............................................................................................................................ 5

Evaluating and Screening Opportunities .................................................................................................... 7

Models for Open Innovation ........................................................................................................................ 8

Getting Started: Overcoming the Hurdles ................................................................................................... 9

Conclusion ..................................................................................................................................................10


Introduction

In the past, internal R&D was a valuable strategic asset, even a formidable barrier to entry by competitors in many markets. Large corporations like DuPont, IBM, and AT&T competed by doing the most R&D in their respective industries and subsequently reaping most of the profits. Rivals who sought to unseat those powerhouses had to ante up considerable resources to create their own labs, if they were to have any chance of succeeding. Today, however, the leading industrial enterprises of the past have been encountering remarkably strong competition from many upstarts. Surprisingly, these newcomers conduct little or no basic research on their own, but instead get new ideas to market through a different process.

Is innovation dead? Hardly, as punctuated by the recent advances in the life sciences, including revolutionary breakthroughs in genomics and cloning. Then why is internal R&D no longer the strategic asset it once was? The answer lies in a fundamental shift in how companies generate new ideas and bring them to market. In the old model of closed innovation, firms adhered to the following philosophy: successful innovation requires control. In other words, companies must generate their own ideas that they would then develop, manufacture, market, distribute, and service themselves. This approach calls for self-reliance: if you want something done right, youve got to do it yourself.

For most of the 20th century, this closed model worked and it worked well. Under it, Thomas Edison was able to invent a number of landmark devices, including the phonograph and the electric light bulb, which paved the way for the establishment of General Electrics famed Global Research Center. In the chemical industry, companies like DuPont established central research labs to identify and commercialize a stunning variety of new products, such as the synthetic fibers: nylon, Kevlar, and Lycra. Bell Labs researchers discovered amazing physical phenomena and harnessed those discoveries to create a host of revolutionary products, including transistors and lasers.

At its root, open innovation is based on a landscape of abundant knowledge, which must be used readily if it is to provide value for the company that created it.


However, toward the end of the century, the closed model began to erode due to a number of factors. Perhaps chief among these factors was the dramatic rise in the number and mobility of knowledge workers, making it increasingly difficult for companies to control their proprietary ideas and expertise. Another important factor was the growing availability of private venture capital, which has helped to finance new firms and their efforts to commercialize ideas that have spilled outside the silos of corporate research labs.

Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.1

Companies can no longer keep their own innovations secret unto themselves;the key to success is creating, in effect, an open platform around your innovations so your customers, your employees and even your competitors can build upon it, because only by that building will you create an ongoing, evolving community of users, doers and creators.2

In this new model of open innovation, companies commercialize external and internal ideas by deploying new pathways to the market. Companies can commercialize internal ideas through channels outside of their current businesses in order to generate value for the organization. Some vehicles for accomplishing this include startup companies (or possibly even financed and staffed with some of the companys own personnel), licensing agreements, or distribution partnerships. Ideas can also originate outside the firms own labs and be brought inside for commercialization. In other words, the boundary between a firm and its surrounding environment is less rigid, enabling innovation to move easily between the two.

At its root, open innovation is based on a landscape of abundant knowledge, which must be used readily if it is to provide value for the company that created it. However, an organization should not restrict the knowledge it uncovers in its research to its internal market pathways, nor should those internal pathways necessarily be constrained to bringing only the companys internal knowledge to market. This perspective suggests some very different rules. For example, no longer should a company lock up its IP, but instead it should find ways to profit from others use of that technology through licensing agreements, joint ventures, and other arrangements.

One major difference between closed and open innovation lies in how companies screen their ideas. In any R&D process, researchers and their managers must separate the bad proposals from the good so they can discard the former while pursuing and commercializing the latter. Both the closed and open

1 Henry Chesbrough, Open Innovation: Researching a New Paradigm 2 Randall Rothenberg, editor, strategy+business (published by Booz Allen Hamilton)


models are adept at weeding out false positives (that is, bad ideas that initially look promising), but open innovation also incorporates the ability to rescue false negatives (projects that initially seem to lack promise but turn out to be surprisingly valuable). A company that is focused too internally that is, a firm with a closed innovation approach is prone to miss a number of those opportunities because many will fall outside the organizations current businesses or will need to be combined with external technologies to unlock their potential. This can be especially painful for corporations that have made substantial long-term investments in research, only to discover later that some of the projects they abandoned had tremendous commercial value.

The classic example is Xerox and its Palo Alto Research Center (PARC). Researchers there developed numerous computer hardware and software technologies Ethernet and the graphical user interface (GUI) are two such examples. However, these inventions were not viewed as promising businesses for Xerox, which was focused on high-speed copiers and printers. In other words, the technologies were false negatives and they languished inside Xerox, only to be commercialized by other companies that reaped tremendous benefits. Apple Computer, for instance, exploited the GUI in its Macintosh operating system while Microsoft did the same in its Windows operating system.

Looking for Opportunities

Most companies are always looking for opportunities to grow their product portfolios, move into new markets, and make a significant impact on business. Whether transformative or expansionary, the key questions are: How do you focus your search? Where should you look?

While new and/or disruptive technologies can give you a competitive advantage, other reasons to go outside include market access (customer base, distribution, brand, etc.), competencies (technical, marketing, business), and funding as well as ideas related to serviceability, sustainability, or other attributes. Increasingly, companies are exploring open innovation partnerships in emerging markets such as China and India where growth opportunities are greater.


Regardless, the most important driver is customer need. Ideally, you will match a new technology or idea to a large, unmet, and compelling need. (Remember that invention is not the same as innovation.) Best practices in open innovation include:

Seek problems, not solutions identify the gap(s), dont presume the answers

Think generically

Look everywhere

Manage internal experts

Keep options open

A great example of these best practices is a cosmetic company that was looking to create a makeup for women to make wrinkles disappear, when they discovered that the material used to coat stealth fighters worked by causing diffusion making them invisible to radar. On further exploration, they discovered that the same principle worked for diffusing reflected light, essentially removing shadows from under wrinkles making them disappear. A similar case involved a pet products company that was seeking to identify a non-clay cat litter product. They discovered a material used in burn bandages that had all of the right properties highly absorbent, odor controlling, anti-microbial, light weight, etc. Further investigation showed that it could be pelletized and made a perfect material for a lighter weight, more absorbent cat litter which is now on the market.

The higher the potential value of an innovation, the further and deeper you may need to look. You must keep an open mind and be willing to look at unconventional sources. The search should be both internal and external, span different industries and geographies, and be multi-disciplinary. At this stage, the goal is to identify as many viable candidates as possible. The next stage will be to effectively screen to narrow the list to the best fit.

The spectrum of potential partners and resources is vast, the choices are numerous: brokers and intermediaries, industry supplier networks, universities, government labs, science parks, entrepreneurs, industry associations, conferences/trade shows, online databases, and more. It is important to cultivate multiple networks and hunting grounds your goals and corporate culture will fit better with some more than others.


Evaluating and Screening Opportunities

While many opportunities seem promising, ultimately not all can or should be pursued. Successful scouting programs rely upon rigorous, clear processes, and criteria for evaluating submissions and leads.

Some industries and applications have more opportunities to screen than others; for example, consumer goods companies such as Kraft, General Mills, P&G, etc., receive thousands of submissions through their websites and other channels other highly technical industries and applications may only solicit a handful.

In either case, it is important to know what you are looking for. Breakthrough ideas come in many forms whereas specific technical solutions are more straightforward.

You may be evaluating emerging or disruptive technologies, product concepts, new markets, prospective partners, and more.

Basic Screening Criteria Here are some criteria that can apply to every screening process:

Uniqueness/Competitiveness: Is this idea/technology original and well-differentiated? How easy would it be for competitors to copy or work around?

Need Fulfillment: Does it meet an identified customer need or gap?

Feasibility: Do you have the capability to develop and commercialize it? Is it cost-effective? What is the current level of development?

Impact: If the idea is realized, how will it affect your organization?

Scalability: Can a technology or business model succeed in different markets or respond positively to repeated demand cycles? Are incremental costs and demands on the organization likely to decrease over time and volume?

Strategic Fit: Does the idea/technology/partner mesh with corporate direction, expertise, and culture?


Boiled down even more simply, is the idea/technology applicable (technology fit), is it available (partnering fit), and affordable (economic fit)? For example, Corning uses internal expert groups to conduct ideation, a process that considers market dynamics, hypothetical value and whether a problem definition fits within Cornings business strategy. They whittle hundreds of white papers down to a key few to be considered for funding. The preliminary assessment takes 4-6 weeks.3

Models for Open Innovation

Another great resource for learning about how other companies have addressed open innovation is The Global Brain. This book is full of case studies assembled as the authors researched the topic for the book. Perhaps one of the most informative sections of the book deals with various models for implementing open innovation (they call it networked innovation). The diagram below summarizes the models.4

3 Management Roundtable, http://mrtplus.wordpress.com/2011/10/14/tech-scouting-evaluation-and-assessment/ 4 The Global Brain, Satish Nambisan and Mohanbir Sawhney

Staples P&G Kraft

Creative Bazaar Jam Central

MOD StationOrchestra

Open Source Tropical Disease Initiative

Boeing 787 Salesforce.com AppExchange

OpenSPARC SugarCRM

Knowledge and LeadershipCentralized Diffused

De

ned

E

mer

gen

tIn

nova

tion

Spa

ce


In these models understanding both how and where the innovation will be managed and the nature of the innovation being managed drive the model type. The authors provide great examples of each model.

The Orchestra model is exemplified by the Boeing 787 project. In this project Boeing served as the orchestra leader, providing specification to innovation partners, while each partner was responsible for their piece of the aircraft. This project is a first step toward Boeings vision of becoming more of a designer and integrator and less full scale aircraft manufacturer.

The Creative Bazaar example is Staples who have launched a contest to collect ideas for Staples branded products to be sold in their office supply stores. In this example they seek any and all ideas, while Staples manages the review and selection process themselves.

The MOD Station example is the SPARC microprocessor where the design was opened to the community for modification, but was somewhat constrained by specification.

And finally, Jam Central is most represented by Open Source software, a self-governing group of software developers continuously developing various software products.

Getting Started: Overcoming the Hurdles

Fundamentally, there are two major hurdles to successfully launching open innovation within most organizations. First, ask anyone who has managed an open innovation launch at their company and youll likely hear that the biggest issue is establishing a culture willing to adopt. Strong centralized R&D cultures may initially view NIH ideas as representing a dilution of brand. However, firms can share the innovation challenge with R&D and demonstrate the benefits of tech scouting solutions as a complement to internally generated innovation, as well as ensure that open innovation is supported throughout the organization. This is a key first step.

Second, selection of projects with the right context is key. This is an area where R&D partners review ideas and identify specific projects where it is clear externally developed technologies can be used in their entirety or to fill in key technology gaps where internal competencies are lacking. Selection of the right projects early on to establish a pattern of success can get the whole team on board more quickly.

At the implementation level, expert Jay Paap stresses the importance of managing the 3 Rs: Resources, Risk, and Resistance. External sourcing must be promoted as a valued option, emphasizing the benefits of going outside such as accelerated development and growth.


Additionally he recommends:5

Provide support and tools for searching and acquiring.

Remove disincentives both personal and project.

Reward deals considered, not just deals that are done.

Consider setting up a formal program.

Location is not as important as visibility and support.

Concentrate on cooperation not competition with related functions.

Conclusion

The concept of open innovation implies that an organization has the willingness and desire to source and utilize external knowledge, ideas, intellectual assets, and technologies, in addition to its internal capabilities to identify solutions to problems, capitalize on opportunities, develop new technologies, create new products and services, improve processes, or design new organizational systems and business models. However, in practice it is still difficult for organizations to understand how to embark on an open innovation journey and begin implementing the concepts of open innovation. It takes significant cultural change for an organization to embrace open innovation thinking.

A simple approach for organizations to begin to implement an open innovation strategy is to focus on their key challenges or problems facing the organization. A key question could be, How can the organization solve a significant complex problem utilizing external expertise or knowledge (that is, assuming internal attempts to solve the complex problem were not successful)?

Once determined, agreement on the approach and defining the model are key first steps. New skills of partnering, teaming agreements, and cooperation between partners will need to be developed as you go. There are countless companies that have successfully launched open innovation initiatives. In addition to the resources listed in this paper, conference proceedings from the PDMA Co-Dev Conference and many web-based articles document case studies. Many of these companies are sharing their experiences and are a wealth of information to help you get started.

5 Management Roundtable, http://mrtplus.wordpress.com/2011/10/07/tech- scouting-winning-over-internal-rd/

About InnographyInnography provides better answers to questions about intellectual property to help organizations improve their business results. Innographys proprietary software suite combines unique correlation and visualization technologies to enable users to quickly gain valuable insights for managing, extending and exploiting their patent portfolios. Founded in 2007 and based in Austin, Texas, Innography is the worlds premier Intellectual Property Business Intelligence (IPBI) provider.

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INNO WP Open Innovation - Streamlining Open Innovation