INNO WP Open Innovation - Streamlining Open Innovation

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Text of 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

  • 2014 Innography, Inc. All rights reserved. 3

    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.

  • 2014 Innography, Inc. All rights reserved. 4

    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)

  • 2014 Innography, Inc. All rights reserved. 5

    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.

  • 2014 Innography, Inc. All rights reserved. 6

    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 pro