Kviselius N.Z. (2009). Risks of Open Innovation

”RISKS OF OPEN INNOVATION” Niklas Kviselius, Stockholm School of Economics

October 2009

When studying Open Innovation practices it is also necessary to take a look at the perceived risks. This article

discusses two such risks and possible remedies.

Continued strong case for Open Innovation.

The theoretical case for Open Innovation is strong - it is becoming increasingly necessary for organizations to exploit knowledge and opportunities outside the firm through combinations of one’s own capabilities and resources with those from the external environment. A recent massive study (Walsh & Nagaoka, 2009) comparing innovation processes in the world’s two largest economies – the US and Japan – again strongly indicates that collaboration tends to enhance the value of innovation as well as the chance of commercialization, and makes the case for increased openness in innovation.

Theory can however be far away from practice. When studying rollouts of Open Innovation practices it is also necessary to seriously take a look at the perceived and/or real risks

managers bring up. As in any business endeavor there are in fact several potential risks to employing Open Innovation.

Two perceived risks

At least two well

articulated risks (or

fears among managers)

are brought up when

studying business

cases of Open Innovation activities.

These risks represent two extremes

of a continuum. The first risk

becomes relevant if Open

Innovation, as part of an

organizations innovation strategy,

is poorly executed. The second, and

this may seem as a paradox at first

sight, if Open Innovation is too well

executed.

”RISKS OF OPEN INNOVATION” Niklas Kviselius, Stockholm School of Economics October 2009

“What is left behind is perhaps a little more than

another suggestion box, with disillusioned

staff and customers as the unintended result.”

Risk 1: Creating one more

suggestion box.

Here the Open Innovation project

often gets limited attention and

funding after the first energetic

marketing phase is over – or the

initiating manager leaves. The

investment in Open Innovation

practices, including educating and

energizing the staff to really start

co-creating, fades out. Initially

active and interested staff looking

forward to some involvement and

attention from managers, file this

effort as yet another management

vogue. What is left behind is

perhaps a little more than another

suggestion box, with disillusioned

staff and customers as the

unintended result. Innovation

becomes incremental at best.

One remedy would be to really treat

Open Innovation as a new way of

thinking about innovation that will

involve some long-lasting effort,

attention and resources dedicated

to making a shift in innovation

processes. This is naturally easier

when current innovation processes

are formally or informally agreed

upon in the organization –

something that in our experience

not should be taken for granted.

This includes paying attention to

creating a lasting infrastructure of

innovation tools that really

activates the right brain of the staff

and triggers collaboration. In the

Open Innovation Framework project

we have recently evaluated 51

software systems designed to

accomplish this (Hrastinski et al,

2009). Taking a look on how such

low-cost and readily available

support can help providing more

than the typical “suggestion box” is

recommended. We find them a

positive step towards

building communities of knowledge

inside organizations and

connecting them to outside

stakeholders.

Risk 2: Competitors capitalizing on

our Open Innovation efforts.

Here Open Innovation has

successfully become the essential

core of the organizations

innovation efforts. All discussions

on potential new products and

services take place with the help of

“the crowd”.


This crowd successfully includes

both internal experts and

stakeholders and interested parties

from outside.

Despite this, there

is still a looming

feeling that

research findings

that are crucial to

competitiveness

and/or that brings

in money through

licensing are “given

away”.

It is natural to worry

about opening up

windows into

critical R&D

processes resulting in potentially

leaking knowledge that could be

capitalized on by competitors. One

solution would be to not treat the

Open Innovation paradigm as

binary, but add a crucial time axis

and learn when innovation

processes should be

open, semi-open, or

even closed.

Management of how

to balance openness

vs. closeness

becomes necessary.

Take IBM as an

example – one of the

most prominent

corporate

evangelists for Open

Innovation (see link

to full interview

below). IBM receives

about US$1 billion in revenue

annually from patents. However

they spend about US$6 billion a

year on R&D and constantly must

take a number of decisions

regarding the balance of openness

vs. closeness. When should IBM

leverage their 40,000 patent

portfolio to hinder other companies

or maximize licensing revenue, and

when should they not?


“The only way to ensure long-term

corporate competitiveness for ourselves is to

cooperate with other companies in an open

manner, and promote open innovation.”

John E Kelly, Senior Vice President

and Director at IBM Research

Making openness a well-informed

choice

Facing these decisions, in most

organizations in a much smaller

scale and scope, perhaps leads to a

somewhat less dramatic view on

Open Innovation as phenomena.

Organizations may feel less at

home with Open Innovation as a

dramatic paradigm shift, where an

old (always closed and undesirable)

innovation process must be

replaced by a new (always open and

desirable). And more as a view

where openness is a well-informed

choice based upon a number of

variables.

The world of business is seldom as black or white, however these risks are real and can serve as a point for learning about succeeding in Open Innovation. But remember - to have these options, an organization must have invested in Open Innovation practices in the first place. ¶


1

Open Innovation From the Open Innovation Forum’s perspective open innovation involves all aspects of creating new business opportunities by engaging end-users in co-creative activities. Web 2.0 technologies has caused electronic collaboration to evolve, hence paving the way for companies to invite customers and employees to be involved in the refinement of their offerings. Ideally open innovation will create win-win situations where users get services that are more oriented to their needs and organizations will offer services that are more desired by the market. The Open Innovation Forum The Open Innovation Forum aims at being a knowledge hub and rallying point for user-oriented open innovation, where innovation experts and researchers can collaborate on improving theories and practices, while open innovation novices are invited to follow, or take active part, in the development of the area.

www.openinnovationforum.com

“RISKS OF OPEN INNOVATION” Niklas Kviselius, Stockholm School of Economics Niklas Z Kviselius has a Master and PhD from Stockholm School of Economics with specialization in International Business and Marketing. Niklas currently does research on open innovation, aspects of trust in internationalization, and innovation and roll-out strategies in the ICT-industry. Much of his research has been focused on business relationships with the Japanese market.

Further reading

Walsh, J.P. & Nagaoka, S. (2009). How “Open” is Innovation in the US and Japan?: Evidence from the RIETI-Georgia Tech inventor survey. 2009 RIETI Discussion Paper Series 09-E-022

Hrastinski, S., Kviselius, N.Z., Ozan, H. & Edenius, M. (2009). A Review of Technologies for Open Innovation: Characteristics and Future Trends. To be presented at Hawaii International Conference on System Sciences 43, January 5-8, 2010.

Tanokura, Y. & Oishi, M. (2009). ‘Only Open, Evolving Companies will Survive’—John E Kelly III, IBM. Last accessed September 17, 2009.

The content in this article is licensed under a Creative Commons Attribute 3.0 License, which allows the material to freely be copied, distributed, transmitted and remixed as long as the work is attributed to the original authors.

Documents

Kviselius N.Z. (2009). Risks of Open Innovation