Thursday, August 30, 2007

Back to work: Some thoughts on Open Innovation

What’s it all about?
Open Innovation (OI) has been a “hot topic” for the last 4 years, and is still very much on the management agenda. P&G’s recent innovation success is ascribed to their “Connect and Develop” programme, where ideas from outside the company are actively sought and encouraged.

What it is
Henry Chesbrough is the leading writer on the topic. Here’s his definition:
“A paradigm that assumes firms can and should use external ideas as well as internal ideas and internal and external paths to market, as firms look to advance their technology”.
At its core, the idea is that firms, however big, successful, and well resourced, can only have limited success by harnessing their internal development function. Much better to harness the global R&D community across different industries, categories, and countries.
P&G talk of having 9,000 R&D internal people but aiming to access the 1.8 million outside the company who are similarly qualified and equipped.

What it’s Not
It’s not just outsourcing R&D, and it’s not the same as open sourcing software. It’s not just appointing a University to work on a Research project.
It is the collaborative development of ideas and technology with people and companies outside your own. It is working with partners to not just invent, but to innovate, that is, to bring the ideas to market.

1. More ideas
Most obviously, you get access to many more ideas and other peoples’ creativity. No-one has a monopoly on ideas, and the chances are that bigger, better, and more disruptive ideas will come from outside the organisation. Collaborators don’t have to be told to think outside the box, they are already live outside the box!
2. Wider networks
Networks are an asset, and not just for people, but for companies. Unexpected benefits come from being in contact with people or businesses, and access to their networks allows you to cascade into a broad community of contacts
3 Speed
Working with others can speed thing sup- at least if they are committed to speed themselves and if they are perhaps further advanced that you are in a particular area of development. An ideal collaborator is one who is just further down the path that you are.
4. Risk reduction
By harnessing the know–how of others you are reducing the people investment needed to bring about your innovation. By involving more brains you are reduce the risk of later discovering something you should have thought of. Chesbrough talks of using “Smart people outside the business”

There are clear issues around Intellectual property. Upfront agreement on the commercial relationship and non-disclosure are crucial, and the lessons seem to be:
1. It’s not for everyone.
Some corporate cultures just can’t handle the idea of allowing outsiders to share their innermost secrets
2. If you get it wrong, mistakes can be costly
Legal fees and possible litigation are the consequence of not getting upfront agreements.
3. The first agreement is the hardest.
They get easier

What’s Next?
Once innovation can be shared for a price, that’s like buying it. There are signs that at least in technology driven industries, innovation is becoming something that can be bought and sold just like anything else. If you can buy ideas in, the why not sell ideas out? Ideas that are off strategy or outside the business’ capability to deliver could be sold on. Intermediaries are already cropping up to facilitate this. You can even attend auctions of IP, run by Ocean Tomo, an “Intellectual Capital Merchant Banc®”.

In the future we can expect further adoption of Open Innovation strategies by technology players, and in time, by more consumer led companies. IP Lawyers and advisers will be kept busy finding ways of protecting IP, increasingly in non-technology developments.
If we can see a way to buy and sell marketing concepts, that would be a game changing innovation in itself.
Your comments and experiences are welcome