What is Open Innovation?

What comes to your mind when you think of the word “innovation?” For some, it might be innovative products like drones, Go-Pro cameras or the latest iPhone features. For others, we might imagine the environments in which innovation happens. We might think of Bell Labs, Xerox PARC, Intel or one of many other places where teams of brilliant minds and engineers have created some of our most recognizable products like photocopiers, ethernet networks, the computer chip or the mouse. Even today, many of our leading innovative companies have vast investments in R&D facilities and campuses. However, a greater share of the innovation that is occurring in our economy today is taking place outside of these walls.

The pace of technological change has put great strains on the inwardly-focused corporate research and development centers. They feel pressured to compete with fast and agile startups who are more likely to adopt, adapt and reuse currently available or emerging technologies to bring products to market faster. These smaller firms are looking for ways to collaborate with other firms, large and small, to bring innovative products and entirely new business models to market. Consider AirBnB, which in just six short years is now on track to become the world’s largest hotel business. While the traditional hotel chains continue to invest in real estate development, AirBnB recognized that vacant well-maintained real estate owned by individuals could be an attractive alternative to a traditional stay in a hotel. While the battle is not over, early indications of their success indicate they were at least partially right.

Open Innovation – Compete and Collaborate

None of this really comes as a surprise to Henry Chesbrough, Director of the Garwood Center for Corporate Innovation at the University of California, Berkeley. Chesbrough, credited as the founder of the Open Innovation paradigm, believes that companies can commercialize internal ideas through channels outside of their current businesses in order to generate value.

Monosol, based in Indiana, is a relatively small specialty manufacturer of water-soluble films and compounds. Procter and Gamble, a global multinational CPG company, partnered with Monosol to find innovative ways to package laundry detergent in easy to use dosages. The partnership began with work on the Ariel Liquitabs product in Europe, and entered the US market with the Cascade Action Pacs and the Tide Boost Duo Pacs, and ultimately to the Tide Pods. For Monosol, the opportunity to work on innovative approaches to laundry detergent packaging represented a whole new dimension to their current business.

Moreover, Chesbrough thinks that the sole reliance on internal R&D for generating value is faulty. He believes that ideas can originate outside the firm’s own labs and be brought inside for commercialization. Large companies have been so envious of the agility and speed of startups to innovate, that they have even tried to recreate the startup atmosphere within their own walls. Sponsored incubators, technology accelerator programs, and innovation contests are widely used concepts by large companies to try and jump-start their innovation practices.

Samsung, the global electronics giant, has recognized that its internal R&D and product teams are generally very good at identifying and filling the gaps in its vast product portfolio. However, Samsung is looking to redefine the ways in which consumers and businesses use cameras, smart phones, home appliances, televisions, and workplace tools. This requires an entrepreneurial mindset and a nonlinear approach to innovation. Rather than trying to change the culture, Samsung identifies proven entrepreneurs with great product ideas in these areas, and invites them to join the Samsung Accelerator program. The entrepreneurs are generally expected to bring a product to market within a one to three year time frame, but they also have the vast support and reach of the global Samsung organization to help them achieve those goals.

In 2013, General Electric was looking to design a better and lighter bracket for mounting jet engines to aircraft. GE partnered with GrabCAD, an open engineering community online, and held a contest. GE released their initial design for a titanium bracket, and within six weeks, more than 700 designs from 57 different countriescame in. The winner of the contest was a 21 year old engineering student from Indonesia who managed to reduce the weight of the bracket by 84 percent. Drawing on this success, GE now has plans to open 100 “micro-factories” around the world to spur creativity, innovative design and novel approaches to manufacturing.

Four Underlying Conditions that promote open innovation

It’s easy to wonder how the global brands, and their vaunted R&D institutions that have played such an important role in our economy, have missed the “open innovation” boat. We need to recognize that our economy has undergone some significant transformations. It is precisely the by-products of some of these transformations that have led to the rise of open innovation.

THE INCREASING AVAILABILITY AND MOBILITY OF SKILLED WORKERS

Waves of downsizing by corporations have led to a current surplus of skilled workers that may be a little weary and suspect of the traditional corporate career path. Whether these workers will be enticed back to the corporate world is still to be determined. However, one thing that has fundamentally changed is the role of mobility. In the past, mobility was always perceived as the ability to move the resource, whether it be the employee, the office or the plant. With the growth in collaborative technologies, much of the mindful work associated with innovation can be accomplished virtually. Mobility now means moving the work to the people, instead of moving the people to the work.

THE GROWTH OF THE VENTURE CAPITAL MARKET

Venture capital has been the driving force behind much of the entrepreneurial activity in our economy over the past 25 years. In addition to their general ability to fund the ongoing operations of a business, venture capitalists are important figures in translating research and development (R&D) activities into commercial outcomes and are therefore credited with a catalytic role in innovation. Whether the source of the venture capital is private equity or from a corporate fund, the fact that venture capitalists invest in technology firms where growth and returns are expected to be significantly higher than other industries is a solid vetting process for Open Innovation.

EXTERNAL OPTIONS FOR IDEAS SITTING ON THE SHELF

Government and corporate research and development laboratories are littered with ideas, patents and products that never made it to market. Often these ideas are offshoots of larger projects, and are never really valued on their own merit. Xerox PARC developed the Star Workstation, but failed to market it successfully as the focus of the corporation’s marketing efforts was on high-speed printing. The project was shelved by Xerox, but the features and capabilities of the Star Workstation were later emulated, copied or licensed by other companies, including Microsoft and Apple. While hindsight has perfect vision, it is important to learn from the lessons of Xerox about how Open Innovation can help to avoid these costly blunders. Open Innovation seeks out potential markets and uses for the outputs of research and development efforts even if those markets are not within the current strategic focus of the company.

THE INCREASING CAPABILITY OF EXTERNAL SUPPLIERS

Suppliers are a key resource in gaining external input on innovation. Forward thinking suppliers can often provide quick and relatively easy approaches to innovation that can have transformative effects on a product. Pittsburgh Brewing sought to solve a problem that most beer drinkers can easily identify with – dark glass bottles made the beer get warmer faster. Their supplier, Alcoa, developed an aluminum beer bottle that kept the beer cold for 50 minutes longer, on average, than a regular glass beer bottle.

“Innovation is a mindset.”

– Razi Imam, Co-Founder and CEO 113 Industries