Open Innovation: What is it and the value for the involved parties
One could argue that some of the greatest achievements of our times are related to our ability to self-organize in groups and communities that work together to create value — having other than monetary drivers. This naturally extends to the organization level, where companies become part of an ecosystem of knowledge exchange and co-creation.
We ask seven leaders to explain the most essential forms of open innovation and present real-world scenarios. We also touch on the societal benefits of Open Innovation. Read expert insights from Ralf Wilden, Lisa Seacat DeLuca, Pedro Costa, Dermot Roche, and Sofia Fernandes.
“What is ‘Open Innovation’ and what is the value for the involved parties?” An excerpt from 60 Leaders on Innovation (2021)
Ralf Wilden
Associate Professor of Strategy & Innovation — Macquarie University
Open innovation represents a break with the common approach to innovation, in which all innovation-related activities ought to be conducted within the confines of a focal organization. It suggests that organizations benefit from collaborating with external stakeholders such as suppliers and customers, in search for and acquisition of external knowledge to drive innovation and performance. It has to be noted that firms engaging in open innovation may face internal constraints, such as the ‘not-invented-here’ syndrome, lack of management support, and increased complexity. This complexity of collaborative innovation is amplified by greater sophistication of customer requirements, faster development cycles, and advanced technologies; growing the prevalence of intermediaries in service innovation to involve stakeholders within an ecosystem.
Cultural and leadership barriers to open innovation such as the “not-invented-here” syndrome are detrimental. - Ralf Wilden
Several mechanisms for open innovation exist. The most common approach is crowdsourcing, through which organizations (i.e., seekers) pursue innovations through an “open call” for ideas and a “broadcast search” for solutions to innovation problems using a large group of relevant stakeholders (i.e., solvers). In our benchmarking of successful firms, we have identified four important levers that managers need to orchestrate to drive open innovation: (ii) engage with and understand your stakeholders, (ii) develop necessary organizational capabilities, (iii) develop an organizational culture and leadership that fosters open innovation, and (iv) develop a service-dominant orientation to stimulate open innovation.
- Engage With & Understand Your Stakeholders. Efficient design of open innovation initiatives needs to account for differences in participants. To drive motivation to co-create innovation, seekers need to: manage the solver pool size; manage the solvers’ technical marginality (i.e., the distance between the solver’s knowledge and the problem domain); carefully design incentives; and understand the solvers’ provision of cognitive, emotional, and physical resources into the open innovation process (i.e., solver engagement). As solvers are not formally tied to the seekers as are their employees, there is a need for seekers to engage with the solvers carefully to precisely define a solution space, attract their assistance, and align their efforts with the seekers’ objects.
- Develop an Organizational Culture and Leadership That Fosters Open Innovation. We have multiple times seen the importance of organizational factors such as culture and leadership in both the motivation and capability of organizations to openly collaborate with external partners, and hence, the importance of aligning these with open innovation practices. Thus, to further professionalize open innovation, senior executive buy-in as well as strategic intent, as well as a culture that is “open” to open innovation is critical to implement successful open innovation projects. Cultural and leadership barriers to open innovation such as the “not-invented-here” syndrome are detrimental.
- Develop a Service-Dominant Orientation to Stimulate Open Innovation. Focusing on the market and customers enables organizations to constantly collect information about target customers’ needs and competitors. Research has highlighted the importance of focusing on relationships, mutual trust, and win-win exchanges between the organization and its stakeholders by developing a service-dominant orientation, which has been defined as a way of conducting business that is based on guiding principles that emphasize value co-creation in service exchanges through collaboration with customers and other stakeholders. Such service-dominant orientation influences strategic decisions and actions within the organization, and it will also help the organization embrace stakeholder-centric thinking. A service-dominant orientation emphasizes commitment for dialogue and engagement between stakeholders through relational processes.
- Develop Essential Organizational Capabilities. Managers need to professionalize their approach to open innovation by developing necessary capabilities to institutionalize open innovation. This professionalization of internal processes and systems is important to conduct open innovation projects more effectively and efficiently. Specifically, organizations need to sense relevant innovation opportunities that lend themselves to the use of open innovation; this can be achieved through customer-linked sensing, system sensing, internal sensing, and technology exploration. To then seize innovation opportunities, organizations need to invest in capabilities fostering identifying stakeholder interactions, structuring the development process, and adopting new revenue mechanisms as crucial processes. Finally, reconfiguring for innovation comprises orchestration of the ecosystem, balancing product- and service-innovation-related assets, and the development of a stakeholder-oriented mental model.
To sum up, open innovation has been shown to create societal value in healthcare (e.g., patient-driven innovation) and governmental institutions (e.g., open government), but also to create value for customers and firms in for-profit organizations. Value for organizations may lie in reduced innovation costs, increased innovation speed, and higher diversity of problem solutions. The benefits for customers lie in better solutions to their problems, the feeling of being involved in the development process, a stronger connection to organizations, or simply in receiving a financial reward for their inputs (may it be through a one-off incentive or prize, or ongoing participation in IP royalties).
Ralf Wilden is an Associate Professor of Strategy & Innovation at Macquarie University. He advises organizations on service-oriented business models and organizational change to help organizations sense, shape, and seize market opportunities and improve their strategic performance.
Lisa Seacat DeLuca
Director Emerging Solutions, Distinguished Engineer — IBM
With the acquisition of Red Hat, Open Source, in general, has become a huge part of IBM. It’s always been there — from the early days, IBM has been contributing to open-source and giving back patents, especially to the startup and the open-source communities for as long as we’ve been patent leaders. Open Innovation is a similar concept to open source; it’s all about making some ideas known so that people can build on top of an idea so it becomes stronger because of just the sheer number of people that are helping to grow it. And there’s a lot of companies that are supportive of that type of environment, IBM being a major contributor.
However, there are challenges associated with Open Innovation — mostly from the inventor’s standpoint. Many “inventors” don’t want to file a patent. Because they “don’t believe in the patent system” or they “think everyone should have access to these ideas”. But the biggest challenge is those people that are not sharing their ideas don’t realize that the patent system, in general, was put in place to share ideas. With the patent system, there’s a defined period that a granted patent is valid for — when it expires anyone can take it and run with it. So, the greater inventor community is losing out on expanding these proprietary ideas if the inventors don’t participate in sharing their ideas.
Lisa Seacat DeLuca is the Director & Distinguished Engineer of Emerging Solutions within the AI Applications business unit within IBM currently focused on modernizing our Weather Business Solutions and the Aviation portfolios. Lisa holds a Masters of Science in Technology Commercialization from the University of Texas McCombs School of Business, and a Bachelors of Science in Computer Science from Carnegie Mellon University with minors in Business Administration and Multimedia Productions.
Pedro Costa
Head of Corporate Innovation, EurA-AG Brussels and Portugal — EurA AG
Dealing with Open Innovation is not an easy task. During my professional experience, I have dealt with some of perhaps Europe’s largest firms — many of them with solid steps taken in open innovation, others just starting or exploring how to start. It seems that it is pretty much accepted by these firms that collaborative innovation is not the future but the present.
The idea is that the organization opens its doors to external innovators and resources. - Pedro Costa
Also a fact, innovation is not only exclusive to large corporations with vast resources; innovation happens everywhere, from garages in Silicon valley to research institutes in Europe and incubators pretty much everywhere in the world. The word “open” in open innovation is the key to this collaboration. It is the acknowledgment that innovation is happening not only at their R&D departments but rather everywhere, and now the ability to bring these ideas, innovations and the entrepreneurial spirit inhouse is the difference between winning or losing the innovation game. Why should corporate innovation depend only on 20 PhD’s if we can have 20,000 outdoors and bring them to work together?
There are mechanisms already to protect intellectual property — so the current main barriers are more cultural and ideological than practical. So how can a large company open its doors? Let’s focus on one concrete case — the collaboration between large corporations and small and medium enterprises and/or startups. There are several mechanisms for connecting the big organizations to the outside — here is a list that I believe contains the most common ones:
- The Startup Safaris. This includes visits to local startup events and innovation hubs, tech hub sponsoring, and branding. Many corporates do that for awareness or as a discovery process — they visit places like incubators, accelerators to explore, and observe interesting developments.
- Shared offices. Startups don’t have many resources; instead, they have the drive to overcome challenges. Corporates often have the opposite. So why not offer SMEs office space, technical equipment, laboratories while at the same time get a flavor of that entrepreneurial culture and attempt to mix it with the existing one — while, at the same time, hosting some of the most disruptive innovations at your own labs.
- Matchmaking events, Hackathons, Challenges. Finding the right start-ups, and technologies is not an easy task. Competition for quality start-ups is increasing with many of them being acquired at a very early stage. One opportunity for a corporate to attract startup attention is by launching a challenge to the outside community. This provides the corporate the chance of getting to know interesting projects and teams and hopefully getting its problem solved. For start-ups, this is a chance of finding a potentially good customer or partner — large enough to feed their need for growth.
- Corporate incubator/accelerator programs. Incubators enable corporations to pick an early-stage team and project, shape it and support it by providing them with financial resources (if necessary) along with technical and industry knowledge. This way, entrepreneurs connect with the real world and accelerate the market-fit validation process; they develop their ideas at a faster pace while maintaining control and equity of their companies. Accelerators deal with more matured start-ups that already have a product and want validation from the market. Often corporations have a purely financial interest — through a Corporate Venture Capital arm- or a strategic one — in the latter case the next step would be to prove the concept, which could then lead to a scenario with the start-up becoming a supplier, being acquired, or getting financial investment from the corporation.
- Acquisitions, Joint Ventures, Licensing. Corporations tend to acquire companies, for their technology, business model, and or customer database. To make this process less dependent on external sources, corporations created the CVCs (Corporate Venture Capital), which are purely financial entities that leverage the industry and market knowledge of the mother company. Financial deals like joint ventures and licensing are also possible — providing startups access to a large customer base and corporations access to certain technologies.
While the mechanisms of open innovation are evolving, the main idea continues to be the same: The need to become a magnet for successful ideas, technologies, business models that have a high potential and likelihood of success.
Pedro Costa has background experience in delivering highly complex projects in European, North and Latin American, and African countries. He is now the Head Corporate Innovation at EurA AG, an innovation consultancy firm specialized in the creation and development of innovation ecosystems, helping the largest companies in Europe to profit from collaborative innovation.
Dermot Roche
Patent Director — Secerna LLP
Open innovation may have significant advantages to the development of new technologies. For many years it has been well recognised that the input of inventors from different teams and the mixing of technical expertise can stimulate new thinking and improved developments.
There are however several practical issues that should be considered at an early stage to ensure that intellectual property rights (IPR) are appropriately handled. Before starting discussions with researchers or engineers outside of your organisation, it is important to agree that these discussions will be held in confidence. The best practice would be to have all parties sign a confidentiality agreement before commencing discussions. In the absence of such an agreement, a subsequent patent application may possibly be undermined.
It is also important to agree with the other parties who will own any IPR resulting from the collaboration. The most preferable scenario is, of course, to own the IPR and therefore have full control over future exploitation. However, it may still be beneficial if the other party owns the IPR, provided that there is an agreement to make or use the new invention by means of licensing. There are numerous legal and administrative difficulties to joint ownership of IPR, and in most cases, this type of arrangement should be avoided. Detailed legal advice is typically required to assess the pros and cons of any particular circumstance to avoid disputes associated with ownership further down the line.
The mixing of technical expertise can stimulate new thinking and improved developments. - Dermot Roche
From a practical point of view, it is important to maintain an accurate and complete record of the people who took part in an open collaboration event. For example, in the case of a hackathon, care should be taken to monitor who contributed to each project to ensure that there is a complete list of inventors documented for any subsequent patent application.
After completion of the open innovation event, all of the participants will go their separate ways, and hence, care should be taken to collect accurate contact details of the participants for any subsequent legal requirements. For example, inventors are often required to sign administrative documentation as part of the patent process, so having their full contact details is essential.
Dermot Roche is Qualified as a Patent Attorney and a Trade Mark Attorney. More than 20 years experience in the patent profession in computer-implemented inventions and medtech. Experience in private practice and as an in-house patent counsel for Accenture and for Dolby Laboratories.
Sofia Fernandes
Director of Business Development — BGI
Open Innovation implies identification of problems in a corporate environment followed by a call for potential solutions from the market. It is called ‘open’ because anyone from the inside or outside of the company can contribute to forming a solution that aims to address a defined problem.
I would say that Open Innovation is necessary for corporations to stay relevant, to attract and maintain talent, and ultimately to win in the market. However, such programs are hard and must not be taken lightly by the management team; they should be transversal to the entire company — and usually, a third party is needed for this.
An important part of the Open Innovation process is having well-defined problems. - Sofia Fernandes
An important part of the Open Innovation process is having well-defined problems — and this is only possible after assessing them directly with employees from all levels and also by interviewing clients. I have witnessed this process with a large Telecom company that was open enough to show its flaws, even when we are talking with a multinational leader of the sector. Above all, we involved their employees, across different business units, as mentors, coaches of startups, facilitators of the open innovation process, and most of all, as key actors in providing real and sincere feedback on the problems the company was facing.
After this process, we were able to start identifying external startups, research groups, and projects that could address the existing challenges. And of course, there were cultural barriers — for example, some hesitation on sharing a “war story”. And this is why your partner in Open Innovation must, on the one hand, have experience in managing such programs and, on the other hand, focus on building a long-term relationship with your company.
When this strong relationship with the partner is there, the company can start implementing pilots — some of which will work, others won’t. But when one of them proves its potential as a game-changer, the mentors and coaches become advocates, and then you start having other companies asking to become part of the program — to participate in something bigger, something unique, something that will change our future.
From the perspective of the market, this is seen as a big shoutout that you are open for business with startups, and soon the company will be not only looking for pilots but also considering proposals on how they should anticipate future larger problems.
Sofia Fernandes is a strategist with extensive experience in working with both startups and corporations in launching new products. Sofia manages a portfolio of over 100 startups and focuses on designing and aligning strategies, motivating teams, and assuring flaw-less implementation.
Excerpt from 60 Leaders on Innovation (2021) — the book that brings together unique insights and ‘practical wisdom’ on corporate innovation. Created and distributed on principles of open collaboration and knowledge sharing: Created by many, offered to all; for free.
