‘No matter who you are, most of the smartest people work for someone else’

Simone Martinelli
20 min readJan 16, 2019

1. Introduction

This is a statement known as Joy’s law in the high-tech industry, attributed to Sun Microsystems co-founder Bill Joy. Basically, this assumption emphasizes the knowledge problem faced by many enterprises today: in any given sphere of activity most of the pertinent knowledge will reside outside the company’s boundaries such as start-ups, inventors or academia, and the central challenge for those charged with the innovation mission is to find ways to access that knowledge. Joy’s law perfectly embodies the essence of Open Innovation as raising Innovation Management model for large corporate.

The purpose of Open Innovation strategy is essentially to open up the innovation process. The beauty is in the execution of the two-way engine: the outside-in mechanism allows to assimilate in a controlled and standardized way external inputs such as products, ideas, technology, knowledge or patents in order to enables companies to enhance radically the new product development process or enrich their product portfolio. On other hand, inside-out allows exploiting ideas sat on a shelf, selling or commercializing them through co-development, spin off or partnerships. Using these two mechanisms, ideas can flow-in and flow-out from the innovation funnel creating an inflows and outflows of knowledge to accelerate internal innovation and to expand the market for external use of innovation, respectively (Chesbrough et al. 2006). The former is called inbound OI, which is synthetically defined as ‘the practice of leveraging the discoveries of others’; the latter is called outbound OI, which is ‘the practice of establishing external relationships with the aim to exploit business opportunities’.

Open Innovation model

In the last twenty years, many factors have contributed on the escalation of Open Innovation model among companies. For instance, the raise of software development costs, the need for rapid new product generation and the shortening product life-cycle have highlighted the need to rethink the way to manage innovation and more specifically, the whole innovation process designing an entire new ecosystem of innovators. Consequently, alliances, partnership and collaborations are progressively becoming essential for companies who are striving to strengthen their innovation leadership. The creation of a balanced and trusted network around the boundaries allow them to quickly respond to opportunities which could occur in the market and to have access to unique and prestigious knowledge .

Notwithstanding the great relevance, that open innovation has received in the literature, scant attention has been devoted to the analysis of implementation and execution of the OI strategy. Increasingly, organisations are considering using an open-innovation process, but many are finding that making open innovation work can be more complicated than it looks. This calls for a better understanding of actions implemented by companies willing to pursue open innovation strategies, with relation to both to the idea generation process and to the idea selection.

2. Seekers and Sellers

Companies that embrace the OI model, work as innovation seekers withdrawing ideas from external environment as well as innovation providers pushing out unused knowledge to commercialize it. Doubtless, there are challenges that companies have to face if they embrace the OI model as well as threats to evaluate carefully before the adoption.

In order to understand the gold rush in the adoption of the OI model, we need to analyse briefly its pros and cons. The most mentioned benefits coming from an open model are the possibilities to reduce time to market through collaboration, on the one hand, and the chance to find new technologies, (highly preferable breakthrough technologies) through the systemically external scouting activities, on the other hand .

Furthermore, OI can be implemented to explore new markets and to have access to new knowledge through licensing, joint venture, and strategic alliances, which consequently allow to share R&D costs, time and risks among partners. Additionally, the OI model has attracted some companies because of the possibility to include consumers in early stage of the innovation process to anticipate their needs and thus finding new market trends beforehand.

Unfortunately, Open Innovation is not a panacea and Companies should carefully evaluate costs and risks that may appear, as well as benefits coming from openness. Transactional costs (Williamson, 1985) can quickly rise due to scouting activities for identifying the best ideas or the most appropriate innovators. Nevertheless, the evaluation of external sources of knowledge could generate interesting outcomes, but their quality and usability cannot be known beforehand. Additionally, commercializing R&D may generate new revenues coming from licensing out patents, but there are not any empirical evidences on the dimension of this reduction. Furthermore, Companies engaged in partnership are used to share information revealing intellectual properties which were not intent to share. Under this light, OI could backfire Companies’ competitiveness.

Consequently, to mitigate the above-mentioned risks and to exploit benefits, companies can take different routes to OI, mainly according to their industry or according to what is driving the impetus to become more open as well. In line with these thoughts, below we provide some evidence of how the OI model has been implemented within Electrolux.

Open Innovation in Electrolux

Axel Weener-Gren is the founding father of Electrolux, in 1908 he passed by a vacuum cleaner in a store shop window in Vienna and thought to himself that ‘there should be one of these in every home’ despite the fact that this vacuum cleaner had a very high price and its weight was about 20 kilos (Hoffman, 2010). Electrolux is now a global leader in home appliances and appliances for professional use, selling more than 40 million products in 150 markets every year mainly in two product categories: consumer durable (residential kitchen, fabric care and cleaning) and professional product (industrial kitchen, restaurant and laundries). At the end of 2012 the Company had about 61.000 employers in more than 60 countries all over the world. Products include world-leading brand such as AEG, Frigidaire and Rex.

Home appliances are often divided into white and brown goods. The term ‘white goods’ refers to major household appliances in the kitchen such as washing machines, refrigerators, dishwashers, ovens and cookers. By contrast, the term ‘brown goods’ addresses appliances used outside the kitchen such as video and audio systems. The white goods industry is a medium-low technological rate which during the last decades, has been characterized by a stagnating demand and decreasing unit values, where products are relatively similar and simple to produce, although assembling different parts and subsystems requires the combination of knowledge domains ranging from mechanics to electronics and plastic modeling (Sobrero and Roberts, 2002). Competitiveness mainly depends from companies’ ability to reach scale economies and to satisfy consumers’ needs. Furthermore, in this context technology changes can make a stable environment became unstable overnight (Pavitt, 1984).

Sample Electrolux product leveraging Open Innovation

Innovation strategy

Electrolux has shaped its Open Innovation strategy on three pillars: Challenges, Network and Mindset. All of these exactly respond to a specific need that Electrolux is facing to exploit new business opportunities.

● Idea and Technology Challenges — They represent the tool used by Electrolux (but also by many others firms) to interact with the external network, capturing knowledge from the state of idea to ready-product. Electrolux identifies new business opportunities following two different paths: targeted and inspired challenges.

Targeted challenges are solicited calls for ideas. More specifically, these are requests for solutions to a specific corporate need, as technical as well as market need identified by the Electrolux corporate strategy. For instance, these challenges might ask for additional functionalities, better components or specific product concept. Certainly, a challenge is launch after internal verification of existing solutions.

On the contrary, inspired challenges are unsolicited called for ideas. In other words, these are messages of openness to listen to all innovative proposals aligned to Electrolux business. These allow to capture available solutions, at different levels of readiness, from ideas concept to prototypes, without restrictions. Electrolux does not specify needs, thus innovators are completely free to offer proposals.

In the Electrolux OI strategy, the pillar ‘challenges’ includes an important novelty element, represented by the inspired challenges, which allow to stimulate and inspire the ideas generation onto external networks following an approach that overcomes the traditional scouting methodologies. The launch of this type of challenges requires a complex management of IP and the ability to build non-traditional agreements with external partners.

● Network — It answers to the need of creating the ecosystem of innovators around the company’s boundaries. Considering the OI approach, value creation is not just the result of an internal transformation of input into output, but the smart and effective combination of internal and external resources. Before the adoption of the OI model Electrolux had already built a trusted network which include many stakeholders engaged in the innovation process such as suppliers, consumers, University department and research centers. Nevertheless, the OI strategy aims to dramatically expand the number of external partners and move beyond the trusted network, including different players belonging to unknown business sectors. Firms in the external network could be extremely different for dimensions, business sectors, assets and many other features. Electrolux to better manage their business partners has identified 4 macro categories of innovators: (I) Solvers, (II) Brokers, (III) Entrepreneurs, (IV) Inventors, arranging them by their behavior and mindset. These two aspects are essential to reach Electrolux’s goal: exploit business new opportunities. In fact they could have a business mindset, if they strive to gain earnings, if they are able to think strategically about their ideas and if they want to make ideas happen. By contrast, they could have a technical mindset if they are focused on technical improvements or they are able to deliver emerging technologies. Additionally, they could have a proactive behavior that is characterized by a quickly and independent reaction to challenges, or a reactive behavior that is characterized by an anticipatory, change-oriented and self-initiative behaviour. According to these prospective, Electrolux OI team has identified 4 macro categories of innovators into networks:

Innovators segments

Solvers — Mainly, they are centers of knowledge able to solve hard technical challenges. They have a strong technical background and a reactive behavior. It is clear that, targeted challenges perform better than inspired challenge. They could be firms, research centers and university departments or scientists.

Brokers — They are middle way players that play as link among innovators, they work as business partners in creating the word of mouth, which allows to increase and to expand autonomously the network. They have proactive behaviour and technical mindset. Both type of challenges work without differences in term of efficiency. They could be financial groups, industrial associations, business incubators, media players or companies offering specific OI scouting services.

Entrepreneurs — They are people who exercises initiative to take benefit of an opportunity, they usually accept the OI challenges to look for business partners to make their ideas happen or to expand their existing business. They usually have a business mindset and a reactive behavior. Inspired challenges perform better than targeted challenges with them.

Inventors — Mainly, they are brilliant people with creative personality and technical background able to produce or contrive something previously unknown. They actively contribute in new product development process. They have business mindset and a reactive behavior. Inspired challenges work better with them than target challenges.

Given the above, it is clear that all these players play a crucial role in OI model because they allow Electrolux to strongly contribute in the new product development process directly and indirectly. In detail, brokers allow to decrease the effort spent by Electrolux for scouting activities. Presently, Electrolux OI team has mapped more than 700 potential brokers and they have activated more than 200 alliances. Their systematic scouting action allow to Electrolux to have the most attractive firms in its network, without increase transactional costs. In the Electrolux OI strategy, the pillar ‘network’ includes an important novelty element, represented by the creation of brokerage alliances with non-traditional stakeholders: for instance small start-ups can play as brokers in specific geographical areas, forwarding new opportunities through new business models as a well as innovation provider.

● Mindset — It is a set of behaviours, assumptions, methods and mental attitude held by one, more people that creates a powerful incentives to within these people to continue to adopt or accept prior behaviour, choices or tools (Hutchins, 1995). It responds to the need to facilitate and to encourage the exploiting of external resources of innovations, not just using internal centres of knowledge and further to avoid the not-invented here syndrome (Katz, Ralph, and Thomas J. Allen,1982).

The distinctive element of Electrolux OI strategy is concerned the 360° experimentation approach, which allows to use and test several methodologies and tools to interact with the network. Electrolux has developed new ways to stimulate external network, pushing OI approach out of the comfort zone, in areas not completely known and where IP management becomes an extremely critical activity.

2. Implementation of OI model in Electrolux

In the light of increasing competitiveness and the squeezing demand in developed market, the implementation of OI seems to be the only way to guarantee a sustainable growth, because of the unfeasibility to increase the rate of innovative products by doubling the investments in R&D, which actually represent the 3% of revenues in household appliances industry. Consequently, the need for dramatic increase in innovation rate cannot be pursued only through the efficiency of the internal R&D. Electrolux cannot be innovative on its own anymore. Under this light, OI aims to disrupt the status quo in the appliances industry feds the corporate business by new flows of ideas.

To reach that goal, Electrolux started the implementation of the OI model in May 2011, creating a new specific role, the OI Manager, with the responsibility to design the whole model in order to identify new business opportunities for the Group. Since the beginning, the shift from a closed to an open system has been challenging because of Company’s dimension, the leadership position that strengthens the non-invented here syndrome and the increasing complexity of the internal innovation model. Even if many business units were intrinsically open, implementing the OI strategy mean create a systematic process to exploit new business opportunities that works coupling with the existing innovation management model. This in not means that OI is an additional engine, but it is a sort of turbo system that accelerates the existing engines represented by different company’s functions.

The heart of OI implementation has to do with the ways ideas are managed. Before getting into that, it is important to highlight some aspects underlining the OI implementation process.

4.1 Translating strategy into practice

Electrolux has noticed that an effective implementation of the OI model requires the adoption of three main building blocks to exactly translate the OI strategy into practice:

Global Engagement — From the beginning of the OI establishment, Electrolux has decided to implement a global OI strategy to exploit new business opportunities spread up in the entire world. The term Global Engagement stresses the will to look for innovations (or ideas, depend from its state-of-art) for all business sectors such as fabric care, laundry, small appliances, accessories and refrigerators engaging in the same time all company’s departments such as Marketing, R&D, Finance, Operations and Production. In this way, Electrolux can systematically look for innovations on global scale through a cross-functional team that withdraws innovations such as additional functionalities for oven, better components for refrigerators, new materials for hood filter, better inbound logistic solutions or new manufacturing processes and then expose them to internal evaluation done by business functions. For instance, a new technology process for ovens chassis developed by a research center in Asia, if caught by the OI team will be evaluated to Electrolux Manufacturing department in Europe. This instance exactly represents the meaning of connection smart people inside and outside the company.

Learn by doing approach — Electrolux has been creating a trial and error approach to implement the OI model, showing a real entrepreneurial behaviour going out from the comfort zone and exploring new way of doing business. Starting from every-day practice and using just available resources that are people and knowledge within the Company, Electrolux has been tailoring its own OI model. Implementation was done without the direct involvement of external consultancy firms, but with a strong reference to the past experience in managing external partners that Electrolux had and engaging people who already work in the Company. Basically, Electrolux builds the model learnt to ‘build the car while it is driving it’, since the starting practices which have been adjusted as according to the success of the OI team over time as well as the effectiveness of the innovations developed. Moreover, this method has allowed delivering results rapidly, making innovation acceleration effective in a short time perspective and also contribute to create knowledge, in fact failures, issues and wrong decisions during the development process allow to learn from past experiences and consequently increase performance in the short term. Last but least, Electrolux following this approach has been building a dynamic OI model able to redesign its shape according to internal and external changes.

Top-Down and centralized approach — Implementing OI model means also answering questions about organizational control and localization. Basically, this means decide how much freedom in term of budgeting and decision-making should be done at the OI team. Electrolux OI has preferred a centralized approach using a unique cross-functional team with the responsibility to develop the OI model, rather than a distributed approach with responsibilities spread up in several parts of the Company. In that way, Electrolux easily control the cost and the effectiveness of opening the innovation process directly monitoring the ideas flowed and projects developed (there is great deal of debate about how to measure performance in OI, but it has not a central role in this paper). Furthermore, a short hierarchical structure directly connected with top management (Design, Marketing and Finance also called Innovation Triangle) allows saving time shortening as time for decision-making as well as time for product development. Top-down approach has been preferred to clearly communicate the shift from a closed to an open system. Thus, OI was embraced firstly by top managers who work as innovation champions (Di Minin, 2010), and consequently as enablers for a new behaviour towards company’s boundaries, especially reducing NIH syndrome.

3. Ideas management

Electrolux primarily uses the OI model to exploit new business opportunities through the identification of the best ideas. This practically means creating a wide range of processes which allow external stakeholders to submit their ideas and allow the OI team to filter and select the most prominent ones. Electrolux created several standard processes for ideas management, without radically modifying the corporate structure. The main processes are described below.

5.1 Ideas scouting

It is a well-known fact that, the ideas generation phase located at the early stage of the innovation process plays a critical role in terms of innovative product rate (Koen et al. 2001; Reid and Brentani, 2004). Even more in open models due to the increased number of stakeholders, which contribute to feed ideas into the innovation funnel from outside the company’s boundaries. Furthermore, Electrolux motivates external innovators using targeted or inspired challenges to receive the highest number and to attract the most prominent ideas. As a consequence, the chances for finding valuable ideas are higher, because the quantity of new ideas is positively correlated with their quality (Dieh and Stroebe, 1987; Simonton, 1999). Certainly, external ideas are in state-of-chaos outside the company’s boundaries and although they are not completely clear and understandable, there is a huge potential in terms of knowledge.

This phase, also called scouting phase, is characterized by an extensive information exchange between OI team and innovators in order to clearly clarify the features of each idea. Afterwards, collecting the required information without revealing confidential information, ideas are filtered, using a set of perspectives called ‘Filtering Deliverables’ (discussed in the next paragraph) and the most prominent go forward in the innovation funnel. By contrast, ideas not attractive for Electrolux are rejected, modified or promoted to other stakeholders in the external network.

The peculiar element of Electrolux challenges is exactly this specification between inspired and targeted, which allow receiving a higher number on the one hand, and a different type of ideas, on the other hand. More specifically, the inspired challenges show a better performance than the targeted ones, in fact the former has a success rate of 20% while the latter has just 5%. This means that, 1 idea out of 5 coming from inspired challenge is a prominent idea. However, it is important highlighting the motivation effect of both the typologies of challenge, and their complementary nature, that allow to attract as ideas relevant to a specific corporate need as well as ideas to exploit opportunities in the market.

5.2 Ideas filtering

Because of the huge amount of ideas, Electrolux OI model is based on a strong filtering system, able to evaluate quickly and accurately the potential of the received ideas. The filtering process is often challenging in open model because number of ideas received is not easy to foreseen and often they are extremely different in term of contents. Sets of perspectives called ‘Filtering Deliverables’ have been created by Electrolux to understand the ideas potential beforehand. These perspectives are called: ‘Consumer Opportunity’, ‘Business Opportunity’ and ‘Alliance Viability’.

The perspective Consumer Opportunity analyzes the idea potential through the consumers’ point of view. Firstly, Electrolux have to be sure to might deliver new value to consumers through the idea under evaluation. Thus, a project goal is identify to clearly point out how the idea contribute to create new value to consumers. A new functionality or a new design for small appliances could be good examples of project goals. Secondly, the OI team supposes and foresees benefits for consumers making the idea happen. Lastly, it is evaluated the unique selling proposition (USP) that highlights the distinctiveness and the uniqueness of the idea under evaluation. Using these different points of view, Electrolux strives to understand the opportunity for consumers beforehand.

The perspective Business Opportunity analyzes the ideas through the Electrolux’s point of view. Thus, the OI team elaborates a projection of the idea under evaluation in the current economic landscape, in order to understand whether or not it is competitive. For instance, solutions already present in the market might be a good indicator of the idea competitiveness. Furthermore, the OI team checks that the idea is aligned with the corporate strategy. Lastly, it is evaluated the compliance between the corporate business model and the idea business model.

The perspective Alliance Viability analyzes idea potential through innovator’s competences and assets point of view. It describes partner capabilities and goals, in order to understand whether capabilities are complementary and goals aligned. Additionally, the OI team analyses available tools used for IP protection and suppose potential alliances models, accordingly. Below is reported the filtering deliverables applied to a generic product idea (fig.2).

Figure 3: Filtering Deliverables for product idea

Under this light, it is easy to observe that innovation in an open context occurs through the interaction of three pillars: raising consumer’s needs, change in the market and complementary knowledge between parts. Applying these set of perspectives, the Electrolux OI model merges the theoretical insight to filtering activities to the daily trial and error experience in order to correctly create a path to evaluate ideas. In this way, it is likely to solve some relevant issues: evaluate a higher number of ideas coming from stakeholders belonging to different industries and consequently with different backgrounds. In order to achieve the main goal of OI model, identify new business opportunities, the OI team aims not just to recognize business opportunities but further to maximize the ideas’ speed inside the funnel in order to minimize the time from idea generation to the product launch. Specifically, the experience gained from the continuous developing of ideas as successfully as well as fruitless has allowed Electrolux to considerably reduce time to market and further to understand better how to identify a prominent ideas using the above-mentioned set of perspectives.

5.3 Ideas selection

On regularly monthly basis, the most prominent ideas are showed to Electrolux internal stakeholders in charge to decide on a value of an idea in terms of innovative impact on corporate business.

For products ideas, stakeholders belong to Marketing, Research and Development and Design global departments composing a cross-functional board called
Innovation Triangle. Each geographic sector such as North and Latin America, Asia Pacific and EMEA has a proper innovation triangle which runs periodically boards with the OI team to decide which ideas develop. Parallel to sectors, global stakeholders are in charge to deliver decisions about innovative ideas representing global business opportunities. For ideas in manufacturing area, stakeholders belong to process engineering departments, Quality and Research and Development.

With reference to product ideas, the multidisciplinary dimension of the innovation triangle is the crucial element to deliver committed and successful solutions to the market, while the geographical set up of the innovation triangle is fundamental to evaluate solutions that suite regional consumer’s preferences.

When ideas are approved by the Innovation Triangle, they enter in a standard product development process that makes ideas happen. By contrast, ideas rejected will not be developed, but the OI team enables external business partners to connect with other stakeholders that may be interested to develop their idea. Meanwhile, ideas rejected never go completely away from the external network and this peculiar element allows creating the word of mouth among innovators, expanding autonomously the network without effort.

4. Conclusions

Why are some companies winning the game more than others using their open models (Dahlanler and Grann, 2010)? Which are the aspects of the Electrolux model making the company better off than others in exploiting the advantages of an open innovation system?

Electrolux OI model has several peculiar aspects, which affected not only the performance in terms of innovative product rate but also in terms of business development. Firstly, the Electrolux OI model clearly demonstrates the advantages to offer an opportunity to the external partners to do business together. This is a great incentive to attract a wider range of participants to come up with their ideas. It is proven through this case study, especially looking at the number of ideas received, that monetary or material benefits are secondary for people’s motivation in creating better ideas or products. By contrast, the opportunity to do business with a successful company is extraordinary appealing. In this way, Electrolux has been able to attract a higher number of participants with wider backgrounds that in turn means more and diversified knowledge and thus higher possibility to find valuable ideas. Secondly, in the Electrolux OI strategy the inspired challenges represent an important novelty element, which allow stimulating and inspiring the ideas generation onto external networks following an approach that overcomes the traditional scouting methodologies. Additionally, the creation of brokerage alliances with non-traditional stakeholders allows to hold scouting costs down. Moreover, the launch of different type of challenges (inspired or targeted) to different type of innovators (entrepreneurs, brokers, inventors and solvers) shows interesting results, that considerably increase the possibility to find prominent ideas. Lastly, Electrolux has built the OI model strongly believing that ideas happen in coffee house and not in a shared platform. A large part of the Electrolux OI model is face-to-face and this aspect contributes to the success of the OI model, which encourages a better dialogue, a fruitful exchange of ideas and the rapid development of trust, that become essential when IP management is critical. As a consequence, Electrolux has been able to create an innovation context, creating a real rush for doing business with a successful firm.

Nevertheless, there are some unanswered questions and issues: in fact, IP management could be difficult without legal tools, and some partners are more reluctant to share ideas with big companies in order to avoid the risk to lose the idea ownership. Even through, trust creation is essential to reduce opportunistic behaviour between parts, is not enough to feel comfortable innovators such as SMEs, start-ups and inventors. Often non-disclosure agreement is required to reach a deeper level of accuracy to understand the potential of the idea beforehand. By contrast, managing a huge amount of ideas and partners is challenging because it clearly improves the complexity of the internal innovation management model. In fact, internal costs for ideas evaluation and selection might rise rapidly and in the long term Electrolux might evaluate to push out also this process. But what would occur if Electrolux opened their ideas selection to outsiders, and further what are the best outsiders to involve in the selection process? Several scenarios might occur in the future and but now it is quite hasty for us to make a projection.

In view of this, to guarantee the success of such OI model, the implementation phase has been playing a critical role. As matter of fact, adopting a trial-and-error approach based on every day practices has allowed to Electrolux to build a deeper understanding about the management of the OI model. Including in its network unconventional stakeholders, which allow to autonomously improving the quantity and the quality of the innovators in the ecosystem, enable Electrolux to reduce transactional costs for sourcing of external ideas.

One last comment has to do with developing the best model for OI and implementing it in the more efficient way. Throughout our experience in Electrolux we had the clear feeling that the model that we described above has emerged from the match between theoretical insights and the daily trial and error experience. The Electrolux team has developed a new model, moving from what theory suggests and adapting it every day on the context of Electrolux worldwide, by building on the field insights through a process, which has eventually turned out the fine grained model that we have described here.