Open Innovation (Part 2/4): When is open innovation successful? What are its advantages and disadvantages?
This is part of the Open Innovation series dissecting:
1. What is open innovation?
2. When is open innovation successful? What are its advantages and disadvantages?
3. What are examples of Open Innovation models?
4. What are the keys to implementing Open Innovation?
Open Innovation didn’t used to be the way the most successful companies operated. In recent years, however, the approach has resulted in significant advantages and more companies now believe that it’s the cornerstone of their innovation strategy. According to a survey of over 300 executives at organizations with $1bn+ in revenue, 79% believed their companies effectively drew innovations from other industries and organizations. Being open is scary, as it means exposing some of the company’s goals and projects, but the benefits are clear.
Closed innovation (e.g., traditional R&D) is great at improving existing products and services, or even helping to create adjacent ones. However, it is well documented that traditional innovation processes fail to produce breakthrough outcomes. The best ideas are unlikely to come solely from within, and without continual attentiveness to the outside world, it’s easy for an organization to miss the next big thing until it’s too late. Most small things won’t grow big, but some will and those change everything.
The advantages (bright sides) and disadvantages (dark sides) of Open Innovation have been widely explored in the academic literature. These broadly fit into three categories: organizational, knowledge management, and legal.
Other Open Innovation benefits include:
- Ability to conduct strategic experiments at lower levels of risk and resources, with the opportunity to extend core business and create new sources of growth
- Ability to leverage R&D developed on someone else’s budget
- Extended reach and capability for new ideas and technologies
- Opportunity to refocus some internal resources on finding, screening, and managing implementation (important not to position as a threat to internal resources)
- Improved payback on internal R&D through sale or license of otherwise unused intellectual property
- A greater sense of urgency for internal groups to act on ideas or technology (use it or lose it)
- Over time, an opportunity to create a more innovative culture, from the ‘outside in’ through continued exposure and relationships with external innovators
The last point, in particular, is important and often misunderstood. We’ve heard it before that an organization ‘can’t outsource innovation.’ We fully agree with that. Paradoxically though, being more open creates conditions for the internal organization to develop a more entrepreneurial (what we like to call ‘startupup-minded’) mindset.
Naturally, the advantages and disadvantages of Open Innovation are contextual, and there are no one-size fits all model. Apple, for example, is notorious for the level of control and secrecy it devotes to its new products and services, though even it is loosening in those beliefs (e.g., investments on Didi as part of its efforts with Project Titan). Google, on the other hand, works routinely with external parties to develop its products and services, including customers, other corporates, and startups, taking a more experimental (i.e., release it when it’s ready) approach.
Regardless of their approaches to Open Innovation, both are among the top 10 corporates with the highest number of collaborations with and acquisitions of startups.
Instilling Open Innovation isn’t a panacea for innovation, but it’s benefits are clear when implemented correctly. The three critical elements for a successful Open Innovation program are transparency, clarity, and commitment.
In deciding to pursue Open Innovation initiatives, an organization must choose to default towards transparency. Transparency means not being afraid of letting the outside world look in. Organizations, like individuals, are scared of failure, regardless of how small they are in the context of the overall picture. The truth, though, is that the most successful organizations of today are mired in failed attempts. For every Prime, AWS, and Alexa, Amazon has Amazon Destinations, Endless.com, WebPay, PayPhrase, AskVille, Fire, etc…. For every Gmail, Google Maps, Android, Google has Lively, Print and Radio ads, Notebook, iGoogle, Wave, and countless others.
In order to attract the right partners, organizations need to have clear objectives and an understanding of what it is trying to do: a clearly outlined specification will do wonders in driving Open Innovation programs. Though innovations come from the most unusual places, haphazard innovation doesn’t work in the context of a large organization. Clarity of decision making also matters. Having clear rules will help you to determine what projects you should pursue versus which projects you shouldn’t.
Talking about innovation is not the same thing as actually innovating. Unfortunately, it’s also something we also see in the market too regularly, organizations that say they want to innovate, but don’t follow through on the potential. Innovation is messy, and because of the number of failures required in the process, organizations are scared to commit and shortermist when deciding to scrap ideas and initiatives. Establishing an innovation budget, setting a minimum program timeline, and properly planning your Open Innovation program will do wonders in driving it forward.
Next time we discuss a few concrete examples of Open Innovation models.
If you missed it, here’s Part 1: What is Open Innovation