Open Innovation: rethinking the creation process through collaboration

From information to innovation

The 21st century is an era of racing for resources and information. Putting that into context, French philosopher Michel Foucault questioned the relationship between power and knowledge over the past century, and general Sun Tzu questioned the importance of evaluation (and therefore information) which was highlighted in the first chapter of The Art of War, written more than 2000 years ago.

Information is a source of power, a tool for developing effective and agile strategies that allow competing in today’s market. We might say that innovation is the result of processed information, as shown in the image below.

The emergence of Open Innovation during the past century is all the more important due to the acceleration of the distribution of knowledge around the world, notably due to the appearance of the internet, but also due to the fact that consumer needs and requirements are evolving more rapidly. This implies companies cannot always rely solely on their internal R&D, but should look beyond their boundaries to keep up with the global pace of innovation.

Innovation is the output of a process of information (1)

Why firms need Open Innovation today

Modern companies struggle to keep up and to make new products available for the market quickly and for an attractive price. Innovation is therefore important, not only in developing new technologies and products; but also new processes, techniques and management methods that will enable companies to be in sync with ever-shortening go-to-market and product cycles, and to face tough competition on pricing.

General Electric, which has embraced creative and innovative practices for decades, recently published a report “GE Global Innovation Barometer” (GE, 2013). What stands out from this study is that 91% of responding managers reported that innovation is a strategic priority for their company.

The study also highlights that, if incremental innovation remains the main performance engine, business model innovation is rapidly growing. Yet business model innovation is not the only emerging trend. In fact, GE reports that 87% of those who responded believe that their companies would innovate better by partnering, rather than on their own. 68% of them have actually worked on innovation through collaboration with another company.

Open Innovation can mean easier and faster innovation (2)

Defining Open Innovation from literature

Even though the ideas behind Open Innovation can be found back in the 1960s, the term has been widely promoted by Henry W. Chesbrough, director of the Center for Open Innovation at the University of California, Berkeley.

In his book, Henry W. Chesbrough defines Open Innovation as “a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology”. This approach should be accompanied by internal mechanisms to capture a portion of the value created.

A table could be made on the principles defining Open Innovation, simply based on what we can find in literature:

Successful Open Innovation is a matter of finding the right mix (3)

Real life examples

Open innovation strategies are used by many companies worldwide. The examples below illustrate real life strategies commonly developed by companies to open up their boundaries to innovation. Here are a few real life concepts:

Platform model
Kevin J. Boudreau and Karim R. Lakami (2009) wrote an interesting article for the MIT Sloan Management Review on "How to Manage Outside Innovation." They emphasize the existence of two principal models: competitive markets versus collaborative communities, that materialize through platforms.

Two real life examples quoted in their article are: the application development platform Apple store that focuses on putting developers in competition to create innovative apps, and the Linux’s open-source strategy, focusing on collaborative communities. Each of these models has its own advantages and disadvantages, and should be chosen according to the business model and spirit of the company.

The Open-Source Model
The open-source model is widely associated with the idea of getting or creating something for free. However many lucrative companies, such as Oracle or Google, use it. Although "open source" should not be taken for "Open Innovation" and is a concept on its own, it is used by companies with a similar goal: to feed innovation from outside, by providing an open platform (databases, in the case for Oracle) and to develop a business model based on services associated with the platform.

Ideas challenged
General Electric has been implementing Open Innovation since 2011, with two challenges: Healthymagination and Ecomagination, for an initial investment of $300 million total, in order to fuel innovation potential in the Healthcare and Energy markets. These challenges, with the general public targeted as well as institutions and thousands of researchers, enabled the company to gather breakthrough external ideas and carry out promising projects.

Open Innovation sometimes means finding new ways to get others to think,
create and share together (4)

Open Innovation remains a young but revolutionizing concept, with new manners of implementing it cropping up everyday. The concept raises many questions about how companies can rethink the basis of their productivity, value creation, and value capture.

If Open Innovation can be full of rewards, it can also be a delicate and complex project that puts companies internal knowledge at risk. In the next article, we will investigate the risks and challenges of Open Innovation, and give some examples of concepts of Open Innovation project management.

Pictures Credit :
Header image: CC - hyoin min, Flickr / (1) CC - Jurgen Appelo, Flickr / (2) CC - Caroline Madigan, Flickr  / (3) CC - Christina Hardison, Flickr / (4) CC - Libby Levi, Flickr