This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
Open Innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. Open innovation is 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 they look to advance their technology. Open Innovation processes combine internal and external ideas into architectures and systems.
Open Innovation assumes that internal ideas can also be taken to market through external channels, outside the current businesses of the firm, to generate additional value. The open Innovation paradigm treats R&D as an open system. Open Innovation suggests that valuable ideas can come from inside or outside the company as well. This approach places external ideas and external paths to market on the same level of importance as reserved for internal ideas and paths to market in earlier era.
FIGURE: 1(OPEN INNOVATION MODEL)
The above figure shows a representation of Open Innovation model. Here the projects can be launched from either internal or external technology sources, and new technology can enter into the process at various stages. In addition, projects can go to market in many ways as well, such as throughout licensing or a spin-off venture company, in addition to going to market through the company's own marketing and sales channels. This model is labelled as 'open' because there are many ways for ideas to flow into the process and many ways for it to flow out into the market. IBM, Intel and Procter & Gamble (P&G) all exemplify aspects of this open innovation model.
Advantages of open innovation:
Speedup time to market
Reduce the risk of innovation
Less risk guessing what the market wants
Let the market / community tell you what they want
Integrated community innovation
Innovation can come from anywhere and anyone
Some of the best ideas are outside of your organization
Some of the best solutions reside outside of your organization
Lower your R&D and operating costs
Supplement your R&D
Tap into the virtual R&D community
Create brand evangelists out of your community
Shared IP can create a formidable barrier to entry.
From Closed Innovation to Open Innovation
Recently, growing attention has been devoted to the concept of "Open Innovation", both in academia as well as in practice. Chesbrough, who coined the term "Open Innovation" describes in his book "Open Innovation: The New Imperative for Creating and Profiting from Technology" (2003) how companies have shifted from so-called closed innovation processes towards a more open way of innovating.
TABLE:1 (CLOSE INNOVATION V/S OPEN INNOVATION)
Closed Innovation Principles
Open Innovation Principles
The smart people in our field work with us
Not all the smart people work for us so we need and tap into the knowledge and expertise of bright individuals outside our company
To profit from R&D, we must discover, develop and ship it ourselves.
External R&D can create significant value; internal R&D is needed to claim some portion of that value
If we discover it ourselves, we will get it to the market first.
We don't have to originate the research in order to profit from it
If we are the first to commercialize an innovation, we will win
Building a better business model is better than getting to market first
Traditionally, new business development processes and the marketing of new products took place within the firm boundaries.
FIGURE:2 (CLOSE INNOVATION MODEL)
In closed innovation, a company generates, develops and commercializes its own ideas. This philosophy of self-reliance dominated the R&D operations of many leading industrial corporations for most of the 20th century.
For most of the 20th century: The logic of closed innovation was tacitly held to be self-evident as the "right way" to bring new ideas to market and successful companies all played by certain implicit rules. They invested more heavily in internal R&D than their competitors and they hired the best and the brightest (to reap the rewards of the industry's smartest people). Thanks to such investments, they were able to discover the best and greatest number of ideas, which allowed them to get to market first. This, in turn, enabled them to reap most of the profits, which they protected by aggressively controlling their intellectual property (IP) to prevent competitors from exploiting it. They could then reinvest the profits in conducting more R&D, which then led to additional breakthrough discoveries, creating a virtuous cycle of innovation.
Toward the end of the 20th century: However, several factors have led to the erosion of closed innovation. First of all, the mobility and availability of highly educated people has increased over the years. As a result, large amounts of knowledge exist outside the research laboratories of large companies. In addition to that, when employees change jobs, they take their knowledge with them, resulting in knowledge flows between firms. Second, the availability of venture capital has increased significantly recently, which makes it possible for good and promising ideas and technologies to be further developed outside the firm, for instance in the form entrepreneurial firms. Besides, the possibilities to further develop ideas and technologies outside the firm, for instance in the form of spin-offs or through licensing agreements, are growing. Finally, other companies in the supply chain, for instance suppliers, play an increasingly important role in the innovation process.
Such factors have wreaked havoc with the virtuous cycle that sustained closed innovation. Now, when breakthroughs occur, the scientists and engineers who made them have an outside option that they previously lacked. If a company that funded a discovery doesn't pursue it in a timely fashion, the people involved could pursue it on their own - in a startup financed by venture capital. If that fledgling firm were to become successful, it could gain additional financing through a stock offering or it could be acquired at an attractive price. In either case, the successful startup would generally not reinvest in new fundamental discoveries, but instead, like Cisco, it would look outside for another technology to commercialize. Thus, the virtuous cycle of innovation was shattered: The Company that originally funded a breakthrough did not profit from the investment, and the firm that did reap the benefits did not reinvest its proceeds to finance the next generation of discoveries.
As a result, companies have started to look for other ways to increase the efficiency and effectiveness of their innovation processes. For instance through active search for new technologies and ideas outside of the firm, but also through cooperation with suppliers and competitors, in order to create customer value. Another important aspect is the further development or out-licensing of ideas and technologies that do not fit the strategy of the company. Consider, for example, ASML, which is a Philips spin-off.
Open Innovation can thus be described as: combining internal and external ideas as well as internal and external paths to market to advance the development of new technologies
FIGURE: 3 (OPEN INNVOVATION)
In the new model of open innovation, a company commercializes both its own ideas as well as innovations from other firms and seeks ways to bring its in-house ideas to market by deploying pathways outside its current businesses. Note that the boundary between the company and its surrounding environment is porous (represented by a dashed line), enabling innovations to move more easily between the two.
REVIEW OF LITERATURE
Harison et al. (2010) highlighted the innovative business strategies in the software sector and understanding better the economics that underlies the supply of Open Source Software (OSS). Through the study ,it has been emphasized that the adoption of technologically advanced strategies requiring complex legal and managerial knowledge, such as the OSS supply strategy, demands relatively highly educated employees. The support for and development of an education system providing highly skilled people from different fields are essential for the firms' successful adoption of innovative business strategies. We also find that market entrants have largely driven the OSS adoption, but there are no significant age-related differences in the adoption behavior of incumbent software firms.
Sorenson et al.(2010) stated the possible applications of different types of experiment methods in innovation research. The paper argues that the experiment as a research method has been a largely missed opportunity in innovation research, in particular for creating applicable knowledge for businesses and organisations in the shape of new innovation tools and methods. The paper applies an analytically based limitation of the experiment method which includes an array of both quantitative and qualitative approaches. The use of experiments for such purposes is illustrated through a comparative study of four experiments concerning open innovation in service businesses and organisations. The case studies show how different experiment methods provide new opportunities for innovation research and how they can create new and applicable knowledge about open innovation.
Asakawa et al.(2010) highlighted that the value of the open innovation approach is now widely recognized, and the practice has been extensively researched, but still very little is known about the relative impact of firm-level and laboratory-level open innovation policies and practices on R&D performance. This study attempts to measure that impact by analyzing a sample of 203 laboratories of Japanese firms located in Japan. It examines simultaneously the effects of firm-level open innovation policy and laboratory-level external collaborations on laboratory R&D performance. The study aims to go beyond a general understanding of the importance of open innovation; it shows how an open innovation policy can have a positive and significant effect on collaborations between a laboratory and local universities or business organizations. The results also show how an open innovation policy can contribute to the laboratory's R&D performance by facilitating external collaborations by the laboratories. It demonstrates how these factors affect R&D performance in different ways, depending on the type of R&D tasks. Our findings suggest several theoretical and practical implications in the field of R&D management.
Lee (2010) stated that in spite of increasing interest in open innovation, discussion about the concept and its potential application to the SME sector has been excluded from mainstream literature. However, given that the argument about the effect of firm size on the effectiveness of innovation is still ongoing, it is worth addressing the issue from an SME perspective. That is the focus of this article, which seeks, firstly, to place the concept of open innovation in the context of SMEs; secondly to suggest the input of an intermediary in facilitating innovation; and finally to report accounts of Korean SMEs' success in working with an intermediary. The research results support the potential of open innovation for SMEs, and indicate networking as one effective way to facilitate open innovation among SMEs.
Antikainen et al. (2010) explored collaboration in open innovation (OI) communities. It has been suggested that monetary rewards are not always the best way to motivate contributing users. Instead, contributors appreciate many intangible factors, such as community cooperation, learning new ideas and having entertainment. Contributors also appreciate good support and the right cooperation tools from their service provider. The data are based on three cases and a limited amount of participants. Therefore, it may be that in gathering empirical data from a larger group of cases, some new factors will be found. Companies should provide community members with tools that are easy to use, allowing people to express themselves and share their personal details. It seems to be important that maintainers are involved as visible members of a community, which includes telling about themselves in a more detailed way. This paper is one of the first papers focusing on the collaboration perspective of OI communities.
Aylen (2010) conducted a paired comparison is made between rival attempts to develop the first continuous rolling mill for wide strip in the United States during the 1920s. One firm was secretive, and the other relied on collaboration. Development of the wide strip mill is a natural experiment comparing closed and open innovation as two firms were competing for the same target using different institutional arrangements for their R&D. Wide strip-rolling technology was developed by rival teams in the United States during the mid-1920s. The less successful team at Armco, Ashland, Ky was closed to outside influences. Breakthroughs came from Columbia Steel at Butler, PA, which pursued an open pattern of cooperation with equipment suppliers. Columbia Steel's collaboration with machinery suppliers, use of independent advice on bearing technology and willingness to learn from precursors in copper rolling enabled them to build a successful wide strip mill complex, commissioned in 1926. Butler established the dominant design for the next 80 years. The leading equipment supplier at Butler, the United Engineering and Foundry Co., led global sales of the technology for four decades. It is not clear how far this example of successful open innovation in the US inter-war economy is typical. Historical studies of the management of R&D focus on formal, science-based research in large corporate labs rather than engineering development.
Enkel at el. (2009) highlighted that there is currently a broad awareness of open innovation and its relevance to corporate R&D. The implications and trends that underpin open innovation are actively discussed in terms of strategic, organizational, behavioral, knowledge, legal and business perspectives, and its economic implications. This special issue aims to advance the R&D, innovation, and technology management perspective by building on past and present studies in the field and providing future directions. Recent research, including the papers in this special issue, demonstrates an increasing range of situations where the concept is regarded as applicable. Most research to date has followed the outside-in process of open innovation, while the inside-out process remains less explored. A third coupled process of open innovation is also attracting significant research attention. These different processes show why it is necessary to have a full understanding of how and where open innovation can add value in knowledge-intensive processes. There may be a need for a creative interpretation and adaptation of the value propositions, or business models, in each situation. In other words, there are important implications for new and emerging methods of R&D management.
Grostnes (2009) emphasized on the introduction standardization as a neutral arena for open innovation. Two cases are used to illustrate the differences in open innovation processes. The cases are the Android mobile operating system and the service platform developed by the Open Mobile Alliance. The core process types introduced by Gassmann and Enkel are used to show the different open innovation approaches. Both cases use open innovation to create standards. Open membership leads to a coupled process, while a more restricted membership gives separate inside-out and outside-in processes. The case lead by established firms in the industry has a process where radical innovations are introduced early in the process, while the case lead by newcomers has a process where radical innovations are introduced late in the process. The two cases have different approaches towards commercialization of the products. Android relies on third-party developers, while the Open Mobile Alliance relies on their own members. The cases are from the telecommunication sector and based on standardization of large technical platforms. The findings might not be the same for other sectors. The paper establishes open innovation as a neutral arena for open innovation outside the domain of any single firm. It shows how the openness towards membership influences the choice of open innovation processes.
Brez (2009) stated that over the last 10 years, many companies have realized that the traditional method of funding R&D and business development was unsustainable. Applying a percentage of shrinking revenues to fund product enhancements and new product development in a fiercely competitive world simply was not adequate to remain competitive and to satisfy shareholder expectations for growth and profitability. Several trends and capabilities have evolved over the last few decades to drive the adoption of open innovation. Another major driver of open innovation was the rapid development and widespread adoption of the Internet by technology communities around the world. Open innovation provides benefits to both sides of the partnering equation: the technology seekers and the solution providers .
Broring (2010) highlighted that Industrial change leading to industry convergence can be observed in many industries. This is provoked by the application of new technologies across industry boundaries, changing customer structures and regulations. Convergence presents a particular context for innovation and technology management, as firms face new bodies of technological and market knowledge which may create competence gaps. This paper asks the following question: what kind of innovation strategies do players with different industry backgrounds employ to address new industry segments resulting from industry convergence? By analyzing three different industry cases of convergence, this paper explores how firms in different industries address competence gaps they face by positioning themselves in a newly emerging value chain. Empirical findings indicate that the innovation strategies which firms follow in converging industries may create conflicts with existing path-dependencies. Hence, to overcome these conflicts, open innovation built on dynamic capabilities (like alliance building) plays a major role in industry convergence
To study the open innovation model
To know how open model is being used by the Companies
Research Design: Descriptive Research
Data collection: The secondary data has been collected from various websites, books, journals, newspapers & magazines etc.
In order to fulfil the objectives, several case studies and articles are being studied and on the basis of them, analysis has been done.
IMPLEMENTATION APPROACHES FOR OPEN INNOVATION
To implement open innovation, some companies have established internal organizations whose task is to find new technologies. Shell Chemical has its "Game Changers"-groups given the task of finding useful information from outside sources and finding profitable customers for internally generated research and technologies.
Procter & Gamble has established a Global Technology Council and an internal network called Innovation Net .It has also put in place "Technology Entrepreneurs" who search the internet, global patent databases, scientific literature and other sources for innovations of potential benefit to its businesses.
Companies have also turned to outside "innovation agents" to obtain technologies from a wider array of sources. These innovation agents act as bridges to link entities with different experiences, knowledge and outlooks. They argument internal efforts and help companies spot , adapt and adopt technologies across domains.
Hewlett Packard (HP) is one of the companies that has embraced open innovation.HP views the research university as a source not only of graduates but of applied research. True to the new model, HP is commercializing not only of its own ideas, but also innovations from other entities. HP researchers have shifted activities toward advanced technology and product development.
Philips Research has adopted open innovation and implemented it through a range of initiatives, from participating in consortia to direct one to one collaborations with like minded innovative organizations and end user customers.
Ultimately, the reward from open innovation is accelerated realization of revenues and profits from highly valued products and services. This outcome flows, in part, from introducing outside technologies into an efficient internal product development and/or marketing engine.
One real-world example of the rewards of open innovation is described by Philips Research. Philips Research reports that electronic-paper displays have progressed from concept to market because of open innovation. The commercialization of Sony's new e-book reader, LIBRIe, was the consequence of collaboration between Philips, E.Ink, Toppan and Sony. According to Philips, the "strength in this collaboration" was "effective linkages" of activities in each organization's value chain.
FIGURE 4: Open Innovation and E-Book Reader
The above figure is the graphical representation of the Individual contributions to that multi-company effort.
Another example of the rewards of open innovation is Adobe Systems first important product"PostScript". This product created a new industry segment within the PC industry, known as desktop publishing .After initially planning to provide PostScript(PS) with all the "wrap -around" technologies to create a turn -key publishing system(proprietary hardware, software ,fonts, and applications ,Adobe was persuaded to concentrate on the fonts only,with other companies working with Adobe to utilize the fonts in their products. Hewlett Packard and Canon agreed to bundle in PostScript as a standard item in their laser printers; Apple agreed to bundle PS in its software.
PREVALANCE OF OPEN INNOVATION
This is not to argue that all industries have been (or will be) migrating to open innovation. At this point, different businesses can be located on a continuum, from essentially closed to completely open. An example of the former is the nuclear-reactor industry, which depends mainly on internal ideas and has low labor mobility, little venture capital, few (and weak) startups and relatively little research being conducted at universities. Whether this industry will ever migrate towards open innovation is questionable.
At the other extreme, some industries have been open innovators for some time now. Consider Hollywood, which for decades has innovated through a network of partnerships and alliances between production studios, directors, talent agencies, actors, scriptwriters, independent producers and specialized subcontractors (such as the suppliers of special effects). The mobility of this workforce is legendary: Every waitress is a budding actress; every parking attendant has a screenplay he is working on.
Many industries - including copiers, computers, disk drives, semiconductors, telecommunications equipment, pharmaceuticals, biotechnology and even military weapons and communications systems - are currently transitioning from closed to open innovation. For such businesses, a number of critically important innovations have emerged from seemingly unlikely sources. Indeed, the locus of innovation in these industries has migrated beyond the confines of the central R&D laboratories of the largest companies and is now situated among various startups, universities, research consortia and other outside organizations. This trend goes well beyond high technology - other industries such as automotive, health care, banking, insurance and consumer packaged goods have also been leaning toward open innovation.
Consider Procter & Gamble, the consumer-product giant with a long and proud tradition of in-house science behind its many leading brands. P&G has recently changed its approach to innovation, extending its internal R&D to the outside world through the slogan "Connect & Develop."2 The company has created the position of director of external innovation and has set a goal of sourcing 50% of its innovations from outside the company in five years, up from an estimated 10% this year.3 This approach is a long way from the "not invented here," or NIH, syndrome that afflicts many large, successful industrial organizations. Recently, P&G scored a huge success with SpinBrush, an electric toothbrush that runs on batteries and sells for $5. The idea for the product, which has quickly become the best-selling toothbrush in the United States, came not from P&G's labs but from four entrepreneurs in Cleveland. P&G also tries to move its own innovations outside. Recently, the company instituted a policy stating that any idea that originates in its labs will be offered to outside firms, even direct competitors, if an internal business does not use the idea within three years. The goal is to prevent promising projects from losing momentum and becoming stuck inside the organization.
THE DIFFERENT MODES OF INNOVATION
Indeed, many companies have been defining new strategies for exploiting the principles of open innovation, exploring ways in which external technologies can fill gaps in their current businesses and looking at how their internal technologies can spawn the seeds of new businesses outside the current organization. In doing so, many firms have focused their activities into one of three primary areas: funding, generating or commercializing innovation.
FIGURE:5(MODES OF OPEN INNOVATION)
Innovation Investorsand Benefactors
Two types of organizations (primarily on supplying fuel for the innovation fire)
Innovation Investors: The original innovation investor was the corporate R&D budget but now a wide range of other types has emerged, including venture capital (VC) firms, angel investors, corporate VC entities, private equity investors and the Small Business Investment Companies (SBICs), which provide VC to small, independent businesses and are licensed and regulated by the U.S. Small Business Administration. Their capital helps move ideas out of corporations and universities and into the market, typically through the creation of startups. In addition to financing, innovation investors can supply valuable advice for helping startups avoid the common growing pains that afflict many fledgling firms.
With the recent economic downturn and the implosion of numerous dot-com firms, innovation investors have understandably turned somewhat gun-shy. However, though it seems these players are down, they are hardly out. VCs currently have about $250 billion in capital under management, of which $90 billion is idle. When the economy rebounds, innovation investors will likely spot and fund new developments in areas like genomics and nanotechnology, which will likely spur the next economic wave of innovation.
Innovation benefactors: They provide new sources of research funding. Unlike investors, benefactors focus on the early stages of research discovery. The classic example here is the National Science Foundation (NSF), an independent agency of the U.S. government. Through its awards and grants programs, the NSF provides about 20% of federal support for academic institutions to conduct basic research. The Defense Advanced Research Projects Agency (DARPA) has also been a key benefactor, particularly for the early work in much of the computer industry. Some companies are devoting a portion of their resources to playing the role of benefactor. By funding promising early-stage work, they get a first look at the ideas and can selectively fund those that seem favorable for their industry. An interesting development with innovation benefactors is the possible rise in philanthropy from private foundations, especially those backed by wealthy individuals. For example, the billionaire Larry Ellison, chairman and CEO of software giant Oracle, has founded an organization that provides about $50 million annually for basic research in cancer, Parkinson's and Alzheimer's diseases as well as other disorders. Interestingly, the foundation was set up specifically for early exploration - research so embryonic that scientists aren't able to obtain funds through traditional grants, such as those awarded by the NS
Innovation Explorers, Merchants, Architectsand Missionaries. Innovation Explorers
Four types of organizations(primarily generate innovation)
Innovation explorers: Innovation explorers specialize in performing the discovery research function that previously took place primarily within corporate R&D laboratories. Interestingly, a number of explorers evolved as spinoffs of laboratories that used to be a part of a larger organization. Just a year ago, for example, PARC became a separate, independent entity from Xerox. Similarly, Telcordia Technologies was formed from the divestiture of the Bell System and is now home to about 400 researchers with a broad range of expertise, from software engineering to optical networking.
An interesting development with explorers has been taking place with the major government labs, such as Sandia National Laboratories, Lawrence Livermore National Laboratory and the MIT Lincoln Laboratory. In the aftermath of the end of the Cold War, these organizations have been seeking new missions for their work and much of their basic research is finding applications in commercial markets. Consider Lincoln Laboratory, which has conducted radar and other defense research since the 1950s. Technology developed there for missile detection has recently been adapted to cancer treatment, enabling microwave energy to be focused more effectively at tumors.
Innovation merchants: Innovation merchants must also explore, but their activities are focused on a narrow set of technologies that are then codified into intellectual property and aggressively sold to (and brought to market by) others. In other words, innovation merchants will innovate but only with specific commercial goals in mind, whereas explorers tend to innovate for innovation's sake. For the merchants, royalties from their IP enable them to do more research in their areas of focus. Indeed, such companies rise and fall with the strength of their IP portfolios.
One example of an innovation merchant is Qualcomm, which conducts extensive internal research on telecommunications, including code division multiple access (CDMA), a standard for wireless technology. Originally, Qualcomm manufactured cellular phones and software products such as the Eudora e-mail program, but today it focuses on licensing its CDMA technology and producing the associated chipsets for use by other cell-phone manufacturers. Qualcomm currently boasts more than 100 licensees, including Motorola, Nokia and Kyocera.
Innovation architect: They provide a valuable service in complicated technology worlds. In order to create value for their customers, they develop architectures that partition this complexity, enabling numerous other companies to provide pieces of the system, all while ensuring that those parts fit together in a coherent way. Boeing, for example, will engineer the overall design of an aircraft like the 747, after which companies like GE can then develop and manufacture the jet engines and other constituent parts. Innovation architects work in areas that are complex and fast-moving, which disfavors the "do-it-yourself" approach. To be successful, innovation architects must establish their systems solution, communicate it, persuade others to support it and develop it in the future. They must also devise a way to capture some portion of the value they create, otherwise they will find it impossible to sustain and advance their architecture.
For example, the dramatic rise of Nokia in wireless communications has been due, in part, to the strong lead it took in establishing the global system for mobile communication (GSM) technology as a standard for cellular phones. Accomplishing that required working closely with a number of other companies, as well as the governments of many European countries. Specifically, Nokia research helped define the now-accepted standards for moving GSM from a narrow- to broad-bandwidth spectrum and the company pushed hard to establish that technology: It willingly licensed the research to others and partnered with companies (including competitors) to develop the chipsets necessary for implementing the standard. Those efforts have helped Nokia to become the world's dominant supplier of wireless-phone handsets, controlling nearly 40% of the global market.
Innovation missionaries: They consist of consist of people and organizations that create and advance technologies to serve a cause. Unlike the innovation merchants and architects, they do not seek financial profits from their work. Instead, the mission is what motivates them. This is characteristic of many community-based nonprofits and religious groups but also occurs in the software industry. Here, user groups help define how a particular software program will evolve. These organizations, which include professional programmers as well as hobbyists, not only identify bugs (and possible ways to fix them), but additionally might even create a "wish list" of potential features that the next generation of a software product might include.
The evolution of the computer operating system Linux exemplifies this approach. Originally developed by Linus Torvalds, Linux has advanced over the years thanks to the arduous efforts of an informal network of programmers around the world. The software is freely available to anyone, and it has become a viable alternative to commercial offerings such as Microsoft Windows NT.
Innovation Marketersand One-Stop Centers
Two types of organizations(focused on bringing innovations to market)
Innovation marketers: Innovation marketers often perform at least some of the functions of the other types of organization, but their defining attribute is their keen ability to profitably market ideas, both their own as well as others'. To do so, marketers focus on developing a deep understanding of the current and potential needs in the market and this helps them to identify which outside ideas to bring in-house. Most of the drugs that are currently in Pfizer's pipeline, for instance, originated outside the company.
Another example of an innovation marketer is Intuit, which sells personal financial software products such as the popular Quicken program. For a number of years, Intuit has been able to keep Microsoft at bay - one of the very few companies that can make that claim - by maintaining close and disciplined interactions with its customers to gain in-depth knowledge about their needs. In keeping with the innovation marketer's role, Intuit has become adept at identifying and adapting outside technologies to satisfy those needs. In this way, the company has consistently been able to profit from innovations it did not discover. For example, it acquired two of its popular products - TurboTax (a tax-preparation program) and QuickBooks (small-business accounting software) - from the outside and enhanced both programs to meet its customers' needs.
Innovation one-stop centers: Innovation one-stop centers provide comprehensive products and services. They take the best ideas (from whatever source) and deliver those offerings to their customers at competitive prices. Like innovation marketers, they thrive by selling others' ideas, but are different in that they typically form unshakable connections to the end users, increasingly managing a customer's resources to his or her specifications. For example, the Web site for Yahoo! enables people to shop, send e-mail, manage their personal finances, hunt for jobs and keep up-to-date on current events.
While Yahoo! targets consumers, other one-stop centers are focused on business-to-business interactions. IBM's Global Services division, for instance, sells IT solutions to other companies, and interestingly, will install and service hardware and software from any vendor, including IBM's competitors. In other words, it will provide the best solution to its customers, regardless of the origin of those products.
IBM in the mainframe computer market is one such example. Thanks to the company's T.J. Watson Research Center and its other internal R&D labs, virtually all of the value-added components inside an IBM mainframe computer come from IBM itself. This includes the semiconductor circuits that power the main processing unit, the disk storage, the high-speed circuitry that routes signals, the tape backup storage, the operating system and the different application programs. To accomplish that, IBM must manage technology advances in both hardware and software within different internal divisions, coordinating future releases of software and new versions of hardware to assure its customers of continued improvements in price and performance.
IBM's mainframe business raises an important point: A corporation can deploy different modes of innovation in different markets. Specifically, IBM is a one-stop center for consulting services and a fully integrated innovator with respect to mainframes. Another important point is that competing modes can coexist in the same industry. In pharmaceuticals, for example, Merck has remained a fully integrated innovator while Pfizer is becoming an innovation marketer. It remains to be seen which of those modes (or perhaps another) will dominate.
All of the different modes will evolve in an open innovation environment, and future ones will probably emerge as well. One possible development is the rise of specialized intermediaries that function as brokers or middlemen to create markets for IP. More than likely, there won't be one "best way" to innovate, although some modes will face greater challenges than others.
FIGURE:6 (OPEN INNOVATORS)
Open Innovation Solution to a Cotton Shirts Wrinkling Problem-CASE STUDY
A semiconductor expert studying polymers supplies a technology that P&G needed to develop a product to keep cotton shirts wrinkle-free.
Company: Procter and Gamble
Procter and Gamble's decision to give its innovation model a face-lift and adopt open innovation strategies in the early part of the last decade was a daring move by the consumer products giant. It had to do something as it was being squeezed by competitors, sales were uninspiring and stock prices were falling.
P&G's Open Innovation Risk: The move was spearheaded by the new CEO A. G.Lafley but uncertainties loomed large. The company already employed some of the world's most intelligent and sought after scientists, and therefore some internal figures wondered if innovative solutions could really be found outside the group. There was also the risk that company scientists might revolt against having to champion ideas not conceived by them. Lafley and his management colleagues took all this onboard and believed the risks were acceptable when they created 'Connect and Develop'. Through this model the company looks externally for solutions to its needs and any technologies that will improve products and services, and contribute to the creation of new product lines.
Procter and Gamble now reaches out to inventors, entrepreneurs, universities, suppliers and competitors. It also works with online open innovation brokers to find solutions to some of its technical problems. The desire was never to replace internal R&D capabilities, but to put them to better use.
Open Innovation Success: One notable Procter and Gamble problem that was solved by an outside scientist involved a product the company wanted to develop to keep cotton shirts wrinkle-free. P&G could not come with an anti-wrinkle method on its own and so approached a knowledge broker who posted a few details of the dilemma to its network of solvers.
From the volume of submissions received a solution was found, though it came from an unusual place, not one that P&G had expected. The answer was sent in from the laboratory of a professor studying polymers related to the semiconductor industry. His idea when applied to garments neatly solved P&G's wrinkle problem.
This open innovation approach is a marked departure from the company's previous innovation model where it only relied on internal resources and a small trusted network of suppliers to create or improve products. Writing in the Harvard Business Review two P&G executives explained why the company opted for open innovation and how it could be of benefit.
For every P&G researcher there were 200 scientists or engineers elsewhere in the world who were just as good-a total of perhaps 1.5 million people whose talents we could potentially use. But tapping into the creative thinking of inventors and others on the outside would require massive operational changes â€¦ And we needed to change how we defined, and perceived, our R&D organization-from 7,500 people inside to 7,500 plus 1.5 million outside, with a permeable boundary between them."
External Collaborations: To date more than 1,000 active agreements have been reached via 'Connect and Develop' and as of 2010 more than 50 percent of Procter and Gamble's product initiatives involve collaborations with external innovators.
Open innovation is currently employed, often in only a limited way, primarily during the product design stage of the innovation lifecycle. The perception is that open innovation is a part of this single stage of the innovation lifecycle, which impedes its expanded deployment and realized benefits.
With that in mind, companies that are not leveraging open innovation during all stages of the product lifecycle are encouraged to find ways to do so. Implementing and leveraging innovation across the entire lifecycle, inherently spanning functions and other organizational boundaries, can require a fundamental shift in thinking and corporate culture. Specifically, companies that have a collaborative, team-based culture have a distinct advantage in implementing and leveraging open innovation versus those that have more rigid boundaries among functions and lines of business. Typically any significant change to corporate culture requires support from the highest levels.
This cross-functional, trans-lifecycle transformation has begun in the most successful open innovation initiatives. Accordingly, open innovation is giving way to open business models, where all phases of the innovation lifecycle are subject to external thinking. This transformation requires placing each target innovation into the appropriate phase of the innovation lifecycle and establishing specific innovation network strategies for each phase.
Open innovation is yielding significant, measurable successes for companies across industries. Organizations that have not yet ventured into open innovation are encouraged to identify three to five critical business issues that may benefit from an open innovation approach.