Open Innovation gaining momentum?
The idea that companies will succeed in the 21st century by drawing in the brightest minds from everywhere, not just within their own four walls, has gathered momentum over the last five years.
The time when ideas were locked up in ivory towers and worked on by a handful of research and developers in white coats has passed. That approach may work well enough in an industrialising world, but it’s slow, insular, and wrecked by bottlenecks in this world, where knowledge is king.
I know most large organizations dismiss this as academic debate - one CEO told me last week that open source models are great in theory and disastrous in reality. I can understand his scepticism. Relinquishing control of product development to scores of unknown individuals? Talk about flying in the face of every business instinct.
But a couple of trends will force CEOs to rethink this resistance. Rising research and development costs and shorter product lifecycles mean that traditional innovation spending is becoming more expensive and harder to justify.
The centrally planned approaches will have to give way to more democratic and open models of innovation.
This isn’t just a warning for IT companies (technology companies are, for the most part, already old hats when it comes to open-source).
Open innovation “guru”, Harvard Business School Professor Henry Chesbrough, has written papers on the need to develop more flexible and open business models across the board. Companies need to get a lot better at bringing external ideas and knowledge in from the outside, while at the same time allowing internal ideas not being used to flow outside the organization. Here the summarised version:
1. Let external ideas in
Chesbrough runs workshops with executives and asks them to list the major innovations in their respective industries. He then asks them where each of those ideas came from.
Surprising to most executives is that a large number came from unlikely places. Not just the company or its major competitors, but from countries outside the US - China or India - or from universities or start-ups.
Given that acknowledgement, he then asks these executives whether they are willing to admit that this is a reality that’s likely to repeat. Will the most important innovations come from outside your company in the next 10 years? If so, how well connected are you to those external sources?
Most companies are at an immediate disadvantage here because R&D teams are usually hired and even credentialed on their ability to generate internal ideas. How many companies hire staff that are good at accessing external ideas and drawing them in?
2. Let ideas loose on the outside
Business units are used to hoarding ideas. If they can’t find a use for it, no one else will get a chance.
Chesbrough says this attitude is fostered by skewed incentives. Executives are assessed by the profits their division makes for the company. Why would you let ideas flow outside in the form of licenses, spin-offs, joint ventures if you weren’t going to get the credit for it?
GE, according to Chesbrough, credits its business units when ideas are used on the outside. Licensing revenues, for example, are attributed to the division they stemmed from. “Managers are much more likely to tolerate competition with the outside if they are credited on both sides”, Chesbrough says.
3. Business models need to be flexible
Rigid business models are one of the biggest hindrances to innovation, according to Chesbrough. After all, business models dictate which ideas are brought in or created then developed, and which are discarded.
Finding ways to open business models up is key. In most organizations, no person short of the CEO bears this responsibility. The managers of business units usually take these as a given.
IBM, Proctor & Gamble, and Air Products are three companies that used to operate with very internally focused, closed business models but have since adopted a more flexible approach.
What do you think of Chesbrough’s arguments? Do companies need to get better at relinquishing control of their ideas?
Interested in Open Innovation & Crowdsourcing? Subscribe to RSS!
Recent Comments