Thursday, May 1, 2008

Open Innovation is a Two-Way Street

Open Innovation is currently one of the hottest topics in innovation. It is often proposed as a silver bullet for innovation problems and a guarantor of future growth. Every few days there seems to be a new website dedicated to open innovation.

Indeed, Open Innovation does hold the promise of providing important benefits from innovation; however, judging by the descriptions to be found in the internet and the press, it is seldom understood correctly.

The term "Open Innovation" was proposed by Henry Chesbrough, Professor of Management at the University of California. In doing so, he created a paradigm shift in corporate attitudes towards innovation. Until recently, all phases of the innovation process were kept strictly within the corporation; Chesbrough calls this "Closed Innovation". By contrast, with an Open Innovation approach, a company opens its innovation process to external participation, for example for customers, suppliers, independent experts or even for the entire world. The impenetrable walls with which companies surrounded themselves become permeable. This opening up has many beneficial effects on innovation activities - Chesbrough calls this an "increase in the metabolic rate."

Two crucial aspects of this new permeability are that it is valid firstly in both directions (inwards and outwards) and secondly along the entire length of the innovation process (from ideation to marketing).

However, almost all discussion of Open Innovation is limited to the enabling of external participants in the ideation phase. This is exemplified by the Lead User method and a plethora of new websites supporting crowdsourcing such as openinnovation in Switzerland or FellowForce in the Netherlands. Limiting the interpretation of Open Innovation to this one aspect ignores many other equally important opportunities described by Chesbrough (such as the licensing out of intellectual property), which are essential to the success of the overall concept.

One of the few balanced illustrations of Open Innovation to found on the internet is by BASF Future Business Corporation, a subsidiary of the German chemical corporation BASF, which is dedicated to pursuing new technologies which are currently outside the parent corporation's purview.

Our experience in dealing with clients at their Front End of Innovation shows that they often develop more good ideas than they can implement themselves. In many cases, these are ideas that could be commercialised via joint developments, licensing out or spinoffs. However, these chances are usually ignored, and the potential of the idea is lost. Open Innovation would help to prevent such losses, and the return on investment in the idea generation process would be even greater.


Brendan Dunphy said...

I have to disagree that the BASF site is "on the Internet" or "open"; it may be profiled on the BASF web site but it is not open to participation to all. It is in fact very controlled and focused in-line with BASF strategy. This BASF iniative may be more open than many corporate innovation programs but it simply goes to illustrate that there are several shades of "open"!

Graham said...

Well, that is exactly my point.

Open Innovation as defined by Chesbrough has nothing to do with "participation by all" per se.

Having a web site that solicits ideas from everybody could be part of an Open Innovation strategy, but it certainly does not have to be.
(It just happens one of the things that everybody is talking about right now.)

In my opinion, crowdsourcing probably only makes sense for B2C topics anyway.

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