A Ripe Time for Open Innovation

Recessions present a good opportunity to collaborate with others on finding, developing, and marketing new ideas

by Jeneanne Rae

With the economy softening, it's tempting for companies to turn off the lights and shut the door on innovation efforts until things pick up. But while this might look like a smart move, the impact—lost momentum, team dispersion, and wasted investments—is less than desirable.

It doesn't have to be this way. One of the best options for recessionary times, and, some would argue, even in expansive times, is to join forces with another entity with complementary innovation goals. Open innovation is about connecting with others to find new ideas and, often, to co-develop and co-market them.

There are many examples of successful open innovation efforts today. Some take the form of pan-industry innovation networks that share in the risks and rewards of their findings. Others are straightforward co-development projects between strategic players.

Big-Name Players

Here are some current examples: Dossia is a consortium of large employers—including AT&T (ATT), BP, Intel (INTC), Pitney Bowes (PBI), and Wal-Mart (WMT)—that have come together to develop portable electronic medical records for their employees.

Continental Automated Buildings Assn. (CABA) hosts the Internet Home Alliance, a cross-industry network of leading companies such as Whirlpool (WHR), HP (HPQ), Cisco (CSCO), and Intel, engaged in collaborative research to increase use of Internet-based services in the home. Then there's Netflix , which entered into a partnership with LG Electronics to create its own set-top box that will stream movies and other video content.

As you can see, companies can take any number of approaches to open innovation. Mike Docherty of Venture2, an open-innovation consulting firm, says that "Scouting for technologies on the outside is the easy part. The leaders and long-term winners in this area are [corporations such as] P&G (PG) and GlaxoSmithKline , which are going beyond transactions and developing long term co-innovation "relationships" with a group of external partners.

No matter what form these open-innovation efforts take, they offer companies several important advantages over traditional innovation methods. The most obvious benefit is risk reduction —combinations like these share the financial underwriting and require less manpower from each organization than if they'd gone it alone. And that's good news for the chief financial officer who must justify expenditures. But there are also other less obvious benefits:

Higher levels of brainpower applied. As the old saying goes, "two heads are better than one." When companies with aligned interests come together, there is a better chance the problem at hand will be more broadly defined and there is less chance of falling prey to group-think. Such broadly defined problems increase the chances for more holistic, breakthrough solutions to emerge.

Validity. Especially in open-innovation situations that involve a potential provider and a customer, the team has access to field conditions where the essential issues lie. The reference points and shared values that teams derive by working with users on a daily basis helps them zone in on the right problems up front.