A Ripe Time for Open Innovation

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Solving the right problems is half the battle of innovation, primarily because working on the wrong problems is so costly. Think foregone investment, market share, profits, and the negative career implications associated with failed efforts.

Quicker to scale. One of the biggest reasons you see entities coming together is to make a given partnership scale up quickly should its efforts be successful. In the Netflix/LG Electronics deal, LG gets ready customers (who it expects will buy millions of its new boxes), while Netflix gets a new media platform that makes it more competitive. This means access to something new to the world that could only have been co-created.

Before initiating and/or participating in open innovation efforts, bear in mind a few important things that need to be aligned from the outset:

Identify partners who share a common vision. Obviously, things can move more quickly if companies already have a relationship, but that is not essential. And sometimes partners can be found in existing networks where you can "meet" and perhaps "date" before getting "married" into a tighter co-development relationship.

For its Digital Kitchen initiative, CABA was able to unite diverse companies including Whirlpool, Bell Canada, Cisco, Direct Energy , and Microsoft (MSFT) to explore the future of the kitchen as the nerve center of the house. If the effort is successful, we should see one or more solutions from some subset of these participants.

Have a big idea with clear goals. Start with a big idea—after all, one of the advantages of open innovation is that a team of companies can accomplish more than one alone. But the effort also needs clear goals and milestones that partners commit to. The members of Dossia dared to breach the mammoth task of creating portable electronic health records with the clear goal of providing them to all of their employees by the end of 2007.

Plan two team workspaces—one physical, one virtual. It's important for the team to meet in person at the outset of the effort, any time the team is working to draw conclusions from their separate analyses or when decisions are being made. Other than that, concentrate on using virtual tools to post and share documents and communicate through regularly scheduled calls.

Manage IP. Managing intellectual property is always the stickiest part of collaborative innovation. The most successful efforts seek to build win-win cultures where both parties benefit in equal measure. Although it should be an expectation to involve lawyers at some point, it is often unproductive to have them driving the early meetings before the parties have had the chance to explore the commercial or investment requirements of the partnership.

Instead, it is often more productive to understand each company's legal culture, its successes and failures in past relationships, and any assets being brought to the table. These things can inform a more casual letter of intent that can guide the early stages until more is known. That document would include the fundamental goals of the united effort, an agreement in principle regarding the resources being brought to the table, and what the expected timetable would be to draw up a more exact picture of the future business relationship. When exploratory activities result in a tangible concept of what the parties will produce and a business model is formulated, then it is time to formalize a business contract.

Create a new mindset. In many cases, organizational culture can be an obstacle to open innovation. Internal groups often perceive open innovation as a code word for outsourcing, when it's really an issue of redefining some internal roles and rethinking your innovation organization much more broadly. Success requires a top-level vision and a lot of internal communication as the initiative is rolled out. But, says Venture2's Docherty, "it's almost magical to watch the transformation as companies actually become more innovative when they learn to partner with creative companies and entrepreneurs on the outside."

Open innovation is a leap of faith. The job of leadership is to make it a short leap. But given how many recent collaborative efforts have been successful, I put open innovation on the top of my list of core competencies for the foreseeable future, recessionary times or not.

Rae is the co-founder and president of Peer Insight, a research and advisory firm focused on service innovation and customer-experience design for S&P 500 firms. When not researching, consulting, or writing, she teaches executives in client companies and MBAs at Georgetown University's McDonough School of Business how to structure and manage innovation.