Innovation & Design

A Ripe Time for Open Innovation


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

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. 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.


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