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Open Innovation Revisited

By Jeffrey Baumgartner

Open innovation was all the rage a few years ago, but seems to have gone out of fashion in the corporate world. That's probably because it generated too much buzz and a lot of corporate players jumped on the open innovation bandwagon without a well thought out plan and, as a result, got burned. But is it a waste of time or is it worth adding to your innovation toolkit? Let's revisit open innovation with an open mind and find out.

The term “open innovation” was popularised by Henry Chesbrough in his book Open Innovation: The New Imperative for Creating and Profiting from Technology. He wrote “Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology” Bearing in mind that the definition of “innovation” is “the implementation of creative ideas in order generate value, usually through reduced operational costs, increased income or both," a more accurate term for “open innovation would be: “open creativity”. However, the term “open innovation” is in widespread use and there is no way we are going to change that. So we will have to stick with it, as semantically unsettling as it may be!

Wisdom of Crowds

The theory behind open innovation is that the sphere of knowledge and experience within the organisation is necessarily limited. Worse, it may be further limited by corporate practices and processes. As people become used to working in certain ways and thinking in certain ways at work, they find it increasingly difficult to break out of these molds and adopt new ways of doing things.

By tapping into external sources, you expand your knowledge base, bring in new ways of thinking and new ways of doing things. It is widely known that diverse teams are more creative than teams in which all people come from similar backgrounds. Clearly, then, adding further diversity to internal teams can only improve the creativity – and hence the innovation potential of that team and hence the organisation.

Some people have taken this notion one step further and claim that the more people involved in generating ideas, the greater the diversity and level of creativity. This, however, is unproven empirically as far as I know. Moreover, bringing huge crowds into an innovation process will have two negative effects that I have seen in practice:

  1. The efficiency of any idea collection system is reduced as more people submit more ideas, particularly if the system is an open suggestion scheme (see below). Thus managing ideas becomes burdensome. Voting on ideas, incidentally, is not an effective means for evaluating whether or not ideas meet your company's business criteria. It is nothing more than a popularity contest unconnected to your corporate needs. Ideas need to be reviewed by an internal team before they can be implemented and this eats into resources, particularly if there are thousands of  ideas to review.

  2. Elements of mob behaviour can sometimes be seen. A few popular people can push their own agendas by submitting and liking lots of ideas that are in their own interest, rather than in the interest of the organisation. For example, when Barak Obama was running for president the first time, his election committee set up an idea portal to solicit ideas from the electorate. A group of people keen on the legalisation of marijuana were able to make their ideas the most popular by far.

Needless-to-say, neither of the above effects is conducive to creativity and eventual innovation. The rule to bear in mind is that diversity is beneficial to creativity, massive crowds are not.

Old Hat

In fact, open innovation, as such, has been around since long before Mr Chesbrough coined the term. Even when I was a child in the 60s and 70s, many hotels and restaurants had suggestion boxes inviting ideas from customers. Any research scientist in industry will tell you that they have been doing open innovation for years, collaborating, officially and unofficially, with scientists in other industries as well as in universities and research institutes. Indeed, this is a key part of why scientists keep up with journals and attend conferences: to exchange ideas with their associates.

The Japanese motor industry has a long history of working closely with suppliers through the entire innovation process – and not just idea generation. Toyota's famous “just in time” inventory strategy would never have worked if business partners were not intimately involved.

Nevertheless, widespread use of the Internet has made open innovation more popular and more public.

Five Approaches

There are five popular approaches to open innovation: public crowdsourcing, innovation competitions, outsourcing, publicly funded projects and what I'll call 'low-key'. Let's review each of them.

1. Open Crowdsourcing

Open crowdsourcing was the big thing in open innovation a decade ago, but it is far less popular now. Open crowdsourcing is basically putting those suggestion boxes, I mentioned earlier, on the web and inviting the whole world to participate. Open innovation tools make suggestions visible to all, invite collaboration and encourage voting on ideas.

The problem with open crowdsourcing initiatives is that if they fail, no one submits ideas and you look foolish. If they succeed, you get too many ideas and they are costly to manage! In the past companies boasted of idea web sites capturing tens of thousands of ideas. That sounds great until you consider your administrative effort in reviewing all of those ideas. If you require just five minutes to review and process an idea, 10,000 of them would take more than 830 hours to review or more than 100 working days!

Moreover, because suggestion schemes are unstructured, they tend to invite a lot of irrelevant ideas, customer complaints and duplicates. Over the years, I have asked experts and on innovation forums for examples of big, innovative ideas that have come out of open crowdsourcing initiatives. I have not yet learned of a single example.

In fact, I understand many crowdsourcing initiatives were as much about public relations as they were about actually getting viable ideas. However, even this has not necessarily been a success. Open crowdsourcing initiatives can invite complaints, criticism and abuse as easily as they can invite useful ideas. For these reasons, open crowdsourcing initiatives have largely gone out of fashion.

2. Idea Competitions

Innocentive popularised the notion of a web site with competitions based on very precise innovation challenges, typically focusing on scientific problems, such as “Protection of Biological Molecules to Enable Delivery Within the Gastrointestinal Tract.” And a reward is offered for solutions to the problem. In this example, the reward is US$20,000.

Idea competitions are effective because they allow a firm to broadcast a very specific problem and allow experts, who have the wherewithal to solve the problem innovatively, to do so. Proposals can easily be evaluated according to relevant criteria and the most suitable ones selected and implemented. Because of the specialised nature of most of the challenges, the number of proposals submitted is relatively low and most proposals are relevant.

There are now a handful of different firms offering managed idea competitions – a demonstration of the effectiveness of this approach. Indeed, even our idea management software allows clients to create competitions.

The key difference between idea competitions and open crowdsourcing is that the former are very structured and put you in control of the kind of ideas submitted, while the latter basically hands control over to the crowd. I know of no sane CEO that wants to give the crowd control of her innovation.

3. Outsourcing

Because publicising specific business needs in an open forum like an idea competition might provide too much information to competitors or simply because the firms in question are uncomfortable using a public forum for open innovation, many companies outsource elements of innovation to trusted third parties, such as small firms that focus on developing specialised innovative technologies.

In these cases, the outsourced firms are not merely generating ideas, they are going much further, typically providing comprehensive concepts often complete with business plans, prototypes and more.

The advantage to such an arrangement is that it facilitates a higher level of sharing of information between the two firms, intellectual property rights can be clarified from the beginning and the company seeking outside innovation can be assured of confidentiality. The downside, is that the group looking into the problem is necessarily restricted and thus there may not be the breadth of knowledge, experience and creativity that would be available in a more public forum.

4. Publicly Funded Projects

A lesser known, but well established, means for open innovation is publicly funded projects. The European Commission has been funding research and development projects for more than 50 years and since 1984 has been launching regular Framework Programmes which, to simplify a great deal, list research and development topics. Consortia are invited to propose projects that address those topics. A consortium must consist of at least two, and usually consists of several, organisations from different European Union (EU) member states. Partner companies collaborate to develop the project and provide deliverables along the way. Results must be published and made freely available. Some kinds of projects are expected to develop commercialised products or services.

Having spent some time with EU projects, I know the system is greatly flawed in many respects that are mostly to do with bureaucracy and legal processes. Nevertheless, some very good work comes out of Framework projects and billions of Euro are given away to companies for carrying out their innovative research and development under the programme. Moreover, by requiring participation from different member states, EU projects encourage a kind of open innovation.

Likewise, other governments offer grants which encourage innovative collaboration to develop research and development projects. And many non-profits, such as the Gates Foundation and the Rockefeller Foundation, offer grants to collaborative teams comprising more than one organisation. Increasingly, these foundations are requiring that researchers make their findings publicly and freely available.

5. Low-Key Open Innovation

In addition to the above more public and structured approaches to open innovation, many companies also involve outsiders in their regular innovation process. Toyota's Just In Time inventory actively involves suppliers in innovating. External consultants often contribute to innovation. Back when I ran an idea management software company, a number of our clients invited external people to participate in ideation.

These activities are not formally "open innovation", but they can contribute to innovation in an open way.

Intellectual Property

In short, open innovation is really very much like closed innovation, except that outsiders are invited to participate. However, there is one very big difference, in a closed idea generation environment involving only employees and possibly contracted business partners: the issues of intellectual property rights (IPR) associated with ideas is very clear. It will certainly have been clarified in everyone's employment contract or outsourcing contract. However, in public forums, no such contracts are pre-existing. Hence the issue of IPR needs to be considered even before the project begins. Likewise, participants in open innovation initiatives need to be aware of what rights they are losing with their idea submissions.

Recommendations

I am no fan of suggestion schemes, whether internal or open to the public. They tend to collect large numbers of low value ideas, many of which are irrelevant to business needs. They hand control of idea generation to users. And they require a lot of administration. Opening up a suggestion scheme to the public only exacerbates the negatives while giving no additional value.

Highly focused challenges, such as those posted on Innocentive and similar platforms, on the other hand, can be effective because you remain in control, you specify precisely what you are looking for and, rather than collecting shallow ideas, you are getting sophisticated solutions to specific problems. Interestingly, it seems successful solvers on Innocentive tend to be specialists in fields different to that of the challenge. For example, the chosen solution to a chemistry challenge might be a physicist or biologist.

You can also use your own corporate web site, along with some promotion on social media, to propose specific challenges as competitions.

I also believe that getting suppliers involved in your innovation is a great idea. Many large companies simply give suppliers specifications and expect them to be followed precisely. Explaining what you need and inviting suppliers to work with you to find innovative solutions is a far better approach that can reduce costs, increase engagement of suppliers and innovate.

So, soliciting general ideas from the vast crowd is stupid. But engaging outiside experts and suppliers by challenging them to provide innovative solutions, on the other hand, can be an effective innovation approach. Likewise, engaging your suppliers in your innovation is a wise move.

R103/20170419

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Jeffrey Baumgartner
Bwiti bvba

Erps-Kwerps (near Leuven & Brussels) Belgium