Moving from “Open Innovation” to True Open Innovation

By: Frank Mattes

In the 10 years since Henry Chesbrough published his groundbreaking book on Open Innovation, a lot has happened. Almost any firm claims to do Open Innovation. However, if you look closely, most of the firms do not do true Open Innovation – they are merely running a multitude of open approaches to innovation. This article explains the fundamental differences between “Open Innovation” and true Open Innovation, provides data where firms are standing on their journey to true Open Innovation and gives some hints on what your firm should do in order to take the next step.

We are living in a world where Marshall McLuhan and Alvin Toffler said we’d be. Digital technology and the globalization of knowledge have changed everything. The world is an electronic village in which small groups have the power to disrupt the status quo, technological expertise is distributed globally and can be found using Web tools and response times are approaching zero.

This of course changes also the way in which firms innovate. 10 years ago, Henry Chesbrough studied several leading firms and found a “new imperative for creating and profiting from technology”. Now, new insights about the nature of the world – in particular the one mentioned above – and new management concepts aren’t picked up everywhere instantly. Like successful innovations, they are picked up in waves. First come the pioneers, then the Early Adopters and the majority and finally the Late Followers. Consequently, one finds that some firms have aligned their innovation management with Chesbrough’s new imperative faster and with more rigor than others.

Today, with more than 730 million hits on Google for the term Open Innovation, almost any firm claims that they are “doing Open Innovation”. True, every firm takes up innovation impulses from its customers or its suppliers, cooperates with research institutes or develops its new products and services jointly with other partners. However, there is a fine line between “Open Innovation” and true Open Innovation. This might at first view look like a fine, subtle difference. But depending on how you look at it, it has far-reaching implications for how your firm innovates.

This article firstly wants to work out the three fundamental differences between “Open Innovation” and true Open Innovation, secondly provide data on the level of true openness and thirdly give you some thoughts on how your firm could move to true Open Innovation.

Fundamental difference number one: Embedding

Today no firm innovates in a completely closed mode. In the last 10 years, quite a number of firms also tried and tested new open approaches to innovation that are enabled by a globally networked infrastructure: They

• posted their requests for technological expertise on Open Innovation marketplaces such as NineSigma, InnoCentive or yet2.com,
• ran global campaigns for attracting business and technological ideas around megatrends such as “green business” or “smart grids”,
• conducted consumer crowdsourcing contests on platforms such as Atizo and/or
• ran consumer crowdsourcing campaigns on their own.

These activities – and a number of others, (see InnovationManagement’s in-depth article – are open approaches to innovation. But if you look closer, in many firms these kinds of activities are not fully embedded in the firm’s innovation management approach.

Strategically embedded Open Innovation

True Open Innovation is embedded into the innovation strategy. The question is not “To be open or not be open”, to paraphrase William Shakespeare, for two reasons: Firstly, as stated above, any firm is already innovating openly to a lesser or a larger extent and secondly true Open Innovation is a deliberate choice.

A true open innovation strategy

• starts with taking external impulses to translate megatrends into roadmaps and R&D pipelines,
• takes a hard and unbiased look at current and future core competences and asks: “On a global scale, given that most of the smart people are not working for us: What exactly should we focus on?”,
• thoroughly analyzes technologies, business fields and processes to pinpoint where exactly innovations should be done in a closed mode and where it should be done openly,
• clarifies, after all fields for open innovation have been defined, which open approach to innovation (see above) are the most suitable ones and, most of all,
• is not a one-time effort but a continuous process that is repeated at least once per year.

Organizationally embedded Open Innovation

In many firms, open approaches to innovation are driven by a group of open, entrepreneurial people. These people have a desire to work with the best and most brilliant and to pull in a lot of external ideas in order to have a multitude of options to choose from. But in most of the firms, openness is not woven into the organizational fabric of the whole firm.

A firm that does true Open Innovation builds on carefully balanced central and decentral organizational structures to make sure that openness in innovation is fully embedded. Typically, the roles of a “Open Innovation center” include:

• Interconnect existing networks inside the firm
• Management of externally facing innovation portals
• External Marketing of Open Innovation to win the best co-innovators
• Search for cross-divisional “Game Changers”
• Lead the internal Community Of Excellence

This center ties in with the decentral innovation units that are responsible for running the relevant innovation agenda and identify (open) innovation White Spaces.

Culturally embedded Open Innovation

At the end of the day, innovation is a people business and so is Open Innovation. Yet, in many firms an open mindset is not pervasive and can be found only in some isolated Business Units.

True Open Innovation starts with an open mindset and an opportunity-based mindset. True Open Innovation is part of the corporate culture and present in all formal and informal cultural traits, e.g. In the metrics that are applied to measure superior performance, in the leadership style, in talent development processes and in the communication style.

Fundamental difference number two: Proactivity

A Member of the Board of one of my clients recently commented tauntingly on the Open Innovation activities at one of his Business Units: “To them, Open Innovation is like Christmas. It’s a welcome, once-per-year exception to the day-to-day innovation business.” While this statement may be a little bit exaggerated it reflects in some respect the way in which Open Innovation is seen in many firms.

Quite a number of firms turn to open approaches to innovation when answers to technological challenges can’t be found inside the firm or in the circle of trusted innovation partners or when they want to have a big heap of new consumer insights once per year to have some food for innovation thought.

There is nothing wrong with this way of seeing openness in innovation. True Open Innovation however has a proactive mindset. This proactive mindset manifests in the planning processes. Firms that conduct “Open Innovation” plan their roadmaps and R&D projects, allocate budgets and when R&D projects run into difficulties they turn to Open Innovation.

…firms that are doing true Open Innovation start the planning process with an opportunity-based thinking.

On the other hand, firms that are doing true Open Innovation start the planning process with an opportunity-based thinking. The key question is, “How much can we leverage our existing innovation manpower?” In the planning process, this wide option space is then explored and then turned into roadmaps and R&D projects. As an effect, the innovation volume that can be moved through the funnel is larger than if one sees openness in innovation only as a sort of last resort respectively a once-per-year exercise.

Fundamental difference number three: The rigor in pursuing openness

“The usual suspects” is not just the title of a successful Hollywood movie from 1995, it is also how many firms look at the global base of potential co-innovators. Quite often, openness in innovation is done within a relatively stable set of trusted external innovation partners.

There is nothing wrong with this way of seeing openness in innovation. But no matter how large your firm is more than 99% of the relevant smart people do not work for it.

Consequently, true Open Innovation has the ambition to extend the firm’s innovation ecosystem as far as it makes sense. True Open Innovation has the hunt for finding new potential innovation partners in its DNA. To achieve this, the firm communicates proactively its innovation wants and needs (after these have been defined in the strategic context, see above), uses its innovation partners as hubs for attracting even more innovation partners and communicates actively in all relevant channels success stories that demonstrate why it is the best destination for all relevant companies that might be interested in a win/win collaborative innovation.

The data behind

In late 2011, Forrester conducted an open innovation study with 229 Open Innovation stakeholders via a web-based survey and via thirteen in-depth phone interviews with senior Open Innovation executives. A wide variety of industries were represented, including the public sector and government, with no single industry accounting for more than 12% of the total sample. By design, the survey was targeted at large organizations. Survey respondents included director/manager roles (69%) and executive/department head/VP roles (31%). Geographically, the study focused on the US (58% of participants), Germany (23%) and the UK (19%).

Forrester was interested in understanding how these Open Innovation stakeholders define Open Innovation, how and why they are investing in Open Innovation, how they measure success and how they drive the move from “Open Innovation” to true Open Innovation.

With such a broad scope it is not surveying that the study produced a number of interesting insights. One of these is supporting the thesis that actually Enterprise 2.0 and Open Innovation are becoming one:

• Almost two thirds of the firms see “social collaboration initiatives” as part of Open Innovation
• Even more interesting is that with a rate of agreement at around 60% firms are saying that they not only invest in Open Innovation “to solve business challenges that we can’t solve internally” but also “to foster more collaboration internally”.

To assess where firms are standing on their journey from “Open Innovation” to true Open Innovation, Forrester used an Open Innovation maturity model with four stages:

• Stage I: Experimentation. This stage is characterized by initiatives driven by single Business Units, by a project-based resource allocation and by pilot runs with selected new open approaches to innovation. According to Forrester, 60% of firms are in this stage.
• Stage II: Commitment. The second stage is achieved, when there is a CxO support for Open Innovation, formal resources are reserved for Open Innovation, the first steps towards organizational embedding are taken and preliminary cost-benefit analyses are done. Forrester estimates that 30% of firms are in this stage.
• Stage III: Sustainable state. This stage is characterized by a CxO mandate for Open Innovation, significant formal resources allocated to Open Innovation, solid cost-benefit analyses in place and continuous use of new open approaches to innovation. According to Forrester, 9% of firms have achieved this stage.
• Stage IV: Full integration. Forrester and the experts of the innovation-3 network characterize the final stage of Open Innovation maturity by the traits of stage III plus cultural embedding of Open Innovation, well-defined and well-managed innovation networks, seamless integration of Enterprise 2.0 and Open Innovation and Shareholder Value justification of the investment in Open Innovation. According to Forrester, maximal 1% of the firms are in this stage.

What your firm should do

Now, if you agree with the theses presented in this article, what should you do?

According to the statistics, your firm is most likely in the Experimentation or the Commitment phase. If this is the case, your firm should

• Carefully decide which new open approaches to innovation add value,
• Start embedding Open Innovation into the innovation strategy process
• Design or refine the organizational embedding
• Define or refine the approaches to measure the impact of openness in innovation

Doing so would help your firm in moving from “Open Innovation” to true Open Innovation and put it in a top spot for innovation leadership.

By Frank Mattes