Each month the MOOI Forum discusses a theme related to Managing and Organizing Open Innovation. During the first month (December) the community discussed the link between open innovation (OI) and strategy. It is surprising that, although the literature about open innovation is exploding, there is almost nothing about how open innovation activities in a company should be aligned with a firm’s strategy.
It is surprising that there is almost nothing about how open innovation activities in a company should be aligned with a firm’s strategy.
We only found some general statements such as “there is a need to align open innovation with the organizational strategy” or “firms need to audit the current status of their innovation strategy and identify areas where value could be added by open innovation”. The professional literature thus recognizes the need to align open innovation with organizational strategy, but nobody has been unraveling this link in a detailed way.
We took up the challenge to kick off a discussion on the Forum about this topic. During the webinar we took four angles:
We briefly discuss here the first two and the last angle.
In corporate strategy managers plan out the long-term growth of the company and decide in which industries/technologies a firm should be active. Corporate strategy requires a simultaneous focus on multiple horizons and open innovation activities should be aligned with each of these horizons. Therefore, open innovation efforts related to the current business horizon will be different from OI activities that are instrumental when a company wants to enter a related business or even a complete new business. In mainstream businesses the business model is established, innovation partners are usually known and innovations are mostly incremental in nature.
In contrast, developing entirely new businesses is a high-risk venture where a company has to search for new partners that most likely will be science or technology rather than market partners. Developing new business requires therefore organizational structures, which are to some extent isolated from the current businesses in the company. We admit that the professional literature has not been differentiating open innovation activities according to the horizons: there are a few exceptions where open innovation is considered to be useful in new platforms or major platform extensions and technology scouting, while open innovation would be less interesting in terms of incremental innovations and market explorations.
Figure 1: The McKinsey Growth Model
During the discussions on the MOOI-forum, we also got interesting ideas about the link between OI and portfolio management. Whether companies admit that they are using the 3 horizons concept (also see figure 1) or not, portfolios is how R&D projects are organized, budgeted, and tracked in real life. Any OI strategy should therefore take into account the composition of the corporate R&D portfolios. The real question is then whether we apply OI approaches uniformly for incremental, adjacent, and radical innovation or if each deserves its own OI requirements.
Traditional business strategy models have typically not accounted for external sources of value to a company, such as innovation communities, volunteer contributors, and surrounding networks. The concept of openness requires a shift from ownership to value creation and value capture: Value can be created in-house but also through collaboration with external partners (e.g. technology alliances or external corporate venturing) or through communities (such as Wikipedia or Linux).
The concept of openness requires a shift from ownership to value creation and value capture.
Value can be captured by the company or by the entire ecosystem. More and more companies are discovering the value of open business models (OBM) in which they create greater value by leveraging internally more (external) ideas and can capture greater value by using key assets, resources, or positions not only in the company’s own business but also in other companies’ businesses.
The combination between OI and OBM offers a number of interesting strategic models: a classical business strategy is usually a combination of closed innovation and closed business models(e.g. Tide in P&G). OI can be combined with a closed BM as in the case of the I-Pod. The reverse is possible too: The iPhone was developed within Apple, but as a mobile platform value is created in combination with an ecosystem of apps producers. More complex – and rather unexplored – strategies are needed to combine OI and OBM. SkyNRG is a nice example.
Linking strategy to open innovation may also force us to replace the open innovation funnel by a broader ecosystem approach, at least when we broaden the scope and consider product innovation as one (among the many) possible strategic value drivers of a company. The strategic imperative is then to detect and engage ecosystem partners whose innovations will strengthen the value drivers of a particular company.
Linking strategy to open innovation is important. But management has also to understand how they move forward from the strategy formulation to OIactivities in different consecutive steps.
One approach that may be useful is the Want-Find-Get-Manage approach of Slowinski and Sagal. It provides a logical sequence of decisions to take. OI-activities emerge as one set of activities which should be derived as a consequence from a compounded strategic decision making process. This analysis starts (the Want phase) with the strategic objectives of the company. Once they are identified a firm may look for the resources needed to execute the strategy. Some resources may be available in the company, but others have to be sourced externally or co-developed with partners. How to source externally is the next hurdle to tackle.
A process view has the advantage to turn the quest to integrate open innovation into a firm’s strategy into a sequence of steps management has to take to implement the strategy.
By Prof. Henry Chesbrough, University of California, Berkeley &ESADE, Prof. WimVanhaverbeke, Hasselt University, ESADE& National University of Singapore and Dr. Nadine Roijakkers, Hasselt University.
Read more about the MOOI Team members and the project.
OI and Strategy is just the first of 12 themes that we will discuss in monthly sessions. We hope the OI themes are especially valuable to practitioners working inside organizations. You’re invited to share the daily challenges and experiences you face in the workplace and discuss possible solutions.
Once all themes are discussed in the forum, the MOOI-team will write an e-book that explains the best practices in open innovation management.
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