Overcoming the Challenges to Successful Open Innovation

By: Peter von Dyck

Before any organization can reap the economic benefits of open innovation, it must overcome a number of legal, operational and cultural challenges. In this article Peter von Dyck addresses the top three obstacles to open innovation: managing intellectual property issues and other legal risks, processing ideas quickly and establishing an efficient internal structure.

In an effort to create new products more efficiently and effectively, many companies are regularly and in a formalized way encouraging ideas from outside sources. These external sources include individuals and organizations, such as customers and vendors. To do this, the past few years have seen some of the world’s largest multinational companies — from P&G to IBM and 3M — implementing “open innovation” programs. In fact, it’s believed that about one third of the world’s largest corporations employ some form of unsolicited idea process primarily because the benefits include: a greater diversity of ideas; lower research and development costs; and a better stocked pipeline of new products.

However, before any organization can reap the economic benefits of open innovation, it must overcome a number of legal, operational and cultural challenges.

The top three obstacles to the successful implementation of open innovation programs are:

1. Managing intellectual property issues and other legal risks
2. Processing ideas quickly, efficiently
3. Establishing an efficient internal structure

Open innovation programs are doomed to fail if these obstacles are not addressed and overcome early in the process.

Overcoming Challenge No. 1: Intellectual Property Issues and Legal Risks

Intellectual property is generally considered the most problematic and complex issue facing companies instituting open innovation programs. The potential for dispute over intellectual property rights can forestall the development of innovations submitted by outside sources.

The fact that organizations need enough information to make a decision on innovations, inventions and ideas submitted, while being cognizant of legal and confidentiality issues is a real Catch-22.

The intellectual property issue is most pressing in patent-centric industries, such as high tech, aerospace, pharmaceuticals and medical devices. The fact that organizations need enough information to make a decision on innovations, inventions and ideas submitted, while being cognizant of legal and confidentiality issues is a real Catch-22. Individuals and organizations submitting ideas face the same issue: seeking help in commercializing an idea requires inventors to submit their technology to a company through an open innovation program. The inventor wants to provide enough information to facilitate the company’s understanding of the technology — and, most notably, its value — while protecting key information vital to a successful patent. Legal risks include the potential for future disputes over the ownership of submitted IP, especially if the received intellectual property is very similar to existing internal research.

With this in mind, it’s vital that a company’s open innovation program be designed to accept the proper information. The key to success is controlling the amount and type of information submitted to assuage the small innovator’s apprehensions and limit the receiving company’s litigation risk.

Companies implementing open innovation programs can control the costs and potential liabilities by using an automated system to guide submitters on what to disclose, what not to disclose and how to disclose information. It also documents the history of communications between corporation and inventor, which is critically important to preclude downstream litigation.

Since the America Invents Act went into full effect in March 2013, protecting the submitter’s intellectual property has become even more vital, and can build the receiving company’s reputation as an organization that respects the innovator and is not trying to take advantage of the information submitted.

Overcoming Challenge No. 2: Processing Ideas Efficiently

One measure of open innovation success is the quantity of ideas submitted. However, this success creates a big challenge when the sheer volume of ideas hinders the process of reviewing and making decisions in a timely manner. Without a strategy, disorganization can easily ensue and lead many receiving companies to set aside or completely abandon open innovation efforts.

The solution: A structured screening process that allows for all solicited and unsolicited idea submissions to be filtered and managed and for quality ideas to be acted upon quickly and efficiently. A filtration process runs most effectively when the open innovation team develops and automates a strong set of criteria to sort through submissions, which makes open innovation programs even more efficient and effective.

The importance of being able to separate potential winners from losers as quickly as possible can’t be understated.  A company’s return on innovation can be measured by the costs to process, identify and select those ideas. When innovations are processed and identified more rapidly, time-to-market is reduced, increasing a company’s open innovation return on innovation.

Even with just a handful of submissions selected for further review, some will have higher commercial potential then others. Establishing strong evaluation criteria – such as regulatory burdens, market size and manufacturing requirements — allows for submissions to be scored and ranked for business value. Again, automating this process (as opposed to a time-consuming manual review) creates great efficiencies.

Overcoming Challenge No. 3: Establishing an Efficient Internal Structure

Like all great ideas, the devil is in the details. Companies can’t merely launch an open innovation program and expect great ideas to start making their way up the product development pipeline. Without an internal structure in place, there’s no organized mechanism for accepting and acting upon solicited and/or unsolicited submissions, let alone monitoring the program and benchmarking performance.

An open innovation program with a strong internal structure is one that:

1. effectively solicits ideas;
2. reviews ideas in a timely manner;
3. makes decisions whether or not to pursue the submission just as efficiently; and
4. communicates regularly with the innovator on the status of the submission.

The benefits are having an internal structure — typically a combination of people and technology — help ensure that the best ideas are pushed up the chain and help protect against IP litigation. According to a 2012 Forrester Research study, a majority of firms that have implemented open innovation programs have created teams of between three to five people to administer and implement their program.

The structure provides a formalized and standardized manner for ideas to be submitted, ensuring that outside ideas all start on equal footing within an organization. One key component:  A dedicated idea submission portal, which provides a broad array of information on the open innovation program and how it works.  The online portal can also dissuade individuals from submitting confidential information through uncontrolled communications vehicles, such as emails, casually at trade conferences or directly via the Contact Us web page on the company’s website, all of which may inadvertently expose the company to legal risks.

The structuring process involves establishing and enforcing company procedures throughout the stages of the open innovation process. This process establishes pre-requisites for the submitter, such as technology focus (i.e., having a patent or patent-pending on a technology), or the acceptance of the receiving company’s legal terms and conditions. E-Zassi recommends open innovation programs use structured questions and answers to control the submitted content along with a business decision support format with automated comparative and analytical functions to guide decision making.

Conclusion

If open innovation was easy, every company would be doing it, and doing it well.  The fact that it’s difficult, gives those with successful implementations a competitive advantage.  Formalized by University of Cal-Berkeley professor Henry Chesbrough in 2003, open innovation has taken hold in Corporate America and is becoming an important part of most companies new product and service development efforts in coming years.  Overcoming the three major obstacles described here is a key to success.

By Peter von Dyck

Image: Idea escape form the cage from Shutterstock.com