Open Innovation: How to Create Productive Partnerships with Universities

Too often, as part of their open innovation initiatives, companies pursue collaboration with university researchers in an ad hoc, piecemeal manner. But by giving more thought to the relationship structure, companies can achieve better results.

Companies increasingly recognize that to successfully innovate they cannot exclusively rely on their internal R&D. Working with external partners allows them to access different pools of knowledge and save R&D costs. Universities are among the external partners that offer high promise, since they allow access to an enormous global pool of talent and skills.

Sometimes managers think dealing with universities equals only “technology transfer.” While the use of university-owned intellectual property has spurred much innovation in business, it is only the tip of the iceberg. Rather than merely licensing inventions, another often under-appreciated opportunity for companies is to get help from universities during the whole life cycle of their innovation projects. For example, in the United Kingdom, businesses already spend more than 20 times more on university collaboration than on licensing technology from universities.

However, working with universities poses considerable challenges for managers. Two fundamental issues afflict collaboration. First, the open nature of academic science is at times in conflict with companies’ need to protect technologies they use. Second, while academic research focuses on long-term challenges and thus may move more slowly, industrial R&D is driven by time-sensitive product development projects and day-to-day project solving. As a result, companies can sometimes find universities too slow and too bureaucratic to be good partners. Given that in the Organisation for Economic Co-operation and Development countries, expenditures on higher education R&D represent about $160 billion per annum, businesses that don’t work with universities may be missing opportunities of significant proportions.

These tensions are exacerbated by the fact that companies’ collaborations with universities are often pursued in an ad hoc, piecemeal manner, led by individual initiatives rather than any corporate strategy. Managers who would never dream of leaving their customer or supplier relationships to chance may take an ad hoc approach to their university relationships, which can lead to duplication of effort, lost opportunities or squabbles over intellectual property.

Our research suggests that businesses can structure their relationships with universities in ways that make them much more valuable. To do this, companies must actively embrace universities, using the differences between industry and academia to their advantage. as Claus Otto, program manager at Royal Dutch Shell PLC, says, “It is important to ask yourself: What can these university centers do better or different than we can?” Shell, for example, invests in university partnerships in areas where it does not yet make business sense for the company to build extensive technology capability.

To leverage value from universities, we argue that business executives need to consider two key dimensions. The first of these is the time horizon of the collaboration. Short-term collaborations are useful, common and relatively easy to facilitate if they are targeted and aligned to universities’ and academics’ ways of working. However, they require creative structuring, as the clock speed of academic research and business practice can be wildly divergent. Conversely, many academics think long-term, and this can be an advantage for a business as it may overcome managers’ tendency to look to the next quarter. “Going long” with academics in the search for new ideas can unlock a range of possibilities and even help to create a new innovation ecosystem that will sustain the business five or 10 years into the future. However, such long-term collaborations require more patient investment and managerial attention to the design and governance of the collaboration or they can go easily awry.

The second dimension is the degree of disclosure of the results of the partnership. Openness facilitates rapid publishing, which constitutes the lifeblood of public science and has the advantage of reducing transaction costs related to intellectual property. For companies, however, protection facilitates the commercialization of discoveries. If we combine these two dimensions, we can see four different collaboration modes:

  1. The idea lab, where managers put aside their desire for secrecy and work with academics to create new options and contacts.
  2. The grand challenge, where managers and academics work together to create a new knowledge base that will be shared in the public domain.
  3. The extended workbench, where managers work rapidly with university partners on proprietary problems and solutions.
  4. Deep exploration, where the company creates rich and long-lasting relationships with university partners that, in turn, offer the business rights of first refusal to license collaboration results.

Crafting the right partnership

The university sector is large and complex, with a wide range of institutions. Some universities are highly skilled at working with industrial partners, collaborating frequently with industry — whereas others have limited experience. Managers should
carefully assess the level of collaborative capability of their potential university partners, avoiding costly and time-consuming setup costs and the possibility of later disputes over the ownership of ideas. Another factor to consider: Differences across countries in university rules can, in some cases, be substantial. For example, in most countries, the inventions of academics are owned by their universities. But in Sweden and Italy, “professor privilege” still operates, meaning that academics own their inventions.

When determining the best model to follow with a university partner, managers should carefully assess the nature of the university they are working with. For instance, many top engineering universities routinely engage in applied research that has direct commercial applications, and hence these institutions are often well prepared for what we call “deep exploration.” More generally, university relations are too important to be left to chance.

By balancing considerations such as time horizon and degree of openness, managers can turn universities into valuable partners in both the short and long run — provided the relationships are designed in advance to meet both organizations’ goals.

This article is adapted from “How to Create Productive Partnerships With Universities” by Markus Perkmann and Ammon Salter, which appeared in the Summer 2012 issue of MIT Sloan Management Review.

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