Part 4: Extend: The value of open innovation
Open innovation has become increasingly popular. However, companies often fail to harness the benefits they have hoped for. Get practical insights on how to avoid common pitfalls and increase the chances of success.
August 26, 2021
As part of our series on the eight innovation essentials, we will explore how corporations can benefit from tapping into external innovation networks. In the last decade or so the concept of open innovation – sourcing ideas from an external network of partners, suppliers, universities, start-ups and customers – has become increasingly popular. However, companies often fail to harness the benefits they have hoped for. In this article we will share practical insights on how to avoid common pitfalls and increase the chances of success for your next open innovation initiative.
What is open innovation?
Traditionally, in large organisations innovation is the domain of R&D departments. The formula is to come up with a unique product or solution, take worldwide patents and then execute with high efficiency. However, with the change in speed of technology development, the rise of digital solutions and the lower capital barrier for launching a company, it has become increasingly difficult to succeed by just sticking to the known formula. Thus, companies have started to look for innovation outside of their own organisation – partners, customers, universities or start-ups. The promise is that by tapping into “outside” capabilities, companies can bring in more diverse and fresh ideas while also increasing the speed of innovation. In a nutshell, open innovation is about opening towards different sources of knowledge, insights, and capabilities, often as a collaboration between the parties.
Different types of openness
There are many types of open innovation. To simplify the discussion, we have divided them into five different types based on their objectives and the parties involved.
1. Employee engagement
Opening up the innovation process for employees outside of R&D-domains is typically not included as open innovation practice in academic literature. However, because involving e.g. operational and frontline workers in innovation is so foreign to many companies, we believe that it is in fact very similar to other forms of open innovation. Over the last decade Nosco has run hundreds of innovation initiatives involving all employees or a sub-group. Our experience is that often companies don’t have to look far to find new sources of innovation.
Read more about this format and the value it brings to corporations in our article “Involve your employees and improve your innovation culture“.
2. Employer branding and talent acquisition
Technological advancements and digitisation have changed what skills are required from employees. As the baby-boomer generation is retiring and millennials and gen Z are taking over as the main workforce, companies need to adapt to new ways of attracting and keeping talent. The 2018 GE Global Innovation Barometer found that 74% of surveyed global executives highlight a lack of skills as an issue in their industry. This lacking spells trouble for innovation. Thus, employer branding has become increasingly important, particularly for more established and traditional companies. An efficient way of doing this, is to engage e.g. students in open innovation initiatives. Companies can benefit in two ways: (1) position the company as a desireful and modern workplace (2) spotting talent and getting access to new insights and ideas. Two examples of such initiatives are Buhler and MIT.
3. Customer involvement
Involving customers is probably the most known type of open innovation, but also, in our experience, one of the hardest to succeed with. There are many pitfalls but done right, it can provide great insight and raise brand value substantially. A prerequisite is a solid and loyal customer base that is willing to engage with you. A good example of successfully involving customers is Husqvarna, a global leader in robotic auto-mowers.
An animal protection NGO was concerned about the safety of wildlife when the robot lawn mower was working at night. Despite a low number of reported cases (3 incidents with more than 2 million auto-mowers at work), Husqvarna took the potential bad image seriously. The Husqvarna Innovation lab, thus, invited over 66.000 users via the auto-mower app to collaborate on solving the challenge. The aim was to find inexpensive solutions to the problem and to show that Husqvarna is serious about this issue. Participation was high and the outcome was 32 high quality ideas as well as reinforced relation to their customer base.
4. Start-up collaboration
Collaborating with start-ups can be a good way of bringing in capabilities that are otherwise difficult to build yourself. A study by Deloitte demonstrates that pharmaceutical drug candidates developed with open innovation practices (investing in ventures) have a success rate three times higher than those sourced through traditional in-house, closed innovation methods.
Start-up collaboration is in many ways related to the traditional M&A approach but yet different. As opposed to a M&A, the start-up approach builds a collaboration and invests in learning rather than future paybacks. Many companies like to flirt with the start-up community but lack the commitment to act like a venture company. In our experience, clear and transparent intentions are the road to successful collaboration. In this case, success is defined as real adoption of acquired knowledge, whether in the shape of a partnership, an equity stake or another kind of transaction. The company needs to act like venture capitalists. Invest in themes and create a portfolio of companies. It is best not to get majority shares right away. Invest to ensure future learnings, but not to carry the burden. When a start-up succeeds, the company can go in and buy more, at a higher price.
5. Value chain collaboration
The last approach to open innovation that we want to highlight, is collaborating across value chains within an industry. Many value chains are clearly divided with distinct roles for each company. This is a disadvantage when it comes to initiatives that require collaboration across the value chain. For example packaging and smart technologies (e.g. RFID tags and IoT).
Collaborating with industry partners towards the same goal has immense potential for solving issues that can’t be tackled and solved by only one company. However, it is also one of the hardest to succeed with, because companies are often hesitant to share insights that value chain partners might exploit for their own benefit.
One successful initiative of this kind is initiated by a small interest organisation, RCD, gathering industry partners to solve the issue of plastic packaging. Key for the success of this was the handpicking of participants, the activities involved to build trust and the rewards for participating (e.g. access to high-profile experts).
Barriers and what to watch out for
It is tempting to venture into open innovation, due to the many potential upsides and the popularity of such initiatives at the moment. The upsides are indeed promising. However, it is important that companies are clear about their objectives and aware of potential pitfalls.
In our experience, it is crucial to be clear about why you want to involve external stakeholders and what you are hoping to achieve before you start any open innovation initiative. In many cases, companies don’t even have to look far to find new sources of ideas. In fact, it might be easier and quicker to look within your own boundaries and employees.
Should the company suspect that the external environment will be able to provide other benefits, the next question should be: who to involve and why would they want to collaborate with us? Open innovation is never a one way street. You need to give something in return in order to attract partners and really get the benefits of it, whether it is knowledge, insights, money, training or access to facilities and network.
Once the purpose and rationale are clear, it is essential to ensure internal backing of the process. Especially if it entails high monetary rewards and another big investment from the company. Internal backing should address the questions of: How much are we willing to invest? How do we make sure that we can adopt the knowledge and harvest the benefits? We have seen companies that have spent lots of Euros on cultivating ecosystems at universities, without ever being able to document the value or capitalize on the effort. Whereas the initiative itself might be a success, it is not a success to the company.
Finally, we recommend working in parallel on changing the mindset of the company. Do not assume that everything is on green light, just because the top executives said yes to the program. We often see a disconnection between the top executives and the next levels of management. It is often those next levels that should adopt and integrate the acquired knowledge or acquired start-ups. If they do not buy-in to the value of the initiative, it will most likely never materialize.
How to get started
At Nosco, we help companies host open innovation challenges. We have been involved in designing and implementing multiple initiatives. Sometimes, we also play an active part in identifying and engaging the target group. Our work has helped create hundreds of ideas and dozens of prototypes, and we have supported our partners to create great value through new ways of collaboration.
Every company has different prerequisites and levels of experience with open innovation. Therefore, we prefer starting with a scoping discussion and clarification of “how mature” regarding the above-mentioned barriers the company is. In the process, we like to run an “Aspiration workshop” (see part 2 article). We also sometimes suggest finding an important business challenge and run an internal campaign to prove that extending the innovation effort beyond the traditional way is a fast and valid way to capture value.
Ready to extend and create better ideas for innovation? Contact us now for a free consultation—we’d love to know how we can help.
Morten has more than 20 years of experience as a management consultant, helping Implement Consulting Group grow to the largest independent consultancy in Scandinavia. An entrepreneur at heart, he has started and grown several successful businesses and now serves as a board member to numerous start-ups.
Thilde is an experienced consultant with a background strategy, business development and innovation within large corporations. She is the “whisper in the ear” of campaign managers and is specialised in communication and mobilisation. Thilde also has a long-term connection to Copenhagen Business School, acting as a lecturer and examiner within innovation and strategy.