Written by Andrew Kung
While most corporations today rely on traditional business practices to drive innovation, more and more Fortune 500 companies are transitioning to a concept called “open innovation”. This term was pioneered by Henry Chesbrough, executive director at the Center for Open Innovation at UC Berkeley, who – along with scholars like Vivek Wadhwa – argues that companies must look outside of their in-house talent and intellectual property to truly create disruptive innovations.
Looking at the norm, most companies follow “closed innovation” principles, where executives believe that the most intelligent people in their field work for their company, and thus must profit from the R&D discovered and developed by themselves. If they create the best ideas and keep it to themselves, they are able to go-to-market first and commercialize and capitalize on a huge market opportunity. The extremely secure and protective mindset regarding their intellectual property contrasts the principles of open innovation.
It is unlikely, however, that the best ideas are all located within one organization and even more unlikely that one organization would manage all of the risks associated with commercializing a technology. Rather, this concept realizes that firms can and should use a combination of both internal and external resources to drive innovation. In our current world of widely distributed knowledge, companies are able to leverage other companies’ processes and inventions to further drive their own initiatives. For example, these joint ventures and shared intellectual property would reduce the cost of R&D, increase development productivity, and reduce risk of investing too much labor, time, and capital to producing a technology capable of failure.
Besides the benefits it would provide, why would open innovation work? Throughout the past few years, several factors emerged that paved way for the open innovation concept – the increased mobility of skilled workers, the increased capability of external suppliers, and the growth of the venture capital market. Knowledge is not proprietary to the company anymore; rather, it resides in the employees, customers, suppliers, etc.
Corporations like Intel, Proctor & Gamble, General Electric, and McKesson are adopting these open innovation frameworks and are yielding high ROI’s, profit margins, and growth rates. For example, GE created an “Ecomagination Challenge” that is an open call to action for business, entrepreneurs, innovators, and students to create cleaner and more efficient ways to accelerate the adoption of smart grid technologies. By sponsoring such a contest, GE not only creates high brand equity and generates disruptive ideas, but it also rewards other stakeholders like the environment, the participants, and more. In addition, P&G has followed its footsteps and created a “connect and develop” process that allows anyone in the world to submit proposals for new product ideas. This crowdsourcing idea allows for external input to be combined with their in-house R&D to produce innovative products that satisfy customer preferences and desires.
In my personal experience, I was exposed to the theme of open innovation when Henry Chesbrough and Vivek Wadhwa spoke as guest lecturers in one of my business classes. I became intrigued to the point where I worked with Johnson & Johnson to improve the sales of their consumer products division. Along with a team, we utilized principles of open innovation – creating an online health platform that integrated with other services like JawBone and WebMD to create a holistic service-based product for consumers. In sum, after applying open innovation principles in the real world and learning from the pioneers of this new model, I am a strong advocate for companies adopting this new innovation concept to gain a competitive advantage in their respective industry.
GSOU All In 