“Today, in many industries, the logic that supports an internally oriented, centralized approach to R&D has become obsolete.”
When Henry Chesbrough proposed this idea in a 2003 article for the MIT Sloan Management Review, the idea of open innovation – that is, the principle that companies should not and really cannot innovate in isolation – was still relatively untried. Over the last decade and a half, however, open innovation has more than proven its validity: GE’s GENIUSLINK™ platform has completed six initiatives to date, ranging from using data science to deliver clean water to finding ways to use GE products to improve office lighting; meanwhile Samsung has been able to leverage partnerships with both academic and for-profit enterprises to move toward a more software and services-oriented model, rather than acting as a pure hardware provider.
The success of open innovation is predicated on the democratization of another key domain: knowledge. By definition, inter-organizational collaboration requires the flow of knowledge from one party to another. In addition to this regulated flow of information, however, there are other externalities impacting the rate with which knowledge can be gathered and transferred. From the perspective of the employee, knowledge has never been easier (or cheaper) to acquire: platforms like Coursera, edX, MIT OCW, and others provide access to graduate-level education to anyone disciplined enough to take advantage of it.
Meanwhile, organizations’ access to highly skilled and educated intellectual capital has become increasingly frictionless as well. Leveraging online career platforms like LinkedIn and Indeed, firms can take advantage of the accelerating rate of job churn among workers (average job tenure continues to decline and is down almost 10% in just the last two years, according to the Bureau of Labor Statistics).The impacts of this rapidly changing landscape of intellectual capital are far-reaching, and innovation-focused organizations are far from immune. The knowledge gathered and built while at one organization can flow from organization to organization almost as readily as the employees.
Because many of Newry’s clients continually push the R&D envelope in their respective industries, we have seen firsthand the impact of this flow of knowledge. Those firms that have been most successful in adapting to this new paradigm have done so in a couple key ways:
- They recognize the value of knowledge beyond their own four walls. While some critical insights can be gained from focusing internally on R&D, there is tremendous upside potential in knowing who else is engaged in solving the same problems as you. If you have your finger on the pulse of the state of the art in any given domain, you can benefit tremendously from partnerships and acquisitions of key companies, personnel, or intellectual property before it is exposed to the broader market.
- They know when to cut their losses. Given the difficulty of killing projects, R&D-intensive organizations can very easily end up with an underutilized hopper of intellectual property. Continuous curation of this portfolio is key to knowing when and how to best monetize these assets. While it may not be as satisfying as developing a rocket ship of a new product, licensing or selling IP to others can provide the R&D unit a more continuous (and potentially higher) return on the organization’s invested capital.
These two principals are not always straightforward in their implementation, but we’ve identified a few practices that seem to help:
- Solicit unbiased, third-party perspectives and leverage novel data sources to better understand your firm’s position in the broader marketplace.
- Pay attention to small customers to develop strong ties with agile groups open to collaboration.
- Maintain strong relationships between legal and R&D to know when and how to best share information across organizations.
It’s understandably difficult to think about opening up your innovation organization to outside influence and critique if you haven’t already. Be that as it may, the momentum behind the concept of open innovation is impossible to discount and it’s a safe bet that those organizations that succeed will likely be those who are most open to the possibilities it holds.