Some Stats for you.
Invest NI put these dire stats down to lack of innovation, At present, Northern Ireland industries focus mainly on supplying a local market. These services are of a high quality but due to lack of innovation once a large multinational moves in, they flounder and many disappear as they cannot compete with the more competitive innovative foreign owned companies. This article provides an overview of what Invest NI proposes as a solution.
Risks
-Intelectual property rights, must be legally sound use of open innovation materials. Increasing demands of licensing issues, who decides what is open and what is closed? Things are usually a mixture of open or closed, this leaves a grey area.
-Distribution rights- eg movie industy. They could in theory demand software to protect the distribution and viewing of the material they distribute. Some steps to do so eg pay per view on Xbox live, subscriptions. There will always be ways around this though.
-Security- Open innovation use of materials must be secure, threat from bugs/hackers if using an unqualified supplier/developer. Old view that open innovation is piracy or theft. In terms of software can threaten monopoly as design is transparent
-Openning up software can reveal its weaknesses, bad reputation for a company may result.
-Supplier qualification - Do your suppliers meet your own standards? Obvious risk if they do not, how can you be sure? Need for compliance standards.
-Low compliance standards, may not meet your own standards, risk of failure if using open end user development
-Product quality, how to monitor progress effectively? Not as easy as to monitor as closed innovation, less control?
-Slow time to market (issues of slippage, and as a result effectiveness/value of product), how to pull together resources for openly developed software
-Lack of regulation. Need for a new style of leadership with open innovation. Leader must persuade developers that what they are doing is worthwhile, new motivation. Are developers less disciplined if they know they can quit at any time?
These risks it has been suggested can be mitigated by introducing the following:
Benefits
-Only thing to fear is fear itself- example of lego’s succcess of opening up their code. Users are increasingly inquisitive and talented, to let them experiment increases the demand and kudos of a well-developed piece of software for a company
-Openness complies with the essence of free open sharing in which the internet was created
-Incentive for creation, encourages experimentation and creative process
-Value is not necessarily obtained only by controlling access and charging for it, but value for an innovation can be obtained by sharing it. This is the case with Wikipedia and with Linux. The more it is shared, the more valuable it becomes.
-New technology has the ability to track the (intellectual) rights of material, less risk of theft.
-Openness inevitable? End users find loop-holes to make protected material free and open eg.CDs Peer to Peer filesharing. Can creative industries afford to stand in the way of this onslaught? Expensive legal cases as a result, companies can benefit from open sharing.
-R & D, would a company rather have 10 R &D collegues or a million?
Not everyone agrees that openning up movies to “pirates” is going to harm the movie industry:-
Comparison between the development of a new product of open and closed innovation
| Origination Phase | Development Phase | |
|---|---|---|
| Closed |
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| Open |
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The above table from Nesta, highlights the difference between open and closed innovation. It is important to note that whilst in a closed innovation scenario outsourced development the Intellectual property remains in the ownership of the client. In an open innovation scenario the IP remains with the supplier, which encourages the supplier to provide excellence.
One of the main advantages of Open innovation is that it allows access to other fields of expertise. NineSigma is a forerunner in providing solutions to problems that in a closed innovation scenario would be near impossible for an in-house researcher to supply. NineSigma are able to do this through a network of 1.5 million experts, if a problem need solved they will provide a scientific breakdown to these experts and examine what is returned. In one case a client of Ninesigma who was having a problem with prepackaged pouches of laundry detergent, these were splitting open and spoiling the rest of the packs. The solution was found after a search of their network, it came from a agricultural firm that was packaging their agricultural concentrates in a similar pouches. They had had a similar problems and had been able to solve it. This goes to show how a solution can come from a different industry and how open innovation can supplement a firms own R&D. the full article from Business Week can be found here.
Futhermore from the above table, we can see that many of the factors of a closed source are inherently capital hungry, merger and acquisition actions are incredibly expensive and can tie a firm into a field that may not be that beneficial, the same can be said for in-house research teams. Whilst a level of specialised expertise can be reached, often solution can be found outside a realm of expertise, as seen from above.
Whereas some of the factors of an open innovative company will actually provide an income, such as converting a companies redundant discoveries into revenue through spin-offs.
Innovation can be divided into several parts, for example –
1. Invention.
2. Development.
3. Production.
However, here we can use the term “innovation” to cover the entire process from beginning to end (within one entity, such as a corporation).
Open innovation is a new concept just beginning to be adopted by companies today. In his book, Open Innovation, Henry Chesbrough describes a new paradigm of open innovation that is opposite to the original closed model paradigm.
Essentially, the closed model is where advantage in a marketplace is gained by internal research and design process that, in secret can generate products that can be sold for large sums therefore generating income for further in-house R+D efforts (See below).
Diagram showing closed innovation paradigm.
Recently, mainly due to technological advances (and their intendent social changes) this closed innovation paradigm has begun to fall out of favour.
Examples of changes –
1. Greater venture capital.
2. Further opportunities to utilise previously failed technologies.
3. The increase in effective outsourcing.
4. Increased migration of workers causing their knowledge to de disseminated.
5. Technological information dissemination, i.e. over the internet.
Open innovation is where other information sources from outside the organisation are utilised. The reasoning behind this is as follows,
Closed innovation principles Open innovation principles The smart people in the field work for us. Not all the smart people in the field work for us. We need to work with smart people inside and outside the company. To profit from R&D, we must discover it, develop it, and ship it ourselves. External R&D can create significant value: internal R&D is needed to claim some portion of that value. If we discover it ourselves, we will get it to the market first. We don’t have to originate the research to profit from it. The company that gets an innovation to the market first will win. Building a better business model is better than getting to the market first. If we create the most and the best ideas in the industry, we will win. If we make the best use of internal and external ideas, we will win. We should control our IP, so that our competitors don’t profit from our ideas. We should profit from others’ use of our IP, and we should buy others’ IP whenever it advances our business model.
As we can see from above the key concept here is to effectively utilise other information sources from outside the organisation to gain a competitive edge.
You might ask, is this wrong, is it akin to theft?
Not entirely.
Firstly, there is a lot of information that is publicly available that can be utilised, this can take the form of –
1. Discarded information, thought to be of little worth.
2. Disseminated information from a company working in a particular area.
3. Open Source materials disseminated expressly for the use of others.
4. Also, there are organisations who can be employed (outsourcing) to generate information too!
An example would be “xerography”. Where an unknown producer of photographic paper took an idea that other technology firms such as IBM had rejected and came up with the photocopier. Two years later the company had generated $60 million, in 1946!
Diagrammatic representation of Open Innovation.
From above we can see that it is not just the method of receiving information that is important in open innovation, but, the development of the information and the commercialisation of the product also.
In the development area collaboration with other entities is very useful, just as in the information-gathering stage and other development sources (open-source materials and outsourcing) can be utilised here also.
In the commercialisation phase, the products can be brought “in-house” for scaling up to production or out-sourced even further. Here useful information can be gained from other sources and leveraged to improve this phase.
Finally, to keep the system flowing, the organisation can release its information (to similar organisations or the public domain, etc.) and this will allow other entities to use the information within their systems or, perhaps, to improve upon the released marketable product (information which can be utilised at the Fuzzy-Front End).
It should also be noted that whilst in the beginning, open innovation, was mostly exhibited by organisations involved in the cutting edge of technology, it can be applied to other more traditional and older industries.
Open innovation can thus be described as the combining of internal and external ideas and information with internal and external paths to market to further development.
In conclusion then, the one key concept of Open Innovation is simply to get other people to do the work for you!
I’ve came across some interesting videos relating to ‘open innovation’ and the underlying drivers and facilitators effecting it and what the future holds for this concept. Rather then post all the videos here, follow the link below to view them.
Another article I found relates to the possibility of users driving manufacturers out of business by developing their own forms of software and toolkits.
http://www.openeur.com/blog/en/2007/11/13/mcpc2007-hippel/
Also the article below is worth taking a look at as it mentions how openness has both positive and negative effects on the future trends of businesses.
Open Innovation: Researching a New Paradigm (Oxford, 2006), Henry Chesbrough states “Open Innovation explicitly incorporates the business model as the source of both value creation and value capture…” Chesbrough demonstrates that because useful knowledge is no longer concentrated in a few large organisations, business leaders must adopt a new, “open” model of innovation. Using this model, companies look outside their boundaries for ideas and intellectual property (IP) they can bring in, as well as license their unutilized home-grown IP to other organizations. In Open Business Models, Chesbrough takes readers to the next step, explaining how to make money in an open innovation environment.
Technology only has value when it is commercialized by means of a business model. The dot-com boom and bust illustrates this concept well, as there was much innovation but relatively few business models that could capture the potential value of the new technologies. According to Chesbrough, a company can capture value from an innovation in the following three ways:
Given the complexities of products, markets, and the environment in which the company operates, very few individuals, if any, fully understand the organisation’s tasks in their entirety. The business model serves to connect the entrepreneurial inputs to the economic outputs.
I found the following diagrams on a powerpoint slideshow created by Oxford Said Business School for the SSME conference in May 2006 and it nicely describes the differences in IBM business model before and after open innovation was adopted within the company.
Youtube strikes again, here’s a brief video of Chesbrough explaining his open innovation concept.
Companies can no longer afford to keep all aspects of innovation in-house and must adopt open innovation as a more effective answer to meet the demands of the modern and fast evolving business environment. Open innovation encompasses numerous new approaches to collaborative and co-operative innovation between companies when developing and launching new services and products for their mutual benefit.
Open Innovation requires a different way of thinking in comparison to the more traditional product development cycle. This new mindset needs to be more cooperative and less command-and-control - and its new innovators need to be literally open-minded. There are drawbacks to open innovation and barriers to overcome before it can be successful for all parties involved.
There are three social factors which can hinder the innovative potential of a company.
Apathy - Innovation takes a lot of effort for a potentially exciting but uncertain reward. Rather than take leaps into the unknown it is often easier and more predictable to drag out a bit more performance or profit from an existing product or to shave costs off production. There is an element of bravery involved with open innovation that does not often sit well with today’s businesses, which are largely managed to minimise risk.
Culture and tradition - Companies have much invested in their innovation processes. The traditional stage by stage model of project management is popular, tried and tested. Open innovation, however, opens up the funnel that needs to be adapted to encompass flows of technology and ideas outside an organisation. Traditional development can be compared to old-fashioned analogue technologies and open innovation to a digital regime with fewer ‘bandwidth’ constraints and more emphasis on connections.
Psychology - It can be difficult for a business steeped in the principles of competition to embrace cooperation. There is a suspicion of outsiders and an ingrained habit of secrecy. Employees are rarely trained to exploit external innovations. Will people really give their all for a ‘not invented here’ invention? How do you encourage employees to supply a flow of high-potential innovations to a huge corporate machine?
However, the benefits of Open Innovation far outweigh the barriers. The sharing culture of Open Innovation enables wider global connections giving companies access to more knowledge. Open Innovation can also build creative communities, which help companies access far more smart, creative people than they could ever employ. Technology companies such as IBM, HP, and Cisco are starting to adapt their internal product life-cycle and development to accommodate open innovation.
Handy link to information about corporate open innovation. This is from Nesta’s website, they are major proponents of open innovation:
www.nesta.org.uk/informing/articles/corporate_open_innovation.aspx
Henry Chesbrough
“Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.” Dr. Henry Chesbrough
The concept of open innovation was popularised by Dr. Henry Chesbrough in 2003. In his book “The New Imperative for Creating and Profiting from Technology” he describes how in the past companies such as IBM had large research laboratories developing and driving the innovation in industry. He argues that “closed innovation” models where large development departments develop technology for their own company is dying out and is being replaced with the new model of open innovation. Companies such as Microsoft now carry out little if any of their own research and instead take ideas from out with the company and allow any innovations enter the wider marketplace. The concept he suggests allows companies to increase their flow of knowledge and to aid this flow with input from academia.
However the true origins of all innovation stem from around 500,000 BC when Homo Erectus managed to use fire to his advantage!
