True to the spirit of the democratic ethos trickling down to the very grassroots of our societies globally, innovation is becoming increasingly democratic today. Companies have begun to realize that the best ideas do not necessarily only originate within the four walls. Ram Sarvepalli, Leader- Advisory Services, India, Partner- Emerging Markets Center shares his viewpoints on a more open approach to innovation.
Consequently, over the past decade, a number of technology and consumer goods companies have been inviting external partners, including suppliers, independent inventors and university laboratories, to participate in their product development processes. This practice is popularly referred to as “open innovation,” which entails harnessing the strengths and ideas of people outside an organization to improve its products and processes. For instance, in 2001, Procter & Gamble created its Connect+Develop open innovation model, which has helped the company develop more than 2,000 global partnerships and create dozens of innovative products for its customers. However, opening up a company’s innovation process to external parties requires a supporting culture and organization structure as well as an explicit innovation and R&D strategy.
In a resource-constrained world where companies are expected to do more with less, open innovation defines the way forward on the basis of the potential value it can create. Open innovation mitigates the investment risks of R&D, as well as expedites delivery of new products and services to market. Moreover, it creates flexibility for accommodation of multiple viewpoints, including customer requirements, into product-development processes. Consequently, companies are able to create tailor-made products to better satisfy their customers’ needs.
In India, open innovation is still emerging as a concept, with many companies collaborating with customers, although only on their brand communications and engagements. However, as an increasing number of global companies set up R&D capabilities in the country, open innovation is expected to gain wider acceptance. For example, Xerox has been following the open innovation approach at its research lab at Chennai. Similarly, GE Healthcare has leveraged open innovation partnerships with entrepreneurs and mid-size companies to deliver high-quality health care (particularly cancer treatment) at affordable prices to Indians.
Using crowds as innovation partners
Worldwide, crowds are emerging as partners of choice for companies seeking to answer complex innovation- and research-related questions. Known as “crowdsourcing,” this practice allows organizations to tap what is essentially a large base of willing stakeholders with a diverse set of skills and experiences on an unprecedented scale. In India, the Finance Ministry has launched a public design contest to create a symbol for the rupee. Although crowdsourcing is at a nascent stage in the country at present, it has sound prospects on account of the large pool of untapped talent available in the country.
However, despite its strong potential, only a few companies are able to practice crowdsourcing effectively. It can be a risky proposition for companies, particularly in terms of intellectual property protection and integration of crowd-sourced solutions into corporate operations and costs. They need to factor in the kinds of solutions crowds can actually handle. However, managing this whole process requires professional expertise. Companies should seek to collaborate with external advisors and leverage their expertise.
Open innovation from inside-out
The aim of open innovation is not just entertaining external ideas, but also allowing an organization’s unutilized and under-utilized ideas to be incorporated into others’ innovation processes. This practice is of particular relevance for companies at lean times, since it allows them to reduce their existing R&D costs, while keeping their future growth options open. For instance, to sharpen its focus on its core business, Lucent spun off a non-strategic technology into a separate venture called Lucent Digital Video. It decided to re-acquire the company once it was confident of a global market for digital video encoders. Indian companies aiming at achieving operational excellence in the near term are well-placed to rely on inside-out open innovation to grasp future growth opportunities.
However, despite the clear advantages of inside-out open innovation, developing a program can be difficult. Companies will need to regularly create inventories and analyze all their intellectual property to classify their assets, either for further development or to offer these to the outside world. They will be also required to tackle cultural-, political- and human resource-related challenges associated with inside-out open innovation.
Assessing readiness for open innovation
Open innovation requires companies to strategically reorient their organizational structures and corporate cultures. This is a prerequisite for efficient and effective generation of ideas and methods. They will also need to decide on the kind of open innovation strategies they wish to pursue, i.e., opt for the idea generation process or the idea selection process, or both. To achieve this, they will need to answer questions such as whether they will use external perspectives, how they will incentivize outsiders to provide ideas and whether external parties have knowledge of their customers’ needs.
Given the sheer number of insights generated from open innovation, managing them can often be a challenging and confusing task. The complexity of open innovation, therefore, places such activities beyond the domain of traditionally executed innovation projects. Corporate innovation teams will need to hone their ability to measure the large amount of knowledge and ideas being gathered. They could put in place appropriate open innovation metrics to ensure that the most suitable ideas are captured.
With innovation becoming a global 24/7 operation and companies being able to access external knowledge more easily than ever before, the practice of open innovation is set to change the dynamics of the business world. According to a survey conducted by the Garwood Center for Corporate Innovation at the University of California, Berkeley, in the US, and the Fraunhofer Society in Germany, around 78% of the respondents already practice open innovation. As the cost of formal R&D increases, Indian companies will also need to use open innovation more actively. They will have to react faster than before and set in place innovation priorities that fulfill the needs of their businesses as well as of the broader society.