What is it?
Open Innovation states that companies should no longer depend solely on their own research facilities and their own ways of bringing inventions to the market, but value external sources of knowledge and external ways to the market as equally important (Chesbrough 2003:43).
You should bring knowledge in from the outside and profit from external research in your current market (outside-in), but also profit from other´s use of your own inventions by taking them outside (inside-out). You could also imagine multiple exchanges where for example an idea is taken outside, built upon by an external company, and then brought back inside the originating company before being brought to the market (aka the boomerang).
In contrast, Closed Innovation describe an innovation
process based on making little or no use of external knowledge, and where the use of internal knowledge is limited to within the borders of the company. Open Innovation recognizes that the struggle to create value from inventions is equally important as coming up with them.
Why is it important?
Chesbrough´s Erosion factors (2003:34-41) gives some indications why the Closed Innovation model no longer works. The development of a global market for knowledge makes it foolish not to take advantage of the smart people that work outside of your own company (be it other companies, academic institutions or individuals) – perhaps mediated by an innovation intermediary (Chesbrough 2006:135-163). Using your own resources in conjunction with smart people outside your company will allow you to capture a larger portion of the value created.
Open Innovation allows a company to profit from inventions that does not fit well with it´s current business model – inventions that otherwise might be shelved waiting for later use. As knowledge has become more distributed (patents, R&D spending, increased spending in human capital) the exchange of ideas between actors has become more important for innovation (Chesbrough 2003:45-51).
You still need to have smart people within your own organization to come up with new inventions and/or innovative business models, and also to connect to and identify external research or new ways to the market. As external suppliers are becoming more and more capable it is very important to monitor and connect to the world outside of your own company.
Connect + Develop
Innovation assets at P&G
Innovation needs at P&G
Connect + Develop is P&G´s version of Open Innovation – or as they define it on their web site “The practice of accessing externally developed intellectual property in your own business and allowing your internally developed assets and know-how to be used by others” (P&G Connect + Develop, 2009).
Historically P&G relied on a few external suppliers for their inventions, and the Connect + Develop program clearly shows a change from a closed innovation model towards an open innovation model. Previously, they did not actively look outside for potential partners, and their products, technologies and know-how were used exclusively to produce and sell their own products. They also seldom licensed out technology to other companies.
According to P&G the more connected world gives them access to scientists, engineers and other companies globally. “Open innovation at P&G works both ways — inbound and outbound — and encompasses everything from trademarks to packaging, marketing models to engineering, and business services to design. It’s so much more than technology.” (P&G Connect + Develop, 2009) – this clearly shows their commitment to Open Innovation.
P&G´s innovation needs arise in the areas specified above, and they actively use their web site to promote the innovation needs of the company as well as the innovation assets available to external partners.
According to P&G this strategy has already resulted in more than 1,000 active agreements of various kinds. As a company, P&G is interested in all types of high-quality, on-strategy business partners, from individual inventors to FORTUNE 500´s – and even competitors. This shows that they have matured and are now able to value efficient business models as well as the inventions themselves.
References
Chesbrough, Henry (2003) Open Innovation: The New Imperative for Creating and Profiting from Technology. Boston: Harvard Business School Press.
Chesbrough, Henry (2006) Open Business Models: How to Thrive in the New Innovation Landscape. Boston: Harvard Business School Press.
Open Innovation. (2009, March 23). In Wikipedia, the free encyclopedia. Retrieved April 2, 2009, from http://en.wikipedia.org/wiki/Open Innovation
P&G Connect + Develop (2009). What is Connect + Develop? Retrieved April 3, 2009, from P&G´s Web site: http://is.gd/qznd
Had an interesting lecture today about Intuit – still the world´s most admired company in the computer software industry. Bill Ihrie told us about their innovation program – Customer Driven Innovation.
