What does it mean to out innovate the competition? In today’s fast paced economy, sometimes it is hard to even figure out who the competition is! Our perspective is that competition today is defined as one firm’s innovation ecosystem competing against another firm’s innovation ecosystem to develop products and services that bring value to customers.

The following figure shows a generic innovation ecosystem. It is comprised of the firm’s employees, suppliers, retirees, customers and other groups the firm employs to innovate new products and services. In addition, to the firm’s existing networks, there is another “ring” that is the global innovation community. This ring is made up of groups outside the firm’s existing networks and is comprised of large and small companies, universities, laboratories and individuals around the world. 

Firms today need to identify and actively manage this ecosystem. By identifying and actively managing the firm’s innovation ecosystem the firm can innovate faster and at less risk. In addition, firms can use this innovation ecosystem to “sense” changes that may impact the competitive landscape of an industry.

There are many models available to firms that want to manage their innovation ecosystem. Some firms employ a centralized model with either open innovation or external innovation groups at the corporate level to coordinate and provide interface points between the firm’s strategic business units and the innovation ecosystem. Other firms employ a decentralized model and other a hybrid of the two.

Where is your firm at in terms of identifying and actively managing its ecosystem? Are there processes in place to easily tap internal IP across business units? Have you identified retirees as a source of innovation that you can easily tap into when needed? Do you know who the key universities are that you are doing work with? Do you rank and evaluate them year over year? How easy is it for your employees to reach out broadly across industries and geographies to connect to new sources of innovation?

If you are struggling to answer these questions or you see your competitors leveraging new technologies and innovations found outside your industry, you should begin to define your ecosystem and put in place the people and processes to leverage it.

One of the challenges I still see in open innovation is when it is tried in a highly conservative environment, typically an ‘old school’ engineering company.  By ‘old school’  I mean a company  that is used to doing everything the same way they have for years and years. They use external development partners such as universities and suppliers but they always first try to solve problems internally and then only if that fails will they go to a network of external partners. But typically this external network is the same groups they have relied on in the past which results in the same answers they’ve already received.

We recently wrapped up an open innovation pilot at a client who readily admits they are conservative. They were very impressed with the breadth of the potential partners we presented to them on the different projects we ran. They talked about how we “opened their eyes” on one particular project and uncovered work on the topic they were not aware of. They talked about how open innovation is an excellent way to connect with thought leaders from around the world. Another researcher talked about how the process of creating the NineSigma RFP really made them sharpen their thinking around the problem definition.

However, when the discussion turned to whether they saw open innovation as a fit to their current innovation strategy, they felt that it would be quite a while before they could adopt open innovation beyond the few projects in the pilot.

The challenge was culture. Even though they clearly saw the benefits of open innovation, they could not see how to change the culture. It is interesting that some seven years after the book “Open Innovation” was published that companies will still revert back to their old ways.

I would be interested in your thoughts and observations on the cultural aspect of open innovation adoption?

Many years ago Geoff Moore wrote a book called Crossing the Chasm. His premise was that many high-tech ventures fail to cross the chasm from early adopters to the early majority and therefore fail as viable businesses. Is there an analogy for open innovation?

Many companies have implemented open innovation organizations and programs over the last few years. Companies adopt open innovation with high expectations. They expect to find the next breakthrough technology, a new business model or an undiscovered product that they can market globally. But, there has been a wide disparity in results obtained from these efforts. Why do only some firms see a significant contribution from open innovation? Many times as the open innovation program develops and the first few open innovation projects generate results, we will see a “chasm” form as the initial results do not meet expectations.

It is at this “chasm” that many open innovation initiatives will fail or become stuck.

NineSigma sees three distinct phases in the adoption of open innovation. These are Launch, Consolidate and Embed.

The Launch phase is just as the name implies – a firm launches an open innovation program. This can either be a small experiment in one SBU or department or it can be a broader open innovation initiative. In either case, the firm has a level of commitment to open innovation.

The Consolidate phase is where the firm now is focused on identifying the best practices from the Launch phase. Once identified, the focus is to consolidate these best practices and roll them out broadly across the organization.

The Embed phase is where open innovation is no longer a specific program, but is now embedded into the day-to-day work of innovation.

Why do firms not easily move past the Launch phase to Consolidate? What can be done to make this transition easier? A few of the reasons it is hard to move from Launch to Consolidate are:

• There is no clearly defined open innovation process – no one knows how open innovation should work
• Open innovation is cross functional but other functional areas are not on board
• Building new alliances is hard and can take time
• There is a lack of metrics  to measure performance
• Financial benefits fall short of expectations

How does a firm avoid the chasm? Mainly it is a matter of approaching an open innovation program the same way you would any large change program such as six sigma. You need to have clearly identified goals, all of the stakeholders aligned, good communications, someone responsible for success, training and good execution. This does not mean a big, expensive program. Even if your start with some simple projects to reach broadly outside of the organization to find new innovation, you need to define the goals, set expectations and then learn from the experience.

Developing and then measuring the benefits from an OI program can be a challenging exercise. We have coined the term Benefits Case to differentiate this from a more formal Return-On-Investment (ROI) analysis. The Benefits Case has financial elements, but also has “softer” measures as well.

Benefit cases all have the core elements of:

•          Quantifying major improvement opportunities

•          Ensuring that OI resources are allocated to the areas of highest leverage

•          Establishing the range of benefits to be achieved through OI implementation activities

•          Providing the basis for assessing the OI return and tracking benefits during the OI program implementation

•          Developing the rational basis for an OI program

Overall the OI Benefits Case identifies areas of opportunity and quantifies the improvement potential as a result of OI activities. The figure at the bottom of this post shows the components of a OI Benefits Case.

The OI Benefits Case will have both Measureable and Non-Measureable components. Measureable benefits may include revenue projections from new products and services as a result of OI activities, increased revenue impact from improved manufacturing operations due to OI projects, reduced costs due to improvements in speed-to-innovation or time-to-market, increased innovation productivity and other potential measureable impacts. Non-financial impacts may include increased customer satisfaction due to enhanced product features or improvement in product quality as a result of OI project impact.

Non-measurable benefit impacts include clearer roles & responsibilities, the impact of external knowledge gained through OI on decision making, enhanced innovation skills, improved leveraging of internal knowledge and other “soft” or non-quantifiable measures.

In addition to the positive financial benefits, we must subtract the cost side of an OI program. The cost side will include both internal personnel costs and external costs such as training, OI consultants, OI project costs and technology costs. This then provides the top left quadrant of the Benefits Case which is the OI program breakeven point and anticipated return.

The development of a Benefits Case at the start of an OI program provides both guidance in terms of areas of focus and a tool to use during the implementation of the OI program to guide the implementation team. One of the challenges in OI programs is the eagerness to jump right to a ROI, when in fact the full financial impact of an OI program can take significant time to develop due to time-to-market consideration in product development and launch. This is why capturing some of the “soft” benefits and then tracking these as leading indicators can be very valuable to both guide the implementation team and to assure senior management that progress is being made.

Indicators such as early stage innovation portfolio impact from OI, number of projects with a significant OI component, decisions impacted as a result of external knowledge gained through OI activities are all leading indicators of the future ROI as the result of either revenue or cost impacts to the business.

Congratulations! You have been tasked with implementing or re-implementing an open innovation program within your organization. What is your first thought? Google ‘open innovation’, read some books and papers, talk to people you know that are at companies that have active open innovation programs, hire a consultant or just wade in and try and make it happen? Actually, all of these are good things to do. Today, there is a rich body of knowledge about open innovation and how to create and implement a successful program.

For the last 15+ years, my work has consisted of consulting to companies that are engaged in large scale transformation programs such as re-engineering, SAP and most recently open innovation. If there is one lesson I learned from my consulting work that I would pass on to someone at the beginning of an open innovation program – it is to communicate, communicate and then communicate some more. Yes, you need a well articulated vision, clearly defined objectives and buy-in from leadership. You will need to make sure you know your innovation organization’s strengths and weaknesses. You will need to fully understand your innovation ecosystem (current network of partners/suppliers). At the foundation you will need to have some type of simple process to leverage your innovation ecosystem, and the people in the functional areas that interact with the open innovation process will need to understand their roles and responsibilities. All of this is necessary - and more.

Ultimately the long term adoption of open innovation will be a function of how well you communicate. You need to communicate that you are implementing open innovation, why you are implementing open innovation, and what you are learning along the way. Share the setbacks and successes and stories about the people on the front lines. This communication needs to happen in many forms, many places and not be limited to the open innovation group. And, when you think you have communicated enough, communicate some more. Think in terms of a constant drumbeat.

One of our clients talks about the three phases they are progressing through in their open innovation program. These are introducing, embedding and delivering. At each stage we have been communicating to the broad organization through multiple channels. They are seeing the benefits of this communication through new innovation as a result of both internal collaboration across business units and new external collaborations. They realize there is still much to be done, but they can see the change that is happening and a new mindset of open innovation emerging. Let NineSigma help you launch an open innovation program. Contact us to learn more about open innovation.

Over the last ten years, we have either worked for or discussed working for a large number of companies that are implementing open innovation programs. Many times they have referred to NineSigma and others as Open Innovation intermediaries.

I have always pushed back when firms classify NineSigma as an OI intermediary. To me an intermediary is a group that simply connects two groups together and hopes for the best from the connection.

At NineSigma our work is focused across the two dimensions of Engage and Enable. Our Engage business is all about supporting our clients in solving a critical business challenge. This may involve finding and acquiring a platform technology to enable a suite of new products, it may be mapping out a white space and presenting options to our client on how to capitalize on new opportunities, it may be helping indentify new applications for existing technologies or it may be identifying and then contracting with a co-development partner.

The work typically involves broadly Engaging the global innovation community in order to deliver the desired results to our client. We use the term Engage to differentiate NineSigma's level of interaction with the global innovation community. Engage implies searching for and then engaging groups identified to deliver results to our client. Engaging means dialog, analysis, interpretation and synthesis to create a final work product that adds value to our client. This is much more that simply acting as an intermediary and connecting two groups together and hoping for a good result.

Launch your open innovation program with NineSigma today.

Here we are in 2010, some seven years after Henry Chesbrough published the book Open Innovation and we are still seeing a wide disparity in results from open innovation initiatives. In addition, there are many companies that are still trying to determine if they should even try or pilot an open innovation program. What does organizational culture have to do with the success of open innovation?

Hill and Jones defined organization culture in their book Strategic Management (Houghton Mifflin, 2001) as “the specific collection of values and norms that are shared by people and groups in an organization and that control the way they interact with each other and with stakeholders outside the organization.”

If we break this definition down (at a very high level) and apply it to open innovation can we glean any insights?

First, let’s explore the phrase “collection of values and norms that are shared by people and groups in an organization.” If an organization has always relied on internal resources for innovation and all of the major successes have originated internally, then it will by default be hard to convince this group of people to suddenly change the way they have innovated in the past to look broadly outside of the organization for co-development partners. On the other hand, if there have been innovation successes that have originated through supplier or university partnerships in the past, then this group of people will be much more receptive to changing to be more open to new innovations that originate from outside the firm.

The phrase “control the way they interact with each other and with stakeholders outside the organization” lends insight as well. Here “interact with stakeholders outside the organization” is insightful. Many times we have seen an organization overcome the hurdle of reaching broadly outside the organization to search for new co-development partners only to hit a wall when having to assess what they find from outside the organization and build agreements for co-development and sharing of intellectual property.

One of the lessons I have learned over the years is that you cannot directly change culture. You can change individual behaviors and through this process slowly change culture. In looking at organizations that have benefited from open innovation, what I have seen is an emphasis on changing behaviors through training, rewards, recognition and managers that constantly ask – Have you looked outside? What did you find? How did you use what you found?

In our last post we discussed identifying and selecting Needs for an open innovation pilot program. In this post we will discuss the next step of engaging with potential solution providers that may have an answer to the Need.

Many organizations refer to this step as a "make versus buy" decision. This implies that there are only two options for solving the Need - either develop internally or find and use an external partner. In reality, there are three options - internal, internal/external and external. By external, I mean either license technology that exists or co-develop. We see many of our clients pursue the internal/external path where they are working on the issue internally at the same time they are searching externally for someone who has either solved the problem or is farther along or on a different, more compelling solution path.

The other process that is undertaken at this point is determining the solution network. For large, global organizations the first step may be to communicate the Need broadly within the organization to see if there is a solution available internally. We are currently working with a large multi-national chemical industry client to create a structure / process to communicate needs internally in order to leverage their globally distributed R&D resources. Once the internal search for a solution is exhausted then the search becomes focused on external resources. Now the decision becomes one of "do I use my existing networks or do I use a firm like NineSigma to communicate the Need broadly?" Again, here the answer is not yes / no, but what factors such as timing, cost, degree of technical challenge and others may play in the decision making. Many times for incremental technology development an existing supplier may be the obvious choice. Or there may be considerations for funding university work such as "community relations" that drive the decision.

Looking broadly, across industries to the global innovation community has one significant advantage and that is the opportunity to find an "unobvious" solution to the problem. In our work in over 1,600 open innovation projects, we have seen many unobvious solutions. Semiconductor research applied to fabric care, candy dispensing applied to appliances, agriculture sensor systems applied to automobiles and many others. In addition to the opportunity to find an unobvious solution, reaching broadly to the global innovation community will bring back considerable information that the project team can use. This external information combined with internal knowledge will help with decision making and ultimately reduce project risk.

Back to getting started with open innovation. We would recommend evaluating the Needs that were the highest priority and selecting some of these to communicate to the global innovation community. There are a number of firms today that can help with this. Evaluate them and select a partner. When looking for a potential partner a couple of key points to evaluate are:
- level of support provided to the OI project team
- breadth of network and is it a passive or pro-active approach to finding solution providers
- how is IP handled
- experience and references
- others

In the next post we will discuss what happens once you have connected with the global innovation community and have initial the results back.

In the last post we discussed defining the scope of the open innovation program. In this post we will discuss selecting open innovation projects or Needs. If you are familiar with the Want, Find, Get, Manage model for open innovation, Needs equals Wants.

What exactly are Needs? Needs are more defined than ideas. They are aligned with the firm’s strategy and help meet a customer value proposition. They have a direct impact on the firm’s business through either revenue generation or cost reduction justified by a simple business case. They should have a sponsor within the organization. The Need may be already being worked on or it may be something that has been identified, but resources have not yet been assigned.

This often brings up the make versus buy question. In reality the question that should be asked is make, buy or pursue in parallel? By parallel, I mean work the Need internally while scouting or searching for a solution or co-development partner through open innovation.

We typically see Needs falling into the following categories:

·         Breakthrough: The big, bold bets that significantly change the industry competitive landscape

·         Strategic: Platform projects that support multiple product initiatives

·         Tactical: Project specific “gaps” that keep a project from reaching its end point

·         Speed, Cost, Quality: Process improvements that impact a company’s cost position through improvements to cycle time, product quality or cost reduction

The process for selecting Needs for the open innovation program can take many forms. The one I find the most interesting is a two step process. The first step is to solicit key Needs from the organization. This step is focused on indentifying the Need and providing some level of detail around the desired outcome, the customer (internal/external) value proposition, the magnitude of the challenge to achieve the desired outcome and any other relevant information that is specific to the organization.

The second step involves getting the key stakeholders together to “hash” out a ranking of the Needs. Once this ranking is accomplished, the group then selects the Needs that will be worked on in the open innovation program. This stakeholder meeting is interesting to observe as the various people represent why their Need should have priority and others in attendance propose approaches to solving or identify existing internal expertise or IP that can be applied to the Need.

The goal is to pick a manageable number of Needs for the open innovation program.

For more information about open innovation, contact us today.

Now that you have made the decision to get started with open innovation and you have the management team lined up behind you - it is time to think about the scope of the initial program. Many times this initial program is referred to as a Pilot Program.

Pilot Programs are a proven approach to reducing risk and addressing the many tasks in implementing open innovation. Pilot programs are a well understood concept in most firms and are used to test new markets or introduce new products into a limited market prior to a major roll out. Pilot programs deliver valuable knowledge about the viability of the proposed concept in the actual operating environment. There is no substitute for the value of a working prototype as a learning tool, particularly when the critical resources of time, people, and budget are being considered. A well scoped open innovation pilot program will provide:

•       A manageable scope in terms of projects, people and time

•       A “test drive” of the work process by key stakeholders

•       Understanding of potential organizational changes and impacts

•       Increased buy-in for an overall open Innovation strategy

•       Key success factors for an expanded program

•       A defined decision point on the benefits of finding and acquiring innovation globally

In thinking about a pilot program, one must develop a program that is not so small as to not fully test the benefits of open innovation to the organization, but also not so complex and over-reaching that there is a long period of time until the benefits are realized. The scope of the pilot program will come down to two key factors. These are:

The first is leadership commitment to open innovation. By this, I mean is open innovation viewed as an experiment because the firm has not bought into the benefits of open innovation, or is this the first step on the path to transforming the way the firm does innovation? If it is an experiment, then the focus needs to be on quickly demonstrating the value of reaching broadly outside the firm to advance a current program forward. This will make the initial open innovation program  more project focused. If this is the first step on a broader transformation, then a larger scope that includes open innovation process, roles and responsibilities and metrics should be undertaken. These pieces can then be piloted and adapted as one learns and goes forward from the initial open innovation program.

Second is the size of the firm. If the firm is mid-sized with a centralized innovation organization then the scope of the program is a matter of how many people to involve and how many open innovation projects to launch. If the firm is a large, globally distributed organization, then the initial program can either be piloted in a single SBU or spread across a couple of SBU's and then rolled out to the broader organization.

Once the above two questions are answered, then developing and finalizing the scope of the open innovation pilot program is a matter of defining the resources required in terms of people, time and budget.

The last point is to establish a defined decision point to evaluate the program. This can be as simple as a leadership review that looks at progress made or a more formal review using metrics that were established at the outset of the program. Either way, the positives and negatives should be identified and reviewed.

In the next post we will discuss selecting the right Needs for the open innovation program.