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Published: May 23, 2011

 
 

The Three Paths to Open Innovation

To build your capabilities and cast a wider net for ideas, you must figure out which of the three types of innovation strategies you already have — and design your R&D approach accordingly.

Finding and developing good ideas is what corporate innovation strategy is all about. That’s why the concept referred to as open innovation has dominated so many discussions about research and development during the past decade. The logic is unassailable: Every company and every line of business within a company can benefit from looking outside its organizational boundaries for innovative business ideas, for collaboration in developing those ideas, and for validation of those ideas in the real world of consumers. It is nearly impossible to be consistently smarter than the rest of the world; tapping into new sources of business ideas can be a powerful exercise for overcoming this challenge.

Moreover, the benefits of actively pursuing open innovation have been clearly demonstrated. Booz & Company’s research shows that companies with robust open innovation capabilities — including strong technology-scouting practices and cross-boundary collaboration — are seven times as effective as firms with weak capabilities, and twice as effective as those with moderate capabilities, in generating returns on their overall R&D project investment portfolio. Some companies, most notably Procter & Gamble, have maintained leadership in their industries through renowned open innovation strategies, building links between inside groups and outsiders such as customers, inventors, academics, and even competitors.

But many companies have embraced open innovation only to conclude that it doesn’t work for them. Often they take it on as a panacea for innovation ills. They then discover that putting processes in place to find, capture, and commercialize business ideas, and creating a corporate culture that promotes and protects collaboration, are not easy tasks. The problem is not the concept: Good ideas can be found outside the R&D lab, and this type of research and development strategy can be made to work. The primary problem is not even the “not invented here” form of innovation culture that is blamed for blocking outside ideas in many companies. In truth, many companies are willing to build an innovation culture that is open to the ideas of outsiders, but it isn’t always obvious how to make the shift.

The basic problem is the isolation between open innovation and a company’s current R&D strategy. Most companies already have a basic, ingrained approach to innovation, tied tightly not just to generating ideas (which is comparatively easy) but to developing and executing them (which is the hard, value-creating part of innovation). In short, if you are looking to build an open innovation practice, it will work only when you match your company’s efforts to look outside with the capabilities you already have on the inside. To do that, you must recognize the kind of R&D system you already have in place — and treat it as your strategic core.

A Trio of R&D Strategies

Every year, Booz & Company surveys data on R&D spending and performance for 1,000 publicly held companies around the world — those with the highest annual budgets. This study, the “Global Innovation 1000,” has yielded a number of insights about the best way to design an innovation strategy. Among them is the recognition that successful companies tend to choose one of three distinct approaches. They become Need Seekers, Technology Drivers, or Market Readers, and that choice, in turn, determines how they can succeed.

A Need Seeker strategy directly engages current and potential customers to better capture their unarticulated needs, shapes new products and services, and strives to make the company the first to market with those new offerings. An example is Stanley Black & Decker Inc.’s DeWalt division, a maker of power tools for professionals, which regularly sends members of its R&D group out to construction sites to research builders’ needs, observe construction crews in action, and test new products with them.

 
 
 
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