• External relationships. The key to successful open innovation lies in establishing strong relationships with outside partners — whether they be universities, other companies, or even independent inventors and consumers — and developing systematic processes for surfacing and vetting ideas. Adequate intellectual property (IP) policies must be agreed on, policies that allow for the proper licensing of external ideas and make clear the conditions under which external partners can use that IP. But it is critical to ensure that such protections are not allowed to become legal handcuffs that restrict opportunities via an excessive aversion to risk.
• Culture. Promoting open innovation may present a set of internal challenges. Companies that struggle to innovate, especially Technology Drivers, tend to lack a truly collaborative cross-functional environment. Success depends on fostering a culture that expects and rewards the free exchange of ideas across divisions and geographies, making it easy to disseminate ideas and gain access to ideas from other groups. You can’t do this by fiat; a decree that “from now on, we will be open to new ideas and experimentation” will be ignored. To build a collaborative culture and move away from the not-invented-here syndrome, start by changing behaviors; attitudes will follow. Companies that do this well have typically established a team for designing new practices. For example, the team might design and establish an active internal venture capital investment scheme, to review ideas quickly and then move right away to vetting and acting upon them if they are worthwhile. This in itself will give innovators better reasons to share their ideas.
• Processes and tools. Companies that make the most of open innovation are highly disciplined in their own use of technology, and in their process innovation. They communicate frequently and use consistent processes, backed up with simple, flexible IT tools, to track new ideas, select the best ideas, manage the development stage, and link R&D with other functions such as marketing and manufacturing. Some companies are turning to social media tools to promote internal and external collaboration.
• Incentives. Once discovered, good ideas need to be captured effectively. Creating solutions that benefit both you and your partners is critical to successfully developing external ideas. Internal budgets for divisions and functions should be tied in part to those areas’ innovation efforts, as should individual incentives. This will require a process for developing and tracking key innovation metrics.
Each of the three types of companies has its own approach to these activities, and gains leverage from them in a different way. For example, Need Seekers may convene cross-functional groups that can integrate their separate ideas into common innovation practices. That might not work so well for Technology Drivers, which are typically working with highly specialized and intensive R&D practices, and which may need intensive ways to train their marketing teams and bring them on board (and which may have outsourced manufacturing altogether). Although the details will vary, the basic message is clear: Companies have an enormous amount to gain from open innovation. They will, however, realize those gains only if they think of this new approach as an innate part of their distinctive R&D skill — a capability that, in the end, gives them a distinctive edge.
- Barry Jaruzelski is a partner with Booz & Company based in Florham Park, N.J., and is the global leader of the firm’s innovation practice. He focuses on the high-technology and industrial sectors, and specializes in corporate and product strategy.
- Richard Holman is a Booz & Company principal based in Florham Park, N.J., and a leader of the firm’s innovation practice. He specializes in highly engineered product industries such as aerospace and high technology.
- This article was adapted from “Casting a Wide Net: Building the Capabilities for Open Innovation,” (PDF) by Barry Jaruzelski and Richard Holman, Ivey Business Journal, March/April 2011.