Outlook. The smart way to open your innovation process

Transcription

1 Outlook The journal of high-performance business The smart way to open your innovation process New research shows how the most successful companies find the ideal external contributors and solutions for their R&D pipelines. By Raghav Narsalay, Sabine Brunswicker and Mehdi Bagherzadeh

2 Key insights on open innovation 4 distinct open innovation approaches can be used to enhance R&D efforts 60% of companies combine competitions with partnerships to solve complex problems 70% of companies innovate by pairing traditional IP contracts and competitions Many companies are embracing the concept of open innovation, but few are doing so in very strategic ways. The result has been no shortage of missed opportunities. The haphazard attempts of some businesses at crowdsourcing, for example, have led to little more than a heap of unusable ideas, while many technology partnerships have flopped, resulting in costly write-downs and time-consuming litigation because the goals of the participants weren t adequately aligned. Smarter firms, however, are taking a much more strategic approach, shrewdly deploying different open innovation modes of operation for different circumstances, often in synergistic ways that enhance both innovation and the productivity of their R&D efforts. We have found that when these corporations work with external parties to augment their internal R&D, they have been using four basic modes of open innovation:² 1 Traditional IP contract A market transaction typically used when a single owner controls a specific needed technology. Open innovation platform/contest A competition used when a problem requires access to the long tail of solution knowledge. The simple truth is that open innovation is merely a concept (albeit a very powerful one). It is not a strategy, and companies need to be very strategic about how and how much they open their R&D efforts to the outside. Different types of projects can require completely different modes of operation to manage the knowledge sharing, uncertainty and ambiguity involved in any open innovation activity. 2 Open innovation partnership A bilateral relationship used when projects are ill-structured and complex but relate to well-known technological solution areas. 4 Open innovation community A collaboration among different parties used when joint problem solving is required to tackle truly perplexing problems. In our research, a joint study between Accenture and the Research Center for Open Digital Innovation at Purdue University, we have studied the R&D operations of dozens of large corporations with headquarters in the United States and Europe.¹ These companies all have more than 1,000 employees and total revenues of at least $250 million include such blue-chip firms as Pfizer and Eli Lilly. ¹ For a detailed discussion of these results, please see the study report: Brunswicker, Sabine; Bagherzadeh, Mehdi; Lamb, Allison; Narsalay, Raghav; Jing, Yu (2016). Managing open innovation projects with impact. Whitepaper. Research Center for Open Digital Innovation, Purdue University. West Lafayette, Indiana. ² These four modes of open innovation were identified based on an analysis of more than 100 open innovation projects of large firms in the United States and Europe. This data collection was jointly executed by the Research Center for Open Digital Innovation and Haas School of Business, UC Berkeley. For more details on this classification scheme please see Bagherzadeh, M., Brunswicker, S. et al (2015). Mix and Match: Open Innovation Project Attributes and Optimal Governance Modes. World Open Innovation Conference Santa Clara, UC Berkeley.

3 The right mode for the right conditions Each of the modes has its strengths and weaknesses (see table on page 5) so executives need to be judicious about which ones to use and when to use them. Open innovation contests (Mode ), for example, often require a company to publish proprietary information. Our research shows that the right mode to use depends primarily on two factors (see box on page 4). The first is the complexity of the problem, which takes into account whether the solution will require a large number of highly interdependent activities, tasks or areas of expertise. In general, the complexity of a problem increases considerably when nonlinearities are involved think weather forecasting or traffic management. The second factor is whether the location of the solution knowledge is well known or hidden. In some cases, a solution might lie well outside a company s core business in a totally unrelated field that the firm might not even be aware of. Of course, traditional IP contracts (Mode 1) have been used for decades, but now companies have been deploying the other three modes with increasing frequency. When Hewlett-Packard Corp. wanted to develop a new technology for rendering movies, it built a partnership (Mode 2) with DreamWorks Animation. HP recognized that when two complementary companies combine their distinct perspectives and technologies, it creates an environment where significant innovation can happen. While the problem at hand was complex, HP knew that the solution could be found in DreamWorks animation technologies, data and expertise in rendering movies. In return, HP shared with DreamWorks its roadmap for future servers and cloud computing. Contrast that situation with Pfizer s. The biopharmaceutical company wanted to develop a tech-enabled packaging device for its prefilled syringes, but it wasn t sure where to turn for the best solution. Working with IdeaConnection, an intermediary platform, Pfizer hosted an open innovation contest (Mode ). Through the process, the company was able to obtain four potential solutions. And when Ford Motor Company wanted to develop smart mobility solutions, it knew that the problems it was trying to solve were ill-structured, difficult to define and complex. But since the automaker didn t know where the best ideas would come from, it used an open platform it had created earlier to engage the community for its core business and established a series of innovation challenges to attract more developers (Mode 4). The resulting community would then work to extend the functionality of the company s vehicles with custom applications and pluggable modules. Exploiting synergies Companies do often deploy one mode of innovation to enhance the effectiveness of the others. Even at the project level, different modes mutually support each other. While one mode is usually dominant, other modes support it in driving project success. Consider, for example, how Eli Lilly uses its Open Innovation Drug Discovery (OIDD) community of drug companies, research institutions and academia. For the pharmaceutical giant, the near-term goal of OIDD isn t necessarily the development of a new drug to treat a specific ailment. Instead, one of the main objectives is to identify promising potential partners. The OIDD program enables Eli Lilly to cast a very wide net, reaching academic institutions and other parties that might not have been on its radar. The company can then establish relationships with those external researchers, connecting them with its own scientists. Then, as those relationships evolve, Eli Lilly can strengthen them by establishing short-term bilateral collaborations and partnerships with the most promising of those contributors. In this way, the company is able to deploy the OIDD community (Mode 4) to complement its open innovation partnerships (Mode 2). In other instances, it might discover potential partners that are no longer working on a particular compound of interest. Eli Lilly may then consider licensing agreements (Mode 1) or outright acquisitions to pursue commercializing those promising molecules. Companies can also use combinations of the modes to balance their strengths and weaknesses. That was Bosch s strategy when it was trying to develop a new non-electrochemical way to store energy. The German company, using the solution provider NineSigma as an intermediary, hosted an innovation contest (Mode ), from which it short-listed the three most promising solutions and then established in-depth, collaborative joint developments with those newly identified partners (Mode 2). In doing so, Bosch was able to protect itself against a major weakness of innovation contests (having to share potentially proprietary technical knowledge with outsiders) while taking advantage of the benefits (access to a wide range of possible solution providers). Bosch is not alone. From our study, we found that companies pair Mode with Mode 2 almost 60 percent of the time (and Mode with Mode 1 more than 70 percent of the time) % 70%

4 Toward more strategic management A strategic approach to open innovation requires more than a change in mindset and a willingness to embrace external help in the R&D process. It also requires knowing when and how to use each of the four basic modes of open innovation (or some combination of them) in the most effective ways. Those decisions will be influenced heavily by the problem complexity and by whether the location of the knowledge sought is known or hidden. In certain cases, however, those two factors might not be obvious, even to the executives in charge of addressing them. In other instances, variables like cost or time to market might be of overriding importance. Regardless, each mode requires executives to manage the associated risks, IP rights, knowledge sharing and incentives in very different ways. And it s only through the strategic selection of the best mode (or combination of modes) that companies will be able to maximize the benefits of the open innovation process while minimizing the potential downsides. Four modes of open innovation HIGH Knowledge hiddenness Bosch technology contest Samsung ARTIK contest PLATFORM/CONTEST Pfizer tech contest 4 Eli Lilly OIDD Ford OpenXC COMMUNITY Evonik community Huawei IoT Graphics adapted from Bagherzadeh, M., Brunswicker, S. et al (2015). Mix and Match: Open Innovation Project Attributes and Optimal Governance Modes. 2 nd Annual World Open Innovation Conference. Santa Clara, University of California, Berkeley. Additional information on Evonik, Huawei IoT and Samsung open innovation experiences will also be available in subsequent articles on TRADITIONAL IP CONTRACT PARTNERSHIP LOW 2 Problem complexity HP/DreamWorks HIGH 4

5 Characteristics of the four modes of open innovation 1 TRADITIONAL IP CONTRACT 2 PARTNERSHIP PLATFORM/CONTEST 4 COMMUNITY Communication channels Strong but wide Strong and wide Incentives High High Moderate Low Control over IP Owned by external partners Negotiable between firm and external partners Owned by firm Usually owned by firm Knowledge sharing Strong Strong Access to external partners Strong access to wide range Strong access to wide range 5

6 About Accenture Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions underpinned by the world s largest delivery network Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With more than 75,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at About the Research Center for Open Digital Innovation The Research Center for Open Digital Innovation (RCODI) is home to scholars and researchers who advance the understanding of open innovation models in the digital age. Through rigorous research and experimentation, the center develops explanations and predictions of open digital phenomena that are translated into guidelines for industry, government, and that inspire future academic investigation. Based in Purdue University s Discovery Park, RCODI is actively engaged in developing graduate education programs that will mold future leaders, system designers and researchers. To learn more about the center visit Raghav Narsalay Raghav Narsalay is managing director for innovation and risk management research at the Accenture Institute for High Performance. raghav.narsalay@accenture.com Sabine Brunswicker Sabine Brunswicker is associate professor for innovation and director of the Research Center for Open Digital Innovation, Purdue University. sbrunswi@purdue.edu Mehdi Bagherzadeh Mehdi Bagherzadeh is a research fellow at the Research Center for Open Digital Innovation, Purdue University. bmehdi@purdue.edu Copyright 2016 Accenture All rights reserved. Accenture, its logo, and High performance. Delivered. are trademarks of Accenture.