‘No matter who you are, most of the smartest people work for someone else‘
– Bill Joy, Sun Microsystems
You cannot hire all the smart people – there will always be some who are not working for you. When it comes to innovation, loosing out on these smart people can make a lot of difference.
How to tap on the potential of these smart people? How to develop a strategy that will ensure that good and innovative business ideas from these people are used to the benefit of your business? How about the case when some of these people have already developed a solution to the problem you are looking at? How to involve and collaborate with these people?
The answer lies in ‘Open Innovation’ – a business model characterized by encouraging people outside your organization to innovate and generate solutions for your specific problems, acquiring these solutions, and using them as if they were generated internally by your R&D team. This article introduces the concept of Open innovation and compares it with the traditional approach to innovation. The article also highlights various issues in implementation and management of the open innovation model. Some case studies relating to the successful implementation of this model have also been presented.
Open Innovation Model
Open innovation is defined as a business model in which firms draw on research and development that may lie outside their own boundaries. Open innovation can also be described as combining internal and external ideas as well as internal and external paths to market to advance the development of new technologies. This means that instead on depending solely on internally generated R&D outputs, organizations rely on outside R&D also, in the form of collaborative research, in-licensing, acquiring patents and know-how, etc. In simpler terms, open innovation is out-sourcing your R&D and other innovation related activities.
R&D is a fickle and uncertain business activity and it is very difficult to estimate the input to output ratio. In some cases you can get an innovation with a million dollar potential on minimal investment, while in others the output even after investing millions of dollars may still be zero. The idea of open innovation is to distribute this risk of R&D failure to many players. Open innovation model increases the number of people working on a problem. It also leads to a reduction in costs (by collaborating with universities, start-ups, research organizations) and a greater access to skill sets which may not be available internally. Many a times, it also provides the much needed outside view to the problem. All these factors lead to an increased probability of getting a successful solution.
The traditional approach towards innovation involves all activities related to R&D and product development being conducted inside the boundaries of the firm. The whole process is well guarded with little or no outside involvement. Hence this approach is also known as the ‘Closed Innovation’ or ‘Proprietary’ approach. In this approach since a selected group, having a limited skill set and access to restricted resources, is working on research or product development, the chances of failure are high.
On the contrary, according to the open innovation approach the same problem is thrown open to a large number of collaborators such as universities, start-up, research organizations, etc. These collaborators are systemically provided guidance, support and incentives for solving the problem. The revenue generated by the successful outcome of the collaborative effort is shared between the parties.
One of the most important advantage of adopting open innovation is the reduction in the risk of innovation. Another advantage is the access to new expertises. Product development requires expertise, experience, and infrastructure in a wide range of technologies. One company may not have expertise in all the technologies needed to develop the product. Open innovation provides access to outside expertise at a relatively lower cost and less time.
Finding solutions to problems internally may be time consuming if the organization lacks prior experience or expertise in the domain. In such cases, identifying and importing similar technologies developed by others will be more time as well as cost efficient.
Open innovation model also results in the lowering of the R&D and innovation costs. Instead of investing heavily on developing all technologies internally, organizations can achieve significant cost reduction by acquiring the technologies from outside the organization.
Procter and Gamble’s (P&G) ‘C&D’ Approach
P&G calls the open innovation approach followed by it as the ‘Connect and Develop’ (C&D) model. Using this model P&G identifies promising ideas and technologies throughout the world (connecting) and then applies its R&D, manufacturing, marketing, and purchasing capabilities to these ideas and technologies to create better and cheaper products (developing). Some successful products developed using the C&D model include Pringle Prints, Olay Regenerist, Swiffer Dusters, and the Crest SpinBrush.
Today, more than 35% of P&G’s new products in market have elements that originated from outside. Using this approach, P&G claims to have reduced its R&D expenditure from 4.4 % of sales to 3.4 % and increased its R&D productivity by 60 percent, while launching more than 100 new products since 2000.
P&G is also pursuing ‘Complementary Technology Innovations’, an open innovation model involving collaborating with companies working in strikingly different technical areas like electromechanical technologies, membranes, etc. Leveraging on the expertise of these collaborators, P&G hopes to develop some very exciting and ground breaking products. Had it not been for the open innovation model, it would have taken P&G a lot of time and resources to develop this expertise internally. Since this expertise does not pertain to P&G’s core business activities; the return on investment on developing the expertise internally would have been low and uncertain.
Open Innovation at GlaxoSmithKline (GSK)
GSK calls the open innovation model followed by it as the ‘Want-Find-Get-Manage model’. In this model, ‘Want’ represents the business needs of GSK. GSK ‘Finds’ innovators working in the ‘Want’ area are collaborates with them to ‘Get’ the required technologies and expertise. Manage means managing the relationship with these external innovators. GSK successfully used this model for innovating and launching Aquafresh White Trays™, a disposable teeth whitening system.
Crest Whitestrips™, the teeth whitening strips being marketed by GSK prior to the launch of Aquafresh White Trays™, were perceived by consumers as messy, difficult to use, and average tasting. Hence, GSK wanted to replace them with an easier to use and better tasting product. Instead of initiating an internal R&D program for the improving the product, GSK focussed on finding collaborators who already had or were working on technologies which could be used by GSK. It identified that Oratech, a private label manufacturer of dental and medical products, owned a propriety technology capable of imparting the desired qualities to the product. GSK partnered with Oratech to develop the improved product, which was launched as Aquafresh White Trays™. By using the Open innovation approach, GSK was able to reduce both the cost as well the time required for the development of Aquafresh White Trays™.
Open Source Drug Delivery (Council of Scientific and Industrial Research)
Open Source Drug Delivery (OSDD) is a consortium lead by Council of Scientific and Industrial Research (CSIR) India, which aims to provide affordable healthcare to the developing world by providing a platform to collaborate & collectively endeavour to solve the complex problems associated with discovering novel therapies for neglected tropical diseases like Malaria, Tuberculosis, Leshmaniasis, etc. Anyone having any kind of expertise and knowledge that can be useful for the process, researchers, scientists, students, industries, universities, etc., can be a part of the consortium.
In OSDD, the entire process of drug discovery is divided into smaller, well defined problems. These problems are then made open for the entire community associated with the consortium to work on and contribute. All solution contributed by the members are peer-reviewed and appropriate rewards may be announced for an acceptable solution.
The OSDD project has 700 registered members from 130 cities. These members are working on more than 50 live projects. Recently, a group working on Tuberculosis, successfully decoded 400 genes of Mycobacterium Tuberculosis. This project, done in collaboration with 12 students from Chennai, Vellore, Delhi, and Faridabad, was completed within a year. A lone researcher working on a similar project would have taken a much longer time.
The growing multidisciplinary nature of research, increasing cost of innovation, and the high risk of failure has made it difficult for companies to depend solely on internally generated R&D for fulfil their innovation needs. It has become imperative for them to look for and tap external sources of innovation – by collaborating and partnering with external innovators, out-souring R&D activities, acquiring externally developed technologies – in short by following the open innovation model. Open innovation provides cost advantage, reduces risk, shortens time-to-market, and provides flexibility and agility to adapt to the changing market and technology landscape.
Note: This article was published in the ShARE Annual Magazine 2009. ShARE is a multi-cultural and multi-national student body involved in cross cultural and multi-functional research. To know more about ShARE visit http://www.share-share.org/. Contact the author in case you require the references and the bibliographic information for the article.