Open Innovation? Rewards And Challenges

Dec. 21, 2004
The rewards come from connecting internal product development to outside technologies. But an open innovation strategy also can bring unexpected corporate challenges including cultural adjustments.

Open innovation inspired many when Henry Chesbrough helped formalize the concept in his book of the same name (2003, Harvard Business School Press). For example, Chesbrough's theme confirmed the business premise behind NineSigma Inc., a 2000 startup by Case Western Reserve University's Mehran Mehregany. This professor and engineering department head wanted his startup to provide a methodology and infrastructure for linking companies with outside technology. The mission: connect companies in all fields with scientific and technological innovation. In effect, Mehregany's business plan is infrastructure for Chesbrough's thesis. Both Chesbrough and Mehregany see the open innovation paradigm emerging from the process monopoly of closed innovation -- the internal (only) R&D strategy of yore. Both conclude that the closed innovation model no longer meets today's reality test. The reason: the huge amount of R&D going on -- orders of magnitude more than any one company could do internally -- and a rapidly growing percentage of it is in academic settings and in small companies that fly below the radar of large firms. Increasingly, the issue has become the discovery of technology developed outside the corporation. How does this affect the internal R&D function? Mehregany warns of possible confusion: "Open innovation does not mean outsourcing R&D, nor does it mean closing down internal R&D. It is a strategy of finding and bringing in new ideas that are complementary to existing R&D projects. "Open innovation removes many of the boundaries -- geographical, technological and corporate -- that stand in the way of new product development and new markets. Open innovation provides access to knowledge and technologies that would take years and millions of dollars to develop in-house. The approach makes it possible to shorten product development cycles and leapfrog the competition. And it makes it possible to harness so-called 'disruptive technologies' instead of being blindsided by them." Mehregany does not see the practice of open innovation confined to traditional R&D. A significant portion has to do with improvements to production processes. But open innovation does not just happen. It requires changes in corporate culture and must be driven from the top. Senior managements are quick to see the benefits, says Mehregany. Middle managements can be a problem if they're not briefed properly on corporate objectives. For example, they may view NineSigma searches as evidence that they weren't doing their job before. They need to appreciate that open innovation makes internal R&D more strategically valuable to the company."

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