If the new hype following the start-up wave is to be believed, then this does indeed seem to be the case. But let's be honest...who believes any hype these days? Open innovation? How does it work and what is it actually?
© Kurhan / 123RF
What is open innovation and how did it come about?
If you go back in time a little, three and a half centuries to be precise, you come across a competition initiated by the six naval powers of Europe in the 17th century to find a precise way to navigate the seas. Specifically, the aim was to find a more accurate method of measuring time in order to find longitude. This competition inspired the great minds of the time, including Galileo Galilei and Christiaan Huygens, to find solutions to the dilemma. Well, the problem was finally solved in the 18th century by an English clockmaker who eventually claimed the prize for the competition.
But that's not the point. The countless inventions inspired by the competition can still be found in classic timepieces today. This was actually a very early form of open innovation, with different parties working on ideas to solve a common problem. Of course, the nature of collaboration in the 17th century was quite rudimentary, as it is unlikely that the masterminds behind the inventions took notes on each other's work. Regardless, it was necessary and important to draw on the intellectual potential of external contributors to achieve a larger goal. The history books are littered even further back with crowned heads proposing competitions to find ways to improve their reign.
However, the term Open Innovation was first coined in 2003 by Henry Chesbrough in his book "Open Innovation: The New Imperative for Creating and Profiting from Technology" to explain the modern view of the benefits of innovative collaboration with external parties.
But what exactly is open innovation? Open innovation is basically an alternative to the conventional method of innovation, in which information must remain within predetermined boundaries, so-called "closed innovation". In open innovation, on the other hand, the attitude is to be open to sharing and receiving information. The following questions will help you to better understand the concept:
- What is Open Innovation?
- What are the advantages of open innovation?
- What are the challenges of open innovation?
- How is open innovation implemented?
And these questions can best be considered in direct comparison with the more conventional "closed innovation".
Open vs. closed innovation
Closed innovation is based on the idea that internal expertise (ideas) together with an iterative process for managing this expertise can produce sustainable new products. Information remains within the boundaries of the company and is not passed on to external parties. This can be illustrated using a funnel with solid walls, which represent the limiting but secure internal development process (Fig. left-hand side).
Adapted from Isomäki, A., Viima 2018 - Open innovation
Open innovation, on the other hand, is based on the belief that knowledgeable and creative people outside the company can contribute to achieving strategic goals, and that sharing intellectual property in both ways is useful to different parties in different ways. The more information that is gained, the more informed the decisions will ultimately be. The open innovation funnel is more like a mixture of a sieve and a funnel, as the development process is not limited to individuals within the sponsoring company. In addition, the number of ideas is also higher and impacts on different markets are possible. Both have their place, as not all information can be shared with the outside world. But getting input from thousands of consumers can lead to a very significant competitive advantage.
Some examples of open innovation
Three examples are described below, two of which are success stories. It is important to understand why certain companies have succeeded or failed.
Philips - a campus of creativity
From shavers and kettles to hair dryers, Philips is a recognized brand for quality and ease of use. But how did they gain a foothold in so many industries? What is the secret of their innovative strength? In 1998, Philips established the Philips High Tech Campus to centralize its R&D activities. This was later renamed the High Tech Campus Eindhoven when the doors of the campus opened and other companies and Eindhoven University of Technology were allowed to join the adventure (https://www.tue.nl/en/research/flagshipcollaborationmarch2018/). In this way, Philips was also able to make use of the expertise and insights from different backgrounds and offer others an inspiring R&D playground.
© Philips
For Philips, this was a fruitful and fascinating experiment in open innovation. To tackle major challenges together, Philips started a joint venture with Eindhoven University of Technology and various hospitals and other organizations in 2014. Since then, the tasks to be solved have ranged from affordable access to high-quality healthcare to energy-efficient lighting for densely populated cities. This is an example of creative open collaboration between the private and public sectors to connect research topics and knowledge and make important discoveries.
Another example of Philips' open innovation presence on campus is the Open Innovation Lab MiPlaza, where companies can develop their own applications and have access to Philips' research and know-how. In return, Philips can use the inventions made by the companies in the lab to improve its own solutions. In a 2009 interview with Gerjan van de Walle, Business Development Manager at Philips, he argued that while some of the projects at MiPlaza, ranging from improving video coding to building ovens for third world countries, may seem irrelevant to Philips, the lab's open innovation process guarantees that whatever is developed will be relevant in some way. For Philips, the campus in Eindhoven has played an important role in making it one of the most innovative companies in the Netherlands, and perhaps even in Europe. In fact, according to innovationorigins.com, 1,733 new patent applications were filed in 2017 from the Netherlands alone. Nevertheless, it is difficult to quantify the real impact of Open Innovation for Philips, as the true value of these patents remains internal to the company. However, the fact that they are still heavily involved in Eindhoven suggests a positive investment.
Tchibo - crowdsourcing with success
There are numerous successful examples of open innovation in the context of branded communities. In 2008, the coffee roasting company Tchibo launched a crowdsourcing community with its own website (Tchibo Ideas), where consumers and interested parties could register and develop, discuss and evaluate product ideas. If a very high rating was achieved, the product was then tested for its marketability.
© Pompi / Pixabay
But Tchibo has not stopped there. In addition to submitting, commenting on and evaluating new product ideas, new challenges could also be posed. Participants had the opportunity to name unsolved everyday problems. These tasks could in turn be commented on and evaluated, for example the ugliness of everyday bicycle helmets. They should be more colorful, especially for children. This example shows how important it is to recognize problems and ask the right questions. Because only when you have recognized a problem can you find a solution to it.
Fiat - ideas competition with finesse
Before the market launch of its Fiat 500, the car manufacturer Fiat cleverly used the creative ideas of the interested public for the development by allowing them to leave suggestions for design and equipment on a specially created homepage, as Auto + Motor reported in 2006.
© Fiat
By organizing ideas competitions, the Group engages future consumers and receives a large number of usable ideas. In this case, Fiat was able to choose from over 170,000 suggestions.
Netflix - A competition with problems
In 2006, Netflix launched an open innovation competition called the Netflix Prize, which was open to any external member of the public. The aim of the competition was to develop a filtering algorithm that would improve movie and series suggestions to users by 10% compared to the existing algorithm. To win the competition, Netflix offered a grand prize of $1 million. In just over a year, over 40,000 teams from 186 countries had taken part in the competition. In just under three years, two teams had found a way to improve the proposals by over 10%, one of which won the grand prize. Wired.com reported in 2012 that the algorithm of the team that won the top prize was too complex to develop and Netflix opted instead for one of the runners-up, which still had an improvement rate of 8.43%. Although Netflix ultimately got what it wanted (or at least came very close to it), they have decided not to host future competitions indefinitely due to privacy concerns. Some parties argued that the data relating to the ratings, which were published so that applicants could test their algorithms, violated users' privacy. On a positive note, however, Netflix was only able to find programming talent and market its product and the new suggestion function thanks to the open competition.
Mountain Dew - An epic failure
Mountain Dew (PepsiCo) is no stranger to open innovation, for better or worse - or so it seems. In 2009, a platform called DEWmocracy was launched where customers could jointly develop new lemonade flavors. According to adweek.com from 2010, this project was a great success. Not only did the company's management receive new flavors that exactly met the demand, but this project also served as a marketing channel for new products. Unfortunately, the success was short-lived. Inspired by the positive experience, the company fell straight into a classic trap of open innovation, the name game. In 2012, Mountain Dew released their Dub The Dew campaign with the obvious intention of getting a crowd-pleasing name for their new green apple product. The campaign was an epic failure. The names that came out ahead ranged from jokes to macabre statements. Later, Mountain Dew ended the campaign and admitted its failure. Mountain Dew had fallen victim to the hack by trolls, which caused a lot of media attention around the world.
Concluding remarks
Is there an ultimate recipe for success for open innovation or is it just luck? It is clear from the examples that there are many things that influence a company's chances of success, such as the customer base, the brand, the market and the type of execution. However, there are also a variety of random factors that can throw a campaign off track. Therefore, based on this very information, it can be quite difficult to make an informed decision on whether to attempt Open Innovation and from what angle. Open innovation can be a cost-effective tool for outsourcing idea generation or an embarrassing place for sunk investments. Before deciding between open and closed innovation, you should define your goal very clearly and not just think about cost savings. Open and closed innovation both exist for a reason. If you analyze these reasons in advance, you can get the best out of both approaches.