Open Innovation 2.0

I recently read Twelve Principles for Open Innovation 2.0, an article published last year in Nature by Martin Curley.  Curley, - who’s long been involved with innovation in both his business and academic positions, - nicely summarized its evolution over the past several decades, first from closed to open innovation, and now to what he calls open innovation 2.0.  Let me discuss each of these phases of innovation.

Closed Innovation

Closed innovation was the general approach followed by industrial R&D labs during much of the 20th century, - e.g., Bell Labs, Xerox PARC, IBM Research.  Their scientists and engineers came up with a variety of technology breakthroughs and inventions, including the transistor, the laser, the UNIX operating system, the personal computer, DRAM, disk drives, relational data bases and many more.  But, over time we learned that while breakthroughs and inventions are absolutely necessary, they’re not by themselves sufficient for a business to become an innovation leader and achieve competitive advantage in the marketplace.  Examples abound of companies that failed to commercialize the inventions developed in their labs.

As the rate and pace of technology advances accelerated, - most prominently in the IT industry, - the closed innovation model started to fall apart.  The hand-offs and elapsed times to take an invention from the lab to the marketplace were no longer competitive.  Startups did away with the gaps altogether, significantly decreasing the time-to-market for new products and services, and putting huge pressure on those enterprises still operating under the old rules.

Companies realized that they could no longer rely on their own R&D as the only source of innovative ideas.  Innovation was increasingly occurring in the marketplace, no just in their labs.  Consequently, their R&D personnel had to go out to the marketplace and learn first hand about the increasingly complex problems that required their ideas, inventions and products.

Moreover, as the problems being tackled were now much broader and more complex, external collaborations with clients, business partners, universities, research communities and others became increasingly important.  Given the fast moving, highly competitive environment, companies started to recognize that there were a lot more capabilities for innovation in the marketplace than they could try to create on their own, no matter how big and powerful the company.

Open Innovation

The dramatic success of the Internet, World Wide Web, Linux and similar initiatives in the 1990s ushered the era of open, collaborative innovation.  In his 2003 book, Open Innovation: The New Imperative for Creating and Profiting from Technology, UC Berkeley professor Henry Chesbrough outlined this new model for business innovation.  In a 2015 article on the subject, Chesbrough wrote:

“In my own view, the open innovation paradigm can be understood as the antithesis of the traditional vertical integration model in which internal innovation activities lead to internally developed products and services that are then distributed by the firm… Open innovation assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their innovations.  Open innovation processes combine internal and external ideas together into platforms, architectures, and systems.  Open innovation processes utilize business models to define the requirements for these architectures and systems.  These business models access both external and internal ideas to create value while defining internal mechanisms to claim some portion of that value.”

The Internet is not only a major proof point of the value of open innovation, but it’s become a highly effective platform for people from diverse institutions all around the world to collaborate in addressing problems of mutual interest.  “Driven by plummeting communication costs and the ever increasing numbers of connected people and devices, it has never been so easy to exchange information and ideas,” wrote Curley in his article.

Open Innovation 2.0

Open innovation 2.0 is now emerging, blurring “the lines between universities, industry, governments and communities.  It exploits disruptive technologies  - such as cloud computing, the Internet of Things and big data  - to solve societal challenges sustainably and profitably, and more quickly and ably than before…”

Curley outlines a set of practical principles that will help companies embrace open innovation 2.0.

• Purpose - “Efforts and intellect aligned through commitment rather than compliance deliver an impact greater than the sum of their parts… Articulating a shared value that can be created is important.”

• Partner - “The ‘quadruple helix’ of government, industry, academia and citizens joining forces aligns goals, amplifies resources, attenuates risk and accelerates progress.”

• Platform - “An environment for collaboration is a basic requirement.  Platforms should be integrated and modular, allowing a plug-and-play approach. They must be open to ensure low barriers to use, catalysing the evolution of a community.”

• Possibilities - Returns may not come from a product but from the business model that enabled it, a better process or a new user experience.”

• Plan - “Adoption and scale should be the focus of innovation efforts, not product creation.  Around 20% of value is created when an innovation is established; more than 80% comes when it is widely adopted.”

• Pyramid - Enable users to drive innovation.”

• Problem - “Most innovations come from a stated need.  Ethnographic research with users, customers or the environment can identify problems and support brainstorming of solutions.  Create a road map to ensure the shortest path to a solution.”

• Prototype - “Solutions need to be tested and improved through rapid experimentation with users and citizens. Prototyping shows how applicable a solution is, reduces the risks of failures and can reveal pain points.”

• Pilot - “Projects need to be implemented in the real world on small scales first.”

• Product - Prototypes need to be converted into viable commercial products or services through scaling up and new infrastructure globally.  Cloud computing allows even small start-ups to scale with volume, velocity and resilience.”

• Product service systems - Organizations need to move from just delivering products to also delivering related services that improve sustainability as well as profitability…  The ultimate goal of open innovation 2.0 is a circular or performance economy, focused on services and reuse rather than consumption and waste.”

• Process - Innovation is a team sport.  Organizations, ecosystems and communities should measure, manage and improve their innovation processes to deliver results that are predictable, probable and profitable.  Agile methods supported by automation shorten the time from idea to implementation.”

“Open innovation 2.0 is neither easy nor is it a panacea.  It requires courage and energy.  But once a critical mass is achieved, innovation can catalyse itself.  Just as momentum is the product of mass and velocity, the ecosystem with the most participants and fastest turnover of ideas will be the most successful.  Participating organizations must create synergies rather than cancel each other out.  High levels of trust and conviction in the shared vision are predictors for eventual success.”

Comments

[Masoud Charkhabi]

It's interesting that the inverse of the transition that Dr. W. describes in the R&D labs of Bell, Xerox and IBM; is occurring in industries not known for R&D and innovation, such as, for example, banking. Rather than entirely rely on innovations from the outside, these industries now see an opening playing field and they feel confident that they can create value through proprietary R&D and innovation.