Why More Companies Are Embracing Open Innovation

Putting your needs out in the open is sometimes better than trying to innovate in-house or in secret.
By Denys Resnick

Open innovation (or “OI”) didn’t used to be the way the most successful companies did business. It’s the process of searching outside a company’s walls—and even its own industry—for technology and solutions to keep it at the cutting edge. For obvious reasons, then, many businesses still find OI risky, since it means exposing their goals and projects to public view, including competitors. But more companies now believe those risks are worth taking, and open innovation has emerged as a best practice when it comes innovation. We here at NineSigma sponsored a Harris Interactive survey late last year that found 79% of executives believed their companies were effectively drawing on innovations from other industries. And 71% said they expected their companies’ investment in projects with outside innovation firms to rise in 2015.

A successful open innovation strategy doesn’t work on a piecemeal basis, though. It requires transparency, clarity, and commitment—not just from the organization looking externally for new ways to innovate but also from the partners who help companies do just that.

In the context of open innovation, transparency means not being afraid to let the outside world see in. Companies don’t have to disclose their product and marketing strategies, but they do need to be open about pursuing OI approaches in the first place.

“Transparency means not being afraid to let the outside world see in.”

Large multinationals including Kraft, Pfizer, and Siemens now actively and openly participate in collaborative, online innovation communities where seekers and solution providers work together. Those companies often host their own “managed innovation” events, displaying their logos like welcome signs over the main entrance. Much the way tech companies use hackathons to get outsiders to contribute to their goals, OI-committed businesses announce proudly that they’re taking full advantage of the global innovation community.

That transparency demonstrates to the market that they have a clear strategy for the future and they’re aggressively pursuing it out in the open. What’s more, solution providers see those logos and know immediately they’ll be generating ideas for a trustworthy organization that will be forthright and fair.

In order to attract the right providers with the right solutions, companies need to clearly state the details of what they’re looking for—solution specifications, performance parameters, environmental impacts, you name it. Requests for solutions have to be written with enough detail yet without being so specific that they filter out useful concepts. On the other hand, those descriptions shouldn’t be so broad that solution providers can’t be confident the company itself knowns what it’s after.

In other words, the quality of the solutions a business can acquire through open innovation depends on the quality of the providers who work on it. And getting quality providers depends on clarity.

“The competitive edge a company can gain from open innovation far outweighs the risk of trying to do everything in-house or under lock and key.”

KLM, the largest airline in the Netherlands, and Schipol International Airport, one of the busiest airports in the world, recently teamed up to sponsor an innovation challenge for an automated baggage handling system. The description carefully broke the baggage process down into four main steps and provided very specific parameters for each step—whether the new technology could be mobile, stationary or both; the dimensions and weight of the baggage it would need to handle; operator safety specifications; the required speed of the system. The description then went on to list possible approaches—for instance, robotics with or without computer vision—as well as solutions they weren’t interested in—anything requiring big changes to conveyor belts and existing apparatus. Plenty of details, but not so much as to get buried under.

Think of commitment as an OI insurance policy. Companies that show they’re committed to open innovation can better assure solution providers that the playing field is level and the company places a real value on the outcome of the process. Tom Goddu, founder of Blazing Pencils Industrial Design, recently participated in a General Electric Industrial Solutions challenge to develop an ergonomic design for a rotary handle circuit breaker. He told me candidly that he would never have considered submitting an idea if GE’s name hadn’t been on the challenge and if the prizes hadn’t been published in advance.

There are a handful of ways a company can show its committed to the OI process: Establish a reasonable timeline that details key milestones, then stick to it. Outline the evaluation criteria in clear terms from the very outset. And, of course, state the award you’re planning to deliver to the winning submission.

Transparency, clarity, commitment. All three lay the foundation for successful OI partnerships. When done right, the competitive edge a company can gain from open innovation far outweighs the risk of trying to do everything in-house or under lock and key.

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