The Brave New World of Open Innovation

    By: Paul Sloane on May 24, 2011

    Many leading companies are now adopting open innovation (OI) as a way to drive their new product development. Companies such as Proctor and Gamble, IBM, LG Electronics, Kraft Foods, Reckitt Benckiser, Unilever and Kimberly-Clark are all enthusiastic advocates of this approach. So what does it entail? Open innovation replaces the vertical integration of innovation processes within one company with a network of collaborators working on innovation projects. The term was coined by Professor Henry Chesbrough who described it thus, ‘Open Innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas and internal and external paths to market, to advance their technology.’ Using outsiders can speed up processes, reduce costs, introduce more innovative ideas and reduce time to market. One of the examples that Chesbrough uses is the Hollywood Film Industry which has innovated for decades with a range of partnerships and alliances between studios, directors, actors, writers, agencies, independent product companies and specialist supplier. These concepts which helped create so many films are now being applied to mainstream product areas.

    Crowdsourcing is one particular manifestation of OI. It is the act of outsourcing a task to a large group of people outside your organisation, often by making a public call for response. It is based on the open source philosophy which used a large ‘crowd’ of developers to build the Linux operating system.

    Proctor and Gamble aims to source 50% of its innovations from outside using open innovation. Early results included new products such as Mr. Clean Magic Eraser and Pringles Prints. Kimberly-Clark reduced the time is takes to bring out new products by 30% through open innovation. It launched Sunsignals in just six months by collaborating with a smaller company, SunHealth Solutions. Sunsignals is a self-adhesive sensor that changes colour when the wearer is in danger of burning in the sun. Kimberly-Clark partners with over 30 companies including joint-development, joint ventures, co-distribution, and licensing deals.

    In the book, A Guide to Open Innovation and Crowdsourcing, Jeffreys Phillips of OVO Innovation categorises four different types of Open Innovation model. They are as follows:

    1. Suggestive/Participative. Here a company will encourage anyone to submit an idea and to review and rank ideas from others. A good example of this Dell’s Ideastorm. This is a website that invites suggestions for Dell’s products or services. It has received over 15000 suggestions and Dell says that 400 have been implemented. Note that anyone can submit an idea on any topic. This model will potentially generate a large number of ideas in all sorts of areas which makes evaluation and selection difficult.
    2. Suggestive/Invitational. In this model the sponsor company invites specific individuals, teams or companies to contribute ideas on very broad topic areas. This is what IBM does with its Idea Jams. These are often campaign or event driven and the invitation is limited to a restricted time. IBM receives many thousands of ideas from these campaigns.
    3. Directed/Invitational. The company invites specific individuals or partners to respond to specific challenges or requests. This is the most popular model and it is the one used by Proctor and Gamble in its Connect and Develop programme and by Innocentive which invites solutions for tough scientific problems. With this model you get far fewer suggestions but they tend to be of much higher value and focus.
    4. Directed/Participative. Anyone can submit suggestions for very specific challenges. When the 2010 Deep Water Horizon oil disaster occurred in the Gulf of Mexico BP and the US Government used a website to invite anyone to suggest ways to cap the leak or recover the oil spills. This method can generate a large number of ideas for a particular campaign or issue.

    In choosing which approach to adopt it is important to first define your strategy and identify what you want to get out of OI. What is your vision and what is the business strategy to achieve it? How can OI contribute to these objectives?

    OI needs executive level commitment if it is to succeed. It cannot be delegated to R&D as a project. It requires a fundamental change in the corporate mind-set and this is generally the first and most important obstacle that companies face in trying to adopt OI. Most corporations have a tradition of jealously guarding their intellectual property and of rejecting unorthodox external ideas. OI depends on an attitude of trust, openness and sharing. It requires company-wide buy-in and this can only be attained with the full commitment of the CEO and senior team.

    Most companies are difficult to approach and middle managers can often see outsiders as a distraction or source of trouble. So a change in attitude is needed. You have to select a number of people who are both ambassadors and intrapreneurs. They provide the link to the outside.

    OI requires new systems and processes to handle the volume of response in a timely fashion. It also requires new business practices in terms of licensing, disclosure and the sharing intellectual property. Once you have identified partners to work with an innovation project you need to consider these steps.

    1. Each party should define what it wants to get out of the relationship.
    2. Who owns the intellectual property in the partnership must be clear.
    3. Each side should allocate a senior person with overall responsibility for the success of the partnership.
    4. Key obligations, expectations and milestones should be established early.
    5. Honesty and trust is built on clear communication – especially when objectives look likely to be missed.
    6. Get a good legal contract.

    OI and crowdsourcing hold out the prospect of transforming and accelerating new product development. These concepts have been proven to work by major players. However, they require a change in the corporate mindset, culture and processes. They require top level commitment. Fortunately there is enough shared experience and written guidance to help the newcomer to enter this brave new world.

    What do you think?

    Paul Sloane writes and speaks on leadership and innovation. He is the editor of A Guide to Open Innovation and Crowdsourcing published by Kogan-Page and a partner of PDMA's Conference on Social Product Development & Co-Creation, June 27-28 in AZ.

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    Released: May 24, 2011, 11:50 am
    Keywords: PDMA Blog | Business Models | Business Process | Open Innovation

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