March 6, 2008

Openly skeptical of open innovation

On Wednesday, an online newsletter published a column “Open innovation – hype v reality”. The column by Richard Hudson mentions this website, but was keying off an OECD-sponsored symposium held last week in Copenhagen.

The symposium has a series of presentations published online, keynoted by Yves Doz, a well-known INSEAD strategy professor. So I thank Hudson for pointing out this workshop (that I hadn’t heard about).

Hudson offers his own definition of open innovation

open innovation is what happens when big companies collaborate on a large scale with outsiders – university researchers, suppliers, small tech start-ups – to get new products or services to market.

It’s not the same as the definitions provided by open innovation researchers — including that of Henry Chesbrough and a few of my own — but it’s certainly compatible with it.

About the only major difference is that Hudson assumes open innovation is only possible by big companies. I suppose the argument is that small companies don’t have the option to vertically integrate, so it’s not really interesting to study what is normal for small companies. A plausible argument, but many of the open innovation strategies for big companies (such as managing communities or value networks) also apply to small companies.

Eventually he gets around to the criticisms:

But the case for open innovation – however defined – is mixed.

Some of the benefits: getting new ideas, finding hot new partners or employees, killing the “not invented here” syndrome, conducting some early market research, pre-selling before the product launch – and, of course, saving money.

But there are costs, too. A company can lose control of its own technology, as it leaks out to partners. It can make it less likely, rather than more, that a new product is genuinely new and original. It’s hard on employee relations; is it a prelude to outsourcing or bypassing? And collaboration can be anything but efficient.

The risk of not having uniqueness is certainly something we all acknowledge: IBM used open innovation to shipped the IBM PC, but many of us (including some authors) consider it a blunder to have ceded control to the Wintel monopoly.

The evidence for the charge of incrementalism is non-existent: many firms have a problem creating slightly improved products, whereas a true OI approach allows search for the most innovative technologies out there.

As for the rest — scaring employees and mismanaging collaboration — of course there are no silver bullets. Much as us strategy profs like to teach great strategies, success is often determined by execution, not strategy formulation; if you don’t believe that, check out Mark Hurd’s bonus.

So while it’s certainly healthy to weigh the pros and cons of any innovation strategy, I don’t think this week’s column has challenged the viability of open innovation.

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