July 5, 2013

Managing Open Innovation in Large Firms

Those who follow elsewhere on the OpenInnovation.net website will have seen last week’s article announcing results of the 2013 executive survey on open innovation. But for those who didn’t — or who didn’t open the report — I thought I’d summarize a few highlights.

The 40-page report is entitled “Managing Open Innovation in Large Firms.” It was co-authored by Henry Chesbrough (faculty director of the Garwood Center for Corporate Innovation) and Sabine Brunswicker (Head of Open Innovation at the Fraunhofer Institute for Industrial Engineering. It is available for a free download at the Berkeley website.

The goal of the study was to understand the nature and degree of firms support for open innovation. Who did they study?
To perform the first quantitative study on open innovation in large firms we emailed our survey on open innovation to senior executives at the headquarters of more than 2,840 large and stock market listed firms. Our sample included all large companies in Europe and US, with revenues annually in excess of US$ 250 million and more than 1,000 employees. This sampling frame was drawn to fill a gap as there is no quantitative study on open innovation in very large firms. We received usable survey responses from 125 firms in November and December 2012. We sent the survey to at least one contact person at the company headquarters. Our primary contact was the Chief Executive Officer or the Chief Operations Officer. We also sent our survey to the Chief Technology Officer or a senior executive responsible for strategy or business development (e.g. VP Strategy or Business Development) if contact details were available.
The responses were overweighed for manufacturing and European companies but were representative in terms of size and age.

While I recommend the full report to everyone (it’s free!), a few findings caught my eye.

First (p.6) was the degree of OI adoption, which averaged 78% across the entire sample. Within manufacturing, high-tech firms were the highest (90.91%) and low-tech manufacturing was the lowest (40%) among all the industry categories, with two other categories (“medium-high-tech” and “medium-low-tech”) in between. Other than low-tech manufacturing, the only below average industries were financial services (including real estate and insurance) and transportation/utilities.

The next was how they measured OI practices by using Dahlander & Gann (2010)’s 2x2 of inbound vs. outbound and pecuniary vs. non-pecuniary (p.10). Not surprisingly, inbound dominates outbound by better than 4:1. Key OI partners (p.15) include customers, universities, suppliers, indirect customers (e.g. consumers if they lack a direct consumer relationship) and public research organizations. Unlike the open source firms famously studied by Joachim Henkel, page 17 includes the dog-bites-man conclusion that
Firms are more likely to receive freely revealed information from outside participants than they are to provide it to others. In other words, large firms are net “takers” of such freely revealed information.
Finally, the strategic objectives for using external partners (p.18) emphasized new technologies, partners and opportunities over reducing R&D costs. I have been quite pessimistic about the impact of inbound OI on internal R&D — based on a few anecdotal announcements by US and Japanese companies — but apparently this is not widespread (at least among this sample).

Other aspects of the study examine the internal organization of open innovation within firms (Chapter 5) and how firms measure the impact of open innovation (Chapter 6). Both chapters suggest other opportunities for future research.

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