How Open Innovation Helps

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SPOTLIGHT ON INNOVATION These strategic moves can reduce the costs of R&D today without sacrificing tomorrow’s growth.

How Open Innovation Can Help You Cope in Lean Times
by Henry W. Chesbrough and Andrew R. Garman


Included with this full-text Harvard Business Review article: 1 Article Summary The Idea in Brief—the core idea 2 How Open Innovation Can Help You Cope in Lean Times

Reprint R0912F

SPOTLIGHT ON INNOVATION

How Open Innovation Can Help You Cope in Lean Times
The Idea in Brief
• During tough economic times, placing certain assets and projects outside your company’s walls can actually preserve opportunities for future growth while you take the time to shore up the fortress. • Some inside-out strategies involve opening up projects to investment and development by existing outside firms; others call for spinning off projects as separate ventures that still allow you to retain some equity. • The inherent cultural, political, and organizational challenges of inside-out open innovation can be met by approaching it holistically and placing it under the leadership of senior executives in strategic roles.

COPYRIGHT © 2009 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

page 1

These strategic moves can reduce the costs of R&D today without sacrificing tomorrow’s growth.

SPOTLIGHT ON INNOVATION

How Open Innovation Can Help You Cope in Lean Times
by Henry W. Chesbrough and Andrew R. Garman

COPYRIGHT © 2009 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

History shows that the companies that continue to invest in their innovative capabilities during tough economic times are those that fare best when growth returns. That’s how the U.S. chemicals industry overtook Britain’s after World War I, how Sears surpassed Montgomery Ward as the leading U.S. retailer after World War II, and how Japanese semiconductor makers outpaced U.S. companies after the downturn of the early 1980s. In a challenging business climate, focus is crucial. But companies face a real dilemma: how to maintain that focus and manage costs tightly while keeping growth options alive for the future. Deferring or canceling less promising initiatives that might have been pursued in good times allows a business to survive and eventually thrive again. Many companies give attention and resources only to the projects that are most likely to generate near-term profits, and they end up deciding quickly which initiatives fit best with the company’s core business. It’s a smart short-term strategy.

The downside of rigorous prioritization, however, is that it halts many potentially promising projects at an early point in their development and leaves them stranded inside the company. Over time, so many projects get abandoned that the company’s ability to grow beyond its core business is threatened. If focus is maintained for too long or with too much rigidity, it can become the enemy of growth. When the market recovers, the company lacks a foundation from which to rebound. Open innovation can play an important part in the solution. By breaking down traditional corporate boundaries, open innovation allows intellectual property, ideas, and people to flow freely both into and out of an organization. To date, much more attention has been paid to the inbound flow, which we call outside-in open innovation—outsiders’ contributions that enable an enterprise to create offerings whose scale belies its internal capabilities (see “A Better Way to Innovate,” HBR July 2003).

harvard business review • december 2009

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How Open Innovation Can Help You Cope in Lean Times •• •S POTLIGHT ON I NNOVATION

Henry W. Chesbrough teaches at the University of California at Berkeley’s Haas School of Business, where he also runs the Center for Open Innovation. He is the author of Open Business Models: How to Thrive in the New Innovation Landscape (Harvard Business School Press, 2006). Andrew R....
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