The Strengths and Challenges of Open Innovation
University of British Columbia
Open innovation is a term coined by Henry Chesbrough in his book, Open Innovation, from 2003. Open innovation initiatives have been utilized in the time before that, however Chesbrough was the first to describe this model.
“Open Innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the market for external use of innovation, respectively”(Chesbrough, 2006).
This paper will through a series of examples show how and why businesses are embracing open innovation initiatives. The first part of the paper includes success stories highlighting important factors for successful implementation of open innovation initiatives. The last part of the paper will look more closely at the challenges arising from open innovation.
Over the past to decades or so companies have been moving from a traditional closed form of innovation to a much more open form. Traditionally organizations controlled all the key elements of new value creation. Internal R&D was viewed as a strategic asset and a barrier to competitive entry. Only large companies with significant resources and a solid R&D culture could compete (Chesbrough, 2004). Back then companies like AT&T and IBM would do most of the industry research, and off course obtain most of the profits. As communication technology advanced these large closed firms started feeling competition from innovative firms like Microsoft, Intel, Cisco, and Amgen, achieving success on research discoveries of others (Chesbroug, 2004). The Internet has made it easier to find, connect to, and collaborate with the outside world and has drastically changed how business is done, including corporate innovation (Euchner, 2011). Open innovation is becoming an essential way of competing in a world where the barriers of innovation are falling. (Euchner, 2012). There is no doubt what direction we are heading in, and there are many opportunities and threats to look out for.
Open Innovation is here to Stay
Create an ecosystem. P&G understood that no matter how big you are you are not going to be able to have all the best people working for you. The Connect+ Developed program stands as a prime example of a successful implemention of open innovation concepts. The Connect+ Develop ecosystem has let P&G access ideas from a much larger range of parties and with a wider rage of perspective than it could ever before, and innovation rate has gone up drastically (Larry Huston and Nabil Sakkab, 2006). In 2007 over 50% of the companies innovations originated from outside the company, up from 15% in 2000 (Jefferson, 2007). The Connect+ Development ecosystem has contributed to both higher speed to market and lower cost. The launch of a new Pringle line with animal prints on the chips illustrates this case. P&G did not possess the technology required to print sharp images on the chips. Instead of developing the printer on its own, they used Connect+ Develop and discovered a small local bakery in Italy owned by a university professor who had already invented the kind of ink-jet printer they needed (Larry Huston and Nabil Sakkab, 2006). Why invent the wheel twice? The Pringles launched in record time and at a fraction of the normal cost.
The Connect+ Development system was launched over a decade ago and P&G has continuously been assessing and improving the ecosystem. The innovation ecosystem now involves communities of practice, technology entrepreneurs, joint technology development, government and university capabilities, and a connection-making exposition held down the street from its world headquarters in Cincinnati, Ohio (Sakkab, 2002). P&G recognized that knowledge sharing was extremely important for the success of the program. All partners can connect through the corporate intranet and a "smart"...
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Chesbrough, H. (2003). Open Innovation: The New Imperative for Creating And Profiting from Technology. Boston: Harvard Business School Press.
Chesbrough, H. (2004). Managing Open Innovation. Research-Technology Management, 47(1). Retrieved from http://www.questia.com
Euchner, J. (2011). The Evolution of Open Innovation: An Interview with Henry Chesbrough. Research-Technology Management, 54(5), 13+. Retrieved from http://www.questia.com
Huston, L., & Sakkab, N. (2006). Connect and Develope: Inside Proctor & Gamble 's New Model for Innovation. Harward Business Review, 3(March).
Kirschbaum, R. (2005). Open Innovation in Practice. Research-Technology Management, 48(4), 24+. Retrieved from http://www.questia.com
Sakkab, N. Y. (2002). Connect & Develop Complements Research & Develop at P&G. Research-Technology Management, 45(2), 38+. Retrieved from http://www.questia.com
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