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COMMENTARY

Keeping everything in-house has become archaic

Not so long ago, the prevailing wisdom in traditional companies was to look inward for innovation and problem solving. Their intellectual property (IP), they believed, was one of the most valuable things they controlled, despite not always having the intention of using it in any business activity. IP was to be guarded at all costs, with an army of lawyers lying in wait, lest a competitor get access to and profit from it. Get an innovation to the market first, they said, and you'd win regardless of whether it was the right fit.

Attitudes have changed in recent years. A dramatic shift away from the inward-looking attitudes of old has ushered in a new era of innovation. Companies have become more comfortable with the idea of "outsourcing" innovation to a growing number of problem solvers sitting in faraway places. They are combining this external resource with their own efforts to maximise their innovation efforts. This phenomenon is referred to as "open innovation".

Open innovation is described as "combining internal and external ideas, as well as internal and external paths to market, to advance the development of new technologies". (OpenInnovation.eu). It's the result of an increasingly educated and mobile workforce, availability of venture capital, and growing collaboration with other partners in the supply chain. A smart and mobile workforce means expert knowledge can be found almost anywhere; more venture capital means more money to develop and innovate new ideas in the form of startups; and more collaboration means an increase in efficiency. Open innovation is the belief that the best ideas can come from anywhere, that there should be no restrictions on innovation.

Why should a company choose to go down the "open" path as opposed to remaining on the "closed" path? And what about the benefits for the problem solvers?

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SMART PEOPLE ARE EVERYWHERE

It's beyond self-centred to assume that your company has the smartest people in its field. Such beliefs are archaic and counterproductive. The reality is that companies need to reach out to smart people wherever they are in order to compete in today's environment. And this doesn't just include externals but company employees as well. Sourcing ideas from lower down the corporate ladder can yield positive results. It's important to recognise the value of ideas regardless of where they come from. LEGO, through its Shared Vision programme, provided customers with the opportunity to design their own LEGO sets that could then potentially be made into new products.

Believe it or not, profit is possible when research and innovation are sourced externally. GE, famous for its open innovation mentality, reportedly spent US$17 billion on R&D over a 10-year period and earned US$232 billion in revenue as a result. Companies don't need fine-grained control of the entire process, from idea to market, in order to be profitable. What they need are the best innovations, irrespective of whether that means licensing from an external source or getting ideas from employees. This is what leads to profit, not insisting on keeping everything inhouse.

Rushing to launch a product that was developed entirely in-house is no longer seen as the advantage it once was. Just ask the companies that tried to win the Internet of Things race by keeping their cards close to their chest, or Diners Club and Atari. This silo mentality restricted what was supposed to be a technology that enables sharing and openness. By taking advantage of the open innovation model, companies can instead focus on perfecting their business model. Doing so has proven to be a more successful approach than being the first mover in a market. You only need to look to Apple and its iPod for an example. The iPod was by no means the first MP3 player, but it became the best through a combination of technology and a sound business model.

SHARING INTELLECTUAL PROPERTY IS PROFITABLE FOR EVERYONE

Companies win when they are comfortable buying external IP and selling internal IP. They don't get bogged down with the idea of overvaluing their own IP, especially if they never intend to use it. Problem solvers get the opportunity to profit in ways that were previously inaccessible without physically joining a company. Open innovation is a more democratic approach to solving problems. Both Tesla and Toyota believe that open-sourcing their patents will lead to better innovation and, ultimately, better products.

On the other side of the equation, problem solvers can contribute solutions and earn big rewards without being tied to a specific company. This is important because mobile workers don't always want to commit to employment and the bureaucracy that that entails. They are, by their very nature, successful because their independence allows them to focus on ideas and solutions, not on mindless corporate politics. Cisco, for example, has an Entrepreneurs in Residence programme that allows early-stage startups with ideas for enterprise solutions to spend time at the company's headquarters in Silicon Valley.

The advantages of open innovation are clear. What isn't so clear is how to make it work for your company. You may have a problem that needs solving but no one to solve it. On the flip side, you may be a problem solver with an innovation but no one to sell it to. This gap has paved the way for platforms that connect companies needing solutions with problem solvers creating solutions. These platforms cater to both large corporations and medium-sized enterprises. They satisfy the transformation and agility requirements of the former and provide the latter with access to more innovative ideas. They also act as a catalyst for a change in company culture, from a closed mindset to an open one. When employees, along with externals, start feeling involved in the process of innovation, companies win.

In fact, everyone wins.

  • The writer is CEO of Agorize Asia, a global platform for Open Innovation and talent engagement challenges.