Pushing the Boundaries – Part 1: Understanding the Different “Faces” of Open Innovation

By: Innovation Management

The MOOI-forum is in its 4th month now, focusing on Human Resources Management and Open Innovation as monthly theme. Every month, great discussions emerge on the forum. One topic that came back each month but remained somewhat in the background is what we could label “the different faces of open innovation”.

Examples of (usually successful) open innovation projects have been around for years. You can find them in books on open innovation, numerous websites focusing on open innovation management, corporate websites and press releases. Yet, it always struck me that the vast majority of the examples can be categorized as new products / services that are offered through existing business units, sold through existing distribution channels and in some cases are just an add-on to existing products. Take for instance the Pringles Prints of P&G: the FMCG giant was using a technology where words and images can be printed on the crisp. It adapted an ink jet technology that a bakery in Bologna used to print messages on cakes and cookies.

Other open innovation examples represent products that provide a better technology for an existing application. Take for instance the Swiffer Duster of P&G. P&G got the technology from Japan’s Unicharm. P&G signed a deal with Unicharm to distribute the duster under the P&G name everywhere in the world except Japan.
These two products are typical exemplars of open innovation success stories as we have witnessed in the last decade. Yet, they represent only “one face” of open innovation and they may blind sight us for the full potential of open innovation.

As some discussions in the MOOI-forum witness, open innovation has the potential to be deployed as a viable innovation approach for a broad range of innovation objectives. Take for instance the MOOI-forum discussion of last month where some members (thanks to Diana Rus for several contributions) were exploring this topic.

When discussing open innovation and corporate strategy, we focused among other topics on the different growth objectives of companies: there are usually several growth horizons – as explained by the three growth horizons of McKinsey.

The basic idea is that in order to achieve consistent levels of growth, firms must not only be innovative to continue growth or attenuate growth slowdown in existing businesses, but also explore areas they can turn into high growth business opportunities in the future. This challenge to balance the typical tension between short-term priorities and the longer-term vision is called ambidexterity.

The concept is central in innovation management and an increasing number of innovative companies understand what is at stake. Yet, many others are imbalanced as they are very good at handling the demands of today’s businesses, but not so successful in being creative and renewing themselves over the long term. Ambidexterity has been discussed for almost two decades in the literature, but it has not yet been introduced as a central notion in the open innovation literature.

The ambidexterity notion is nevertheless crucial to understand the full potential of open innovation.

The ambidexterity notion is nevertheless crucial to understand the full potential of open innovation. The examples of the Print Pringles and the Swiffer Duster only show the relevance of open innovation for the short-term growth objectives of a company. Yet, open innovation can even be more important in developing long-term growth objectives of companies.

There is no consensus on how exactly ambidextrous organizations should handle their “long-term” innovation streams, but it is obvious that open innovation initiatives fostering long-term growth will be quite different compared to open innovation that is intended to support the short term actions of the existing / mainstream businesses. Take the example of DSM’s Emerging Business Areas (EBAs).

DSM starts with the incubation of ideas (in several cases these ideas were generated outside DSM). Ideas that have the potential to grow into a significant business are turned into growth platforms and are organized as EBAs: they are structured as separate units, with the agility and flexibility of a start-up, yet can still benefit from the services and resources that a large company can offer.

Although EBAs only represent one type of long-term growth organizational vehicle, they are interesting to analyze the role of open innovation in realizing long-term growth objectives for the chemical company. Compare now the role and management of open innovation in EBAs compared to open innovation initiatives deployed in existing businesses. In EBAs the business model is not yet crystallized, technology and business uncertainty is much larger, new partners have to be found not only to help out the company with technology, but also with new business models, new routes to market, etc.

It is important that managers understand that open innovation is a multiplex concept when it comes to using it for different corporate growth targets.

Organizing open innovation for the long-term growth is clearly different from the more popular form of open innovation, where companies reply on external partners for sustaining growth in the short term. It is important that managers understand that open innovation is a multiplex concept when it comes to using it for different corporate growth targets.

Open innovation has different “faces” and each of them needs a different way of organization. Compared to open innovation supporting short-term growth objectives, initiatives that enable long-term innovation streams will be taken away from established business units and management will give them some sort of formal authority. They tend to be organized centrally and they report directly to top management. External sourcing modes are different (long term strategic research projects, CVC, minority positions in high-tech ventures, etc.) and so will be the type of partners, who have to work under high levels of technological and market uncertainty.

In sum, open innovation targeting long-term growth is hardly comparable with open innovation projects that sustain short-term growth.

More important, open innovation is required for the development of new capabilities, as a company may not have the required technological and business capabilities to compete successfully in emerging business areas: capability development is less of a priority in the case of existing businesses since capabilities have been developed over the years. In sum, open innovation targeting long-term growth is hardly comparable with open innovation projects that sustain short-term growth.

Achieving ambidexterity has several implications for the organization and management of open innovation in large companies. Yet, it is exceptional that professionals develop a management framework or tool that (re-) balances different open innovation approaches catering the divergent needs of short-term and long-term growth objectives leading to a consistent level of corporate growth.

By Prof. WimVanhaverbeke, Hasselt University, ESADE& National University of Singapore

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