The Four Essential Steps Towards Open Innovation Success

By: Diedrik Syoen

Although ‘open innovation’ is the talk of the town in R&D circles, leveraging external sources of innovation remains challenging for most companies. In 2013, researchers Dr. Joel West (Keck Graduate, Institute of Applied Life Sciences) and Dr. Marcel Bogers (University of Southern Denmark) suggested a four-phase model for inbound innovation projects. They emphasized that open innovation needs to go further than just obtaining external ideas. Integration, commercialization and the interaction between the firm and its collaborators are just as important. This post explores the four essential steps towards open innovation success.

As we’ve written in a previous blog post, companies should keep their eyes open both inside and outside their organizations and industry domains. After all, external ideas and technologies can kick-start new innovation projects or fuel existing ones. American organizational theorist Henry Chesbrough was the first to dub this concept ‘open innovation’.

Speaking out against traditional, closed product development processes, he introduced the ‘open innovation funnel’, encouraging companies to look beyond their own organizations. Finding outside skills, market knowledge or technologies became the guiding principle required to propel projects forward. Valuable strategies include collaborative research, licensing or even joint ventures.

The three traditional steps

Chesbrough’s funnel and other traditional models of integrated innovation consistently suggest three major steps in the process from the creation of the external innovation until its delivery to the customer. As mentioned by West and Bogers, however, both researchers and companies tend to focus excessively on the first step.

1. Obtaining innovations from external sources

This first phase includes two ‘sub steps’: finding external sources of innovation, and then bringing those innovations into the firm. Companies can do this by collaborating with a variety of external stakeholders or by seeking out specialists with specific knowledge.

Filtering and identifying the most valuable innovations has become the next major challenge for companies that rely on external sources.

Needless to say, the continued growth of the Internet is a major factor in this phase: online communities, advanced search and crowdsourcing methods have become widely available. The downside of this revolution is that an abundance of information can also hamper search effectiveness. Consequently, filtering and identifying the most valuable innovations has become the next major challenge for companies that rely on external sources.

2. Integrating innovations

Identifying and acquiring innovations is only half the battle. After all, companies can only benefit from external sources if the innovations are successfully integrated into the firm’s existing R&D activities. This requires a compatible culture, meaning both a willingness and an ability to profit from external sources of innovation. Some companies may be reluctant to work with technologies that were “not invented here”. In those cases, cultural changes are necessary.

The likeliness that firms will leverage external sources is sometimes called the ‘absorptive capacity’ of an organization. For example, companies with strong internal R&D departments are often less likely to have an interest in external technologies. However, West and Bogers state that both the impact of absorptive capacity and the role of organizational culture require further research.

3. Commercializing

Innovation is about making changes that add business value. Keeping a clear focus on how external input will create such value is one of Chesbrough’s leading principles. In order to achieve this, commercialization strategies and the general business model should be fully aligned. Unfortunately, this alignment is often lacking in innovation projects. As we’ve written before, defining the growth areas that are most relevant to your business is one of the essential ways of innovating efficiently.

The fourth phase

While the linear path of obtaining, integrating and commercializing offers a useful model in identifying and tackling R&D issues, it is not a complete model of how innovation takes place in practice. There are reverse flows, bidirectional interactions and other paths beyond the stylized progression of the three steps illustrated above.

Therefore, West and Bogers extend the model with a fourth phase to include so-called ‘interaction mechanisms’, which may occur at any phase of the innovation process. These mechanisms include feedback loops and reciprocal interactions with co-creation partners inside or outside the firm, external innovation networks or communities and sometimes even customers.

This basic idea is at the core of open innovation: putting your needs and challenges out in the open is better than trying to innovate on your own.

By Diederik Syoen