Chapter 2. OI and innovation strategy:
Why should your company engage in open innovation?
2.1 When is it interesting to engage in open innovation from a strategic perspective?
Before starting Open Innovation a manager should ask, “why do I want to adopt open innovation?” There is no way to escape the “why” question. Many companies are jumping into open innovation without clarity as to why they are doing it. Open innovation has to be integrated into a firm’s innovation strategy, so that open innovation initiatives can be aligned with the company’s strategic ambitions.
Each company has a unique innovation strategy. Therefore, it's impossible to provide specific guidelines that will perfectly fit your company's situation. But we can provide some general guidelines to better understand when open innovation fits your innovation strategy and when not.
Below we mention a number of drivers for open innovation. They show when open innovation may become an integral part of your innovation strategy. Open innovation is rewarding:
This list is not exhaustive, but it illustrates how strategic drivers in an industry lead to open innovation.
Technology is capital intensive / expensive
Rapidly increasing R&D costs and the need to cram more technologies into new products or services lead to excessive costs that undermine the return on innovation. Developing a new prescription medicine that gains marketing approval, a process often lasting longer than a decade, is estimated to cost $2,558 million in 2014. In 2003 the cost was $1,044 million. (both amounts are calculated in 2013 dollars).5 Two examples of Open Innovation initiatives to share costs are the Center for Translational Molecular Medicine (CTMM) in the development of molecular diagnostics and molecular imaging technologies in the Netherlands and IMEC (Belgium) in nano-electronics
High risks / high attrition rates in developing new products and businesses
Early stage research is also highly risky. Attrition rates are high in many industries: In the drug industry there are typically 5,000 to 10,000 chemical compounds as candidates for a new drug to treat a disease. On average about 250 of these will show sufficient promise for further evaluation using non-human test and about ten of these will qualify for tests on humans6. But also in industries such as agriculture, green and white biotech, chemicals, or financial services attrition rates can be a major problem. Firms have to invent new forms of collaboration to reduce the attrition rate or lower the costs of failure.
Innovation requires co-innovation or adoption in the value-ecosystem
Many of the current innovations can only be successful if so-called co-innovators introduce complementary innovations. Think about the Senseo, a coffee machine delivering a fresh cup of coffee. – Philips developed the coffee machine and Sara-Lee the coffee pads in a way that he combination would deliver the experience of a freshly brewed cup of coffee. Similarly, innovations frequently require adoption by partners in the value chains: The Amazon Kindle won from the technologically superior E-reader of Sony, because it took the concerns of the publishers into account when had to introduce e-books. Sony in contrast, focused more on the technical performance of the e-reader and didn’t pay enough attention to the hesitation of publishers to sell e-books.
Business model is based on a platform on which others develop their product or services
Many companies move from a product oriented strategy to a platform based business model. Platforms are in many cases open which implies that the platform owner jointly creates value for the customer with developers using the platform: it is an open business model where the value for the customer increases wit the number of applications using the platform.
Need to speed up the development of and time to market for new products and services
Tapping into existing knowledge residing in external organizations or co-developing knowledge with them is likely to speed up the innovation process. Likewise, companies can reduce time to market by working together with customers, suppliers, complementors, or even competitors (setting a technological standard for instance).
Improve the success rate of new products and services
Using state of the art knowledge developed in partnering organizations and combining complementary expertise among different types of partners may improve the success rate of the introduction of new products or services