Where good ideas come from: Inside the organization or through open innovation

Innovations, both simple and profound, have been created and adopted for centuries, although only recently incorporated as a central part of organizational strategy. How organizations develop new innovations has been the subject of many management thought leaders, from Peter Drucker to Clayton Christensen. The recent emergence of the "era of open innovation" championed by Henry Chesbrough and others suggests that innovative opportunities can travel untraditional paths on their way to a new product, service, or process that produces value in the marketplace. “Where Good Ideas Come” will highlight the emerging movement of open innovation. Webinar participants will have the opportunity to explore how open innovation operates, how it has changed the face of competition and cooperation, and how it has helped organizations shape new business models.Presented by The Graduate School and the Alumni Association at University of Maryland University College Moderator: Dr. Michael Evanchik, Associate Dean, The Graduate School, University of Maryland University College Webinar Series on InnovationWebinar Series on Innovation • Jan 19 – The Era of Open Innovation Dr. Tom Mierzwa • Feb 16 – Entrepreneurship and Innovation Dr. Subash Bijlani • Mar 15 – Using Design Thinking to Deliver Systemic Innovation Mr. Roy Luebke • Social Networking: The Essence of Innovation Dr. Jay LiebowitzPresenter: Dr. Tom Mierzwa Professor of Innovation & Sustainability The Graduate School University of Maryland University College Where Good Ideas Come From: Inside the Organization or Through Open InnovationDiscussion Agenda • Innovation as an Idea • Open Innovation – what it is • Examples of Open Innovation • Open Innovation in Business Models • Facilitating Open Innovation • Implications of Open Innovation for Business • Q & AOperational Definition of Innovation • An organizational process of intentional and novel change with a goal of producing value for those who adopt or use the innovation. That value typically produces marketplace rewards.Open Innovation – what it means • A process whereby firms commercialize external (inbound) innovative ideas as well as innovative ideas generated within the firm by deploying them (outbound) into the marketplace (Chesbrough, 2003) • It is also described as both a set of practices for profiting from innovation and a cognitive model for creating, interpreting, and researching those practices (West, et al, 2006)Chesbrough – originator of Open Innovation IdeaClosed Innovation Model Simplified View More Complex ViewClosed Innovation at XeroxOpen Innovation Model Simplified View More Complex ViewContrasting Closed vs Open InnovationIs the internal R&D function an obsolete concept? • Not if open innovation can leverage internal R&D • But…..some adjustments must be made: • Look both inside and outside for new growth • Create new organizational roles to connect with and collaborate with outside players • Build new skills for recognizing the fit of internal and external strategies leveraging each otherOpen Innovation in Practice: Intel’s University Model • Intel contributes over $100 million annually to 15 leading U.S. universities and 12 overseas universities • Intel defines promising areas of scientific and engineering research to focus its R&D investment $$$ – After NIH and NSF, Intel is one of the biggest funding sources in selected research areas • Intel negotiates access to university IP prior to funding research there• Intel initiated four smaller research centers (“lablets”), each located immediately adjacent to a university: – U Washington – U California-Berkeley – Carnegie-Mellon – Cambridge • Each “lablet” led by an academic researcher • Intel staff performance measured on joint collaborative research efforts Open Innovation in Practice: Intel’s Research EnginesCollaborative R&D Example: P&G + Clorox • The Problem: Clorox obtained the Glad brand from Dow as Dow reduced its business portfolio, but….. – No R&D in its pipeline – Risk of commoditization of Glad brand • The Opportunity: P&G had two technologies internally but had no path to marketplace – Press ‘n Seal and Force FlexManagement and Implementation Challenges • P&G was a competitor to Clorox • Neither company had previously done a collaborative deal with a competitor • Collaboration structure considerations = – How much is each side contributing? – Innovation sharing arrangement transaction – Whether and how well each side performs – How are the rewards distributed? Open Innovation Options for P&G • Launch new product independently – Test market results were good, but…. – Tough economic times – Likely competitive response • Straight license deal to Clorox – Will marketing support be needed? – How would they perform? • Outright technology sale to Clorox – Would there be a missed opportunity of follow-on technology already in pipeline?Open Innovation Solution: A JV Company • Clorox held 80% and P&G held 10% with an option for another 10% (since exercised) • P&G paid Clorox $133M for the additional 10% in 2005 • Glad products now in #1 market position • Business now tracking ahead of plan • Clorox didn’t have to worry about P&G entering its marketOpen Innovation Bonus = New Business Opportunities • Clorox has approached P&G to distribute some of its brands in Japan….rather than build its own distribution network • This collaboration has also been successful, but would not have occurred w/o first JV • Both companies had to change long-held R&D and management practices • Both companies win from this resultThis leads us to the question: Which would a company rather have? a unique, robust technology…. OR ….a flexible business modelOpen Innovation Consequences: Marketplace risk is lower when companies incorporate open innovation in a business modelThe Firm as an Innovation Factory Hargadon (2000)Open Business Models - CollectionOpen Business Model – Funnel ViewBusiness Model InnovationOpen Innovation Tool – Innovation TournamentsOpen Innovation Tool - CrowdsourcingOpen Innovation Implications - 1 • For Company Strategy…… • Centralized R&D is obsolete • Better management of R&D costs • Companies can harness internal ideas as well as external ones for innovation • Benefits: – Firms can specialize in marketing, operations and finance while innovator specialists can innovate.Open Innovation Implications - 2 • For Innovation Intermediaries….. • Increased significance of their brokering roles • Formalized competition for innovative solutions will expand this business sector • Firms like IDEO, Innocentive will serve wider roles in the open innovation transaction processOpen Innovation Implications - 3 • For Business Models….. • Firms not limited to business models that focus on specific market segments • Development costs of new innovations are reduced and innovation solutions tend to be more readily available • Potential for business model experimentation allows for agile responses in volatile marketsOpen Innovation Implications - 4 • For Organizational Process….. • Expanding use of outsourced solutions • Less reliance on internal innovation champions and greater reliance on collaborative teams for idea generation and development • Greater emphasis on boundary-spanning functions and roles Open Innovation Implications - 5 • For Organizational Design….. • Increased range of external collaborative relationships • Specific organizational roles for alliance development • Greater cross-functional collaboration within the organizationComments…. Questions?Contact information: Dr. Tom Mierzwa E-mail: tmierzwa@umuc.edu Phone: 240-684-2467 View slides at http://www.umuc.edu/library/libresearch