The global economy has gone through a period of major instability over the past decade, and businesses around the planet have been forced to look for ways to maintain their rates of capital return. Faced with pressures that include increased competition and shorter times to market, many companies have responded by improving their efficiency through the use of strategies such as Six Sigma, Lean Manufacturing and Business Excellence.
While such techniques have helped many improve their bottom lines, an unfortunate side effect has been a reduction in their capacity for innovation. This is troubling, as innovation is often crucial to the development and long-term success of companies.
Innovation has traditionally been seen as involving the control and ownership of intellectual property rights. In the wake of World War II, many large corporations began investing heavily in scientific divisions, tasking them with conducting cutting-edge research. Recruiting top scientists became the way for businesses to gain access to the best available knowledge, and internal resources were seen as reliable and superior to other options.
But now many businesses are waking up to the potential of systematically looking outside their boundaries for innovation and knowledge. Such practices are known as “open innovation” and are being implemented by a range of companies that rely on innovation, as well as by governments and nonprofit organizations.
Henry Chesbrough, an American organizational theorist and a professor at the Haas School of Business at the University of California in Berkeley, is often credited with coining the phrase “open innovation,” and his definition is the most widely cited.
In his book Open Innovation: Researching a New Paradigm (2006), he writes that open innovation is the use of thoughtfully chosen “inflows and outflows of knowledge to accelerate internal innovation and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas and internal and external paths to market, as they look to advance their technology.”
The central idea in open innovation is that the world has a widely distributed knowledge base and that companies cannot afford to rely entirely on internal research. They should also be prepared to buy or license processes and patents from other companies. Additionally, internal inventions that are not being used in a firm’s business should be taken outside the company via licensing, joint ventures and spin-offs.
Based in Sweden, global hygiene and forest products company SCAis an example of a company in a mature industry that has turned to open innovation.
The company views innovation as a means of developing and differentiating products and services. It’s also a way of retaining and strengthening the market position, building stronger brands and driving growth.
Kerstin M. Johansson, open innovation program manager at SCA, says the company practices open innovation in a variety of ways, including taking part in patent exchange, collaborating with suppliers and using innovation intermediaries – individuals and companies who connect companies to knowledge that may be useful to them.
By using such intermediaries, Johansson says, SCA has received solutions and input from people and businesses outside its existing networks. This has resulted in new packaging solutions, material components and chemical substances as well as improved measuring methods.
“Using intermediaries has helped us to find solutions faster, to find new ways of solving problems and to get suggestions for new executions or new components and ingredients for products,” she says. “There have also been cases where we thought we knew every type of solution, but through open innovation we discovered that there were other possibilities. We have also found that open innovation can be used for solving problems that are not of a technical character, such as finding new suppliers.”
Even if SCA’s problems are not completely solved by using intermediaries, she says, the company benefits from partial solutions and new approaches as the projects are further developed.
Looking ahead, the development of digital communication and the associated rise of solutions such as those seen in social media mean that a new door has opened for the business world. The future flow of ideas, knowledge and solutions can potentially occur in a range of increasingly sophisticated ways.
All businesses relying on product and service renewal are likely to have to turn to external sources of innovation for their survival.