Do Companies Fear Open Innovation?

Posted by jartese on Nov 12, 2013 11:25:44 PM

I recently approached a product design firm about doing business with InnoCentive.  After learning more about their business and describing our Challenge Driven Innovation process, it became clear that opportunities existed for collaboration to improve their level of innovation.  We discussed ways of using our network of global problem solvers to provide solutions at various stages of their product development process.  The diverse nature of our solver community has proven to be a reliable source for highly creative solutions – a perfect fit for a company focused exclusively on delivering innovative product designs.

When discussing which type of challenge would yield the best results for solving various design problems, we explored Ideation Challenges first, because product development projects usually start with creative conceptual work.  My contact suddenly stopped and said, “I’m not sure our team will be comfortable using outside resources for ideation – it’s one of our core competencies.” I was surprised by this statement and tried to understand his rationale – why would you not want to maximize this capability?

Unfortunately, this is not an unusual reaction, considering that for years companies have been “outsourcing” non-core work.  It has many benefits, including reduced overhead, lower transaction costs and provides access to capabilities not found within the organization.  Additionally, there’s no fear about service providers encroaching on internal competencies or having to deal with sharing sensitive information since all the “core” work is being done in-house by select team members.

However, today, we live in the age of the Creativity Economy.  Where in the past, companies would outsource non-core or routine work and more recently even “knowledge work”, which was previously considered a core competency.  Activities such as engineering analyses and the use of design software tools, once specialized skills, have been reduced to commodity status, with those needs filled by outside service providers or DIY software.  A new need hierarchy has evolved, which places “strategic options management” at the top of the core competency list. (The Fluid Core, Cognizant Center for the Future of Work – Haydn Shaughnessy)  Furthermore, core competencies have to be fluid and flexible, enabling companies to adjust to quickly changing market forces.  Creativity and innovation now rule as basic requirements for companies to survive and succeed – and you can’t achieve either with traditional outsourcing.

Welcome to “crowdsourcing” – the tool fundamental to open innovation, which enables companies to survive and grow in today’s highly competitive, global economy.  It differs significantly from “outsourcing”, not only in the type of outside resources being utilized and their level of diversity, but most importantly in the fact that it is used to “augment” core competencies.  For some, this is an uncomfortable notion and even a fearful concept.   The premise that companies should make greater use of external ideas and technologies in their own business, and allow unused internal ideas to flow out to others for use in their businesses is totally opposed to conventional wisdom.  It is the antithesis of a closed innovation process which relies on internal R&D and deep vertical integration. (Dr. Joel West, Co-founder of the Open Innovation Community and Professor of Innovation & Entrepreneurship at San Jose State University)

The cultural transition to adopt Open Innovation is not an easy one, although many companies have demonstrated that it can be done and done very well.  Despite growing evidence that open innovation works, the fear of adopting it as a process and strategic direction exists – it’s a natural reaction to the “unknown” and lack of personal experience with the subject matter.  InnoCentive’s Challenge Driven Innovation process helps companies adopt crowdsourcing and solve important problems, while addressing their most common fears, including the sharing of sensitive company information with unknown problem solvers, being anonymous so that competitors don’t know what they’re doing, the transfer of intellectual property, control and visibility of the solution development process and providing a high return on investment.

The notion of augmenting a company’s core competencies through crowdsourcing can be uncomfortable at first – maybe even fearful, but the growing number of successful organizations and effectiveness of the Challenge Driven Innovation process should compel firms to give it a try.  Company culture needs to change from keeping everything inside to a culture of know-how and know-who. (The Open Innovation Business Model, Aug 12, 2013 – Larry Huston and Tim Munoz)

Authored by Pete Werwick, Director of Business Development

Topics: Innovation Insights

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