Open innovation: putting the concept into practice

Submitted by empirica on 28 November, 2011 - 21:09

For firms willing to innovate, dynamic markets increasingly require them to search for better ideas and wider knowledge beyond their customary boundaries, abandoning the classical view that innovation occurs within the ivory tower of a single firm. The Life Science Cluster in Krakow can be seen as a test-bed for open innovation.

According to modern cognitive psychology, our thoughts are nothing but the randomised mixture of the results of external sensations and internal cognitive processes. This implies that innovative ideas arise largely from external sensations and knowledge. Against this background, the importance of the information society is all the greater, as is the crucial issue of openness. Nowadays, firms increasingly accept the axiom that “the information society cannot be built by only one company”. The concept of Open Innovation (OI) enshrines this recognition, with companies not only maximising their use of internal sources of knowledge and technology, but also enlisting external sources through collaborations.

Dimensions of openness

The term “open” includes multiple dimensions at any one time, and this often leads to significant differences in its definition. There are some common indicators, however, to determine the degree of “openness” in innovation processes:

How many independent actors are involved? The larger the number of companies taking part in the collaboration, the more open the innovation process (e.g. Life Science Cluster Krakow).
Who is the ultimate owner of the result? If there is only one owner or a relatively narrow circle of owners, the innovation can be seen as closed (e.g. Apple).
How intensive is the collaboration between the developers and users of an innovation? If a company continuously interacts with final customers or other external developers to include them in the process, the innovation can be regarded as open (e.g. Asthmapolis).

Buttresses of Open Innovation – two sides of the same coin

INNO-Grips conducted a large-scale empirical analysis (130,000 firms from 22 European countries) of the impacts and determinants of OI, based on the pan-European Community Innovation Survey (Ref. 1). The analysis revealed that the competence bases of firms more broadly tend to strengthen the propensity of firms to be engaged in innovation collaboration. Firms relying on OI, i.e. collaboration with parties beyond the firm’s walls, can benefit from the shortening of development cycles and the reduction of development costs, and can also access a wealth of new ideas from other firms and customers who can become involved without major investment commitments. The analysis suggests that firms intending to pioneer in OI should conduct appropriate searches for partners in industry and science: extending the circle of parties beyond the firm’s boundaries is conducive to innovation.

But, as always, there is another side to the coin. Establishing and maintaining a successful milieu for OI depends on some prerequisites. Sharing information and knowledge – whether codifiable or tacit – is tantamount to the assumption of trust between cooperating actors. Trust is the quintessence of any kind of cooperative relationship, and it is hard to build, but easy to lose. Trust can be stimulated by early involvement – which entails e.g. lowering transaction costs – and due diligence during the cooperation.

However, openness also means that a firm’s competences will to a large extent be hollowed out. As a corollary, the hollowing-out of a firm’s competences requires comprehensive abilities in coordination and integration among managers. This implies that internal competences also play a key role in the process of OI. The INNO-Grips study confirmed this hypothesis, with its findings that strong internal corporate knowledge bases, as measured directly by R&D intensity and indirectly by size and sector classes, drive complementary processes of external search and collaboration.

Open Innovation in practice

In addition to trust, the legal and contractual conditions have to be clear for each cooperating partner, as practice has demonstrated. For instance, successful cluster initiatives are those organised on the principle of a “bottom-up” approach: the firms engaging in cooperation with each other establish, in a transparent manner, the management of the cluster. Organized clusters are nothing other than the firms’ clear expression of interest in intensifying cooperation. Hence clusters are, to a great extent, manifestations of OI.

For example, Life Science Cluster Krakow reflects the business acumen emphasising the importance of OI. The Life Science Cluster was established in 2006, comprising 32 collaborative institutions representing business, science and healthcare, with intensive contributions from local government. The Cluster is meant to offer a unique opportunity for cluster firms to keep ahead of the competition by bringing the best bio-business services and products to a global market. The cluster is managed by the Jagiellonian Centre of Innovation Ltd, which is geared towards creating bio-regions for firms focusing on health and medical science. The cluster already provides services ranging from support in R&D, through intellectual property protection procedures and know-how transfer, to access to seed and venture capital for supporting spin-offs or market entry. The objectives are promising. The achievements are expected to be visible within two years. As Kazimierz Murzyn, managing director, indicates: “We are at an early stage of cluster initiative growth and we have just started to implement open innovation policy”.

Another interesting occurrence in OI is in the field of open-source software (e.g. Linux or the Cyc, which is the most comprehensive artificial intelligence project in the world). Success is, of course, not associated exclusively with OI. Take for instance the case of Apple, whose iPhone – whether the older models or the newest iPhone 4S – are very successful despite the fact that Apple’s innovations bear the stamp of a more “auteur” model of innovation, in which the offered products and services are heavily influenced by the personality of the creator. Nonetheless, Apple can also be characterised by OI, as exemplified by the success of the iPhone App Store.

In contrast to the “auteur” model of innovation, the case of Asthmapolis is best understood as an open service innovation for future health service innovation. Since asthma is becoming increasingly common worldwide, and since health sciences have not fully understood its principal causes, collecting and assessing real time information about the circumstances (time and location) of people suffering an asthma crisis is instructive for achieving better control. As David Van Sickle, co-founder and CEO, said: “Our strategy is that by voluntarily aggregating shared individual level information about asthma from daily life we may be able to ‘innovate’ our way to more efficacious and cost-effective efforts against asthma. In the sense of open innovation, data is contributed by individuals in the crowd that becomes fuel for product and service innovation in their own management, but also all the way up through health care providers, payers and public health.”

Europe’s potential in open innovation

The INNO-Grips study also aimed to investigate how European policy stimulates open innovation. One of the most insightful findings was that EU funding shows a perceivable bias towards sparking sciencesystem linkages without distinct industry orientation.

This type of conclusion might be a harbinger of changes that are needed. While companies in Western Europe are more likely to be outward looking than companies in North America or the Asian Pacific region (Ref. 2), cooperation is often inhibited by concerns among Western European executives about the threat that sharing information and knowledge can pose to intellectual property protection.