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Many companies are embracing the concept of open innovation, but few are doing so in very strategic ways. The result has been no shortage of missed opportunities. The haphazard attempts of some businesses at crowdsourcing, for example, have led to little more than a heap of unusable ideas, while many technology partnerships have flopped, resulting in costly write-downs and time-consuming litigation because the goals of the participants weren’t adequately aligned. Smarter firms, however, are taking a much more strategic approach, shrewdly deploying different open innovation modes of operation for different circumstances, often in synergistic ways that enhance both innovation and the productivity of their R&D efforts.
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The smart way
to open your
innovation process
New research shows how the most
successful companies find the ideal
external contributors and solutions
for their R&D pipelines.
By Raghav Narsalay, Sabine Brunswicker
and Mehdi Bagherzadeh
Outlook
The journal of high-performance business
Many companies are embracing the concept
of open innovation, but few are doing so
in very strategic ways. The result has been
no shortage of missed opportunities. The
haphazard attempts of some businesses at
crowdsourcing, for example, have led to
little more than a heap of unusable ideas,
while many technology partnerships have
flopped, resulting in costly write-downs
and time-consuming litigation because the
goals of the participants weren’t adequately
aligned. Smarter firms, however, are taking
a much more strategic approach, shrewdly
deploying dierent open innovation modes
of operation for dierent circumstances,
often in synergistic ways that enhance
both innovation and the productivity of
their R&D eorts.
The simple truth is that open innovation
is merely a concept (albeit a very
powerful one). It is not a strategy, and
companies need to be very strategic about
how and how much they open their R&D
eorts to the outside. Dierent types of
projects can require completely dierent
modes of operation to manage the
knowledge sharing, uncertainty and ambiguity
involved in any open innovation activity.
In our research, a joint study between
Accenture and the Research Center for Open
Digital Innovation at Purdue University, we
have studied the R&D operations of dozens of
large corporations with headquarters in the
United States and Europe.¹ These companies—
all have more than 1,000 employees and total
revenues of at least $250 million—include
such blue-chip firms as Pfizer and Eli Lilly.
¹ For a detailed discussion of these results, please see the study report: Brunswicker, Sabine; Bagherzadeh,
Mehdi; Lamb, Allison; Narsalay, Raghav; Jing, Yu (2016). Managing open innovation projects with impact.
Whitepaper. Research Center for Open Digital Innovation, Purdue University. West Lafayette, Indiana.
² These four modes of open innovation were identified based on an analysis of more than 100 open innovation
projects of large firms in the United States and Europe. This data collection was jointly executed by the
Research Center for Open Digital Innovation and Haas School of Business, UC Berkeley. For more details on
this classification scheme please see Bagherzadeh, M., Brunswicker, S. et al (2015). Mix and Match: Open
Innovation Project Attributes and Optimal Governance Modes. World Open Innovation Conference 2015.
Santa Clara, UC Berkeley.
Traditional IP contract
A market transaction typically used
when a single owner controls a
specific needed technology.
MODE 1
Open innovation platform/contest
A competition used when a problem
requires access to the “long tail” of
solution knowledge.
MODE 3
Open innovation community
A collaboration among dierent parties
used when joint problem solving is required
to tackle truly perplexing problems.
MODE 4
Open innovation partnership
A bilateral relationship used when projects
are ill-structured and complex but relate to
well-known technological solution areas.
MODE 2
We have found that when these corporations work with external parties to augment
their internal R&D, they have been using four basic modes of open innovation:²
Key insights on open innovation
4
distinct open innovation approaches
can be used to enhance R&D eorts
60%
of companies combine competitions with
partnerships to solve complex problems
70%
of companies innovate by pairing
traditional IP contracts and competitions
3
The right mode for
the right conditions
Each of the modes has its strengths—and
weaknesses (see table on page 5)—so
executives need to be judicious about
which ones to use and when to use them.
Open innovation contests (Mode 3), for
example, often require a company to publish
proprietary information. Our research shows
that the right mode to use depends primarily
on two factors (see box on page 4). The first
is the complexity of the problem, which takes
into account whether the solution will require
a large number of highly interdependent
activities, tasks or areas of expertise.
In general, the complexity of a problem
increases considerably when nonlinearities are
involved—think weather forecasting or trac
management. The second factor is whether
the location of the solution knowledge is well
known or hidden. In some cases, a solution
might lie well outside a company’s core
business in a totally unrelated field that the
firm might not even be aware of.
Of course, traditional IP contracts (Mode
1) have been used for decades, but now
companies have been deploying the other
three modes with increasing frequency. When
Hewlett-Packard Corp. wanted to develop a
new technology for rendering movies, it built
a partnership (Mode 2) with DreamWorks
Animation. HP recognized that when two
complementary companies combine their
distinct perspectives and technologies, it
creates an environment where significant
innovation can happen. While the problem
at hand was complex, HP knew that the
solution could be found in DreamWorks’
animation technologies, data and expertise
in rendering movies. In return, HP shared
with DreamWorks its roadmap for future
servers and cloud computing. Contrast that
situation with Pfizer’s. The biopharmaceutical
company wanted to develop a tech-enabled
packaging device for its prefilled syringes,
but it wasn’t sure where to turn for the best
solution. Working with IdeaConnection,
an intermediary platform, Pfizer hosted
an open innovation contest (Mode 3).
Through the process, the company was
able to obtain four potential solutions.
And when Ford Motor Company wanted
to develop “smart” mobility solutions, it
knew that the problems it was trying to
solve were ill-structured, dicult to define
and complex. But since the automaker
didn’t know where the best ideas would
come from, it used an open platform it had
created earlier to engage the community
for its core business and established a
series of innovation challenges to attract
more developers (Mode 4). The resulting
community would then work to extend the
functionality of the company’s vehicles with
custom applications and pluggable modules.
Exploiting synergies
Companies do often deploy one mode of
innovation to enhance the eectiveness
of the others. Even at the project level,
dierent modes mutually support each
other. While one mode is usually dominant,
other modes support it in driving project
success. Consider, for example, how Eli Lilly
uses its Open Innovation Drug Discovery
(OIDD) community of drug companies,
research institutions and academia. For the
pharmaceutical giant, the near-term goal
of OIDD isn’t necessarily the development
of a new drug to treat a specific ailment.
Instead, one of the main objectives is to
identify promising potential partners.
The OIDD program enables Eli Lilly to
cast a very wide net, reaching academic
institutions and other parties that might
not have been on its radar. The company
can then establish relationships with those
external researchers, connecting them
with its own scientists. Then, as those
relationships evolve, Eli Lilly can strengthen
them by establishing short-term bilateral
collaborations and partnerships with the
most promising of those contributors. In
this way, the company is able to deploy the
OIDD community (Mode 4) to complement
its open innovation partnerships (Mode
2). In other instances, it might discover
potential partners that are no longer
working on a particular compound of
interest. Eli Lilly may then consider
licensing agreements (Mode 1) or outright
acquisitions to pursue commercializing
those promising molecules.
Companies can also use combinations of
the modes to balance their strengths and
weaknesses. That was Bosch’s strategy
when it was trying to develop a new
non-electrochemical way to store energy.
The German company, using the solution
provider NineSigma as an intermediary,
hosted an innovation contest (Mode 3),
from which it short-listed the three most
promising solutions and then established
in-depth, collaborative joint developments
with those newly identified partners
(Mode 2). In doing so, Bosch was able to
protect itself against a major weakness
of innovation contests (having to share
potentially proprietary technical knowledge
with outsiders) while taking advantage
of the benefits (access to a wide range
of possible solution providers). Bosch is
not alone. From our study, we found that
companies pair Mode 3 with Mode 2 almost
60 percent of the time (and Mode 3 with
Mode 1 more than 70 percent of the time).
MODE
MODE
3
3
MODE
MODE
2
1
70%
60%
4
Toward more strategic management
Four modes of open innovation
A strategic approach to open innovation
requires more than a change in mindset
and a willingness to embrace external
help in the R&D process. It also requires
knowing when and how to use each of
the four basic modes of open innovation
(or some combination of them) in the
most eective ways. Those decisions will
be influenced heavily by the problem
complexity and by whether the location
of the knowledge sought is known or
hidden. In certain cases, however, those
two factors might not be obvious, even
to the executives in charge of addressing
them. In other instances, variables like cost
or time to market might be of overriding
importance. Regardless, each mode requires
executives to manage the associated risks,
IP rights, knowledge sharing and incentives
in very dierent ways. And it’s only through
the strategic selection of the best mode
(or combination of modes) that companies
will be able to maximize the benefits of the
open innovation process while minimizing
the potential downsides.
Problem complexity
4
OPEN INNOVATION
PARTNERSHIP
Knowledge hiddenness
LOW
HIGH
HIGH
Bosch technology contest
Eli Lilly OIDD
HP/DreamWorks
Huawei IoT
Evonik community
Samsung ARTIK contest
Pfizer tech contest
OPEN INNOVATION
PLATFORM/CONTEST
TRADITIONAL
IP CONTRACT
OPEN INNOVATION
COMMUNITY
3
2
Ford OpenXC
Graphics adapted from Bagherzadeh,
M., Brunswicker, S. et al (2015). Mix
and Match: Open Innovation Project
Attributes and Optimal Governance
Modes. 2nd Annual World Open
Innovation Conference. Santa Clara,
University of California, Berkeley.
Additional information on Evonik,
Huawei IoT and Samsung open
innovation experiences will also be
available in subsequent articles on
www.accenture.com.
5
Characteristics of the four modes of open innovation
Communication
channels
Incentives
Control over IP
Knowledge
sharing
Access to
external partners
MODE 3
OPEN INNOVATION
PLATFORM/CONTEST
MODE 4
OPEN INNOVATION
COMMUNITY
MODE 1
TRADITIONAL
IP CONTRACT
MODE 2
OPEN INNOVATION
PARTNERSHIP
Strong
High
Negotiable between
firm and external
partners
Limited Limited
High
Owned by
external partners
Owned by
firm
Limited Limited
Limited Limited but wide
Strong access to
wide range
Strong access to
wide range
Moderate
Strong Strong and wide
Low
Usually owned
by firm
Strong
8
Copyright © 2016 Accenture
All rights reserved.
Accenture, its logo, and
High performance. Delivered.
are trademarks of Accenture.
About Accenture
Accenture is a leading global professional
services company, providing a broad
range of services and solutions in
strategy, consulting, digital, technology
and operations. Combining unmatched
experience and specialized skills across
more than 40 industries and all business
functions—underpinned by the world’s
largest delivery network—Accenture
works at the intersection of business
and technology to help clients improve
their performance and create sustainable
value for their stakeholders. With more
than 375,000 people serving clients in
more than 120 countries, Accenture
drives innovation to improve the way
the world works and lives. Visit us at
www.accenture.com.
Raghav Narsalay
Raghav Narsalay is managing director for
innovation and risk management research
at the Accenture Institute for High
Performance.
raghav.narsalay@accenture.com
Sabine Brunswicker
Sabine Brunswicker is associate professor
for innovation and director of the Research
Center for Open Digital Innovation, Purdue
University.
sbrunswi@purdue.edu
Mehdi Bagherzadeh
Mehdi Bagherzadeh is a research fellow
at the Research Center for Open Digital
Innovation, Purdue University.
bmehdi@purdue.edu
About the Research
Center for Open
Digital Innovation
The Research Center for Open Digital
Innovation (RCODI) is home to scholars
and researchers who advance the
understanding of open innovation models in
the digital age. Through rigorous research
and experimentation, the center develops
explanations and predictions of open
digital phenomena that are translated into
guidelines for industry, government, and
that inspire future academic investigation.
Based in Purdue University’s Discovery Park,
RCODI is actively engaged in developing
graduate education programs that will
mold future leaders, system designers
and researchers. To learn more about the
center visit www.purdue.edu/opendigital/.
Chapter
Disruptive technology innovations and changing consumer needs are transforming the core of the automotive industries. This chapter discusses the value creation for intelligent connected vehicles (ICVs) by using an industry value-chain perspective. The study proposes an analytical framework of new value creation points on the demand side and supply side of the ICV value chain. The frame can be used by automakers to rethink their digital innovation strategies based on a full spectrum of value creation points. Drawing insights from the auto innovation hub West Sweden region, the chapter provides the latest empirical observations and reflections on this timely topic. Value creation logic on the demand side is shifting toward the network effect, long tail effect, and multi-sided platforms (MPS), and on the supply side the industry is witnessing an increasing degree of horizontal integration that is supported by open innovation and innovation ecosystem strategies. Future automakers are transforming from vehicle producers to system and service platform integrators. The future auto leaders will be successful orchestrators of innovation ecosystems.
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