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.
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 efforts to the outside. Different types of projects can require completely different 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.
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
Each of the modes has its strengths—and weaknesses (see table)—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). 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 traffic 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 (Mode1) 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, difficult 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.
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 accenture.com.
Companies do often deploy one mode of innovation to enhance the effectiveness of the others. Even at the project level, different 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 (Mode2). 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).
1For 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.
2These 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., S. Brunswicker et al (2015). Mix and match: Open Innovation Project Attributes and Optimal Governance Modes. World Open Innovation Conference 2015. Santa Clara, UC Berkeley
is managing director for innovation and risk management research at the Accenture Institute for High Performance.
is associate professor for innovation and director of the Research Center for Open Digital Innovation, Purdue University.