Open innovation – with its inflows and outflows of information and external sources of innovation – has been a unique trend in business for almost two decades. It involves using internal/external sources of innovation, such as innovation labs, universities, suppliers, customers, and other 3rd parties, to acquire new, commercial ideas. In most cases, innovation has been a core competency for organisations, while non-core activities have been outsourced. Recently, the reversal has happened, with corporate innovation systems and traditional, internally sourced R&D starting to compete directly with these external sources. For example, MIT-Capgemini Corporate Innovation Survey found that between the years 2016-2018, external sources have driven 89% of innovation growth, while 4 years before that it was at 13%.
As global business has undergone digital transformation and venture capitalists have cranked up investments in ‘Silicon-valley’ startup clusters around the world, research has diverted from corporate innovation systems and left them in a state of flux. This externalisation hasn’t reduced the importance of internal sources of innovation at a company level. Rather, there is a difference between projects and the overall company level innovation. Universities and external innovation labs are largely successful in driving innovation in projects, while at the overall company level, central R&D, innovation labs and business unit staff are the clear winners. In the research mentioned above, 87% of company projects, when using an internal source, provided positive results that lasted. For external sources this only reached 60%. Accenture reports that from the corporations surveyed only 50% received positive benefits and new products from these innovation partnerships.
How should an organisation decide whether to externally or internally source their innovation?
To succeed in combining innovation from multiple sources your organisation needs to have the right internal innovation team in place. Certain core competencies should remain with the internal source to enable differentiation mostly if its internal sources are far better than competitors in creating innovation. If the organisation’s expertise only reaches a middle-range capacity, open innovation provides a larger pool of expertise that helps in times when an organisation’s digital technologies are stretched or are unable to enter new fields. It is advisable that organisations in this latter range of capabilities start building their innovation channels strategically into more hybrid innovation models that best suit their needs for growth and digitally transforming technology. Pellicelli, from the University of Pavia, claims that ‘flexibility is the key to competitiveness’. When designing an innovation architecture, hybridity, flexibility and trust is key.
How can an organisation design a better innovation architecture?
Harvard Business Review points out that creating a multi-layered network with multiple people onboard on all levels in the client organisation is needed to reduce the silo mentality and disruption from absences. Another aspect involves making stakeholders feel like they have equal ownership and responsibility for the growth of an idea by having open communication, for example on Slack, and having a shared sense of the benefits gained. This can be done by allowing most stakeholders to contribute to a project’s implementation by leaving an idea open for all parties to consider. Project-management methods, such as scrum, incorporate more steps in a process to increase transparency, making it less complex by delivering the interim milestones in bite sizes, and allowing constructive feedback. Lastly, prototyping early helps shorten development cycles and provides a tangible product for stakeholders, not intimately involved in the process, to deliver the necessary feedback. These aspects create a more flexible, inclusive system based on trust.
For the midsized firm or those with midlevel technological capacities, outsourcing innovation is a useful tool to drive growth. However, a constant obstacle is the implementation of open innovation. Rigid systems that are distrustful of outsider opinion and the trend of hybrid innovation architectures are likely to experience problems when collaborating with innovation partners.