Open innovation: The good, the bad and the ugly

Open innovation: The good, the bad, and the ugly

While attending the International Society of Professional Innovation Management (ISPIM) Innovation Conference in Budapest a few weeks ago, I noticed that open innovation was the hottest topics that was repeatedly featured in panel talks and academic papers. While listening to the various presentations and debates, it suddenly dawned upon me why I have always felt lukewarm about this innovation approach: Open innovation has a good, a bad and a truly ugly side that is a well-kept secret.

What is open innovation?

In a nutshell, open innovation is a collaborative approach to innovation where internal ideas are supported by external ideas from outside innovation partners: scientists and research labs, consultants and think tanks, students and academics, or anyone else who takes a liking to a particular innovation challenge. Henry Chesbrough, a professor who popularized open innovation roughly a decade ago in a best-selling book of the same name, summarizes the concept as follows: “Open innovation means that valuable ideas can come from inside or outside the company and can go to market from inside or outside the company as well.”

How does open innovation work?

One of the more common and popular ways to practice open innovation works as follows: An organization poses an open innovation challenge via the internet to the general public. Quite often, this is done in the form of an open innovation contest or competition. Moreover, the organization hosting the innovation challenge may engage the services of an open innovation service or platform-provider to facilitate the process (e.g., by appropriately framing an open innovation challenge or administering the online idea submission system) and to connect the organization to external innovation resources (thanks to possessing a “way of right” to a network of open innovation partners). Then, the external collaborators work out and submit their solutions to the innovation challenge to the organization either directly or indirectly via the open innovation intermediary. Finally, the organization reviews all idea submissions and selects and rewards the winning entries before implementing these top ideas.

What’s good about open innovation?

Nowadays, more and more large corporations rely on open innovation as an important pillar of their overall innovation strategy for a good reason: It is a comparatively cheap way to reach out to external collaborators and to widen their overall idea pool. In particular, open innovation offers organizations a promising way to break out of the narrow tunnel of expertise and conventional thinking in which most internal ideas typically reside, and to tap into a wider external idea pool that tends to include more unusual, interesting and even “wild” ideas that uninhibited outsiders are more prone to come up with.

What’s bad about open innovation?

For one, open innovation lacks intimate human interaction, fun and energy because it largely relies on a technology-driven and technocratically managed process. While this approach may well suit the more introverted and geeky thinkers (such as scientists, engineers, technicians and inventors), open innovation tends to quickly lose its appeal to all those creative types (think of designers, ideators, entrepreneurs, promoters or architects) whose personality is more outgoing, interpersonal and human-centered.

Second, the technocratic (i.e., theory- and systems-driven) nature of open innovation works well for scientific and technological innovation challenges. However, it seems to be less of a fit when an organization wants to pursue human-centered and consumer-focused innovation projects, where it’s important to empathize with consumers and to uncover unmet —and maybe even unnoticed— consumer wants and needs.

Third, internal innovation resources typically have to implement a winning solution of an external open innovation partner — and they may not always whole-heartedly believe in and support the idea. Idea implementation is hard work. It is often a long, arduous journey full of obstacles and tough tests and trials to master. Who is more likely to work harder to realize the full potential of a meaningful idea — an internal activation team that is deeply passionate about an idea that its members helped to create? Or an internal team who is mandated by management to implement an idea from an external contributor?

What’s the ugly, well-kept secret of open innovation?

Open innovation seems like a win-win-win proposition:

  • For comparatively small money and efforts, open innovation allows large corporations to win big by insourcing a large pool of external ideas for an innovation challenge that they have put forth, and to then exploit all of these ideas for their profit.
  • Open innovation intermediaries (service- or platform-providers) win nicely from the practice too, by generating profitable fee income that builds up the valuation of their firm.
  • Finally, open innovation is a small win for one or a few external idea contributors who receive a monetary reward for the few winning idea entries.

So given that there are winners abound, who are the losers? All those many, many, many contributors who submit non-winning entries for an open innovation challenge and never get fairly compensated for their solution development efforts. Open innovation seems to knowingly play on a survivorship bias: i.e., concentrating on those people that “survived” the process, while keeping silent on those that did not because of their lack of visibility . For example, in the case of an open innovation contest with 50 idea submissions, there are typically one to three winning “survivors”and 47-49 idea contributors who worked on and submitted ideas for the innovation challenge without getting compensated for their efforts.

Ask yourself: Would you want to spend 1-2 days of your precious time to work an innovation challenge when your odds of winning were somewhere in the range of 1 in 50? Would you accept this gamble if you have a family to feed, a mortgage to pay, and other alternatives to earn money with much better odds of winning? And if you had accepted the open innovation gamble several times without winning, how long would you continue to spending time on open innovation challenges before you eventually quit?

Conclusion

Open innovation is a viable channel for corporations to source external ideas for their innovation challenges, and seems to be particularly suited for resolving tough technical or scientific challenges. Idea-seeking organizations can cheaply insource meaningful, profit-margin-boosting solutions while sharing only a tiny fraction of the upside of a winning idea entry with one or a few “survivors” of the open innovation selection process. However, unless its ugly side is addressed and collaborators with “non-winning” idea-entries also get an adequate compensation for their work efforts, open innovation is likely to run out of steam as a popular management fad that busied managers and made a few consultants and service-providers rich.

Care to find out more about how to run collaborative innovation projects in structured yet more energetic and human-centered way? Contact us and let us know more about your innovation challenge.

© Dr. Detlef Reis 2015. This article is published in parallel in the Bangkok Post under the same title on 23 July 2015.