Can open innovation save the West?

Western companies need to work a lot smarter and focus on 'open' innovation if they are to face up to the challenges presented by the economies of scale of the East.

By Rob Lewis, staff writer

Last week the China-Britain Business Council forecast that China will be the world’s number one economy within 20 years. The People’s Republic has seen annual double-digit economic growth for the last three decades, and some reckon its surplus labour pool is still as large as 200 million.

This is just the latest forecast to underline the unprecedented manufacturing power of the East. Put simply, Western nations cannot compete with Asia on economies of scale. However, China, India and the like may be manufacturing powerhouses, but they have yet to carve out a reputation for innovation like that of Western firms.

Intellectual property theft is rife in countries such as China, and so conventional wisdom suggests that innovation will be a key weapon for Western businesses in the future, as they look to counteract the East's economies of scale. But is this actually the case?

Certainly Professor James Woudhuysen, an innovation consultant and lecturing academic, has serious misgivings about this. “China has an education system that favours science and technology, it has a culture which values activity and generating wealth, and that isn’t on the agenda here,” he explains.

“Compared to the size of Europe’s continental trading bloc, or the homeland US, countries like China or India can’t really provide a sound basis for cost economies,” he adds. “What gives them their fundamental edge is that they’re much more interested in innovation and development. It’s an attitudinal advantage.”

The present drive for environmentally friendly practices is a case in point. Whilst the West considers itself to be at the leading-edge of 'green' innovations, there is a surge in environmentally friendly investment in the East.

China, for instance, may have a huge reliance on coal-fired power stations, but it is the largest manufacturer of solar panels in the world. It was one of the first countries to pioneer carbon capture and storage. It has one of the most energy efficient train lines in the world, a MagLev that runs from Shanghai to Pudong (a Berlin-Hamburg Maglev was mooted in Germany, but environmental opposition killed it off). And it's also experimenting with fuel cells, rather than just talking about them.

“It’s all market forces," says Woodhuysen. "Nobody in the third world is going to give a stuff about David Miliband’s compost policy. They want irrigation, desalination and lots of high tech, thank you very much.”

Open innovation

So with the East becoming increasingly innovative, what hope is there for Western businesses, already struggling to compete in manufacturing terms? “Historically there was no structural process to ‘do’ innovation,” says Richard Watson, CEO of Global Innovation Network. “Research and development isn’t the same as innovation but it’s terribly similar. Medical companies have always had it, although organisations like banks are relative newcomers.”

Whilst this is still the predominant way of creating innovation in the West, this could be slowly changing as companies look to branch out and embrace new sources of innovation to stay competitive. And the exploitation of open innovation (see boxout) may prove to be the vital differentiator between Western economies and their Eastern competition.

Engaged customers, for instance, are emerging as a new well of innovation. These customers can contribute to product design in a radical way, and not just customers but anybody who cares about the brand. This is the concept of open innovation, and lying behind it is the idea that in a knowledge-based economy, whre information is freely distributed, companies that rely solely on their own thinking are bound to lose out.

“It’s the wisdom of crowds,” Watson explains. “It takes in everyone’s input, and it is the hot topic in innovation right now.”

Open innovation can happen within a corporate framework, such as at Boeing, where the design for the Dreamliner went out to thousands of interested out-of-house experts, or even without any company at all, as in the open source software model. If you’re reading this on a Firefox browser, you’re using open innovation technology. Innovation is, after all, more or less useless unless there is a customer need, and those best qualified to know that are those working in sales or customer services.

“Most companies don’t respond to customer suggestions, and these are people who are just trying to help you. For free. It’s innovation on a plate,” Watson argues. “Instead, marketing tends to get involved and they end up endlessly segmenting and evolving existing products instead of doing anything radical.”

Nevertheless, despite our aging population and lack of investment, this open innovation could be the opportunity that Western economies are looking for when it comes to competing with the emerging East. It still has a way to go before it becomes standard practice here, but in countries like China, where state censorship of the internet is the norm, it’s inconceivable.

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