How to build an open innovation community

Wikipedia has the following to say on the topic of open innovation:

"Open Innovation is a term promoted by Henry Chesbrough, a professor and executive director at the Center for Open Innovation at UC Berkeley, in his book Open Innovation: The new imperative for creating and profiting from technology. The concept is related to user innovation, cumulative innovation, Know-How Trading, mass innovation and distributed innovation."

Then what it stands for:

"Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology".

The boundaries between a firm and its environment have become more permeable; innovations can easily transfer inward and outward. The central idea behind open innovation is that in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (e.g. patents) from other companies. In addition, internal inventions not being used in a firm’s business should be taken outside the company (e.g. through licensing, joint ventures, spin-offs).

Open innovation is a hot topic at almost every company that is serious about innovation. Why? Because the idea of combining internal and external resources to increase innovation productivity and prowess is just too good a value proposition to miss out on.

In reality, there is a strong possibility that the best people and the best ideas are to be found outside your organisation.

One key reason for Procter & Gamble to initiate open innovation programs was that they learned that for each of their 7,500 R&D people there were 200 people outside the company with equal skills and competences. An ignorant – and arrogant – company would ignore these 1.5 million people, arguing they do not matter as they do not work for us. P&G did not ignore this. They understood they should connect their own organisation with the best and brightest from the outside world.

It will be difficult for most companies to calculate a direct return although many will definitely try. InnoCentive is working together with Forrester Consulting to document the value of using open innovation – and in particular their services and platforms. Case 1 shows a multinational agricultural company that achieved a ROI of 182% with payback in less than two months. Case 2 shows that global consumer goods company SCA achieved a return on investment of 74% with pay in less than three months.

Boston Consulting Group publishes an annual survey on innovation, and while the 2009 edition does not get into ROI on open innovation in particular, it does have some observations on return on innovation in general. One observation is that about 50% of respondents are satisfied with their innovation ROI.

Interestingly enough, early research shows that it does not pay off in the short run, financially speaking. Research done by Belgian management school Vlerick shows that the costs are higher than the financial benefits in the short run. However, the authors say "in the short-term the costs are particularly visible, while the benefits take longer to manifest. A bit of patience and staying power are apparently essential."

Nevertheless, most companies will decide it is worthwhile. They need to innovate on management processes which open innovation really is about as this can give long-term advantages if done right. They cannot risk losing this advantage to competitors and they might even get this advantage themselves.

Furthermore, there are many intangible benefits related to open innovation. This is mostly related to the corporate culture. An example is that a company that is perceived to be good at innovation can attract better employees as well as better partners for their ecosystems.

In my recent article on BusinessWeek I argued that only about 10% of all companies are adept enough at open innovation to get significant benefits today. Another 30% have seen the light and are scrambling to make open innovation work and provide results that are worth the bother. I call them 'contenders'.

The other 60% are 'pretenders' - companies that don’t really know what open innovation is and why or how it could be relevant for them. Some might figure out how to follow the leaders one day, but today they’re mostly going through the motions.

Michael Fruhling made an interesting comment on my article arguing that "a key distinction that I would draw between the serious players and those who are not as sophisticated is that the successes in OI are generally NOT coming from external submissions on a web portal.By and large, the majority of the thousands of submissions received by these corporations are trash. The real movement comes from a company knowing what it wants and proactively identifying external solution providers to fill these capacity gaps."

There are a couple of points to be made on this. First, I agree with Fruhling that companies get most of their results on open innovation from behind-the-scenes initiatives. This includes scouting teams that use their networking capabilities to find external links that can make internal corporate resources even stronger and more useful.

I also agree there can be lots of incoming trash from portals. This does not mean that portals are useless, but the trash must be minimised by setting adequate strategic filters as Michael Soerensen also pointed out in a comment to the BusinessWeek post.

More important, such portals – if they are thought through and executed well – offer significant benefits that tend to be overlooked. I am thinking about the messages such portals can send internally as well as externally. Is the company really serious about open innovation? The focus given to such portals tells a lot and this make them important vehicles for corporate change. They should be treated as such.

One small is example is the Connect + Develop initiative from Procter & Gamble. This portal is not only well-executed, it also gets great exposure. Take a look at the corporate website of Procter & Gamble. Not many other companies 'mess up' their fine corporate sites by doing this.

Here are some short tips for the execution of open innovation communities:

Do not tell everyone what will happen. Do not set all the rules by yourself. Do not act as if this is your community and that you are in charge. Instead, you should co-create the actions and rules together with the very same people you want to work with in order to further develop your offerings. If you listen to these people and if you get them engaged, they will be much more committed.

You do lose some control, but hey, in most cases you do not even know for sure which direction to take anyway. Why not just try to let go and go with the flow?

However, at some point – usually after 3-9 months – you will have to enforce some directions and guidelines in order to be able to achieve your business goals. Most people understand this if you since the beginning have clearly stated that your community is business-driven.

The navigation can be one of the biggest challenges – firms can take the wrong approach by focusing on 'groups' as opposed to objectives of those coming to the site. A key learning has been that for true collaboration to occur, diverse groups need to be able to contribute to the dialogue (albeit able to find the discussion easier!)

"How can I benefit from this?" Whether we like it or not, this is the most common question people ask when they are presented with new opportunities or options. This is no different when you visit corporate open innovation or crowdsourcing platforms. Potential contributors to such platforms will ask themselves the same question.

Unfortunately, most platforms do a poor job of explaining the value to these people. Often, there is more information on how the platform can bring value to the company, but honestly, who – outside the company itself – cares about this?

Companies need to turn their approach on this upside down and focus much more on the value those potential contributors can get out of working with them. Once the potential contributors understand they can benefit, they will also help the company itself – and others in the given ecosystem – get value out of such initiatives.

However, organisations should remember that open innovation should take place throughout the innovation process, not just in the early phases during what we call the 'front-end' of innovation. Too often, companies fall into this trap. Once they have gotten input from external sources such as the community during the front-end of innovation, they do everything themselves. Granted, it is a good thing to get a more diverse input early on, but why stop there.

Companies miss out on the full potential of open innovation when they more or less shut down for external resources later in the process. I think this happens because companies are more willing to accept external input during the front-end of innovation where everyone expects more creativity and openness.

Once this phase is completed, companies go into execution mode. Now, they need to make it work and this is less complex by only using the resources they already know very well.

Another reason could be that large companies especially still have to develop a win/win attitude in which they realise they can win bigger and better by involving others later in the process even though this means the external partners need to get more influence as well as a bigger slice of the cake.

Actually, I have a hard time finding cases – which I can write about in public – that shows how companies make open innovation work in the later phases of the innovation process.