Collaborative Research and Open Innovation

One of the value disciplines or strategies of 'market makers' defined by Michael Treacy and Fred Wiersema is Product Leadership which requires the firm to produce a stream of state-of-art products and services. Innovation thus becomes the key to success of such a strategy. However as companies grow larger and more inorganic, the traditional innovation model of internal R&D is barely or actually rarely able to compete with high level of topline growth. Is there a different model then? Yes indeed! We look at a model of collaborative Research or in P&G's words C&D i.e. Connect & Develop.

Open innovation is a rather old idea and can be traced back to the ‘60s, however it has gained importance under different names in the recent years due to mainly two reasons. First is the increased competitiveness in the industrial landscape and secondly outburst and easy accessibility of new technologies. While the first reason has put pressure on firms to reduce the lead time for new product/service development, the second reason has made it possible for creativity to come from small firms and even individuals. If larger firms want to solve their first problem, they have to leverage on the second one. This leads to open innovation.

Open innovation advocates that firms should use external ideas as well as internal ideas. It assumes that since the boundaries between a firm and its environment have become more permeable, innovations can easily transfer inward and outward.Many companies like IBM, Eli Lilly and P&G have successfully used open innovation. It is believed that such a model will become the dominant model in the coming days. So what do we require for such a model to succeed?

Firstly since ideas come from external sources, firms have to develop a receptive culture. This might require a major cultural change because traditionally organizations are secretive of 'ideas'.

Secondly the implementation of such a model will require developing a network of appropriate external resources. Because the possible sources from which ideas can generate is limitless, the choice of resources should be such that it aligns with the innovation needs of the firm.

Thirdly it should be understood that only the idea generation part is being done with external collaboration, the major part of implementation and distribution still remains with the firm. So the firm has to develop these areas as per the requirement of the product or service. And most importantly the internal R&D should be utilized to adapt the ideas as per the company requirements otherwise the firm runs the danger of being in areas which are not related to its businesses.

In the recent days with increased globalization, collaboration is already seen to be a dominant strategy in marketing, manufacturing and many non core activities of the firm. In the coming days, innovation will also find itself greatly influenced by it !