Open Innovation: Why Should We?

A decade after Chesbrough published his book “Open Innovation: The new Imperative for Creating and Profiting from Technology” the topic of Open Innovation has once again become a hot topic. When you Google open innovation, more than 80 million hits appear. The EU Commission promotes Open Innovation at its website. Many a symposia are dedicated to the subject, a great deal of academics publish on the subject with even a bigger number of consultants ready to reveal the secrets and advantages of Open Innovation.

Is it a coincidence that this hot topic of management literature seems to pass by the Tire industry without leaving any ripples in the pond? A matter of common sense, or a serious oversight?

Open Innovation is, not so surprisingly, the opposite of Closed Innovation, and preaches input from more than one party in any development process. It requires the same for output. The result shall be owned by the participants of the Open Innovation trajectory.

Because many people studied the concept and published their findings, a myriad of ways to practice Open innovation have been described, each claiming to be the right one.

But it is translated into practice as cooperation to attain innovation in development projects in a number of set-ups such as companies cooperating with universities or other know-how centers; companies in the same level of the supply chain joining forces to tackle a technical challenge; or a company joining efforts with one or more of its sub-suppliers. Reading this you may realize you have practiced Open Innovation long before the gurus turned it into a hype.

The difference between “old-fashioned”’ cooperation and Open innovation lies in execution. “Open” means that many can join the party, and many can leave the party, with a result to their liking. A way of dealing with Intellectual Property Rights that works fine in Palo Alto and its vicinity, where internet applications and software are developed… Wikipedia is a prime example of Open Innovation. The other major difference is the fact that in Open Innovation results can be used by the partners, but if results are not useful for any party involved, parties can turn such results into commercial commodities by selling their know-how. Chesbrough saw this option as an important one because he noticed that many patents were not turned into commercial products. Little did he know about the many different reasons patents were filed: to block competitors from doing what they wanted to; to confuse competitors; as a pre-emptive action to be able to launch new technologies without the risk of infringement, and so on.

Does a certain skepticism towards Open Innovation imply that our industry can ignore the concept altogether? No, it does not. The big challenges we face require that input from more than one source is required to solve problems. Input in the form of know-how in a field, in which there are no experts in a company, can help tackle a given problem far more efficiently. It is not only knowing the facts and relations that counts, more importantly, it is knowing how to interpret research, how to develop, and what pitfalls to avoid. Globalization of the industry coupled with increasing competition, i.e. the urge to be the first on the market, ask for focused R&D executed with great efficiency.

But before the quest for the right partner(s) begins, we need to first understand what we want to accomplish, and how the various departments in the organization can contribute to our project. Innovation requires input from Sales. But also from Purchasing and Production Departments. They can propose guidelines and targets, which may be easily overlooked by R&D.  And they can also pinpoint the right partners.

Involving a University can be the most straightforward way to scout expertise from outside. This usually requires the task at hand to present certain scientific challenges, enough to attract the curiosity of higher education institutes. It also requires steering and controlling up to a certain degree, in order to ensure that work remains focused on the goals defined at the outset.

In cooperation projects with a company and its supplier(s) as stakeholders, problems may arise from the seemingly divergent interest of the two parties. Whereas one party may demand exclusivity on the result; others may rather have the whole market open for them. Let’s take the hypothetical example of a cooperation project between a tire company and a car manufacturer. From a technical point of view, this would most likely bring good results. But what if the tire manufacturer objects to any monopolistic position, which may arise and be exploited by its supplier? The tire manufacturer could not get exclusivity for the supply, nor could he ask for sales to the put the final result to market. 

With the new demands placed on tires, such as labelling and other regulatory requirements, cooperation between suppliers of raw materials and machinery has become increasingly important if companies want to place new options on the market. It is ironic to note that the EU, in its desire to promote better environmental properties for tires, chooses to introduce a labelling system to make this happen. But labelling is a major instrument in the sales of tires. Therefore labelling did, indeed, turn the market into a place where one can distinguish oneself from others. So the effect is heavy competition across tire manufacturers using labels as an instrument. Consequently, developments in this area are very much lead by individual companies, and there is hardly any exchange of information on the matter across the industry. This is all due to the fact that EU, which promotes Open Innovation, has decided to let individual advantages rule the game.

Machinery suppliers should be able to handle whatever the material suppliers develop in order to enable their customers to respond to new demands. This sometimes requires the concerted effort of the entire supply chain. And machinery suppliers do cooperate in various ways with material suppliers to offer to the market a joint solution. Here again, the major stumbling block could be the rights each party gets to enjoy in exchange of the risks taken, and the effort and money invested.

Could there be cases when real Open innovation might actually be the best option? Yes there could be. That is, if new regulations require a coordinated effort by all suppliers of the automotive industry, and if the nature of the final results allows them to be shared by all parties without losing out on competitive advantage. Or if a new standard is to be developed… A standard which would be widely adopted by the market when most suppliers can offer it. Joint efforts are the most logical solution, and barriers have to be overcome.

Conclusions

Be aware of those who borrow your watch in order to tell you the time, and watch out when someone tells you that you have a problem, a problem which only the messenger can solve. Increased cooperation across the suppliers of the tire industry could help offer new options to their common clientele.

Tire manufacturers should not hesitate to cooperate with suppliers in order to innovate in a more efficient way, but in Open Innovation the protection of Intellectual Property Rights is something not to be overlooked. We find ourselves in a world where there is a growing tendency to “’borrow’’ know-how from competitors. This does not only constitute theft, but also may have a negative impact on the reputation of the original products as there would be copies of the originals on the market. Let the lion lie down with the lamb - as long as the latter keeps a watchful eye all through the night. 

In open innovation, there is need to get creative and find ways to reward all parties involved. A reward that reflects the significance of the input. Without such an incentive for all parties involved, there is little chance of final success.

Aad Vijverberg & Piet Rademaker

Independent Consultants