Everyone can be open

Everyone can be open

An exciting trend in business thinking need not only apply to large firms, says Sam Hoste. Read this at your peril – it may change how you manage your business.

The term open innovation (OI) was defined by Henry Chesbrough of the Haas School of Business at the University of California, Berkeley, and it describes an exciting way to develop innovation in business. These ideas have been developed over the years and are now being embraced by many different businesses.

The OI culture encourages companies to make much greater use of ideas and technologies from outside their company.

Once you have embraced this concept you may also start to offer unused or underexploited internal ideas or processes to other companies. There are some great examples of largecompanies that have premises in Yorkshire that are exemplars of OI practices. Reckitt Benckiser in Hull, for example, and Nestlé in York.

These large companies find OI attractive to generate new ideas and combine technologies that may even arise from totally different sectors.

This can help some companies realise that they don’t have a monopoly on ideas.

But it is not just large companies that undertake OI – they are probably just the ones that have the resources to work with university business schools and publish papers on these initiatives.

I suggest that sectors that are relatively cash poor – and smaller companies with fewer resources – are those who should embrace OI.

For the many companies in Yorkshire and elsewhere these “inside-out” and “outside-in” perspectives provide enormous opportunities to collaborate with customers, suppliers and also companies in other sectors.

Huge regional benefits can arise from collaboration and fusion between local companies, thereby creating employment through innovation.

Isn’t this much better than inventing here and exporting jobs overseas? OI can also provide greater combined resources and an increase in new ideas to develop new and larger markets. It is not about losing your own in-house skilled personnel. They are required as much and probably even more to source, filter and combine external ideas with internal ways of doing things. Another enormous plus is that OI doesn’t necessarily require a massive financial investment – a fact that Government and local enterprise partnerships (LEPs) are emphasising in their efforts to encourage growth. So why aren’t we all doing it? Well there are additional people and social skills that are required to collaborate successfully with others.

There may also be some additional politics and negotiation involved and there will be contractual and IP issues to be resolved.

There are some risks around the uncertainty of new practices, opening up to others and building trust between collaborators.

However, the latter risks can be mitigated by, for example, starting collaborations with firms or people where you have already built up a degree of trust.

Working with higher education establishments is another good way to start; with the knowledge that they will want to exploit any outputs through you rather than in competition with you.

You can develop more collaborative relationships with your customers around their needs, perhaps with “lead users” – people who are intense users of your products. There may be other customers who use your goods and services for specific needs which can provide opportunities for engagement and OI. The “inside-out” perspective is probably the least exploited area of OI. What do we have inside our company that we could exploit by some reciprocal licensing, alliance or joint venture? Are there any assets that other companies would find valuable, such as a business unit, or a patent which has not been exploited? Could your business provide external consulting and training – or even move to a different business model? Instead of selling products, perhaps you could provide services for your product through its life cycle.

It could be as simple as exploiting your back office expertise in accounts and offering this as a service for other businesses. In practice there will be different issues which have to be dealt with for different types of companies. For any collaboration it is obviously important for each party to be clear about what their initial contribution is. For the growing new media and IT digital sectors the income streams are largely derived from assets which attract copyright.

Here it will be important to define clearly who owns what at the outset and whether any necessary external licences are in place to allow the collaboration to happen.

Particular challenges arise from the use of open source software.

Large businesses such as IBM have different strategies for separating their internal R&D from their OI projects which utilise some open source code. In some ways companies which rely heavily on registered intellectual property rights such as patents have more easily defined rights.

However for any successful OI project one of the key ingredients is flexibility. It is not always easy or desirable to split intellectual property and have shared ownership. That is why the ability to negotiate effective but creative licence agreements can provide a real solution and successful outcome from collaboration.

This can work even where there is a huge difference in the size of the companies involved. This will usually only be achieved where the parties have clearly defined goals at the outset. However, things can change along the collaboration journey so a degree of flexibility is necessary to avoid stifling creativity. In short, just do it: OI provides Yorkshire with the means to grow the regional economy and generate employment. We can accelerate the move out of recession by imaginative collaboration involving the region’s hugely innovative technology businesses.

Dr Sam Hoste is co-founder with Dr Eileen McMorrow of This Little Piggy which provides innovation consultancy, training, workshops and open innovation brokerage across all sectors.