February 5th, 2019

Welcome to The Future Labs, a Podcast series talking to people building the future, today. We speak to experts around the globe about their role in changing the world for the better.

In this episode, we are exploring The Future of Open Innovation and how organisations are increasingly sourcing innovation beyond their borders. We are speaking to Sara Holoubek, Founder and CEO of Luminary Labs, a strategy and innovation consultancy firm with expertise in helping clients with Open Innovation. Listen to discover how open innovation is changing your industry.

What does “Open Innovation” mean?

The definition of Open Innovation has evolved since it was first popularized in 2003 by Henry Chesbrough, an Organizational Theorist who is currently an Adjunct Professor and Faculty Director of the Centre of Open Innovation at the Haas School of Business, University of California. At its essence is the concept that organisations can benefit by sourcing innovation from both within and beyond their borders, recognizing that innovation often occurs outside of large organisations.

Sara highlights how Open Innovation differs from how organisations have traditionally thought about innovation: “In the 20th century, organizations prioritized internal excellence, hiring the best talent and protecting everything by putting a fortress around the business … Open Innovation takes a very different model, the idea here is that if we can increase the flows of ideas into and out of the company then we might be able to capture more value”. The definition has evolved over the years, but Sara likens the core message to Joy’s law, coined by Bill Joy the co-founder of Sun Microsystems, who noted that “no matter who you are, most of the smartest people work for someone else”.

“In the 20th century, organizations prioritized internal excellence, hiring the best talent and protecting everything by putting a fortress around the business … Open Innovation takes a very different model, the idea here is that if we can increase the flows of ideas into and out of the company then we might be able to capture more value”. - Sara

What are some examples of Open Innovation?

Participatory design and co-creation are some of the most widely used examples of Open Innovation, and involves inviting in all relevant stakeholders in the design process of a product / service that affects them in some way. Public consultations for feedback on large construction projects is a classic example that incorporates citizen feedback into the design process to ensure that their needs are met. This is often the first way an organization gets involved in Open Innovation and Sara considers it to be “almost a table stake for any organization when it comes to Open Innovation”. Related to this are the crowdsourcing and hackathon approaches that ask large groups of people to collaborate to solve a complex problem and suggest solutions.

One of the most visible applications of Open Innovation are “Open Innovation Challenges” or “Prize Competitions”, which aim to find ideas or solutions to specific problems by offering a prize incentive to the public or relevant groups of people. An early example of such a challenge was the £20,000 prize offered in 1715 by the British government for the development of a method to determine a ship’s longitude, which led to the invention of the marine chronometer by John Harrison. Since then the Prize Competition has been used to incentivize people to solve a whole range of problems, from Napoleon’s challenge to preserve army rations to transatlantic flights, generating movie recommendations on Netflix to DARPA’s self-driving cars challenge.

Another approach that is growing in popularity are corporate incubators and accelerators, which house startups focused on solving problems in a specific area with the hope that any inventions or ideas arising from this work will be available to the corporate sponsor, although sponsors don’t typically have rights to such work. Such incubators are common in the biopharmaceutical industry, with companies like Johnson & Johnson operating multiple incubators (“JLABS”), providing facilities, services, and guidance for young companies working on problems of interest to J&J. In the first 6 years of operation (2011-17), 71 startups in JLABS incubators had signed deals with J&J, demonstrating the excellent access to innovation that this setup has provided.

“...it’s a massive cultural change to say we’re going to go from a closed and competitive organization to trusting that if we open up that it won’t come back to hurt us...” - Sara

What are the Pros and Cons of Open Innovation?

The main promise of Open Innovation is getting access to ideas and information from a wider range of stakeholders, increasing the chance of solving complex problems or of getting difficult to access information. Sara notes that there are important benefits of such information sharing even with organisations traditionally viewed as competitors, noting that “Collaboration is the new Competition”. In these arrangements, each party recognizes that by cooperating they collectively create more value for their individual organisations. Further, they may also generate this value quicker: “It’s this hunt for new ideas and new ways of solving problems and that idea of reducing the amount of time it takes to identify good ideas and maximizing the number of ideas and potentially accelerating the rate at which the ideas become real is really that promise of open innovation”. Proponents of Open Innovation also claim that this approach is cheaper than trying to solve problems internally without external collaborations. A key feature of Prize Competitions is that there is usually only a reward for the “winner”, meaning that the prize-giving organization essentially operates a “Pay for Performance” scheme, in which unsuccessful or less suitable solutions are not paid for.

The main barrier to adopting Open Innovation approaches is the fear of opening up an organization to the outside world. Sara notes that this is unnatural and scary for most organisations: “it’s a massive cultural change to say we’re going to go from a closed and competitive organization to trusting that if we open up that it won’t come back to hurt us”. Organisations may be concerned that they may lose their competitive advantage by sharing too much information about their strategy or their products with competitors, or that their intellectual property position might be harmed by sharing private information.

Proponents of Open Innovation acknowledge that there are many situations where other approaches may be more suitable, Sara comments that “it is not the only tool in the toolbox, it’s great for many purposes … however, there might be times where it is more appropriate to solve things internally or with a subset of people than to open it up to the world at large.”

Who in an organization is responsible for Open Innovation?

Interestingly, the people responsible for implementing Open Innovation do not always recognize that they are doing so, in part due to the lack of a widely agreed vocabulary. For example, some respondents to the survey did not see themselves as managing Open Innovation despite being responsible for activities that fall under this term, for example “someone who runs all of a companies’ hackathons would say “I’m not responsible for Open Innovation” even though hackathons are a subset of Open Innovation”. Although there are few organisations that are early adopters and have dedicated teams run by “Open Innovation Managers” (or similar) that focus solely on this, but often the person responsible will have a job title that is not directly related to this.

Sara compares this to Digital Transformation 20 years ago, where there were a handful of people in each organization who drove the Digital agenda, but over time this has grown to become major parts of every business. Open Innovation is currently quite immature in most organization so less well defined.

How is Open Innovation change the way organisations operate?

Although the concept of businesses partnering is not new, the way in which they think about generating these partnerships is evolving, going from “partnerships brokered behind closed doors to partnerships that are really public calls for engagement”. The key difference is the openness to partnering with a wider range of people in a way that’s much less constrained.

The uptake of Open Innovation approaches varies by industry and type of organization. Luminary Labs recently conducted a survey (“The State of Open Innovation”) of nearly 100 private sector, government, and nonprofit organizations to find out how they use Open Innovation in their organisations.

What they found was that non-profit organisations and government agencies find the transparency and openness much easier to accept than private businesses. Further, the key questions that organisations look at before engaging in this type of activity varies significantly across sectors, for example in corporations the first hurdle is getting the legal team comfortable with the concepts of not owning the intellectual property and educating the teams about the benefits of Open Innovation and how they can achieve their goals with this approach. Sara contrasts this with the federal government who “are great proponents of this approach, they are looking to stimulate a market place”. 

Although life sciences companies have historically been very private, Sara believes that companies in this space are among those most engaged with Open Innovation reflecting the increasing role of the patient as a consumer and a move towards a more holistic view of patient health. In part, this reflects companies planning ahead for a future where commercial success in healthcare may be linked to health outcomes, which likely requires more than just prescribing a drug. Luminary Labs has set up a number of Prize Competitions in this space such as the Alexa Diabetes challenge sponsored by Merck & Co (MSD) and Amazon, which invited people to submit ideas of how voice-enabled solutions and cloud computing could improve the experience of newly diagnosed Type 2 Diabetes patients.

“If you want to move a mountain then you need to know which mountain you’re moving...” - Sara

What makes a successful Open Innovation Challenge?

Organizations looking to start a Prize Competition must consider a number of factors to ensure they run an effective and successful challenge. Sara ran through some of these key considerations with us:

1. What is the problem you are trying to solve?
Organisers need to be clear about their objectives and what problem they are actually trying to solve. Sara has a saying: “If you want to move a mountain then you need to know which mountain you’re moving”. It can be tempting to think about the challenge as a public relations event, but in reality, there is a lot of strategic thinking that needs to go into its design. For example, the objective for the government may be to stimulate activity and interest in solving a particular problem.

2. How do you find the best teams?
Organisers should not just assume that the best problem solvers will automatically find and enter a challenge. There is typically a lot of active outreach and engagement required to make a challenge a success.

3. How do you incentivize entrants to participate?
The financial prize is often not sufficient to attract enough high-quality interest in a challenge. Many entrants are looking for other benefits such as mentorship and guidance, which many challenges offer to teams that get to the semi-finals and finals. Often this experience is more highly valued than the financial prize itself. The teams can come from a variety of backgrounds, including startups, academics, larger companies, non-profits, and teams of people who have just met. Each team will have different strengths and weaknesses and will benefit from support: For example, they might be a “data science team that’s really great and they know the patients and they know the model, but they don’t have a business model, they don’t know what the offering is, and if the intent is for the business to be viable after the challenge then that might be a module we offer those teams as part of the challenge

Once a challenge has finished the winning team tends to keep the intellectual property and the sponsor may seek to license the technology from them. Luminary Labs has surveyed the winners of all of the challenges they have organized and they found that >90% of the Prize winners continued to develop the solution they were working on during the challenge.

What is the Future of Open Innovation?
As the concept of Open Innovation is gaining traction and the definition continues to evolve there will likely be broader uptake of existing approaches (challenges, crowdsourcing, startup incubators etc.) as organisations get more comfortable and experienced at executing these initiatives. People may also develop completely new ways of making the most of external resources, for example Sara suggests that we could consider the “Gig Economy” as another interpretation of Open Innovation which is completely changing industries such as mobility (e.g., Uber, Lyft), food delivery (e.g., Deliveroo, ) or DIY (e.g., TaskRabbit).

Sources

https://en.wikipedia.org/wiki/Henry_Chesbrough
https://www.luminary-labs.com/the-state-of-open-innovation/
https://en.wikipedia.org/wiki/Joy%27s_law_(management)
https://hbr.org/2017/12/open-innovation-generates-great-ideas-so-why-arent-companies-adopting-them
https://hbr.org/2016/05/a-hands-off-approach-to-open-innovation-doesnt-work
https://hbr.org/2017/06/the-4-types-of-innovation-and-the-problems-they-solve
https://www.nytimes.com/2011/05/22/technology/22unboxed.html