Open Innovation and Getting Things Right

8:53 PM Wednesday September 19, 2012
by Clayton Christensen | Comments (7)

Last month I had the opportunity to attend the annual meeting of the Academy of Management (AoM).  The Academy is the global professional organization for business academics, so the annual meeting draws attendees from business schools all over the world.  I’ve typically been too busy to travel to the annual meetings, but luckily for me, this year it was held in Boston, so I was able to spend a couple days attending some of the sessions.

 

One of the sessions I was able to attend was an excellent panel on open innovation featuring Allan Afuah from Carnegie Mellon, Karim Lakhani and Michael Tushman from HBS, and Todd Zenger from Washington University of St. Louis.  It was really, truly great.  Open innovation is a method of innovation that has arisen in recent years which allows companies to essentially source some of their innovation efforts to outside parties, often through contests where individuals compete to develop the best solution to the innovation challenge the company has set forth.  Companies perform open innovation by essentially putting forth an innovation problem they are facing to the public (or, at least, a community of individuals outside of their firm) and then inviting individuals to submit solutions to that problem.  There are some very notable companies, like InnoCentive, which help facilitate open innovation by both helping companies clearly define the innovation challenges they are facing, as well as by creating platforms on which these innovation challenges can be held.  One of the main benefits of open innovation is that it allows firms to reach beyond their organizational boundaries and tap the outside expertise of a broader set of individuals than they could otherwise reach.  The rise of social media in recent years has been a significant enabler of open innovation, as it allows firms to develop strong communities of external innovators eager to solve problems.  Open innovation isn’t an area where I’ve done any research personally, but there are some terrific scholars, like those who were on the panel, who have done terrific work in the area.

 

One of the most critical points made on the panel was that when researching and writing about open innovation, scholars (and, I would add, managers) need to be very careful with their definition of what open innovation is and how they use it.  The benefits of using a precise and specific definition for open innovation is that we can more clearly study it and understand its benefits and its limits.  From what we already understand about open innovation, it offers significant benefits to certain innovation challenges, but it also may have specific limits.  For example, open innovation can be an excellent means for innovating around specific technical challenges.  In contrast, open innovation may be a less effective means for bigger larger architectural or business model innovations.  The important point is, though, that using a precise and specific definition for open innovation allows us better study, understand, and utilize open innovation, knowing where it is most effective and knowing where it just won’t work.

 

There is also a major downside to being imprecise in the definition of open innovation.  An imprecise definition not only makes open innovation more difficult to understand, because little research is done on the actual phenomenon, but it also makes it more difficult to implement, because there are a lot of people who claim to talk about “open innovation” but are actually talking about something else.  When a new, hot field of research or business activity arises, such as open innovation, the terms often get thrown around carelessly enough that they lose their specific meaning and consequently some of the power of the original concept.  It’s very unfortunate when this happens, because managers end up dismissing these watered-down ideas for their vagueness or lack of specificity, when the original concept was actually quite robust and promising.  There’s a real possibility that this could happen to open innovation, as the panelists noted, so while we continue to try to understand the benefits of open innovation and how to best utilize it, we need to be incredibly careful about how we talk about it, lest we ruin an otherwise great idea.

Subsequent conference sessions on “open innovation” at the conference confirmed the importance of being careful about how we use terms and defining them explicitly, in that much of the research presented used the term “open innovation” so loosely that they actually didn’t say anything about open innovation, as defined above; they were all instead using the term “open innovation” to talk about something else.  One paper, for example, categorized looking at competitor patents as a form of innovation, while another posited lobbying of the government by private-sector intermediaries as open innovation.  While both of these papers look at how firms can look to external sources for ideas, neither of them were actually about open innovation.  Another paper claiming to be about “open innovation” was actually about how firms can better tap the expertise of its own employees to find new opportunities for innovation.  And yet another paper categorized stealing and copying competitors’ technologies as open innovation.  The troubling thing about this is that while all of these papers were interesting in their own right, they all completely misapplied the term “open innovation” to their research.

 

From a research perspective, it is concerning that these scholars were conducting research in a subject area and using specific terms that they clearly did not understand.  As individual scholars, it’s an unfortunate waste of research effort, and collectively it’s unfortunate to see things going awry in this nascent field.

 

Hopefully future research in open innovation will heed the panel’s call to be more precise in its use of key terms and concepts.  There’s a lot of potential here, but only if we get it right.


7 Responses to Open Innovation and Getting Things Right

  1. Rick Mueller says:

    In my experience, this point about why its important to agree to adhere to well-defined meaning could be made about any of the terms/ways we used to describe important concepts – including the term “Disruptive Innovation”. One could easily do a search-and-replace of the term Open Innovation with the term Disruptive Innovation in this article and arrive at the experience we face every day when attempting to share the important aspects of Disruption theory. As you mention, when important concepts become so diluted as to the point where they lose relevance, they create more confusion than clarity, they lose rather that gather attention – and we all lose great opportunities to improve our ability to understand and act productively as a result.

    Unfortunately telling this to those that come to this blog is probably like preaching to the choir – and academia, which exhibits more rigor in this regard, has its own relevance problems to overcome.

    I look forward to learning the how to overcome this concern while maintaining as much of the richness of open discussion as possible, Until then, we should probably consider ourselves warned not to assume that everyone (or anyone) sees the same gradations and shades as we do before trying to engage in a meaningful conversation about concepts we believe to be important to our mutual success in the future.

  2. Bob Nelson` says:

    So… to make sure I understand what you are saying. Open inovation would look something like this:

    My company will pay $10,000 for the best solution to how to get the caramel inside the Caramilk bar.

    Not:

    My company will pay $10,000 for ideas on how to sell more Caramilk bars.

    • Clayton Christensen says:

      Correct.

      • Rick Mueller says:

        The implication here then would be that innovation in engineering technology – in this case a better way to do something that can already be done, albeit somewhat clumsily or inefficiently – can ‘qualify’ as ‘open’ and that a new way to discover a latent market (an imperative for success in Disruptive Innovation) would not qualify.

  3. Todd Dunn says:

    Clay,

    Thanks for another thought provoking article. From being inside of large corporations such as Cisco, GE, and McKesson I see a few issues that need to be addressed with open innovation.

    First, it seems to me that companies are sending a message to internal employees that the most valuable ideas come from outside of the company versus inside. While there are some cases of that being correct, I believe that ideas that aren’t vetted with your JTBD framework are just hypotheses. As data has shown and you have proven 93% of ideas in their original form aren’t worth implementing. Too often companies jump on ideas versus ensuring those ideas came through the foundations needed for good innovation such as contextual inquiry, hypothesis testing, rapid prototyping, etc…..

    This leads me to a second concern. May an example serve to illustrate. GE did a great job of teaching the skills to be a leading Six Sigma person. Green, Black and Master Black Belt designations were awarded to those who had evidence to prove they were skilled. I do not see many companies, Intuit and the work started by Scott Cook and Roy Rosin is an exception, teaching the skills necessary and giving the career advancement to employees who have not only been taught how to innovate but have proven their ability to drive innovation. Without thinking about innovation systematically, as was Six Sigma, whether it be open or internal innovation, I do not see innovation having the impact it can.

    Last, (for now) I see open innovation if not defined well, just being another form of M&A activity. For many years Cisco was rewarded for acquisitions that improved its portfolio and revenue. However, we now see that Wall Street no longer rewards Cisco or GE for their acquisitions. Articles have been written about Wall Street’s desire to see companies organically innovate. If open innovation is not systematic and simply turns into a “fund” of money where GE and others can buy ideas, I do not believe that shareholders will get rewarded for investing in companies who “say” they do open innovation.

    As always, thanks for posting.

    Todd Dunn

  4. Duyoung Jeong says:

    Thank your for your posting Professor Christensen.

    I’ve recently finished reading your book and was deeply thrilled to learn new ways to look at the problems of the healthcare.

    In the chapter on pharmaceutical industry, you mentioned “Differences in Scale as a Driver of Dis-Integration” in the pharmaceutical industry and linked it to the concept of open innovation. I can easily understand that the pharmaceutical industry is disintegrating to represent what you term ‘modular architecture’ in the process of introducing a new drug to the market. But I was a little bit unsure if the concept of open innovation applies to the pharmaceutical industry, or if open innovation is related to the modular architecture of the system. I wonder if your call for more precise use of the term open innovation also applies to this instance.

    Thank you again for sharing your insights. Your works on disruptive innovation and the recent book have really been the source of inspiration and helpe

  5. Honggi Lee says:

    As someone who is very intrigued by how companies innovate and as a business professional, I have come across several companies struggling to innovate. I have seen Open Innovation being discussed and sought after by companies both large and small, and I agree with you that Open Innovation works the best when the definition of a problem is well-defined and the level of understanding among people involved in the effort are mature enough

    Another factor that I have seen while working with different companies is that the culture of the companies is critical to the success of any Open Innovation efforts, even if companies decide to create a separate team focused solely on Open Innovation. Culture of an organization often dictate how problems are defined and approached as well as the language being used to define problems, solutions, and such concepts as Open Innovation.

    As you stated, I have seen Open Innovation defined and discussed in inconsistent terms in various organizations, and in classrooms. I believe that there are opportunities for this excellent idea to mature even further and to become a more effective engine for innovation.

    Thanks for your insights into this topic. It’s great to know that scholars are investing their efforts to advance this idea both in philosophy and execution.

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