what behind the buzzword i7 institute accenture 2011

8/3/2019 What Behind the Buzzword i7 Institute Accenture 2011

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DELPHINE MANCEAU, VALRIE MOATTI, JULIE FABBRI, FROM I7 INSTITUTE, ESCP EUROPE

PIERRE-FRANOIS KALTENBACH, LINE BAGGER-HANSEN, FROM ACCENTURE


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OPEN

INNOVATION

Whats Behind

theBuzzword?

Analysing what Open Innovation Changes in the Way

Companies Innovate in terms of Partner Relationships,

Internal Organization and Innovation Performance

Delphine MANCEAU, Valrie MOATTI, Julie FABBRI,

FROM I7 INSTITUTE, ESCP EUROPE

Pierre-Franois KALTENBACH, Line BAGGER-HANSEN,FROM ACCENTURE

22 NOVEMBER 2011

2011 ESCP Europe & Accenture. All rights reserved. This document is forgeneral information purposes only.


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Whats BehindtheBuzzword?

Executive Summary

Innovation is higher than ever oncompanies agenda. 62% of executivesinterviewed in a recent survey say their

business strategy is largely or totallydependent on Innovation. In todaysglobalized competitive environment,innovation has become the key criterion

by which you can assess how good acompany is and how good it is likely to bein the future. To give an example of thisinnovation play in the emblematic mobilephone industry, Apple, RIM and HTC, thethree most innovative companies in theindustry, capture more than 50% of thetotal prot pool with less than 10% of theindustrys volume because they are ahead

with innovation.

In todays world, companies are requiredto innovate more and faster than ever

before.

Innovate more not only to address

more demanding and fastly changingcustomers but also to respondto the specic needs of emergingmarkets. ChotuKool, the $69 fridgeand Nano, the $ 2,200 car are wellknown examples of the so-calledfrugal innovation challenge thatmajor corporations are now facingin emerging markets.

Innovate faster to cope withproducts and services shorter life

cycle and create new uncontestedBlue Ocean1 market spaces. Appleonly had 20 months with the highlysuccessful mini Ipod before makingthe decision to replace it with theNano Ipod.

1 Chan K., Mauborgne R. (2005), Blue OceanStrategy: How to Create Uncontested Market Space andMake Competition Irrelevant, Harvard Business SchoolPress, Boston.

In this context, the concept of OpenInnovation has attracted a lot of attentionin both company board rooms and schoolsof management. Companies in allcountries develop collaborations with other companies andindividuals to get new ideas and todevelop new products and services.They also let others exploit their unusedideas which in turn can become protable

ventures. The conjunction of academicrecognition following Henry Chesbroughscreation of the concept in 2003 andthe benets claimed by P&G with itsConnect+Develop program have madeOpen Innovation the new frontierfor Innovation that no company canafford to ignore.

Based on qualitative interviews and thelatest academic thinking on the subject, Accenture and the Institute forInnovation and Competitiveness i7

created by ESCP Europe havetried to gobeyond the buzzword and have investigatedwhat actually lies behind this concept. Theytherefore studied 20 companiesthat areactively leveraging Open Innovationto boost their overall innovationperformance. The sample was selectedfrom among large international companiesfor whom innovation is a priority and

which have extensively communicated ontheir Open Innovation practices for several

years.The starting point of this research was toquestion whether Open Innovationis really a new business praxis, areal innovation, or old wine in anew bottle that companies have beenpracticing for decades without calling itthat.

To answer this question, we analyzed whatOutside-In Open Innovation changes in the


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way companies build and manage externalpartnerships, organize and stimulateinnovation internally and what impact it

has on innovation performance.

A structured and systematic approach for bringing Outside Inside

The majority of the companies we studiedare quite clear on the fact that a goodportion of what is described today as OpenInnovation was around long before theconcept was even invented. As Jean-Luc

Beylat, the director of Alcatel Lucent BellLabs puts it, Bell Labs have been practicingOpen Innovation forever without knowingit. However, while elements like the earlyinvolvement of suppliers in New ProductDevelopment or collaboration withUniversities on research programs were

there before, Open Innovation hasprompted a real shift from ratherrandom/experimental approachesto a manageable end-to-end process.

What is new with Open Innovation is the

systematic and structured effortrelated to the organizational structure, behavior, processes and tools thatcompanies are mobilizing to bring outsideinside.

A fast pace of adoption: only 10 years from first movers to wide

adoption

Open Innovation primarily pertainsto fast clock speed companies wherethe innovation imperative is the mostprevalent: consumer goods and hightech to mention the two most importantareas. There have been three waves ofOpen Innovation adoption and a largemajority of rms are currently openingtheir innovation processes.

The innovators, in the early 2000s, were the rst corporate initiatives

related to Open Innovation, triggered by the P&G Connect+Developinitiative;

The early adopters, in the mid2000s, were the second wave of fastfollowers that appeared in all typesof industries;

The early majority, up to the early2010s, relates to the third and major

wave with companies leveragingOpen Innovation to rejuvenate theirgrowth agenda in the volatile anddifcult economic environment.


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Tapping into an almost unlimited number of external sources

Looking at the potential sources forexternal knowledge and ideas, our researchhighlights the dramatic increase in thenumber of external sources that acompany can potentially tap into.Consider suppliers, the most citedexternal source of Open Innovationaccording to our interviewees. With thegeneralization of the so called low cost

country suppliers, companies are nowdealing with a much wider potentialsupply base. It is the same withuniversities and scientists.For eachof its researchers, P&G estimatesthat there are 200 scientists or

engineers elsewhere in the world who are just as good - a total ofperhaps 1.5 million people whose talentsP&G could potentially use. Just to givean example of this new context, one ofour respondents systematically screensChinese universities to identify and qualifyskills and expertise to be leveraged as partof its Open Innovation process. With Open

Innovation, companies have entered a newerawith an unlimited pool of potentialpartners, which also generates hugeoperational challenges.

Positioning the Open Innovation strategy on the right openness

scale

When dening an Open Innovation

strategy, companies need to answerseveral questions such as: with whom?

About what? How? The answer is often togradually open the partner networkand progressively widen thetopics, since the most open approachesare implemented by the more maturecompanies that have been developingOpen Innovation for several years.

Indeed,various degrees of innovation opennessexist and Open Innovation is notalways synonymous with full openness. Weidentied three types of Open Innovationapproaches: Topic-oriented, Partner-oriented and fully open. The rst twoare open but focused either on relevanttopics for innovation dened in coherence

with the innovation strategy, or on specicpartners with whom the company has hada previous and successful experience.

Most of the companies interviewed

practice Topic-oriented OpenInnovation, implying that they havedened a precise innovation agenda andhave a specic objective in mind whenscouting for external partners. This topicorientation enables them to open widethe search for new partners. Other havea partner-oriented approach, especiallyin R&D, since they aim at intensifyingrelationships with partners they already

work successfully with, progressively

covering more and more topics. However,the most mature companies inthe Open Innovation process andspecically those that started OpenInnovation earlyare also those with thehighest level of openness. Note alsothat some companies simultaneouslyfollow several types of OpenInnovation approach, focusing onsome topics for certain specic projects,searching for ways to work more with


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some existing partners on any topic andbeing fully open in specic areas.

Defining the right balance between depth and breadth of

relationships with partners

Building deep relationships with alarge number of partners is difcult if

not impossible. Therefore, companiespracticing Open Innovation have to ndthe right balance between breadthand depth for partnerships

between reaching out to the largestgroup of partners versus deepening thecollaboration with a limited group of them.

As for the level of openness,our researchhighlights a learning curve with the

most advanced companies wideningthe scope and variety of partners. For

instance, General Electric has launched twocontests called Ecomagination Challengeand Healthimagination Challenge thatare open to any type of potential partnerincluding individuals, small enterprisesand is aimed at collecting any type of newideas for projects.

Partner-orientedOpen Innovation

FullyOpen Innovation

Topic-orientedOpen Innovation

Classical inter-rmcooperation

Non

defined

Predefinied

Preselected Anyone

TOPIC

S

Partners


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Excelling at the partner management process

Partner management is a key dimension ofthe Open Innovation process. As a result,all companies have more or less structuredidentication, attraction, andretention processes.For Topic-orientedOpen Innovators, partner identicationcan follow a partner pull approach(through Open Innovation marketplacescreated by the company or more widely

open such as Innocentive) or a partnerpush approach (setting up an internalstructure in charge of identifying andscouting for potential partners all over the

world). As for partner management,three types have been identied

from a case-by-case approach to ahighly structured process covering allthe steps in the relationship like the Want,Find, Get and Manage model. Again,the more mature they are, the morestructured and routinized theseprocesses have become with the mostadvanced companies customizingthe approach according to the type of

partner (e.g. suppliers, researchers, start-ups...).Whatever the process, setting up atrustful environment geared at developing

win-win collaboration is the golden rulefor Open Innovation to deliver long termresults.

There is no Open Innovation free lunch

Unlike Open Source or Open bar,

Open Innovation is not free. Allour interviewees have investedin dedicated capabilities likeorganization, skills, tools andgovernance to make Open Innovationhappen. As for organization, companiesusually start with a dedicated organizationto ensure the right level of focus andmanagement attention. The number ofdedicated staff varies from a few peoplein companies where Open Innovation

is quite recent, to up to 25 experts in

mature companies. Open Innovation isalso a technology play. Most if not allour interviewees are also investing in acollaboration platform like NineSigma(60% of our respondents) to enhanceidea stimulation, facilitate idea collectionand foster cross-functional collaboration.

While demanding in terms of bothresources and budget, these platformsare a key enabler to open up innovation

beyond existing partners.

It is not only about appointing a Chief Open Innovation Officer

Shifting a companys attitude fromresistance to not invented hereinnovations to enthusiasm for thoseproudly found elsewhere is anything

but straightforward. All our interviewees

insisted that this culture conversion was the number one challenge.This is why Open Innovation is all aboutchange management. As a result, all thecompanies we surveyed are investing in


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people, processes and training to embracethe Open Innovation culture and enhancetheir absorptive capacities. Recruitingnew proles, launching dedicated trainingprograms, and including Open Innovationmetrics in personal objectives are someof the most common levers mentioned

by our respondents. The ultimate goal isthat Open Innovation culture shouldbe spread throughout the company,

so that it becomes a natural partand a recurring way of practicinginnovation. As A. G. Laey, a formerCEO of Procter & Gamble used to say,To succeed, companies need to see Open

Innovation not as something specialthat only special people can do, but assomething that can become routine andmethodical, taking advantage of thecapabilities of every employee.

Open Innovation has not resolved the Innovations Bermuda

triangle

There is usually a contrast between theimportance given to innovation withincompanies and the way its performance ismonitored: innovation is widely undermeasured and most companies aresomewhat frustrated with the metrics theyuse. Therefore, it was interesting to nd out

whether or not Open Innovation has ledto any improvement on this performancetracking challenge. This answer isno and most companies are stillstruggling to come up with a robustperformance dashboard reectingOpen Innovation performance,even though they try hard to set up OpenInnovation KPIs. All our respondentsrecognize the challenge and are working

on improving the metrics.Two types of approach (which are notmutually exclusive) to Open Innovationperformance measurement can beconsidered by companies: introducingOpen Innovation specic KPIs inthe overall dashboard (e.g. number ofpartners, number of ideas coming fromoutside and so on) or following to whatextent Open Innovation approachesenhance the general innovation KPIs.These KPIs can be related to the input,process and output of Open Innovationso as to measure the efforts, the processchanges and the outcome of the approach.

Open Innovation works!

From the interviews we conducted, OpenInnovation seems to have a real impact oncompanies innovation performance:

Open Innovation shortens thetime to market, contrary to whatone may expect about cooperation

between several and diverse

organizations. It may also confer a big competitive advantage since itshields against the negative impactsof copycats, especially for SMEs;

Open Innovation is notreally cheaper than in-houseinnovation, but is useful to mitigate


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the risks. In many companies, theremight be a time/cost trade-off;

Open Innovation improvesIntellectual Property protection,

which is a paradoxical nding ofour research. In a collaborativecontext, it is highly preferable toclarify each partners IP rights, eventhough setting up a legal agreementmay involve long and complexadministrative procedures. OpenInnovation thus leads to moreprotection for innovations;

Open Innovation helps promotea sustainability agenda. Open

Innovation has been seen to be anideal way to address sustainabilityprojects, to involve more actors (e.g.in a community, or unusual partners)and achieve breakthroughs withmore sustainable innovations;

Open Innovation enhances thecompanys innovativeness. Asinnovation is rooted in an economyof quantity, the more you innovate,

whether through Open Innovationor not, the greater your chances ofsuccess.

Beyond the buzzword, OpenInnovation is driving a real changein the way companies innovate andhelps them innovate more, faster,greener and sometimes cheaper.Open Innovation is focused on discoveringnew ideas, reducing risk and leveragingscarce resources, and paradoxically, itimproves companies IP protection. The

business model for Open Innovationis a key part of its success. Trustand absorptive capacity are keyingredients of win-win situations.

As we learnt from our observations, bringing external knowledge to thecompany is nothing like a free lunch thatdelivers results without investments,management support and a company-

wide cultural conversion to opennessand collaboration. However, nothing

would be more misguided than to

see Open Innovation as a substitutefor in-house innovation. To takefull benet of the innovation achievedthrough the involvement of externalpartners, companies should combine theseexternal resources with their own speciccompetences.

This report also shows that companieswhich have a certain level of maturity withOpen Innovation set themselves up tomake Open Innovation part of normalbusiness. This indicates that OpenInnovation is more than a managementfad and will become integrated in a new

way for companies to innovate. Accordingto Katja van der Wal, Open InnovationDirector at Philips Customer Lifestyle,Open Innovation will be the standardway of thinking, acting and working.

Conclusion


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Acknowledgements

This report combines the result of academic research and 20 interviews with companiesthat have been actively involved in Open Innovation for many years, considered as leadusers in Open Innovation. These interviews make up most of the content of this report withmultiple case studies, examples and lessons learnt from Open Innovation initiatives andprograms across multiple companies and industries around the world. For that, we want tothank these managers who contributed to this work, by taking the time to share their pointof view, experiences and knowledge.

Company Name Job Title

AkzoNobel Harmen KielstraHead of Open Innovation,

AkzoNobel Decorative Coatings Ltd

Alcatel Lucent Jean-Luc BeylatPresident of Alcatel Lucent BellLabs

Arla Foods Henrik Jorgen AndersenHead of Corporate Research andDevelopment

Beiersdorf Andreas ClausenGroup Manager R&D Raw MaterialManagement

Coloplast Patrik GavelinChief Innovation PartnershipManager Global R&D Technology

Danone Baby Nutrition Didier Morisseau

Global Sourcing & SupplierDevelopment Director, Indirectspend, 3rd parties & Innovationpartnerships, Baby & MedicalNutrition Divisions

Danone Waters Ren-Philippe Tanchou CPO

DSM Robert Kirschbaum VP Open Innovation

General Electric

Olivier Carmier Responsible for Accounts of thePublic Sector, GE International

Dario LigutiStrategic Marketing Director ofFrance, GE Global Growth &Operations

General Mills Kamel Chida Senior Manager R&D

Kimberly Clark MexicoJos Antonio Lozano Cor-dova

Director, Innovation andTechnology development


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Company Name Job Title

Kraft Dr. Miles Eddowes Associate Director Open Innovation

LOral Simon ClmentCorporate Purchasing Europe, Co-Packing Operations

Logoplaste Paulo Correia R&D Director Head of Technology

Merck Dr. Michael GerardsDirector, Technology OfceChemicals,Idea & Knowledge Management

Philips Katja van der WalDirector Open Innovation,Philips Consumer Lifestyle,Innovation, Marketing & Strategy

Procter and Gamble

Heidi PiperResponsible Open Innovation R&D,R&D Director for Global Baby Care,Technical Site Leader

Michael DuncanDirector of EMEA Connect+DevelopHub, European Director OpenInnovation

Sophie BlumGeneral Manager P&G Israel and

IHI (Israel House of Innovation)

TDFAlain Poret Head of Advanced Procurement

Thomas Bremond Head of Innovation & Multimedia

Thales Bernard Monnier

Purchasing Manager, ThalesResearch & TechnologyPresident, Monnier InnovationManagement (MIM)

Unilever Dr. Graham CrossDirector of Supplier Innovation andInnovation Acceleration


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The Authors

We have conducted ajoint research project bringing together the competencesof i7, the Institute for Innovation and Competitiveness, a European AcademicThink Tank created by ESCP Europe Business School, and AccentureManagement Consulting specialists. We built a joint team of academics andconsultants to promote our views and analysis of innovation practices and processes,supply management and cross-company collaborations.

Delphine MANCEAUCEO of i7, the Institute

for Innovation andCompetitivenessProfessor at ESCP Europem a n c e a u @ i n s t i t u t -innovation-competitivite.eu

Delphine Manceau is a specialist of marketingand innovation, topics on which she haspublished many papers in internationalacademic journals and books. She is a co-author of the French edition of the textbookMarketing Management with Philip Kotler,Kevin Keller and Bernard Dubois (14thedition forthcoming) and wrote Marketingof Innovations with Emmanuelle Le Nagardpublished in 2011. With Pascal Morand, shecoauthored a report for the French Ministerof the Economy, Ms Christine Lagarde, on theinnovative capacities of French and Europeancompanies, entitled For a new approach ofinnovation (French version published in 2009ed. La Documentation franaise, updatedEuropean version in English in print). Delphine

graduated from ESCP Europe with an M.Sc inManagement, earned her Doctorate and post-doctoral authorization to supervise research(HDR) and was a Senior Fellow at WhartonSchool (University of Pennsylvania).

P i e r r e - F r a n o i sKALTENBACHPartner, OperationsLead Europe, AccentureManagement Consultingpi erre . f . ka l t enbac [email protected]

Pierre-Franois Kaltenbach has more than 15 years experience in Operations consulting.Pierre-Franois key areas of expertise areSourcing and Operational excellence on which he has authored multiple point of views (cost modelling, low cost countrysourcing, turn around program, commodityrisk management, closed loop,...). Pierre-Franois is regularly quoted in both economic(Les Echos, le nouvel conomiste, La Tribune,Usine Nouvelle, BFM...) and specialized media(CPO agenda, European procurement leaders,Supply chain magazine...) on Operationsmatters. He graduated from ESCP Europe, IEPde Paris and holds an Executive MBA from theKellogg School of Management, NorthwesternUniversity.


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Valrie MOATTIProfessor at ESCP [email protected]

A specialist in Strategy and Supply ChainManagement, her research interests focus ongrowth strategy and modes of expansion, as well as the organization and coordination ofglobal supply chains. Her current researchdeals with sustainable supply chains as well asother areas. She is the author of several articles(published in European Management Journal,

International Journal of Logistics: Researchand Applications, Supply Chain Forum AnInternational Journal), chapters and papersgiven at international conferences.Valrie Moatti graduated from ESCP Europe,and earned her doctorate at HEC, in Paris.After more than 8 years of business experience(as a group manager at Procter & Gamble andas a project director at PPR), she joined thefaculty of ESCP Europe. She has been a visitingscholar at MIT, Cambridge USA (Center forTransportation and Logistics).

Julie FABBRIS e c r e t a r y - G e n e r a lof i7, the Institutefor Innovation andCompetitivenessjfabbri@institut-innovation-

competitivite.eu

Julie Fabbri is Secretary-General of the

Institute for Innovation and Competitiveness.She coordinates the i7 Institute events andresearch work at the European level. She is alsoa PhD candidate at the Centre de Rechercheen Gestion of Ecole Polytechnique. She isinterested in the role of space in innovationprocesses.She graduated from ESCP Europe (Master inManagement) and from University Paris XNanterre (Research Master in OrganisationStudies). In 2009, she worked with PascalMorand and Delphine Manceau on the report

Pour une nouvelle vision de linnovation for the French Minister of the Economy, MsChristine Lagarde.

Line BAGGER-HANSENSenior Manager at

Accenture ManagementConsultingl i ne . bag g er-hans en@

accenture.com

Line Bagger-Hansen has 11 years of experiencein Supply Chain Management, of which morethan 7 in Management Consulting. Linesexpertise covers Prot and Cash Optimization,Strategic Cost Management, Procurementtransformation, global Strategic Sourcing,Supply Chain strategy, SRM, and NPD, and shehas helped formulate the innovation strategy

of clients. Line has worked in Fast MovingConsumer Goods, Life Science, Automotive,Industrial Equipment, and Banking. Shefrequently contributes to methodologies,Thought Leadership, studies, and as a speakerat conferences.Line holds a Master of Science in Economicsand Business Administration from CBS(Copenhagen Business School) and TongjiUniversity (Shanghai).

We would like to thank the team thathelped create this publication:

Edina Nagy, Aude Prebayand Jean-Baptiste Touyarot,research assistants

Anatroy, illustratorArchique, graphic designer


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TABLE OF CONTENTS

Executive Summary 4

Acknowledgements 11

The Authors 13

1. Open Innovation: just a fad or a long-lasting managerial change? 17

1.1. What is Open Innovation? 19

1.2. Who is involved? 21

1.3. When did companies start to use Open Innovation approaches? 27

2. Partner relationships: How to make external collaboration work? 31

2.1. Types of innovation openness 31

2.2. The breadth / depth trade-off for partnerships 35

2.3. The key role of partner management 39

3. Internal set-up: How different is the organization? 50

3.1. From dedicated people to a corporate culture 50

3.2. Open Innovation demands Change Management 54

3.3. The role of IT and collaborative tools 57

4. Impact and performance of Open Innovation: innovate more, faster or cheaper? 62

4.1. Key difficulties relating to Open Innovation 62

4.2. Perceived impact over innovation performance 63

4.3. How to measure and evaluate Open Innovation? 67

5. Conclusion 73

Bibliography 74

Appendix 78

Table of Illustrations 82

Table of Case Studies 83


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1. Open Innovation: just a fad or a long-lasting managerial change?

Since Chesbrough created the concept ofOpen Innovation in 20032 and companiesstarted communicating about the waythey integrate external competencesand resources in their innovationprocesses, word has spread about this newinnovation practice. There has been a clear

acceleration over the last 3 to 5 years whenmany companies found that they neededto structure their innovation approachin order to be much more efcient andto cope with the economic crisis. OpenInnovation is now a real buzzword:more than 17 million Google results can

be found for the term Open Innovation.Companies in every country aredeveloping collaborations withother companies and individuals to

get new ideas and to develop newproducts and services.

Today more than ever, innovationis a top strategic priority. 62 percentof executives questioned in a recentinnovation survey3 say their businessstrategy is largely or totally dependenton innovation. With globalization andintensied market competition, companiesare forced to innovate more and to optimizethis process. Innovation is a key tool for

competitiveness to boost consumptionand the renewal of equipment, overcomeprice competition by increasing the weightof choice criteria other than price among

2 Chesbrough H. (2003), Open Innovation: The NewImperative for Creating and Proting from Technology,Harvard Business School Press, Boston.3 See Innovation survey conducted by Accenture:Alon A., Chow D. (2008), How to get the most fromyour best ideas, Accenture Outlook.

customers, and stimulate the creation ofnew business models4. Companies nd theycanno longer only innovate by themselvesand have to rely on a large networkof companies and competences toinnovate better and quicker. TheOpen Innovation paradigm suggests that

companies can use both internal andexternal ideas and knowledge to bemore efcient in creating and capturing

value.5

However, collaboration with externalorganizations is not so new interms of innovation. For many yearsnow, companies have been working anddeveloping through networks where theycooperate with their suppliers, clients,and all types of companies, large andsmall. In 2006-08, more than 78% of largeinnovative rms in Denmark and about69% of the SMEs in the UK collaborated

with external actors on innovation.6 Inthis context, one may wonder whether thehuge popularity of the Open Innovationconcept actually reveals new practices or is

just a new label on old practices in other

4 Morand P., Manceau D. (forthcoming), For a new

approach of innovation throughout Europe, Institute forInnovation and Competitiveness i7.5 Chesbrough H. W (2007), Why companies shouldhave open business models, MIT Sloan ManagementReview, vol.48, n2, p.22-28.6 OECD (2011), Science, Technology and IndustryScoreboard. Collaboration involves active participationin joint innovation projects with other organisations butexcludes pure contracting out of work. It can involvethe joint development of new products, processes orother innovations with customers and suppliers, aswell as horizontal work with other enterprises or publicresearch bodies.


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words, whether this is a new approach toinnovation or old wine in new bottles.

To answer this question, this researchtries to analyze to what extent OpenInnovation approaches changeinnovation practices, organizationand performance. For this purpose, westudied thebest practices by interviewingcompanies among the best actors inthe area of Open Innovation; so as tounderstand what impact Open Innovation

approaches have had on their way ofinnovating, their internal organization andtheir innovation performance. Our aim isnot to present a picture of what companiesare currently doing in the area of innovationand Open Innovation, but to focus on themost advanced practices to identify theimpact of Open Innovation on their daily

business practices regarding innovation.This research is based on a qualitativesurvey of 20 companies (please see

Acknowledgements) that we consideras pioneers and leaders in terms of OpenInnovation. The sample has been selectedfrom among large international companiesfor whom innovation is a priority and

which have extensively communicated ontheir Open Innovation practices for several

years.

These companies are at the cuttingedge regarding Open Innovation

and are mature enough in this approachto be able to measure its impact on theirinnovation practice. In conducting thisanalysis we focused on three main areas.External collaboration: How

does cooperation with externalactors work? Does Open Innovationchange the prole of partners andpartnerships developed by thecompany (more partners, different

ones, deeper partnerships)?Organizational impact: What

impact does Open Innovation haveon the internal organization? Does itchange the departments in charge ofinnovation in the company?

Drivers and results: Whatimpact does Open Innovationhave on innovation outputs andperformance? How can OpenInnovation be evaluated?

In order to have a homogeneous groupof companies that we could compare, wedecided to focus on industries involvedin tangible goods. Consequently, oursample exclusively covers manufacturinginnovation and does not deal with thespecic questions related to serviceinnovation. Moreover, while the OpenInnovation concept developed byChesbrough covers both Outside-In andInside-out innovation, we focused onthe former, that is innovation carried out

with external companies and individuals. We did not therefore study spin-offs andcompany creation funded by companies.


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1.1. What is Open Innovation?

Open Innovation is a concept which hasmany denitions given by companiesand academics (see Appendix 1). The

following denition is probably the mostcomprehensive and the preferred one.

Open Innovation means the opening upof the innovation processes to the outside,in order to foster the generation of newconcepts and ideas. This opening of theknowledge ow can go two ways:

Bringing Outside Inside:acquiring knowledge from outside

partners by the practice ofleveraging the discoveries ofothers8 and integrating them intothe internal innovation ow;

Bringing Inside Outside:providing internal knowledge toexternal actors of the business

environment; rather than relyingentirely on internal paths to market,companies can look for externalorganizations with business

7 Chesbrough H., Vanhaverbeke W. and West J. (2006),Open Innovation: Researching a New Paradigm, OxfordUniversity Press, USA.8 Chesbrough H. (2003), Open Innovation: The NewImperative for Creating and Proting from Technology,Harvard Business School Press, Boston.

models that are better suited tocommercialize a given technology.9

This study focuses on cooperation withexternal companies, mostly for innovation

development and to a lesser extent fornew product launch. We want to analyze

whether Open Innovation engendersa new culture of innovation within thecompany. We seek to understand whatlessons are learnt from those experiencesand how rms capitalize on the resultsof Open Innovation projects, mostlyfocusing on Outside-In approaches.The internal appropriation of OpenInnovation outcomes and approaches

are key challenges in generalizing OpenInnovation.

9 Ibid.

Open Innovation is the use of purposive inows and outows of knowledge toaccelerate internal innovation, and to expand the markets for external use ofinnovation, respectively

H. Chesbrough, W. Vanhaverbeke and J. West7

Quote


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Open Innovation, a multi-facetedphenomenon: concepts and practicesthat are related to Open Innovation

Coopetition: cooperative competition.Competing companies work together in areasof their business where they do not have aspecic competitive advantage, but wherethey can share common costs, complementaryresources or build joint technological standards.Innovation is then open to competitors.

Spin-off: a new company founded to exploita piece of intellectual property created inan academic institution (academic spin-off Shane, 2004) or to develop and launchinnovations created by employees in anactivity that is not completely in line with thecore competences and strategy of the mothercompany (corporate spin-off Bhide, 2000).They are typically the result of inside-out OpenInnovation. Companies encourage spin-offs to

build competences, to foster learning and tostimulate an entrepreneurial mindset in theircompany.

Cluster: a geographical initiative that bringstogether, in a same city or region, largecompanies, SMEs and start-ups, researchcenters, educational institutions and publicauthorities in order to develop synergies andcooperative efforts. Clusters are often relatedto a particular industry, but not always.In many countries, governments and localpublic authorities stimulate the creation anddevelopment of clusters. Clusters are oftenseen as a good way to stimulate and spreadOpen Innovation (e.g. Silicon Valley, one of themost famous clusters).

Community of practices: groups ofpeople engaged in the same practice and whoregularly communicate about their activities.They are continually sharing and comparingtheir best practices to develop and improvetheir competences in the practice underconsideration (Brown and Duguid, 1991; Lave

and Wenger, 1991). These dynamics lie at the

heart of Open Innovation.

Crowd sourcing: sourcing tasks to allindividual volunteers through a web platformopen to everybody. This is a community-basedform of Open Innovation which consists insubmitting a list of problems or objectivesfaced by the company to the public (consumers,students, researchers, experts) throughan open call. The main idea is that collective

intelligence exceeds the potential of a limitednumber of internal experts (Surowiecki, 2005;Howe, 2006). Wikipedia is probably the mostprominent example!

Open source: the open source philosophypromotes free access to the end productssource materials and documentation. Opensource software, developed through barterand collaboration, is a great example of a fullyOpen Innovation approach.

Co-creation: companies often integratetheir customers in their Open Innovationprocesses. They can cooperate with somespecic consumers they have identied andcontacted through brand communities, orthey can use open web platforms to gather anypotential ideas from consumers. Note howeverthat co-creation with end consumers can be acommunication tool as much as an innovationtool.10

User innovation: in the market, speciccustomers are lead users. They have ideas about

potential innovations that they implement by themselves. To integrate these inputsinto their innovation processes, companiesmust identify and integrate user innovation(von Hippel, 1986 & 2005). The difference with traditional co-creation is the level ofinvolvement of customers in the innovationprocess, sometimes developing the innovationall by themselves without the company helping.

10 See on this topic, in French, Le Nagard E., ManceauD. (2011), Marketing de linnovation, Dunod, Paris.

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1.2. Who is involved?

Opening the innovation process to externalactors can involve very different types ofactors.

Individuals, such as individualexperts or thought leaders, as wellas consumers or retired people

willing to help the company(whether they are former company

employees or not). For instance,Phillips is leveraging the potentialof such individuals throughthe YourEncore innovationcommunity platform,11 an onlinenetwork of retired and veteranscientists and engineers. Thisplatform connects experts andclients in professional communities.

As a client, Philips can post questionsto a select group of experts or in open

forums, initiate ideation sessions with experts, and even conducta project within the innovationcommunity. Crowdsourcing

11 YourEncore has been in operation since October 1,2003. The Procter and Gamble Company and Eli Lilly and

Company are the initial founding Member Companies.http://www.yourencore.com/about-yourencore/

(see Open Innovation, a multi-faceted phenomenon) and OpenInnovation platforms are the perfectplaces for companies to collaborate

with such individuals.

Research organizations,including universities, researchinstitutes and labs. The relationships

with academics are probably thetrue origins of the Open Innovationconcept, where it all started,

because of the key role of academicresearch as a source of technologicalinnovation. Such partnerships areespecially important for industrialand high tech rms, which partlygave birth to the development ofclusters (see Open Innovation, amulti-faceted phenomenon) in the

past few years around the world.

We have a long tradition of collaborating with universities. This is an industry where ourresearchers are all out of the same schools, and we collaborate with these schools. We supportuniversities and award young scientists. We get pre-competitive knowledge

Henrik Joergen Andersen, Head of Corporate R&D, Arla Foods

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Business partners, such asclients and suppliers. Accordingto the OECD,12 among large rms,suppliers usually play the main rolein business partner collaboration.But in the United Kingdom,Korea, Luxembourg, Australia andGermany, collaboration with clientsis equally or even more important.In Finland, large rms (68%)and SMEs (31%) collaborate oninnovation activities with suppliersas much as with clients.

SMEs and start-ups, along withventure capital providers, as a meansfor companies to be connected withstart-ups. Procter & Gamble is

building many partnerships withentrepreneurs and SMEs aroundthe world, for example. In Israel,for instance, they are leveraging the

very unique features of local high

tech and bio tech entrepreneurshipand innovation skills to set up aninnovation scouting engine, namedIsrael House of Innovation (seeP&G and IHI case study);

Although Open Innovation basically hasthe same goal with all types of partnerseven though the ways of practicing it can

be quite different in each case how thepartner relationship is handled for example.

Please note that many of the companiesinterviewed (General Mills and KimberlyClark Mexico, for instance) practice OpenInnovation with several types of partners.The different Open Innovation partners

12 OECD Science, Technology and IndustryScoreboard 2011, based on Eurostat (CIS-2008) andnational data sources, June 2011. Firms collaborating oninnovation activities with suppliers and clients, by rmsize, 2006-08

are not exclusive quite the contrary!

With such different types of partners, weunderstand why Open Innovation involvesseveral departments within the company.Three main departments are usuallyimpacted.

R&D: It is now too costly to rely onlyon in-house R&D. Open R&D comesfrom the usual approach followed

by academics: building knowledgethrough exchange and sharing. WithOpen Innovation in R&D, companiesdevelop partnerships with researchorganizations and individualresearchers (see Philips case study).Thats why most R&D Private-PublicPartnerships (PPPs) are projects

based on a long term, risk sharingcontract between public and privateparties. They are widespread andaffect such diverse companies as Arla

Foods, Alcatel Lucent, GE and Kraft.


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CASE STUDY 1. Philips EstablishesInnovation Ecosystem

In 1998, Philips High Tech Campus inEindhoven was established with the initialaim of gathering Philips R&D activitiestogether in one place. Since 2003, thecampus has been continuously enlarged byincluding more companies. Today, there aremore than 8000 researchers, developersand entrepreneurs, representing 50nationalities and coming from researchinstitutes like Holst Centre, Inkjet

Application Centre and ECN; technologicalstart-ups such as BiCHEM Technology,

Virtual Proteins and Sapiens SteeringBrain Stimulation; large companies, likeIBM, Oce and NXP; consultancy andservice companies with representativesfrom Accenture, Atos Origin, Yacht andMikrocentrum. Bringing all these togetherphysically increases the competency baseof the site and creates tangible outcome: thecompanies on the Campus are responsible

for nearly 50% of all patent applicationsin the Netherlands13. Philips experience isthat their close cooperation characterized

by an Open Innovation approach and theircontinuous knowledge-, experience- andfacility-sharing has enabled them to achieve

better results cheaper and faster. All actorspresent in this innovation ecosystem havesaid that High Tech Campus Eindhovengives them more access to competenciesand, consequently, a competitive advantagein a highly competitive market.

13 http://www.hightechcampus.nl/

Case

Study

Open Innovation is not just another way of doing R&D, but of doing business

Dr. Graham Cross, Director of Supplier Innovation and Innovation Acceleration, Unilever

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Supply Chain: the relationship with suppliers is one of the mostaffected by the development ofOpen Innovation practices. Theycover a wide range of companies,

both in size (start-ups, SMEs,large companies) and activities suppliers of raw materials andparts, but also packaging (veryoften mentioned in our survey; seeDanone Baby Nutrition case study),services and consulting. In somecases, suppliers are the primarysource of innovation that accepts

both the investment and risk of newcomponents that will be includedin a future product. As partners,suppliers provide a company withcomplementary skills and abilities,allowing it to go forward with aproject without having to actually

build all the capabilities internally.

As Chesbrough says, suppliers areone of the best potential investors

for a new venture14

. Several reasonsexplain the importance ofsupplierco-innovation:

- As partners, suppliersprovide a company withcomplementary skills andabilities, allowing it to goforward with a project

without having to build allthe capabilities internally;

- A supplier can investnancial resources whenthe innovation succeedsand therefore has a vestedinterest in the success of thenew venture;

- Sometimes, suppliers havestrong brands that enablepartners to build a co-

branding innovative offerthat will be perceived by themarket as high performance(see Kraft-Bosch Siemens

case study).

Case Study 2: Danone BabyNutrition, Supplier Co-Development

with a Strong Packaging Innovation

Danone Baby Nutrition has developeda successful product with an existingpackaging supplier: EAZYPACK is acomposite box made out of carton andplastic, including a double compartmentand an integrated spoon in the lid. Thisinfant formula packaging enables themother to portion the powder milk whilecarrying the baby in one arm.

The initial launch in UK with theCow&Gate brand was a real marketsuccess and the concept has been rolled-out

in many other countries on other DanoneBaby Nutrition brands. Danone insists

on how important it is to have an OpenInnovation approach focusing on specicconsumer needs or market challenges,and then to nd the relevant partners(here a packaging supplier) who can bringnew relevant benets or solutions. In thiscase, a new pack brings more convenienceto the user, while reinforcing the on-shelve differentiation and thus creates acompetitive advantage.

14 Chesbrough H. (2003), Open Innovation: The New Imperative for Creating and Proting from Technology,Harvard Business School Press, Boston.

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Marketing / Sales: Marketingdepartments are usually involved inOpen Innovation processes to workon the customer value to be createdthrough the new product developed

with external partners. In somecases, the two partners work togetheron the launch strategy. When OpenInnovation processes include co-creation with clients, marketingdepartments become key actors inthe process. Innovation with clientsand lead users has been studied formany years by Eric von Hippel andmany other academic researchers.15This practice is quite differentdepending on whether it includesclients that are companies or endconsumers. While co-innovationhas always existed in B2B activities,it has developed quite recently withend consumers. The development of

web-based co-creation communities

and platforms, like eYeka,16 whereend consumers can post their ideasregarding future products, newproduct insights, advertising lmsand pictures.17 While co-creation

with end consumers is highlymarketed, it is actually less frequentthat co-innovation with suppliersand B2B customers: according to the

Act One survey,18 88% of innovationmanagers collaborated with their

suppliers to develop new projects in

15 Von Hippel E. (2010), The role of lead usersin innovation, in Teece D., Augier M., Palgrave Encyclopedia of Strategic Management, PalgraveMacmillan Ltd, UK.16 http://en.eyeka.com/17 For examples, see the blog of EricVernette: Consommateur inuenceur, http://consommateurinuenceur.blogspot.com.18 HEC, Act One (2010), The Corporate InnovationFunction.

2010 and 50% with their B2B clients,while only 15% with the consumer orend user. For these various reasons,in this analysis we have focused onco-creation with customers that arecompanies.


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Figure 1: Innovation actors in theOpen Innovation conguration

Figure 2: General Mills vision ofOpen Innovation19

19 h t tp : / /www.gene ra lmi l l s . com/Company /Innovation/Our_stories.aspx

Suppliers Clients

End-users SMEs

Experts Start-ups

Universities Research labs

Marketing

R&D

Supply Chain


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1.3. When did companies start to use Open Innovation approaches?

Our sample revealed three waves in thetiming of Open Innovation adoption.

We have labeled them using Rogersterminology regarding the diffusion ofinnovations20:

- Innovators: In the early2000s, the very rst initiativesregarding Open Innovationemerged, triggered by the

P&G initiative that had beenmade widely public.21

- Early adopters: In themid 2000s, more companieslaunched Open Innovationpractices, such as Unilever,Logoplaste, and GeneralMills.

20 Rogers E. (1983), Diffusion of Innovations, FreePress of Glencoe, Macmillan Company, New York.21 Laey A.G., Charan R. (2008), The GameChanger: How you can drive revenues and prot growthwith innovation, Crown Business, New York.

- Early majority: Thethird wave occurred in theearly 2010s and involvedcompanies wanting torestructure their innovationpractice and trying toimprove their efciencyin this regard, probablydue to a volatile economic

environment and the needto optimize the ROI ofinnovation investments.

Open Innovation is in our DNA

Dario Liguti, Strategic Marketing Director of France, GE Global Growth & Operations, GeneralElectric

As shown in Figure 3, these waves are notrelated to the industry. The trend is thesame for the three sectors of our sample:

chemical, communications & high tech,and FMCG (fast moving consumer goods).

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Figure 3: Open Innovation adoptionper industry for our sample

When asked when they actually startedto adopt Open Innovation approaches,companies draw a distinction betweenthe ofcial launch of OpenInnovation practices, which israther recent, and the existenceof collaborative practices that

traces back to older times. Indeed,about a half of the companies ofciallystarted intensifying Open Innovation(involving organizational change) in thepast three years (Beiersdorf, TDF). Thisis consistent with the existence of a real

buzz around Open Innovation and the factthat companies have been questioningand changing their innovation approachesin recent years. Nevertheless, many

companies state and prove by exemplarypractices, that they have had an open wayto innovate for a long time (Alcatel Lucent,GE, Coloplast, AkzoNobel). For example,the director of Alcatel Lucent Bell Labssays Bell Labs has been practicing Open

Innovation forever without knowing it.

At GE, the France Marketing Director incharge of Global Growth & Operationsdeclared Open Innovation is in our DNA.


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Figure 4: Ofcial start of an OpenInnovation strategy for our sampleby industry

Bell Labs has been practicing Open Innovation forever without knowing it

Jean-Luc Beylat, President, Alcatel Lucent Bell Labs

The diversity of partners and the timingof adoption of Open Innovation practicesshow how much this topic is related topublic policy regarding clusters. For the lastten years, many countries in Europe andthroughout the world have been creatingor encouraging the creation of clusters soas to foster innovation through rich localecosystems. In most cases, clusters are

related to an industry and bring togetherresearch labs, universities, SMEs and largecompanies involved in activities related tothe same industry (see Open Innovation,a multi-faceted phenomenon). In suchcases, these ecosystems are aimed atstimulating exchanges and cooperation

based on local proximity between potentialpartners. However,one should not think

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that Open Innovation necessarilyneeds to be based on geographicalproximity. Our interviews showed aglobal Open Innovation process wherecompanies search throughout the worldfor the best potential partners, eitherindividuals, research labs or suppliers,that can help them solve a technical ormarket problem and develop a suitableinnovation. Besides, some companiesoriginally operate in industries otherthan those of their potential partners,especially in the context of cross-industry

innovation and the convergence ofvarious product categories. Clusters areclearly the public policy pending ofOpen Innovation in the sense that theystimulate geographically anchored OpenInnovation practices and were developed

by governments at the same time as OpenInnovation was spreading throughoutcompanies. However, they do notnecessarily go together since OpenInnovation also generates long-distance and virtual cooperation.

Open Innovation covers a wide range of practices that go beyond the buzzword

- Companies cannot innovate by themselves anymore due to intensied andaccelerated competition, globalization and the economic crisis.

- They have to rely on a large network of partners and competences to innovatebetter and quicker.

- Open Innovation can involvevarious types of partners: Individuals (such as experts,retirees, end consumers); Research organizations (universities, private R&D labs); Businesspartners (clients or suppliers; SMEs or large companies); which are not exclusive.

- Many departments within the companycan be involved: R&D department, supply

chain, marketing- Many companies have always practiced Open Innovation but without using that particularterm.

- There have been 3 waves of Open Innovation adoption; a large majority of rms arecurrently opening their innovation processes.

- Clusters are encouraged in many countries to stimulate competitive ecosystems which,applied to innovation, stimulate an open approach based on geographical and industryproximity. However, Open Innovation also involves actors located in remote places based oncomplementary competences and industries.

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2. Partner relationships: How to makeexternal collaboration work?

Open Innovation, sometimes alsocalled collaborative innovation, sharedor distributed innovation, consistsin interacting with other people ororganizations to innovate and ndunexpected solutions to various problems.

From idea generation to product launchingand value sharing, it is crucial to managethe relationships with partners to enablesuccessful and preferably long-lastingcollaborations.

After just three years in existence, the joint INRIA / Bell Labs laboratory has already producedremarkable results. It is a step towards Open Innovation, in which we strongly believe, and along-standing collaboration between INRIA and Bell Labs

Jean-Luc Beylat, President, Alcatel Lucent Bell Labs - These results include 10 led patents andmore than 50 publications.

2.1. Types of innovation openness

One key decision to be made whendening a partnership strategy is

related to the level of openness thecompanies should adopt, concerning

both the prole of the partners and thetopics to cover through Open Innovation.

Based on our observations, we haveidentied three partner approaches.

Which of the three companies choosedepends on their specic identity, strategyand innovation objectives.

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Figure 5: Open Innovation matrix

Classical inter-rm cooperation:a partner and topic-orientedpartnership innovation approachcorresponds to long-term partnershipson specic topics. This approachhas been followed for decades withcompanies working with a public

lab or a well-known supplier ona specic topic in a cooperativeapproach. This differs from currentOpen Innovation practices in termsof the openness of the network ofpartners (trying to identify newpotential partners with a broader

view) and the larger range oftopics to be covered by externalcollaborations.

Topic-oriented Open Innovation:Companies try to nd the mostcompetent partners to collaborateon targeted burning issues. Theirsearch is open to any partner prole,

whether the company has previouslyworked with these partners or not.

The criterion for choosing fromamong potential partners is relatedto the topic they are seeking ideasand solutions for and to the typesof competences and solutions toprovide. Such companies denetheir strategic orientations andthen look for the best potentialpartners to help them achieve theirobjectives. For instance, Danone

Partner-orientedOpen Innovation

FullyOpen Innovation

Topic-orientedOpen Innovation

Classical inter-rmcooperation

Non

defined

Predefinied

Preselected Anyone

TO

PICS

Partners


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Baby Nutrition has adopted thisapproach, based on a rst strategicanalysis of innovation objectivesand priorities, and then on anopen search for potential partnersthat can help the company achievethese objectives. They call it anopen but focused innovationapproach. GE has launched twochallenges, Ecomagination andHealthimagination, on its web

platform to stimulate the submissionof breakthrough ideas on ways tosolve some of their current issues.These global challenges enable GE toidentify the best ideas to acceleratepower grid technology or cancerR&D through open collaboration.22

22 http://www.jsonline.com/business/49466327.html

How do you make a big organization innovative? You hand it a big challenge

John Dineen, President and CEO, GE Healthcare

Partner-oriented Open Innovation:Companies connect with partners

with whom they have alreadycollaborated and whose specicskills they value, and expect them tocome up with new ideas and projects(see General Mills case study).They do not form partnershipson specic topics but start them

based on reciprocal condence andexpertise. For instance, Unileverhas a portfolio of intimate strategicinnovation partners.

Fully Open Innovation: Companies welcome any partner (alreadyknown or totally new) who has anysuggestion (whether the ideas arein line with their strategic prioritiesor not). For instance, P&G wants tokeep the highest level of opennessand is ready to hear any type ofinnovation ideas coming from any

type of partner.

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In our sample, almost 70% of thecompanies interviewed practiceTopic-oriented Open Innovation,dening specic innovation objectivesand priorities and then looking openly forexternal partners. Partner-oriented OpenInnovation and Fully Open Innovationrespectively account for almost 50%and 30% of the companies studied.Interestingly, a quarter of our samplepractices several types of openness,entering two or three categories. Danone,

Phillips and P&G, for instance, leveragethe three types of Open Innovation. AtDanone, different perspectives can behighlighted between its Baby Nutrition and

Waters divisions. Danone Baby Nutritionhas lengthy experience and an establishedculture of Open Innovation and is moreopen in its search for potential partners,

while Danone Waters started practicingOpen Innovation more recently and isprobably more directive in its approach.

Figure 6: Degrees of innovationopenness

When analyzing rm proles, it appearsthat the most mature companies inthe Open Innovation process andspecically those which started Open

Innovation early and set-up successful toolslike online platforms and organizationalpractices (Phillips, P&G), are also thosewith the greatest degree of openness.


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It seems that companies usually rst begin by experimenting with a reducedlevel of openness as a way of testing anddeveloping new cultural, managerial andorganizational practices, before openingup the process once they have reached adesired level of experience, expertise andcondence in the rst stages. Because ofthe management complexity of being fullyopen and the length of the internal changemanagement process for Open Innovationacceptance, it is highly recommendedto open up innovation processesgradually.

Additionally, we observed a few specicpatterns for each industry: In the chemical and pharmaceutical

industry, Open Innovation appears to be more Topic-oriented (DSM,Merck, AkzoNobel), despite the lengthy

Open Innovation experience of someof the rms involved. This might be aconsequence of the extreme complexityand technicality of knowledge in theseindustries. Because of the capital andlabor intensity of knowledge creationin their elds, pharmaceutical andchemical companies are perhaps

more careful in fully opening up theirprocesses.

In the high-tech industry, OpenInnovation is often fully open(Phillips, Alcatel Lucent) reecting thenetwork and culture features of thisindustry as illustrated by open sourcesoftware development and Ciscosseminal practices.

Fast Moving Consumer Goodscompanies differ signicantly in theirlevel of openness, mainly reectingtheir specic culture and maturitylevel. Interestingly, nishedproduct manufacturers haveoften been those leading the way in Open Innovation (Procter& Gamble, Unilever, Danone, ArlaFoods, and General Mills) for the

whole supply chain and specicallyupstream partners, i.e. raw materials

and packaging suppliers. For example,Logoplaste, a packaging manufacturer,says it jumped into the Open Innovationpractice following several years ofexperiencing customers online OpenInnovation platforms, specically withP&G.

2.2. The breadth / depth trade-off for partnerships

Whatever the type of openness, mostcompanies aim at ending up with deepstrategic partnerships where thepartners not onlyprovide ideas or supplyparts, but commit on a medium - or long-term basis to cooperate with the companyon one or even several innovation projects.This is true for R&D projects as well asfor cooperation with suppliers, which areexpected to make a commitment in terms

of manufacturing capacity. However,achieving such objective requires sometrade-offs in setting up of the processas it appears to be difcult to build deeprelationships with a very large number ofpartners. As a consequence, companieshave to choose between enlarging thegroup of partners (breadth) and deepeningrelationships with a limited group ofpartners (depth).


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Their Open Innovation approach can bebuilt around two alternative objectives:

A broader network of partnersas a rst prioritywith an accepted,reasonable level of depth. Major reasonsfor such a choice include mitigating risk,diminishing uncertainty, broadeningthe pool of competencies and beingthe rst to launch a new idea on themarket. For example, GSK, which isat a mature level of Open Innovationpractices, deliberately prefers a wideapproach in order to broaden the

pool of competencies: The more youinvite, the better the output.23 Notethat crowdsourcing and co-creation

with end consumers, which we do notspecically study here, fall into thiscategory in the sense that long-termcommitment and deep cooperation isnot intended, while the key objectiveis to mobilize temporarily a very largenetwork of potential partners.

Danone approaches upstream people, as all individuals represent potential partners

Ren-Philippe Tanchou, CPO, Danone Waters

Fewer partners with deeperrelationships. According to Simardand West,24 deep networks mostly driveincremental innovations. In this case,companies are aiming at efciency andfavor a long term deep relationship

in order to develop very specic and valuable capabilities, as illustrated byTelstra: Weve deliberately reduced

23 Isherwood P., GlaxoSmithKline (2009), Makingit all happen: Implementing innovation FDIN OpenInnovation Seminar.24 Simard, C. & West, J. (2006), Knowledge

Networks and the Geographic Locus of Innovation, inH. W. Chesbrough & W. Vanhaverbeke & J. West (Eds.),Open innovation: Researching a new paradigm, 220-240, Oxford University Press

our supplier base so that we have fewerbut deeper relationships with ourvendors this enables us to encouragethem to innovate with us...25Companies have often deliberatelydecreased the number of their partners

in order to be able to better handlethese relationships.

25 Morelli A., Reznik G. (2009), Accenture OpenInnovation: How to create the right new products, in theright way, Accenture Outlook.

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However, as the split between these twoapproaches in our sample shows (seeFigure 7), Open Innovation currently

targets the number of partners more thanthe depth of the relationships.

40% of the partnerships we have involve multiple deals, multiple transactions, or multipleprojects, so we do feel there is a scale benet from using partners for multiple deals

Michael Duncan, Director of EMEA Connect+Develop Hub, European Director Open Innovation,P&G

Figure 7: Has your preferencetended toward having morepartners or deeper partnerrelationships?

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Interestingly, we observed that somecompanies are moving over time from oneapproach to the other. Specically, theycan afford to broaden the scope once theyhave accumulated valuable experience

with a limited number of partners andtry to replicate good practices with thenew ones. Other companies, such as ArlaFoods, are opening up their approach inthe rst step of the process in order to get

as many valuable ideas and competencesas possible. As a second step, they areselecting only a few potential partners(the most interesting and those theythink they will work best with) to deepenthe partnership and implement OpenInnovation. Actually, half of our sample isnow prioritizing deeper relationships, andis working on achieving them, rather than

broadening their network.

Figure 8: The breadth / depth trade-off for partnerships


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The trade-off between breadth and depthis also often related to the type of OpenInnovation to be implemented:

Companies practicing Partner-oriented Open Innovationare aiming at deepening theirrelationships with existing partners

by extending the number of topicsand innovation projects to collaborateon. Their approach is clearly towardsdepth more than towards a largernumber of partners. For instance,

when companies establish innovationparks with partners (Phillips, DSM)they plan to innovate more with thepartners in the park (see Philips HighTech Campus Eindhoven case study,and DSMs Chemelot industrial park).

Companies which practice Topic-Oriented Open Innovation aremore oriented towards breadth and

diversity of partners. However, theyusually leverage a targeted,limited number of partners,

whether business or academic partners.Danone Waters and Kimberly ClarkMexico are following this path. This

approach allows them to focus internalresources on specically targetedneeds as well as on achieving successfullearning and gaining experience witha limited number of partners beforeextending these successful practicesto a broader network when they havereached the required level of maturityand experience.

Mature companies in OpenInnovation practices can affordto widen the scope and varietyof partners as they have developedsuitable organizational routines26 for

building successful partnerships and want to benet from the richnessand reach of a fully open network.

Although they do not keep track ofthe number of partners when theyhave a fully open approach, they dohowever state that they benet fromreturning partners or developing

several types of projects with thesame partners. Procter & Gambleexplained the benet of deepening therelationship with a specic partner asan experience curve, reecting scaleeconomies and learning effects.

26 Nelson R. R., Winter G. (1982),An evolutionarytheory of economic change, Harvard Business Press,Cambridge, MA.

2.3. The key role of partner management

Once a partnership strategy is established,

companies have to dene how to identifyand attract potential partners. The success

of the Open Innovation approach relies

on the ability of the company to efcientlyachieve these two objectives.


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2.3.1. Partner identicationBased on companies experiences, one ofthe key points in Open Innovation activitiesis partner identication. Companiesneed to identify partners that willanswer their needs and will be ableto cooperate with them in the mostefcient way.

Overall, partner identication

strategy is strongly related to thelevel of openness, as well as the breadth,type and variety of targeted partners. Aspreviously discussed, these characteristicsare usually in turn related to the maturityof the company in Open Innovation.

Also, identication often involves atrade-off between the specic topicon which new ideas are sought andthe type of actors to target. AlcatelLucent says that it follows two distinctapproaches: either they want to innovateon a specic topic and look for relevantpotential partners on the specic issue orthey have identied a specic partner they

want to work with (usually because theyhad successful past experience with them)and lead them towards a new project ortechnology.

When companies are searching newpartners for specic topics (Topic-orientedOpen innovation), they can adopt two main

approaches:A partner pull approach consists

in announcing the topics for whichthey seek external options and thencollecting suggestions and solutionsfrom any potential partner. Suchposts can be made on collaborativeplatforms, either created ormanaged by the company (such asBeierdorfs Pearlnder or TDFs

TDF Connect) or by external actors(Innocentive27 and Innoget28 aregood examples of Open Innovationmarketplaces). They can also beannounced through open-days

where all types of potential partnersare invited, sometimes throughseries of conference and meetings,

where the company demonstrates its

latest innovations and expresses itsneeds and problems for future ones(for instance Alcatel Lucent Bell LabsOpen Days).

Another approach, that we might callpartner push, consists in settingup an internal structure in charge ofidentifying potential partners all overthe world. The structure then gathersinformation on them and contactsthem to explore the potential forcollaboration. For instance, P&G usesits House of Innovation in Israel tospot lead innovators in many elds.

Of course, the two approaches are notmutually exclusive. At General Mills,they use their web platform to identifylarge companies while using a moreproactive process to identify start-ups or small and medium enterprises,managed by dedicated experts aroundthe world. For universities they use

both processes.

27 http://www.innocentive.com/28 http://www.innoget.com/


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Case Study 3: Procter & GambleLocates Favorably to Identicationof Partners

P&Gs open innovation center, Israel

House of Innovation (IHI), wasestablished in 2007 as part of thecorporate Connect+Develop Strategy.Its mission is to leverage Israeli innovationcapabilities and culture partnering withIsraeli academia, private entrepreneurs,

venture capitalists and governmentalbodies in order to accelerate the companysinnovation worldwide. In September2011, IHI signed an agreement withHebrew University of Jerusalem faculty -through Yissum Research DevelopmentCo., the universitys technology transferofce - which allows P&G scientists andresearch leaders to partner on a newlevel with Hebrew University faculty andresearchers in areas, such as biology,chemistry, colloid and surface science todrive cutting-edge innovations that havethe potential to impact a wide rangeof P&Gs global product categories,according to P&Gs VP for corporateresearch and development Jeff Hamner.

According to Sophie Blum, GeneralManager of P&G Israel and IHI, theagreement will enable P&G to enjoy thebreadth of research done at the HebrewUniversity and collaborate on creating

innovative products that improve the livesof people around the world.P&G didnt choose Israel by accident: itis one of the worlds leading innovationecosystems.29 Sophie Blum explainsthat Israeli innovation capabilities stemfrom its culture (history, public policy,military service encouraging leadershipand entrepreneurship, the mindset of

young people, etc.) which is favorable toinnovation. Israel has more companiesquoted on the NASDAQ than any othercountry in the world, more than Europe,India and China combined. Israelattracts thirty times more venture capitalinvestment per person than Europe.The success of ICQ (a pioneer in instantmessaging later taken over by AOL)and ISCAR (an innovative metal toolmanufacturer created in the 50s in Israeland recently taken over by BerkshireHathaway) are a few examples of Israeliinnovation successes.

29 Senor D. & Singer S. (2009), Start-up Nation: The story of Israels Economic Miracle, Twelve, HachetteBookGroup, NY-USA.

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Our study also highlights other interestingpractices regarding partner identicationand reecting different maturity levels:

In companies that are beginningtheir Open Innovationpractices, identication isprecisely targeted, usuallytowards already existing partners,and does not require specictools, but rather the involvementof relevant internal teams. At TDF,they primarily focus on existingpartners - suppliers, universitiesand research centers. In approachestargeted at suppliers, procurementand purchasing departments arekey actors in identifying relevantpartners for Open Innovation basedon their knowledge of each partnerscapabilities, related to both theircooperation skills and more technicalability.

The companies which areopening up their OpenInnovation practices aregradually experimenting withnew tools and new partners.Thus, Beiersdorf launchedPearlnder in January 2011 asa trusted network, secured bothinternally and externally, so thatsuppliers have a guarantee that their

ideas are safe. Similarly but withdifferent means, AkzoNobel has setup a dedicated team responsible forscouting in the relevant businessunits.

Finally the most mature OpenInnovation companies are usingseveral tools and processesto identify partners. Overall,they are emphasizing their mindsetchange in their ability to be open toany type of new opportunity or newpartner. For example, General Millsreacted positively to an idea comingfrom one of their suppliers to launchsmoothies in the US market. Such anidea would never have been listenedto a few years ago yet it turned outto be a great success both for GeneralMills and for the supplier (seeGeneral Mills case study).

In sum, leaders in Open Innovationare developing a segmented approachrecognizing the diversity and thespecicities of each type of potentialpartner be they universities, venturecapitalists, suppliers, labs, etc. In that

regard, Elli Lilly provides a stimulatingexample of companies developing asourcing strategy for types of partner

with different contracting andrelationship management approaches.


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Figure 9: Innovation sourcingstrategy example from Eli Lilly andCompany30

30 Linder J., Jarvenpaa S., Davenport T. (2003)Innovation Sourcing Strategy Matters, AccentureInstitute for Strategic Change.

2.3.2. Partner attraction

Once identied and selected, partnersmust be convinced. To attract the rightOpen Innovation partners, knowing howto build, nurture and sustain relationships

with people in diverse organizations arekey levers.

Promote your companysstrengths: big companies canmention their size (existing network,

large internal talent pool), their brands or their history (tradition,experiences) to attract smallerpartners. On the other hand, SMEsand start-ups can emphasize theirexpertise and their exibility. To

set up win-win collaborations, eachpartner needs to nd complementaryor supplementary values.

Learn how to collaborate withdifferent partners: understandingand respecting partners practicesand constraints may be difcult toachieve, particularly when thereare signicant size or cultural

and organizational discrepancies between partners. For instance,although P&G was used to a veryformalized, hierarchical andprocess-oriented organization,they had to learn how to work with


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entrepreneurs. Outside partnersmust be seen as peers and not onlyas suppliers.31

Enhance a win-win scenario:Partnerships between distinctcompanies aim at combiningand leveraging complementaryresources and knowledge, as wellas or alternatively sharing thecosts and risks of developmentand investment.32 To benet froma relational advantage33, thecompanies concerned should avoidopportunism and unnecessarycosts in building and managing thepartnership. The underlying principleis that the expected outcome forcompanies is to create higher value together than they could

31 Chiaromonte F. (2006), Open innovationthrough alliances and partnership: theory and practice, International Journal of Technology Management,vol.33, n2-3, p.111-114.32 Hennart J.F (1988), A transaction costs theory ofequity joint venture, Strategic Management Journal,vol.9, p. 361-374.33 Dyer J.H., Singh H. (1998), The relational view:cooperative strategy and sources of interorganizationalcompetitive advantage, Academy of ManagementReview, vol. 23, n4, p. 660-679.

achieve separately and thereforeenhance each partners competitiveadvantage, providing this value isfairly distributed between them. Theaim is for both partners to equally

benet from the partnership thanksto a win-win scenario. At Coloplast,they strive to extract the highest

value from their partnerships as well as provide the best value totheir partners. They set up tailoredcontracts with each partner so as tohave the optimum cost by obtainingthe highest value out of working withthem. The successful partnership

between Kimberly Clark Mexicoand Velcro on Huggies is anotherexample of such a win-win situation.


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Case Study 4: An example of a Win-Win situation: Kimberly ClarkMexico and Velcro

Kimberly Clark de Mexico S.A.B. deC.V. (paper-based consumer products)is mature in terms of Open Innovation.The head of innovation at Kimberly ClarkMexico stresses that ensuring a win-winsituation plays a major role in attractingtheir partners. For instance, they worked

with Velcro on an innovation for Huggiesdiapers. They developed a second fastener

for a closing system which increased theproducts performance. This collaboration

was a deep one because both companiesdedicated a team to the project for two years.The partners were not only safeguarded

with a non-disclosure agreement, but both brands were advertised on the nalproduct packaging. This new product wasa commercial success and in addition to

beneting from increased sales, KimberlyClark Mexico beneted from know-howand Velcro from exposure in a new marketapplication.

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Successful Open Innovation also depends on the open character of the business model. Asknowledge has become companies key resource, Open Innovation needs to be embedded inan overall business strategy that explicitly acknowledges the potential use of external ideas,knowledge and technology in value creation

OECD (2008), Open Innovation in Global Networks

Establish a trustful and open business model partnership:successful Open Innovation

partnerships should build on trustand open business models in orderto avoid costly contract negotiationsand implementation as much aspossible. Trust is fundamental toOpen Innovation - internally as wellas externally even if the partnersof one day may later becomecompetitors. Our observations also

highlight the importance of carryingout regular appraisals of innovationsdone in partnership, in order to

assess these innovations currentvalue and decide whether to keep orrenew products/partnerships. Mostcompanies are more focused onprotecting their own knowledge andintellectual property than openingup new opportunities.

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Build a success story behindthe partnership. This includesthe ability to explain upfront to thepartners the potential benets of

working with the company as wellas the actual achievement of the

business case for the partner inorder to foster a future partnership.Previous success stories with otherpartners also help in convincing newpartners to start a collaboration.

P&G Connect+Develop extensivelycommunicates on its web enabledportal about its previous successstories with a downloadable brochurecontaining examples.34 On itscorporate website, General Mills alsohighlights examples of how OpenInnovation has driven innovationacross the company.35

Case

StudyCase Study 5: Kraft Foodsand Bosch Siemens innovationbased on complementary know-how and brands36

Kraft Foods and Bosch Siemens announcedtheir alliance in 2008 to launch thenext generation of the Tassimo brewer.It was the 2nd generation of the hot

beverage system, based on the Tassimopatented barcode technology that readseach barcode of the Tassimo discs andthen tells the machine which beverageto prepare (e.g. coffee, cappuccino, tea,

34 https://secure3.verticali.net/pg-connection-portal/static/external/les/cd_brochureWEB.pdf35 http://www.generalmills.com/Home/Company/Innovation/Our_stories

36 http://www.kraftfoodscompany.com/mediacenter/country-press-releases/us/2007/us_pr_09042007.aspx

hot chocolate) and how to optimize brewtime, temperature and amount of water.

A key driver for both partners to do thisproject was the belief that Kraft Foodsand Bosch have brands which have anexcellent t and complement each other,to the benet of consumers. As Jean-Christophe Nicodme, a former presidentof Bosch Home Appliances, underlines:We have been chosen for our reputation,our quality image, our technical, humanand marketing investment, as well as forour logistics know-how.37

37 http://www.lsa-conso.fr/kraft-s-allie-a-bosch-pour-relancer-tassimo,63186

2.3.3. Levels of formalization adopted for partner relationships

Some companies have extensivelyformalized the ways of identifying andattracting their partners, while others relyon a more case specic practice.

Based on the interviews we conducted, wecan distinguish three ways of doing OpenInnovation:


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Figure 10: Systemization of theOpen Innovation process

Case-by-case collaborations:firms which have not set up anyestablished process and cooperate

with their partners on a case-by-case basis. Approximately one fourth ofthe companies in our sample handletheir Open Innovation activities on acase-by-case basis, either exclusivelyor alongside their established

processes. GE, Logoplaste, Philipsand Arla Foods highlight theimportance of a tailored approach,

which they nd necessary due to the variety of projects and cooperationpossibilities.

Semi-standard process: certainrms dened a formalized processfor the rst few steps (mainly thephases of partner identication

and selection) but r

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