Two Directions of Open Innovation  

POSTED BY Adam Bulakowski AT 12:21 P.M. December 17, 2015

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For more than a decade, firms have focused much of their "open innovation" (OI) efforts on one direction - inbound OI. The push has been fueled in part by a wealth of scholarly articles and disclosures by the likes of Procter & Gamble about accessing the marketplace of outside ideas. For example, in 2006, P&G published that it had achieved 35% of the company's innovations from open techniques, and in 2011, it reported no significant cost increase from OI.

The success of inbound OI depends on overcoming commonly cited challenges, such as confidentiality concerns, processes favoring proximity and familiarity, the "not-invented-here" mentality, and other company culture constraints. Surveys, such as the one below, show that firms employ a wide variety of inbound approaches across their ecosystems.

On the contrary, few firms employ outbound OI approaches, as evidenced by the survey below.

The outbound direction of OI, while arguably less intuitive, offers a number of opportunities for firms to capture value from either internally generated or acquired innovation. In other words, outbound OI seeks to improve returns on underutilized assets, such as internal innovation or acquired R&D. Commonly cited challenges to outbound OI include management structure and incentives, capability gaps, and inefficient transaction markets.

Three interrelated outbound OI approaches are spin-off ventures, ecosystem development, and IP monetization. Each approach deserves its own future article. But the primary takeaway for outbound OI is that a firm's ability to generate returns depends on the fit between the OI approach(es), IP management strategy, and the firm's overall business model. As with inbound OI, an internally coherent plan significantly increases the probability of a successful outbound OI program.

TAGS: Adam Bulakowski | Innovation | Outside Publication | Open Innovation | Disclosures
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