Open Innovation Requires Some Homework First

By James P. O’Shaughnessy

Jim O’Shaughnessy, former chief patent counsel of Rockwell International, sent us this article in the form of an email as he was preparing for a meeting with a prospective client. He agreed to share his thoughts on the homework required before taking an “open” innovation approach.

When a company is just beginning to ask itself some basic “first principles” kinds of questions about its own innovation agenda, there are two primary directions it can take, depending on the nature of the innovation. The one path is dominated by strategic innovation; the other by opportunistic innovation. Both paths have embedded business and legal issues that need to be addressed.

Strategic innovation is business plan-driven. The company will have adopted a strategic way forward in pursuit of certain corporate objectives. In accomplishing those goals, innovation becomes a key element.

In a previous era, a company would likely have adopted a “closed” innovation model. Behaving in accordance with the normative wisdom of the times, the company would have created all the technology it required to meet its innovation objectives. Today, most companies employ an “open” innovation model, the innovation analog to “make versus buy.” (See Henry Chesbrough’s book, Open Innovation.) Using this open approach, the company may choose to create certain technologies and acquire others where the acquisition may be along a development continuum from ideation to final production and delivery.

Even without realizing it, many companies are adopting a more modern open innovation model, developing internally those technologies important or essential to the organization and acquiring others complementary to them. There are several critical aspects to the effective use of such an approach.

One needs first to determine which technologies to make and which to buy. Making entails questions of core competencies, resource allocation and time to market.  Buying tees up its own set of questions, such as the form of the relationship with the contracting party and control of the resultant or acquired technology.

Opportunistic innovations are driven by external circumstances or events. They arise outside a demonstrable business or strategic technology development plan in at least one of two sense, where both involve opportunities to extract latent value from a given innovation or technology.  For example, technology purposefully developed for one reason important to the company may be adaptable to other implementations or uses outside the scope of the company’s principal interests.

Such a technology may have significant intrinsic value to the company within its scope of interest, but only latent value outside it. It takes focused programs to understand which innovations have this latent value capable of conversion into something tangible and then to identify who might be interested in taking the innovation into an appropriate market to realize that potential.

On the other hand, it sometimes happens that a potentially valuable innovation arises serendipitously, independent of any specific technology or business plan devoted in whole or in part to its creation. It once again takes focused programs to identify such an occurrence and then to harvest its value.

In both cases, a common factor in the exploitation of opportunistic innovations tends to be the company’s lack of complementary assets necessary for the conversion of the technology into a product or service to be delivered to some allied or adjacent market. Thus, realization of the opportunity afforded by this class of innovation relies on the identification of parties possessing such assets and effectively transacting with them, unless of course the company itself is willing o invest in the creation or acquisition of those complementary assets necessary to become vertically integrated.

Whether an organization is interested in pursuing a strategic innovation path, an opportunistic innovation path, or traversing both, understanding a few fundamental factors is essential at the outset.  One should have a clear vision of the role of technology in the organization, how and to what extent it will be funded, and the work it s expected to do in accomplishing important corporate objectives. These factors line up closely with strategic innovation.

On the other side of this ledger, a company rarely if ever sets out specifically to create options for opportunistic innovation; else wise it would not seem all that opportunistic. Nevertheless, the organization needs to evaluate its level of commitment to funding the sometimes costly process of eliciting those opportunistic innovations from the portfolio as well as their staying power in seeing through programs to capture the latent value of these wasting assets. Either way, as Seneca put it: “If one does not know to which port one is sailing, no wind is favorable.” Doing the right homework should fill the sails of the intrepid innovator.

About the Author:  Jim O’Shaughnessy is currently consulting with companies at the intersection of innovation and intellectual capital (property) management. He can be reached at jim@jposhaughnessy.com.

This article by Jim O'Shaughnessy originally appeared in Innovating Perspectives in January 2005. For other issues of our newsletter, please go to www.innovationsthatwork.com or call (415) 387-1270.  

© 2013 Vincent & Associates, Ltd.