Is Your Company Ready for Open Innovation?

The right open innovation strategy can yield performance benefits — but first your company needs to overcome “not-invented-here” and “not-sold-here” attitudes.

To foster open innovation, Procter & Gamble set up incentive systems to reduce not-invented-here attitudes among its employees.

Image courtesy of Procter & Gamble.

In the face of challenging economic conditions and growing international competition, many industrial companies are attempting to capture additional value from their technologies. In particular, many companies are trying to profit from open innovation, which involves actively collaborating with external partners throughout the innovation process. Many industrial companies now acquire technology from external sources in order to strengthen and speed up their internal innovation processes — an approach we call inbound open innovation. Companies also increasingly transfer some of their own proprietary technology to other companies by means such as licensing, to achieve various monetary and nonmonetary benefits.1 We call that approach outbound open innovation.

Several pioneering companies, such as Procter & Gamble, Dow Chemical, IBM and Hewlett-Packard, have strongly profited from pursuing open innovation strategies.2 Following these successful examples, managers have focused on the need to establish open innovation strategies based on active collaborations with external partners.3

The Leading Question

How can large companies successfully implement open innovation strategies?

Findings
  • Employee attitudes that favor internal innovation often impede open innovation approaches.
  • Companies whose employees have favorable attitudes toward both
    inbound and outbound open innovation achieve the highest average return on sales.
  • Managers should revise incentive systems to support open innovation methods.

However, many managers have insufficiently considered the challenges of implementing these strategies. Without a successful implementation process, the potential benefits of open innovation strategies will not materialize, and a company may lose some of its technological competitive advantage.4

The implementation of open innovation strategies is often impeded by employee attitudes that favor internal innovation. Such employee attitudes can be embedded in a company’s corporate culture, which has developed over time and may strongly affect employee behavior. Specifically, many companies’ corporate cultures are characterized by “not-invented-here” tendencies — in other words, negative attitudes toward inbound open innovation. Employees with “not-invented-here” tendencies do not want to acquire technology from external sources and instead want to focus on internally developing new technological knowledge. Not-invented-here attitudes may stem from limited or negative experiences with inward technology transfer and from inappropriate incentive systems.

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References

1. O. Alexy, P. Criscuolo and A. Salter, “Does IP Strategy Have to Cripple Open Innovation?,” MIT Sloan Management Review 51, no. 1 (2009): 71-77.

2. L. Huston and N. Sakkab, “Connect and Develop: Inside Procter & Gamble’s New Model for Innovation,” Harvard Business Review 84, no. 3 (2006): 58-66; and U. Lichtenthaler, “Open Innovation: Past Research, Current Debates, and Future Directions,” Academy of Management Perspectives 25, no. 1 (2011): 75-93.

3. F. Siebdrat, M. Hoegl and H. Ernst, “How to Manage Virtual Teams,” MIT Sloan Management Review 50, no. 4 (2009): 63-68; and U. Lichtenthaler, H. Ernst and J. Conley, “How to Develop a Successful Technology Licensing Program,” MIT Sloan Management Review 52, no. 2 (2011): 17-19.

4. Lichtenthaler, Ernst and Conley, “How to Develop a Successful Technology Licensing Program.”

5. Lichtenthaler, “Open Innovation.”

6. D. Kline, “Sharing the Corporate Crown Jewels,” MIT Sloan Management Review 44, no. 3 (2003): 89-93.

7. U. Lichtenthaler, H. Ernst and M. Hoegl, “Not-Sold-Here: How Attitudes Influence External Knowledge Exploitation,” Organization Science 21, no. 5 (2010): 1054-1071.