When manufacturers develop a process innovation, they frequently seek to keep it under wraps. But that’s often not the best approach.

Most research on open innovation has focused on the use of ideas and knowledge from outside the organization in the development of products and services. But openness can be useful for process innovation, too. Our research shows that manufacturers can benefit substantially when they look for ideas beyond the factory gates, especially when their operations are already advanced.

We often meet managers in manufacturing companies who keep process innovation activities tightly under wraps. Some see their processes as a source of competitive advantage that should not be shared with anyone. Others consider them organizational knowledge that could be detrimental to expose to outsiders.

Some companies have good reasons for keeping process innovations concealed. For example, a combination of process and product innovation often jointly results in competitive advantage for a company. If you have found a unique production process with which to manufacture a differentiated product — for example, a new metal alloy or a medicine — it can be wise to keep that know-how within the company. In such cases, there is an obvious risk of loss of intellectual property.

However, our research suggests that for many manufacturers, such defensiveness deprives companies of a valuable source of ideas for productivity improvement. We draw our conclusions from an analysis of nine years of survey responses from 1,000 Swiss manufacturers, as well as 200 interviews with personnel at the Volvo Group (AB Volvo), a manufacturer of trucks, buses, construction equipment, and marine and industrial engines that is based in Gothenburg, Sweden.1 One of the authors also visited 45 Volvo Group factories around the world. (See “About the Research.”)

References

1. Note that AB Volvo, the Volvo Group, is not the manufacturer of Volvo cars. Volvo Car Group is owned by the Chinese company Zhejiang Geely Holding Group Co. Ltd.

2. E. v. Hippel and G. v. Krogh, “Open Source Software and the ‘Private-Collective’ Innovation Model: Issues for Organization Science,” Organization Science 14, no. 2 (March-April 2003): 209-223.

3. T. Netland and K. Ferdows, “What to Expect From a Corporate Lean Program,” MIT Sloan Management Review 55, no. 3 (summer 2014): 83-89; and T.H. Netland and K. Ferdows, “The S-Curve Effect of Lean Implementation,” Production and Operations Management 25, no. 6 (June 2016): 1106-1120; and G. Szulanski and R.J. Jensen, “Presumptive Adaptation and the Effectiveness of Knowledge Transfer,” Strategic Management Journal 27, no.10 (October 2006): 937-957.

4. S.A. Zahra and G. George, “Absorptive Capacity: A Review, Reconceptualization, and Extension,” Academy of Management Review 27, no. 2 (April 2002): 185-203.

5. B. Hindo, “At 3M, a Struggle Between Efficiency and Creativity,” BusinessWeek, June 11, 2007, www.bloomberg.com.

6. E. v. Hippel and G. v. Krogh, “Identifying Viable ‘Need–Solution Pairs’: Problem Solving Without Problem Formulation,” Organization Science 27, no. 1 (January-February 2016): 207-221.

7. See “Taiichi Ohno,” The Economist, www.economist.com, July 3, 2009; and T. Ohno, “Workplace Management” (Portland, Oregon: Productivity Press, 1988).

8. See, for example, McLaren Technology Group, “Case Study: GSK,” May 15, 2014, www.mclaren.com.

i. K. Trantopoulos, G. v. Krogh, M.W. Wallin, and M. Woerter, “External Knowledge and Information Technology: Implications for Process Innovation Performance,” Management Information Systems Quarterly 41, no. 1 (March 2017): 287-300.

ii. Netland and Ferdows, “What to Expect From a Corporate Lean Program”; and Netland and Ferdows, “The S-Curve Effect of Lean Implementation.”