Stimulate innovation

Open innovation | Stimulate innovation

Expanding the realm of the possible

Picture in your mind a funnel. It’s wide at one end and narrow at the other. There is

only one way in, and only one way out. For many companies, this is an apt metaphor

for their innovation process. While a large number of ideas may flow into the wide end

of the funnel, only a few exit the narrow end as products and services. Ideally, the

“survivors” in this linear innovation process are a company’s best bets— commercially

viable, innovative products and services ready for the market.

Now take that same funnel and punch some holes in it. Those holes enable multiple

points of entry—and exit—along the innovation process. A half-formed idea that enters

the funnel in the middle may emerge out the narrow end as a commercially viable

product. Or a concept that enters at the wide end may exit out of a hole somewhere in

the middle and go out of the company for further development. For example, a

company that has matured a technical capability into a patentable technology may

choose to license out that technology rather than making it into a product itself.

Rarely is the process linear from entrance to exit.

A punctured funnel is an apt metaphor for “open innovation,” an operating model

popularized in 2003 by Henry Chesbrough with his book, Open Innovation: The New

Imperative for Creating and Profiting from Technology. At the wide end of the funnel

may be alliances with universities, corporate partners, online communities, and IT

startups; exiting the funnel mid-stream may be IP licensing agreements, corporate

venturing partnerships, spin-offs, and spin-ins. The punctured funnel encompasses the

idea of leveraging a broad external ecosystem and community to support a company’s

innovation efforts and resource pool.

Open innovation

Leading practices

One prime example of open innovation done right is the platform for apps created by

smart phone operating systems. These mobile platforms attract innumerable

developers eager to gain customers with their apps. The choice among these many apps

has created an ecosystem of seemingly limitless creativity and commercial offerings

beneficial to both the smart phone manufacturers and the companies creating the apps.

C-suite executives who want to embrace an open innovation operating model should

align their companies’ culture, rewards, and operating practices to support an open

innovation mindset, and employees should be encouraged to access promising external

resources. This is often very difficult for companies used to operating under a

traditional R&D model, which espouses a fiercely competitive mindset and typically

rejects alliance opportunities. Employees used to the model may initially be alarmed by

the idea of sharing intellectual property with another firm.

To change attitudes like these, management should embrace organizational structures

and processes that are open to mutually beneficial alliances and partnerships. They can

accomplish this by making business unit leadership responsible for the success of

specific alliances and by establishing cross-functional groups that oversee partnerships

from formation to marketplace success.

C-suite executives who want to embrace an open innovation operating model should align their companies’ culture, rewards, and operating practices to support an open innovation mindset.

Adapted from Henry Chesbrough,

Open Innovation: The New Imperative

for Creating and Profiting from

Technology, 2003.

The Open Innovation Paradigm

Research Development

Internal

technology base

External

technology base

Licensing

Technology

insourcing

“Boomerangs”

Other firm’s market

New market

Current market

Technology spin-offs

How PwC can help

For a deeper discussion about how this topic aligns with your business, contact

our team:

David SkovPartner PwC’s Strategy & Operation T: +45 3069 5910 E: djs@pwc.dk

Torsten Moe Partner PwC’s Strategy & Operation T: +45 4057 7413 E: tsi@pwc.dk

To continue your exploration, visit www.pwc.com/stimulateinnovation

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Common mistakes

There are a few challenges to open innovation that companies should seek to overcome

at the outset:

• Not Invented Here (NIH): This stumbling block is so common it has acquired its

own acronym. This sentiment occurs when an acquired technology or product

becomes an affront to the pride of ownership. In-house talent may not want to work

on a product or service that was “not invented here.” Everyone from your creative

designer to your visual artist to your product development engineer may resist

leveraging something designed by another company, arguing that internal talent

could achieve the same goal. The problem is acute in technology-driven and

engineering-heavy companies. Combatting this attitude isn’t easy. It can take a

while for a mindset that favors co-creation to take root.

• Don’t assume you already have the right skill set for this model. There’s a

specific skill set for the functional roles and responsibilities needed to make open

innovation work. For example, if you are “crowdsourcing” a solution, entering into a

corporate venturing agreement, or acquiring intellectual property, you need people to

manage these agreements and make sure everyone is on the same page. That’s a

different skill set and a different function than that of traditional sourcing people or

development engineers.

• It’s a matter of trust. The foundational ingredient for any successful

collaborative effort is trust. An environment conducive to collaborative innovation

doesn't occur by accident. It needs to be nurtured in a safe, trusted, and open

environment where parties can engage with one another without the fear of losing

valuable intellectual property or unfair value exchange on the back end.

Critical success factor: Collective thinking

Perhaps more than any other

innovation operating model, open

innovation requires thinking outside

the box. This thinking was crystalized

in 1996, when an entrepreneur

offered $10 million to any individual

or team worldwide who could come

up with a commercial passenger

vehicle that could successfully travel

into space.

The name of the contest was the

Ansari XPRIZE for Suborbital

Spaceflight. The challenge was taken

up by 26 teams in seven countries and

was ultimately accomplished by an

American team in 2004 with its

vehicle, SpaceShipOne. Since 2004,

several additional XPRIZEs have been

given, for solutions ranging from

ultra-fuel-efficient vehicles to oil spill

clean-up methods.

The crowdsourcing that these

contests espouse mirrors the ability of

the punctured funnel model to

leverage multiple sources and

communities to collectively work

toward innovative solutions. By

opening themselves up to a variety of

strategic relationships, companies can

truly expand the realm of the possible.