The Further Evolution of Open Innovation

Kevin Pang

The idea of an organization where ideas, insights, and information seamlessly float in and out is much more difficult to manage and monetize than we expected. Likewise, it is easy to see why so much of the spotlight is being placed on data analytics and artificial intelligence. While these emerging technologies promise to alleviate some of the burden of finding insightful ideas that can be executed in new projects, it is not the panacea that most imagine. We previously gave a webinar on some thoughts in this area, which we at Lux call Open Innovation 2.0. 

In the early 2000s, Dr. Henry Chesborough defined open innovation as “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.” Now, 15 years later, companies pursuing open innovation often find themselves deluged with information, analyses, and processes that have yet to move the needle in terms of actually accomplishing greater innovation.

OPEN INNOVATION LUX RESEARCH

This again brings us back to the past. Philosopher Georg Hegel was passionate about understanding the larger experiments of history – the large swaths of time during which ideas and societal norms are established mostly through constructive conflict. To this end, he described his reasoning as characterized by one pole he termed the “thesis” and its polar opposite, the “anti-thesis.” The two are linked by the goal of establishing an optimal state, a state Hegel labeled “synthesis.” A new status quo is thus established until circumstances change to start the process over again. This back-and-forth process has been termed by Hegel’s proponents as the “Hegelian Pendulum.”

Over time, this process, if constructive, should lead to forward progress in social thinking and dynamics, as illustrated in the figure below.

Lux Research Open InnovationSource: https://therevisionists.wordpress.com/2012/12/15/the-economics-of-politics-and-the-arguments-against-the-political-pendulum/

So why are we telling you this? We can see Hegel’s pendulum in action where it concerns R&D and innovation. Some of our colleagues in pharma-land lament the swing of the pendulum. It took them away from the multibillion-dollar deals we witnessed in the 1990s and early 2000s, when the stunning advances in genomics captured the popular imagination and personalized medicine was right around the corner. Doing big deals was the thesis of the day. Needless to say, many investors, private and pharma alike, might still not have adequately captured sufficient return of capital, much less return on capital. But as the pendulum swung to its anti-thesis of going back to basic research at universities, I still hear today that we have not reaped numerically enough scalable pharmaceutical invention and innovation. At Lux, we think we might be reaching the same type of pendulum swing with respect with open innovation. Witness pre-2000 innovation, which I’ll call internal or “closed innovation,” in the figure below:

Lux Research Open Innovation-1

  • Closed Innovation: In this thesis, all innovation occurs internally. Companies are measured by the percentage of revenue dedicated to R&D and how many publications and patents are generated, and of course, ultimately, how many new products emerge at the end of the funnel.

With increasing globalization of markets and competition, investors became concerned that this model would not produce sufficient innovation and new products and services within established companies.  Thus, by 2002, the anti-thesis arose: open innovation, as illustrated below.

open innovaiton lux research

  • Open Innovation: Advocacy for the ability of the organization to have ideas, insights, IP, and innovation to flow into and out of the organization at any point in the innovation funnel.

Almost 20 years on, we can sense that a Hegelian synthesis looms on the horizon. Many business publications, as well as many of our clients state that they have yet to fully harness the idea of open innovation, let alone optimize it. Their ability to suck in external information, insights, ideas, IP, and invention into the organization has yet to materialize. 

My key takeaways are twofold:

  1. Innovation is hard – it is basically serendipity at work, the ability of the right idea to strike at the right time in a way that can be economically leveraged for new value creation. We spend all our time trying to find ways to structure or engineer for serendipity, viz., create greater probabilities for invention and breakthrough to happen, but this is complex.

  2. Command and control are required for purposeful inflow and outflow to sufficiently execute due diligence that what is flowing in and out truly has relevance and value to the organization. This requires skilled people, energy, and time. I daresay it is impossible for the organization to manage value if all of these holes are present in the funnel.

In retrospect, or in true Hegelian synthesis mode, it is overly hopeful to think that cramming more things through the innovation funnel without managing the bottleneck is going to improve any kind of meaningful output. Drilling holes in the funnel still doesn’t allow us to push more through the funnel. It might allow things to escape, but as many of our clients can attest, knowing which things to let go and knowing their place and value in the external world is an entire endeavor unto itself.

A much smaller-scale example is the Fall 2018 issue of the “Sloan Review,” which has an interesting article by Sheila Dodge, Don Kieffer, and Nelson P. Repenning called “Breaking logjams in knowledge work.” The article discusses the Broad Institute’s efforts to build an internal genomics service center.  Pushing more projects through resulted in logjams, more work in process, and delays in delivery. If every project has the exact same urgency, then no prioritization can occur, and only massively parallel processing can solve the problem, which brings up cost and manpower.  By instituting a pull-based system and creating prioritization rules, the institute was able to significantly eliminate backlogged work in process and speed delivery of services.

I suspect that this is the case with the funnel framework for open innovation – too much push and not enough pull. The funnel is useful in construct, as it helps us to convey the idea of a filtering process with an implied utility of finding things of value, but it is not decidedly not useful in that it confuses us about how physics and the world works. Filtering through a funnel is a decidedly slow and steady-state task; it does not enable any speedup of process. Punching holes in either the front end or back end of the funnel as mentioned above does not speed flow through the pinch point or bottleneck of any funneling process. We need a new model.

One idea is not to filter through funnels but more through a membrane analog to build networks that innovation can break through at any point in the network. Another idea is to stop pushing and start pulling, creating market pull. A great example of this is Evonik’s creation of its Creavis subsidiary. Creavis creates “project houses” that undertake exciting moonshot projects, attracting talent, energy, partnerships, and publicity. Success in the mission of any one of the project houses creates a new market that pulls and creates demand for the materials and products of the parent company. To do this well is to map the adjacent markets you wish to and can enter. It means taking the time to understand the likely technology roadmap of each adjacency and attacking purposefully. It also means that in the meantime, while waiting for serendipity to strike, interesting ideas and IP accrue.

So, what are you doing to remove the bottleneck in your innovation process, and what are you doing to harness market pull for your organization?

Further Reading:

-Video: Lux Executive Summit Global 2019 - Innovating Innovation: Re-Evaluating Roles, Process, and Results
-On Demand Webinar: Open Innovation 2.0 (Members Only)
-Report: Innovating Innovation: How Data Science is Changing Innovation Management (Members Only)
-Blog: LES Global 2019 Highlights: Arij Van Berkel