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DELPHINE MANCEAU, VALRIE MOATTI, JULIE FABBRI, FROM I7 INSTITUTE, ESCP EUROPE PIERRE-FRANOIS KALTENBACH, LINE BAGGER-HANSEN, FROM ACCENTURE

OPEN INNOVATION

Whats Behind the Buzzword?

Analysing what Open Innovation Changes in the Way Companies Innovate in terms of Partner Relationships, Internal Organization and Innovation Performance

Delphine MANCEAU, Valrie MOATTI, Julie FABBRI, FROM I7 INSTITUTE, ESCP EUROPE Pierre-Franois KALTENBACH, Line BAGGER-HANSEN, FROM ACCENTURE 22 NOVEMBER 2011

2011 ESCP Europe & Accenture. All rights reserved. This document is for general information purposes only.

OPEN INNOVATION

Whats Behind the Buzzword?

Executive Summary
Innovation is higher than ever on companies agenda. 62% of executives interviewed in a recent survey say their business strategy is largely or totally dependent on Innovation. In todays globalized competitive environment, innovation has become the key criterion by which you can assess how good a company is and how good it is likely to be in the future. To give an example of this innovation play in the emblematic mobile phone industry, Apple, RIM and HTC, the three most innovative companies in the industry, capture more than 50% of the total profit pool with less than 10% of the industrys volume because they are ahead with innovation. In todays world, companies are required to innovate more and faster than ever before. Innovate more not only to address more demanding and fastly changing customers but also to respond to the specific needs of emerging markets. ChotuKool, the $69 fridge and Nano, the $ 2,200 car are well known examples of the so-called frugal innovation challenge that major corporations are now facing in emerging markets. Innovate faster to cope with products and services shorter life cycle and create new uncontested Blue Ocean1 market spaces. Apple only had 20 months with the highly successful mini Ipod before making the decision to replace it with the Nano Ipod.
1 Chan K., Mauborgne R. (2005), Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, Harvard Business School Press, Boston.

In this context, the concept of Open Innovation has attracted a lot of attention in both company board rooms and schools of management. Companies in all countries develop collaborations with other companies and individuals to get new ideas and to develop new products and services. They also let others exploit their unused ideas which in turn can become profitable ventures. The conjunction of academic recognition following Henry Chesbroughs creation of the concept in 2003 and the benefits claimed by P&G with its Connect+Develop program have made Open Innovation the new frontier for Innovation that no company can afford to ignore. Based on qualitative interviews and the latest academic thinking on the subject, Accenture and the Institute for Innovation and Competitiveness i7 created by ESCP Europe have tried to go beyond the buzzword and have investigated what actually lies behind this concept. They therefore studied 20 companies that are actively leveraging Open Innovation to boost their overall innovation performance. The sample was selected from among large international companies for whom innovation is a priority and which have extensively communicated on their Open Innovation practices for several years. The starting point of this research was to question whether Open Innovation is really a new business praxis, a real innovation, or old wine in a new bottle that companies have been practicing for decades without calling it that. To answer this question, we analyzed what Outside-In Open Innovation changes in the

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way companies build and manage external partnerships, organize and stimulate innovation internally and what impact it

has on innovation performance.

A structured and systematic approach for bringing Outside Inside The majority of the companies we studied are quite clear on the fact that a good portion of what is described today as Open Innovation was around long before the concept was even invented. As Jean-Luc Beylat, the director of Alcatel Lucent Bell Labs puts it, Bell Labs have been practicing Open Innovation forever without knowing it. However, while elements like the early involvement of suppliers in New Product Development or collaboration with Universities on research programs were there before, Open Innovation has prompted a real shift from rather random/experimental approaches to a manageable end-to-end process. What is new with Open Innovation is the systematic and structured effort related to the organizational structure, behavior, processes and tools that companies are mobilizing to bring outside inside.

A fast pace of adoption: only 10 years from first movers to wide adoption Open Innovation primarily pertains to fast clock speed companies where the innovation imperative is the most prevalent: consumer goods and high tech to mention the two most important areas. There have been three waves of Open Innovation adoption and a large majority of firms are currently opening their innovation processes. The innovators, in the early 2000s, were the first corporate initiatives related to Open Innovation, triggered by the P&G Connect+Develop initiative; The early adopters, in the mid 2000s, were the second wave of fast followers that appeared in all types of industries; The early majority, up to the early 2010s, relates to the third and major wave with companies leveraging Open Innovation to rejuvenate their growth agenda in the volatile and difficult economic environment.

OPEN INNOVATION

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Tapping into an almost unlimited number of external sources Looking at the potential sources for external knowledge and ideas, our research highlights the dramatic increase in the number of external sources that a company can potentially tap into. Consider suppliers, the most cited external source of Open Innovation according to our interviewees. With the generalization of the so called low cost country suppliers, companies are now dealing with a much wider potential supply base. It is the same with universities and scientists. For each of its researchers, P&G estimates that there are 200 scientists or engineers elsewhere in the world who are just as good - a total of perhaps 1.5 million people whose talents P&G could potentially use. Just to give an example of this new context, one of our respondents systematically screens Chinese universities to identify and qualify skills and expertise to be leveraged as part of its Open Innovation process. With Open Innovation, companies have entered a new era with an unlimited pool of potential partners, which also generates huge operational challenges.

Positioning the Open Innovation strategy on the right openness scale When defining an Open Innovation strategy, companies need to answer several questions such as: with whom? About what? How? The answer is often to gradually open the partner network and progressively widen the topics, since the most open approaches are implemented by the more mature companies that have been developing Open Innovation for several years. Indeed, various degrees of innovation openness exist and Open Innovation is not always synonymous with full openness. We identified three types of Open Innovation approaches: Topic-oriented, Partneroriented and fully open. The first two are open but focused either on relevant topics for innovation defined in coherence with the innovation strategy, or on specific partners with whom the company has had a previous and successful experience. Most of the companies interviewed practice Topic-oriented Open Innovation, implying that they have defined a precise innovation agenda and have a specific objective in mind when scouting for external partners. This topic orientation enables them to open wide the search for new partners. Other have a partner-oriented approach, especially in R&D, since they aim at intensifying relationships with partners they already work successfully with, progressively covering more and more topics. However, the most mature companies in the Open Innovation process and specifically those that started Open Innovation early are also those with the highest level of openness. Note also that some companies simultaneously follow several types of Open Innovation approach, focusing on some topics for certain specific projects, searching for ways to work more with

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some existing partners on any topic and being fully open in specific areas.

Non defined

Partner-oriented Open Innovation

Fully Open Innovation

TOPICS

Predefinied

Classical inter-firm cooperation

Topic-oriented Open Innovation

Preselected

Anyone

Partners
Defining the right balance between depth and breadth of relationships with partners Building deep relationships with a large number of partners is difficult if not impossible. Therefore, companies practicing Open Innovation have to find the right balance between breadth and depth for partnerships between reaching out to the largest group of partners versus deepening the collaboration with a limited group of them. As for the level of openness, our research highlights a learning curve with the most advanced companies widening the scope and variety of partners. For instance, General Electric has launched two contests called Ecomagination Challenge and Healthimagination Challenge that are open to any type of potential partner including individuals, small enterprises and is aimed at collecting any type of new ideas for projects.

OPEN INNOVATION

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Excelling at the partner management process Partner management is a key dimension of the Open Innovation process. As a result, all companies have more or less structured identification, attraction, and retention processes. For Topic-oriented Open Innovators, partner identification can follow a partner pull approach (through Open Innovation marketplaces created by the company or more widely open such as Innocentive) or a partner push approach (setting up an internal structure in charge of identifying and scouting for potential partners all over the world). As for partner management, three types have been identified from a case-by-case approach to a highly structured process covering all the steps in the relationship like the Want, Find, Get and Manage model. Again, the more mature they are, the more structured and routinized these processes have become with the most advanced companies customizing the approach according to the type of partner (e.g. suppliers, researchers, startups...). Whatever the process, setting up a trustful environment geared at developing win-win collaboration is the golden rule for Open Innovation to deliver long term results.

There is no Open Innovation free lunch Unlike Open Source or Open bar, Open Innovation is not free. All our interviewees have invested in dedicated capabilities like organization, skills, tools and governance to make Open Innovation happen. As for organization, companies usually start with a dedicated organization to ensure the right level of focus and management attention. The number of dedicated staff varies from a few people in companies where Open Innovation is quite recent, to up to 25 experts in mature companies. Open Innovation is also a technology play. Most if not all our interviewees are also investing in a collaboration platform like NineSigma (60% of our respondents) to enhance idea stimulation, facilitate idea collection and foster cross-functional collaboration. While demanding in terms of both resources and budget, these platforms are a key enabler to open up innovation beyond existing partners.

It is not only about appointing a Chief Open Innovation Officer Shifting a companys attitude from resistance to not invented here innovations to enthusiasm for those proudly found elsewhere is anything but straightforward. All our interviewees insisted that this culture conversion was the number one challenge. This is why Open Innovation is all about change management. As a result, all the companies we surveyed are investing in

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people, processes and training to embrace the Open Innovation culture and enhance their absorptive capacities. Recruiting new profiles, launching dedicated training programs, and including Open Innovation metrics in personal objectives are some of the most common levers mentioned by our respondents. The ultimate goal is that Open Innovation culture should be spread throughout the company,

so that it becomes a natural part and a recurring way of practicing innovation. As A. G. Lafley, a former CEO of Procter & Gamble used to say, To succeed, companies need to see Open Innovation not as something special that only special people can do, but as something that can become routine and methodical, taking advantage of the capabilities of every employee.

Open Innovation has not resolved the Innovations Bermuda triangle There is usually a contrast between the importance given to innovation within companies and the way its performance is monitored: innovation is widely under measured and most companies are somewhat frustrated with the metrics they use. Therefore, it was interesting to find out whether or not Open Innovation has led to any improvement on this performance tracking challenge. This answer is no and most companies are still struggling to come up with a robust performance dashboard reflecting Open Innovation performance, even though they try hard to set up Open Innovation KPIs. All our respondents recognize the challenge and are working on improving the metrics. Two types of approach (which are not mutually exclusive) to Open Innovation performance measurement can be considered by companies: introducing Open Innovation specific KPIs in the overall dashboard (e.g. number of partners, number of ideas coming from outside and so on) or following to what extent Open Innovation approaches enhance the general innovation KPIs. These KPIs can be related to the input, process and output of Open Innovation so as to measure the efforts, the process changes and the outcome of the approach.

Open Innovation works! From the interviews we conducted, Open Innovation seems to have a real impact on companies innovation performance: Open Innovation shortens the time to market, contrary to what one may expect about cooperation between several and diverse organizations. It may also confer a big competitive advantage since it shields against the negative impacts of copycats, especially for SMEs; Open Innovation is not really cheaper than in-house innovation, but is useful to mitigate

OPEN INNOVATION

Whats Behind the Buzzword?

the risks. In many companies, there might be a time/cost trade-off; Open Innovation improves Intellectual Property protection, which is a paradoxical finding of our research. In a collaborative context, it is highly preferable to clarify each partners IP rights, even though setting up a legal agreement may involve long and complex administrative procedures. Open Innovation thus leads to more protection for innovations; Open Innovation helps promote a sustainability agenda. Open

Innovation has been seen to be an ideal way to address sustainability projects, to involve more actors (e.g. in a community, or unusual partners) and achieve breakthroughs with more sustainable innovations; Open Innovation enhances the companys innovativeness. As innovation is rooted in an economy of quantity, the more you innovate, whether through Open Innovation or not, the greater your chances of success.

Conclusion
Beyond the buzzword, Open Innovation is driving a real change in the way companies innovate and helps them innovate more, faster, greener and sometimes cheaper. Open Innovation is focused on discovering new ideas, reducing risk and leveraging scarce resources, and paradoxically, it improves companies IP protection. The business model for Open Innovation is a key part of its success. Trust and absorptive capacity are key ingredients of win-win situations. As we learnt from our observations, bringing external knowledge to the company is nothing like a free lunch that delivers results without investments, management support and a companywide cultural conversion to openness and collaboration. However, nothing would be more misguided than to see Open Innovation as a substitute for in-house innovation. To take full benefit of the innovation achieved through the involvement of external partners, companies should combine these external resources with their own specific competences. This report also shows that companies which have a certain level of maturity with Open Innovation set themselves up to make Open Innovation part of normal business. This indicates that Open Innovation is more than a management fad and will become integrated in a new way for companies to innovate. According to Katja van der Wal, Open Innovation Director at Philips Customer Lifestyle, Open Innovation will be the standard way of thinking, acting and working.

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Acknowledgements
This report combines the result of academic research and 20 interviews with companies that have been actively involved in Open Innovation for many years, considered as lead users in Open Innovation. These interviews make up most of the content of this report with multiple case studies, examples and lessons learnt from Open Innovation initiatives and programs across multiple companies and industries around the world. For that, we want to thank these managers who contributed to this work, by taking the time to share their point of view, experiences and knowledge.

Company
AkzoNobel Alcatel Lucent Arla Foods Beiersdorf Coloplast

Name
Harmen Kielstra Jean-Luc Beylat Henrik Jorgen Andersen Andreas Clausen Patrik Gavelin

Job Title
Head of Open Innovation, AkzoNobel Decorative Coatings Ltd President of Alcatel Lucent Bell Labs Head of Corporate Research and Development Group Manager R&D Raw Material Management Chief Innovation Partnership Manager Global R&D Technology Global Sourcing & Supplier Development Director, Indirect spend, 3rd parties & Innovation partnerships, Baby & Medical Nutrition Divisions CPO VP Open Innovation Responsible for Accounts of the Public Sector, GE International Strategic Marketing Director of France, GE Global Growth & Operations Senior Manager R&D Director, Innovation and Technology development

Danone Baby Nutrition Didier Morisseau

Danone Waters DSM

Ren-Philippe Tanchou Robert Kirschbaum Olivier Carmier

General Electric Dario Liguti General Mills Kamel Chida Jos Antonio Lozano CorKimberly Clark Mexico dova

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Company
Kraft LOral Logoplaste Merck

Name
Dr. Miles Eddowes Simon Clment Paulo Correia Dr. Michael Gerards

Job Title
Associate Director Open Innovation Corporate Purchasing Europe, CoPacking Operations R&D Director Head of Technology Director, Technology Office Chemicals, Idea & Knowledge Management Director Open Innovation, Philips Consumer Lifestyle, Innovation, Marketing & Strategy Responsible Open Innovation R&D, R&D Director for Global Baby Care, Technical Site Leader Director of EMEA Connect+Develop Hub, European Director Open Innovation General Manager P&G Israel and IHI (Israel House of Innovation) Head of Advanced Procurement Head of Innovation & Multimedia Purchasing Manager, Thales Research & Technology President, Monnier Innovation Management (MIM) Director of Supplier Innovation and Innovation Acceleration

Philips

Katja van der Wal

Heidi Piper Procter and Gamble

Michael Duncan Sophie Blum

TDF

Alain Poret Thomas Bremond Bernard Monnier

Thales

Unilever

Dr. Graham Cross

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The Authors
We have conducted a joint research project bringing together the competences of i7, the Institute for Innovation and Competitiveness, a European Academic Think Tank created by ESCP Europe Business School, and Accenture Management Consulting specialists. We built a joint team of academics and consultants to promote our views and analysis of innovation practices and processes, supply management and cross-company collaborations. Delphine MANCEAU CEO of i7, the Institute for Innovation and Competitiveness Professor at ESCP Europe manceau@institutinnovation-competitivite. eu
Delphine Manceau is a specialist of marketing and innovation, topics on which she has published many papers in international academic journals and books. She is a coauthor of the French edition of the textbook Marketing Management with Philip Kotler, Kevin Keller and Bernard Dubois (14th edition forthcoming) and wrote Marketing of Innovations with Emmanuelle Le Nagard published in 2011. With Pascal Morand, she coauthored a report for the French Minister of the Economy, Ms Christine Lagarde, on the innovative capacities of French and European companies, entitled For a new approach of innovation (French version published in 2009 ed. La Documentation franaise, updated European version in English in print). Delphine graduated from ESCP Europe with an M.Sc in Management, earned her Doctorate and postdoctoral authorization to supervise research (HDR) and was a Senior Fellow at Wharton School (University of Pennsylvania).

Pierre-Franois KALTENBACH Partner, Operations Lead Europe, Accenture Management Consulting pierre.f.kaltenbach@ accenture.com
Pierre-Franois Kaltenbach has more than 15 years experience in Operations consulting. Pierre-Franois key areas of expertise are Sourcing and Operational excellence on which he has authored multiple point of views (cost modelling, low cost country sourcing, turn around program, commodity risk management, closed loop,...). PierreFranois is regularly quoted in both economic (Les Echos, le nouvel conomiste, La Tribune, Usine Nouvelle, BFM...) and specialized media (CPO agenda, European procurement leaders, Supply chain magazine...) on Operations matters. He graduated from ESCP Europe, IEP de Paris and holds an Executive MBA from the Kellogg School of Management, Northwestern University.

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Valrie MOATTI Professor at ESCP Europe moatti@escpeurope.eu

Line BAGGER-HANSEN Senior Manager at Accenture Management Consulting line.bagger-hansen@ accenture.com

A specialist in Strategy and Supply Chain Management, her research interests focus on growth strategy and modes of expansion, as well as the organization and coordination of global supply chains. Her current research deals with sustainable supply chains as well as other areas. She is the author of several articles (published in European Management Journal, International Journal of Logistics: Research and Applications, Supply Chain Forum An International Journal), chapters and papers given at international conferences. Valrie Moatti graduated from ESCP Europe, and earned her doctorate at HEC, in Paris. After more than 8 years of business experience (as a group manager at Procter & Gamble and as a project director at PPR), she joined the faculty of ESCP Europe. She has been a visiting scholar at MIT, Cambridge USA (Center for Transportation and Logistics).

Line Bagger-Hansen has 11 years of experience in Supply Chain Management, of which more than 7 in Management Consulting. Lines expertise covers Profit and Cash Optimization, Strategic Cost Management, Procurement transformation, global Strategic Sourcing, Supply Chain strategy, SRM, and NPD, and she has helped formulate the innovation strategy of clients. Line has worked in Fast Moving Consumer Goods, Life Science, Automotive, Industrial Equipment, and Banking. She frequently contributes to methodologies, Thought Leadership, studies, and as a speaker at conferences. Line holds a Master of Science in Economics and Business Administration from CBS (Copenhagen Business School) and Tongji University (Shanghai).

Julie FABBRI Secretary-General of i7, the Institute for Innovation and Competitiveness
jfabbri@institut-innovationcompetitivite.eu

Julie Fabbri is Secretary-General of the Institute for Innovation and Competitiveness. She coordinates the i7 Institute events and research work at the European level. She is also a PhD candidate at the Centre de Recherche en Gestion of Ecole Polytechnique. She is interested in the role of space in innovation processes. She graduated from ESCP Europe (Master in Management) and from University Paris X Nanterre (Research Master in Organisation Studies). In 2009, she worked with Pascal Morand and Delphine Manceau on the report Pour une nouvelle vision de linnovation for the French Minister of the Economy, Ms Christine Lagarde.

We would like to thank the team that helped create this publication: Edina Nagy, Aude Prebay and Jean-Baptiste Touyarot, research assistants Anatroy, illustrator Archique, graphic designer

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TABLE OF CONTENTS
Executive Summary Acknowledgements The Authors 1. Open Innovation: just a fad or a long-lasting managerial change? 1.1. What is Open Innovation? 1.2. Who is involved? 1.3. When did companies start to use Open Innovation approaches?
2. Partner relationships: How to make external collaboration work?

4 11 13 17 19 21 27 31 31 35 39 50 50 54 57 62 62 63 67 73 74 78 82 83

2.1. Types of innovation openness 2.2. The breadth / depth trade-off for partnerships 2.3. The key role of partner management

3. Internal set-up: How different is the organization? 3.1. From dedicated people to a corporate culture 3.2. Open Innovation demands Change Management 3.3. The role of IT and collaborative tools
4. Impact and performance of Open Innovation: innovate more, faster or cheaper?

4.1. Key difficulties relating to Open Innovation 4.2. Perceived impact over innovation performance 4.3. How to measure and evaluate Open Innovation? 5. Conclusion Bibliography Appendix Table of Illustrations Table of Case Studies

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1. Open Innovation: just a fad or a longlasting managerial change?


Since Chesbrough created the concept of Open Innovation in 20032 and companies started communicating about the way they integrate external competences and resources in their innovation processes, word has spread about this new innovation practice. There has been a clear acceleration over the last 3 to 5 years when many companies found that they needed to structure their innovation approach in order to be much more efficient and to cope with the economic crisis. Open Innovation is now a real buzzword: more than 17 million Google results can be found for the term Open Innovation. Companies in every country are developing collaborations with other companies and individuals to get new ideas and to develop new products and services. Today more than ever, innovation is a top strategic priority. 62 percent of executives questioned in a recent innovation survey3 say their business strategy is largely or totally dependent on innovation. With globalization and intensified market competition, companies are forced to innovate more and to optimize this process. Innovation is a key tool for competitiveness to boost consumption and the renewal of equipment, overcome price competition by increasing the weight of choice criteria other than price among
2 Chesbrough H. (2003), Open Innovation: The New Imperative for Creating and Profiting from Technology, Harvard Business School Press, Boston. 3 See Innovation survey conducted by Accenture: Alon A., Chow D. (2008), How to get the most from your best ideas, Accenture Outlook.

customers, and stimulate the creation of new business models4. Companies find they can no longer only innovate by themselves and have to rely on a large network of companies and competences to innovate better and quicker. The Open Innovation paradigm suggests that companies can use both internal and external ideas and knowledge to be more efficient in creating and capturing value.5 However, collaboration with external organizations is not so new in terms of innovation. For many years now, companies have been working and developing through networks where they cooperate with their suppliers, clients, and all types of companies, large and small. In 2006-08, more than 78% of large innovative firms in Denmark and about 69% of the SMEs in the UK collaborated with external actors on innovation.6 In this context, one may wonder whether the huge popularity of the Open Innovation concept actually reveals new practices or is just a new label on old practices in other
4 Morand P., Manceau D. (forthcoming), For a new approach of innovation throughout Europe, Institute for Innovation and Competitiveness i7. 5 Chesbrough H. W (2007), Why companies should have open business models, MIT Sloan Management Review, vol.48, n2, p.22-28. 6 OECD (2011), Science, Technology and Industry Scoreboard. Collaboration involves active participation in joint innovation projects with other organisations but excludes pure contracting out of work. It can involve the joint development of new products, processes or other innovations with customers and suppliers, as well as horizontal work with other enterprises or public research bodies.

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words, whether this is a new approach to innovation or old wine in new bottles. To answer this question, this research tries to analyze to what extent Open Innovation approaches change innovation practices, organization and performance. For this purpose, we studied the best practices by interviewing companies among the best actors in the area of Open Innovation; so as to understand what impact Open Innovation approaches have had on their way of innovating, their internal organization and their innovation performance. Our aim is not to present a picture of what companies are currently doing in the area of innovation and Open Innovation, but to focus on the most advanced practices to identify the impact of Open Innovation on their daily business practices regarding innovation. This research is based on a qualitative survey of 20 companies (please see Acknowledgements) that we consider as pioneers and leaders in terms of Open Innovation. The sample has been selected from among large international companies for whom innovation is a priority and which have extensively communicated on their Open Innovation practices for several years. These companies are at the cutting edge regarding Open Innovation and are mature enough in this approach to be able to measure its impact on their innovation practice. In conducting this analysis we focused on three main areas. External collaboration: How does cooperation with external actors work? Does Open Innovation change the profile of partners and partnerships developed by the company (more partners, different

ones, deeper partnerships)? Organizational impact: What impact does Open Innovation have on the internal organization? Does it change the departments in charge of innovation in the company? Drivers and results: What impact does Open Innovation have on innovation outputs and performance? How can Open Innovation be evaluated? In order to have a homogeneous group of companies that we could compare, we decided to focus on industries involved in tangible goods. Consequently, our sample exclusively covers manufacturing innovation and does not deal with the specific questions related to service innovation. Moreover, while the Open Innovation concept developed by Chesbrough covers both Outside-In and Inside-out innovation, we focused on the former, that is innovation carried out with external companies and individuals. We did not therefore study spin-offs and company creation funded by companies.

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1.1. What is Open Innovation? Open Innovation is a concept which has many definitions given by companies and academics (see Appendix 1). The following definition is probably the most comprehensive and the preferred one.

Quote
Open Innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and to expand the markets for external use of innovation, respectively H. Chesbrough, W. Vanhaverbeke and J. West7 Open Innovation means the opening up of the innovation processes to the outside, in order to foster the generation of new concepts and ideas. This opening of the knowledge flow can go two ways: Bringing Outside Inside: acquiring knowledge from outside partners by the practice of leveraging the discoveries of others8 and integrating them into the internal innovation flow; Bringing Inside Outside: providing internal knowledge to external actors of the business environment; rather than relying entirely on internal paths to market, companies can look for external organizations with business
7 Chesbrough H., Vanhaverbeke W. and West J. (2006), Open Innovation: Researching a New Paradigm, Oxford University Press, USA. 8 Chesbrough H. (2003), Open Innovation: The New Imperative for Creating and Profiting from Technology, Harvard Business School Press, Boston.

models that are better suited to commercialize a given technology.9 This study focuses on cooperation with external companies, mostly for innovation development and to a lesser extent for new product launch. We want to analyze whether Open Innovation engenders a new culture of innovation within the company. We seek to understand what lessons are learnt from those experiences and how firms capitalize on the results of Open Innovation projects, mostly focusing on Outside-In approaches. The internal appropriation of Open Innovation outcomes and approaches are key challenges in generalizing Open Innovation.

9 Ibid.

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FOCUS
Open Innovation, a multi-faceted phenomenon: concepts and practices that are related to Open Innovation
Coopetition: cooperative competition. Competing companies work together in areas of their business where they do not have a specific competitive advantage, but where they can share common costs, complementary resources or build joint technological standards. Innovation is then open to competitors. Spin-off: a new company founded to exploit a piece of intellectual property created in an academic institution (academic spinoff Shane, 2004) or to develop and launch innovations created by employees in an activity that is not completely in line with the core competences and strategy of the mother company (corporate spin-off Bhide, 2000). They are typically the result of inside-out Open Innovation. Companies encourage spin-offs to build competences, to foster learning and to stimulate an entrepreneurial mindset in their company. Cluster: a geographical initiative that brings together, in a same city or region, large companies, SMEs and start-ups, research centers, educational institutions and public authorities in order to develop synergies and cooperative efforts. Clusters are often related to a particular industry, but not always. In many countries, governments and local public authorities stimulate the creation and development of clusters. Clusters are often seen as a good way to stimulate and spread Open Innovation (e.g. Silicon Valley, one of the most famous clusters). Community of practices: groups of people engaged in the same practice and who regularly communicate about their activities. They are continually sharing and comparing their best practices to develop and improve their competences in the practice under consideration (Brown and Duguid, 1991; Lave and Wenger, 1991). These dynamics lie at the heart of Open Innovation. Crowd sourcing: sourcing tasks to all individual volunteers through a web platform open to everybody. This is a community-based form of Open Innovation which consists in submitting a list of problems or objectives faced by the company to the public (consumers, students, researchers, experts) through an open call. The main idea is that collective intelligence exceeds the potential of a limited number of internal experts (Surowiecki, 2005; Howe, 2006). Wikipedia is probably the most prominent example! Open source: the open source philosophy promotes free access to the end products source materials and documentation. Open source software, developed through barter and collaboration, is a great example of a fully Open Innovation approach. Co-creation: companies often integrate their customers in their Open Innovation processes. They can cooperate with some specific consumers they have identified and contacted through brand communities, or they can use open web platforms to gather any potential ideas from consumers. Note however that co-creation with end consumers can be a communication tool as much as an innovation tool.10 User innovation: in the market, specific customers are lead users. They have ideas about potential innovations that they implement by themselves. To integrate these inputs into their innovation processes, companies must identify and integrate user innovation (von Hippel, 1986 & 2005). The difference with traditional co-creation is the level of involvement of customers in the innovation process, sometimes developing the innovation all by themselves without the company helping.

10 See on this topic, in French, Le Nagard E., Manceau D. (2011), Marketing de linnovation, Dunod, Paris.

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1.2. Who is involved? Opening the innovation process to external actors can involve very different types of actors. Individuals, such as individual experts or thought leaders, as well as consumers or retired people willing to help the company (whether they are former company employees or not). For instance, Phillips is leveraging the potential of such individuals through the YourEncore innovation community platform,11 an online network of retired and veteran scientists and engineers. This platform connects experts and clients in professional communities. As a client, Philips can post questions to a select group of experts or in open forums, initiate ideation sessions with experts, and even conduct a project within the innovation community. Crowdsourcing (see Open Innovation, a multifaceted phenomenon) and Open Innovation platforms are the perfect places for companies to collaborate with such individuals. Research organizations, including universities, research institutes and labs. The relationships with academics are probably the true origins of the Open Innovation concept, where it all started, because of the key role of academic research as a source of technological innovation. Such partnerships are especially important for industrial and high tech firms, which partly gave birth to the development of clusters (see Open Innovation, a multi-faceted phenomenon) in the past few years around the world.

Quote
We have a long tradition of collaborating with universities. This is an industry where our researchers are all out of the same schools, and we collaborate with these schools. We support universities and award young scientists. We get pre-competitive knowledge Henrik Joergen Andersen, Head of Corporate R&D, Arla Foods

11 YourEncore has been in operation since October 1, 2003. The Procter and Gamble Company and Eli Lilly and Company are the initial founding Member Companies. http://www.yourencore.com/about-yourencore/

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Business partners, such as clients and suppliers. According to the OECD,12 among large firms, suppliers usually play the main role in business partner collaboration. But in the United Kingdom, Korea, Luxembourg, Australia and Germany, collaboration with clients is equally or even more important. In Finland, large firms (68%) and SMEs (31%) collaborate on innovation activities with suppliers as much as with clients. SMEs and start-ups, along with venture capital providers, as a means for companies to be connected with start-ups. Procter & Gamble is building many partnerships with entrepreneurs and SMEs around the world, for example. In Israel, for instance, they are leveraging the very unique features of local high tech and bio tech entrepreneurship and innovation skills to set up an innovation scouting engine, named Israel House of Innovation (see P&G and IHI case study); Although Open Innovation basically has the same goal with all types of partners even though the ways of practicing it can be quite different in each case how the partner relationship is handled for example. Please note that many of the companies interviewed (General Mills and Kimberly Clark Mexico, for instance) practice Open Innovation with several types of partners. The different Open Innovation partners
12 OECD Science, Technology and Industry Scoreboard 2011, based on Eurostat (CIS-2008) and national data sources, June 2011. Firms collaborating on innovation activities with suppliers and clients, by firm size, 2006-08

are not exclusive quite the contrary! With such different types of partners, we understand why Open Innovation involves several departments within the company. Three main departments are usually impacted. R&D: It is now too costly to rely only on in-house R&D. Open R&D comes from the usual approach followed by academics: building knowledge through exchange and sharing. With Open Innovation in R&D, companies develop partnerships with research organizations and individual researchers (see Philips case study). Thats why most R&D Private-Public Partnerships (PPPs) are projects based on a long term, risk sharing contract between public and private parties. They are widespread and affect such diverse companies as Arla Foods, Alcatel Lucent, GE and Kraft.

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Open Innovation is not just another way of doing R&D, but of doing business Dr. Graham Cross, Director of Supplier Innovation and Innovation Acceleration, Unilever

Case Study
CASE STUDY 1. Philips Establishes Innovation Ecosystem In 1998, Philips High Tech Campus in Eindhoven was established with the initial aim of gathering Philips R&D activities together in one place. Since 2003, the campus has been continuously enlarged by including more companies. Today, there are more than 8000 researchers, developers and entrepreneurs, representing 50 nationalities and coming from research institutes like Holst Centre, Inkjet Application Centre and ECN; technological start-ups such as BiCHEM Technology, Virtual Proteins and Sapiens Steering Brain Stimulation; large companies, like IBM, Oce and NXP; consultancy and service companies with representatives from Accenture, Atos Origin, Yacht and Mikrocentrum. Bringing all these together physically increases the competency base of the site and creates tangible outcome: the companies on the Campus are responsible for nearly 50% of all patent applications in the Netherlands13. Philips experience is that their close cooperation characterized by an Open Innovation approach and their continuous knowledge-, experience- and facility-sharing has enabled them to achieve better results cheaper and faster. All actors present in this innovation ecosystem have said that High Tech Campus Eindhoven gives them more access to competencies and, consequently, a competitive advantage in a highly competitive market.

13

http://www.hightechcampus.nl/

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Supply Chain: the relationship with suppliers is one of the most affected by the development of Open Innovation practices. They cover a wide range of companies, both in size (start-ups, SMEs, large companies) and activities suppliers of raw materials and parts, but also packaging (very often mentioned in our survey; see Danone Baby Nutrition case study), services and consulting. In some cases, suppliers are the primary source of innovation that accepts both the investment and risk of new components that will be included in a future product. As partners, suppliers provide a company with complementary skills and abilities, allowing it to go forward with a project without having to actually build all the capabilities internally. As Chesbrough says, suppliers are one of the best potential investors

for a new venture14. Several reasons explain the importance of supplier co-innovation: - As partners, suppliers provide a company with complementary skills and abilities, allowing it to go forward with a project without having to build all the capabilities internally; - A supplier can invest financial resources when the innovation succeeds and therefore has a vested interest in the success of the new venture; - Sometimes, suppliers have strong brands that enable partners to build a cobranding innovative offer that will be perceived by the market as high performance (see Kraft-Bosch Siemens case study).

Case Study
Case Study 2: Danone Baby Nutrition, Supplier Co-Development with a Strong Packaging Innovation Danone Baby Nutrition has developed a successful product with an existing packaging supplier: EAZYPACK is a composite box made out of carton and plastic, including a double compartment and an integrated spoon in the lid. This infant formula packaging enables the mother to portion the powder milk while carrying the baby in one arm. The initial launch in UK with the Cow&Gate brand was a real market success and the concept has been rolled-out 24 in many other countries on other Danone Baby Nutrition brands. Danone insists on how important it is to have an Open Innovation approach focusing on specific consumer needs or market challenges, and then to find the relevant partners (here a packaging supplier) who can bring new relevant benefits or solutions. In this case, a new pack brings more convenience to the user, while reinforcing the onshelve differentiation and thus creates a competitive advantage.
14 Chesbrough H. (2003), Open Innovation: The New Imperative for Creating and Profiting from Technology, Harvard Business School Press, Boston.

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Marketing / Sales: Marketing departments are usually involved in Open Innovation processes to work on the customer value to be created through the new product developed with external partners. In some cases, the two partners work together on the launch strategy. When Open Innovation processes include cocreation with clients, marketing departments become key actors in the process. Innovation with clients and lead users has been studied for many years by Eric von Hippel and many other academic researchers.15 This practice is quite different depending on whether it includes clients that are companies or end consumers. While co-innovation has always existed in B2B activities, it has developed quite recently with end consumers. The development of web-based co-creation communities and platforms, like eYeka,16 where end consumers can post their ideas regarding future products, new product insights, advertising films and pictures.17 While co-creation with end consumers is highly marketed, it is actually less frequent that co-innovation with suppliers and B2B customers: according to the Act One survey,18 88% of innovation managers collaborated with their suppliers to develop new projects in
15 Von Hippel E. (2010), The role of lead users in innovation, in Teece D., Augier M., Palgrave Encyclopedia of Strategic Management, Palgrave Macmillan Ltd, UK. 16 http://en.eyeka.com/ 17 For examples, see the blog of Eric Vernette: Consommateur influenceur, http:// consommateurinfluenceur.blogspot.com. 18 HEC, Act One (2010), The Corporate Innovation Function.

2010 and 50% with their B2B clients, while only 15% with the consumer or end user. For these various reasons, in this analysis we have focused on co-creation with customers that are companies.

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Figure 1: Innovation actors in the Open Innovation configuration

Suppliers

Clients

End-users
Marketing R&D Supply Chain

SMEs

Experts

Start-ups

Universities

Research labs

Figure 2: General Mills vision of Open Innovation19

1 9 h t t p : / / w w w. g e n e r a l m i l l s . c o m / C o m p a n y / Innovation/Our_stories.aspx

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1.3. When did companies start to use Open Innovation approaches? Our sample revealed three waves in the timing of Open Innovation adoption. We have labeled them using Rogers terminology regarding the diffusion of innovations20: - Innovators: In the early 2000s, the very first initiatives regarding Open Innovation emerged, triggered by the P&G initiative that had been made widely public.21 - Early adopters: In the mid 2000s, more companies launched Open Innovation practices, such as Unilever, Logoplaste, and General Mills. Early majority: The third wave occurred in the early 2010s and involved companies wanting to restructure their innovation practice and trying to improve their efficiency in this regard, probably due to a volatile economic environment and the need to optimize the ROI of innovation investments.

Quote
Open Innovation is in our DNA Dario Liguti, Strategic Marketing Director of France, GE Global Growth & Operations, General Electric

As shown in Figure 3, these waves are not related to the industry. The trend is the same for the three sectors of our sample:

chemical, communications & high tech, and FMCG (fast moving consumer goods).

20 Rogers E. (1983), Diffusion of Innovations, Free Press of Glencoe, Macmillan Company, New York. 21 Lafley A.G., Charan R. (2008), The Game Changer: How you can drive revenues and profit growth with innovation, Crown Business, New York.

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Figure 3: Open Innovation adoption per industry for our sample

When asked when they actually started to adopt Open Innovation approaches, companies draw a distinction between the official launch of Open Innovation practices, which is rather recent, and the existence of collaborative practices that traces back to older times. Indeed, about a half of the companies officially started intensifying Open Innovation (involving organizational change) in the past three years (Beiersdorf, TDF). This is consistent with the existence of a real buzz around Open Innovation and the fact that companies have been questioning and changing their innovation approaches in recent years. Nevertheless, many

companies state and prove by exemplary practices, that they have had an open way to innovate for a long time (Alcatel Lucent, GE, Coloplast, AkzoNobel). For example, the director of Alcatel Lucent Bell Labs says Bell Labs has been practicing Open Innovation forever without knowing it. At GE, the France Marketing Director in charge of Global Growth & Operations declared Open Innovation is in our DNA.

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Figure 4: Official start of an Open Innovation strategy for our sample by industry

Quote
Bell Labs has been practicing Open Innovation forever without knowing it Jean-Luc Beylat, President, Alcatel Lucent Bell Labs The diversity of partners and the timing of adoption of Open Innovation practices show how much this topic is related to public policy regarding clusters. For the last ten years, many countries in Europe and throughout the world have been creating or encouraging the creation of clusters so as to foster innovation through rich local ecosystems. In most cases, clusters are related to an industry and bring together research labs, universities, SMEs and large companies involved in activities related to the same industry (see Open Innovation, a multi-faceted phenomenon). In such cases, these ecosystems are aimed at stimulating exchanges and cooperation based on local proximity between potential partners. However, one should not think 29

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that Open Innovation necessarily needs to be based on geographical proximity. Our interviews showed a global Open Innovation process where companies search throughout the world for the best potential partners, either individuals, research labs or suppliers, that can help them solve a technical or market problem and develop a suitable innovation. Besides, some companies originally operate in industries other than those of their potential partners, especially in the context of cross-industry

innovation and the convergence of various product categories. Clusters are clearly the public policy pending of Open Innovation in the sense that they stimulate geographically anchored Open Innovation practices and were developed by governments at the same time as Open Innovation was spreading throughout companies. However, they do not necessarily go together since Open Innovation also generates longdistance and virtual cooperation.

In a Nutshell
Open Innovation covers a wide range of practices that go beyond the buzzword - Companies cannot innovate by themselves anymore due to intensified and accelerated competition, globalization and the economic crisis. - They have to rely on a large network of partners and competences to innovate better and quicker. - Open Innovation can involve various types of partners: Individuals (such as experts, retirees, end consumers); Research organizations (universities, private R&D labs); Business partners (clients or suppliers; SMEs or large companies); which are not exclusive. - Many departments within the company can be involved: R&D department, supply chain, marketing - Many companies have always practiced Open Innovation but without using that particular term. - There have been 3 waves of Open Innovation adoption; a large majority of firms are currently opening their innovation processes. - Clusters are encouraged in many countries to stimulate competitive ecosystems which, applied to innovation, stimulate an open approach based on geographical and industry proximity. However, Open Innovation also involves actors located in remote places based on complementary competences and industries.

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2. Partner relationships: How to make external collaboration work?


Open Innovation, sometimes also called collaborative innovation, shared or distributed innovation, consists in interacting with other people or organizations to innovate and find unexpected solutions to various problems. From idea generation to product launching and value sharing, it is crucial to manage the relationships with partners to enable successful and preferably long-lasting collaborations.

Quote
After just three years in existence, the joint INRIA / Bell Labs laboratory has already produced remarkable results. It is a step towards Open Innovation, in which we strongly believe, and a long-standing collaboration between INRIA and Bell Labs Jean-Luc Beylat, President, Alcatel Lucent Bell Labs - These results include 10 filed patents and more than 50 publications.

2.1. Types of innovation openness One key decision to be made when defining a partnership strategy is related to the level of openness the companies should adopt, concerning both the profile of the partners and the topics to cover through Open Innovation. Based on our observations, we have identified three partner approaches. Which of the three companies choose depends on their specific identity, strategy and innovation objectives.

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Figure 5: Open Innovation matrix

Non defined

Partner-oriented Open Innovation

Fully Open Innovation

TOPICS

Predefinied

Classical inter-firm cooperation

Topic-oriented Open Innovation

Preselected

Anyone

Partners
Classical inter-firm cooperation: a partner and topic-oriented partnership innovation approach corresponds to long-term partnerships on specific topics. This approach has been followed for decades with companies working with a public lab or a well-known supplier on a specific topic in a cooperative approach. This differs from current Open Innovation practices in terms of the openness of the network of partners (trying to identify new potential partners with a broader view) and the larger range of topics to be covered by external collaborations. Topic-oriented Open Innovation: Companies try to find the most competent partners to collaborate on targeted burning issues. Their search is open to any partner profile, whether the company has previously worked with these partners or not. The criterion for choosing from among potential partners is related to the topic they are seeking ideas and solutions for and to the types of competences and solutions to provide. Such companies define their strategic orientations and then look for the best potential partners to help them achieve their objectives. For instance, Danone

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Baby Nutrition has adopted this approach, based on a first strategic analysis of innovation objectives and priorities, and then on an open search for potential partners that can help the company achieve these objectives. They call it an open but focused innovation approach. GE has launched two challenges, Ecomagination and Healthimagination, on its web

platform to stimulate the submission of breakthrough ideas on ways to solve some of their current issues. These global challenges enable GE to identify the best ideas to accelerate power grid technology or cancer R&D through open collaboration.22

Quote
How do you make a big organization innovative? You hand it a big challenge John Dineen, President and CEO, GE Healthcare

Partner-oriented Open Innovation: Companies connect with partners with whom they have already collaborated and whose specific skills they value, and expect them to come up with new ideas and projects (see General Mills case study). They do not form partnerships on specific topics but start them based on reciprocal confidence and expertise. For instance, Unilever has a portfolio of intimate strategic innovation partners.

Fully Open Innovation: Companies welcome any partner (already known or totally new) who has any suggestion (whether the ideas are in line with their strategic priorities or not). For instance, P&G wants to keep the highest level of openness and is ready to hear any type of innovation ideas coming from any type of partner.

22

http://www.jsonline.com/business/49466327.html

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In our sample, almost 70% of the companies interviewed practice Topic-oriented Open Innovation, defining specific innovation objectives and priorities and then looking openly for external partners. Partner-oriented Open Innovation and Fully Open Innovation respectively account for almost 50% and 30% of the companies studied. Interestingly, a quarter of our sample practices several types of openness, entering two or three categories. Danone, Figure 6: Degrees of innovation openness

Phillips and P&G, for instance, leverage the three types of Open Innovation. At Danone, different perspectives can be highlighted between its Baby Nutrition and Waters divisions. Danone Baby Nutrition has lengthy experience and an established culture of Open Innovation and is more open in its search for potential partners, while Danone Waters started practicing Open Innovation more recently and is probably more directive in its approach.

When analyzing firm profiles, it appears that the most mature companies in the Open Innovation process and specifically those which started Open

Innovation early and set-up successful tools like online platforms and organizational practices (Phillips, P&G), are also those with the greatest degree of openness.

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It seems that companies usually first begin by experimenting with a reduced level of openness as a way of testing and developing new cultural, managerial and organizational practices, before opening up the process once they have reached a desired level of experience, expertise and confidence in the first stages. Because of the management complexity of being fully open and the length of the internal change management process for Open Innovation acceptance, it is highly recommended to open up innovation processes gradually. Additionally, we observed a few specific patterns for each industry: In the chemical and pharmaceutical industry, Open Innovation appears to be more Topic-oriented (DSM, Merck, AkzoNobel), despite the lengthy Open Innovation experience of some of the firms involved. This might be a consequence of the extreme complexity and technicality of knowledge in these industries. Because of the capital and labor intensity of knowledge creation in their fields, pharmaceutical and chemical companies are perhaps

more careful in fully opening up their processes. In the high-tech industry, Open Innovation is often fully open (Phillips, Alcatel Lucent) reflecting the network and culture features of this industry as illustrated by open source software development and Ciscos seminal practices. Fast Moving Consumer Goods companies differ significantly in their level of openness, mainly reflecting their specific culture and maturity level. Interestingly, finished product manufacturers have often been those leading the way in Open Innovation (Procter & Gamble, Unilever, Danone, Arla Foods, and General Mills) for the whole supply chain and specifically upstream partners, i.e. raw materials and packaging suppliers. For example, Logoplaste, a packaging manufacturer, says it jumped into the Open Innovation practice following several years of experiencing customers online Open Innovation platforms, specifically with P&G.

2.2. The breadth / depth trade-off for partnerships Whatever the type of openness, most companies aim at ending up with deep strategic partnerships where the partners not only provide ideas or supply parts, but commit on a medium - or longterm basis to cooperate with the company on one or even several innovation projects. This is true for R&D projects as well as for cooperation with suppliers, which are expected to make a commitment in terms of manufacturing capacity. However, achieving such objective requires some trade-offs in setting up of the process as it appears to be difficult to build deep relationships with a very large number of partners. As a consequence, companies have to choose between enlarging the group of partners (breadth) and deepening relationships with a limited group of partners (depth).

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Their Open Innovation approach can be built around two alternative objectives: A broader network of partners as a first priority with an accepted, reasonable level of depth. Major reasons for such a choice include mitigating risk, diminishing uncertainty, broadening the pool of competencies and being the first to launch a new idea on the market. For example, GSK, which is at a mature level of Open Innovation practices, deliberately prefers a wide approach in order to broaden the

pool of competencies: The more you invite, the better the output.23 Note that crowdsourcing and co-creation with end consumers, which we do not specifically study here, fall into this category in the sense that long-term commitment and deep cooperation is not intended, while the key objective is to mobilize temporarily a very large network of potential partners.

Quote
Danone approaches upstream people, as all individuals represent potential partners Ren-Philippe Tanchou, CPO, Danone Waters

Fewer partners with deeper relationships. According to Simard and West,24 deep networks mostly drive incremental innovations. In this case, companies are aiming at efficiency and favor a long term deep relationship in order to develop very specific and valuable capabilities, as illustrated by Telstra: Weve deliberately reduced
23 Isherwood P., GlaxoSmithKline (2009), Making it all happen: Implementing innovation FDIN Open Innovation Seminar. 24 Simard, C. & West, J. (2006), Knowledge Networks and the Geographic Locus of Innovation, in H. W. Chesbrough & W. Vanhaverbeke & J. West (Eds.), Open innovation: Researching a new paradigm, 220240, Oxford University Press

our supplier base so that we have fewer but deeper relationships with our vendors this enables us to encourage them to innovate with us...25 Companies have often deliberately decreased the number of their partners in order to be able to better handle these relationships.

25 Morelli A., Reznik G. (2009), Accenture Open Innovation: How to create the right new products, in the right way, Accenture Outlook.

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Quote
40% of the partnerships we have involve multiple deals, multiple transactions, or multiple projects, so we do feel there is a scale benefit from using partners for multiple deals Michael Duncan, Director of EMEA Connect+Develop Hub, European Director Open Innovation, P&G

However, as the split between these two approaches in our sample shows (see Figure 7), Open Innovation currently

targets the number of partners more than the depth of the relationships.

Figure 7: Has your preference tended toward having more partners or deeper partner relationships?

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Interestingly, we observed that some companies are moving over time from one approach to the other. Specifically, they can afford to broaden the scope once they have accumulated valuable experience with a limited number of partners and try to replicate good practices with the new ones. Other companies, such as Arla Foods, are opening up their approach in the first step of the process in order to get

as many valuable ideas and competences as possible. As a second step, they are selecting only a few potential partners (the most interesting and those they think they will work best with) to deepen the partnership and implement Open Innovation. Actually, half of our sample is now prioritizing deeper relationships, and is working on achieving them, rather than broadening their network.

Figure 8: The breadth / depth tradeoff for partnerships

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The trade-off between breadth and depth is also often related to the type of Open Innovation to be implemented: Companies practicing Partneroriented Open Innovation are aiming at deepening their relationships with existing partners by extending the number of topics and innovation projects to collaborate on. Their approach is clearly towards depth more than towards a larger number of partners. For instance, when companies establish innovation parks with partners (Phillips, DSM) they plan to innovate more with the partners in the park (see Philips High Tech Campus Eindhoven case study, and DSMs Chemelot industrial park). Companies which practice TopicOriented Open Innovation are more oriented towards breadth and diversity of partners. However, they usually leverage a targeted, limited number of partners, whether business or academic partners. Danone Waters and Kimberly Clark Mexico are following this path. This

approach allows them to focus internal resources on specifically targeted needs as well as on achieving successful learning and gaining experience with a limited number of partners before extending these successful practices to a broader network when they have reached the required level of maturity and experience. Mature companies in Open Innovation practices can afford to widen the scope and variety of partners as they have developed suitable organizational routines26 for building successful partnerships and want to benefit from the richness and reach of a fully open network. Although they do not keep track of the number of partners when they have a fully open approach, they do however state that they benefit from returning partners or developing several types of projects with the same partners. Procter & Gamble explained the benefit of deepening the relationship with a specific partner as an experience curve, reflecting scale economies and learning effects.

2.3. The key role of partner management Once a partnership strategy is established, companies have to define how to identify and attract potential partners. The success of the Open Innovation approach relies on the ability of the company to efficiently achieve these two objectives.

26 Nelson R. R., Winter G. (1982), An evolutionary theory of economic change, Harvard Business Press, Cambridge, MA.

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2.3.1. Partner identification Based on companies experiences, one of the key points in Open Innovation activities is partner identification. Companies need to identify partners that will answer their needs and will be able to cooperate with them in the most efficient way. Overall, partner identification strategy is strongly related to the level of openness, as well as the breadth, type and variety of targeted partners. As previously discussed, these characteristics are usually in turn related to the maturity of the company in Open Innovation. Also, identification often involves a trade-off between the specific topic on which new ideas are sought and the type of actors to target. Alcatel Lucent says that it follows two distinct approaches: either they want to innovate on a specific topic and look for relevant potential partners on the specific issue or they have identified a specific partner they want to work with (usually because they had successful past experience with them) and lead them towards a new project or technology. When companies are searching new partners for specific topics (Topic-oriented Open innovation), they can adopt two main approaches: A partner pull approach consists in announcing the topics for which they seek external options and then collecting suggestions and solutions from any potential partner. Such posts can be made on collaborative platforms, either created or managed by the company (such as Beierdorfs Pearlfinder or TDFs TDF Connect) or by external actors (Innocentive27 and Innoget28 are good examples of Open Innovation marketplaces). They can also be announced through open-days where all types of potential partners are invited, sometimes through series of conference and meetings, where the company demonstrates its latest innovations and expresses its needs and problems for future ones (for instance Alcatel Lucent Bell Labs Open Days). Another approach, that we might call partner push, consists in setting up an internal structure in charge of identifying potential partners all over the world. The structure then gathers information on them and contacts them to explore the potential for collaboration. For instance, P&G uses its House of Innovation in Israel to spot lead innovators in many fields. Of course, the two approaches are not mutually exclusive. At General Mills, they use their web platform to identify large companies while using a more proactive process to identify startups or small and medium enterprises, managed by dedicated experts around the world. For universities they use both processes.

27 28

http://www.innocentive.com/ http://www.innoget.com/

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Case Study
Case Study 3: Procter & Gamble Locates Favorably to Identification of Partners P&Gs open innovation center, Israel House of Innovation (IHI), was established in 2007 as part of the corporate Connect+Develop Strategy. Its mission is to leverage Israeli innovation capabilities and culture partnering with Israeli academia, private entrepreneurs, venture capitalists and governmental bodies in order to accelerate the companys innovation worldwide. In September 2011, IHI signed an agreement with Hebrew University of Jerusalem faculty through Yissum Research Development Co., the universitys technology transfer office - which allows P&G scientists and research leaders to partner on a new level with Hebrew University faculty and researchers in areas, such as biology, chemistry, colloid and surface science to drive cutting-edge innovations that have the potential to impact a wide range of P&Gs global product categories, according to P&Gs VP for corporate research and development Jeff Hamner. According to Sophie Blum, General Manager of P&G Israel and IHI, the agreement will enable P&G to enjoy the breadth of research done at the Hebrew University and collaborate on creating innovative products that improve the lives of people around the world. P&G didnt choose Israel by accident: it is one of the worlds leading innovation ecosystems.29 Sophie Blum explains that Israeli innovation capabilities stem from its culture (history, public policy, military service encouraging leadership and entrepreneurship, the mindset of young people, etc.) which is favorable to innovation. Israel has more companies quoted on the NASDAQ than any other country in the world, more than Europe, India and China combined. Israel attracts thirty times more venture capital investment per person than Europe. The success of ICQ (a pioneer in instant messaging later taken over by AOL) and ISCAR (an innovative metal tool manufacturer created in the 50s in Israel and recently taken over by Berkshire Hathaway) are a few examples of Israeli innovation successes.

29 Senor D. & Singer S. (2009), Start-up Nation: The story of Israels Economic Miracle, Twelve, Hachette BookGroup, NY-USA.

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Our study also highlights other interesting practices regarding partner identification and reflecting different maturity levels: In companies that are beginning their Open Innovation practices, identification is precisely targeted, usually towards already existing partners, and does not require specific tools, but rather the involvement of relevant internal teams. At TDF, they primarily focus on existing partners - suppliers, universities and research centers. In approaches targeted at suppliers, procurement and purchasing departments are key actors in identifying relevant partners for Open Innovation based on their knowledge of each partners capabilities, related to both their cooperation skills and more technical ability. The companies which are opening up their Open Innovation practices are gradually experimenting with new tools and new partners. Thus, Beiersdorf launched Pearlfinder in January 2011 as a trusted network, secured both internally and externally, so that suppliers have a guarantee that their ideas are safe. Similarly but with different means, AkzoNobel has set up a dedicated team responsible for scouting in the relevant business units.

Finally the most mature Open Innovation companies are using several tools and processes to identify partners. Overall, they are emphasizing their mindset change in their ability to be open to any type of new opportunity or new partner. For example, General Mills reacted positively to an idea coming from one of their suppliers to launch smoothies in the US market. Such an idea would never have been listened to a few years ago yet it turned out to be a great success both for General Mills and for the supplier (see General Mills case study). In sum, leaders in Open Innovation are developing a segmented approach recognizing the diversity and the specificities of each type of potential partner be they universities, venture capitalists, suppliers, labs, etc. In that regard, Elli Lilly provides a stimulating example of companies developing a sourcing strategy for types of partner with different contracting and relationship management approaches.

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Figure 9: Innovation sourcing strategy example from Eli Lilly and Company30

2.3.2. Partner attraction Once identified and selected, partners must be convinced. To attract the right Open Innovation partners, knowing how to build, nurture and sustain relationships with people in diverse organizations are key levers. Promote your companys strengths: big companies can mention their size (existing network, large internal talent pool), their brands or their history (tradition, experiences) to attract smaller partners. On the other hand, SMEs and start-ups can emphasize their expertise and their flexibility. To
30 Linder J., Jarvenpaa S., Davenport T. (2003) Innovation Sourcing Strategy Matters, Accenture Institute for Strategic Change.

set up win-win collaborations, each partner needs to find complementary or supplementary values. Learn how to collaborate with different partners: understanding and respecting partners practices and constraints may be difficult to achieve, particularly when there are significant size or cultural and organizational discrepancies between partners. For instance, although P&G was used to a very formalized, hierarchical and process-oriented organization, they had to learn how to work with

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entrepreneurs. Outside partners must be seen as peers and not only as suppliers.31 Enhance a win-win scenario: Partnerships between distinct companies aim at combining and leveraging complementary resources and knowledge, as well as or alternatively sharing the costs and risks of development and investment.32 To benefit from a relational advantage33, the companies concerned should avoid opportunism and unnecessary costs in building and managing the partnership. The underlying principle is that the expected outcome for companies is to create higher value together than they could

achieve separately and therefore enhance each partners competitive advantage, providing this value is fairly distributed between them. The aim is for both partners to equally benefit from the partnership thanks to a win-win scenario. At Coloplast, they strive to extract the highest value from their partnerships as well as provide the best value to their partners. They set up tailored contracts with each partner so as to have the optimum cost by obtaining the highest value out of working with them. The successful partnership between Kimberly Clark Mexico and Velcro on Huggies is another example of such a win-win situation.

31 Chiaromonte F. (2006), Open innovation through alliances and partnership: theory and practice, International Journal of Technology Management, vol.33, n2-3, p.111-114. 32 Hennart J.F (1988), A transaction costs theory of equity joint venture, Strategic Management Journal, vol.9, p. 361-374. 33 Dyer J.H., Singh H. (1998), The relational view: cooperative strategy and sources of interorganizational competitive advantage, Academy of Management Review, vol. 23, n4, p. 660-679.

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Case Study 4: An example of a WinWin situation: Kimberly Clark Mexico and Velcro Kimberly Clark de Mexico S.A.B. de C.V. (paper-based consumer products) is mature in terms of Open Innovation. The head of innovation at Kimberly Clark Mexico stresses that ensuring a win-win situation plays a major role in attracting their partners. For instance, they worked with Velcro on an innovation for Huggies diapers. They developed a second fastener Establish a trustful and open business model partnership: successful Open Innovation partnerships should build on trust and open business models in order to avoid costly contract negotiations and implementation as much as possible. Trust is fundamental to Open Innovation - internally as well as externally even if the partners of one day may later become competitors. Our observations also

Case Study
for a closing system which increased the products performance. This collaboration was a deep one because both companies dedicated a team to the project for two years. The partners were not only safeguarded with a non-disclosure agreement, but both brands were advertised on the final product packaging. This new product was a commercial success and in addition to benefiting from increased sales, Kimberly Clark Mexico benefited from know-how and Velcro from exposure in a new market application. highlight the importance of carrying out regular appraisals of innovations done in partnership, in order to assess these innovations current value and decide whether to keep or renew products/partnerships. Most companies are more focused on protecting their own knowledge and intellectual property than opening up new opportunities.

Quote
Successful Open Innovation also depends on the open character of the business model. As knowledge has become companies key resource, Open Innovation needs to be embedded in an overall business strategy that explicitly acknowledges the potential use of external ideas, knowledge and technology in value creation OECD (2008), Open Innovation in Global Networks

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Build a success story behind the partnership. This includes the ability to explain upfront to the partners the potential benefits of working with the company as well as the actual achievement of the business case for the partner in order to foster a future partnership. Previous success stories with other partners also help in convincing new partners to start a collaboration.

P&G Connect+Develop extensively communicates on its web enabled portal about its previous success stories with a downloadable brochure containing examples.34 On its corporate website, General Mills also highlights examples of how Open Innovation has driven innovation across the company.35

Case Study
Case Study 5: Kraft Foods and Bosch Siemens innovation based on complementary knowhow and brands36 Kraft Foods and Bosch Siemens announced their alliance in 2008 to launch the next generation of the Tassimo brewer. It was the 2nd generation of the hot beverage system, based on the Tassimo patented barcode technology that reads each barcode of the Tassimo discs and then tells the machine which beverage to prepare (e.g. coffee, cappuccino, tea, hot chocolate) and how to optimize brew time, temperature and amount of water. A key driver for both partners to do this project was the belief that Kraft Foods and Bosch have brands which have an excellent fit and complement each other, to the benefit of consumers. As JeanChristophe Nicodme, a former president of Bosch Home Appliances, underlines: We have been chosen for our reputation, our quality image, our technical, human and marketing investment, as well as for our logistics know-how.37

2.3.3. Levels of formalization adopted for partner relationships Some companies have extensively formalized the ways of identifying and attracting their partners, while others rely on a more case specific practice. Based on the interviews we conducted, we can distinguish three ways of doing Open Innovation:

34 https://secure3.verticali.net/pg-connection-portal/ static/external/files/cd_brochureWEB.pdf 35 http://www.generalmills.com/Home/Company/ Innovation/Our_stories 36 http://www.kraftfoodscompany.com/mediacenter/ country-press-releases/us/2007/us_pr_09042007.aspx

37 http://www.lsa-conso.fr/kraft-s-allie-a-bosch-pourrelancer-tassimo,63186

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Figure 10: Systemization of the Open Innovation process

Case-by-case Collaborations

Semi-standard OI process

End-to-end OI process

Case-by-case collaborations: firms which have not set up any established process and cooperate with their partners on a case-by-case basis. Approximately one fourth of the companies in our sample handle their Open Innovation activities on a case-by-case basis, either exclusively or alongside their established processes. GE, Logoplaste, Philips and Arla Foods highlight the importance of a tailored approach, which they find necessary due to the variety of projects and cooperation possibilities. Semi-standard process: certain firms defined a formalized process for the first few steps (mainly the phases of partner identification and selection) but remained very flexible for the next steps of partner collaboration. These companies established a process for the first few steps, while the reward system and the way of keeping partners have not yet been established. Alcatel Lucent and Kimberly Clark Mexico are good examples for this group.

End-to-end normalized process: some companies have established a formalized process for the entire Open Innovation process. For instance, AkzoNobel, Danone Baby Nutrition, Philips and P&G organize the Open Innovation process according to the following four chronological steps (see Appendix 2): identification/ selection/attraction retention. - Identification: first, companies look for potential partners via internal recommendations, experts, scouts, service providers - Selection: the potential partners that are identified must meet specific criteria to be selected; - Attraction: the company then points up its strengths (size, market, responsiveness, flexibility, etc.) to seduce the targeted partners; - Retention: lastly, the company can secure the partnership through joint value creation, positive communication, etc.

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Other companies which also have an entire process for Open Innovation chose different approaches. For instance, General Mills adapts its process according to the type of partner: universities, suppliers, SMEs and start-ups (see Appendix 2). Unilever has adopted the Want, Find, Get and Manage model38 (see Appendix 2) corresponding to a more dynamic approach. - Want: what resources are needed? Do we recruit internally or externally? - Find: how can we find and evaluate the external sources of technology and capabilities?

Get: what processes are needed to access external resources? Manage: what tools and metrics should be implemented and how should relationships be managed?

Having discussed how to handle external partners, lets now turn to the way of dealing with and implementing Open Innovation projects within the company. As underlined by Thierry Weil39 and some other academics, a major condition for the implementation of Open Innovation to be successful is the parallel launch of internal management processes in line with this new paradigm.

38 Slowinski G., Sagal M.W. (2010), Good practices in open innovation, Research Technology Management, vol.53, n5, p.38-45. .

39 Weil T. (2010), Innovation ouverte : O en sont les entreprises franaises ? , Le Journal de lEcole de Paris, n81, p.36-43.

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In a NutsHell
Management of partner relationships is essential to make external collaboration work Before practicing Open Innovation, some crucial questions are pending: With whom? About what? How? How often? Why? As for any learning process, it would be wise to gradually open the partner networks, progressively broaden the topics and structure the Open Innovation approach partnership after partnership. Various degrees of innovation openness exist Open Innovation is not synonymous with full openness. Three types of Open Innovation approaches have been identified: Topic-oriented, Partner-oriented and fully open approaches. The first two are open but focused on either relevant topics for innovation defined in coherence with the innovation strategy or on specific partners with whom the company has had previous and successful experience. Open Innovation tackles a breadth/depth trade-off, between enlarging the group of partners (breadth) and deepening relationships with a limited group of partners (depth). The initial main steps of partner management are: partner identification and then partner attraction according to the degree of openness, the breadth / depth trade-off, Open Innovation maturity, the firms competitive advantages, etc. For Topic-oriented Open Innovators, partner identification can follow a partner pull approach (through Open Innovation marketplaces such as Innocentive) or a partner push approach (using information collected through the corporate Open Innovation platform for instance). 3 Open Innovation frameworks may be implemented to manage these partnerships: from a case-by-case basis to a highly structured process, covering all the steps of the relationship. The key success factors for Open Innovation initiatives are to set up win-win partnerships and success stories in a trustful environment and open business models.

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3. Internal set-up: How different is the organization?


West and Gallagher40 have identified three main challenges in Open Innovation: motivation, integration and exploitation. Indeed, several questions regarding organization and human resources arise about whether or not to dedicate people to Open Innovation and how this should mesh with traditional innovation processes; choosing the department to be in charge or creating a new one; devoting sufficient energy to change management and finding the proper IT tools.

3.1. From dedicated people to a corporate culture 3.1.1. Which people practice Open Innovation? During our research phase, we came across three different organizational models: A centralized dedicated structure: one department takes care exclusively of Open Innovation practices; Some decentralized dedicated staff: some people are totally dedicated to Open Innovation practices but are spread out in each division; No dedicated staff: everyone is expected to integrate Open Innovation practices in their projects, as part of their day to day activity. In our sample, the majority of companies have adopted or advocated dedicating staff to promote Open Innovation (60%), while a third consider Open Innovation
40 West J., Gallagher S., (2006), Challenges of open innovation: the paradox of firm investment in opensource software, R & D Management, vol. 36, n3, p. 319-331.

to be a corporate culture to be spread throughout the company. Differences can be easily explained by top managements willingness to allocate resources to Open Innovation, the maturity stage of Open Innovation practices, and the companys size and sector. The number of dedicated staff varies from a few people in companies where Open Innovation approaches is quite recent, to up to 25 experts in mature companies such as P&G. The staff is larger in high tech industries where a large number of researchers are dedicated to Open Innovation research projects, as opposed to non technological activities. One of the major advantages of having dedicated people is that it ensures the availability of necessary resources and budget to run Open Innovation practices, or at least to anchor Open Innovation practices in the early phase. Some companies, like General Mills,

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have champions in each division who promote Open Innovation practices on a decentralized basis. Others have a dedicated Open Innovation structure, an Open Innovation office, to handle Open Innovation practices exclusively. Kraft Foods, for example, have a hub-and-

spoke setup: a focused group of people (the hub) studies expertise on the how (i.e. how to implement Open Innovation practices), while in the business units (the spokes), people take advantage of those capabilities.

Quote
If every business unit has an expert they can go to get help, training, and directions, its very enabling. It lowers the barrier to do Open Innovation that you know you have automatic help from dedicated resources Michael Duncan, Director of EMEA Connect+Develop Hub, European Director Open Innovation, P&G

Based on our observations, at the early start of Open Innovation, dedicating people seems to be the right approach to secure focused resources, management attention and drive internal adoption. In the medium term, however, Open Innovation tasks and responsibilities should be infused throughout the company, so that Open Innovation becomes a natural part and an ongoing way of practicing innovation. For instance, Coloplast closed its dedicated structure to spread Open Innovation throughout the entire structure. They decided to put an end to the polarization between those who are inside and those who are outside Open Innovation practices. As A.G. Lafley, former CEO of Procter & Gamble used to say, To succeed,

companies need to see open innovation not as something special that only special people can do, but as something that can become routine and methodical, taking advantage of the capabilities of every employee.41

41 Lafley A.G., Charan R. (2008), The Game Changer: How you can drive revenues and profit growth with innovation, Crown Business, New York. .

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Case Study
Case Study 6: Coloplast Discovers more Internal Resources with Innovation Culture than with Dedicated Resources In 2007, Coloplast set up a dedicated Open Innovation structure with an entire External R&D department. Coloplast is a specialist of intimate healthcare continence care, wound and skin care... But when time came to reengineer a large scale reorganization, they found out that if they aimed to integrate Open Innovation into the entire structure, it would actually be more efficient not to establish a separate dedicated structure but to spread Open Innovation throughout the structure. Since then, they have been working on integrating the Open Innovation mindset into all their divisions, by and for all the 7000 employees that make up the group.

3.1.2. Which departments collaborate in Open Innovation practices? In keeping with the tendency to integrate Open Innovation habits throughout the companys organization, our study has confirmed that Open Innovation is a cross-functional exercise. Many departments may be involved in the process: procurement and supply chain/ logistics, marketing, sales, R&D, legal, finance, human resources, etc. showing a slow but persistent pattern toward greater integration of all the companys departments in Open Innovation practices. Danone established triangles around each partnership, including people from different departments, namely procurement, R&D and marketing. This practice, based on the close cooperation of one representative from each function, provides a new dimension to their respective divisions, since it trains them to work continuously in an interconnected way.

Quote
Sourcing, R&D, and marketing work in a triangle in the management of external innovations Ren-Philippe Tanchou, CPO, Danone Waters

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Figure 11: Open Innovation, a crossfunctional exercise

However, although it will involve many internal stakeholders, companies usually pick one department to lead the process and cooperate with other departments. The lead is taken by R&D in the majority of cases (41%), to be added to the cases where the lead is shared between R&D and marketing. Procurement also sometimes has the key role, so as to manage innovation partnerships with suppliers. The lead department depends on the industry, the cross-departmental power structure in the company and the business targets.

Another way to determine which department is in charge is to identify which department dedicated Open Innovation staff report to (if any). In most cases (70%), this department is R&D, but other departments are also mentioned: procurement, supply chain (Unilever), marketing (Danone Baby Nutrition), and innovation dedicated units like innovation departments (Logoplaste, Philips).

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Figure 12: Who takes the Open Innovation Lead?

3.2. Open Innovation demands Change Management Open Innovation impacts internal as well as external stakeholders. Cultural and organizational impacts are key success factors as much as processes. Companies need to make sure that the organization will truly embrace this new paradigm over

Quote
In the beginning, we did a lot of effort to expose our people to what Open Innovation could bring. We didnt impose it Dr. Graham Cross, Director of Supplier Innovation a nd Innovation Acceleration, Unilever

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time. Open Innovation implies a major change in the way of seeing innovation key success factors and viewing the external world. A daring change in culture is often necessary as it was for P&G more than 10 years ago, from P&G made to P&G made or discovered. Open Innovation projects thus require that special means be introduced in order to facilitate implementation.42 Top Management sponsorship and involvement43: top management must acknowledge Open Innovations importance and support the change management process in the long run. Nothing ever happens in companies, whether big or small, if strong executive support is missing! Furthermore, Buijs44 states that Open Innovation calls for a special kind of leadership, which is very comfortable with the management of paradoxes. Significant means to meet objectives: an Open Innovation revolution needs resources, time and budget: If you want your employees to believe this is a new and valuable way to innovate, show youre ready to invest! For instance, General Electric announced that they would commit hundreds of millions of dollars to support their global challenges and
42 Lichtenthaler U., Lichtenthaler E. (2009), A capability-based framework for open innovation: complementing absorptive capacity, Journal of Management Studies, vol.46, n8, p.1315-1338. 43 Probert D., Tietze F. (2009), Open Innovation and the Chief Technology Officers, Creativity and Innovation Management, vol.18, n4, p. 335-337. 44 Buijs J. (2007), Innovation leaders should be controlled schizophrenics, Creativity and Innovation Management, vol.16, n2, p. 203-210.

initiatives, Ecomagination and Healthimagination, in partnership with venture capitalists, researchers, entrepreneurs and start-ups; Positive communication campaigns: Many companies stress the importance of communicating on success stories (General Mills, Logoplaste, DSM, Kimberly Clark Mexico, General Electric) and on a clear definition of the benefits of Open Innovation practices (Danone, General Mills) to convince people and partners to adopt this new model. Companies are used to keeping their innovative ideas and R&D projects very secret. Furthermore, employees are generally reluctant to adopt and integrate ideas, products, services or processes with external origins; this is the Not Invented Here Syndrome. To shift a companys attitude from resistance to notinvented-here innovations to enthusiasm for those Proudly Found Elsewhere, new human resources approaches are needed. Companies have to enhance their absorptive capacity to economically take advantage of Open Innovation.45 Absorptive capacity is defined by Cohen and Levinthal as the ability of the firm to recognize the value of new external information and apply it to commercial ends.46
45 Abecassis-Moedas C., Ben Mahmoud-Jouini S. (2008), Design, Absorptive Capacity, SourceRecipient Knowledge Complementarity and New Product Development Performance: An Empirically Derived Framework, Journal of Product Innovation Management, vol 25, n66. 46 Cohen W.M., Levinthal D.A. (1990), Absorptive capacity: A new perspective on learning and innovation, Administrative Science Quarterly, vol. 35, n 1, p.128152.

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Quote
Building external thinking into the firm requires change. The firm must review the new product development processes, the supply chain, the strategic planning process, the reward system, the technology roadmap, and many other systems for their ability to incorporate external innovation. [] Harnessing external technology for innovation requires a fundamental change in employee thinking. The Not Invented Here syndrome is replaced with the Invented Anywhere approach Witzeman and al. (2006)47 Broaden the recruitment funnel with new profiles. New innovation practices demand new employee profiles: many Open Innovation managers recommend redesigning staff needs to focus on versatile profiles with multiple competencies48 and ensure their integration in order to make them fit well in the organization. In an Open Innovation context, it may be more useful to recruit people who know a little on many topics and where to find information, than experts. This might be a major cultural shift, especially for R&D departments. Six years ago, General Mills made strong efforts to hire the best people from whom they expected idea generation and innovation enhancement. General Mills
47 Witzeman S., Slowinski G., Dirkx R., Gollob L., Tao J., Ward S., & Miraglia S. (2006), Harnessing external technology for innovation, ResearchTechnology Management, vol.49, n3, p.19-27. 48 Weil T. (2010), Innovation ouverte : O en sont les entreprises franaises ? , Le Journal de lEcole de Paris, n81, p.36-43.

opened up to various profiles and then efficiently stimulated cultural change within the company. For instance, TDF wants to have talent in the procurement department that understands the business, other functions, and will know to scout for innovations. Open Innovation partnerships with universities can have a favorable impact on the companys recruitment process and human resources setup. Indeed, it will help recruiting teams identify the best competences and the internal know-how.49 Integrate Open Innovation in job descriptions and personal objectives. The actual integration of Open Innovation objectives in job definitions is a concrete way of gradually implementing the Open Innovation state of mind. At Danone Waters, innovation and Open Innovation became part of peoples job description and
49 Harryson S. (2002), Why know-who trumps know-how, Strategy + Business, n27, p. 16-21.

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personal objectives. General Mills went one step further, integrating Open Innovation so much into the objectives of the personnel, especially at the VP and the project manager levels, that they could be evaluated based on achievements with Open Innovation. As a complement to these individual objectives, each division has its own Open Innovation objectives; for instance, the number of Open Innovation projects and initiatives launched and achieved (see the next section about KPIs); Launch training programs. Training not only helps to develop special knowledge among the employees, but also enhances knowledge flows and shared language. It also helps build a corporate culture and approach to Open Innovation practices. For instance, DSM set up a DSM Business Academy, where almost everyone working in relation with

innovation gets training about the norms and values of DSM. Internal Open Innovation experts, like the VP Open Innovation or Chief Innovation Officer (CIO) or Chief Technology Officer (CTO), give lectures in order to convince people of its value and to show that innovation is crucial to survival; Reward Open Innovation. In addition to traditional motivation systems, some special Open Innovation rewards may be launched by a company. Open Innovative firms should perhaps evaluate and incentivize their teams using long-term metrics that reward long-term performance. For example, a special prize may be set up for a three-year period given that deep or broad collaborations on Open Innovation projects cannot always bear fruits within the fiscal year!

3.3. The role of IT and collaborative tools A major precondition for successful Open Innovation implementation is that it must be launched in parallel with internal management processes that are in line with this philosophy, and this affects the way a company innovates. Most companies interviewed stated the importance of supportive tools for setting up Open Innovation internally. These tools can be of different kinds: Collaborative platforms: They are useful for improving idea stimulation and collection, but very demanding in resources (including time and budget), mainly for digestion of the incoming flow. For instance There are many innovation portals, such as pgConnectdevelop.com (P&G), innovatewithkraft (Kraft Foods), ideas4unilever (Unilever), Pearlfinder (Beiersdorf), G-WIN (General Mills Worldwide Innovation Network). Such platforms can foster cross-functional innovation, as does Beiersdorfs Pearlfinder platform designed for its R&D and packaging departments. Those companies invite scientists,

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researchers, engineers, individuals and companies to submit proposals

for innovations or to review current company innovation opportunities.

Case Study
Case Study 7: General Mills, Teamsup through their Tool At General Mills, we believe that there is a great opportunity for us to enhance and accelerate our innovation efforts by teaming up with world-class innovators from outside of our company. To facilitate that effort, we created the General Mills Worldwide Innovation Network (G-WIN) to actively seek partners who can help us deliver new levels of taste, health, and convenience in our products. Ken Powell, Chief Executive Officer, General Mills.50 During the first year of using the portal, General Mills attracted more than 1,000 registered innovators from around the world and received more than 500 proposals. Since 2007, more than 40 new General Mills products have incorporated a significant portion of Open Innovation. For instance, Yoplait Smoothie - kits including real frozen fruits and frozen Yoplait yogurt chips that have to be blended with milk to make a smoothie - results from long-time supplier collaboration and synergies between different General Mills brands. After we adopted a more collaborative approach, one of our suppliers came back with a frozen smoothie kit prototype. It became the impetus for the launch of Yoplait Smoothie
50 https://openinnovation.generalmills.com/

kits, launched in club stores in the fall of 2009, where they became a tremendous success, explains Jeff Bellairs, director of G-WIN, who has been with General Mills for 13 years.51 To find the right recipe, a cross-functional team was created with people from Yoplait (Marketing), Green Giant (a sister brand in General Mills which launched the technology of microwavable frozen vegetables) and the supplier Kerry Ingredients and Flavours.

51 http://www.foodprocessing.com/articles/2009/ rdteam-generalmills.html?page=1

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Open Innovation service providers: NineSigma is one of the most popular tools for managing Open Innovation relationships (60% of our sample uses it). Others are Innocentive, Accept360, etc. NineSigma suggests a framework with detailed steps and tools for implementing Open Innovation, based on three distinct stages showing the evolution of Open Innovation capacity over time. Each of the respective steps details the means and sub-steps to apply in order to achieve the highest Open Innovation capacity. The first step, Launch, is about the definition of the process and novelty involved in the Open

Innovation approach: explaining the new way of being open, the new roles and new processes which come with it. During the second stage, Consolidate, the best practices, the required organizational structure and the metrics structure emerge. The third and last step, Embed, is the achievement of the Open Innovation strategy inside and outside the company as well as the necessary structure to conduct it. Owing to the size of its network - its international span and its ten-years of experience - this tool is still the benchmark: companies view it as a big help for value creation follow-up and structuring practices.

Case Study
Case Study 8: AkzoNobels diffusion of Open Innovation through a company-wide end-to-end process AkzoNobel (paint and coatings) successfully established an end-to-end innovation process when they started to run the ANNI (AkzoNobel Networked Innovation) project in 2009 with NineSigma who enabled the process with training and IT infrastructure. The aim was to significantly improve the use of internal research, development and innovation (RD&I) capabilities distributed across multiple global business units, as well as improve and standardize access to the global innovation community. AkzoNobel and NineSigma developed a step-by-step process to leverage internal and external ideas and knowledge and turn them into profitable business. Were starting to see a real shift in culture as our innovation teams become more aligned with one another and begin leveraging the vast resources available across our company. This goes well beyond ANNI and RD&I, and were now experiencing a more open approach within our communities of practice and expert capability groups as well. Three years ago, this kind of approach was unthinkable. said Dick van Beelen, Director, Open Innovation, AkzoNobel.

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Companies choose IT tools according to their approach to Open Innovation. Those adopting a fully-open approach have launched an open web portal to help achieve their goals. The companies that chose a more focused approach prefer internal portals shared with their referenced partners. For instance, while General Mills leverages an open platform (G-WIN) to meet its fully Open Innovation strategy, TDF launched an internal website to share Open Innovation values and desired practices and processes with its employees

before starting a directed search for external innovation. Finally, Logoplaste is currently building an open platform to move towards a fully Open Innovation strategy. Note that although these platforms enable a much more open process, they remain focused on the strategic priorities of the companies in order to avoid resource dispersion. The more a competency is core for a company, the less it will be part of the companys Open Innovation strategy.52

Case Study
Case Study 9: Logoplaste, the Opening up of a Company whose Partners are Innovating in an Open Way Logoplastes customers (such as Nestl, Unilever, Danone, Yoplait, Procter & Gamble, Johnson & Johnson, GlaxoSmithKline, Arla Foods, Tetrapak), had been using Open Innovation for a while when Logoplaste decided to open up the companys innovation processes. Logoplaste has had a directive Open Innovation approach for years. As a manufacturer of rigid plastic packages for food, beverages, personal care products and household care products, Logoplaste has developed the hole in the wall model where their own plants are set up near their customers so that their products are incorporated into their customers manufacturing process. They have been working jointly with their customers to develop new types of plastic packaging. The partnership concluded with Arla Foods has yielded a positive outcome for both companies. In November 2007, Arla Foods won two Food Manufacture excellence awards, and Logoplastes contribution to reductions in packaging volumes was a key factor for Arla Foods to gain the coveted prize. For Arla Foods, having Logoplaste on-site meant that the supply chain is greatly streamlined, eliminating the distribution costs and improving the associated environmental impact of having to transport empty bottles.53 Now, Logoplaste is going one step further to develop a digital platform for several reasons:
52 OECD Science, Technology and Industry (2008), Open Innovation in a Global Perspective, OECD Publishing 53 http://www.logoplaste.com/case_studies_art. php?id=bGFuZz1FTiZwPTg4

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Enhance the already existing internal communication on innovation inside the company and capture of innovations Logoplaste has locations in 18 countries and 3 R&D centers in Portugal, Brazil and US; Adopt a fully open approach to innovation to reach more business partners than their immediate and existing ones; As a conclusion to this internal set-up analysis, we wish to point out that Open Innovation calls for a delicate balance between change management and new approaches to innovation, and building on the historical strengths of the company regarding innovation. While practicing Open Innovation and according

Reach individuals in addition to companies, who are their most regular partners in their innovation activities; Practice crowdsourcing and enrich the outcome of their collaborative projects. As Logoplaste gains maturity with Open Innovation, the company wishes to open up the innovation process even more.

great importance to external resources, internal R&D and creativity remain key elements for innovation. Indeed, internal innovation leaders are essential in order to have the capability to compare, evaluate and then integrate others ideas, thus increasing the firms absorptive and integration ability.

In a Nutshell
The main challenges of Open Innovation are in the areas of internal acceptance and eagerness To make Open Innovation part of everyday business life, Open Innovation and innovation culture have to be spread throughout the firm. At the beginning, companies usually dedicate staff and budget resources to Open Innovation, and stress personal objectives in order to integrate Open Innovation practices into the approach and mindset of everyone and every department. When the culture becomes more widely developed, it is integrated into the companys innovation approach and does not require any specific staff or department. To switch from the Not Invented Here Syndrome to the Proudly Found Elsewhere slogan, strong top management involvement is required as well as significant means and a delicate change management process. Collaborative platforms and Open Innovation providers may be very helpful in strengthening the Open Innovation approach.

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4. Impact and performance of Open Innovation: innovate more, faster or cheaper?


Our study allows us to evaluate how companies that are ahead in terms of Open Innovation evaluate its impact on their innovation practices after a few years. We will thus discuss the difficulties they mention, as well as the overall impact in terms of innovativeness. In addition, we will identify how they measure Open Innovations impact using KPIs.

4.1. Key difficulties relating to Open Innovation Open Innovation aims at increasing the amount of available resources (ideas, technologies, etc.) to positively impact the firms innovativeness. But it also has disadvantages. Our interviews on this topic are consistent with the quantitative data collected by the OECD (Figure 13) and enable us to analyze the fears and difficulties faced by companies. The theft of intellectual property is indeed seen as a key risk, but some consider that Open Innovation Figure 13: Open Innovation difficulties54 actually leads to improving Intellectual Property protection since a collaborative context makes it mandatory to clarify each partners IP rights. Of course, setting up a legal agreement may involve long and complex administrative procedures and Open Innovation seeks easy access to the patent system as well as timely and simple procedures. But, paradoxically, Open Innovation thus sometimes helps to protect innovations more.

54 OECD Science, Technology and Industry (2008), Open Innovation in a Global Perspective, OECD Publishing

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The key difficulties that emerge from our field study are related to the need of a strong medium-term commitment associated with Open Innovation approaches, which need major organizational and cultural changes to be effective. Open Innovation is not just a method, but a deep change in the way of innovating and building the companys future activities that thus requires a major focus from top management over several years. That contrasts with the difficulty of measuring and observing a clear impact on

key performance indicators for innovation that we will study in later paragraphs. Open Innovation approaches require companies to agree to share control over innovation, to share knowledge, to handle cultural differences with external organizations and individuals involved in the innovation process, and to handle remote partnerships and staff. However, these difficulties seem to have been overcome by the companies that have been practicing Open Innovation for a while since they assert the positive impact of such practices.

4.2. Perceived impact over innovation performance When adopting Open Innovation, companies hope to boost their innovativeness and growth without increasing their innovation budget. Key Figure 14: Drivers inducing the launching of Open Innovation practices
Drivers of Open Innova/on
% of companies in scope men?oning driver for OI

drivers are related to growth, time-tomarket, competitive pressure and access to complementary resources (Figure 14).

60% 50% 40%

53% 42% 32% 32% 26%

30% 20% 10% 0%

Enhance growth

Reduce TTM

Resist pressure of compe??on

Access to complementary Reduce costs or get more competences out of the same

And Open Innovation seems to keep its promises. According to our interviewees, it helps improve performance and

competitiveness in terms of extended qualified network, increased innovation, faster time-to-market, limited innovation

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costs and risks, and extended competences and resources (Figures 15 and 16). But other advantages, perhaps less obvious or, at least, less anticipated by our interviewees, were also highlighted: help the company be more environment friendly and sustainable by easily integrating external green competences (DSM, Kimberly Clark Mexico Mexico, Danone Waters); generate more patents (Beiesrdorf; learn how to collaborate with new types of partners Figure 15: Expected and less expected impacts of Open Innovation practices Expected impacts
Increase the number of partners Deepen partnerships Enlarge the pool of resources Share the risk Improve lead position on the market Increase the number of innovation projects Increase the success of innovation projects Not increase R&D and innovation investments Reduce time-to-market

(GE and Danone Baby Nutrition); enhance internal cross-functional coordination (Merck Pharmaceuticals/Chemistry, Danone); improve the corporate image and thus encourage people to apply for positions (DSM); spread internal innovation culture and foster employee motivation (AkzoNobel); explore new business models to be more competitive (General Mills)

Less expected impacts


Promote company sustainability awareness Generate more patents Learn how to collaborate with new kinds of partners, especially big companies collaborating with SMEs Improve cross-functional cooperation Renew employees motivation and involvement Spread innovation culture throughout the firm Brighten up employer brand Enhance the firms reputation Enhance strategic intelligence and creativity Explore new business models and develop new business opportunities

Figure 16: Major impacts of practicing Open Innovation

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Case Study
Case Study 10: The TARBAM project, Open Innovation beyond expectations The TARBAM project, which stands for Total Appearance Research BYK-Gardner AkzoNobel Merck, was an Open Innovation project launched in 2002 by three companies to develop a product that could measure precisely the color and texture of a cars paint. One of the business goals was to penetrate the car coating market. Each of the three companies added specific value to the project: AkzoNobel provided better color and texture matching, BYX brought paint and coatings experience to the instrument and Merck better quality control and texture measurement. The project resulted in the creation of a portable device which does multi-angle color and texture characterization, color measurement and evaluation of visual sparkle and graininess. Mercks participation in the TARBAM project is a good example of how a multiactor collaborative innovation project parties performance (e.g. faster time to market, cost reduction, increased sales revenue). The projects results turned out to be better than the results expected by each participant: Merck developed its measurement equipment in time and has introduced it to the market, AkzoNobel color development and QC labs can now use a fast integrated color and texture instrument of unsurpassed quality. The TARBAM project is finished, but the trust and strong relationships built up over the years between Akzo Nobel, BYKGardner and Merck continue. New ideas are already under discussion, as BYK-Gardner helps AkzoNobel Car Refinishes become the sector leader in color. According to Jim Rees, General Manager of AkzoNobel Car Refinishes: Its our desire to collaborate with key strategic partners who bring us closer to meeting future requirements of our customers, and this award is evidence of our commitment and the recognition of market leaders like BYK-Gardner to that goal55.

may have positive impacts on each of the

55 http://www.specialchem4coatings.com/newstrends/displaynews.aspx?id=8831

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Let us comment further on the main types of impact that has been identified, showing to what extent some of them might be unexpected and, sometimes, counterintuitive. Open Innovation shortens time to market: One may expect the integration and cooperation between several organizations, either of the same type (large companies) or even more of different profiles (large and small companies, companies with public labs, academics) to make innovation more complex and slower. But this did not appear in our interviews and a faster time to market was mentioned as the main advantage of Open Innovation practices - perhaps the most visible in the short run? As a recent r3ilab impact survey in the textile industry56 shows, a reduced time to market is also one of the best competitive advantages, since it shields against the negative impacts of copycats, especially for SMEs. Open Innovation is not so much cheaper than closed innovation: Contrary to our expectations, cost is not often mentioned as a key positive impact of Open Innovation. Furthermore, it does not seem to be a key driver to adopt this approach, except maybe in heavy development cost industries such as telecommunications (TDF, Alcatel Lucent). Maybe the companies simply do not want to emphasize this motivation? Yet it seems to be one of the most positive impacts of Open Innovation, enabling companies
56 http://www.r3ilab.fr/

to share the costs and above all risks associated with innovation. There might be a time/cost tradeoff in many companies (Arla Foods, Philips), but clearly Open Innovation is more often seen as a way to accelerate innovation than to make it cheaper. Open Innovation improves IP protection: In a collaborative context, it is mandatory to clarify each partners IP rights, even though setting up a legal agreement may involve long and complex administrative processes and heated discussions between partners. 57 Brouwer and Kleinknecht showed that firms which collaborate to innovate are more eager to apply for patents than firms which do not collaborate. Open Innovation spurs companies to protect innovations rather than keeping them secret, which is positive for firm valuation and for the global knowledge economy. Open Innovation fuels sustainability: Even though getting ahead with sustainability issues was not necessarily a direct driver for implementing Open Innovation for all companies, it is a vehicle for success with sustainability projects and the promotion of a sustainability agenda, in other words for companies to get ahead in the green race.58
57 Brouwer E., Kleinknecht A. (1999), Innovative output and the firm propensity to patent. An exploration of CIS microdata, Research Policy, vol. 28, n6, p.615624. 58 Vision 2015 (www.wbcsd.org) and Sandberg P. (2011), European Innovation Conference, Billund.

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Nearly 70% of NineSigmas current innovation intelligence projects deal with sustainability issues, and Danone Waters Bonafont project

is also a good example of how Open Innovation can help advance a companys innovation sustainability agenda.

Case Study
Case Study 11: Danone Waters proved to be innovative and ethical Bonafont, a leading natural water brand bottled in Mexico, is part of Danone Waters and has plants with some of the most advanced bottling systems in the world. In 2009, after two years of R&D, Bonafont launched worldwide the first bottles made from 100% recycled PET (R-PET) thanks Open Innovation enhances the companys innovativeness: For half of the cases, Open Innovation helps to increase the number of innovation projects within the company and even to improve their success rates. As innovation is rooted in an economy of quantity, projects must be manifold in order to end up with a few successful to Open Innovation. This operation was part of the parent companys ambitious plan which set a target of 35% of water bottles to be based on R-PET by the 2011 production year. Thus Bonafont saved 20k tons of CO2/year. This PET bottle recycling example shows how specific products and business innovations can contribute to Danones efforts to be more sustainable.

innovations. Innovation is characterised by positive network externalities: the interest and the learning generated by each of them increase with their overall number.59 Open Innovation can stimulate quantity and thus improve the overall innovativeness of each partner.

4.3. How to measure and evaluate Open Innovation? The analysis of the impact of Open Innovation presented above is based on our interviews, but one may wonder how companies evaluate this impact. Given the organizational change and the resources required to develop Open Innovation
59 Morand P., Manceau D. (forthcoming), For a new approach of innovation throughout Europe, Institute for Innovation and Competitiveness i7.

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approaches, it would seem logical that companies monitor carefully the impact of such new practices. We therefore wanted to understand how companies analyze and evaluate the impact of Open Innovation. Our study shows that, just as

for innovation in general, it remains difficult to quantify and define Key Performance Indicators (KPIs) to measure the impact of Open Innovation.

FOCUS
The Innovation KPIs Dilemma60 The protean nature of innovation is at odds with the choice of few simple indicators applicable to all companies and to all dimensions of innovation. That many senior executives are not satisfied with their companys innovation measurement practices is due to the multi-facetted aspects of innovation and the fact that innovation projects might have an impact on sales or profitability several years later. In reality, each measure is valid for the facet of innovation it evaluates, but none of them can claim to reflect the overall innovative capacity. Nevertheless, Key Performance Indicators (KPIs) are necessary tools for measuring a companys performance and its evolution over time or specific areas and to account for expenses and investments. A composite indicator ensures a more comprehensive picture of the multiple factors that favor innovation. It should include three groups of KPIs: input (like R&D investment, design investment, HR resources to stimulate diversity in terms of age, gender, educational background), output (like share of sales on products launched within the past 3 years, profitability of innovative products) processes (time-to-market, number of projects). The MIM matrix (Monnier Innovation Management61) is an example of such a composite tool that can be used for decision-making related to Open Innovation projects. Launched in 2004, revised in 2007, the method allows companies to measure the potential of a technological offer or service and makes it possible to evaluate the innovation capacity of a company. Another benefit of the matrix is the mapping of potential suppliers for company projects. Alcatel Lucent is currently applying the MIM tool in European scale projects.

60 Ibid 61 The Monnier Associations innovation management has the duty to promote the use of the innovation measurement reference invented by Bernard Monnier with a methodology based on the MIM (Monniers Innovation Matrix).

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Companies feedback shows that several initiatives have already been set up to define ways to measure Open Innovation performance. We therefore classified our Open Innovation KPIs in three categories: Input KPIs: to measure the assets and resources invested in or used to generate Open Innovation results (e.g. % of revenue invested in Open Innovation, number of staff devoted to Open Innovation, specific staff recruitments to implement this new Figure 17: Examples of Open Innovation KPIs

approach); Process KPIs: to measure the efficiency or productivity of the Open Innovation process (e.g. time to respond to new ideas/solutions, number of new partners, number of projects); Output KPIs: to measure the financial and non-financial results of Open Innovation activities and projects (e.g. % of revenue generated by Open Innovation projects).

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We observe that the KPIs mentioned are well balanced in the three groups. Nonetheless, process KPIs seem much more difficult to follow. Secondly, we note a close correlation between the KPIs on the list and the drivers of Open Innovation mentioned by companies. Quite logically, companies try to measure what they were hoping to achieve with Open Innovation: faster time to market, increased growth, etc. For a few companies, measuring innovation performance is only a matter of time. They discussed their current projects with us, including their ongoing initiatives on the follow-up and monitoring of their Open Innovation performance. Many companies are currently working on KPIs and metrics initiatives. P&G has for example just set up the new target in their followup system, which is based on measuring the contribution, as a percentage, of external ideas out of the top line sales growth (the target is to reach 60% brought Figure 18: KPIs not specific to Open Innovation

by Connect+Develop) while previous indicators were tracking the number of ideas externally sourced. Furthermore, the number of initiatives undertaken by P&G with a specific partner is also tracked. Additional KPIs, related to IP issues and the number of man hours, are also discussed internally. However, many companies seem to use KPIs for Open Innovation and for innovation in general together, without distinguishing one from the other. It is normal that some KPIs measure the deployed Open Innovation means and the achieved impacts, while others are more generally related to innovation practices. For instance, to the question What specific KPIs do you use to measure Open Innovation performance? companies often mentioned the revenue generated by products recently launched (<3 years), which covers a larger scope than Open Innovation.

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Figure 19: KPIs specific to Open Innovation

Quote
When it comes to product innovation, there is no difference between the KPIs about whether they are related to internal or external innovation Henrik Jorgen Andersen, Head of Corporate Research and Development, Arla Foods Does it mean that companies are creating confusion here? Not necessarily. If Open Innovation is aimed at improving the overall innovation practices, companies can choose to keep the same innovation KPIs and analyze whether the results are improved following the adoption of an Open approach. As Arla Foods suggests, When it comes to product innovation, there is no

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difference between the KPIs about whether they are related to internal or external innovation. This point of view is also shared by Kimberly Clark Mexico which has no specific metric or success criteria for Open Innovation, but rather uses their general innovation metrics for the follow-up and evaluation of Open Innovation practices. Open Innovation is a means in favour of more innovation, so measuring Open Innovation is just a means of measuring the firms innovativeness. Nevertheless, it may give the opportunity to introduce

medium-term metrics to measure and reward long-term performance. For instance, the number of projects achieved or the revenue generated through Open Innovation may be considered on a three or five-year basis. Examining long-term indicators and incentives along with annual results may help to evaluate the impact of Open Innovation more accurately and to foster the deep change of mentalities and processes that Open Innovation generates.

In a Nutshell
Open Innovation can increase the companies innovativeness but needs to be included in KPIs - Open Innovation reduces time-to-market, which may be the one of the best ways to protect innovation. - Open Innovation is not really cheaper than closed innovation, but useful for sharing the risks. - Open Innovation improves IP protection, even though it deals with very complicated stakes. - Open Innovation fuels the sustainability race, which is a surprising, unexpected impact of Open Innovation practices. - Open Innovation enhances the companys innovativeness: the more you innovate, whether through Open Innovation or not, the greater your chances of success. - As for innovation in general, it remains difficult to quantify and define KPIs to measure Open Innovation impact. Two types of approaches (which are not mutually exclusive) can be considered by companies regarding Open Innovation measurement: introducing Open Innovation specific KPIs or following to what extent Open Innovation approaches enhance the general innovation KPIs. Open Innovation specific KPIs can be related to input, processes and output of Open Innovation. They can use long-term metrics to measure and reward long-term performance.

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5. Conclusion
Beyond the popularity of the Open Innovation rhetoric, many firms are changing their way of innovating and adopting a systematic approach using external partners and competences that can help them innovate more, faster and greener. Open Innovation is focused on discovering new ideas, reducing risk and leveraging scarce resources, and paradoxically, it improves the companies IP protection. The business model for Open Innovation is a key part of its success. Trust and absorptive capacity are key ingredients of winwin situations. As we learnt from our observations, bringing external knowledge to the company must not be seen as a substitute for internal practices based on the knowledge held in the company, but rather as a complement to internally developed knowledge.62 To take the full benefit of the innovation realized through the involvement of external partners, companies should combine these external resources with their own specific competences. This report also shows that companies which have a certain maturity with Open Innovation set themselves up to make Open Innovation part of normal business.63 This indicates that Open Innovation is more than a management fad and will become integrated in a new way for companies to innovate.

Quote
It will be the standard way of thinking, acting and working Katja van der Wal, Open Innovation Director at Philips Customer Lifestyle, Philips

62 Poot T., Faems D., Vanhaverbeke W. (2009), Toward a dynamic perspective on open innovation: A longitudinal assessment of the adoption of internal and external innovation strategies in the Netherlands, International Journal of Innovation Management, vol. 13, n2 p.177200. 63 Huizingh E. (2010), Open innovation: state of the art and future perspectives, Technovation, vol. 31, n1, p.2-9.

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Bibliography
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Abecassis-Moedas C., Ben Mahmoud-Jouini S. (2008), Design, Absorptive Capacity, SourceRecipient Knowledge Complementarity and New Product Development Performance: An Empirically Derived Framework, Journal of Product Innovation Management, vol. 25, n66. Brouwer E., Kleinknecht A. (1999), Innovative output and the firm propensity to patent. An exploration of CIS microdata, Research Policy, vol. 28, n6, p.615-624. Buijs J. (2007), Innovation leaders should be controlled schizophrenics, Creativity and Innovation Management, vol.16, n2, p. 203-210. Chesbrough H. W (2007), Why companies should have open business models, MIT Sloan Management Review, vol.48, n2, p.22-28. Chiaromonte F. (2006), Open innovation through alliances and partnership: theory and practice, International Journal of Technology Management, vol.33, n2-3, p.111-114. Cohen W.M., Levinthal D.A. (1990), Absorptive capacity: A new perspective on learning and innovation, Administrative Science Quarterly, vol. 35, n 1, p.128-152. Dyer J.H., Singh H. (1998), The relational view: cooperative strategy and sources of interorganizational competitive advantage, Academy of Management Review, vol. 23, n4, p. 660-679. Harryson S. (2002), Why know-who trumps know-how, Strategy + Business, n27, p. 16-21. Hennart J.F (1988), A transaction costs theory of equity joint venture, Strategic Management Journal, vol.9, p. 361-374. Huizingh E. (2010), Open innovation: state of the art and future perspectives, Technovation, vol. 31, n1, p.2-9. Lichtenthaler U., Lichtenthaler E. (2009), A capability-based framework for open innovation: complementing absorptive capacity, Journal of Management Studies, vol.46, n8, p.1315-1338. Poot T., Faems D., Vanhaverbeke W. (2009), Toward a dynamic perspective on open innovation: A longitudinal assessment of the adoption of internal and external innovation strategies in the Netherlands, International Journal of Innovation Management, vol. 13, n2 p.177200. Probert D., Tietze F. (2009), Open Innovation and the Chief Technology Officers, Creativity and Innovation Management, vol.18, n4, p. 335-337. Slowinski G., Sagal M.W. (2010), Good practices in open innovation, Research Technology Management, vol.53, n5, p.38-45.

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Weil T. (2010), Innovation ouverte : O en sont les entreprises franaises ? , Le Journal de lEcole de Paris, n81, p.36-43. West J., Gallagher S., (2006), Challenges of open innovation: the paradox of firm investment in open-source software, R & D Management, vol. 36, n3, p. 319-331. Witzeman S., Slowinski G., Dirkx R., Gollob L., Tao J., Ward S., & Miraglia S. (2006), Harnessing external technology for innovation, Research-Technology Management, vol.49, n3, p.19-27.

Books
Chan K., Mauborgne R. (2005), Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, Harvard Business School Press, Boston. Chesbrough H. (2003), Open Innovation: The New Imperative for Creating and Profiting from Technology, Harvard Business School Press, Boston. Chesbrough H., Vanhaverbeke W. and West J. (2006), Open Innovation: Researching a New Paradigm, Oxford University Press, USA. Lafley A.G., Charan R. (2008), The Game Changer: How you can drive revenues and profit growth with innovation, Crown Business, New York. Le Nagard E., Manceau D. (2011), Marketing de linnovation, Dunod, Paris. Morand P., Manceau D. (forthcoming), For a new approach of innovation throughout Europe, Institute for Innovation and Competitiveness i7. Nelson R. R., Winter G. (1982), An evolutionary theory of economic change, Harvard Business Press, Cambridge, MA. Rogers E. (1983), Diffusion of Innovations, Free Press of Glencoe, Macmillan Company, New York. Senor D., Singer S. (2009), Start-up Nation: The story of Israels Economic Miracle, Twelve, Hachette BookGroup, NY-USA. Simard C., West, J. (2006), Knowledge Networks and the Geographic Locus of Innovation, in H. W. Chesbrough H.W., Vanhaverbeke W., West J., Open innovation: Researching a new paradigm, Oxford University Press. Von Hippel E. (2005), Democratizing innovation, MIT Press, Boston. Von Hippel E. (2010), The role of lead users in innovation, in Teece D., Augier M., Palgrave Encyclopedia of Strategic Management, Palgrave Macmillan Ltd, UK.

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Reports and Communications


Alon A., Chow D. (2008), How to get the most from your best ideas, Accenture Outlook OECD (2011), Science, Technology and Industry Scoreboard. HEC, Act One (2010), The Corporate Innovation Function. Isherwood P., GlaxoSmithKline (2009), Making it all happen: Implementing innovation, FDIN Open Innovation Seminar. Linder J., Jarvenpaa S., Davenport T. (2003) Innovation Sourcing Strategy Matters, Accenture Institute for Strategic Change. Morelli A., Reznik G. (2009), Accenture Open Innovation: How to create the right new products, in the right way, Accenture Outlook. OECD Science, Technology and Industry (2008), Open Innovation in a Global Perspective, OECD Publishing. OECD (2008), Open Innovation in global networks. OECD (2011), Science, Technology and Industry Scoreboard. Sandberg P. (2011), European Innovation Conference, Billund.

Websites
http://consommateurinfluenceur.blogspot.com http://en.eyeka.com/ http://www.foodprocessing.com/articles/2009/rdteam-generalmills.html?page=1 http://www.generalmills.com/Company/Innovation/Our_stories.aspx http://www.generalmills.com/Home/Company/Innovation/Our_stories http://www.hightechcampus.nl/ http://www.innocentive.com/ http://www.innoget.com/ http://www.jsonline.com/business/49466327.html

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http://www.kraftfoodscompany.com/mediacenter/country-press-releases/us/2007/us_ pr_09042007.aspx http://www.logoplaste.com/case_studies_art.php?id=bGFuZz1FTiZwPTg4 http://www.lsa-conso.fr/kraft-s-allie-a-bosch-pour-relancer-tassimo,63186 https://openinnovation.generalmills.com/ http://www.r3ilab.fr/ https://secure3.verticali.net/pg-connection-portal/static/external/files/cd_brochureWEB.pdf http://www.specialchem4coatings.com/news-trends/displaynews.aspx?id=8831 http://www.yourencore.com/about-yourencore/ www.wbcsd.org

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Appendix
Appendix 1: Further definitions for Open Innovation64

64

OECD (2008), Open Innovation in global networks.

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Appendix 2: Exemplary frameworks of established processes for Open Innovation implementation DANONE Baby Nutrition Open Innovation implementation process

Procter & Gambles Open Innovation implementation process

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AkzoNobels process for establishing Open Innovation practices

Philipss innovation process

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General Mills Open Innovation implementation approach according to partner type

The Want-Find-Get-Manage model by Unilever

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Table of Illustrations

Figure 1: Innovation actors in the Open Innovation configuration Figure 2: General Mills vision of Open Innovation Figure 3 : Open Innovation adoption per industry for our sample Figure 4: Official start of an Open Innovation strategy for our sample by industry Figure 6: Degrees of innovation openness

26 26 28 29 34

Figure 7: Has your preference tended toward having more partners or deeper partner relationships? 37 Figure 8: The breadth / depth trade-off for partnerships Figure 9: Innovation sourcing strategy example from Eli Lilly and Company Figure 10: Systemization of the Open Innovation process Figure 11: Open Innovation, a cross-functional exercise Figure 12: Who takes the Open Innovation Lead? Figure 13: Open Innovation difficulties Figure 14: Drivers inducing the launching of Open Innovation practices Figure 15: Expected and unexpected impacts of Open Innovation practices Figure 16: Major impacts of practicing Open Innovation Figure 17: Examples of Open Innovation KPIs Figure 18: KPIs not specific to Open Innovation Figure 19: KPIs specific to Open Innovation 38 43 47 53 54 62 63 64 64 69 70 71

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Table of Case Studies

Case Study 1. Philips Establishes Innovation Ecosystem Case Study 2: Danone Baby Nutrition, Supplier Co-Development with a Strong Packaging Innovation Case Study 3: Procter & Gamble Locates Favorably to Identification of Partners Case Study 4: An example of a Win-Win situation: Kimberly Clark Mexico and Velcro Case Study 5: Kraft Foods andBosch Siemens innovation based on complementary know-how and brands Case Study 6:
Coloplast Discovers more Internal Resources with Innovation Culture than with Dedicated Resources

23 24 41 45 46 52 58 59 60 65 67

Case Study 7: General Mills, Teams-up through their Tool Case Study 8: AkzoNobels diffusion of Open Innovation through a company-wide end-to-end process Case Study 9: Logoplaste, the Opening up of a Company whose Partners are Innovating in an Open Way Case Study 10: The TARBAM project, Open Innovation beyond expectations Case Study 11: Danone Waters proved to be innovative and ethical

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Institute for Innovation and Competitiveness i7 www.institut-innovation-competitivite.eu The Institute for Innovation and Competitiveness i7, created by ESCP Europe and the Europe+ Foundation, aims at promoting a broad vision of innovation and stimulating the development of present practices and corporate interests related to innovation. A European Academic Think Tank, the i7 Institute enhances the creation, the dissemination and the exchange of innovation knowledge regarding its diversity (technological and non technological innovation, usage, new business models) and advantages (creativity, R&D, culture, diversity ). Its ambition is both international and crossdisciplinary.

executives to its five European campuses: Paris, London, Berlin, Madrid and Torino, and also to its 88 partner institutions around the world. ESCP Europe offers a wide range of general and specialized management programs to students, young professionals and managers and is one of the few Business Schools world-wide to have attained the triple international accreditation from the AACSB, EQUIS and AMBA. The heart of ESCP Europe lies in its European humanistic values and the recognition of history and culture, the encouragement of creativity and innovation, the adoption of an open approach which respects diversity and the development of accountability. These values and commitments act as driving forces to boost cross-disciplinary expertise and meet the needs of senior executives and policy makers.

Accenture www.accenture.com Accenture is a global management consulting, technology services and outsourcing company, with approximately 236,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$25.5 billion for the fiscal year ended Aug. 31, 2011.

ESCP Europe www.escpeurope.eu Founded in 1819, ESCP Europe Business School has educated generations of leaders. Each year ESCP Europe welcomes 4,000 students representing 90 different nationalities and 5,000 top-level

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