Implementing open innovation in your business is not an easy task. It might be straightforward, but it is not easy.
Open innovation is a relatively new concept that’s only existed for around 20 years. As innovation leaders, we need to establish the foundations for open innovation, do the groundwork, learn from our own and others’ mistakes, and iterate along the way.
So, if you decide that open innovation is the way to go, be prepared for some challenges along the way.
Let's review the four most common challenges and assess how companies can overcome them.
Legal challenge: Intellectual property
The first perceived barrier to open innovation is the potential "threat" of IPR (intellectual property rights). This fear exists because collaboration with external stakeholders might seem to be at odds with the purpose of intellectual property (IP) management to protect and provide exclusive control over certain ideas.
This issue is commonly voiced as:
- "We have a no patent, no talk policy."
- "If we start sharing our ideas without an agreement in place, they will get stolen."
- "Our researchers should under no circumstances communicate with outside stakeholders."
As it turns out, however, the strategic use of IP can enhance open innovation returns instead of crippling them. When companies let go of a reactive, protective perspective about IP and, instead, lower the barriers for external stakeholders to work with their IP, the returns can quickly outweigh the benefits of ownership.
And since innovation relates not just to products but also to services and business models, IP might not be an issue at all. Some companies will be more interested in developing relationships than acquiring IP and will therefore find a way to deal with it.
While engaging in open innovation can lead to some "spillovers”, notably knowledge and information being transmitted to unwanted channels, focusing too much on IP can impede valuable collaborations with startups or SMEs.
Recognizing the significant benefits of open innovation, more organizations are simplifying their IP agreements and setting basic rules for collaboration.
How to overcome the legal challenge
- Provide training to your key people
The IP "threat" is often linked to both the maturity of a company's IP department and the experience and expertise of its managers. In other words, companies whose IP departments and leaders do not understand the many types of disclosure and sharing that can be used in an open innovation project are more likely to block open innovation efforts from the outset.
To overcome this issue, companies can provide advice and training to the key personnel and departments involved in IP management. To minimize the risk of unwanted spillovers, they can also promote controlled and case-dependent IP sharing and involve IP specialists in new product development decisions early on.
Companies should also regularly train relevant stakeholders on the IP matters that arise during collaboration and take a long-term view on managing their IP portfolios.
- Create an IP strategy
Intellectual property still offers several benefits: IP provides plenty of details on new solutions, is easily transferable, and provides confidence that ideas will not be misappropriated.
Companies can successfully engage in open innovation by creating an IP strategy that is fully in line with their innovation strategy.
The IP strategy should consider the organization’s technological environment as well as its knowledge distribution.
This means that in turbulent times (when knowledge is dispersed), giving away IP is a good strategy.
When waters are calm (and knowledge is owned by only a few), straightforward agreements such as licensing or acquiring knowledge might be the best approach.
- IP protection is not at odds with open innovation and is not essential in open innovation projects because forming relationships can be more valuable.
- IP concerns are signs of an immature IP department.
- Overcoming IP issues starts with training and continues with increased collaboration between those tasked with managing IP.
- If implemented correctly, IP mechanisms can enhance the value of open innovation.
Operational challenge: Fear that open innovation cannot be closed
The second challenge, and closely related to the first, is the fear that the open innovation process cannot be easily closed or is difficult to disassemble – from both an IP and partnership perspective.
This fear is typically voiced as:
- "If we invest in open innovation infrastructure and staff, it will be hard to repurpose the space or retrain the staff later."
- "If we enter into a collaborative agreement, it will be hard to split the benefits."
- "If we build an ecosystem with our partners, we will become too interdependent; the activity becomes too risky."
Some management scholars call this the "IP disassembly problem" and define it as the process by which organizations decrease their overall openness in innovation. Instead of open innovation, organizations might choose to devote more resources to internal R&D. Operational concerns could also result in organizations leaving, terminating, or canceling existing open innovation initiatives.
Terminating in-house R&D projects is noticeably different from terminating R&D with many partners. The stakes are certainly higher and the ripple effects of ceasing to collaborate are stronger, especially in networks and ecosystems.
In other words, when resource integration between open innovation partners runs deep, allocating IP rights at the closure of an open innovation project, or when one or more of the vital players leave the project, can be problematic.
How to overcome the operational challenge
- Control the environment
Even the most experienced companies should orchestrate only part of their innovation activities with outside stakeholders, and typically with preferred partners, in order to limit the threat of any disassembly problems.
Less-experienced companies should experiment with open innovation only on occasion and should typically do so in a highly controlled environment – for example, via a crowdsourcing exercise or a one-off ideas campaign. This approach should avoid any operational concerns related to open innovation.
- Design mutually beneficial and flexible agreements
Additionally, companies can also factor in some flexibility and orchestrate relationships by designing mutually beneficial IP agreements that partners can adhere to (or withdraw from) over time.
At IMEC, an international R&D and innovation hub specializing in nanoelectronics, the partners are given several options from the outset. For example, the orchestrator ensures that IMEC members receive maximal access or co-own the IP created within the innovation ecosystem. They also enable members to reap the full benefits of joint research, while only having to carry out and pay for part of it.
In addition, partners can carry out proprietary joint research with multiple parties in parallel. This flexibility ensures that there is never a true disassembly. Instead, the partners engage in continuous renegotiation of their boundaries and needs.
- Terminating in-house R&D projects is different from terminating R&D with many partners; the latter is more complex and has potential ripple effects.
- Open innovation processes and agreements are difficult to disassemble but can be designed with flexibility from the start.
- Open innovation initiatives can be run in a highly controlled fashion and only on occasion, thus limiting potential issues.
- The partnership disassembly issue can be overcome through good leadership and orchestration.
Strategic challenge: Lack of capacity and resources
Once organizations are engaged in open innovation campaigns with third parties and start to research potentially unknown communities of experts and users, some will find themselves unprepared or unable to analyze and process the information they obtain.
This experience might prevent them from further experimentation.
This issue is typically voiced as:
- "Collecting ideas from our suppliers sounds great, but follow-ups are time-consuming and will take away resources from other areas."
- "If we ideate with more stakeholder types, the complexity of this task cancels out any potential benefits."
How to overcome the strategic challenge
- Be selective and focused
While chasing new products, services, or business model ideas, many organizations mistakenly believe they must survey or involve every stakeholder group. In reality, successful open innovation is a matter of being selective and focused, finding and motivating the right audience.
While some situations may come with a certain level of complexity, in most cases, companies can be selective about their audience and, through this, control the ideation process closely.
- Define the skills and experience needed from the outset
One of the most common mistakes companies make as they engage in open innovation is to assume that the process will be identical to a closed (internal) innovation project. However, the two require different skill sets, especially in terms of communication style, incentives, motivation, and analysis of the input and data received.
First, set your expectations — what's the desired outcome? How much of the required input can your team realistically manage?
Next, look at your experience with internal innovation management and adjust it according to the factors relevant to open innovation. Limit the audience to a group that likely holds the answers to the questions you want to ask. Make the group as diverse as possible, but don't over-invite.
- Scale gradually and only when the time is right
When the audience and goal are adequately aligned, scale in the sense of "numbers of participants" and the resulting level of input will seem less daunting than it may have appeared at first.
- Continuously experiment and learn
UC San Diego is a great example of how to successfully engage 60,000 people across a large university campus through continuous experimentation and learning. You can read the full case study here.
- Engage more experienced partners at first
When entirely inexperienced, organizations should build up their confidence and capacity by engaging well-known partners, like suppliers, for example. As a next step, they can move on to less well-known partners, such as start-ups, universities, and eventually even the public.
A great example is the collaboration between Baxi Heating and Coventry University to help to reduce energy poverty. By partnering with a trusted and culturally compatible collaborator, Baxi successfully generated a new business model and eventually engaged in co-creation.
- Use dedicated open innovation software
Finally, utilize technology. A good open innovation platform helps to streamline most of the daunting processes. It helps organizations to easily manage their audience, become more transparent, coordinate the selection and evaluation of ideas.
Importantly, open innovation software also stores all the knowledge obtained through open innovation for future reference.
- Open innovation can be challenging to scale unless the right tools and strategies are in place.
- The fear of being overwhelmed likely signals that there is inadequate infrastructure and/or protocols for open innovation, such as the inability to decide on the right audience, topic, etc.
- Companies should engage stakeholders progressively without paralyzing the organization or department that initiates the collaboration, and continuously refine their practices.
- Companies should engage close partners first and then move on to partners they work less closely with.
- Using enterprise open innovation software as well as other tools can make scaling open innovation a relatively easy and frictionless task.
Cultural challenge: Miscommunication
Miscommunication is another widespread challenge for companies, especially among networks and ecosystems.
Open innovation can (and often does) mean different things to different stakeholders and to different groups within the same organization. For example, in innovation ecosystems, each stakeholder will have their own role and incentive and contribute differently to open innovation and value creation.
Success also strongly depends on a company's innovation "engine." That could be sales and marketing, R&D, finance, legal, or procurement. Unless an orchestrator or a common code of conduct (i.e., the corporate culture) explains the benefits and scope of open innovation, different groups might refuse to collaborate.
For example, co-developing a new product with suppliers might seem like an excellent initiative for marketing but poses a potential threat to R&D or the legal department.
This barrier is typically voiced as:
- "Our sales and marketing teams speak the language of open innovation, but the R&D teams do not."
- "Open innovation sounds great in theory, but it will lead to an identity crisis (our people will fight over conflicting priorities)."
- "Our leaders are not making open innovation attractive; there is no incentive to collaborate."
How to overcome the miscommunication challenge
- Inspire and incentivize open innovation and collaboration
Good communication around open innovation starts with leaders who both inspire and incentivize others to contribute, as well as a culture that promotes openness and collaboration. Open innovation requires leaders to identify the often-fragmented knowledge around it and to create a comprehensive framework.
By aggregating insights and communicating them broadly, all stakeholders will benefit. Additionally, open innovation leaders must find the right route to success. It doesn't always take an expensive open innovation lab. Instead, focusing on more straightforward concepts like training or inspirational keynote speakers may do the trick.
- Lead by example
Finally, open innovation leaders must serve as role models. They should use their status to communicate with employees on open innovation topics, actively support them, and reassure employees that open innovation is here to stay.
In terms of culture, open innovation will thrive in a space where new ideas and collaborators are readily accepted and not regarded as a threat. Processes should be flexible enough to meet new conditions and solve new problems, and there should be routines in place to develop new ideas.
Additionally, a culture of open innovation should also give employees the physical space — and the necessary time to collaborate, so top management support is essential.
- Become a good listener
To avoid a potential identity crisis, it is critical to understand how employees feel by talking about open innovation. In a case study about experimenting with open innovation and crowdsourcing at NASA, Hila Lifshitz-Assaf (a Professor of Management at Warwick Business School and a visiting faculty at Harvard University, at the Lab for Innovation Science) found that NASA engineers who gave open innovation a chance expanded and even reconstructed their professional identity from "problem solvers" to "solutions seekers." Those who failed to dismantle their boundaries, however, remained skeptical about open innovation and tended to block potentially meaningful solutions from being implemented.
- Communication is key to running successful open innovation programs.
- Making open innovation successful and implementing it for the long run requires leadership and top management support.
- Open innovation requires a framework, ideally forged from the fragmented knowledge and routines already existing in various departments.
- Make sure you understand the feelings around open innovation in your organization; inspiring keynotes, training, and communication all help.