Wednesday, July 19, 2006

Open innovation

I referred to open innovation in an earlier post about Procter & Gamble's innovation strategy. The concept is becoming well-publicized in product development forums. This primer, from the Product Development and Management Association's Visions magazine, is a good introduction to open innovation. [The PDMA blog has an ongoing conversation about this topic as well.]

In brief, open innovation consists of embracing external sources of intellectual property as components of the product--ideas, designs, components--as a way of increasing your new-product development leverage, both by reducing investment and increasing throughput.

The thinking behind it is, no matter how many researchers, programmers, etc., you have on staff, there are multiples of this number working on similar problems outside your organizational walls. Locate and use their work, and you will save time and money, making it more likely that your product will be successful. According to the Harvard Business Review, P&G's innovation success rate has doubled since they committed to an open innovation model.

And, once a product has been developed, finding and using alternate means to monetize it (licensing IP, including as a component of others' products, etc.) is a way to further improve the ROI of the product development effort.

All of which puts a lot of pressure on external alliances and networks, because they are the fuel that makes the open innovation process work. Which is a subject for a future post.

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