Open Innovation: Putting External Knowledge to Work

This is an excerpt of the original article. It was written for the November 2012 edition of Supply Chain Management Review. The full article is available to current subscribers.

November 2012

We’ve all heard about the advantage of being a preferred customer to your buyers. Now we learn that it’s just as important to become a good customer to your key suppliers. This article explains the benefits of becoming a preferred customer and lays out the actions needed to become one.

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Gone are the days when the research and development department was considered the font of all innovation in the company. These days, businesses draw practical inspiration and profitable ideas from far and wide. More and more, corporate leaders recognize that their organizations can no longer innovate by themselves because competition is more intense and faster-paced and because globalization presents many more innovation opportunities — and threats.

Today, new product ideas can and regularly do come from suppliers. Others may come from relationships between the marketing departments of companies in different industries, or from formal and informal links with academia and independent research centers. And increasingly, companies are turning to Web-based crowdsourcing, reaching out to strangers to propose solutions that their own scientists and engineers may never think of.

But the trend toward so-called “open innovation” raises a host of new questions. Is this practice—sometimes also called collaborative innovation, or shared or distributed innovation—really more effective than centralized R&D activities? If so, how do we know? What kinds of open innovation work best? Assuming that it is beneficial, whose job is it to lead such “outside in” innovation, and how should open innovation activities be organized within the company? How can businesses ensure that the necessary external relationships are effective? And is open innovation necessarily ad hoc, or can it be systemized?

Recent research sheds some light on those questions. Together, i7, the Institute for Innovation and Competitiveness (a European academic think tank created by ESCP Europe Business School) and Accenture’s management consulting unit conducted a joint study to analyze innovation practices and processes, supply management, and cross-company collaborations. We explored how open innovation changes the way companies build and handle external partnerships, organize and stimulate innovation internally, and what impact it has on innovation performance.

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