send via emailOpen innovation challenges the role of CTOs, senior managers, public policy
Chief technology officers (CTOs), senior managers, public policymakers and many others will have to reconsider their approach to research, development and innovation as global open innovation networks emerge, according to a study carried out by the OECD.
Results of the study were presented at a conference held in January 2009 that was jointly organised by EIRMA, the OECD and the French Ministry of Higher Education and Research. The two-year effort included 59 case studies in 12 countries. Several multinational enterprises and SMEs, in high and low technology sectors, in both manufacturing and services, were interviewed.
Introducing the research, Koen De Backer of the OECD argued that the globalisation of R&D is a natural consequence of the emergence of global value chains and the internationalisation of production, distribution and markets. It also appears that open innovation and globalisation of R&D are closely linked.
Outsourcing R&D isn’t always about cost
Investment in offshore R&D has developed rapidly, more than doubling between 1995 and 2005, to $83.6bn. The five most popular locations for outsourced R&D are, in order, India, the US, China, Canada and the United Kingdom. This demonstrates that outsourcing R&D isn’t always about cost. The survey found that the main reasons why companies outsourced R&D were to access markets and researchers; to be close to other corporate activities (such as manufacturing); to access specialised R&D; and to become part of a technology cluster.
Why use open innovation?
The survey found that a lot of the shift to open innovation is motivated by increasing demand for innovation, driven by the emergence of new groups of customers, often with new requirements, increasing competition and shorter product lifecycles. The nature of innovation is also changing, with convergence between technologies, increased multidisciplinarity, higher risks and costs, and new sources of science and technology in emerging economies. In this context, companies want faster and more efficient innovation, which can access external knowledge and draw on a wider pool of ideas than their companies alone can offer. They want to spread costs and risks, work with other companies where skills are complementary, and emerge with greater flexibility and shorter innovation loops.
There are, of course, risks (or perceived risks) with open innovation. The survey found that the biggest fear among companies about open innovation was the potential theft of their intellectual property. They are also concerned about loss of control over the innovation process, cultural differences, and the difficulties of managing remote staff and creating effective ways to share knowledge.
As you might expect, there are large differences in the way that open innovation is handled between companies. Some want to use it as a way of spinning out ideas into start-ups; others see it as a way of bringing knowledge into their companies. Most want to partner with customers and suppliers first, and find that physical proximity matters in open innovation networks.
CTOs who are asked to implement open innovation strategies in their organisations may find initially that they have little power or influence to do so.
Thomas Durand, professor of strategic management at Ecole Centrale Paris, told the conference that the role of the CTO can be categorised in four different ways: managing R&D, innovation processes, technology, and technical issues. Each has a different relationship with the rest of the organisation, in terms of power and influence. Someone managing R&D directly, perhaps as vice president of R&D, will have a budget, a team and the respect that goes with managing a cost centre. Someone who is paid to think strategically about technology, perhaps as a technology officer, will have little budget and their influence will depend on the quality of their insight and the backing of the CEO.
Open innovation draws on each strand of the CTO’s role. An R&D manager will have to manage co-operation with external R&D partners, but will have some corporate influence with which to make the necessary changes. A technology officer will have to scan for new technologies and monitor the technology ecosystem of the company, from a position of little power. An innovation process leader will have to manage the open innovation process, but will have little budget and influence only in proportion to the company’s commitment to innovation. The technical part of the CTO’s job, such as defining technical standards and buying equipment, is an administrative function that carries little power.
Building influence
Durand argues that this means that much of what a CTO needs to do to enable open innovation is done from a position of little formal power. He advises that CTOs can gain the influence they need to make open innovation work through support from the CEO, their technical expertise and strategic vision about future technologies. They can also increase the standing of open innovation within their companies by allocating some of their R&D resources to the process, finding external funding, and building coalitions with divisional CTOs, the business development function and line managers.
There may be other issues to overcome during the introduction of an open innovation policy. CTOs that come from a public R&D background will have contacts that can provide useful sources of technology, but may not be accepted within companies because of their different cultural backgrounds and lack of business experience. The open innovation process may also become unbalanced due to excessive caution – many companies will be happy to bring in technology from outside but unwilling to release their own technology for external development. CTOs can also find themselves torn between taking the open innovation process to heart and being much more open about what they are doing and what they want to achieve, and corporate pre-occupations about innovation being a strategic weapon.
Be prepared to lead a change in corporate innovation culture
Management input
CTOs also need to be prepared to lead a change in corporate innovation culture, expanding the notion of innovation to include approaches such as new business models; supply-chain and distribution channel changes; and development through user communities. This will take innovation within the structure of the business and its culture, a process that will have to be managed as an innovation project in its own right. Part of this may be changes that yield more power and influence to the CTO so that they can have a greater impact on the organisation.
All this takes management. Senior managers need to decide how far they want to go with open innovation, and how they want to measure its effectiveness. They’ll need to decide what their attitude to intellectual property rights (IPR) will be within an open innovation context: in some sectors, such as information and communications technology, IPR negotiations can take longer than the window of opportunity for an idea. And they’ll want to have strategies about introducing the new processes that open innovation implies, such as spinning-in and spinning-out, valuation for external sale, and so on.
According to René Rohrbeck of EICT, part of Deutsche Telekom’s open innovation eco-system, the telecom giant has senior management forums to define future areas for innovation within the company, and has built a number of pathways along which innovations can be driven, from spin-outs to corporate venture capital. Reflecting the maturity of Deutsche Telekom’s approach to open innovation, spinning out an idea into a small company is known as “spinning along”, using the process to test an idea at low cost so that it can be spun back in if it is successful.
But it’s not just the role of the CTO that changes under open innovation. It has other implications for the management of a business, according to Nicolas Sultan of consultancy AT Kearney. The results of its annual Best Innovator survey suggest that R&D labs should be heavily networked, within and outside the organisation, to make open innovation work, as you might expect. But it also suggests that the corporate innovation strategy should be widely understood, perhaps through a roadmap. It also highlights the importance of finding the right partners, much as you would look for the right suppliers for a manufacturing job. But open innovation shifts the criteria a little: if you’re looking for a parts supplier, you care about cost, quality and delivery, whereas under open innovation you may also care about potential, and the ability to share the gains of partnering.
Credit crunch
The OECD survey was carried out before the global financial crisis took hold, so it is unclear whether the new financial reality will accelerate open innovation, or stop it in its tracks.
According to Thierry Weil, a professor at Ecole des Mines de Paris, one of the paradoxes of industrial research is that companies need more innovation but are reducing their spending on R&D, because they are not completely convinced that more research will lead to more innovation. Open innovation has an appeal here, because it suggests that companies can access high-quality research without having to pay for all of it themselves. In the context of the current financial crisis, then, companies may turn to open innovation not only because of the pressure to innovate their way to new revenue, but also because of potential cost savings. Although this appears to make sense, there is a counter-argument that says that when companies are under financial pressure they tend to protect the corporate core first, cutting at the periphery of the business’s activities and locations.
Policy
The growth of open innovation will also have an impact on national and international policies for the promotion of science, technology, and innovation. National governments will have to consider how competitive their countries are as a source of good open innovation partners. They may need to reconsider how they position themselves in global innovation networks: do they want to offer a specific skill, such as wind energy engineering, or instead promote the general quality of their academic institutions? Decisions will also need to be made about the benefits of outward and inward investments, and the payback from investing in national programmes. And there will need to be coherent policies about the mobility of highly skilled employees: should a country expect that the people it educates make at least some contribution to the national economy before moving to work for foreign companies on foreign soil for the benefit of foreign economies?
Frédérique Sachwald, advisor to the strategy directorate and head of the business research and development unit at the French Ministry of higher education and research, has been considering such policy issues and outlines her findings in her Viewpoint, here.