Open Market Innovation

Open Market InnovationDarrell Rigby & Chris Zook (Bain & Company)Reading 3 - Management of Innovation and R&D (SML-702)Group 2 1

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AgendaOpen market innovation at Pitney and BowesWhat is Open Market InnovationIssues within the companyRewards of Open market InnovationComplimentary trends- coming boomRisks of Open Market InnovationConsideration while reaching out for Open Market InnovationCasesHow to decide if your firm needs Open Market Innovation

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Pitney and BowesChallenged by the anthrax crisis of 2001, Pitney Bowes swiftly developed imaging technologies for detecting suspicious mail.It used open-market innovation. By going outside its boundariesto fields as diverse as food handling and military securityit gathered 82 ideas, then distilled the best solution.3

Open Market InnovationAs explained by Henry Chesbrough, Its a paradigm that assumes firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology.Fastest growing and most profitable businesses are using open-market innovation to improve the pace, cost, and quality of innovation.Through Strategic alliances,Joint ventures, and LicensingFastest growing and profitable industries are finding open-market innovation to be a critical new source of competitive advantage.

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Issues within the companyCompanies suffered from not-invented-here syndrome.Companies too internally focused.Conventional methods to spark corporate innovation are falling short.5

Rewards of Open market InnovationImporting new ideas multiplies innovation building blocks.E.g. tetra pack innovation built with collaborationExporting ideas raises cash and improves employee retention.E.g. IBM earns $2 billion in royalties from exported patentsExporting ideas reveals an innovations true worth.Exporting and importing ideas clarifies your core business.E.g. Boeing realized its core competency is in systems integration and not in manufacturing

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Complimentary trends- coming boomAvailability of venture capital- small companies with VC fund innovate 6 time moreInterdependency of products, e.g. in biotech firms it is unlikely for one company to make a world class product all by itselfInnovation exchange is faster than ever, www.techex.comInnovation agents link independent investors to idea driven companyAccessible innovation databases

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Risks of Open Market Innovation virtually gave away a stream of innovations from the computer mouse to the laser printerthen watched while rivals capitalized on them.TRW undervalued its own breakthrough innovation exploited by Qualcomm, Broadcom and Texas InstrumentsDanger lies in structure of deal in Technology transferWhen selling or renting innovations, structure deals to share adequately in the financial upside of your innovations8

Consideration while reaching out for Open Market InnovationBusiness conditions cost of innovation, e.g. Linux via open source competed with Microsoft OS in a short spanSuited when unpredictable situations rise that require new competencies fast e.g Cisco System used this approach for volatile market of optical switching equipmentSuited when disparate sources must come together to bring a promising idea to the market. E.g. Cargill Dow JV, plastic from renewable crops

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CasesDisney decided to seek outside ideas resulted in law suits for its sports themed complexEnrons over proliferation of its business units by moving into trading operations

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Checking Feasibility11

How to decide if your firm needs Open Market InnovationConduct Innovation AuditGather dataArticulate companies business objectivesAnalyze companies innovationIdentify barriers to innovationIdentify gapsIdentify 10 important innovation in the industrySet up systems and circulated ideasExecute

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Beiersdorf AGBeiersdorf AG is a leading provider of innovative, high-quality skin care products.over 130 years of experience.Hamburg-based company has over 16,500 employees worldwide.Beiersdorf achieved sales of 6.1 billion in financial year 2013.NIVEA is the cornerstone of the companys brand portfolio, which also includes brands such as Eucerin, La Prairie, Labello, and Hansaplast.PEARLFINDER has been successfully connecting external cooperation partners with Beiersdorf researchers for a good four years.13

PearlfinderPearlfinder is the uniqueBeiersdorf Trusted Networkthat allows external technology partners to access their confidential scientific challenges in order to propose ideas and solutions.It helps external partners to develop future innovation in collaboration with Beiersdorf on the basis of their creative ideas.External partners exchange their ideas in a confidential environment.Beiersdorf guarantees that their ideas will not be used to apply its own patents.

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Key LearningsCompanies can reach beyond their internal environment, for the latest innovations, to the market using techniques such as licensing, joint ventures, and strategic alliances to bring ideas in or to put ideas out.Feasibility checks and subsequent decision is to be done based upon various parameters, techniques and value of innovation.The advantages of seeking external sources to import and export ideas not only increases a companys ability to innovate but also assist staff retention.Main risk is being not able to effectively monetize from the ideas that are collaborated across organizational boundaries.A deal structure can be put in place to mitigate it.

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Thank You17