By Blouet Patrick, STMicroelectronics Grenoble France
The purpose of this article is to show that beyond IP reuse a new trend is taking shape in the industry: Open Innovation. More than IP, companies now shares ideas which become the basis of their new product. A short description of the Procter&Gamble case will give a better understanding of this model. Some other examples in the high tech industry illustrate implementation of this model. Even if very appealing there is some important challenges around Open Innovation that new adopters have to be well aware.
Re-use was, and is still, a huge trend in the industry for the past 20 years. It is as a way of achieving good financial performances while keeping R&D resources focused on the generation of added value.
Re-use, even, if some standards have emerged and implemented in order to interface with external partners, was mainly an internal matter for a company. Each company tried to define re-use standards and methods with more or less of success but in all the cases the main paradigm was based on internal R&D resources or internalization of an object developed outside.
In the global economy trend this assumption is no longer true and is even strongly challenged by new constraints.
As re-use tackles the exchange of an IP, a piece of software, a document, a new trend is emerging in trying to exchange ideas which will be the basis at the creation of new products.
In order to satisfy to the new financial performance goals, companies have to organize in order to be able to get not only IP’s but as well ideas produced outside of their perimeter. In this scenario they have to use their R&D power in transforming these bright ideas in successful products. Changing innovation business model to open innovation is the next step beyond re-use for the industry whether it is high tech or not.
In part 2 an example of open innovation model is illustrated by the implementation done in Procter& Gamble.
Part 3 will show how other industries in the high tech space address the open innovation concept from an implementation point of view.
Part 4 will browse the challenges of this new model and the lessons already learnt from its application
2. The Procter and Gamble case
As everybody knows P&G is a major player in the fields of: personal beauty, home cleaning, health and wellness, pet and nutrition care and many others.
Starting in 2000 a new CEO, A.G Laffley, took the head of this prestigious company. After a while he was concerned about the challenges in front of him and described below.
- For such big company (in the range of 70B$ turnover) it is mandatory to have between 4 to 6% growth (roughly 4B$...) in order to make operations sustainable and to keep a good level of profits.
- Industry is moving in a direction that R&D and innovation models have to be revisited in order to achieve the profitability target. As in the semiconductor industry products have to be more and more sophisticated, asking for more and more R&D resources, which is in complete contradiction with low development costs and high product margin.
- In 2000, market capitalization of P&G collapses as the share price was divided by more than 2 in a few weeks
- R&D staff was about 7500 people. Considering that around 200 people in the world are equivalent to each P&G researcher, it is around 1.5 million of potential innovators outside P&G. How to catch ideas those people could generate?
Based on this status it was urgent to react and A. G Laffley strongly challenges his staff to reinvent the innovation business model. As a result of this hard work, a major change happened in the company. An important paradigm shift was pushed moving from the traditional R&D (Research and Develop) paradigm to a very new one: C&D – Connect and Develop
The main idea of C&D resides in the fact that, even if innovation happens in the company, much more is possible outside.
So the key challenge is: how to be able to catch innovation which happens outside of the company perimeter and leverage on P&G R&D strengths and manufacturing machine to transform it in profitable business
A complete new C&D model was developed and relies on 4 pillars:
- Where to play – What are the areas where new technology/products are needed in order to define where to focus the development effort. This relies on a strong product portfolio analysis detecting blockers to growth as well as understanding the power of the current technology/IP portfolio and defining the new needs in a domain in line with the business objectives for growth.
- How to connect – Once areas of interests are identified, how to find if partial or complete solution solving the problems exist, inside or outside of the company. During this phase the needs are formalized in order to be sent on the network which is organized in 2 levels, a private one only accessible by P&G staff and another one fully open to anybody. The role of the networks is to establish connection between a P&G problem and a potential solution.
- When to engage – Evaluate the potential of a solutions and leverage on P&G capacity to translate idea/products in profitable business. Once a solution is detected as interesting, it goes trhough a complex process of characterization it in term of IP, Patents, business, process,… before to be available to P&G business units. This is done with the support of the” Eureka” internal catalog of technology and IP. If a solution is selected by a Business unit then the process of acquisition/licensing is started.
- Push the culture – move mindset from “Not Invented Here” to “Proudly Found Elsewhere”. This was the most difficult part to implement as it strongly deals with company culture , people behavior and management. A strong process of education supported by top management was put in place to help implementing this new type of thinking at any level in the organization.
The first step, where to play, of this new model was to carefully identify for the different product lines, what are the 10 main reasons blocking the growth. The output of this work conducted on a yearly basis and consolidated at different level in the company, provides the needs in term of products, technology, manufacturing, .. to release growth. Another tools used at this stage is technology/baseness adjacencies detection. This consist to look at the various technologies in the portfolio and to evaluate they could be used outside of their privileged area to generate a new business or to identify how a new technology could secure existing business. It is really a way to maximize the technology assets through the whole product portfolio.
The next step, how to connect once needs are identified and formalized, is to send them in the network of potential “solution provider”. This network is in fact made of two sub networks one internal and only accessible by P&G staff and another one fully open to outside and accessible by anyone.
More than the network itself, the way the network operates is key, and a lot of time was spent defining the process under which this networking activity has to operate.
If solutions are identified then they are calibrated, benchmarked and after a selection process entered in the catalog of solutions and presented to the various Business Units.
If one solution is selected by a business unit then the where to engage phase starts and the normal process of acquisition/licensing/internalization starts and the new solution will have to go through all the gates before to reach the market as a new product. During this phase a special care is on how the idea once selected will turn in real dollars. The main goal is to make sure that ideas entering this pipeline will reach their financial performance as a product once on the market.
All the steps of the process described above are supported by a strong company culture focusing on looking for internal/external solutions first and then, if nothing exists, develop internally a brain new technology. The ultimate goal is to make the innovation process more efficient and to maximize the R&D resource efficiency. Such big change in a company has to happen everywhere and not only in the technical community but needs as well involvement of human resources, procurement, quality, and many others.
This is an implementation of open innovation model potentially transforming each of us in a P&G innovator.
3. Open Innovation in the industry
The P&G case shows clearly how a company has addressed the major challenge in front of it. This type of challenges is unfortunately not the P&G challenge but more general one in the industry. Products are becoming more and more complex and must be developed in less and less time, unfortunately financial performance has to clamps R&D resources, which is in complete contradiction with the first statement
Looking at the semiconductor area it is may be even more critical as new integration techniques (45nm, 32nm, 22nm, 3D packaging,..) are pushing complexity increase far beyond the Moore’s law which is already very challenging by itself regarding R&D resources.
Of course if the problem corporations have to solve is more or less the same, implementation solutions can be very different form one industry to another. Whatever the implementation, the target is always to open the innovation process beyond the traditional R&D boundary of the company. This is in line with another very important trend which push to have the user part of the product creation process.
In HP for instance it goes through a complete reorganization of the HP Labs focusing them on research topics in line with company strategy while giving end users the capacity to interact very early with new ideas/product to influence and bring new views in the development.
In Cisco, with the Cisco I-Prize, it is clearly a target of giving potential innovators all around the world the means to express and develop their ideas under the Cisco umbrella.
Google with Android challenge gave opportunity to any developer to bring new ideas and user experience in the field of mobile phones.
Out of the 3 examples above plenty of other companies are applying this open innovation more or less aggressively but always having in mind to involve much more the user in the product and value creation process.
An open innovation model has several benefits over standard models.
The first one is the capability for an organization to be more agile in R&D. The fact that researchers have to look outside, give them a better view on new things which could emerge and more especially market change. In knowing very early new constraints, it gives them more time to react and to provide a solution earlier and at a lower cost than before.
The capacity of the team to discover new possibilities, thanks to the networking effect, allows it to propose more innovative products and more often. This has another beneficial effect on technologies adjacencies as it increases the opportunity to assemble different technologies to create new products. This increase the product hit rate on the market.
The connection existing between researcher and customer is key factor in term of time to market. Involving customer at the very early stage of the product development greatly help in defining the right product when it hits the market. As a side effect it focuses R&D effort on activities which really generate value.
4. Challenges and learning
Even if still at the beginning of life of this new business model for innovation, a certain number of challenges are already identified.
- Attracting and motivating cocreators one of the problems for a company is to provide the right incentive to attract participants. Even if financial reward is needed other forms have to be implemented in understanding what is motivating for a talented contributor. This problem must as well address the organizational aspect in order to create a favorable environment for cocreation but still keeping focus on business priorities.
- Structuring problem for participation Cocreation is synonym of parallel work on the same activity. This needs a good structuring of the problems in order to avoid a lot of waste in term of efficiency. It needs as well a climate of trust and respect to allow smooth transition from “Not Invented Here” TO proudly Found Elsewhere”
- Governance to facilitate cocreation a community of interest needs as much as possible clear rules and transparent organization for setting goals and resolving conflicts among members. Leadership must maintain a cohesive view in order to minimize the risk of “fork” in the project supported by a community.
- Short sighted R&D because of a too strong focus on product then neglecting long term R&D needed for the future
- Transition from R&D to C&D is a real challenge especially for very deep specialized R&D staff. To avoid loss in R&D efficiency, there is a very strong effort to make at human resource level on recruiting, incentives and reward.
- No real quantitative proof of efficiency, more qualitative benefits exist today form companies which moved to this new innovation business model.. However it takes more than 3 years to implement such a complex model and there no choice to start now. By the time quantitative results will be available it might too late.
Among the learning the most important one is may be the capacity of a community to create self motivation for people. This model for sure federates people around the same goal and gives them possibilities to get recognition of their work from their peer community. Open innovation release as well people creativity in giving them opportunity to interact on topics not naturally in their daily field of operation but for which they have interest and sometime very pertinent view.
The world is moving to a co-creation era and industry is not out of this very strong trend.
In the semiconductor area it is now impossible for a single company to do every things bit itself and still keeping a good level of revenue and profits.
In the past years focus was on IP exchange as company where able to make innovation on their own but development had to be shared. This strongly underlines the need for standard and tools to support this endless demand for re-use and exchange of IP. Even if exchange and re-use remains a strong need , it is now mandatory to go beyond this perimeter and share innovation as well.
A single company can no longer manage by itself all the innovation process. It must now rely on others and make sure it put in place the adequate structure to foster internal innovation but more important to catch external innovation needed to make its financial performance sustainable.
As we saw a few years ago the move from Web1.0 to Web2.0 which mainly transforms content consumers in content producers, we now see the move from the innovation model 1.0 to 2.0 moving us from a passive customer to a innovator position for somebody else.
The next step in open innovation – June 2008
Jacques Bughin, Michael Chui, Brad Jonhson
Eight business technology trends to watch – December 2007
James M. Manyika, P. Roberts, Kqrq L. Sprague
Connect and Develop: Inside Procter & Gamble model for innovation – March 2006
Larry Huston, Nabil Sakkab
The New Age of Innovation: Driving Cocreated Value Through Global Networks – April 2008
C.K. Prahalad, M.S. Krishnan
The innovator’s dilemma – January 2003
Clayton M. Christensen
The innovator’s solution – September 2003
Clayton M. Christensen, Michael.A Raynor
Seeing what’s next – May 2004
Clayton M. Christensen, Erik A. Roth, Scott D.Anthony
Innovator’s guide to growth. – July 2008
Scott D. Anthony, Mark W. Johnson, Joseph V. Sinfield, Elizabeth J. Altman
HP labs: http://hpl.hp.com
Cisco : http://www.cisco.com/web/solutions/iprize/index.html
Google : http://www.google.com