Five good reasons to go for Open Innovation

Five good reasons Five good reasons to go for Open Innovationto go for Open Innovation

Franck Oliver Sime and Nicolas MeilhanFranck Oliver Sime and Nicolas Meilhan

Defined as the creation of a substantial new value for customers or businesses, innovation has 4 major dimensions: What, Who, How & Where

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Source: MITSloan – ’06, F&S analysisSource: MITSloan – ’06, F&S analysis

PROCESSES(HOW)

Organization

Networking

Brand

Supply Chain

PRESENCE(WHERE)

OFFERING(WHAT)

Platform

Customer Experience

Value Capture

CUSTOMERS(WHO)

Solutions

Innovation

The central idea behind Open Innovation is that in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own capabilities or create new capabilities

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Source: Chesbrough, H. – ‘03, F&S analysisSource: Chesbrough, H. – ‘03, F&S analysis

Market

Research Development

Company boundaries

Research projects

The closed paradigm The open innovation paradigm

•The smart people in the field work for us. • Not all the smart people in the field work for us. We need to work with smart people inside and outside the company.

• To profit from R&D, we must discover it, develop it, and ship it ourselves.

• External R&D can create significant value: internal R&D is needed to claim some portion of that value.

• If we create the most and best ideas in the industry, we will win.

• If we make the best use of internal and external ideas, we will win.

• We should control our IP, so that our competitors don't profit from our ideas.

• We should profit from others' use of our IP, and we should buy others' IP whenever it advances our business model.

Current market

Research Development

Company boundaries

New market

Research projects

The potential benefits of Open Innovation have never been as strong, driven by a combination of internal constraints and external opportunities

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Recent work pursued by Frost & Sullivan led us to identify 5 good reasons for companies to go for Open Innovation.

Budget constraints

Limited resources

Distributedknowledge

Accessible communities

Specific know-how

Uncovered areas of the value chain

EXTERNAL OPPORTUNITIES

INTERNAL CONTRAINTS

R&D challenges

Untapped capabilities

Great ideas

Room for

Open

Innovation

Skills gap

Invest your R&D dollars more wisely

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Issue

In the economic downturn, there is a tendency to reduce R&D

costs and focus only on projects with immediate returns. R&D

is asked to deliver more with less.

Illustration

In 2011, GSK started a long-term

partnership with 10 academic

“superstars”, with the aim of

developing medicines more cost

effectively.

Under the agreement, academics

work more closely with the

company but still retain their

independence. GSK will tap into

their expertise while providing

them with funding, facilities, and

large incentives paid if a

treatment is successful.

Professor Mark Pepys was the

first academic to be selected for

the program.

*OI: Open Innovation*OI: Open Innovation

Open Innovation practices addressing this issue

•Partnering with academia. e.g.: GSK with academic superstars

•R&D outsourcing/partnership. e.g.: Cognizant (Business

Process Outsourcing)

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An open door to a wider community of experts to address specific research challenges2

Issue

Companies often face specific innovation challenges that

require a combination of expertise and experience not found

within the company. In order to make internal R&D more

effective and more agile, companies are increasingly making

use of external capabilities.

Illustration

InnoCentive is an open source

platform that tackles R&D

problems in a broad range of

domains and frames them as

“challenges” for anyone to

solve them. The best solution

for each challenge is rewarded

with a cash incentive.

Founded in 2001, the company

claims to have a community of

250,000 re.g.istered solvers,

more than 1,300 challenges

posted on the platform and

more than 27,500 solutions

submitted.


•Open source platforms. e.g.: InnoCentive, NineSigma, Fold it.

•Open facilities (lab, campus, etc…) e.g.: Stevenage BioScience

Catalyst (by GSK & the UK department for Business, Information

and Skills - BIS); High Tech Campus Eindhoven (by Philips).

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An open door to benefit from ideas or technologies already developed by others3

Issue

Nowadays companies have a hard time in creating truly innovative

products and differentiate themselves from competition

By extending their boundaries to capture existing innovation,

companies strengthen their internal capabilities and tap into the

potential offered by external networks. This ultimately reinforces

their innovation pipeline

Illustration

Corporate venture capital (CVC)

is the investment of corporate

funds directly in external start-

up companies. Rather than

relying on their own innovation,

CVC is an attempt to benefit

from innovations existing in the

market place

How CVC succeeds?

• Get in early and stay in

• Focus on start-ups which can

help the corporation

• Engage the main stakeholders

in the process: the business

units.

Source: IMD –CVC When it works and when it doesn‘t – ’07; F&S analysisSource: IMD –CVC When it works and when it doesn‘t – ’07; F&S analysis


•Corporate Venture Capital. e.g.: Intel Capital; Pfizer Venture

Investment

•Licensing and similar alliances (manufacturing, distribution, etc…)

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Involve your value chain partners early in the process to reduce your time to market4

Issue

Time to market is critical to innovation success especially for

industries with short product life cycle.

Involving your suppliers, customers and staff early in the process

will reduce your risk of being blindsided by competitive

technologies or products. The early exposure to market (customer

insights) will also reduce the number of iterations and shorten your

time to market.

Illustration

Connect + Develop, P&G’s

dedicated open innovation portal,

offers the opportunity to

scientists, inventors and SMEs to

bring their innovations to P&G.

Connect + Develop claims more

than 1,000 active agreements

with innovation partners and

more than 4,000 unsolicited

ideas every year.

When solicited, 75% of

responses provide a solution that

can be turned into a product and

eventually launch onto the

market.


•Own operating OI platforms. e.g.: Connect + Develop from

P&G; BMW virtual innovation agency

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Think outside your industry box to create additional value for your customers (1+1=3)5

Issue

Companies tend to focus their attention only on their own industry

while unique synergies exist outside their box.

By joining forces with a partner outside their core industry with

complementary skills, companies are able to create innovative end

products for customers. When doing so, they increase the chances

of entering a new market more easily or simply reinforce their

presence on their existing markets.

Illustration

Since 2007, Samsung and

Google have entered into a

global cooperation to offer to

mobile users worldwide a

more dynamic experience.

Samsung mobile phones

equipped with Google

software enable users to

search information, find

locations, and manage their

email on the move.

In 2011, GSK partnered with

McLaren (Formula 1 racing

firm) to use McLaren’s

technology and processes to

enhance the performance of

GSK operations


•Partnerships. e.g.: Samsung & Google; GSK & McLaren

•Data sharing systems/ platforms. e.g.: Tres Cantos Antimalarial

Set

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OI benefits are relevant across industries but the fit of OI practices differs from one industry to another

Five good reasons to go for Open Innovation

Associated practices

HealthcareChemicals Materials &

Food

Information & Communication

Technologies

Automotive & Transportation

1. Invest your R&D dollars more wisely

• Partnering with academia

• R&D outsourcing/ partnership

2. An open door to address specific research challenges

• Open source platforms

• Open facilities (lab, campus, etc…)

3. An open door to benefit from ideas or technologies already developed by others

• Corporate Venture Capital

• Licensing and similar alliances(manufacturing, distribution, etc...)

4. Involve your value chain partners to reduce your time to market

• Own operating OI platforms

5. Think outside your industry box to create additional value for your customers

• Partnerships• Data sharing

systems/ platforms

WeakStrongFit :

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The key points you need to consider when exploring the potential benefits of OI for your organization

o What Open Innovation practices fit better with your

company goals and culture?

o What approach is most likely to work best when

implementing Open Innovation within your organization?

o How will you monitor and evaluate Open Innovation to

ensure success?

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About Frost & Sullivan

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• Market research and consulting company

• 50 years of experience

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• Sector-based organisation 9 divisions

• 1,700 employees across the globe

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Our consulting business delivers business analysis & recommendations, focusing on strategic marketing issues

Key Questions Addressed

What Is the Starting Point?

Where to Go?What to

Achieve?How Do We Get There?

What Is It Worth?

How do we get it

implemented?

Strategy & value creation

Operational strategy

Structure & organisation

Long term opps Scenario & planning

Due diligence

Product portfolio review

Business modelling & planning

New product development/ launch

Sourcing

Performance

Innovation practices

Support function

Competitive intelligence

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Case Study – Open Innovation within the pharmaceutical industry

Outcome & business impact:• F&S analysis provided an overview of all existing Open Innovation practices used in the pharmaceutical industry

• Open Innovation best practices were identified, highlighting relevant challenges and key success factors; transferable practices within our client’s organization were then selected

• Main findings of this project were presented to a large audience of client’s R&D and Licensing department and are used as pillars to develop the company Open Innovation strate.g.y

Our approach and work:

•We first analyzed the specificities of pharmaceutical innovation process before short listing companies with existing Open Innovation practices to be analyzed in detail

• We then conducted a detailed benchmark of practices among selected companies. Key success factors, challenges and outcomes of these practices were analyzed thoroughly to identify best practices

The Client :A global pharmaceutical company

The Challenge:Identify Open Innovation best practices within pharmaceutical industry and help our client to optimize its R&D pipeline

Project objectives:

• Understand drivers for the adoption of Open Innovation and define key success factors for its implementation

• Identify Pharma Open innovation best practices based on a benchmark of initiatives and programmes among peers

• Provide recommendations to support our client’s initiatives towards Open Innovation

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Your contacts

Franck-Oliver SimeConsulting Analyst, Paris Office

Worked on this research

+33 1 42 81 38 22 [email protected]

Nicolas MeilhanSenior Consultant, Paris Office

Led this research

+33 1 42 81 23 24 [email protected]

Technology

Five good reasons to go for Open Innovation