2002-10-28-Bain-Open-Market_Innovation_4页_69kb

Open-Market Innovation Summary

Core Content

Open-market innovation refers to the practice of companies seeking and sharing ideas beyond their internal boundaries, including from vendors, customers, and even competitors. This approach allows firms to access novel ideas more quickly, improving the speed, cost, and quality of innovation. The case of Pitney Bowes illustrates how a sudden disruption—such as the anthrax scare—can force companies to adopt this strategy to remain competitive and respond effectively to market needs.

Main Viewpoints

• Open-market innovation is critical for modern businesses to stay ahead in a rapidly changing environment.
• Companies are increasingly recognizing that the best ideas often come from outside their own R&D labs.
• The Bain & Company survey of over 200 executives shows that 80% of respondents consider becoming more innovative a top priority, and 91% see it as essential for future competitive advantage.
• External technology searches are the most effective tool for increasing innovation, with 34% of respondents reporting significant success.
• The garage effect highlights that in some industries, small, independent innovators can produce ideas as good or better than large corporate labs.

Key Information

• Pitney Bowes faced a crisis when anthrax-tainted envelopes threatened the postal system. They responded by opening their innovation borders and gathering over 100 external ideas in weeks.
• The market for patent licensing has grown from $3 billion in 1980 to $110 billion today, showing the financial benefits of open-market innovation.
• IBM earns nearly $2 billion annually in royalties from patents it licenses, demonstrating the value of exporting intellectual property.
• Cargill has implemented a three-tiered approach to facilitate open-market innovation:
  • Large-scale deals (up to $15 million) are managed by business units.
  • Mid-scale deals (up to a few hundred million dollars) are handled by special teams at each of its 13 platforms.
  • All deals pass through a corporate transaction desk, which serves as a central hub for reviewing and facilitating external collaborations.
• The transaction desk plays a vital role in accelerating decision-making and ensuring transparency in the exchange of ideas.
• Speed and transparency are essential for successful open-market innovation. Cargill’s system allows for decisions to be made within 48 hours, fostering a more entrepreneurial mindset among managers.

When to Adopt Open-Market Innovation

• When internal innovation is insufficient: If a company's R&D is not generating enough breakthroughs, it should consider opening its borders.
• In times of unpredictable disruption: Open-market innovation can help companies respond to unexpected challenges by accessing external expertise and solutions.
• During turbulent industry conditions: When the environment is uncertain and the direction of innovation is unclear, external collaboration can serve as a strategic hedge.

How to Implement Open-Market Innovation

1. Audit your innovation needs:
   • Align with business objectives and identify key areas where external ideas could make a difference.
   • Survey internal and external stakeholders to uncover barriers and potential solutions.
2. Identify important innovations:
   • Review the 10 most significant innovations in your company and industry to understand their origins and how they might have been accessed externally.
3. Build an innovation infrastructure:
   • Establish a system for capturing and circulating ideas within the company.
   • Conduct regular technology searches to find external opportunities.
   • Define rules for exporting and licensing innovations.
   • Measure and reward progress using relevant metrics such as revenue, profit, and time to milestones.

Conclusion

Open-market innovation is not just a theoretical concept but a practical strategy that can yield significant competitive and financial benefits. By embracing external ideas and fostering a culture of collaboration, companies can enhance their innovation capabilities and adapt more effectively to market changes. Pitney Bowes and Cargill serve as examples of how this approach can be implemented successfully, even under pressure.