Open innovation – Embracing collaboration

By Joel Smith, Rebekah Gay and Rachel Montagnon, Herbert Smith Freehills, London, United Kingdom

Innovation ecosystems are becoming ever more complex and diverse. Technology is connecting individuals and businesses across sectors and it is easier than ever before for anyone, anywhere, to innovate. As organizations try to stay ahead of the curve, the imperative for increasingly rapid innovation seems to grow ever stronger. This all adds up to a compelling need for organizations to look externally when it comes to innovation.

Changing innovation behaviors

The days when innovation took place exclusively within an organization's dedicated and often siloed internal R&D team are long gone. While knowledge and technology might still come from more traditional collaboration partners, increasingly, these partners are taking on a variety of guises.

More and more often, innovation partners include start-ups and scale-up businesses, consumers and not-for-profit organizations. Partners may come from related sectors or they may come from multiple non-related sectors as is often the case for technology-based innovations, which depend on niche expertise. Ideas, innovations and technologies may also be co-created by various actors in the value chain or fostered in group forums or via innovation competitions.

In theory, this is all great for pushing the boundaries of possibility. But not all open innovation pursuits are successful. Effective innovation requires clear and properly executed strategies, discipline, leadership and a genuine innovation culture; it will involve skills, tools and expertise – and it takes time to embed. Not surprisingly, that means that while most companies understand the importance of innovation to their business, far fewer report that they are satisfied with their innovation performance.

[W]hile organizations define open innovation in a variety of ways, it is almost always based on the fundamental idea and realization that knowledge is spread throughout a business, industry or society, rather than just being held internally.

Open innovation – open to interpretation?

For one school of thought, “open innovation” has been happening for decades – there is nothing new about companies working with outside partners. But it is clear that as businesses across sectors look to innovate by collaborating with a broader and more diverse range of partners, they are also looking to structure those collaborations in more open and flexible ways to provide quick access to new ideas and technology.

Innovation models can be seen as a spectrum, with "closed innovation" at one end, when a business develops new products in-house, through to what may be termed “free innovation” at the other end, when ideas and information are shared freely with no restriction on their use. Between these two extremes sits a range of innovation approaches, involving varying levels of collaboration, structural flexibility and openness to external parties. The term "open innovation" has come to encompass a number of different ways of improving efficiency, utilizing new technology and allowing organizations to gather multiple ideas from a range of sources.

Reviewing approaches to innovation

Herbert Smith Freehills has been exploring the ways in which businesses, and particularly their in-house legal teams, have been grappling with the opportunities and challenges presented by collaborative innovation. Our findings were illuminating. We found that:

• Many businesses are tapping into the creativity of the public at large through initiatives such as online challenges, contests and hackathons, which open them up to fresh perspectives and allow them to identify potential innovation partners with diverse skills.
• Almost everyone we spoke to reported an expansion in their range of external collaborators. In some cases, collaborations were focused on actively sharing non-core assets with competitors as well as expanding out from a business' traditional remit, to developing a more diverse range of internally generated technologies across different fields.
• Sometimes these collaborations are with external startups, which are effectively incubated by, and then integrated into, the business once successful. Others may then be spun out. In some cases, internal "startups" are encouraged and the best concepts retained by the business.
• A number of businesses are looking to ensure that anyone across their company can be part of the innovation cycle. Here, again, the use of technology platforms such as intranets allows anyone in the business to get involved.
• There are also indications that many businesses are interested in moving towards the creation of common platforms. However, businesses in some sectors felt more restricted due to their heavily regulated nature, often using startups or independent ventures to innovate in a less restrictive environment, before absorbing successful innovations back into the main business in a fashion acceptable to its regulators.

It is also apparent that, while organizations define open innovation in a variety of ways, it is almost always based on the fundamental idea and realization that knowledge is spread throughout a business, industry or society, rather than just being held internally. By accessing both internal and external knowledge in a variety of different ways, organizations are able to exploit a wealth of information and create a bigger pool of ideas and solutions.

Starting blocks for collaboration

It is clear that most businesses are becoming more receptive to new forms of collaboration to stay ahead of the curve, or at least to prevent being left behind. In doing so, they are looking to implement processes and structures that are built on some key fundamentals: speed, flexibility, trust, and talent and diversity.

• Speed

Businesses stressed the importance of getting access to market first; if the collaboration is slow, it loses value. In the race to innovate, first or early mover advantage is key. This commercial driver has focused organizations towards efficiency rather than perfection, even if it makes the initiative riskier.

• Flexibility

The key is to "declutter innovation". As with any project, it is not always clear at the outset whether it will gather traction and interest. It is important to be flexible in order to be able to reach the best outcome from the collaboration. After all, technology transfer is the "art of the possible." Moreover, businesses need to be light on their feet to allow a collaboration to gather momentum. Not every project is taken forward, and a more flexible approach means businesses can avoid wasting time on the details of initiatives that may not progress. To address this, a staged approach to new projects has been suggested by many. Having a clear, up front understanding of your baseline position on key issues, such as intellectual property, can also give you flexibility on the rest of the deal at an early stage.

• Trust

Businesses identified that a major stumbling block for innovation projects can be whether you look at people as competitors or as partners; that is, whether things end up being collaborative or adversarial.

You have to be more up front, more open, and clear about what you want and where you are going. Collaboration partners need to “speak the same language”. You need to act quickly but also in a way that preserves long-term goodwill.

• Talent and diversity

The battle to attract the best talent has intensified, as it is a critical part of driving internal innovation and creativity within the business. There is also widespread recognition of the advantages of ensuring that a diverse pool of talent is being recruited, to ensure that teams are bringing the broadest range of ideas, perspectives and skill sets to the innovation table.

Structures and obstacles

Hurdles to structural success

While recognizing that all of these factors are key, ultimately, there is still a need to decide how to frame each collaboration; some sort of structure is required, after all – there is no "one size fits all" approach. Particular hurdles in establishing an ideal structure might include:

• collaboration with academia, where there might be a clash of interests or priorities;
• the approaches and histories of different jurisdictions or subsidiaries;
• striking a balance between the profit and charity elements of social entrepreneurship; and
• the need for compliance in heavily regulated sectors.

In this regard, startups or newer businesses might be more comfortable with the idea of open innovation, while mature companies may be more inclined to run with policy-driven approaches to ensure consistency and efficiency.

[I]ntellectual property is core to the value of many businesses. However, the way in which it is used and valued is shifting – increasingly, it is used to facilitate collaboration.

Ownership

At least one of the reasons that startups or newer businesses may be more aligned with the drivers of open innovation is their shift in thinking around ownership of intellectual property. Businesses told us that while the emphasis has historically been on owning and protecting the products of innovation, they are increasingly adopting a more flexible approach to ensure access to technology through collaborations.

That does not mean that nothing is worth owning; on the contrary, more than ever before, intellectual property is core to the value of many businesses. However, the way in which it is used and valued is shifting – increasingly, it is used to facilitate collaboration through access regimes ranging from licensing to open source platforms, rather than to lock others out of the market.

The role of in-house legal teams

The alignment of business goals with the output of the legal team is crucial to successful innovation. To achieve this, some businesses have adopted approaches which embed the legal function into the innovation process, so that in-house lawyers are involved from the start. This allows a mutual understanding of commercial and legal perspectives, and the early identification of legal issues and risks.

Whatever the approach taken, it is clear that most businesses recognize – at least in theory – that getting the legal team involved early maximizes the team’s ability to contribute constructively and to be part of the ultimate solution.

The direction of open innovation

Despite some inherent challenges, businesses are seeing significant benefits from open innovation, which typically outweigh the risks of pursuing the narrow, inward-looking R&D approach. Their pool of external collaborators is expanding, and non-core assets are being shared more widely, creating routes into increasingly diverse technologies.

External collaborations are often seen as essential to ensure the speed with which innovation needs to happen. Exclusivity and rights ownership may sometimes be worth sacrificing to ensure a "first to market" position or simply to keep pace with the sector. Insourcing, – using their own personnel to come up with ideas – rather than relying solely on their R&D teams and consultants, is also gaining traction.

Businesses generally rate their existing internal talent as a pool of untapped potential, intimately connected with the business and well placed to develop innovative solutions. As a consequence, businesses are investing in systems to connect employee innovators with the appropriate expertise, frameworks and opportunities to facilitate the development of their ideas.

As the ways in which businesses innovate and collaborate, and the range of internal and external innovators and collaborators rapidly expands, in-house legal teams have had to adapt. Open innovation is an entirely new ball game for many legal teams and warrants a shift in culture and make-up. Risk models must reflect the emerging collaborative landscape and challenge long-standing norms and protocols.

This has not always been an easy process and businesses continue to report on the challenges of moving from more rigid, policy-driven approaches to strategies which provide speed and flexibility and are built on trust – now seen as essential to effective innovation and collaboration.