Strategic alliances and open innovation

Strategic alliances and open innovation are topics of growing interest.  Innovation has always been a top concern for high performing organizations.  Innovation is often considered as the royal path to growth.  Open innovation is the wave of the future for all organizations, large and small, public and private enterprises.

What is open innovation and how does it link to strategic alliance development?

Innovation is surprisingly difficult to define.  At its origin, ‘to innovate’ is a 16th century Renaissance term from the Latin “innovāre” (to renew).  Innovation is different from invention which refers more directly to the creation of a new idea or product or method.  Innovation is also different from improvement which means doing the same thing a little bit better than before.

Innovation is renewing and changing something which already exists but in a novel and original way.  Recently consultants have added the notion of value creation to the term ‘innovation’ to modernize the concept to now mean doing something in a new, different and original way to create additional value for the client or end user.

In traditional thinking, innovation strategies were mostly designed and implemented in-house to gain competitive advantage.  Innovation was often more defensive (entry barriers) than offensive (new growth opportunities).  Owning the engineers, scientists and the material resources to enable innovative products and services was the single most important strategic asset to guarantee future success of the business.

Open innovation creates a new paradigm as the old framework no longer works as well in the information-driven economy of the 21st century.  Open source, open innovation, crowd sourcing and all the internet-enabled sharing of information is dramatically shortening the complex, iterative feedback loops between research, marketing, design, manufacturing, and distribution.

Contemporary trends are moving to open strategic thinking, to embrace open innovation.  Open innovation is consistent with new ways of working and involves partnering solutions outside the confines of one’s own organization.  Examples of open innovation include Wikipedia and the Linux kernel.

Linus’s Law which states, “Given enough eyeballs, all bugs are shallow” (i.e., easy to fix).  Crowd sourcing is also a good example of open innovation and will eventually render the slow process of physical focus groups largely obsolete.

Open innovation has reduced cycle times to design, test and take-to-market new products and services.   Traditional concepts of business strategy either underestimate the value of open invention and open coordination, or they ignore them outright. As the concept of openness spreads from software to science and to all other industries, we will need to update our concepts of how to do strategy and innovation.

Many companies are still clinging to a bricks-and-mortar R&D infrastructure and the idea that their innovation must principally reside within their own four walls.  They believe that they can build innovation into their business by throwing more money at research, or buy it outright by keeping an eye on the start-up companies in their sector.

Partnership models and new ecosystems are the way most companies will increase their innovation pipeline in the future.  The innovation economy is the practical application of bundling ideas, technology, processes, products and services in new ways to grow revenues.  Open innovation and strategic alliances will replace closed innovation and build/buy models within a generation.  Organizations which are going outside their four walls to design and execute original partnership models are already producing new, sustainable and innovative ecosystems.
Finding the right mix of in-house research, partnering solutions, joint ventures and original alliance configurations in order to maximize innovation is now a strategic imperative.  Industry examples of strategic alliance innovation include:
  • CPG/Retail sector – open innovation is a key source in packaging and distributing products (especially food products), allowing this sector to escape the downward spiral of continuous cost cutting and rationalizationall_globe_rgb
  • Healthcare Information Exchanges (HIE) have provided a platform to share certified medical records electronically across previously incompatible systems, in a secure manner, and shows great promise for lowering spiraling out-of-control costs (cf.
  • Life Science companies are sharing research costs, especially in the biotechnology sub-sectors as R&D departments become smaller and more reactive, aligning science projects and business solutions
  • Travel & Transportation companies are integrating mobile technologies to create easy micro e-payment and information services to commuters in new innovative ecosystems
  • Government is – in spite of all our cynical beliefs to the contrary –  becoming more open and innovative at all levels (local, regional, national and transnational) and Public Private Partnerships leverage open innovation to provide a sustainable noria of opportunities for businesses to make a profit and not-for-profit organizations to do social good and improve efficiency (smart cities, smart grids, open, connected communities…cf.

Of course, this begs the question: Who actually is capturing the value created by open invention and coordination? How are they doing it?  How do private companies make enough money to provide incentives to partner?  What are the new business models to sustain open innovation?

By pooling intellect in a system architecture, open invention and open coordination can produce superior products and services relative to those produced by a smaller number of minds huddled together in a single company. The strategic issue becomes how to capture and then sustain the created value without alienating the individuals, communities, or ecosystem members responsible for the continued development of the good, service, or standard. (Chesbrough)

Ecosystem creation through open innovation is nascent and will be the way all organizations are structured in the future.  The pace of strategic alliance development and open innovation is accelerating.  New digital infrastructures such as cloud computing, mobile and online social networks are enabling small groups of individuals with small investments to create big impacts.

Strategic alliances and open innovation are exciting developments across all industries and functions.  New ecosystems mixing subject matter experts across various organizations in new configurations, leveraging open innovations, will surprise and enchant us with original products and services in ways we have not yet imagined.

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