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Wednesday, March 03, 2010

Simple Justification for Open Innovation

by Stefan Lindegaard

Simple Justification for Open InnovationI stumbled over an interesting paper, "Sourcing External Technology for Innovation", by the Alliance Management Group which has developed lots of great content including the Want--Find--Get--Manage framework below:
  • Want - What external resource(s) does the firm want to access from the outside world to meet its strategic intent?

  • Find - What mechanisms will the firm use to find these external resources?

  • Get - What processes will the firm use to plan, structure and negotiate an agreement to access the resources?

  • Manage - What tools, metrics and management techniques will the firm use to implement the relationship?

The article focuses on the Want element of this framework and what I in particular liked is the equation: A + B = C. I have inserted the below edited snippets from the article in order to introduce you to the equation.

We will define our terms:
  • Variable A - "Represents the firm's existing 'assets' including its production equipment, core capabilities, intellectual assets, resources and perhaps even its market presence."

  • Variable B - "Represents assets that are complementary to the firm's resource base and are only available externally."

  • Variable C - "Represents the new product or market offering that goes beyond what the firm is able to deliver utilizing its existing 'assets' alone."

Variable C is a more valuable commercial result that comes from combining the firm's existing 'assets' (Variable A) with those sourced externally (Variable B). This simple equation makes a simple point. If the firm does not access external technology (i.e. there is no Variable B) then Variable C will be limited to what can be achieved using existing capabilities and assets. In other words, Variable C is determined by Variable A.

The goal of the A + B = C equation is to find new value that the firm cannot identify using traditional planning processes. Internal resources (A) retain their prominent role and integrate with external resources (B) to enable a visionary market offering (C) that was unthinkable just yesterday.

When the organization purposefully moves in this direction, senior executives require project managers to redefine C as a variable, enabled by A and B. This is an uncomfortable change for some managers because Variable C is ill-defined, Variable B is fuzzy and Variable A is the only known quantity.

I believe open innovation is about bridging internal and external resources and to identify and execute on the opportunities that arise on this interaction. I like how The Alliance Management Group turns this into an equation and I wanted to share this with you.

Don't forget to read the full article: "Sourcing External Technology for Innovation"

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Stefan Lindegaard is a speaker, network facilitator and strategic advisor who focus on the topics of open innovation, intrapreneurship and how to identify and develop the people who drive innovation.

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Blogger David said...

So by this definition, would you say that Open Innovation is the enlightened form of outsourcing?

Surely the term and practice of outsourcing has a lot of negative associations with it mainly because I believe it was misused my many companies for cost-cutting only without the consideration of properly managing the outsourced partner relationship (iow throwing it over the wall).

But if outsourcing is used to leverage capabilities from outside parties that better perform non-core competencies of the firm, I don't see how this is any different than what Open Innovation is being described as.

Has the brand of outsourcing become so damaged due to its improper use that it has been re-branded as Open Innovation, or do you see a different distinction between the two?

7:02 AM  
Blogger walter.adamson said...

David, interesting observation because your thoughts mirror mine as I read, in fact I thought directly of some of the methods which John Chambers used to propose about what to outsource etc.

However I think this ABC model, although a rework of the familiar sourcing methods, is actually quite elegant, and easy to explain.

So I like it quite a lot, even though it could be cast as "just another take on outsourcing".

In fact I am giving the opening talk at an innovation conference for the multimedia industries in a couple of weeks and I will use these ideas.

Walter Adamson @g2m

1:54 AM  

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