May 21st, 2015

Can Companies Thrive in Today’s World without Open Innovation?

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IMAGE: LEGO ADVERTISEMENT, 1981

As a ten year old, I used to think the best job in the world would be to develop new products for LEGO. At the time, I was spending hours in my basement building entire cities out of LEGOs. There weren’t enough LEGOs in the world to satiate me – whatever was on the market I (or my parents) would buy. Little did I know that LEGO actually was ‘employing’ other ten-year olds like me to dream up new LEGO sets for the company to sell (and for me to buy). These other kids actually had my dream job! LEGO was practicing open innovation, relying on people beyond the company to help them innovate, before the idea came into vogue. And, it was working.

Today, open innovation takes many forms and it is actively transforming products, processes, brands, and research & development across corporations, non-profit organizations and governments worldwide.

While open innovation is commonplace today, the question is: does it lead to radical new innovations or simply incremental improvements?

“Incremental innovation attempts to reach the highest point on the current hill. Radical innovation seeks the highest hill.” – Don Norman

Designer Don Norman’s analogy of innovation as hill climbing is quite adept. The basics are that organizations struggle their way to the top of local peaks via incremental improvements while occasionally leaping onto whole new hills and revolutionizing themselves in the process. The results of open innovation actually mirror this analogy quite closely. Let’s take a look at a few examples.

LEGO: Crowdsourcing ideas

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LEGO was not the first company to practice open innovation, but they stick out because of the profound effect open innovation has had on driving business performance. When I was playing with LEGOs, the company dabbled in open innovation, but it wasn’t institutionalized at its core. During the 90s and early 2000s, the company lost its way and eventually turned to crowdsourcing ideas via digital channels to get back on track.

LEGO built the infrastructure that enabled them to engage the crowd, sort and identify winning ideas, rapidly commercialize those ideas and scale the effort. This ensured LEGO would never run out of new product ideas, nor children (and adults) prepared to buy them.

Now, LEGO is the most valuable toy company on earth and can boast stats like, “there are 62 LEGO bricks per person in the world.”

LEGO’s radical innovation was transforming the product development approach and embracing crowdsourcing. Thereafter, crowdsourcing efforts have delivered incremental innovation.

Other Examples: Starbucks, Ben & Jerry’s

 

Tesla: Open-sourced patents

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“Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” – Elon Musk, Tesla

When Tesla’s CEO, Elon Musk, fully embraced open innovation by open-sourcing his company’s patent portfolio last year, Wall Street freaked out. Financial analysts place a very large emphasis on intellectual property in determining corporate valuations (see Qualcomm) leading them to believe that Elon Musk was crazy. But, Tesla stood by their decision, and argued that by opening up the company’s intellectual property to competitors, collaborators, and entrepreneurs, their company will ultimately be more valuable. So, why open-source the patents?

First and foremost, it will likely accelerate the development of quality electric vehicles across the spectrum of price ranges and styles. While this acceleration of competition will force Tesla to innovate and execute, it will also help drive greater consumer acceptance and adoption of electric vehicles, putting more pressure on traditional gas vehicles and its manufacturers. Second, the development of a more robust charging station network can be accelerated and the burden of costs could be distributed if other manufacturers also rely on it. Third, radical innovations using Tesla’s patents may occur that will help the company improve its own products or create new ones altogether. And most importantly, by sharing their patents, Tesla is primed to evolve from a battery and car manufacturer into a platform upon which other innovations can develop and thrive.

Has Tesla’s open innovation gamble paid off? It’s too early to tell, though there are reports that BMW and Nissan are already using the technology in their electric vehicles. And, it seems that Tesla is busy transforming itself from a car manufacturer into an electric power company. Maybe Tesla will become a platform after all?

Tesla’s patent open-sourcing was certainly radical, they have their eye on the highest hill – we’ll have to wait to see if it pays off.

Other Examples: Toyota, Nissan

 

Microsoft Kinect: Open API

“The Guinness Book of Records fastest-selling consumer device”

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When Microsoft launched its Kinect device during the 2010 holiday season, it actually became the fastest selling consumer device in history – passing 10,000,000 units in under 3 months. That’s an amazing accomplishment. Consumers loved the motion-sensing device that just seemed better than Nintendo’s Wii and other devices on the market at that time. That’s not the cool part of this story though. What’s cool is that Microsoft actually adjusted the product before it went to market to make it easier for people to innovate with Kinect.

By adjusting one of the ports on the device and developing an API, Microsoft gave entrepreneurs, companies, agencies and creative artists the tools needed to unlock the true potential of Kinect beyond Xbox and the living room. In doing so, they also created a central database that would improve the system’s accuracy with each new Kinect innovation – thus creating a cycle of continuous improvement. The resulting innovations have been quite impressive. Virtual reality interfaces, interactive billboards, art installations, sign language lessons and in-home physical therapy to name a few.

To me, this seemed like a very thoughtful move by Microsoft that enabled some really amazing applications and innovations. It also earned the company street cred with the developer community that it seemingly had lost to Apple and Google. While others are innovating with Kinect and delivering new services and experiences to users, Microsoft really isn’t benefitting as much as they should – at least not economically. And, from a hardware standpoint, they may be displaced by virtual reality in the very near future. It seems as though even when following an open innovation playbook, Microsoft will not discover a radical transformation that produces commensurate business value.

Microsoft Kinect has experienced incremental innovation in the form of improved artificial intelligence and accuracy via its open API initiative.

Other Examples: Edmunds, Facebook, GE + Quirky

These are just a few examples of open innovation – and I think it’s fair to say that the outcomes are mixed. It’s certainly possible for open innovation to lead to radical innovation, but more often it seems to lead to incremental improvements. And, that’s okay because organizations often have a long way to climb on their current hill before they have to make a leap onto an entirely new hill.

Check back soon for a related post on this topic with a focus on how we’ve seen open innovation thrive here in San Francisco/Silicon Valley.

Jeremy Gilman, Strategy Director & Managing Director, San Francisco

Tags: insights

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