Four Open Innovation Techniques

June 29, 2017


There are four main tactics that organizations commonly use for inbound open innovation; tech scouting, vertical collaboration, horizontal collaboration, and technology sourcing. These four tactics are all positively correlated with innovation performance and are all useful to firms who are seeking both radical and incremental innovation results. However, resource constraints may limit the number of OI programs that any one company can realistically execute, and the internal makeup and corporate structure of companies can make some strategies more appealing than others. As a result, companies should consider the pros and cons of each OI tactic. Innovation managers and product development teams need to consider the type of OI program, scenarios in which that type of program is most useful, the limitations of the program, and the basic first steps needed to get a new program up and running. In this blog, we will walk through the four main types of open innovation for corporations and discuss some of the pros and cons of each.


Technology Scouting

What is technology scouting?

Technology Scouting is an OI tactic that involves allocating dedicated or part-time staff to search for technology licensing opportunities relevant to a defined strategic area of interest. Tech scouting is a broad term and can include many of the activities included in the other three strategies, but for the purposes of this blog, consider tech scouting to be internal teams that search for licensing opportunities with academic, government or private non-profit partners.

When is technology scouting useful?

Due to the low cost and high rate of return, tech scouting is the most widely applied, and arguably the most effective OI strategy. However, the internal makeup of the company can affect how the program functions. When resources are limited scouting teams are more likely to search within their known industrial boundaries, which makes them more likely to achieve incremental innovation as compared with radical innovation. Alternatively, when resources are available, scouting units are able to expand their activities into novel areas and seek more radical innovation results.

What are the limitations?

Organizations that have a very narrow research focus may have trouble implementing external technologies from areas outside of their immediate expertise. The absorptive capacity of these firms may be too low to capitalize on external innovations and thus, the scouting unit may waste time identifying and acquiring technology that never makes it into final products.

What’s needed to start?

Organizations need to define strategic areas to investigate, hire new scouts, or assign scouting duties part-time to existing employees, and adopt a system for storing information and evaluations. Many companies are also embracing the concept of Agile Technology Scouting, a methodology that focuses on defining a basic but flexible process before the scouts begin their search efforts.


Vertical Technology Collaboration

What is Vertical Technology Collaboration?

Vertical collaboration refers to innovation partnerships formed with customers or suppliers within the value chain of the firm. These partners can include present customers, potential customer, and end users as well as strategic suppliers from across the supply network. About 75% of firms are currently integrating customers or suppliers into their innovation process.

When is Vertical Technology Collaboration Useful?

Vertical collaborations are increasingly popular among firms that need to better understand customer needs before they invest in major product changes or launches. Resources limit market entrances, and the risk of a poorly received product pushes many companies to integrate customer inputs early in the innovation and development process. Additionally, when close supplier relationships are essential for actual product manufacturing or distribution, collaboration with those suppliers becomes essential.

What Are The Limitations?

Despite the popularity of vertical collaboration, many organizations struggle with identifying and establishing secure and efficient communication with their qualified partners. Furthermore, these types of collaboration often produce incremental innovation results and lack the dynamic insights necessary for radical product changes.

What’s Needed To Start?

Organizations first need to identify qualified customers, define key strategic supplier relationships, then they must set up secure and searchable communication platform. Communication channels are essential for a successful collaboration and teams need to be able to quickly and easily share relevant information in order to ideate, evaluate, and progress opportunities.


Horizontal Technology Collaboration

What is Horizontal Technology Collaboration?

Horizontal collaboration generally involves technology collaborations from outside of the value chain with competitors or companies in adjacent markets. Organizations usually participate in horizontal partnerships when they want to expand knowledge outside of a core area but lack the internal resources or talent.

When is Horizontal Technology Collaboration Useful?

When companies are able to create non-redundant relationships they can expose themselves to more sources of knowledge and a greater potential for radical innovation. Horizontal collaborations can also provide legitimacy to new market expansions and radical ideas as partners outside of the value chain have different perspectives and market expertise.

What Are The Limitations?

Horizontal partnerships are inherently riskier as companies expose themselves to strategic direction and IP concerns with organizations that could potentially compete with them directly. Additionally, horizontal collaborations present the risk of free riding by competing and non-competing partners who fail to adequately contribute to the partnership.

What’s Needed To Start?

The largest barrier to entry for horizontal partnerships tends to be adequate methods of agreement tracking and secure knowledge sharing. Organizations need a secure database to store project details, evaluations, and communications, and there must be a clear and easy way to find history associated with each record contained in the system.


Technology Sourcing

What is Technology Sourcing?

Technology sourcing describes the investment in or outright acquisition of a technology partner. Sourcing programs are most common among large companies with dedicated venture arms but are also frequently a key part of strategic business development activities at smaller firms.

When is Technology Sourcing Useful?

Technology sourcing can help organizations quickly acquire later stage technologies just before they enter the general market. For organizations that are only interested in near-production technologies investments and acquisitions offer the most direct path to market. Furthermore, direct acquisition or investment often avoids potential intellectual property conflicts associated with joint development agreements.

What Are The Limitations?

The largest challenge for technology sourcing teams is knowledge transfer from the acquired firm. Organizations with well-established R&D units are likely to experience “Not invented here” syndrome, whereby staff of the parent company is unnecessarily skeptical of external acquisitions or investments.

What’s Needed To Start?

Technology sourcing is similar to technology scouting in many ways; the main difference being the acquisition method is an investment or purchase instead of a license. To begin a technology sourcing program organizations need to define strategic areas to investigate, hire new scouts or assign scouting duties part-time to existing employees, and adopt a system for storing information and evaluations. Organizations also need to consider due diligence and financial tracking as critical components of the process, and likewise must plan for adequate tools to help them manage those tasks.

These four Open Innovation tactics are by no means the only options of innovation and product development teams, but they are the most common. For any organization to launch as successful OI program, teams need to fully embrace professional tools, processes, and management. Wellspring has helped over 500 organizations improve their innovation performance, learn more about Wellspring Innovation Management Software here.

Sources: Inbound Open Innovation Activities in High Tech SME’s



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