Open innovation demands a tailor-made approach
Does open innovation really live up to our expectations? Do open innovation projects actually lead to better financial performance? “In a nutshell, yes,” replies Professor Bart Leten “provided that they are managed in the right way”. Along with two colleagues, he has published one of the first large-scale analyses of the financial profitability of open innovation projects. A distinction is made between projects undertaken in collaboration with academic partners (science-based partnerships) and those undertaken in collaboration with customers and suppliers (market-based partnerships).
Up to now, research into the relationship between open innovation and financial performance has delivered mixed results. Some studies detected a positive relationship, whilst others suggested that there was none, or even that there was a negative relationship. “This can probably be explained by the fact that past research compared the performance of companies that had carried out open innovation with one another to a greater or lesser extent, whilst our research is one of the first to look at the project level”, Bart explains. “You see, open innovation is implemented on a project-by-project basis, and no two projects are alike. Our study provides convincing empirical proof that on average, open innovation projects—projects in which you collaborate with an external partner—deliver better financial results than projects that only involve internal teams. Whilst not all the open innovation projects we researched were successful, they did score better on average”.
Same approach? Different result
According to Bart, the extent to which an open innovation project leads to better results depends upon the way it is managed. “With a strongly formalised project management methodology, a fairly detailed action plan is drawn up in advance, well-defined roles and responsibilities are defined, and over the course of the collaboration, there is close monitoring of whether the original plan is being adhered to. We also refer to this as the Stage-Gate method. Another option is a more informal project management approach, where you do set out milestones, but do not pre-determine how you want to achieve them. You divide things up into timeboxes and at regular intervals, you evaluate whether everything is still going well”.
What lessons were learnt from the research? “Open innovation projects in partnership with customers and suppliers perform better financially if they are managed in a strongly formalised way. For open innovation projects in collaboration with academic partners, this type of approach is frankly disastrous”.
A need for structure
How can the results be explained? “Rigorous project management provides structure and ensures that a project is delivered on time and within the pre-defined budget”, says Bart. “This approach seems to work well when companies collaborate with customers and/or suppliers. We had also expected that. As commercial companies, suppliers are mostly familiar with this sort of formal working method. Furthermore, it offers protection from admittedly creative but sometimes unrealistic suggestions by customers”.
Space for serendipity
Bart believes that it is no surprise that formalised project management is disastrous for collaborations with academic partners: “First and foremost, academics are not used to this type of approach. They are accustomed to having the freedom to be able to experiment at their own discretion. But one key reason is that one of the advantages of working with universities and other research centres is the fact that they can think outside the box, and can experiment with new theories with an open mind. But you need to allow enough space for that; you need to give serendipity a chance”.
He concludes with this footnote: “For many years, the formalistic Stage-Gate method has been seen as the norm, and indeed this is still the case. This perspective does not take into account the fact that projects can differ both in terms of scope and in terms of the players involved. It seems obvious that different projects would benefit from a different approach, and our research provides empirical proof of this, but in practice, it would seem that project managers are still insufficiently aware of this”.
- Opt for a formalised approach when you involve suppliers and customers in your project.
- If you are working with an academic partner, opt for timeboxes.
Extensive data set
The link between open innovation and financial performance was analysed using highly detailed data from R&D projects undertaken by a European multinational working in various different sectors, with an annual R&D budget of over a billion euros. The data related to 489 projects that were begun in the period 2003-2009 and were concluded by mid-2013 at the latest. The projects were in a number of different fields, which enabled the research findings to be generalised to a certain extent.
Source: The paper ‘Managing open innovation projects with science-based and market-based partners’ appeared in Research Policy, 43(2014), p. 828-840.
About the authors
Bart Leten is Associate Professor in Innovation Management at Vlerick Business School and at KU Leuven. Wim Vanhaverbeke is Professor of Strategy and Innovation at Hasselt University and Visiting Professor at ESADE Business School in Barcelona and at the National University of Singapore. Jingshu Du was a post-doctoral researcher at Vlerick Business School and at Hasselt University.