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open vs closed innovation: the wrong question

I'm a Quora member. It's a great platform. One question posed there was from someone who asked,

Innovating within the company is not possible nowadays for even big companies. [Not uniformly true, by the way, but a good general statement.] Collaboration with universities, different research institutions are becoming kind of mandatory. Is this the future paradigm.... of innovation? ... What are the examples of technologies that have grown out of spin-offs, or technologies that have collaborated in an open innovation model?

Here's my answer.

India typically encourages open innovation. The rationales include faster time to market, faster development of families of patents, and less need to use patents to restrict competition in a growing market. However, some of these rationales are rationalizations that emerge from poor IP rights protections. The reality of India's commitment and excellence in innovation in the BRIC economies is still unclear. I hope they continue to explore deliberate attempts to create hubs that bring in different companies and institutions to create families of new ideas. They'll be facing stiff regional competition from China and other Asian countries in innovation, and a good number of these countries are truly leaning into the problem, since they realize innovation is key to owning markets and reducing price sensitivity. Asia, in fact, seems to be ready to stop being the low-cost provider of commodities. 

The US, where the market is not growing as fast and where a tradition of IP as a barrier to competition is very strong, would have a hard time adopting true open innovation, unless it's in an "open source" context. Red Hat, or standards bodies, etc., come to mind.

The real problem to solve has two components: Reducing the cost of R&D on the balance sheet, while speeding time to meaningful innovation in your market.

Off-balance-sheet solutions, and networks of partners who are incented to leverage new IP, can create strong ROA, very quickly, and still maintain competitive advantage. In the first case, I would create a PE fund with companies in a vertical (transportation, logistics, cloud, retail design, FMCG suppliers). That fund buys or invests in IP, and co-owns it. Buying IP can sometimes be done very inexpensively. Returns from licensing further reduce overall costs, and may return profits back to participants. This reduces or eliminates many costs associated with R&D, and allows the PE fund participants to have discussions about how to create value in the vertical chain with those innovations.

This combines off balance sheet techniques with "open collaboration" that still results in protectable IP and control of competition. I'm unclear how Xerox intends to leverage what's coming out of their open innovation program in India. Inventing new things is great, but how will Xerox measure the return to their shareholders?

To expand the view of innovation, you can also look at the opportunity that multinational enterprises have: By functioning across different cultures, they can (and have to) break down their value propositions to find out what is local, what is global, and how those satisfy local market needs. Filling gaps in local markets provides information that can be fed back into future products and platforms. In short, the market principle + agile innovation + international challenges = new information about designing and delivering value propositions. (Here's an interesting, related article.)

Other resources

Lead Market Factors for Global Innovation: Emerging Evidence from India. 

India: Decade of Innovations. 2010-2020 Roadmap. 



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