External crowdsourcing: an exercise in open innovation (part 1)
Open innovation is the smart strategy for businesses looking to source valuable ideas and leverage the vast knowledge pools that lie outside of an organisation.
Gone are the days of a business operating as a self-functioning unit, keeping all intellectual property, R&D and innovation strategies firmly within four walls. Boundaries between firms are increasingly being broken down and employees are changing jobs more than ever before, improving their mobility. As a result of this combination, there is a considerable knowledge flow between organisations that have changed the way businesses can innovate and grow.
Add to this a good dose of digitalisation and not only are companies more fluid in their interactions, other partners, potential stakeholders and customers are increasingly accessible. With the rise of social media, customer feedback is available on tap and advances in technology have facilitated stronger relations between organisations, universities and other talent. With all these invaluable resources now so readily available, external crowdsourcing is becoming more and more popular as a way of establishing a solid open innovation strategy.
Open innovation is essentially about accessing the vast knowledge pool beyond your business. There are plenty of smart people and intelligent ideas to be found within your organisation but outside perspectives can reap even greater results. A term brought to the limelight by Henry Chesbrough, he defines open innovation as:
“A distributed innovation process based on purposively managed knowledge flows across organizational boundaries, using pecuniary and non-pecuniary mechanisms in line with the organization’s business model.”
When executed correctly, open innovation can reduce costs, speed up time to market and increase originality in ideation. There are endless sources of external crowdsourcing, from universities and startups, to large corporate firms and venture capital. Whereas open innovation has previously been opportunistic, there is now a push towards permanent integration of an open innovation strategy into the central business strategy, as a vital component of R&D.
Balancing risk and opportunity
With so many resources at our fingertips, why are so many businesses still apprehensive about implementing a comprehensive open innovation strategy?
Crowdsourcing ideas from an external group is disruptive by nature and this inevitably carries risk. Often managers feel uncomfortable publishing the dilemmas they are facing and essentially asking strangers for help. There is also the additional risk of leaking intellectual property that could cause repercussions. It is for these reasons that open innovation strategies are often executed with a half-hearted attempt, facing a resistance to fully engaging with the process.
However, it is exactly for this reason that such a high number of external crowdsourcing initiatives fail. The process must be embraced with gusto and fully supported by all key stakeholders from within your organisation. Often it is a case of knowing which problems to push to the crowd and how to frame them.
“Large corporations are moving ahead to incorporate Open Innovation into their business, and are recognizing the value of collaboration as exceeding the threats of sharing information.” – Accenture, ‘Bridgemakers: Guiding Enterprise Disruption through Open Innovation’
One important aspect to consider is the nature of the rewards offered in your open innovation process. Pushing an incentive for participation is crucial for both internal and external crowdsourcing, but the nature of these rewards will be different. Internally, employees tend to expect a monetary reward in the form of salary, bonus or other tangible recognition. This can be costly but such an approach needn’t transfer across into your open innovation strategy.
There is a myriad of customers who will voluntarily offer their feedback or ideas and although their input may not be groundbreaking, it is still a valuable resource and one that needs only rewarding with a simple ‘thank you’ or engagement. When it comes to more complex challenges, it is important to offer an appropriate reward, whether this is a partnership, recognition or simply the opportunity to learn. The benefit of open innovation is that rewards are only due when you receive a solution; unlike internal crowdsourcing where you are paying for the effort but may not necessarily get a good outcome.
Ultimately, if you do not start taking advantage of the returns that open innovation can provide, you can bet your competitors will. Crowdsourcing from customers and partnering with other organisations are both essential tactics but must be handled in different ways. In part two of this blog post we will consider these different approaches to open innovation, and how to execute them successfully and in line with your business model.
- Open innovation can be a cost effective method of driving R&D and bringing original ideas to your business
- Crowdsourcing from an external group can carry risks but can be highly rewarding when supported from within your organisation and managed carefully
- Offer appropriate rewards and recognition to incentivise smart responses and to avoid alienating people who engage but are not acknowledged