The economy is rebounding, companies have stopped cutting budgets, and the race is on to develop new product technologies quickly. We all know that getting to market first provides a significant competitive advantage. While optimism abounds, however, few engineering R&D programs are boasting of increased budgets for 2004. A new marketing research study among corporate R&D managers shows that 52% of the respondents expect R&D spending to increase slightly in 2004, and 33% expect spending to increase significantly in five years. Most respondents also predict that their total number of R&D projects will double in the next five years.
The anonymous survey, conducted by NineSigma Inc. last December, was distributed to 5000 corporate R&D managers at small to large corporations. Frequently, the most senior executive responsible for R&D activities at the organization filled out the survey.
Two significant trends that emerged in this study identified externally sourced innovation as a major factor in future R&D programs. After years of cutting costs, 45% of corporate R&D managers now see their most important strategic objective as "increasing the rate of new product innovations," while 27% see "accelerating time-to-market" as their most important objective. How do they plan to accomplish these critical goals? Answers showed that 30% project more than half of their new product technologies to come from outside their company by 2008. This represents a clear shift in direction for companies of all sizes.
The pool of intelligence is rapidly decentralizing around the globe, with the universe of knowledge expanding at an explosive rate. Small private and public corporations, as well as not-for-profit research labs, are contributing innovative thinking to traditional technical challenges. However, only 35% of R&D managers surveyed responded that they look primarily outward for innovation. Of the respondents, 57% claimed that they have a process to monitor and evaluate technologies from outside their own industry while 59% stated that they have an effective method of bringing new ideas in from the outside.
It is critical that companies establish appropriate mechanisms for monitoring and sourcing innovation. Those methods should be able to tap future, unpublished work around the globe and not be limited by geography or industry barriers.
Open innovation, the process for using external as well as internal ideas to advance technology, has many benefits for the technology seeker as well as the solution provider. For the seeker, it provides access to more ideas than could be developed in-house. It gives the provider access to a valuable marketplace in a fraction of the time it would take to develop on one's own.
Open innovation brings non-obvious connections that fuel growth. More and more companies are relaxing their hold on internal development, directing their engineers to focus on their core areas of innovation and sourcing technologies that can be integrated from the outside. In manufacturing, this occurs every day through contract manufacturing agreements. Technologies being sourced through open innovation are now coming from companies and universities outside of the traditional supply base. This enables access to a broader array of creative ideas to support new product development.
Despite the many benefits of employing open innovation strategies, developing a successful program can pose a challenge. Top-down support is essential to launching and sustaining an open innovation program and integrating it with a company's culture and goals. Many companies also are turning to outside "innovation agents" to help them build global networks of science and technology providers.
"Open innovation" will become the buzzword of 2004 and 2005, just as "supply chain management" became the mantra of the 90s. The companies that will thrive in this rebounding economy will have embraced open innovation as a way to supplement internal R&D with a wider range of options for solving technical challenges and for developing breakthrough technologies.