Using Open Innovation to Extend R&D Investments

Kevin J. Ilcisin, Ph.D. Eric Starkloff

Innovation is the lifeblood of companies and can take many forms: ground-breaking products, inventive marketing strategies, and pioneering business models. One approach gaining popularity is open innovation, a term coined by Dr. Henry Chesbrough, director of the Center for Open Innovation at the Hass School of Business at University of California, Berkeley.1 Dr. Chesbrough argues that in a world of widely distributed knowledge, firms cannot rely only on their internal research but also should consider external inflows and outflows of knowledge to accelerate innovation. This refers not only to gaining or losing a company’s intellectual talent, but also to drawing on both internal and external sources for mutually beneficial rewards.

Over the last few years, we have had the opportunity to be actively involved in a project to put Dr. Chesbrough’s research about open innovation practices into action. This effort extended from understanding customer requirements through to delivery of an important new high-bandwidth, modular PXI-based digitizer.

While the companies involved in this effort, Tektronix and National Instruments, are both in the test and measurement segments, we believe the lessons learned are applicable across the full spectrum of technology management challenges as well as other industries.

Define Customer Needs

A novel approach to innovation, such as joint development, starts by defining customer needs independently, regardless of each company’s existing competencies. This research should include not only product requirements or features, but also business requirements such as service, support, and integration into existing systems and processes.

Once you have a well-understood view of the customer’s needs in a particular area, the next step is to map those needs to the competencies of the companies involved. While some customer needs will map cleanly to one company’s competency, others will draw on skills or technology from both companies, or perhaps from neither, in which case other partnerships may be required.

It’s easy to identify each company’s contribution to collaborative open innovation when the customer needs can be mapped to companies that each have unique expertise. The more challenging part of co-innovation crops up when the mapping process shows that both companies have the needed competencies in some areas.

When this occurs during collaboration, it’s important not to start with preconceived notions regarding which company should take the lead for a specific competency. Instead you should take a view beyond the R&D team and examine such factors as the business model, the manufacturing model, and the sales channel to help determine the best way to meet customer needs. The key to resolving such potential deal breakers is to use a shared vision of customer needs as the guide to making decisions.

Synthesize the Proposal

The next step in the process is to synthesize a proposal. The proposal should include the product development plan, the model for customer support, and the manufacturing plan. Areas where more intense collaboration is required should be thoroughly vetted. For example, a jointly developed product may require a detailed plan for service and support, including escalations that may need the resources of both companies to resolve.

Based on these considerations, it’s important to settle on the business model you plan to use for the collaboration. Using the model in Figure 1, you can evaluate the different approaches to combining each company’s competencies, recognizing that if you succeed in meeting customer requirements in a novel way, then there is profit to be made by both companies. The approaches should be evaluated carefully since the ideal solution to a particular customer problem may vary significantly from project to project.

You also may find opportunities for greater return on existing investments. Dr. Chesbrough has studied what he calls inflows and outflows of knowledge.1 An inflow is a technology element that comes from outside your organization while an outflow refers to finding novel markets, such as licensing arrangements, for internal elements.

Many companies have knowledge that could lead to significant value if deployed through alternative products and channels. The challenge often is committing the degree of investment needed and potentially diverting focus from your core business model to realize this potential. For example, you may have a technology that has value in another industry but you lack the sales and marketing channel required to do business in that market. Building sales and marketing channels is an expensive proposition, but if you can find a partner that has a footprint in that industry, you may be able to obtain value without the large investment.

Ideally, you want to find open innovation opportunities that will benefit your mutual customers and represent an appropriate return on investment and that neither you nor your partner company would pursue independently.

Put the Plan Into Action

In their book Getting Partnering Right, Rackham, Friedman, and Ruff define successful partnerships as an equal balance of vision, intimacy, and impact.2 The planning process validates the shared vision and the appropriate impact for each company. The implementation of the plan tests the level of intimacy, trust, respect, and leadership across organizations.

As with any project, you will want to ensure that best practices for cross-functional product development are followed. In practice, however, you may find that it will be necessary to adapt your best practices to accommodate the intercompany nature of co-innovation.

Any co-innovation effort should start with meetings to build teams and define the task to ensure there is a clear identification of roles and responsibilities for the entire cross-functional development team. Identifying clear communications and escalation channels is a critical part of the initial engagement. Joint sessions with open and detailed sharing of potential risks, challenges, and mitigation approaches help build mutual respect so that all elements of the product development come together for a successful kickoff.

The typical process of a core team challenging assumptions and questioning judgments is difficult enough with peers you already know and trust. That challenge intensifies when team members are unknown and you cannot rely on company culture or appeal to a well-documented corporate goal or mission to gain alignment.

What can replace culture and history in a joint process is a strong belief in the capability to fill a need in the market and bring value to customers. From this mutual goal or vision you can establish the principles needed to make critical decisions throughout the program.

An area that gains a new dimension with co-innovation efforts involving hardware is selection of a manufacturing model. Companies typically evaluate their manufacturing options—in-house, domestic contract, or offshore—and make decisions based on a variety of metrics they have developed internally. For smaller companies, this can represent a great learning opportunity for exchanging information and evaluating new or different manufacturing approaches. For larger companies that already use a combination of models, the challenges come down to making an unbiased decision and questioning assumptions.

For example, you might assume that submodules would each be manufactured by the company that designed them, followed by final assembly at a central location. To challenge such assumptions, task the manufacturing teams to come up with guiding principles, such as the desires to maintain domestic manufacturing, minimize the total cost of the product, and maximize the customer experience, quantified in terms of delivery and service times. This may lead to a decision to manufacture the entire device, including subcomponents, at the same site. The gap between a typical internal decision and this partnership decision can be closed by building intimacy between the teams and ensuring they are focused on a shared vision.

Another critical decision is the approach to branding and labeling the product. For a typical one-company project, the team could follow company-established product guidelines. In co-innovating, you will likely need to consider and potentially develop new guidelines. Among the questions that need to be resolved are how does labeling contribute to expectations on sales and service, and how do we ensure the customer understands the contributions of both companies to the final product?

A focus group can be helpful in establishing, for example, the importance of acknowledging the contributions of the companies involved. One effective solution we’ve seen is the use of an ingredient brand where the product carries a brand from one player and incorporates a logo from the other participant. Building a level of intimacy between the marketing teams is critical to resolving these questions.

Driving Execution

Once you have established clear cross-functional objectives, roles, and approaches and identified risk areas and mitigation methods, the rest of the program is just about execution. However, as many a program-scarred technology manager can attest, just execution is what probably will keep you up at night. There are several lessons we have gleaned over time, all of which are independent of the specific product being developed.

The first is to stress, repeatedly, the importance of communications, not just conference calls, WebEx sessions, or instant messaging, but face-to-face meetings. A manager has to ensure that the right level of communications is occurring. Yes, this strains travel budgets, and engineers facing tight deadlines may not share the perspective that the benefits outweigh time lost to travel. There is, however, no substitute for being in the same room, watching teammates react to your concerns and suggestions, and taking the time to work through issues.

The second is helping team members admit when they are hitting a barrier and encouraging them to seek help early. Determination and persistence in solving a problem typically are viewed as positive attributes. But those traits, coupled with the desire to meet your own team’s deliverables, can limit the willingness to reach out to a codevelopment partner for help.

Experience has shown that collective problem-solving typically leads to finding an answer sooner, helps develop trust between the teams, but does not, as some may fear, lead to a lack of respect. With clear communications channels, you can make use of the synergy of the combined team to get the product out sooner.

Finally, remember to recognize results. Focus on more than the obvious milestones on a Gantt chart. Acknowledge and reward the teams for their mutual successes and efforts throughout the program. This reinforces the value of communications and sharing that, in turn, reduces development time.

Build on a Strong Foundation

In closing, the most important step in any co-innovation effort across multiple companies is to build a strong foundation of mutual trust, understanding, and respect from the outset. Prior to committing to a joint development program, go through an in-depth process of discovery, openly exploring the market segments each company serves and recognizing where your products and strategies are complementary or, in some cases, competitive. From this you can come to understand the history, values, and aspirations of both companies and agree on the principles that allow each to benefit from the inflows and outflows of knowledge associated with open innovation.

Should your company decide to pursue an open innovation program, a course of action we would highly endorse as development paradigms continue to shift, here is a summary of the core steps:

• Read Dr. Chesbrough’s books and other open innovation materials, websites, and blogs.

• Identify customer needs that, while potentially disruptive or game changing, would be hard to implement without inflows and outflows of knowledge.

• Research and document the opportunity and customer need.

• Determine the level of partnership. Is it a licensing agreement, or does the opportunity require joint development?

• Assign core teams from the companies involved and allow the teams to get acquainted with each other in meaningful ways.

• Develop a shared vision and use it to resolve questions around development expertise, manufacturing, marketing, sales, and support.

Two opposing trends—increasing customer needs and expectations and constrained product development cycles and resources—continue to challenge organizations in ways that are resulting in a broader need for open innovation strategies. In our experience, building a strong base of intimacy across organizations, viewing technology in terms of inflows and outflows, and recognizing early where typically internal processes need to be enhanced or adapted are critical to successfully satisfying an increasingly demanding marketplace.


1. Center for Open Innovation, Chesbrough, H.,

2. Rackham, N., Friedman, L., and Ruff, R., Getting Partnering Right, 1996.

About the Authors

Kevin J. Ilcisin, Ph.D., is the chief technology officer, Technology Solutions Organization at Tektronix and has held business and product development responsibility at the company’s Maxtek subsidiary. Prior to Tektronix, he was co-founder and vice president of engineering of a technology start-up. Dr. Ilcisin holds Ph.D. and M.A. degrees in astrophysical sciences from Princeton University and a B.Sc. with distinction in electrical engineering from the University of Alberta. Tektronix, 14150 S.W. Karl Braun Dr., Beaverton, OR 97077, 503-627-3242, e-mail: [email protected]

Eric Starkloff is the vice president of product marketing for test at National Instruments. Since joining NI in 1997 as an applications engineer, he has held positions including NI TestStand product marketing manager, software group manager, PXI product strategy manager, and director of product marketing for modular instruments, PXI, and instrument control. Mr. Starkloff has represented NI within several industry groups and founded the NI Automated Test Customer Advisory Board. He received a bachelor’s degree in electrical engineering from the University of Virginia. National Instruments, 11500 N. Mopac Expressway, Bldg. C, Austin, TX 78759, 512-683-5275, e-mail: [email protected]

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