The challenge of open innovation

Science|Business CEO and Editor Richard L. Hudson

But it’s also a challenge to the whole system of R&D in Europe – a challenge that, on current trends, risks going unmet. This is a call to the people who run R&D and innovation policy in Europe: Listen up.

First, what GE is doing is certainly big, but the policy importance lies in the fact it is not alone. By inviting people with smart ideas to knock on its door, GE is reflecting the dominant model for multinational research: open innovation.  

Put simply, this is what happens when a big company tries to collaborate on research and development of new products and services with outside organisations – most commonly, a group of university researchers, high tech start-ups, suppliers or customers.

While open innovation has always been around, it began to be a conscious business strategy a decade ago with Procter & Gamble (P&G), Kraft and a few other multinationals that were looking for a cheaper, higher-return way of getting new things to sell. As the corporate lab downsizes, the in-licensing, corporate venturing and academic outreach offices gear up. It was christened ‘open innovation’ in 2002 by Henry Chesbrough, formerly of Harvard, and now professor and executive director of the Center for Open Innovation at the Haas School of Business at the University of California, Berkeley, and a visiting professor at the ESADE Business School, Barcelona.

Pick your open innovation style

There is no one style in open innovation today. The GE approach is unusual in that it’s very noisy (just look at our site: We are the European media partner for GE’s challenge, as Wired magazine is in the US), completely open, fully international, endowed with a financing system that pulls in, besides GE’s own millions, a group of venture capitalists, and has a fully developed system of finding, picking and acting on good technologies.  

But there are lots of other ways of doing it: IBM has run what it calls ‘innovation jams’ with a broad online public. Glass-maker Saint-Gobain has a targeted university outreach programme, P&G continues its in-house “Connect + Develop” team of technology talent scouts. The pharmaceutical industry is now reliant on open innovation to fill its pipelines, contracting academics for research and gobbling up their little spin-out companies.

In other words, open innovation is now a standard operating procedure in big business and this means universities, SMEs, government labs and anyone else in R&D is being affected. New deals, new partnerships, new financing sources, new intellectual property procedures – it changes much. But in Europe, it hasn’t yet changed enough. Here’s what I think it means:

• Focus on excellence. European R&D policy has always flipped back and forth between spreading the wealth around and giving it to the best. The EU Framework Programme, with its average seven participants (FP6 numbers) per project veers towards income re-distribution. The EU’s European Research Council, with its individual grants for researchers, veers towards a Nobel approach. In a world of open innovation, there is no room any more for being nice. If Europe is to compete, and attract the likes of GE, it must have the best research and ideas available. And that means concentrating resources on those few universities or research teams that truly are world-class.

• Focus on clusters. The European Commission has counted more than 2,000 clusters in the EU; none of them are of the scale of Silicon Valley (and few even could claim to match Bangalore or Tianjian for new-density.) The message for regional development policy is the same as for R&D:  Concentrate, don’t scatter, resources.  Focus resources on Stockholm, Cambridge, Oxford, Paris and at most a half-dozen other high-tech hubs, so they attract the brightest students to their universities and the richest companies to their research parks.

• Free SMEs.  Universities and clusters are all well and good, but innovative little companies are one of the most important vectors for getting an idea out of the lab and into the market. They are vital partners in the open innovation process. Some European countries – notably Britain and Sweden – do a good job in creating hot start-ups, but few grow fast enough to make it to the world stage. There are thousands of reasons for this, but most of them cluster around the rigidities of European finance, taxation and regulation. At the very least, there should be special exemptions for small, innovative companies, to lower their costs and speed their growth.

• Buy smart. The public sector in Europe is big – so why not make a virtue of that fact? If every government procurement agency set aside a small proportion (a few per cent) of their budget to specify the purchase of ‘innovative’ products and services, it would create a powerful new market force for technology development in Europe.  If national health authorities invested, for instance, in e-health services they would simultaneously stimulate a new industrial sector and make the health services more efficient. And again, this all helps make Europe more attractive for R&D internationally.

• Regulate smart. The power of regulation to stimulate innovation is well documented: Perhaps the best documented case is the way California forced the auto industry to research fuel efficiency by setting energy-efficiency requirements in the law. The same approach in carbon-control, smart grid and other technologies in Europe could similarly force new technologies into the electricity sector, and stimulate new R&D in Europe.

There’s lots more - reform intellectual property, increase mobility of researchers, breed more entrepreneurs in universities, to name just a few.

But taken together, the real challenge of open innovation to Europe is pressing and direct.