Is open innovation the fastest route to market?

A world of rapid technological evolution, decreasing product cycles and increasingly demanding consumers is a world that rewards first-movers. Indeed, companies introducing new products seven months faster than the average tend to gain up to 60% more in first-year sales, according to consulting firm BCG. They also benefit from a larger market share, lower development costs and the perception of being a trendsetter.

Firms have an increasing number of strategies available to reach market faster, including standardising products, automating production or setting up modular factories.

A particularly important strategy in this “go-to-market” toolbox is open innovation. “Research and development costs a lot of time and money. Open innovation is saying that if the wheel has already been invented by someone else, just borrow it,” says Solomon Darwin, executive director at the Garwood Center for Corporate Innovation.

This was precisely the approach Apple used to conquer the portable media player market in the early 2000s when, working with companies like PortalPlaye, ARM and Toshiba, it launched the iPod in just six months.

Today, crowdsourcing and advanced manufacturing techniques like 3D printing are compressing this development cycle even further. Last year, for example, NYC-based start-up Quirky managed to bring the smart air conditioner Aros from idea to market in less than 100 days.

Large corporations active in capital- and research-intensive industries such as aviation, healthcare or energy are also benefiting. GE, which is also involved in Quirky, uses open challenges to generate ideas from the crowd, for example. Earlier this month, it announced the four winners of the first round of its GHG Ecoimagination challenge—in which contestants had to find profitable use for the low-grade heat produced during oil-sands extraction.

As with most open challenges, the winning proposals differed in both approach and geography. One, from India, went for a heat-pump solution to upgrade the low-grade heat for use in power production, while another—from Netherlands—used the same low-grade heat to produce acoustic waves that would then be converted into power. The next round of the challenge will focus on improving the efficiency of the steam-generation process.

Reaping the benefits of open innovation, such as lower R&D costs and shorter time to market, takes experience. Discipline and proper management are needed to ensure that risks and rewards are optimally allocated across the spectrum of actors involved. The choice of partner is also key. Highly technical projects, for example, will tend to perform better financially when partnering with science-based organisations, according to a 2013 study of 558 open innovation projects by researchers from Louven University in Belgium.

Despite these challenges, companies that try the approach rarely go back to a closed model. A 2013 study of 125 large firms in Europe and the US, for example, showed that of those who practised open innovation (78%), none had stopped using it and 83% used it more then than three years before.

Many are still trying to figure out the best ways to leverage open innovation while minimising the costs. But one thing is sure: Open innovation is here to stay and those who crack the code will be the first on the market.

This post first appeared on GE LookAhead. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Abigail Higgins is a journalist reporting from East Africa and The United States, and a regular contributor to The Economist’s Look Ahead blog.