Benefits and Limitation of Open Innovation

Methodology

 The report is based on the theme 'Benefits and Limitation of Open Innovation'. It is mainly concerned with the effectiveness of open innovation in UK and the adoption of it within UK. The openness of innovation is associated with various uncertainty which arises the need for support within the decision-making process. So, it becomes essential for companies to maintain a balance between the positive and negative consequences. The goals of this report is to discuss the potential open innovation projects that has been carried out and its importance to the organizations. This report discusses the  benefits and limitation of open innovation and its implication on the business success. This report also considers the various research report published by various authors in relation to the theme.  This framework includes the internal and external and integrated analysis. To ensure theoretical and practical relevant aspect covered in this report, a critical evaluation of theme selected is done with reference to different company examples which includes benefits and limitations of open communication, how it has helped companies to survive, grow and achieving its goals. After a complete analysis, solutions are recommendations which will help in taking proper decisions and in accomplishing business goals.

Critical evaluation

According to West and Bogers (2017), open innovation is refers to combining the internal and external resources to boost the innovation performance of the business. It encourages to get connected with others to so that business can gain profits and opportunities in terms of getting new talent and collaborating with others to come up with new and innovative ideas. According to different research reports, it has been identified that UK has successfully adopted open innovation and it offers different advantages to different industries. There is a variation in the model used by the companies in respect to employment model, patterns of knowledge transfer and interaction. One example in relation to the establishment of the Centre of External Drug Development by GlaxoSmithKline in 2005. The main objective was to raise research and development spending not by increasing the number of researchers but by creating a network with many other biotech companies. Companies can take different routes of innovation depending upon the drive that leading them to adopt open innovation. According to Peris-Ortiz,  Devece-Carañana and Navarro-Garcia (2018), there are four main issues that company needs to tackle. The first issue is culture, which is same for all organizations and a shift towards an open approach requires the involvement of top management. This shift requires working with other organization. The second issue is structure and procedures. Mostly in UK, independent open innovation teams works within the already established company and moving people around in the organization is improves and increases cross-functional working in the organization. The third issue is skills, the lack of appropriate skills in the collaboration is seen as the major obstacle in the implementation of open innovation in an organization. So, sometimes it is desirable to provide training when preparing organization for open innovation. The forth and the final issue is motivation. Merely implementing it will not be of any use unless employees feel motivated towards it. So, it is important to make changes in the employees incentive structure to attract and motivate them because will not do anything extra under the same pay scale.

Open innovation has come with the positive aspect as well as negative aspect. On the positive side, the various motives of open innovation has been broken into 4 key objectives which are cost reduction, risk sharing, resources availability and knowledge acquisition. Knowledge acquisition is the major reason for external partnership and is is one of the advantage of open innovation (Kylliäinen Julia, 2018). Open innovation provides a large pool of knowledge to the company and helps in boosting the business potential to secure a better position and take competitive advantage. Competitiveness is the major driver for innovation in a business which makes the process flexible enough to involve external parties in its innovation process which helps in expanding their investment in research and development so as to identify and grab the new trends and ideas. Knowledge acquisition can also help in developing internal capabilities. So, integrating with external sources helps in increasing the innovation pace. But every positive aspect has a negative aspect too which are discussed here. On the negative side, open innovation targets decrease in risk but with that it invites an increase of risk related to collaboration with external parties. Collaboration itself brings risk and cost with it. Open innovation is hampered related to technology risk, market risk,  knowledge risk, intellectual property risk, workforce risk etc. The reason for entering into partnership to get access to knowledge from outside, however, sometimes it may be possible that insufficient knowledge in a partnership may increase the cost and act as a barrier in achieving the required outcomes in a specified period of time. Also, collaboration has the potential to share the internal competencies of the business to the outsiders or to the rival companies which may lead to losing the competitive edge. Knowledge sharing risk is related to the lack of trust among partners. Also, firms seeks to have talented and skilled through collaboration but due to geographical or cultural differences, the quality of labour acquired may to inadequate for the firm. So, these are the some positive and negative aspects of open innovation which are in some way beneficial for the business but it is required to take relevant actions to reduce the risk associated with it.As per Brem, Nylund and Hitchen (2017), there are some key benefits of open innovation which are very useful for businesses in achieving its goals.

Creating new products and services:

In a business, nothing is more exciting then getting a new product or service. By investing in internal and external resources helps in creating something and innovative which will help in bringing value to the business. This move even helps in increasing profits and increase the brand image. For example, the common problem for supermarket is importing products from other countries during off season. To overcome such issue ASDA has come up with an ideas. It is employing innovative LED lights which can help in extending the season for growing fresh tomatoes. This light will act as a supplement to the sunshine required and helps in enabling fresh and delicious tomatoes to be supplied to its customers whole year. ASDA is working in collaboration with UK growers.

Innovating old products and services:

Sometimes it is better to modify the existing products rather than creating the new ones if the older one has the potential to be improved and better and is able to attract more customers. The main benefit of open innovation is that it is never ending as organizations keeps on researching to make the product even more better. For example, Access pay with its launch has changed the way business payment is done across the world. Its software has helped the business to automate the payment transaction and make the transaction quickly and securely.

Keeping employees engaged:

One of the major reason for employee dissatisfaction is that lack of feeling of belongingness and ownership in the projects. Consequently, teams may not feel comfortable to share their ideas and opinions. So, by bring open innovation in the workplace will help in boosting the employee morale by making them involved in the projects. When employees feels that they have contributed in achieving the goals of the organization, they feel more responsible and excited in coming to work and works with full dedication. For example, Burberry which is a British luxury fashion house. It has been known for bring tech revolution in the the traditional British retailing. It has created a high skilled team to leverage digital media. This helped in increasing engagement as each and every employee were the part of this tech revolution.

Staying ahead of the competition:

By working in team and finding new ideas will help in increasing employee engagement. Using open innovation will help in finding the area where innovation could add value to the business (Cheng and et.al, 2018). For example, Bentley motors is making efforts to make it vehicle 10-15%  more efficient and competitive as compared to its previous one, which will help it in gaining competitive advantage.

Helps in reducing risk and taking competitive advantage:

Open innovation helps in builds a relation with external sources which allows company to share ideas, know-how which in other way helps in minimizing the risk associated with technical and market aspects. For example: Samsung has adopted open innovation to build its external innovation strength, for which it has launched a program called Samsung Accelerator Program which focusses on collaborating with designers, creative thinkers and innovators which can help in dealing with different types of problems and finding solutions to it. It has provided capital and product support to develop softwares and devices. All these investment brings revenue even in case of exits and helps in reducing the risk.

As per NOVOSELTSEVA EKATERINA (2017), some of other example of open innovation is related to GE company. GE is known for its open innovation models which mainly focusses on the collaborating with experts and entrepreneurs to share ideas and solve problems. GE had launched a program named the impossible mission for university students. This program was targeted at students having creative minds and some technical skills. Through this, GE was able to get three students who were smart and creative to have their internship at GE. Another interesting example is of Coca Cola company. It used to adopt open innovation at different levels, that is, between team and entrepreneurs and between consumers and others. The freestyle dispenser machine innovated by Coca-Cola, allows user to mix the flavours they want and also asks for suggestion for any new flavour for the Coca Cola product. This model of open innovation has put the production process customer oriented as flavours are made as per customers suggestions. Other successful, innovation example are Hydro industries in Wales, has developed a ground breaking water purification system or technology which has been deployed across the world. It has recently tied up with US which will help in bringing environmental and recycling solution. According to Hossain and Kauranen (2016), as everything has its pros and cons and the same happens with open innovation. Some of its limitations are stated below.

Possibility of revealing confidential information:

It can be possible that information provided by organization to the outsiders may back fire the organization. Sometimes even if organization does not want to reveal the information but unintentionally it happens then in that case it may lead to loss and sharing of information to competitors.

Wrong collaboration:

It may happen that companies collaborate with outsiders, thinking that they may add value but things changes may be because organization is not working properly and do not possess any unique skills that can help in taking competitive advantage (Amponsah and Adams, 2017). For example, Xerox, it was the first to invent PC which was ahead of time but management did not considered it as they thought it will be very expensive to go digital. At that time, people with digital knowledge were less and Xerox failed to meet with the digital disruption coming up. It should have collaborated with someone outside the organization to get an idea and take better decisions.

Reputational risk:

Implementing innovation is a good idea but if the innovation plan fails it will affect the reputation of the organization. For example, the well known case of Volkswagen. It has tried to make vehicles with reduced carbon emission but the company had fooled the emission test of around 11 million vehicle. It has been found guilty and had to pay $4.3 billion in criminal and civil penalties. This scandal has highly affected the brand reputation of the company and its is becoming very hard to build the reputation all over again.

Another example is Nokia which failed to innovate. Nokia was a global leader in the mobile phones but it was not able to grasp the emerging concepts of software and kept on focussing on hardware and the reason behind it was that management had a fear of losing its customer base if they change. The only mistake of Nokia was not to accept the drastic change in the user experience. This has lead to the bad user experiences which did not fit the market.

As per Naqshbandi, Tabche and Choudhary (2019), there are various ways of managing the open innovation. First, companies should not directly jump onto the bandwagon just because it is highly popular. Managers needs to develop strategies according to the organizational needs, resources available as well as external environment such as competition. Managers need to consider the both inbound and outbound activities related to open innovation. Collaboration requires effective management as managers needs to evaluate values from it. Second is identifying the functions which needs to be connected, according to which organizations may be required to train group of people to who are carrying diverse professional skills. Organization needs skilled employees to work in this system so as to access external capabilities and opportunities. Third is demonstrating commitment and support. Organization needs to come up with the plan to provide support to all those who less inclined towards achieving the and accepting the change or new approach to change. Forth is providing effective training to research and development professionals so that they can be effective in open innovation. Also, organization needs to implement intellectual property system, that clearly states what can or cannot be shared with the external parties. Organization should hire personnel to take care of the confidentiality of the information provided to the external sources. So, all these factors need to be taken into consideration for effective management of the open i

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