Case Summary - Read me if you haven't already read the case -
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Case Summary - Read me if you haven't already read the case -
by Ted_Chiang Thu Oct 01, 2009 2:01 pm
Forum Case Discussion II
During times of economic downturn, companies are forced to make choices regarding how to allocate their resources in order to stay in business. Many of these companies focus their resources only on the projects that would generate near-term profits, and halt many potentially promising projects; however, history show s that those who continue to invest in their innovative capabilities beneficial in the long-run are those that fare best when growth returns. Preparing for growth allows a company to rebound back faster and higher than competitors when the economy improves.
Open innovation is the means of breaking down traditional corporate boundaries to allow intellectual property, ideas, and people to flow freely into and out of an organization. “Inside-out” open innovation refers to the processes whereby a business places some of its assets or projects outsides it on walls, making assets or projects available to third parties such as suppliers, partners, and even customers. This would not only reduce the amount of time and financial investment required in those projects, but can also nurture new partner relationships, promote innovative ecosystems, and generate income via licensing.
Hence during this time of economic downturn, it’s time for companies to think differently; companies should focus on their core operations, but consider other use of their growth options and nonstrategic initiatives to other firms while retaining partial ownership. The following is a list of 5 “inside-out” open innovation moves pointed out in the reading:
1)
Become a Customer or Supplier of Your Former Internal Projects
Companies typically make a choice between to continue or to stop funding promising projects; nonetheless, there is a 3rd choice – to pursue a project as a customer or supplier. Even though there is the possibility of reduced revenue by taking a smaller role, you can also reduce costs and risks. In the end, you pay only for the services that you actually use, and the costs and risks of the project shared by customers and outside investors.
One successful example mentioned in the case is Element Six and Electrolytic Ozone. The spin-off company, Electrolytic Ozone, will ultimately become a significant purchaser of Element Six’s products, with the majority of the capital and resources coming from 3rd parties.
2)
Let Others Develop Your Nonstrategic Initiatives
For projects that lie outside the core of your strategic initiatives, spin them off to outside investors, while keeping partial ownership. When a project becomes successful, you can choose to 1) maintain or increase equity, 2) acquire the spin-off, 3) sell your position to other investors. An extra benefit of this move is to profit from the market’s “second opinion” to reveal the project’s true strategic value sooner than otherwise.
3)
Make Your IP Work Harder for You and Others
An IP that sits on the shelf will generate value. Rather than protecting your IP, the 3rd inside-out open-innovation move suggests putting that IP to work for others companies and profit from licensing. Many businesses recover 10% to 20% of their annual R&D costs this way.
Putting unused IP assets to work also generates new business possibilities in the form of discoveries and new growth options. This option also has a potential “blowback” bonus: the external success of previously unused technology can prompt managers to evaluate future projects and IP assets more carefully.
4)
Grow Your Ecosystem, Even When You Are Not Growing
Projects that don’t align closely with a company’s core business might prosper outside the company but between partners, allies, researchers, and other innovative resources in the ecosystem. By engaging with your ecosystem during a downturn, you become a preferred partner for opportunities that emerge from parties surrounding your business and its value chain.
5)
Create Open Domains to Reduce Costs and Expand Participation
The last option is to stimulate participation and accelerate progress through a much wider community in open domains. The Merck Gene Index project is the example given in the case, where Merck funded a variety of university-based human genome projects and publish all of the findings. It became part of the public domain, where everyone can use it but no one can patent specific gene sequences.
Challenges in Putting Inside-Out Moves into Practices
1) It is difficult to develop a program for doing it. There are inevitable cultural, political, and organizational changes.
2) May involve letting go some of your key employees who are working on the initiatives you decide to spin off.
“Use Open Innovation to Cope in a Downturn”
During times of economic downturn, companies are forced to make choices regarding how to allocate their resources in order to stay in business. Many of these companies focus their resources only on the projects that would generate near-term profits, and halt many potentially promising projects; however, history show s that those who continue to invest in their innovative capabilities beneficial in the long-run are those that fare best when growth returns. Preparing for growth allows a company to rebound back faster and higher than competitors when the economy improves.
Open innovation is the means of breaking down traditional corporate boundaries to allow intellectual property, ideas, and people to flow freely into and out of an organization. “Inside-out” open innovation refers to the processes whereby a business places some of its assets or projects outsides it on walls, making assets or projects available to third parties such as suppliers, partners, and even customers. This would not only reduce the amount of time and financial investment required in those projects, but can also nurture new partner relationships, promote innovative ecosystems, and generate income via licensing.
Hence during this time of economic downturn, it’s time for companies to think differently; companies should focus on their core operations, but consider other use of their growth options and nonstrategic initiatives to other firms while retaining partial ownership. The following is a list of 5 “inside-out” open innovation moves pointed out in the reading:
1)
Become a Customer or Supplier of Your Former Internal Projects Companies typically make a choice between to continue or to stop funding promising projects; nonetheless, there is a 3rd choice – to pursue a project as a customer or supplier. Even though there is the possibility of reduced revenue by taking a smaller role, you can also reduce costs and risks. In the end, you pay only for the services that you actually use, and the costs and risks of the project shared by customers and outside investors.
One successful example mentioned in the case is Element Six and Electrolytic Ozone. The spin-off company, Electrolytic Ozone, will ultimately become a significant purchaser of Element Six’s products, with the majority of the capital and resources coming from 3rd parties.
2)
Let Others Develop Your Nonstrategic Initiatives For projects that lie outside the core of your strategic initiatives, spin them off to outside investors, while keeping partial ownership. When a project becomes successful, you can choose to 1) maintain or increase equity, 2) acquire the spin-off, 3) sell your position to other investors. An extra benefit of this move is to profit from the market’s “second opinion” to reveal the project’s true strategic value sooner than otherwise.
3)
Make Your IP Work Harder for You and Others An IP that sits on the shelf will generate value. Rather than protecting your IP, the 3rd inside-out open-innovation move suggests putting that IP to work for others companies and profit from licensing. Many businesses recover 10% to 20% of their annual R&D costs this way.
Putting unused IP assets to work also generates new business possibilities in the form of discoveries and new growth options. This option also has a potential “blowback” bonus: the external success of previously unused technology can prompt managers to evaluate future projects and IP assets more carefully.
4)
Grow Your Ecosystem, Even When You Are Not Growing Projects that don’t align closely with a company’s core business might prosper outside the company but between partners, allies, researchers, and other innovative resources in the ecosystem. By engaging with your ecosystem during a downturn, you become a preferred partner for opportunities that emerge from parties surrounding your business and its value chain.
5)
Create Open Domains to Reduce Costs and Expand Participation The last option is to stimulate participation and accelerate progress through a much wider community in open domains. The Merck Gene Index project is the example given in the case, where Merck funded a variety of university-based human genome projects and publish all of the findings. It became part of the public domain, where everyone can use it but no one can patent specific gene sequences.
Challenges in Putting Inside-Out Moves into Practices 1) It is difficult to develop a program for doing it. There are inevitable cultural, political, and organizational changes.
2) May involve letting go some of your key employees who are working on the initiatives you decide to spin off.
Last edited by Ted_Chiang on Mon Oct 05, 2009 1:14 am; edited 3 times in total
Ted_Chiang- Posts : 14
Join date : 2009-10-01
Age : 42
Location : Taipei, Taiwan
Re: Case Summary - Read me if you haven't already read the case -
by TA_Max_Huang Mon Oct 05, 2009 12:04 am
Ted, you made a very good summary!
It can help us save much time.
(But I have read it 2 hours ago....sigh....)
It can help us save much time.
(But I have read it 2 hours ago....sigh....)
TA_Max_Huang- Posts : 40
Join date : 2009-09-12
Re: Case Summary - Read me if you haven't already read the case -
by Ted_Chiang Tue Oct 06, 2009 1:03 pm
heee.. thanks Max
Ted_Chiang- Posts : 14
Join date : 2009-10-01
Age : 42
Location : Taipei, Taiwan
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