QUESTION: The paper focuses mainly on the BENEFITS of moving innovations from the InsideOut. What do you think would be the possible downside to this move? Can we think of any examples?

The paper focuses mainly on the BENEFITS of moving innovations from the InsideOut. What do you think would be the possible downside to this move? Can we think of any examples?

Well... I think the word is quite clear, the innovation is outside of your walls. You may have a follow-up but the project management will be decentralized. I have an example with a French Tyre Company that moved an entire unit to China. It was one of the experimental unit. The company did send french engineers to supervise it so to hold a greater hold on the unit.

Depending on the business model, the choice of open innovation can have
drawbacks on knowledge capitalisation processing as well as the ability
of the company to innovate.
For instance, in an outside-in approach were a company decides to
reduce costs and source innovation from external partners, this can
result in the loss of creation capabilities and leave the company
dependent on its external partners.
An alliance approach, where companies pools resources, can be a
intermediate solution that avoids risks of loosing valuable skills, as the company still has part of the "in-house" innovation process.

Further on, the case mainly focused on the time of an economic downturn. I don't know, if it is possible to sell your unsecure investments to a company, which also suffers losses. (Especially at Move 1,2 and 4). I would agree in the case of a partial crisis.

Another downfall is that by giving the knowledge of your business process ( or teaching your "how to" on a specific product/project) to the second party, the main firms loses some stratigic competitive advantage since now, the other firm can potentially become your competitor.
For this reason, it is key that the main firm keep their core business projects/IP inhouse.

Florent: The paper did mention that company can send out personnels to overlook the projects if they choose to open up innovations either by Move 1 to 5 to prevent decentralization. When you have the key IP, you tend to have more bargaining power when you negotiate with outside investors and partners.

"Innovation outside the walls" = InsideOut Innovation; it does not quite explain the downside of this strategic move. What happened after the French engineers were sent to China?

Moving innovations outside of the company, if not managed well could have a negative impact on the employees who are moved outside the company. Layoffs may be unavoidable during an economic downturn. I think a potential problem could arise if a company was overzealous in it's attempts to move innovative people out of the company.

In other words, a company could let go of too many people if it were to put too much faith in the theory of InsideOut innovation solutions.

Despite all the benefits it has, i think that an inside out project is quite risky and difficult to manage. We mentionned the human ressources, cultural, organizational challenges but there is also the risk that the technology turn to competition.
As mentionned by Jeremie, an alliance approach could be the less risky solution as with this alternative you always keep a kind of control over the activities..

I agree with Jeremy, that moving innovation outside the company has the major risk of losing some of the company's own capabilities and control of the technology.

But even the suggested "compromise" of a strategic alliance is risky. A close collaboration with another company may expose some of the company's existing proprietary technology, to a possible future competitor. Even more so if they develop something new together - then it would be even harder to control the technology and what your collaborater will use it for in the future once he has the tools and the knowledge.

lawrence_lo wrote:The paper focuses mainly on the BENEFITS of moving innovations from the InsideOut. What do you think would be the possible downside to this move? Can we think of any examples?

moving to inside out open innovation can offers many benefits but in term of drawbacks dealing with all the organizational changes is a main issue but also by sharing your knowledges and informations with others the company can lose its competitve advantage in the market and the control of it; especially in move 3: sharing patents
but we may wonder if sharing all these knowledges on a large scale necessarily turn into innovations?

I don't really agree with Jeremie when he says that one company might lose its ability to innovate using 'open innovation'. In my understanding of this measure, the ultimate goal is to be able to allocate the major part of your limited ressources (because of the economic downturn) on strategic projects in order to maintain a strong and efficient in-company innovation on these projects while using other companies' knowledge and capital in order to keep on going the less strategic ones.

I would like to point out one risk which might compromise the inside-out innovation efficiency.
Each company has its own culture which can be illustrated by specific working conditions or specific hierachical structure. Strong company cultures can have negative effects when employees from different companies have to work together.
In my opinion, the most important risk with open-innovation for one company is to avoid other companies industrial spying on the strategical projects. The company has to inmplement strong filters in order to avoid strategic information to be taken out of the company.

There should be some security concern and communication problems as well, since the empolyees no longer work with people within the organizational boundary. Any venture could be risky and frail.

The main problem, I think, will arise, when it became obvious, if the project failed or prosper. The company, which shared or outsourced their knowledge will have to fight hard for their part/share in the well working project and will have at least as much work in refusing to accept the responsibilty for failed projects.

You're right Janick but I think the company has to consider these issues even before starting Open Innovation Process and not when the process has already been launched.

Can you think of any companies, which decided to use InsideOut policy an suffered because of it? or ones that went to bankruptcy and it occurred that for them it was a mistake? I ask this because all of this stuff is great in theoretical approach. What about examples (negative ones) from the real life?

Other problems that can be raised would be excessive complexity in supply chain. And also, like it has been said before, the risk of theft of intellectual property, the loss of control over innovation and quality control. There should also be diificulties over sharing and ensuring knowledge.

Bartek, i am far from being a professional in the inside out moves, but for sure there exists some negatives examples, for several reasons.
First, it is always possible that the decision makers will not take evrything into account, like moves made at the same time by other companies. If it is the crisis indeed, there isn't just one company who is going to do some inside out moves, and one can never know what is going to happen, and what the company ceo or managers are going to decide.

Then, when a company decide to do some inside out moves, it can be to qvoid bankruptcy. On the short run, it can have really negative effects on its financial statement or financial health, but it is the only way to cope with the crisis.

If the company decide to make some employees move, it is not often well seen by the population, especially when it is outside the country to benefit from lower costs. The image of the company can suffer from this (same sometimes if it is knowledges in some 'touchy' fields i think).

The article emphasizes critical importance for companies to maintain focus during downturn. However the decision to use open innovation comes along with the risk to loose the firm's strategic focus: it is crucial to identify the best opportunities for spin-off and eventually incorporate external innovations into the firm's general strategy.

One of the other downsides: you can have a negative environnement response because we are in a incredibly uncertain environment. Moreover, the market cannot have the capacity to be strategically flexible so you can fail even the market seem to be the right one.

Florent's last comment is definitely true in many cases. There have been attempts at mergers and sales with foreign companies that on the face of things are to decrease costs for development of IP, and to build international ties, and many other benefits that could come from these mergers/projects. However, for certain technologies or services, governments tend to get in the way, and create a bad image for the company. One famous example that many know of is the attempted purchase by a company in Dubai, Dubai Ports World which give them control over several of the US shipping ports. Another recent example was the denial of sale of 3Com to Huawei, a chinese company with ties to the chinese military, and 3Com currently provides anti-hacking software/hardware to the US military. So definitely, the technology being involved is a critical factor, and outside factors other than economy, costs, and core technology need to be considered before making such inside-out moves.

It has been an interesting discussion here with very different opinions.


With regards to weather a company is able to support its own innovations when they
apply Open Innovation my personal view is more positive. I believe they can,
remember that it is not “everything” that is supposed to be taking outside.
Innovations linked directly to the core competences of the firm should remain in-house,
while non-core activities should be placed outside. I think it makes very good
sense, remember most companies are working with limited resources and your non-core
activities could be utilized better at another company, also for your own benefit.


With regards to the number of negative examples, I do think there are plenty. A lot
of companies have gotten into fights with other companies over patent infringements
between allied partners. When the situation is win-win things usually go smoothly,
but when the cake has to be shared the fight can get ugly, as seen with many
pharmaceutical companies.


/Anders

We should remember that downturns are temporary deviations from the norm, and things will (hopefully) always return to normal. Therefore a company may choose to make some of the 'moves' during difficult economic times, only to find that they have shared some useful, albeit non-core, activities or knowledge sets in the public sphere.
Once the economic situation stabilizes, if the knowledge they have shared no longer provides the intended benefits the decision to use open innovation may not prove so beneficial in the long run.

If anybody can think of an example of scenario (real-world or otherwise) where this could happen, that would be great!

All along this debate, we have been considering innovation as a way to create competitive advantage on a market for a determined period. Let's now consider innovation as a part of brand's DNA (intangible value) and consider one of the potential drawbacks of InsideOut strategies.

Brands, such as Apple, (outside of the e-commerce scope, we could talk about brands such as Mercedes, TAG Heuer) have always been using their heritage to create perceived value for the customer.

How to capitalize on brand heritage when innovation went open? To my opinion, firms have to assess how inside innovation has been contributing to their brand image and manage to keep this value driver inside the company when it is necessary.

Innovation is thus part of companies heritage and can enable today's efficient storytelling strategies. In a downturn, It s very interesting to see how many companies many used brand heritage (innovation-related) to legitimate their presence on a determined market without having to invest in creative and expensive communication strategy.

I agree with Florent's comment on the risk of bankruptcy. That is why, I think the paper suggests one should manage these stranded assets at the corporate rather than the business-unit level. In a incredibly uncertain environment, it is the top management to decide strategically to what extent the risk they would like to bear. The middle management could only see half of the story.

I am not sure with effects of brand heritage, surely it is a plus for a company to search for strategic partners, but I don't think a spin-off still keep her mother company's brand image. That is how open innovation move could be more creative and flexible.

If the company decides to build up a new company to spin off their IP, one must also have in remind the costs of it.
If the project fails, you spent a lot of money and probably you lost the whole project and the knowledge about it.
Further, another risk is, that the if the project is a success the threat of acquisition of the spin-off from another company (a competitor) becomes bigger.