Open innovation involves collaboration between companies with specialist skills instead of relying on internal development, says Campbell Macfarlane

Internal research and development was once universally viewed as a strategic asset for enterprises and a barrier to entry into most industries. Only large and financially strong enterprises with significant staff resources and long-term research programmes could compete.

Today’s innovations are increasingly brought to market by collaborative networks of enterprises and individuals, selected for the advantages they offer. In this new model, manufacturing companies decompose the innovation value chain and source elements to partners that possess specialised skills, lower cost structures, privileged access to key markets and other expertise that differentiates a manufacturer from competitors.

The aim of this emerging business model, often called ‘open innovation’, is to establish mutually beneficial relationships through which products and services can be developed and brought to market. Enterprises are increasingly seeking to accelerate and improve innovation through partnerships and collaboration.

A number of forces have conspired to cause its evolution. Product complexity continues to increase at an ever-accelerating rate, both in the number of technologies incorporated into the manufactured item, and their suppliers.

The average modern family automobile comprises 15,000 to 20,000 components sourced from globally distributed suppliers, simply because it is no longer possible for a single auto manufacturer to master all the prerequisite skills and co-locate them within a single facility.

A supply of skilled, low-cost labour has emerged in developing countries, creating incentives to substitute these resources for existing higher-cost equivalents. Different geographical regions have developed unique skills and capabilities, which most manufacturers have already begun exploiting. Advances in design tools and technologies, and the rise of more easily integrated collaborative software architectures, have driven down the cost and difficulty associated with coordinating distributed work.

So collaborative design and manufacturing are no longer leading-edge theories or visions, but have become commonplace in the manufacturing sector. Thus, as consumers, we have high-quality, reliable and affordable automobiles with design, assembly and component parts sourced from hundreds of globally-spread suppliers.

A BT survey of 24 well-known manufacturers of industrial and consumer goods found that leading enterprises made investments to enhance their collaborative performance over time.

The same companies developed technology ‘platforms’ to improve the coordination of work. These platforms comprised collaboration tools and technologies to improve the effectiveness of distributed work, technical standards and interfaces to ensure the seamless and secure integration of partner inputs and outputs along with rules to govern the sharing of intellectual property among partners.

The platforms also comprised knowledge management systems to capture the enterprise’s experience on how distributed work is best performed. This collaboration ‘infrastructure’ is then leveraged across multiple projects over time, with the goal of promoting a long-term view of continuous improvement in effective collaboration.

The survey revealed that such infrastructures offer the senior executives of leading manufacturers a means of revitalising their innovation strategies.

Our belief is that there are very few manufacturers that could not avail of similar opportunities provided they are prepared to reap the potential offered by globalisation.

Knowledge inputs required for innovation in most sectors are increasingly geographically dispersed so manufacturers must be prepared to look further afield (in terms of geography, type of partner and technology) for collaborators and to improve their internal knowledge mobility by proactively encouraging internal knowledge sensing and knowledge re-use.

By adopting a broader, more holistic view of innovation, enterprises can begin to reap higher rewards, improve prioritised capabilities and drive higher value-chain performance.

Campbell Macfarlane is manufacturing practice director, BT Global Services.