How Innovation Really Works by Anne Marie Knott

Author:Anne Marie Knott
Language: eng
Format: epub
Publisher: McGraw-Hill Education
Published: 2017-04-05T04:00:00+00:00

IDEA SOURCING

One of the most prevalent forms of open innovation is idea sourcing—developing and commercializing an idea that originated outside the company. It is so prevalent that a recent innovation survey conducted by Ashish Arora, Wes Cohen, and John Walsh2 found that 49 percent of the most important product innovations from manufacturing companies originated from an outside source. These sources included suppliers, customers, rivals, commercial consultants and labs, independent inventors, and university and government labs. Thus, there is no question that idea sourcing is widespread. The important question is one of impact—which sources yield what results?

The most common source of external ideas is customers—accounting for 27 percent of the ideas behind companies’ most important innovations. This finding reinforces an important stream of research on user innovation pioneered by Eric von Hippel at MIT.3 The principle behind user innovation is that users have acutely felt needs often not met by existing products. To satisfy these needs they could generate their own innovations. However, because they typically lack the resources to produce those innovations, the more expedient solution is to convince existing suppliers to develop them. If the user comprises a large share of the manufacturer’s sales, or is representative of a class of users that comprise a large share, then it often makes sense for the manufacturer to develop that idea. A classic context for user innovation is medical devices. Companies such as Johnson & Johnson actively encourage prominent surgeons to invent devices. Not only will the inventing surgeon use the device, but knowledge that a renowned surgeon invented the device (through publications, conferences, and the manufacturer’s own marketing) fuels diffusion of the device to other surgeons.

The next most common source of external ideas is suppliers, comprising 14 percent of companies’ most important new products. A classic example of companies that rely on supplier innovation is Toyota. Suppliers have three advantages as a source of ideas. First, they have strong incentives to generate these ideas as a way to strengthen the buyer’s dependence upon them. Second, they typically have in-depth knowledge of the customer’s needs and capabilities, so can develop ideas that best match them. Finally, they have well-developed relationships with the customer that facilitate the transfer of knowledge.

One concern suppliers should have when they innovate for their buyers, however, is that the buyers provide the innovation to other suppliers. If that occurs, the innovating supplier may fail to profit from its innovation. This happened to a friend of mine, Dan Pulos, who held multiple patents for products he produced for a Fortune 50 company. That company contracted with another supplier to produce some of Dan’s inventions—a clear patent infringement. The problem pursuing that claim, however, is that the Fortune 50 company accounted for approximately 50 percent of Dan’s revenues. Dan couldn’t afford to lose the customer, so he had to tolerate the infringement.

There do, however, appear to be strategies suppliers pursue when faced with similar threats. Jenny Kuan, Dan Snow, and Susan Helper present a rich study characterizing these for the 70 percent of automotive suppliers who contribute design work.

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