Why Open Innovation Can Be Good for Manufacturers

Target Audience: Manufacturing and Development Companies, M&D Industry, Management Personnel, Strategic Decision Makers, Accounting & Consulting Firm Interest, Researchers & Developers, Innovators, R&D Departments

Imagine you have a problem with the packaging of one of your products — the closure sometimes pops open on store shelves. Your research and development (R&D) department has been trying to find a solution for weeks with no success. Your product’s sales are beginning to slip because of the defective packaging.

So what can you do? For a growing number of manufacturers, the answer is open innovation — consulting with outside entities to find answers to perplexing questions.

Two Ways to Win

Open innovation would have been unthinkable a decade ago because manufacturers were highly protective of their knowledge, but now it’s catching on for two reasons: 1) it lets companies find faster solutions to pressing problems, and 2) it provides an outlet for R&D advances that companies can’t use themselves.

Manufacturers traditionally have relied solely on their own internal R&D processes to develop the technologies and products necessary to open or expand markets. And, despite the geographical, technological and corporate limitations R&D departments often face, they have performed well.

But even the most brilliant R&D team can’t match the volume of ideas and solutions being generated daily in companies and academic institutions around the world. With open innovation, they don’t have to.

Open-innovation companies connect manufacturers that have R&D problems to outside entities that have solutions. Acting as matchmakers, they may allow manufacturers to post problems themselves, or they may forward requests for proposals to targeted companies. Either way, manufacturers benefit from solutions they probably would never have found on their own.

Profits for All

This arrangement can be beneficial for all parties. An open-innovation company charges a fee for its services, and a manufacturer that requests solutions pays the provider for them — as well as working out any potential intellectual property issues. And if the solutions result in a shorter product development cycle, the manufacturer may get a jump on its competition, with potentially profitable results.

Open-innovation supporters are quick to point out that collaborative systems aren’t the beginning of the end for the internal R&D department: Companies still need ongoing proprietary advances to remain competitive.

And open innovation represents a potential market in its own right. Every R&D department comes up with products or technologies that their company isn’t positioned to pursue. A telecommunications company, for example, may determine that the digital music technology developed by its researchers won’t have a large enough return to warrant full development.

Sometimes companies sell such innovations. Other times, they hold on to new ideas without knowing whether or how the ideas eventually will be used. The adhesive used in Post-It® notes, for example, was the result of a failed attempt to find a super strong adhesive. It sat on a shelf for four years before a frustrated executive thought of using it to coat paper as a way to keep bookmarks from falling out.

Mistakes don’t always turn into the huge success and profits that Post-It® notes created, but they can be profitable. Smaller manufacturers that may not have the resources for global product launches can sell the products to larger companies. Large companies may have unwanted products that will fill a product line niche for smaller firms. And companies of any size may have the solution to other companies’ development woes.

Develop a Winning Edge

Perhaps the most important advantage of open innovation, though, is the advantage it gives manufacturers in a global market where rewards typically go to the lowest-cost products. Manufacturers may not always be able to compete head-to-head on costs, but they can put their knowledge to profitable and effective use. In the race for market share, innovation can give them a distinct edge.

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