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Will your industry be transformed by 'open innovation'?

Will your industry be transformed by 'open innovation'?

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If you think that the idea of 'open sourcing' applies only to the software industry, think again.

Back in May, SmartPlanet contributor Joe McKendrick wrote about how some McKinsey data that examines how crowdsourcing is being used by certain companies to help inform decision-making.

Managers should also consider a related issue, open innovation, that will guide what percentage of their future business processes in the future will be considered proprietary and what is likely to become commonplace (aka much more cost-effective), according to some separate research from McKinsey.

The impetus for this intellectual exercise was sparked by some developments in the software industry: IBM and several other developers decided to place some of their patents in the public domain -- inspired in part by the ecosystem of innovation surrounding the Linux computer operating system. The move led to more third-party innovation related to those technologies which, in turn, helped IBM increase its market share for some related products.

This begs the question: could the so-called open source model have a similar effect in other industries, allowing companies to use more commonplace technologies or practices throughout their operations for certain processes -- enabling them to devote more investment or innovation resources to areas the might become market differentiators?

McKinsey suggests looking at three considerations to get to the answer:

  1. Are there specialty companies throughout your industry that offer proprietary approaches to handling certain functions?
  2. Are established companies looking to cut operational expenses by moving to common approaches?
  3. Are theses systems complex, which means certain pieces might accidentally infringe on other intellectual property?

If the answer to those questions is likely to be "yes," your company might find itself at the mercy of an open innovation approach that could threaten its ability to compete.

McKinsey offers this chart as an illustration of how different industries might fare:

Things like consumer products or medical equipment, for example, are at higher risk of intellectual property clashes (just ask Apple and Samsung, which are duking it out in court over smartphone innovation). But you'll notice that open innovation works across a broad range of industries, the McKinsey research shows.

The researchers write:

"For companies in both categories, relationships are crucial. Specialized innovators may find it desirable to work toward mutually beneficial royalty deals with suppliers and buyers that have adopted open solutions. Integrated players that want to pursue the IP-free option will need allies (which might even include established competitors) to share the cost of reshaping the ecosystem."

Either way, managers are well-served to open their minds to open innovation options.

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Heather Clancy

Section Editor

Heather Clancy has written for United Press International, ZDNet, Entrepreneur, Fortune Small Business, the International Herald Tribune and the New York Times. She holds a degree from McGill University. She is based in New Jersey. Follow her on Twitter. Disclosure