How to make open innovation work for your company

R&D-intensive firms, especially in the pharmaceutical and ICT industries, face continuous pressure to produce new innovations and patents in order to survive and compete in the market. One of the solutions has been to lower costs by collaborating openly or partnering with other companies — but according to Afnan Zafar from Finland’s University of Vaasa, collaboration in the field of product development must follow a strict set of rules if firms really want to benefit from open innovation and boost their performance.

As part of his doctoral dissertation, Zafar examined 60 innovative firms from 20 countries. He found that, if used wisely, a set of guidelines for open innovation in product development can benefit partnering firms without eroding each other’s R&D capabilities.

“Data leakage, copying of data, exposing of data and partial outsourcing can cause leakage of sensitive information,” Zafar said. “Outsourcing providers fail to understand standard operating procedures (SOPs) while cooperating. So always check the reliability and credibility of the provider whom you are sharing your data with.”

It has been observed in the past that firms generally prefer cheaper or more affordable partners for outsourcing R&D, which in many cases has backfired badly. According to Zafar, partnership contracts should be focused more on reliability, flexibility and the country environment, rather than on the price offered to accomplish a required task.

According to Zafar, “When a co-relation is built up between the two partners, there must be mutual working and transferring of knowledge and technology required between them.” Therefore, a careful evaluation of contracts for outsourcing innovation, as well as an assessment of their future possible effects on the R&D capabilities of the firms involved (based on a set of rules), is highly necessary.

Zafar also studied the factors that affect the quality of externally provided innovation, as well as their impact on overall firm performance, and identified six that directly or indirectly affect firm growth during a partnership with an external provider. He found that flexibility is an important factor that plays a vital role in the selection of a partner for outsourced innovation, especially in the pharmaceutical sector.

Speeding up the overall product development process (while maintaining quality) also has a positive effect on business performance, according to Zafar — so external providers who make big promises but are slow in their response should be avoided.

Finally, Zafar’s study reveals that government rules regarding intellectual property rights (IPRs) in a firm’s country of origin are not always a game changer in terms of enhancing the R&D capabilities of that firm. He explained, “This means the performance of the outsourced product is not directly impacted by the cultural differences between providers and the parent company, the institutional differences between the two partners, the laws of the provider’s country on IPRs and the provider’s own policies on IPRs.”

He noted that many recent innovations have originated in developing countries, which have considerable cultural and institutional differences compared to developed countries; yet Asia, Europe and North America continue to be able to collaborate in the field of innovation. Therefore, it can be said that outsourcing innovation in product development has become a borderless phenomenon.

Image credit: ©stock.adobe.com/au/REDPIXEL

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