ECONOMICS of open innovation

What ROI at what RISK? – every investor’s top question! With respect to open innovation, the same question gets rephrased as below …

a) What is the cost of doing ‘open innovation’ vis-à-vis strictly ‘in-house innovation’?
b) Opening up for innovation is new for me, and new things carry more risk, can I predict my return-on-investment?
c) How can I have a control over people not on my payroll? Will I loose money?
d) We already have an internal R&D, will opening up be an additional cost?

So how are the various aspects of collaborative innovation fair when it comes to the all important, COST?

COST FACTOR 1: By far the most favorable advantage open innovation carries is ‘Pay for real outcome not for trial and error.’

This is a huge cost saving, and a simple logic. Assuming there is a 20% chance of an average innovation effort to succeed, in open innovation you pay only for the favorable outcome and not for the effort which does not yield desired results.

A must ask question is “Then who pays for the effort which does not yield desired results”? The rule of averages comes into play, the so called huge cost of yielding no result is distributed among many people, making it most of the times insignificant for an individual. Broad talent pool increases the chances of finding the right fit for you and at the same time increases individual’s chances of finding an opportunity where her talent can fit. As you see it’s a solid win-win situation.

COST FACTOR 2: Benefit from what is yours, in-house.

Opening up to outside of your group but within your organization can also be treated as a type of open innovation.
Leveraging what you have – by connecting the exiting talent of your organization (part time, full time or even coffee time) with the existing challenge of your organization.
Utilizing what you anyway paid for is a cost saving. Garage sales never hurt.

COST FACTOR 3: Avoid risk of not completing the first, fifth or the last mile of your idea just because you do not have a person who can travel that mile for you.

Some great innovative ideas don’t see the light of the day during the execution resulting in financial losses. Fill in the gaps by bringing just-in-time talent. Just as there is a cost of innovating, there is a cost of not innovating, more so when you abandon a worthy idea.

Cost of doing collaborative innovation, internal and/or external, is not more compared to strictly in-house innovation. Though relatively new phenomenon, open innovation provides more control and is less risky. While you won’t have control over the people, you will have a control over paying only for what you get. Open innovation does not need to be a either /or with in-house innovation, nor does it need to make an addition or reduction in your innovation budget – considering open innovation as ‘just another means’ is by far the best way to avoid any cost related roadblocks.