Direct Innovation vs Open Innovation

Open innovation is a common buzzword in product design and development circles. It is based on the philosophy that information is very accessible and much knowledge already exists. Therefore, companies should take advantage of what is available and not rely solely on internal engineering.

Using open innovation, companies search the marketplace for relevant technologies, ideas, and products to shorten the product development cycle and determine if they can be applied to product development processes. This search effort should be the first step in new product development because it will reveal existing products and the competitive technology environment. However, for truly breakthrough, market-leading food products, an alternative mindset should also be employed.

Direct innovation, which is the focusing of ideation and brainstorming to develop a proprietary product that meets a distinct market need, could be the difference between "just another product" and market leadership. The process involves innovating in a defined space with a unique product in mind. Unlike open innovation, direct innovation starts with identifying a specific market need and channeling a dedicated R&D effort to create a breakthrough product to meet this need. The end result is a differentiated product that enhances a firm’s market position and distinguishes it from the competition.

For clarification on open vs direct innovation, consider the following example. A food manufacturer has a market-leading cheese product. The company continually employs open innovation and researches existing technologies, automated machinery, and packaging components and materials. Engineers identify a new zipper technology that better maintains freshness and a new film for increased flexibility in manufacturing. The company negotiates intellectual property (IP) rights to employ the technologies to package its cheese product and releases an improved product.

The direct innovation method is quite different. The same food manufacturer recognizes a growing population of left-handed consumers with on-the-go lifestyles requiring single-serve portions of cheese. The company sets out to design an innovative package that is resealable and opens on the left side as well as new manufacturing equipment to produce cheese for on-the-go consumption. Engineering efforts are directed at creating an original technology that allows the company to manufacture a unique product according to these market requirements. The end result is a new package and product that satisfy the consumer need and boost the firm’s market position.

Another difference between the two philosophies revolves around the creation and protection of IP. Direct innovation creates a unique product, and firms must take steps to protect any IP created.

With open innovation, securing IP rights is not as easy since the final product can be the result of a smorgasbord of technologies from a number of different firms. Licensing negotiations with a university or an inventor can be lengthy and frustrating. The manufacturer may need to navigate licensing agreements and accept that other products on the market may be using similar technology.

Direct innovation is best for companies that have identified an unmet market need and are striving to create the next breakthrough success—an advanced product that is truly unique. This is because direct innovation helps companies answer a specific market need, which is the first step in creating a sustainable market-leading position. Because direct innovation usually does not require IP negotiation or licensing, it is oftentimes faster and more easily kept secret, and it creates a better opportunity for the developed technology to be one-of-a-kind, reducing the likelihood of it being copied or reverse-engineered.

This is not to say that open innovation is irrelevant. In fact, it is an absolutely necessary and useful tool that allows companies to leverage existing knowledge and innovations, which can save a company expense and time. Although the payoffs of a breakthrough product through direct innovation often far exceed the investment, not all projects require that level of uniqueness. For a company late in the game with a product in a saturated market seeking to complete its product portfolio, open innovation is the smart choice. In cases like this where there is not a defined market need for a different product, the company can "fit" a serendipitous "find" into its product portfolio.

The bottom line is simple: Companies do not have to choose between a direct or open innovation approach to product design and development. A balance of the two methods is ideal, and which is best to use depends on the goal at hand.

by Edward Goldman, a Professional Member of IFT, is Senior Vice President, Foster-Miller Inc., 358 C Second Ave., Waltham, MA 02451 ([email protected]).