Industry 4.0 and open innovation
Industry 4.0 (I4.0) is probably the most disruptive concept for most Industries. I4.0 enabled by the Internet of Things (IoT) allows for the integration of people, applications and assets within a company. It also fosters the integration of a company with its wider ecosystem, potentially consisting of subcontractors, customers, suppliers and R&D partners.
Major trends that encourage I4.0 are shorter product and service lifecycles and therefore the need to speed up time to market. This will increase the need for innovation and will introduce both complexity and cost. It may also bring organizations to their limit in terms of innovation capacity and capabilities in-house.
Open Innovation can be an approach to master the innovation game and to stay competitive in fast-changing markets.
The term Open Innovation was coined by Henry Chesbrough, a professor at UC Berkeley`s Haas Business School. In his definition it is “the use of purposive inflows and outflows of knowledge to accelerate internal innovation and to expand the markets for external use of innovation”. This approach is based on the acknowledgement that knowledge and experience within an organization is necessarily limited and that internal regulations and processes may even represent further limitations to innovation.
Open Innovation features three core approaches:
- Outside In includes the integration of external knowledge into the innovation process. This can include a contribution by customers and/or suppliers. It will improve the quality and speed of the innovation process.
- Inside Out comprises the externalization of internal knowledge that is not a part of a company`s core business. The intention is to commercialize that knowledge, for example, by licensing to third parties.
- Finally there is a combination of the aforementioned approaches, which aims at the creation of standards and the build up of markets.
For most companies the outside in approach will be the most feasible. Therefore this blog will concentrate on this.
I4.0 is all about connectivity including the integration with a customer`s ecosystem such as, suppliers and customers. IoT and related solutions or platforms may provide the integration layer to drive joint innovation. Customers and consumers might also be integrated via “crowd sourcing”. This method makes use of a group of people that will work on a dedicated development topic via an internet platform. Netnography is a methodology to make use of online communities for innovation.
There are also various models to integrate suppliers and/or R&D partners in innovation. The most important ones are product platforming, collaborative product design and development as well as innovation networks.
- Innovation networks involve a network of contributors who are leveraged in the design process by offering a form of incentive.
- Collaborative product design and development incorporates partners into the innovation process of a company thereby retaining the control of the innovation process.
- Product platforming is often found when a partially developed product needs to be completed i.e. its functionality is to be extended.
The most important challenge that prevails with Open Innovation is that of intellectual property (IP). The integration of third parties in innovation will create potential conflicts about IP ownership and the question of who will own what part of the innovation.
There will be a tradeoff between a maximum of innovation provided by the creativeness and input of several parties and the attempt to keep as much as possible of that innovation to one self. Open and connected innovation as fostered by I4.0 will need contractual regulation. There will be framework agreement between the parties that will define the rules under which joint innovation will be executed. This will include consideration as to how an unbiased evaluation of the contribution of each party involved in the IP generated can be established. Furthermore it will contain provision on how the IP can be used by each party involved and how each party can benefit from the innovation.
Only if they can provide an incentive and/or reward for each party involved, will the motivation be there to jointly innovate and therefore enjoy the benefits stemming from multiple sources of knowledge.