MIT Sloan Management Review

Corporate Strategy, Management of Technology and Innovation

 

Toward an Innovation Sourcing Strategy

By Jane C. Linder, Sirkka Jarvenpaa and Thomas H. Davenport

July 15, 2003

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The use of external sources for help with innovation is becoming increasingly prevalent. Rather than take an ad hoc approach, companies should develop a sourcing blueprint to obtain the consistent results they need.

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Most executives would agree that continuous innovation is a competitive necessity for their organizations. At the same time, evidence is growing that innovation processes in many industries are not yielding the benefits they should.1 As a result, companies are increasingly looking beyond their boundaries for help with innovation, working with customers, research companies, business partners and universities.2

In a study we conducted, the amount of innovation coming from external sources was estimated to be, on average, 45% of the total for the companies concerned. For some retail companies that figure was as high as 90%, while for discovery-intensive pharmaceutical and chemical organizations it was 30% —still a significant number. Half the executives we interviewed asserted that the percentage of innovation from external sources would grow over the next three years; not one said it would decline. (See “About the Research.”)

The need to innovate with outsiders has led companies to tap various external sources, from user communities to competitors. That explains why Aker Kvaerner, a company that specializes in oil and gas recovery technology, is collaborating with engineering company ABB Ltd. to develop an undersea oil recovery process. Their customers, major oil companies, realized that no company could solve this problem alone, and persuaded them to work together.3

Given the availability of new types of innovation sources, executives are expanding the purposes for which they consider external sources appropriate. In research-intensive companies, the conventional wisdom was that research in the organization’s core area of expertise must stay in-house; outsiders could provide only less important support activities.4 Yet research powerhouses in the pharmaceutical industry are now turning to small biotech firms for their next-generation drug breakthroughs, and chemical companies with strong internal research traditions are lining up contract scientists in Russia and India to strengthen their staffs and stretch their R&D budgets. Businesses are using external sources for all phases of innovation, from... To read the complete article, login or sign-up using the form below.

 
 

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