MKTG587 Module 2 Opportunity Identification and Selection Assignment Pick any product/service category and identify few emerging trends impacting that part

MKTG587 Module 2 Opportunity Identification and Selection Assignment Pick any product/service category and identify few emerging trends impacting that particular category. How could these emerging trends translate into new opportunities? Out of these opportunities, which one do you think will be successful and why? For the exclusive use of D. DIXON, 2019.
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Plenty of companies have
tried—and failed—to
increase innovation. Here’s
how to apply the lessons of free
trade to the market for new
ideas.
Open-Market
Innovation
by Darrell Rigby and Chris Zook
Included with this full-text Harvard Business Review article:
1 Article Summary
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work
2 Open-Market Innovation
11 Further Reading
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications
Reprint R0210F
This document is authorized for use only by DAINE DIXON in New Product Development Summer 2019 taught by ARCHANA KUMAR, Montclair State University from Apr 2019 to Jul 2019.
For the exclusive use of D. DIXON, 2019.
Open-Market Innovation
The Idea in Brief
The Idea in Practice
Challenged by the anthrax crisis of 2001,
Pitney Bowes swiftly developed imaging
technologies for detecting suspicious mail.
How? It used open-market innovation. By
going outside its boundaries—to fields as
diverse as food handling and military security—it gathered 82 ideas, then distilled the
best solution.
REWARDS AND RISKS
Some of the fastest growing and most profitable businesses are using open-market innovation to improve the pace, cost, and
quality of innovation. Through strategic alliances, joint ventures, and licensing, companies as diverse as IBM, Boeing, and Eli Lilly
are opening their innovation borders to
vendors, customers—even competitors.
COPYRIGHT © 2002 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
Open-market innovation carries benefits
and risks. The key to using it? Determine
when it’s right for your company, then institutionalize it.
Open-market innovation offers four
advantages:
• Independent entrepreneurs can produce
equally good (or better) innovations than
your corporate R&D lab.
• Importing new ideas multiplies innovation building blocks—ideas and expertise.
Companies that collaborate with outsiders
on R&D generate more of their total sales
from new products than companies that
don’t.
• Industry turbulence forces you to innovate
without knowing which direction to take.
Cisco Systems explored multiple product
strategies with outside partners to navigate
the volatile market for optical switching
equipment.
• Exporting ideas raises cash and improves
employee retention. IBM earns nearly
$2 billion a year in royalties from exported
patents. This signals the need to act fast on
new ideas—or watch them depart. Creative
people stay, knowing their good ideas
won’t get buried.
• Disparate sources must coalesce to bring a
promising idea to market. Cargill Dow—a
$500 million joint venture between Cargill
and Dow Chemical—discovered how to
make plastic from renewable crops. Cargill
provided the technical know-how; Dow,
customer requirements.
• Exporting ideas reveals an innovation’s
true worth. Eli Lilly offers licenses for pharmaceutical compounds under development when their value is still unclear. If outside labs aren’t intrigued enough to bid,
Lilly resets it sights.
INSTITUTIONALIZING OPEN-MARKET
INNOVATION
• Exporting and importing ideas clarifies
your core business. To increase return on
R&D dollars, Boeing focused on innovations
it could develop better than anyone else.
Through outside collaboration efforts, it
learned its competitive advantage lay in
systems integration, not manufacturing. It
now designs and integrates many systems
going into its planes; e.g., flight controls
and landing gear.
Open-market innovation works best within a
coherent strategic goal and formalized decision-making system.
Example:
Cargill established a three-tiered approach
to making decisions about outside collaborations. Special teams at each of Cargill’s 13
business platforms handle huge deals. Individual business units manage smaller ventures. A corporate transaction desk is the
nerve center and traffic cop, reviewing
deals and overseeing decisions. Results?
Speedy decision making, and many productive collaborations.
Open-market innovation also carries risks:
Xerox virtually gave away a stream of innovations—from the computer mouse to the laser
printer—then watched while rivals capitalized
on them. When selling or renting innovations,
structure deals to share adequately in the financial upside of your innovations.
Also, know when open-market innovation is
right for your company. Look outside for new
ideas when:
page 1
This document is authorized for use only by DAINE DIXON in New Product Development Summer 2019 taught by ARCHANA KUMAR, Montclair State University from Apr 2019 to Jul 2019.
For the exclusive use of D. DIXON, 2019.
Plenty of companies have tried—and failed—to increase innovation.
Here’s how to apply the lessons of free trade to the market for new ideas.
Open-Market
Innovation
by Darrell Rigby and Chris Zook
COPYRIGHT © 2002 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
When Pitney Bowes learned a year ago that
envelopes tainted with anthrax had spread
infection and death through the U.S. postal
system, executives at the company realized
that both their customers and their core business were under attack. Overnight, the
world’s largest provider of mailing systems
was ?ooded with desperate requests from
corporations and postal services seeking a solution—any solution—that could protect
people from the deadly spores. Pitney
Bowes’s core competence was in the area of
secure metering systems that protected
postal revenue; the $4.1 billion market leader
had nothing in its pipeline to shield clients
against a biological threat as unexpected as
anthrax.
The company decided that the only way it
could respond fast and effectively to the market’s sudden shift was to look outside for ideas.
Within a few weeks, a special team of Pitney
Bowes engineers gathered 82 promising concepts from ?elds as diverse as food handling
and military security. These were quickly whit-
harvard business review • october 2002
tled down to a dozen ideas worth developing,
ranging from low-tech solutions—such as a
downdraft table that sucks up the air around
letters and packages as they are opened—to expensive, high-end systems. With help from the
outside inventors, Pitney Bowes was able to introduce new products and services to secure
the mail against bioterrorism. These include
specialized scanners and an imaging system
that can alert a mail center, intended recipients, or security personnel to suspicious letters
and packages.
The crisis at Pitney Bowes offers a timelapse example of a problem more and more
businesses are confronting: “How can we reach
outside our own four walls for the ideas we
need?” A growing number of companies are
exploring the idea of open-market innovation—an approach that uses tools such as licensing, joint ventures, and strategic alliances
to bring the bene?ts of free trade to the ?ow of
new ideas. By systematically opening their innovation borders to vendors, customers, and
even competitors, businesses are increasing the
page 2
This document is authorized for use only by DAINE DIXON in New Product Development Summer 2019 taught by ARCHANA KUMAR, Montclair State University from Apr 2019 to Jul 2019.
For the exclusive use of D. DIXON, 2019.
Open-Market Innovation
Darrell Rigby is the founder and director of Bain & Company’s multiyear survey on management tools and trends,
practicing out of the Boston office. This
is his fourth HBR article. Chris Zook directs Bain’s global strategy practice out
of Boston and coauthored, with James
Allen, Profit from the Core: Growth
Strategy in an Era of Turbulence
(Harvard Business School Publishing,
2001).
import and export of novel ideas. As they do
so, they are improving the speed, cost, and
quality of innovation. What’s more, openmarket innovation lets companies set realistic
market values for their internal ideas, helping
them to better de?ne their core business.
The results of a recent Bain & Company survey of more than 200 global senior executives
suggest there is pent-up desire to pursue openmarket innovation. Even in the throes of a global recession, when executives’ thoughts often
turn to restructurings and cost reductions, 80%
of the respondents rated “becoming more innovative” among their top three priorities for
achieving company success. Nearly two-thirds
of the executives admitted their businesses were
not close to realizing their full potential in tapping outside ideas; they deemed such action a
“big opportunity.” Perhaps most surprising, 91%
of executives across all industries surveyed
called increasing their company’s capacity for
innovation “critical to creating future competitive advantage and earning pro?ts.”
Despite this wellspring of enthusiasm for
reaching outside the company for great new
ideas, the poll also revealed another side of the
quest to innovate: Two out of ?ve executives
surveyed admitted that their companies suffered from not-invented-here syndrome. Only
about one-third of the respondents were satis?ed with the quality of their innovations or the
frequency with which they came up with new
products and services for key customers or
changes to their business model. And 57% of
the executives polled found their companies
too internally focused.
The survey results indicate that conventional methods to spark corporate innovation
are falling short and that global executives
know the best ideas are not always coming out
of their own R&D labs. Our case studies show
that some of the fastest growing and most
pro?table industries are ?nding open-market
innovation to be a critical new source of competitive advantage.
Why Innovate with Outsiders?
Open-market innovation is fostered by several
complementary business and technology
trends (see the sidebar “The Coming Boom”)
and offers companies four distinct advantages.
Importing new ideas is a good way to
multiply the building blocks of innovation.
If those responsible for innovation have more
harvard business review • october 2002
ideas to choose from and different kinds of expertise available to them, then the cost, quality, and speed of innovation improve. It should
come as no surprise that companies that collaborate with outsiders on their R&D reap a
higher percentage of their total sales from new
products than companies that don’t collaborate, according to global think tank the STEP
Group.
The experience of Tetra Pak, one of the
world’s largest suppliers of packaging systems
for milk, fruit juices, and other food products,
illustrates the wisdom of importing expertise.
Several years ago, Tetra Pak was attempting to
develop a radical food-packaging innovation
that would compete with metal cans as well as
glass and plastic containers. Engineers worked
for some time on their own and then, recognizing the limitations of their expertise, decided
to work with outside partners. The breakthrough product that resulted from this collaboration, Tetra Recart, makes it possible for
Tetra Pak customers to sterilize paperboard
containers ?lled with pet foods, soups, sauces,
fruits, and vegetables. The packages are lightweight, and their rectangular shape—easy to
hold and pour—increases the number of packages that can be displayed on a shelf by as
much as 50%.
Tetra Pak was already familiar with some of
its partners in this venture: Paper and polymers suppliers helped the company fashion
the paperboard package capable of withstanding high temperatures, humidity, and the rigors of commercial sterilization. Other partners
were less familiar: Tetra Pak found a company
with expertise in sterilizing hospital equipment to help it ?gure out how to sterilize the
food inside the packages. The company depended on internal experts to develop new
lamination techniques and “form, ?ll, and seal”
processes; those were Tetra Pak’s traditional
areas of expertise. Exposure to outsiders’ ideas
helped executives realize how much faster
they could move by outsourcing crucial elements of the new product. The process shaved
years off the development time.
Exporting ideas is a good way to raise
cash and keep talent. In 1980, the market for
patent licensing was about $3 billion. Today, it
is about $110 billion and growing rapidly. IBM
earns nearly $2 billion a year in royalties from
the patents it exports. But the money may be
less important than what the patent exports
page 3
This document is authorized for use only by DAINE DIXON in New Product Development Summer 2019 taught by ARCHANA KUMAR, Montclair State University from Apr 2019 to Jul 2019.
For the exclusive use of D. DIXON, 2019.
Open-Market Innovation
signal to the organization: Act fast on promising ideas, or risk seeing them offered to outsiders, even competitors. (For more on IBM’s experiences with open-market innovation, see
John D. Wolpert’s “Breaking Out of the Innovation Box,” HBR August 2002.) Exporting
ideas adds urgency to the innovative enterprise and improves motivation and loyalty
among employees. Creative people are more
likely to stay on board when they know their
good ideas won’t get buried but instead may
?nd a home in the outside world.
BellSouth’s faith in the power of exporting
innovation runs so deep that it sells its technologies to competitors. The telecommunications
company set up BellSouth Intellectual Property Marketing (BIPMARK) in 1998 to both
manage and market the results of its innovation programs. The company has generated
substantial revenues through dozens of deals.
For instance, in January 2002, BIPMARK
tested the interest of a large competitor in licensing its state-of-the-art billing system. A
combination of computer network architecture and software, the system gives the tele-
com company a consolidated view of a customer’s calls and summarizes the person’s total
phone use rather than listing a series of unrelated service accounts. While critical to BellSouth’s business, the billing system was not a
major source of unique competitive advantage.
BIPMARK calculated that competitors would
invest to create similar systems of their own in
a matter of months if they couldn’t buy them
from BellSouth. So management decided to license the system to maximize returns while
creating industry standards that favor BellSouth’s technology platform.
Exporting ideas gives companies a way to
measure an innovation’s real value and to ascertain whether further investment is warranted. As the ?ow of exports grows, managers
can look at their innovation initiatives through
market-hardened eyes that often reveal where
the business is headed and where the company
holds advantages over its rivals. Pharmaceutical
company Eli Lilly routinely offers licenses for
some compounds under development, when
the therapeutic and business value of the drugs
is still unclear and the competition for the re-
The Coming Boom
We’ve heard for years about the dangers of the not-invented-here syndrome, so in one sense, the idea of open-market innovation is not new. But
because of ?ve powerful, complementary trends, it’s being practiced more often.
Availability of Venture Capital. Even in the
current downturn, venture capital is far easier
to come by than it was 30, or even ten, years
ago. There’s a strong correlation between venture capital funding and successful innovation: A recent study from the National Bureau
of Economic Research found that small companies supported by venture capital produced
six times as many patents per dollar of R&D
spent as traditional companies did.
Interdependencies of Products. A lot of
innovation today is cumulative. Indeed, just
consider that the number of strategic alliances between biotech ?rms and large drug
companies has increased by 80% in the past
?ve years. Product complexity, specialization,
and shorter product life cycles make it increasingly unlikely that one company can release world-class products by itself.
harvard business review • october 2002
Innovation Exchanges. It used to take 12
months to 36 months to ?nd a buyer for a
promising innovation, and technology transfers generally happened only within an industry. Now innovation exchanges are sprouting
up all over the Internet. TechEx, for example,
grew out of Yale University to become an active
site for buyers and sellers of biomedical technology. The site, www.techex.com, has more
than 700 companies registered as users. Innovation exchanges are still unproven, but they
have the potential to be huge.
Innovation Agents. Along with electronic
exchanges comes a new form of venture ?rm
designed to capitalize on the inef?ciency of the
markets for ideas by seeking out, developing,
and channeling innovations to the most suitable owners. One such company is the Big Idea
Group, founded in July 2000. BIG links independent inventors with idea-driven companies
in industries where a fresh ?ow of new ideas is
critical—for example, in the toy industry.
Accessible Innovation Databases. In December 2000, the U.S. Patent and Trademark
Of?ce made information on 6.5 million patents available through a searchable on-line
database. International patents have also become more completely available on-line. New
search engines are emerging to allow powerful analysis of information on not only the
patents but also the inventors and the nature
of the innovations themselves.
These trends in technology, business practices, and funding will provide a rocket boost
to the phenomenon of open-market innovation. Companies that lower their innovation
barriers will be able to test the quality of their
own thinking. They will be able to quickly determine where to innovate for themselves and
where to outsource innovation to others. And
they will build advantage for years to come
over their internally focused competitors.
page 4
This document is authorized for use only by DAINE DIXON in New Product Development Summer 2019 taught by ARCHANA KUMAR, Montclair State University from Apr 2019 to Jul 2019.
For the exclusive use of D. DIXON, 2019.
Open-Market Innovation
sources to develop new products is keen. If outside labs aren’t intrigued enough to bid, Lilly resets its sights. “We believe more and more that
the free market tells you what a product or
technology is really worth,” says Dave Thompson, vice president of corporate strategy at Lilly.
“We’ve gone through great angst over whether
to [license out] a project that we thought was
really good. Then we take it to the free market
and ?nd out nobody wants it. That’s actually
positive.”
Exporting and importing ideas helps companies clarify what they do best. Companies
often delude themselves into thinking that
their core business is broader than it really is. A
sustainable core must have economic advantages that will let the business produce something at a lower cost, or with higher quality,
than other companies in the open market can.
When a company starts collecting actual market data about its capabilities relative to competitors, executives often discover that they are
stronger in some areas and weaker in others
than corporate lore had led them to believe.
When Boeing CEO Phil Condit took over in
1996, he urged his managers to increase the return on every R&D dollar by focusing more intently on innovations they could develop better than anyone else. As Boeing executives
began testing what they could pro?tably buy,
sell, and trade with others, they found that
their true comparative advantage was not in
manufacturing but in systems integration. The
company’s innovations in manufacturing
yielded low returns because large parts suppliers were more ef?cient at them than Boeing
was. But no one understood the design and integration complexities of Boeing’s airplane
components better than Boeing did. So unlike…
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