Summary. Reprint: R0812F Nowadays, virtually no companies innovate alone. Firms team up with a variety of partners, in a wide number of ways, to create new technologies, products, and services. But what is the best way to leverage the power of outsiders?
To help executives answer that question, Pisano, of Harvard Business School, and Verganti, of Politecnico di Milano, developed a simple framework focused on two questions: Given your strategy, how open or closed should your network of collaborators be? And who should decide which problems to tackle and which solutions to adopt?
There are four basic modes of collaboration, say the authors. An elite circle is a closed network with a hierarchical governance: One company selects the participants, defines the problem, and chooses the solution. For instance, Alessi, an Italian home-products company, invited 200 outside experts in postmodern architecture to contribute ideas for new home-product designs. An innovation mall is hierarchical but open: Anyone can post a problem or propose solutions in it, but the company posting the problem chooses the solution. An example is InnoCentive.com, an eBay-like site where companies post scientific challenges. An innovation community is open and decentralized: Anyone can propose problems, offer solutions, and decide which ideas to use—as happens in the Linux open-source software community. A consortium is a private group of participants that operate as equals and jointly select problems, decide how to conduct work, and choose solutions. IBM has set up a number of consortia with other companies to develop next-generation semiconductor technologies.
No one approach is superior; each involves strategic trade-offs. When choosing among modes, firms must weigh their advantages and challenges, and assess which will work best with their strategy, capabilities, structure, and assets.
The Idea in Brief
As potential innovation partners and ways to collaborate with them proliferate, it’s tough deciding how best to leverage outsiders’ power.
To select the right type of collaboration options for your business, Pisano and Verganti recommend understanding the four basic collaboration modes. These modes differ along two dimensions: openness (can anyone participate, or just select players?) and hierarchy (who makes key decisions—one “kingpin” participant or all players?).
- In the open, hierarchical mode, anyone can offer ideas but your company defines the problem and chooses the solution.
- In the open, flat mode, anyone can solicit and offer ideas, and no single participant has the authority to decide what is or isn’t a valid innovation.
- In the closed, hierarchical mode, your company selects certain participants and decides which ideas get developed.
- In the closed, flat mode, a select group is invited to offer ideas. But participants share information and intellectual property and make critical decisions together.
Each mode has trade-offs. For example, open networks (whether hierarchical or flat) produce many ideas, but screening them is costly. What to do? Choose modes best suited to your capabilities. For instance, if you can evaluate ideas cheaply but no single participant has all the necessary expertise to shape the innovation, use an open, flat collaboration.
The Idea in Practice
Understanding Your Collaboration Options
Examples of Collaboration Options
Choosing Your Collaboration Approach
Select the collaboration mode that best suits your capabilities and strategy. Example:
In developing the iPhone and its applications, Apple initially used closed, hierarchical networks, where it could better control components influencing users’ experiences. But once the iPhone was established, Apple defined a growth strategy hinging on adding software functionality and applications. Because it knew it couldn’t anticipate all the applications iPhone users might value, it switched to an open, flat network: It introduced a kit allowing third-party developers to create applications based on the iPhone OS platform and to provide them to users directly through the device.
In an era when great ideas can sprout from any corner of the world and IT has dramatically reduced the cost of accessing them, it’s now conventional wisdom that virtually no company should innovate on its own. The good news is that potential partners and ways to collaborate with them have both expanded enormously in number. The bad news is that greater choice has made the perennial management challenge of selecting the best options much more difficult. Should you open up and share your intellectual property with the community? Should you nurture collaborative relationships with a few carefully selected partners? Should you harness the “wisdom of crowds”? The fervor around open models of collaboration such as crowdsourcing notwithstanding, there is no best approach to leveraging the power of outsiders. Different modes of collaboration involve different strategic trade-offs. Companies that choose the wrong mode risk falling behind in the relentless race to develop new technologies, designs, products, and services.
A version of this article appeared in the December 2008 issue of Harvard Business Review.
