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Open innovation intermediaries and SMEs

Open innovation provides SMEs with unique opportunities but they need support of innovation intermediaries that coordinate the flow of innovation requests and solutions. Which kind of intermediaries are best suited to support SMEs in the open innovation process? Large scale online brokers or local intermediaries such as TTOs and innovation agencies?

by Elena Gaboardi
Partner and co-founder of iCons, Italy

November 8th, 2011

The concept of open innovation

According to the most commonly accepted definition, open innovation is the use of both internal and external knowledge to fuel innovation, and both internal and external paths to commercialize new products and business models (Chesbrough 2003). Businesses adopting open innovation use both external and internal ideas to create value: internal ideas can be taken to market through external channels and ideas can start from outside the firm and be taken inside.

Some industries have been adopting open innovation models for a long time -although definition might have been different- through networks of partnerships and alliances, aimed at cooperating along the value chain. As the concept has gained momentum in recent years, it is often studied supposing a clear-cut dichotomy between closed and open approaches, while many industries, such as automotive, pharma IT and software, are in transition. Similarly, different models of open innovation can be found in the practice of companies as regard the number and types of partners, the kind of governance of the innovation networks, the degree of integration and the kind of support they seek from innovation intermediaries.

Open innovation initiatives: pros and cons

Many different kinds of initiatives fall under the concept of open innovation, from the scouting of ideas, to hiring experts and researchers, to co-developing products with suppliers. Even more important is the kind of activities that are related to bringing products and services to the market. In an open innovation perspective this may include forming a joint venture with other companies, licensing technology, partnering with venture capitalists, disseminating innovations through spin-off companies.

Both literature and practice highlight benefits and risks associate to open innovation. Briefly, potential benefits are related to reduced time to market and risks, access to competencies, increase of flexibility. In addition, open innovation can give smaller companies the opportunity to compete in previously unattainable markets. Risks are associated to know-how protection, complexity of organisation issues, lack of control.

SMEs and open innovation

When it comes to SMEs both opportunities and risks are magnified. While benefits are clear, the risk are somehow not properly addressed. They are especially related to the amount of resources needed to protect know-how and IPRs . Many SMEs are focused on single products and technologies that are the pillars of their activity: sharing knowledge on this may appear too risky. It is therefore important that businesses focus on the strategic choice of which information must be protected and which can be taken outside. Firms need structured approach, methodologies and tools to assess their risks and benefits and to match with the right players.

The role of intermediaries

In this perspective, the role of innovation intermediaries is relevant in all the phases of the open innovation process: identify the proper business models, facilitate outward and inward technology commercialization, match innovation demand and supply, understand customers’ needs and assess external market, assist in developing results into commercially viable services, products or processes to develop business plans and approach investors and other business players. In a few words, intermediaries are needed to coordinate the flow of innovation requests and solutions among all the players, as SMEs do not have enough resources to do so.

We have a solution, now we need a problem to solve

A very interesting example of the role of open innovation intermediaries comes from the nanotechnology sector. Nanotechnologies are typically a “platform” technology , allowing a potentially broad range of applications in a very wide range of industries. This is a strong advantage that also makes research more difficult and less focused. This makes matching a very crucial element of improving commercialisation efficiency. Matching, in this particular case, may mean that given a solution, it is necessary to find the right problem to be solved. The situation now in the nanotechnology sector is that is that many interesting solutions do exist, without a respective problem that can be solved by these.

Who can help SMEs in matching solutions and problems?

There are well known examples of large scale on-line intermediary initiatives, such as Ninesigma (http://www.ninesigma.com/). Internet-based technology platforms provide a very efficient communication flow to improve matching of supply and demand. Additionally, they support SMEs in dealing with critical issues, such as IPRs or fear of abuse by competitors. A main advantage of this kind of initiatives is that they have gained trust among firms and that a relevant size is essential for a broadcast search mechanism to work. Should participation to such initiatives be promoted, that would be beneficial for seekers and solvers.

With respect to such initiatives, already existing technology transfer offices or development agencies appear less powerful. However, they are trusted third parties who can rely on proximity for putting innovation needs and solutions within the reach of every company and entrepreneurial scientist; they are in a position to provide tailored services and support also towards venture capital. We think this is still the most effective way to help SMEs find their way.