Open Innovators Outperform the Market by 16.9%
December 7, 2009 10 Comments
At the Open Innovation Summit last week in Orlando, there were a number of companies there discussing their various initiatives for open innovation. What is open innovation? UC Berkeley professor Henry Chesbrough, perhaps the father of the movement, formulated this definition several years ago:
Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology.
At the Summit, several companies expressed their growth related to and/or impact of open innovation:
Cisco: Cisco’s internally generated growth is at 5%. Its partner-based growth is 10%. #ois09
Clorox: Clorox target for growth from innovation is 4%. Last few years around 2.5% to 3.5% = significant portion of growth. #ois09
Royal Dutch Shell: Conser: About 40% of projects in Shell’s R&D program come from GameChanger. #ois09 [GameChanger is its open innovation program]
Rockwell Collins: Aggarwal: 75% of firms expect 40% of innovation to come from external sources by 2012. #ois09
Hewlett Packard: McKinney: 60% of ideas generated internally. Via HP Garage. Use employee crowdsourcing to filter and refine these. #ois09
Given the way these companies described their open innovation efforts, I decided to check out their stock performance. Hat tip to Jackie Hutter for suggesting this idea.
The table below compares the 5-year performance of the companies presenting at the Open Innovation Summit against the S&P 500:
It’s not a clean sweep, but most of the companies have outperformed the S&P 500 handily the past five years. While it’s not all due to initiating open innovation, it appears that you can’t rule out its influence on company performance.
Here’s how industry consultant Stefan Lindegaard describes the open innovation landscape:
I also argued that only about 10% of all companies are adept enough at open innovation to get significant benefits today. Another 30% have seen the light and are scrambling to make open innovation work and provide results that are worth the bother. I call them contenders.
The other 60% are pretenders—companies that don’t really know what open innovation is and why or how it could be relevant for them.
Looking for growth ideas? See what the firms in this open innovators stock index are doing right.
About Hutch Carpenter
I'm Not Actually a Geek 
Glad you ran these numbers! Note that Weyerhaeuser just started their Open Innovation efforts very recently and has been heavily hit by the housing market, so its data is not representative. GSK Consumer is subsumed within the much, much larger GSK pharma, so any successes here are likely not seen without looking at the breakout for consumer. The signals are definitely there and I would like to revisit these numbers periodically.
Perhaps a better way to look as these is to look within a business category. For example, in consumer products, is P&G the leader as compared to its competitors that do not look outside of their own organizations for ideas? Also, given the management effort needed to make Open Innovation a reality, an organization that succeeds in Open Innovation should signal strong, decisive and effective leadership that should represent probable success throughout the organization.
Pingback: Open Innovators Outperform the Market by 16.9% - Viewsflow
How about CHI research’s patent US6832211 which promises about 6 % extra gain for companies having much cited patents.
It is not solely open innovation or patented innovation. The actual reason for better performance of both companies (open innovation and effective patenting) is the third factor, common to both: it’s good company governance.
http://v3.espacenet.com/searchResults?locale=en_EP&NUM=US6832211&ST=number&compact=false&DB=EPODOC&submitted=true
I think it also gets back to the fundamentals of partnering in this Global Internet Economy. Victor Fung and company hit the nail on the head with the publishing of “Competing in a Flat World” and the concept of network orchestration – http://www.whartonsp.com/articles/article.aspx?p=1018217&seqNum=6
Companies that can partner successfully, which includes collaboration and innovating together, will be the companies that are profitable in the global marketplace.
Pingback: Open Innovators Outperform the Market by 16.9% « The SiliconANGLE
Pingback: Open Innovators Outperform the Market by 16.9% « /SAbackchan
Pingback: Open Innovators Outperform the Market by 16.9% | CloudAve
“Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology”
I agree with that opinion. open innovation is one of business transformation of the company in order to achieve competitive advantage
yes i firmly agree, remember the marketing strategy, choose “blue Ocean” or “Red Ocean”, blue means a new marketplace, red means old marketplace. innovation has a strong relationship to blue
Pingback: Performance Acceleration and Enterprise 2.0 | Pretzel Logic - Enterprise 2.0