Openness Pays Off: The More Open, The Higher The Level Of New And Improved Products As A Percentage Of Sales

At the heart of the innovation process is the search for new ideas and market opportunities with commercial value. With so much on the line, companies are increasingly turning to an open innovation model built on external partnerships. The use of external partnerships grows increasingly productive over time.

Strategy+Business reports that previous research showed difficulties around open innovation. For instance in agreeing on intellectual property right and inevitable experience of failure as learning curve.

But the plus side is formidable: External links have been shown to stimulate creativity, provide a useful way to search for new technologies, reduce risk, and improve the quality of the innovation.


The researchers measured innovation output by examining the proportion of the firms’ total sales that came from products introduced or improved during the previous three years. This approach measures not only the ability to bring new or improved products to the market but also whether they were a hit with consumers. The researchers found that an average of almost 22 per cent of sales were derived from either newly introduced or improved products, and over the sample period, about 63 per cent of the plants reported such launches or improvements.

Tipping point

The researchers found a tipping point with regard to a firm’s breadth of openness. The more the organisation opened up, the higher the level of new and improved products as a percentage of sales. This increase however stops after five linkages. Factors for this decline could be:

* the cost of “over-searching,
* when companies no longer have the ability to absorb large amounts of new information and
* managers lack the time and attention to process important ideas.

Learning curve

There are two possible reasons that organisations get better at learning how to openly innovate.

The first is that companies improve their ability to juggle multiple external relationships. For example, certain in-house teams might work on a regular basis with certain types of innovation partners, such as university labs, thereby lowering the cost and increasing the return from a given set of relationships. The second reason is that the management team might become more open to new ideas as it learns to process the information coming from different forms of external links.

Some of the outcomes of this research fits other outcomes, such as a survey by Harvard Business Review, which also found that the most common partners were customers and suppliers.

Social Media intelligence for the purpose of open innovation

According to the MIT Centre for Digital Business, in order to cost-effectively solve broad business problem and co-create e.g. a new product choice, a marketing campaign or a new service experience, enterprises need to start taking advantage of the “wisdom of the crowds” available through social media data, or risk missing out on huge opportunities to boost business. 

This is where organisations can open up to consumers, which is mentioned in several researches, such as the one of Harvard, that customer suggestions are the most important source of new product ideas.

The direct and/or indirect involvement of customers (and other external stakeholders) via social media are an additional and rich source of openness, of Open Business.

To not have the same decline when an organisation no longer have the ability to absorb large amounts of new information, it’s key to understand its impact on the organisation, what needs to be adapted and so forth. Research has shown that the effectiveness and scope of social media intelligence is not utilized to the fullest.

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