The ROI on Open Innovation: Call for Cases
What is the ROI – return on investment – for companies engaged with open innovation? I can imagine that many executives ask this question as they seek out more proof that open innovation is worth doing.
Truth told, there is much talk about the ROI, but it is very difficult finding solid documentation on the value of open innovation. I tried, but not much luck. This is a short list of cases on the topic.
I have previously written about research done by Belgian management school Vlerick in which it shows that the costs are higher than the financial benefits in the short run. However, the authors say” Indeed, in the short-term the costs are particularly visible, while the benefits take longer to manifest. A bit of patience and staying power are apparently essential.”
InnoCentive is working together with Forrester Consulting to document the value of using open innovation – and in particular their services and platforms. Case 1 shows a multinational agricultural company that achieved a ROI of 182 percent with payback in less than months. Case 2 shows that global consumer goods company SCA achieved a return on investment of 74 percent with pay in less than three months.
Boston Consulting Group publishes an annual survey on innovation. The 2009 edition does not get into ROI on open innovation in particular, but it does have some observations on return on innovation in general. One observation is that about 50% of their respondents are satisfied with their innovation ROI.
I know this is very pale so please leave a comment if you know of cases that provides solid documentation on the ROI on open innovation…
I don't think there is any question that open innovation is worth doing. I think the real questions are which activities within an OI operation are high value, and which activities drain efficiency and represent a drag on budget.
Michael, as I know I also believe in open innovation, but how do we convince the skeptics? It would be help if we have solid documentation to back our views.
It's a fair point,, Stefan. I think that there are two primary issues that can cloud this question:
1- the term "open innovation" is sprawling and can mean various things to people. So, it would help to have a clear definition of what specific facets of open innovation are being evaluated and measured for purposes of calculating an "ROI".
2- an extension of point 1, how to establish a proper baseline for measurement, as open innovation for some companies is not so revolutionary as evolutionary. That is, they may already be engaged in activities that some may define as open innovation. So, how much (if any) investment is truly incremental?
Importantly and conveniently, one of the strategies to gain adoption of OI is to obtain small, repeatable wins and then build from there. So, the ROI data that one may require in order to persuade and gain approval may be narrower and ad hoc, than needing to reference industry-wide data, which may not offer a relevant comparison to the scenario of interest to the individual company.
Like yourself, I would be interested in others' thoughts…
It's an older example, but the GoldCorp Challenge has solid numbers to back it's open strategy.
There are some examples where the OI call is clearly defined, with a clearly defined outcome. These cases are easier to understand – GoldCorp said it was 3 years ahead of where it would have been, for less cost.
However, most OI calls for R&D aren't as clear – they are more like brainstorms than solution hunts – making it more difficult to weigh the costs spent versus costs avoided.
Are there case studies on Dell's IdeaStorm or P&G connect + develop? They seem like good examples of, "we spent x amount of dollars and got this much value + this much in sales"
I wonder if we're measuring the right metrics, as well. I imagine with any OI initiative, different companies have different goals. Maybe spending a certain amount with no expected return is acceptable to some, if it yields a healthy recruiting platform, or a feature/product road map. It's difficult to calculate the value with stuff like that.
Great blog Stefan, looking forward to read more of your findings!