Managing Open Innovation

OVERVIEW:Industrial innovation is becoming more open, requiring changes in how firms manage innovation. External sources of knowledge become more prominent, while external channels to market also offer greater promise. This complicates the evaluation of early-stage technology projects, which often involve significant technical and market uncertainty. In such circumstances, companies need to “play poker” as well as chess. Measurement errors (false positives, false negatives) are likely to arise from judgments about the commercial potential of early-stage projects. Most companies' policies consciously limit “false positives” in assessing a project's commercial potential, but few companies take steps to manage the risk of “false negatives.” New metrics may help a firm focus more upon external sources of innovation to enhance its business model, and enable the firm to salvage value from false negatives that otherwise would be lost.