In the summer of 2014, much of the tech press was amused, and even a little aghast—McDonald's had opened a digital incubator in San Francisco.
This smelled of the worst sort of Silicon Valley me-tooism. Why on earth would a huge fast food chain need to incubate anything, aside from maybe some potatoes inside a deep fryer?
McDonald's making this kind of modern move was hardly surprising, though, as they'd seen huge success in 2011 with a German campaign called "Mein Burger," a six month competitionallowing customers to invent and crowdsource new burgers online. These entries were voted on and judged, with five winners served in stores throughout Germany. Allowing customers to design their own burgers proved incredibly popular, so much so the concept to Create Your Taste has been taken offline and directly into stores.
How have we reached the point where even hamburger restaurants are embracing Open Innovation?
The Roots of Open Innovation
Henry Chesbrough is credited with labeling the concept in his 2003 book, Open Innovation: The New Imperative for Creating and Profiting from Technology. He has since written four other books on the topic, and his most widely used definition appears in the second:
"Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation."
In a nutshell, this means that you share some of your advances with outside groups and they share some of their advances with you. For any company pouring money into internal R&D, freely sharing what they worked so hard to learn and develop can be a scary idea. It's an idea, however, with numerous approaches and success stories, many pre-dating 2003.
LEGO nearly went bankrupt back in the 90s. What saved them? Mindstorms.
Their Mindstorms line was built in partnership with MIT and released in 1998. Working with MIT to build a robot kit was innovative on its own, but that wasn't what changed LEGO.
As LEGO's Stiven Kerestegian noted, within three weeks of launch more than a thousand people hacked their Mindstorms sets, added functionality to them, and shared what they'd done on the internet. LEGO could have treated this as a frustrating intrusion. They had, after all, designed these sets alongside the best technical minds in the US.
Instead they embraced it. This lead not only to the betterment of Mindstorms, but eventually to changes with their entire approach to designing and releasing sets. Many of their products are now fully crowdsourced: suggested, built, and submitted by customers to LEGO IDEAS where other customers then vote on their favorite potential sets.
This approach makes plenty of sense for LEGO. The primary draw of their product is using your imagination to build things. But how well does this work when a company's customer base isn't necessarily as creative?
Made is a UK start-up that sells furniture. They bring their own custom designs to a mass market, yet do so with a small staff and no warehouse. How?
They ask interested furniture designers to submit designs directly to their site. These designs are later displayed so that customers can vote on the ones they like. The winning designers continue to have the opportunity to submit designs for Made.
Made then partners with a variety of craftsmen and manufacturers to build and ship all of these designs to customers, bundling orders every seven days to hold down costs.
Attempting to maintain in-house design and manufacturing would by necessity lower the level of creativity they could support (and potentially limit them to designers in their own area), while also driving up costs. With Open Innovation, nearly all of their research and development happens through partners, something that can benefit larger companies equally as well.
Siemens gets directly involved with smaller entrepreneurs in every way they can. Their SVC unit invests directly in growing start-ups. Their SNB unit founds independent startups whose technology advances could potentially have uses in the next five to ten years. And their TTB unit partners with start-ups, providing knowledge and resources while benefitting from the advances of these newer, hungrier companies in the process.
They've seen so much success with Open Innovation that their own Industry Journal argues for it, noting that "Cooperation leads to success."
So now we have McDonald's taking advantage of an approach these (and many, many other) organizations have used to great success. But is Open Innovation really even that new of a concept for the company? Consider their original franchise system. The corporation provided independent franchisees a successful template from which to start, while ceding a certain amount of control to the franchisees whose own undirected innovations improved the business. As McDonald's puts it:
"[While many] of McDonald's most famous menu items — like the Big Mac, Filet-O-Fish, and the Egg McMuffing — were created by franchisees, the McDonald's operating system required franchisees to follow the core McDonald's principles of quality, service, cleanliness, and value."
McDonald's shared what they had learned and gained newer innovation in return. This bears more than a passing resemblance to Open Innovation. As new as our current idea of it may be, large companies have seen massive success with variations on it for far longer than we might expect. Maybe it's not so weird to see a burger joint embrace it. Or any other company for that matter.
What does Open Innovation mean for Corporates? Check out What is the Biggest Opportunity for Corporate Innovation? from the Corporate Innovation blog.
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