Our research is showing that there are very few — maybe even no — conditions under which properly equipped users engaged in open innovation cannot outdo closed.

In this long and very interesting interview with open innovation researcher and advocate Eric von Hippel, he makes the point that organization don’t really change from the inside, but only when confronted by outsiders who outcompete them with new methods.

This interview by Scott Wilson of Deloitte Research touches many of our P2P topics, including the prospects for open hardware. It’s really worth reading in full.

Excerpt:

Q: How successful and willing have firms been at taking the lessons learned from your research on user innovation and open source development?

EVH: Basically I haven’t seen an industry that changes from closed to open voluntarily. It is very difficult for firms to make that shift. Closed business models that have been in place and successful for a long time tend to become nearly unchallengeable. Things really have to fall apart before basic change is seriously explored. We are seeing this kind of disruptive situation nowadays among media companies, for example, and it has occurred elsewhere earlier.

For example, consider custom semiconductor design. In that field, the business model in the early 1980s was that manufacturers designed chips for users. Chip users were eager to design their own custom chips, but established firms in that field like TI and Fujitsu were adamant about not giving design tools and design freedom to users. Finally a start-up company, LSI, did transfer design freedom to users, and customers flocked to work with that firm. Only when the larger firms saw this to be a serious challenge — and saw a successful new business model actually demonstrated by LSI – did they switch over to the new, user-centered design model that is dominant today.

What are the typical challenges faced by firms trying to develop those kind of innovation capabilities, and how do they actually overcome them?

The chief problem is that there is a lot of investment bound up in a closed innovation model for firms that now use such models, and the investment is both individual and corporate. Much of this has to get thrown away or loses value when firms shift from closed to open innovation models. People naturally and reasonably resist destruction of value they own, especially if it is personal. For example, R&D employees often resist being asked to look outside for innovations. They may well view the outside as a competitor; as a rival: “If we ask outsiders to help with our job, our managers may think that we are dispensable. Let’s not do that!” Similarly, marketing research people who look for unmet user needs via surveys and focus groups find a lot of their tools are at risk of becoming obsolete if users become the innovators. And internal patent attorneys who are told that open IP can be more useful than patents — well, let’s not even go there. [laughs].

The challenge firms face is to make clear to their employees that they are still needed and can provide major contributions and have major job satisfaction in the new model. Firms also need to provide a clear transition path. For example, internal product developers needs to know that there is a lot they can contribute even if their firm switches to outsourcing prototype development to innovation users. And this is the case. Internal developers are essential to help create user innovation toolkits to enable and improve user innovation relevant to their firm. Also, they are needed to convert user-developed prototypes into robust commercial products via product engineering.

Lego offers a good example of a smooth transition. Lego is a long-established Danish firm. Within that firm there were maybe about 20 people who were looking at a new, open model of new product development. Top management protected them, encouraged them, and they are managing to build within an old firm a new way of doing things that is gradually making a transition for the entire Lego company. But that’s a really remarkably smooth and excellent transition. The transition to open can be done without major disruptions, but it’s not easy.

Are there any industry sectors where user innovation would be difficult to put into operation just because of the nature of the business?

It’s not really a matter of sectors. It is more about: “the greater the investment in the old, closed model that is at risk, the more difficult the transition to new, open models.” For example, if a firm has never had R&D or never had a major investment in patents and patenting, it does not face those retooling losses, and so will have an easier time switching to open.”