Open innovation: wherever innovation may be
How can a corporation take advantage of innovative ideas that appear outside its domains? Through the open innovation, large and small companies share knowledge and develop joint technologic solutions to accelerate their own evolution.
There are less than 50 companies in the world capable of carrying out precise inspection of oil and gas pipelines to prevent leaks and corrosion. In the Southern Hemisphere, only one such company has the necessary expertise for the task: the Brazilian PipeWay Engenharia, based in Rio de Janeiro. The operation of equipment such as the Pig Corrosion, which detects structural faults in submarine pipelines operating under extreme pressures and temperatures, has enabled the company to provide its services to other firms that operate on a global scale. This only proved possible due to the collaboration between PipeWay and Petrobras, which, in 1998, began to transfer the technology to the company. At that time, PipeWay was a pilot project overseen by PUC-Rio (Pontifical Catholic University of Rio de Janeiro). The partnership, coordinated by the Petrobras Research Center – Cenpes – provided PipeWay with the technology and tools necessary to develop the Pig Corrosion. In turn, it not only provided the service, but also perfected new solutions based on those initial projects.
The experience uniting PipeWay and Petrobras is an exemplary case of open innovation. By opening its doors to outside collaborators (universities, suppliers,independent research institutions and even its competitors), sharing information and exchanging experiences, Petrobras is one of an ever-increasing group of companies that are developing technological solutions based on the open innovation concept, created by the American economist Henry Chesbrough in 2003. “To innovate means more than simply investing in scientific research. It also involves thinking about new business models, maintaining cooperation with customers and consumers and attracting the participation of external sources of knowledge”, states Chesbrough (see interview). Based upon his observations of companies’ practices, both large and small, since the 1960s, he defined the fundaments of the concept, that offers alternatives for the companies to meet the eternal challenge: how to innovate fast and effectively?
“Companies have realized a long time ago that they can’t create everything they need on their own”, says Bruno Rondani, the executive director of Open Innovation Center – Brazil. One of the solutions is open innovation, a model whereby companies can (and should) use outside ideas in conjunction with their own, as a way to furthering their current technological knowledge. To achieve this, their research departments must be open to develop projects in partnership with outside sources, to debate problems and to share inventions and products which previously had been guarded under lock and key. “On their own, companies are not able to face all the present-day challenges. Open innovation creates value and expands the platform of collaboration between companies, even between competitors, which is healthy for the development of any branch of industry,” states Rondani.
The majority of technological advances during the 19th and 20th centuries were born of a model known today as “closed innovation” (a term also created by Chesbrough). Big companies invested large sums in research centers which were responsible for the complete in-house development cycle of their products. “The closed management of innovation was widespread at the beginning of the 20th century due to the lack of involvement by universities and government institutions in research that had a commercial or industrial application”, says Albert Meige, a French researcher of the École Polytechnique in Paris, director of Presans (which provides technological consultancy services) and the author of various papers on innovation. “It was a cycle in which companies invested internally in new products and processes and managed to recoup a large part of their investment in the creation of new technologies. But in order to do so, they had to keep their researchers for several years and the intellectual property needed to be protected.”
This model drove the technological advance in the majority of companies in the western world during the last century and is still the norm today, if we think in terms of practical applications and products reaching the end consumer. One example is Apple, which maintains strict control of its trademark,operational systems and hardware solutions. However, changes in the markets and in the economy made it necessary to seek out alternative models. Even the big companies found it difficult, year after year, to hold on to their research personnel, who took with them their specific knowledge when they left. The proliferation of venture capitalists (investors that finance fledgling companies based on high-risk funds capital, allocated to speculative activity) permitted small entrepreneurs to create innovative technological projects. The corporations also noted that various products derived from internal research, which could previously linger for years with no practical application, could be licensed or transferred for other purposes. And suppliers began to demonstrate a much greater capacity to engage in dialogue with the customers they used to serve, sometimes even refining technologies created by these customers. These attitudes have been growing since the start of the 1960s. By comparing the way in which some of the main technology companies in the USA have dealt with these changes, Chesbrough was able to identify the precepts of open innovation.
Currently, companies need to discover which of the paths to innovation – more open or more restricted – are more suitable to their case. “There is still an intense debate on which is the ideal model. The fundamental requirement is to innovate, regardless of how”, stresses Everton Bonifacio, internal corporate training coordinator at the Brazilian Capital Market Institute (Ibmec). “The business model of each corporation should be well thought out to identify exactly what can be done inhouse and which complementary resources should be sourced externally. This way, the risks of loss of potential profits or exclusive user rights on determined technologies are minimized”, he concludes. Roberto Murilo Carvalho de Souza, Technological Strategy manager of the Petrobras Research Center, explains the situation in practice: “The decision also depends on the stage at which we find ourselves in relation to the desired technology objective. If we are well advanced, it can be worth our while to develop everything in-house. If it is a field which we are not fully familiar with, we may look for outside partners”.
Carlos Tadeu da Costa Fraga, executive manager of Cenpes, says that Petrobras has practiced open innovation since the beginning of its technological development activities and training of R&D personnel, in the 1960s. “In the beginning of the Petrobras’ research activities, one of the principal vectors was the rapid assimilation of refining technologies. We acquired the first projects, learnt from techniques developed in other countries, perfected it over the years and today we own various technologies developed by Petrobras itself,” he says. The consolidation of the capacity for innovation in the company came a bit later, at the time of the discovery of the vast offshore reserves in the Campos Basin. According to the executive, the technology to extract oil from these ultra-deep fields did not exist, so it was necessary to develop it in conjunction with international suppliers. It helped to spread the culture of technological cooperation within the Company.
In Carlos Tadeu’s opinion, at the present moment there is an intensification of this culture of cooperation with the external environment. Petrobras’ technological strategy involves partnerships with universities, suppliers and other companies in various fields of knowledge, and also includes the interaction with other business segments in the search for innovative solutions. “For example, various technologies used in medicine are also used by the oil industry, for the imaging and diagnosis of rocks”, he says. “It’s important to access good ideas, wherever they come from. But in order to assess whether an idea is good for our business or not, we have to have the internal competence. We have to take pride in capture good ideas from the outside as much as we do in developing our solutions in-house,” he argues. Roberto Murilo seconds Chesbrough’s thoughts when he states: “This is not just about technological development. Open innovation on its own isn’t enough, it’s necessary to keep an open mind. We have to switch on the radar and broaden our thinking to consider alliances throughout the world, including those outside the US-Europe axis”.
Patents defended to the death
Industrial secrets, secrecy of patents, intellectual property: since the dawn of capitalism, these terms have accompanied the processes of innovation implemented by companies. One example of this protection is the procedure adopted in the decades of 1900 and 1910 by the corporation headed by Thomas Edison, inventor of the electric light. The company held the patent for movie cameras and didn’t hesitate to resort to physical violence (including shooting) to discourage any studio that failed to pay royalties for the use of its invention.
Reaching further afield
During the 1980s, Lucent (a telecoms company) lost a large market share to Cisco, a much smaller company that preferred to resort to outside suppliers and start-ups to obtain innovative solutions rapidly. During the same period, IBM’s research capacity was challenged, and frequently beaten, by more innovative business models developed by corporations new to the scene, such as Intel and Microsoft. Through its willingness to work with third parties, Nokia scattered its R&D centers across the world (in 16 countries at present) and, in three decades, shook up a market dominated by giants such as Motorola and Siemens. In the pharmaceuticals sector, newcomers such as Amgen and Genzyme applied open innovation to compete against much larger companies, such as Merck and Pfizer.
VARIOUS PATHS LEAD TO INNOVATION
There isn’t one single model of open innovation. Everything depends on the origin of the idea, how it will be handled and in what form it will reach the market. Let’s use the example of a scientist who, during the course of his research, makes a discovery that he considers interesting. If the company employing him chooses not to launch the product commercially, the open innovation concept recommends that he may, for example, develop the idea by himself. In another case, a company may create a product internally, but chooses a partner to launch it (thus gaining a foothold in a new market to which it otherwise would not have access). An innovative concept created by a start-up (a fledgling company with small and agile structure, usually acting in the technology market) can also be shared with another larger corporation which could provide the necessary funds and personnel to manufacture and launch the end product. There is also the possibility of a large company prefers to form another smaller company (a spin-off), either alone or in partnership, for the sole purpose of developing a particular innovation.
“Previously, there was the ‘not invented here’ paradigm, which caused companies to view any creation not invented solely by their internal R&D departments with suspicion”, recalls Bruno Rondani. “The companies which embraced open innovation have adopted another paradigm: probably found elsewhere, indicating that the connection with new technologies from external sources is something to be appreciated.”
OPENING UP THE IDEAS
Fiat Mio - It is considered the first automobile conceived via crowdsourcing. Around 18,000 users contributed with ideas to create the ideal urban car.
Google - The firm opened the source code of its operational system, Android. It allowed to outside partners to suggest improvements and to create compatible apps for the platform.
Embraer - The jet plane ERJ-145, one of the best-selling planes of the company, was created from the collaboration between Embraer and four other firms.
Intel - Opened in 2009 in Munich (Germany), Intel Open Lab coordinates several cooperation programs. Intel also maintains open innovation centers in Switzerland, in Ireland and in Israel.
IBM - Since 2006, the firm has mobilized more than 150,000 people in 104 countries, working on open innovation iniciatives. The project has received investments in excess of US$ 100 million.
Braskem - The company created an online bank of ideas, open to anyone willing to suggest new lines of research. A quarter of the resarchers working for the firm come from external partners.
AN OPEN ROAD TO THE FUTURE
Since its foundation, Petrobras has used open innovation initiatives in several of its projects, even before the trend became known by its present name. Up to the 1970s, it carried out research in association with other companies, internalizing knowledge on refining technologies. With the discovery of the oil reserves in the Campos Basin, in the 1980s, the Company intensified its cooperation with corporations such as Schlumberger and Halliburton and started the development of the first projects involving other research centers, specially in relation to the drilling of ultra-deep wells.
The present decade has seen the organization of the so-called thematic networks, groups of universities that receive support from Petrobras and carry out research in fields of interest to the Company. These networks produced projects such as groundbreaking platform stability tests – in cooperation with the Federal Universities of Rio de Janeiro (UFRJ) and São Paulo (USP) – and graphic computing solutions (along with PUC-Rio). The enormous challenges presented by the exploration of oil and gas in the pre-salt layer have led to many more partnerships. “Nowadays we have many models of cooperation”, says Roberto Murilo Carvalho de Souza, Cenpes’ Technological Strategy manager. “We are developing products in partnership with other companies, sharing costs; we are working with companies embedded in universities; and we are ready to receive the technological centers that are going to be installed in Rio de Janeiro by firms that work in partnership with Petrobras, such as Schlumberger, FMC and GE, among others”.
PipeWay, referred to at the beginning of this article, fits into this scenario. In 2001, the company received the technology referred to as the “Pig”, an inspection tool for pipelines that accumulate large quantities of dirt – hence the name. The Pig Corrosion was a solution created by Petrobras and presented to other companies (including PipeWay) with the objective of improving cleaning and inspection services in its own pipelines. “We received the technology, but we developed the know-how ourselves”, recalls Vinicius Carvalho, PipeWay’s director. We have been adapting and perfecting it for almost ten years. Nowadays, we use the Pig Corrosion and other solutions derived from it to provide services to other companies throughout the world, paying royalties to Petrobras”. Murilo sums up by saying: “If we had spent resources developing a product and don’t use it any more, why not license it?”.
One of the principal examples of the Company’s involvement with open innovation is the Procap Visão Futuro Program (Procap Future Vision). A pool of more than 40 institutions from all over the world, including companies and universities, is working in partnership to create new technological solutions relating to the exploration and production of oil and gas, involving production systems, well engineering, logistics, reservoirs and sustainability. Each solution is developed in workshops with the participation of contracted companies and universities. Evolved from programs initiated in the 1980s, Procap is currently engaged in testing projects involving the separation of fluids and multi-phase pumping (oil, water and gas) and the automation of platforms. The first laser drilling prototype is expected to be developed by 2013.
Another of Petrobras’ pioneering initiative involves the Technological Program for the Mitigation of Climate Change – Proclima – in which a test methodology in the field of open innovation is currently being applied. “We ask our partners: what should we do with the carbon dioxide? What are the best solutions to transform it into a product and no longer view it as merely an emission? Is there a chemical solution? Or should we use biotechnology? That’s what we are debating,” says the Technological Strategy manager about the project, which unites Petrobras, representatives of academia (UFRJ and the National Institute of Technology) and industry (Dow Quimica, Dupont and Abiquim).
hese days, open innovation is practiced, with suitable rules and adaptations, in almost all sections of industry. The debate revolves around the manner in which each company interprets innovation and its capacity to absorb new concepts.
Example: without the so-called knowledge economy, it is impossible to be open to innovation. The increased value given to specialized knowledge and the educational standards of the workforce at the present stage of industrial capitalism has transformed knowledge into a valuable currency on the so-called “knowledge markets” operated by companies such as NineSigma (USA), which help identify professionals capable of resolving challenges related to innovation for giants, such as Philips and Xerox.
Intimately linked to open innovation, there is also the concept of crowdsourcing, whereby a challenge (technological or otherwise) is presented in an open manner, to be solved by a large group of people from various fields. The “crowd”, which is organized using the Web 2.0 tools (including social networks and online collaborative projects), participates in the analysis of the alternatives presented. The most relevant and innovative contributions are gathered and used in its solution. Once the matter has been resolved, the member – or members – of the group submitting the most satisfactory solution is usually compensated, either monetarily or by the satisfaction derived from the recognition of his work.
Throughout the world, the importance of consulting firms specializing in advising corporations, particularly the big players, is growing within this new environment – one that not only demands changes in working practices, but also in management attitudes. It is possible, for example, to hire a firm such as IdeaConnection (Canada) to act as broker between a company faced with a specific challenge and a supplier willing to provide a solution (the customer only pays if 100% satisfied). Or to contract the services of Brightidea (USA), which organizes innovation contests for companies such as GE and Cisco.
“There are several routes. Some initiatives start and don’t finish, others change their course or become influenced by the discoveries of competitors. All this must be monitored, whether the process was initiated by an idea from within the company, from an outside idea or a combination of both”, explains José Paulo Silveira, associate director of Macroplan, which provides open innovation consultancy services to Eletrobras, Petrobras and Suzano, among other companies, and to public institutions in Brazil, such as Embrapa (Brazilian Agriculture and Livestock Research Company), CNPq (National Council for Scientific and Technological Development) and Apex (Brazilian Export and Investment Promotion Agency).
Silveira notes that Brazil is currently putting an increasing value on open innovation as a competitive tool. “Studies carried out by institutions such as Ipea (Institute for Research on Applied Economics) show that the firms that innovate more have the greatest share of the worldwide revenue within their sectors and the greatest commercial success. And, by using open innovation, it’s possible to innovate more, with less resources”, he concludes.
By: Marco Antonio Barbosa
Artwork: Juliano Bortolin, Tathyana Raupp and Bárbara de Castro
Photos: Felipe Varanda