Suddenly, it seems, open innovation has become a hot topic in packaging. At trade shows, conferences and in conversation, companies are talking about the need to keep a steady stream of innovations flowing. The challenge, though, is how to achieve this when R&D budgets are being squeezed or simply can’t keep up with the demand for new products and packaging that have shorter and shorter life cycles.
Open innovation is a term coined by Henry Chesbrough, a professor at UC Berkeley, who defines the process as: “The use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.” The best definition I’ve seen is: “Open innovation is using the market instead of internal hierarchies to source and commercialize innovations.”
Many of the largest consumer packaged goods companies (CPGs), such as Procter & Gamble, Kraft, Nestle and General Mills espouse open innovation. They have developed sophisticated networking systems and “innovation portals” to gather and evaluate innovations from a variety of sources, most frequently from small and medium enterprises. Even packaging suppliers are jumping on board. For Crown Holdings Inc., the goal of its open-innovation program “is to help our customers use metal packaging as a powerful means to build stronger brands.
In a Harvard Business Review article, two P&G executives wrote that most mature companies have to create organic growth of up to 6 percent annually. For P&G, that’s the equivalent of building a $4 billion business each year, something they cannot achieve based solely on internal R&D. Under its Connect and Develop program, more than 50 percent of product initiatives at P&G involve significant collaboration with outside innovators.
Since the Industrial Revolution, companies have worked to conceive and develop their own innovations, gaining a competitive advantage as the first to bring a product or process to market and owning the exclusive intellectual property rights of the concept.
To make open innovation work in packaging requires companies to alter this business paradigm. By using an open approach, businesses increasingly are able to launch innovative products more quickly and at lower cost. Those companies that fail to grasp the opportunity risk losing market share.
Innovation is a core driver of business, and packagers need to make it one of their top priorities.
