Open Innovation and Alliances

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by: John Caddell

It goes without saying that alliances are crucial to an open innovation strategy. By tapping into other organizations for some part of your product, you require structures, agreements and management of those other organizations.

Here is a way of looking at the different types of alliances that fuel open innovation:

Dominant partner (Apple iPod, P&G) – in this type of scenario the main partner controls the direction and assumes much of the risk of the venture. Partners do work for hire, or invest in development of their component or process, but don't contribute much to the overall product investment. Accordingly, they have limited or no influence on how the product is marketed, packaged, distributed or sold.

Confederation (Boeing) – in this scenario, the main partner (sometimes called the integration contractor) leverages partners who bring distinctive capabilities to the partnership. These subcontractors often make an ongoing contribution to the design of the product and take on development and investment risk. Their reward is correspondingly greater, for example gaining exclusivity for their component in the product.

Revenue share (ITunes) – here, the contribution of the partners is substantial, including exclusive intellectual property, brand image, etc., and they command a share of the revenue rather than a direct price per unit delivered.

Peer alliance (Sony Ericsson) – the most intertwined relationship is a joint venture. Here there is no dominant partner per se, but a group of partners who contribute capital, management and intellectual property. The peer nature of these relationships can make them the most fractious (see Sony BMG).

Each type of alliance creates its own challenges and issues. So, it needs its own type of management and governance. And, in spite of the legal documents and governance procedures that are created, a requirement to make these alliances work is the effort teams put in to communicate clearly, understand each other, and solve problems.

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