The reality of modern manufacturing R&D is that no company, regardless of size, can develop all the technology it needs in-house. The breadth of required expertise - from advanced materials to embedded software to sustainable processes - exceeds what internal teams can cover. Open innovation isn't a trendy concept; it's a strategic necessity.
This guide provides a practical framework for innovation managers and R&D leaders to engage with external R&D sources effectively. It covers the landscape of external innovation, engagement models, partnership structures, and the organizational capabilities needed to make open innovation work.
Open innovation, coined by Henry Chesbrough in 2003, describes the practice of using external ideas and paths to market alongside internal R&D. The concept isn't theoretical — P&G's Connect+Develop program, detailed in a landmark Harvard Business Review article, is one of the best-documented cases. When the program launched in 2002, only 10-15% of P&G's innovations included external ideas. By 2006, that had risen to over 35%, and it has since grown to more than 50%. The program is credited with billions in new product revenue. For manufacturers, open innovation translates to specific activities:
The opposite - closed innovation - assumes all good ideas come from within and that the company should control the full innovation path from research to commercialization. Few manufacturers can afford this approach given the pace and breadth of technological change.
Technology breadth - A modern manufacturing product might integrate mechanical systems, electronics, software, advanced materials, and connectivity. Developing expertise across all these domains is impractical.
Speed requirements - Developing technology from fundamentals takes years. Acquiring or adapting proven technology can take months. Time-to-market often determines competitive success.
Resource constraints - R&D budgets are finite. External sourcing can deliver more innovation per dollar than building every capability internally.
Risk distribution - Early-stage research is inherently risky. Letting universities and startups absorb that risk, then engaging when technologies mature, improves R&D returns.
Talent access - Some expertise exists only in specific research groups or specialized companies. Partnership provides access that hiring cannot replicate.
Universities conduct fundamental research that feeds commercial innovation. Engagement models include:
Sponsored research - Funding specific projects aligned with your technology needs. You typically get rights to resulting IP and early access to findings.
Consortia membership - Joining multi-company research programs that share costs and pre-competitive results.
Technology licensing - Acquiring rights to existing university technologies through technology transfer offices.
Personnel relationships - Recruiting graduates, hosting sabbaticals, using professors as consultants.
Best for: Long-term technology development, fundamental research questions, access to specialized expertise.
Challenges: Technology readiness typically low (TRL 1-4), timelines long, IP terms can be complex, academic incentives differ from commercial.
Startups often commercialize university research or develop niche innovations with agility large companies lack. Engagement options:
Strategic investment - Minority equity stakes providing insight into development and potential acquisition option.
Technology licensing - Acquiring rights to use startup technology in your products or processes.
Commercial partnerships - Supplier relationships where the startup provides components or capabilities.
Acquisition - Buying the company to fully integrate technology and team.
Corporate venture partnerships - Formal programs connecting internal business units with relevant startups. BMW's Startup Garage is one of the best-known venture client programs in manufacturing. Startups get a real supplier status and purchase order — BMW doesn't take equity — making it a low-risk way for both sides to test whether the technology works in a production context. Bosch runs a similar program through its corporate venture arm, investing in technology startups across manufacturing, mobility, and energy.
Best for: Technologies at TRL 4-7, specialized capabilities you don't want to build, speed-to-market priorities.
Challenges: Startup viability risk, integration complexity, valuation disagreements, cultural differences.
Suppliers often have deep expertise in specific technologies. Collaborative models include:
Joint development - Co-creating technology with shared investment and IP.
Supplier innovation programs - Structured processes for suppliers to propose innovations.
Technology roadmap sharing - Aligning development plans to ensure capabilities meet future needs.
Early involvement - Engaging suppliers during design rather than just procurement.
Best for: Components and subsystems, manufacturing processes, technologies where supplier has natural expertise.
Challenges: IP ownership complexity, dependency concerns, competitive access (suppliers may work with competitors).
Collaboration with competitors happens more than many realize:
Pre-competitive consortia - Developing enabling technologies or standards that all players need.
Standard-setting - Participating in industry standards that benefit all participants.
Cross-licensing - Trading IP rights to clear freedom-to-operate concerns.
Joint ventures - Partnering on high-risk/high-investment development.
Best for: Infrastructure technologies, standards, regulatory compliance technologies, extremely capital-intensive development.
Challenges: Antitrust considerations, trust maintenance, competitive information separation.
Various organizations connect manufacturers with external innovation:
Technology brokers - Match technology seekers with technology providers.
Open innovation platforms - Digital marketplaces for technology needs and solutions.
Accelerators and incubators - Programs that develop startups, sometimes with corporate sponsors.
Regional innovation networks - Clusters of companies, universities, and government in specific geographies.
Best for: Expanding search reach, accessing unfamiliar technology domains, structured engagement processes.
Challenges: Quality variation, costs, may still require direct engagement for serious partnerships.
Before engaging with external sources, clarify what you're seeking:
Strategic alignment - Does this technology support strategic priorities? External innovation should fill roadmap gaps, not pursue tangential interests.
Build vs buy vs. partner analysis - Is external engagement the right approach versus internal development or outright acquisition?
Maturity requirements - What technology readiness level do you need? This determines which sources are appropriate.
Integration complexity - How difficult will it be to incorporate external technology into your systems and products?
IP considerations - What rights do you need? Exclusive vs. non-exclusive? Field-of-use limitations acceptable?
Different situations call for different structures:
Non-exclusive licensing works when you need technology access but not competitive exclusivity. Lower cost, faster negotiation, but competitors may access the same technology.
Exclusive licensing provides competitive protection but costs more and may limit the technology provider's business model. Consider field-of-use or geography exclusives as middle ground.
Joint development shares risk and investment but requires careful IP allocation. Agree upfront on who owns what and how improvements are handled.
Equity investment aligns incentives and provides ongoing insight but brings governance complexity and financial risk.
Acquisition provides maximum control but maximum commitment. Appropriate when technology is core to strategy and team retention matters.
Key terms to address in any external engagement:
Intellectual property - Who owns background IP? Who owns foreground IP created through collaboration? What licenses are granted?
Exclusivity - What exclusivity exists? For how long? In what fields or geographies?
Performance obligations - What deliverables are expected? What milestones trigger payments or decisions?
Term and termination - How long does the relationship last? What triggers termination? What happens to IP upon termination?
Confidentiality - What information is shared? How is it protected?
Non-compete - Are there restrictions on working with competitors?
Engage legal and business development expertise for significant agreements. The terms you negotiate determine whether the partnership creates value.
Open innovation requires capabilities many manufacturers lack:
Scouting capacity - Can you systematically identify external opportunities? Do you know where to look and how to evaluate?
Technical assessment - Can you evaluate external technologies accurately? Do you have expertise to judge maturity and fit?
Deal-making - Can you structure and negotiate partnerships? Do you have templates, processes, and experienced negotiators?
Integration - Can you absorb external technology? Do internal teams engage constructively with external innovations?
Portfolio management - Can you manage multiple external engagements coherently? Do you track outcomes and learn from experience?
Gaps in these capabilities undermine open innovation regardless of how good external opportunities are.
Open innovation often fails due to cultural resistance:
"Not invented here" syndrome causes internal teams to devalue or reject external innovations. This can be addressed through incentives that reward successful adoption regardless of source.
Risk aversion prevents engagement with promising but uncertain opportunities. Appropriate governance that accepts measured risk is necessary.
Short-term focus conflicts with partnerships that take years to generate returns. Executive sponsorship for long-term initiatives helps.
Insufficient slack leaves no capacity for exploration beyond immediate projects. Dedicated resources for open innovation prevent it from being squeezed out by operational demands.
Formalize open innovation activities:
Regular scanning cycles - Scheduled reviews of technology landscapes and external opportunities, not ad-hoc reactions.
Evaluation criteria - Clear frameworks for assessing opportunities that enable comparison and prioritization.
Decision authority - Defined process for committing to external engagements, with appropriate approval levels.
Integration protocols - Established approaches for bringing external technologies into internal development.
Performance measurement - Metrics that track open innovation outcomes and enable improvement.
Effective open innovation typically requires some dedicated capacity:
Technology scouting teams - People responsible for identifying and evaluating external opportunities.
Business development - People who can structure and negotiate partnerships.
Technical liaisons - Engineers who can bridge external technologies and internal teams.
Program management - People who oversee the portfolio of external engagements.
Resource requirements vary by company size and open innovation intensity. Even part-time assignments are better than no dedicated attention.
Organizations new to open innovation should begin modestly:
Identify one or two immediate needs - Where is your roadmap blocked by technology gaps? Start scouting there.
Pick accessible sources - University technology transfer offices and local startup ecosystems are easier to navigate than global landscapes.
Use familiar structures - Licensing agreements or contracted development are more straightforward than equity investments or joint ventures.
Accept learning costs - Early efforts will be inefficient. The goal is developing capability, not immediate returns.
As capability develops, expand scope:
Broaden source coverage - Engage with more diverse external sources across geographies and organization types.
Try more complex structures - Move into equity investments, joint ventures, or acquisition if appropriate.
Increase parallel efforts - Manage multiple external engagements simultaneously.
Integrate with strategy - Connect open innovation to strategic planning rather than treating it as supplementary.
Watch for patterns that derail open innovation:
Vague objectives - "Find interesting technologies" produces noise. Specific needs drive actionable results. Understanding why scouting fails can help you avoid this pitfall.
Insufficient due diligence - Rushing into partnerships without proper assessment creates costly mistakes.
Over-engineering deals - Complex terms for simple transactions slow progress and create friction.
Neglecting integration - Acquired or licensed technology that doesn't get integrated into products wastes the investment.
Expecting overnight results - Partnerships take time. Unrealistic timelines lead to premature abandonment of good initiatives.
Lack of executive support - Open innovation competes with internal priorities. Without senior sponsorship, it gets marginalized.
Track open innovation performance across multiple dimensions:
Activity metrics - Number of opportunities evaluated, partnerships initiated, technologies licensed. These indicate process health.
Output metrics - Technologies integrated into products, revenue from externally-sourced innovations, patents from collaborations. These indicate results.
Efficiency metrics - Time from identification to integration, cost per successful partnership. These indicate process improvement.
Learning metrics - Landscape knowledge gained, relationships built, capability development. These indicate long-term positioning.
Not every open innovation effort succeeds. Realistic expectations include:
Structure agreements to clearly define what IP you're sharing, what you're receiving, and what each party can do with jointly created IP. Use confidentiality agreements before sharing sensitive information. Consider field-of-use restrictions that limit partner rights to non-competing areas.
Most external technologies require adaptation. Budget for development work to mature and customize acquired technology. Partner selection should consider the provider's ability to support this adaptation.
Involve internal teams early in the evaluation process. Make adoption part of their objectives rather than something imposed on them. Ensure they receive credit for successful implementations regardless of technology source.
Typically a hybrid works best. Central functions provide common processes, templates, and expertise. Business units drive specific needs and own implementations. The balance depends on organizational size and structure.
This is common and often unavoidable. Focus on getting the access you need rather than preventing competitor access. Consider exclusive arrangements for genuinely differentiating technology. Accept that some capabilities will be shared across the industry.
There's no universal answer. Consider open innovation as part of total R&D investment. If external sourcing could address a meaningful fraction of your technology needs, dedicate proportional resources to finding and engaging those sources.
Begin building open innovation capability with these steps:
Audit current state - What external partnerships exist today? How did they happen? What worked and didn't?
Identify priority gaps - Which technology needs are best suited for external sourcing? Focus initial efforts there.
Map relevant sources - Who's working on technologies you need? Universities, startups, suppliers with relevant capabilities?
Assign ownership - Who's responsible for open innovation? Even part-time assignment beats nobody owning it.
Start a pilot - Pursue one or two external engagements to develop experience and learn.
Build from experience - Document what you learn. Develop repeatable processes. Expand scope as capability grows.
Open innovation is a capability that improves with practice. The manufacturers who develop this capability accelerate innovation beyond what internal R&D alone can achieve.
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