Why companies fail to absorb external innovation

Originally posted on The Horizons Tracker.

Open innovation is increasingly popular, but the ability to absorb exciting ideas and innovations that originate outside the organization remains challenging. A recent study¹ examines the optimum type of organizational structure for doing just that.

The study finds that companies whose internal networks are dense and homogenous tend to insulate themselves from outside thinking and external knowledge. By contrast, when the internal networks are open, with employees filling gaps in their knowledge by going outside, innovation flourishes.

Open to ideas

The research examined the kind of organizational structures that seemed best suited to innovation. The analysis found that throwing money at things was insufficient to overcome a poor structure that renders it difficult to absorb external knowledge effectively.

The research looked at both where knowledge came from, and also the internal social networks inside the company. The authors were particularly interested in the relationships of the senior managers, researchers and engineers, and whether they were open or closed, whether knowledge flowed freely between them and so on. This was then compared against the innovative output of the companies, as measured by the number of patents granted over a two year period.

The data suggests that both the internal structure, and ones position within it, are crucial in determining our ability to be innovative.

“A structural hole is a gap between two individuals who have knowledge in different areas. A position rich in structural holes — that workers can fill talking to people with different skills — is significantly associated with a higher likelihood of generating innovations based on external knowledge,” the authors say.

The flipside sees the reverse happen. When we exist in the middle of a dense and homogenous network, it makes it much less likely that we’ll be able to successfully absorb and share any external knowledge.

“The problem of any large organization is to break the structural homogeneity that causes the compartmentalization of knowledge. The challenge is to build relationships that bridge across gaps in the organizational social structure,” the authors continue.

It’s an interesting paper, as we are awash with ideas and insights from outside every organization, but the ability to absorb all of that knowledge and put it to good use is another matter entirely. It’s a timely reminder of the need to invest in our structures and skills if we are to capitalize on open innovation, which is exactly what a recent paper² from the European Academic Network for Open Innovation found.

“Research on Open Innovation readiness suggests that employees require a certain education in order to be able to successfully apply Open innovation methods. Therefore, our results suggest that even though several companies use Open innovation activities, they are not exploiting its full potential,” the report says.

Article source: Why companies fail to absorb external innovation.

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