Brain power

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.

References:

  1. Tortoriello, M. (2015). The social underpinnings of absorptive capacity: The moderating effects of structural holes on innovation generation based on external knowledge. Strategic Management Journal, 36(4), 586-597.
  2. European Academic Network for Open Innovation (2015). Report on Industrial Needs for Open Innovation Education. http://oi-net.eu/m-oinet-network/m-oinet-key-topics/m-wp2-industrial-needs/968-report-on-industrial-needs-for-open-innovation-education

Adi Gaskell

I'm an old school liberal with a love of self organizing systems. I hold a masters degree in IT, specializing in artificial intelligence and enjoy exploring the edge of organizational behavior. I specialize in finding the many great things that are happening in the world, and helping organizations apply these changes to their own environments. I also blog for some of the biggest sites in the industry, including Forbes, Social Business News, Social Media Today and Work.com, whilst also covering the latest trends in the social business world on my own website. I have also delivered talks on the subject for the likes of the NUJ, the Guardian, Stevenage Bioscience and CMI, whilst also appearing on shows such as BBC Radio 5 Live and Calgary Today.

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