Open Innovators Outperform the Market by 16.9%

by Hutch Carpenter

At the Open Innovation Summit last week in Orlando, there were a number of companies there discussing their various initiatives for open innovation. What is open innovation? UC Berkeley professor Henry Chesbrough, perhaps the father of the movement, formulated this definition several years ago:

“Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology.

At the Summit, several companies expressed their growth related to and/or impact of open innovation:

• Cisco: Cisco’s internally generated growth is at 5%. Its partner-based growth is 10%. #ois09
• Clorox: Clorox target for growth from innovation is 4%. Last few years around 2.5% to 3.5% = significant portion of growth. #ois09
• Royal Dutch Shell: Conser: About 40% of projects in Shell’s R&D program come from GameChanger. #ois09 [GameChanger is its open innovation program]
• Rockwell Collins: Aggarwal: 75% of firms expect 40% of innovation to come from external sources by 2012. #ois09
• Hewlett Packard: McKinney: 60% of ideas generated internally. Via HP Garage. Use employee crowdsourcing to filter and refine these. #ois09

Given the way these companies described their open innovation efforts, I decided to check out their stock performance. Hat tip to Jackie Hutter for suggesting this idea.

The table below compares the 5-year performance of the companies presenting at the Open Innovation Summit against the S&P 500:

It’s not a clean sweep, but most of the companies have outperformed the S&P 500 handily the past five years. While it’s not all due to initiating open innovation, it appears that you can’t rule out its influence on company performance.

Here’s how industry consultant Stefan Lindegaard describes the open innovation landscape:

“I also argued that only about 10% of all companies are adept enough at open innovation to get significant benefits today. Another 30% have seen the light and are scrambling to make open innovation work and provide results that are worth the bother. I call them contenders.

The other 60% are pretenders – companies that don’t really know what open innovation is and why or how it could be relevant for them.”

Looking for growth ideas? See what the firms in this open innovators stock index are doing right.

Hutch Carpenter is the Vice President of Product at Spigit. Spigit integrates social collaboration tools into a SaaS enterprise idea management platform used by global Fortune 2000 firms to drive innovation.