June 29, 2010

Nike's Open (Green) Innovation

One of the hottest concepts in strategy and management today is the idea of "open innovation." Gone are the highly secluded R&D departments funded by a single company, carefully guarding secrets from the outside and even from other divisions. In its place, in theory, are hubs of collaboration capturing ideas from customers, academia, or some guys in a garage somewhere.

Given the simultaneous growth of the sustainability movement, it's no surprise that companies are starting to combine the concepts and try to create open green innovation.

The general idea of this new collaborative approach to innovation has been kicking around since the 2003 publication of Open Innovation by professor Henry Chesbrough at UC Berkeley (see a recent article he wrote with some key examples here). But it's been gaining real currency in recent years as (a) large companies such as Procter & Gamble and IBM have embraced the concept, (b) the platforms for accessing many brains through social media have evolved, and (c) companies have looked for low-cost innovation pathways during tight times.

The green shade of open innovation has appeared more recently. Earlier this year, Nike, Best Buy, Yahoo!, and a few others launched the GreenXChange, an organization dedicated to sharing patents and ideas that can help companies reduce their environmental impacts. The core non-corporate partner is Creative Commons, the godfather of modern idea sharing and an organization "dedicated to making it easier for people to share and build upon the work of others."

I met some of the key players in the GreenXChange consortium — and saw Professor Chesbrough speak — at the recent Sustainable Brands Conference. Nike managers described how this fascinating agreement to share patents works in practice. Earlier in the 2000s, Nike had developed a "green rubber" that lowered production costs and slashed toxic emissions by 96 percent. The company offered up this technology and the Canadian outdoor equipment company, Mountain Equipment Co-op, licensed it (for what I sense is a nominal fee) to apply to its products.

Members of the GreenXChange contribute patents for new methods of production that reduce energy, water, toxicity, and so on. Each company can learn from and build on what has come before. As the Nike managers put it, companies have latent ideas and technologies sitting on shelves, not being used. Why not let others in?

Is open innovation a great thing for sustainability? A couple of major points in its favor: First, it certainly represents heretical innovation of the innovation process itself, and I'm big proponent of asking heretical questions. Second, the energy, toxicity, waste, and water challenges the world faces are so great and pressing, we don't have time to wait for every organization to discover cleaner ways of operating on its own —- we need to share information and speed up adoption of new methods and technologies. We need cooperation across traditional boundaries and open innovation to solve the biggest problems, and that means companies sharing much more than they're used to.

But I'll admit to having one major reservation about this innovation strategy. One of the core arguments for going green is that it creates competitive advantage, a logic that makes sustainability palatable to many corporate leaders. A skeptical executive would be completely right to ask, "Won't sharing our ideas level the playing field and give away the keys to the candy store?" Imagine getting your patent attorney on board. Well, Nike execs brought theirs to the conference and he talked about his personal journey to seeing the value — to society and to Nike — in exchanging patents.

I asked the manager leading the GreenXChange project my core question about giving up competitive advantage. Her logic was interesting. When the company discovers something like green rubber, "people" (meaning, I think, their employees and other key stakeholders) expect the company to do the right thing and spread the word — and so Nike does just that.

But there are certain kinds of innovations the company wouldn't share. The ideal shoe, this manager imagines, would likely be made from one material (which would greatly reduce its material use and lifecycle footprint and make recycling very easy). If Nike could accomplish this feat, the new geometry and design would be all Nike's, and thus a source of real advantage.

In the end, I come down firmly on the side of supporting open green innovation, especially given the scale and nature of the challenges we face. But for each company, the supporting logic for open green innovation will need to be balanced by a good understanding of where and when to share ideas, and which ideas are unique to the company's core competencies — such as design and branding, in Nike's case. Those latter ideas will drive profit and advantage.

For now, it seems that Nike has this delicate balancing act down.

[This post first appeared at Harvard Business Review Online]

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