From Closed to Open Innovation: The Evolving Nature of Teams and the Use of Information Technology - Information Technology and Product Development - page 124

35-45% of firm sales (Page & Yu, 2003) and therefore represent the lifeline for sus-
tained organizational success. However, innovation is also risky, as decisions made
throughout the process cannot be reversed once the product is introduced, and there
could be considerable uncertainty regarding future rewards. By the time a product
moves through the innovation process and funnels through the distribution pipeline,
90% of associated development costs have already been spent (Kahn, 2001).
Firms are forced to seek less risky and cost-intensive modes of innovation as they
face rising costs, shortened product life cycles, and significant market and technol-
ogy risks. The pressure of innovation combined with its challenges and frequent,
if not expected, failure rate has created what some have referred to as a “period
of disillusionment” or “innovation fatigue” (McGregor, McConnon, Weintraub,
& Holmes, 2007). According to a recent Boston Consulting Group Survey, only
52% of senior executives were satisfied with their return on innovation spending
(Andrew, Haanaes, Michael, Sirkin, & Taylor, 2009). While this is an improvement
over the previous year (43%), the numbers are still alarming. Executives have also
admitted to a decreasing emphasis on innovation, as the number that consider it a
top priority falls. Sixty-four percent of respondents ranked innovation as a top-three
priority, the lowest percentage in the six year history of this report (72% peak in
2006).
External environmental pressures resulting from increasing globalization and
rapid technological advancements, increasing competitive pressure, shrinking prod-
uct life cycles, and fluctuating marketplace and customer demands are forcing firms
to continually rethink their innovation models. Many organizations are finding it
difficult to respond to new technologies, fast-changing consumer demands, and the
impact of globalization given their current innovation structure. In addition, rapid
and constant changes in these factors further complicate innovation activities (Ozer,
2003). Many firms are reaching the conclusion that innovating without any exter-
nal help may not be a good strategy. Succeeding at innovation today often demands
new insights, new viewpoints, and new roles. Many CEOs believe that competitive
advantage requires new business models in addition to well-developed products.
This realization has led to a dramatic shift - and for some, the redefinition of
innovation as we have come to know it.
Current models of innovation can be limiting as they frequently restrict the firm's
ability to innovative quickly, responsively, and creatively. A critical realization in
this regard is that companies should not go it alone (McGregor et al., 2007). The
response is a shift toward more open models of innovation as firms attempt to adapt
to the new business environment. Through these open models, companies increas-
ingly draw external partners and suppliers into their innovation networks, bringing
diverse expertise together and often speeding up product development. “Once seen
as novel and risky, such external collaborations are now accepted as necessary and
even routine ways of doing business” (McGregor et al., 2007).
With an open innovation model, distributed knowledge, and increasing levels
of virtuality, the traditional product development team as we know it may become
a thing of the past. Today's product development team are quite different from the
teams of yesterday and new perspectives on team structure, function, and team man-
agement are necessary. Regardless of the changing nature of teams, they are still,