Case Study: Philips and the Business Model of Light as a Service

In 2015, Amsterdam's Schiphol Airport, one of Europe's busiest, teamed up with Philips Lighting. They created a unique agreement under which Schiphol paid for lighting rather than buying fixtures. Philips kept ownership, handled maintenance, upgraded technology, and recycled fixtures at the end of their life. Schiphol paid a regular fee for reliable lighting.

This was more than a maintenance contract; it introduced a new business model that merged financial goals with environmental needs. It showcased a circular economy model focused on using materials wisely, cutting waste, and renewing natural systems.

The Schiphol case became a prime example of product-as-a-service thinking. It proved that circular economy principles can benefit both the environment and business.

What Changed: From Products to Performance

The traditional lighting model is straightforward. A manufacturer sells fixtures, and the customer owns, maintains, and disposes of them. The manufacturer profits from selling more fixtures, while the customer incurs costs for purchase, maintenance, energy use, and disposal.

This model misaligns incentives. Manufacturers want to sell as many fixtures as possible, often designing them for planned obsolescence. Customers prefer durable, energy-efficient fixtures that are low-maintenance. Neither party considers the fixture's end of life. Manufacturers have sold their products, and customers must handle disposal.

The Light-as-a-Service model changes this. Philips keeps ownership of the fixtures and manages installation, maintenance, energy efficiency, and end-of-life recovery. Schiphol pays a fixed fee per light point, similar to a lighting subscription. If a fixture fails, Philips replaces it at no extra charge. If better technology emerges, Philips upgrades it, reducing energy costs for both parties.

Now, incentives align. Philips earns more by creating long-lasting, energy-efficient fixtures that need less maintenance. Schiphol benefits from predictable costs and avoids capital expenses for fixtures. The environmental impact also decreases as the focus shifts from sales volume to material efficiency.

The Schiphol Implementation: What Actually Happened

Schiphol's agreement with Philips covered lighting in car parks, offices, and operational areas - about 11,000 light points. The ten-year contract guaranteed lighting levels, maintenance response times, and energy efficiency targets.

The installed fixtures were designed for end-of-life recovery. Components were modular and easily separable, with materials chosen for recyclability. The design avoided adhesives, making disassembly easier. This focus on circularity is rare in the lighting industry, where products are typically designed for installation rather than recovery.

Philips adopted a proactive maintenance approach. They installed sensors to monitor performance, enabling predictive maintenance and the replacement of parts before they failed. This reduced downtime and extended the system's life.

Energy savings were significant. Schiphol's energy use for lighting dropped by about 50% compared to the previous system, thanks to LED technology and Philips's focus on energy optimisation. Carbon emissions also fell considerably.

At the end of the contract, Philips would reclaim the fixtures, disassemble them, and reuse or recycle materials. They reported that about 75% of the materials in the lighting systems could be recovered—a high rate for complex commercial lighting systems.

The Business Model Innovation

The importance of the Schiphol case lies not in technology - LED lighting and smart controls were already available. The real innovation was the business model, which focused on performance rather than ownership, and the system was designed to support that model.

This shift required Philips to develop new skills. They needed expertise in long-term service contracts, predictive maintenance, and material recovery. These skills differ from those needed for product sales and demand significant investment.

It also meant managing risk differently. In a product sales model, the manufacturer's financial risk ends at the point of sale. In a service model, they bear the risk of product failure and maintenance costs throughout the contract. This risk can be managed through better design and materials, but it cannot be eliminated.

The financial case for Schiphol was strong. The total cost of ownership - capital, energy, maintenance, disposal - was lower than under a conventional purchase model. Predictable costs were also valuable—the arrangement's environmental benefits aligned with Schiphol's sustainability goals.

For Philips (which rebranded as Signify in 2016), this model generated recurring revenue rather than one-off sales, fostering stronger customer relationships. A customer paying for light-as-a-service is less likely to switch providers based on price, as the value is tied to performance and reliability.

The Circular Economy Principles in Practice

The Schiphol case illustrates key circular economy principles in action.

• Design for longevity and upgradability. With Philips retaining ownership, they aimed for long-lasting fixtures. But longevity isn't enough; technology improves. Fixtures allowed component upgrades without complete replacement, capturing advancements without waste.

• Designed for disassembly. At the end of life, fixtures could be easily disassembled. Valuable materials were separated, and components were either refurbished or recycled. This approach is rare, as many products are designed to hinder disassembly.

• Service over ownership. Shifting from selling products to services enables circular economy models. Customers buy the service (light), not the product (fixtures). This allows providers to control materials and maximise efficiency throughout their lifecycle.

• Value retention. In a linear economy, value is lost over time. In a circular economy, value is maintained through maintenance, refurbishment, and recycling. Philips's model retains this value economically, as recovered materials reduce the cost of new fixture production.

The Challenges and What Made It Work

The Light-as-a-Service model isn't universally applicable, and its adoption has been slower than expected. Understanding why is as important as grasping the model.

It works best where customers value predictable costs and guaranteed performance over ownership. It thrives where the asset's capital cost is high enough to make service models appealing and where providers can effectively manage long-term service contracts. These factors suit commercial customers but are less applicable to residential markets, where ownership is often preferred.

The Bigger Picture

The Schiphol-Philips partnership is more than a clever contract. It's a template for rethinking how businesses and their customers relate to physical goods. By shifting ownership, aligning incentives, and designing products with their entire lifecycle in mind, both parties came out ahead: financially, operationally, and environmentally.

The model won't work everywhere. It demands trust, long-term thinking, and a willingness from manufacturers to take on risk they'd normally offload to customers. But where those conditions exist, it demonstrates something important: sustainability and profitability don't have to pull in opposite directions. Sometimes, the most environmentally responsible choice is also the most sensible business decision.

As pressure mounts on companies to reduce waste and carbon emissions, the light-as-a-service model offers a practical answer to a question more industries will have to face: what if you never sold the product at all?

Case Study: Patagonia and the Business of Responsible Innovation

Patagonia is an outdoor clothing and equipment company founded in California in 1973 by Yvon Chouinard. It is a highly successful business, generating over a billion dollars in annual revenue, commanding premium prices, and enjoying strong brand loyalty. More importantly, Patagonia shows how genuine innovation can be part of a business's core strategy, not just a marketing tool or a charitable afterthought.

What makes Patagonia interesting is not that it easily combines profit and purpose. It hasn’t. The choices made in product design, supply chain, marketing, and ownership have entailed real trade-offs, revenue losses, and tough decisions. Patagonia proves that a business can commit to environmental and social responsibility while remaining profitable. This discipline fosters innovation in ways that a purely commercial focus does not.

The Founding Tension

Yvon Chouinard entered the business through climbing. His first company, Chouinard Equipment, made steel pitons for climbers. By the early 1970s, he realised that these products were damaging rock faces, so he stopped making them. Instead, he created aluminium chocks, which were less damaging to the environment, even if they were technically inferior.

This decision set the tone for Patagonia's approach to innovation. The tension between running a successful business and minimising environmental harm remains unresolved. Patagonia sees this tension as a productive challenge that leads to unique solutions.

Environmental Innovation in Product and Supply Chain

Patagonia's most significant innovations stem from its commitment to reducing environmental impact. Many have become industry benchmarks.

In 1993, Patagonia became the first apparel company to make fleece from recycled plastic bottles. This was a challenging and uncertain move, but it had a positive environmental impact. Using recycled material reduces resource use and landfill waste. This innovation required new supply chain partnerships and higher costs but resulted in a product that appealed to customers and influenced the wider industry.

The Worn Wear programme, launched in 2013, is both a business and environmental innovation. Patagonia created a system to repair, resell, and recycle used products, establishing a secondary market for pre-owned gear. This initiative runs counter to the conventional apparel industry's focus on maximising new sales. Patagonia acknowledges that Worn Wear reduces the need for new purchases, which could hurt revenue. However, it aligns with their environmental values and strengthens customer loyalty.

The "Don't Buy This Jacket" ad, published in the New York Times on Black Friday 2011, directly asked customers not to buy a new jacket unless necessary. This counterintuitive message increased sales, demonstrating that authenticity and trust in the brand's commitment can be more effective than traditional advertising.

Organic Cotton and Supply Chain Integrity

In 1994, Patagonia decided to switch its entire cotton line to organic cotton within eighteen months. Chouinard later called this one of the toughest decisions in the company’s history. At the time, organic cotton was much more expensive, and the supply chain was underdeveloped. Patagonia wasn't sure it could find enough organic cotton, but it pressed on.

This decision came after a study revealed that conventional cotton, reliant on pesticides and synthetic fertilisers, harmed the communities where it was grown. Organic cotton was not perfect, but it was far less damaging. Chouinard felt the company had to act on this information.

This pattern of honest supply chain assessments, recognising uncomfortable truths, and changing behaviour is a key part of Patagonia's responsible innovation approach. Most companies assess their supply chains to defend their actions. Patagonia assesses to identify necessary changes.

The Ownership Decision

In September 2022, Chouinard announced he had transferred Patagonia's ownership—valued at around $3 billion—to a special non-profit trust and environmental organisation. Instead of selling or going public, he structured the transfer so that all future profits not reinvested would go to environmental causes.

This move was seen as both a philanthropic act and a governance innovation. It permanently ties the company’s commercial success to its environmental mission, preventing future owners from reversing it. Private ownership has always allowed Patagonia to take a long-term view, accepting short-term costs in service of its mission. This new structure makes that focus permanent.

The practical effects are significant. Patagonia no longer answers to shareholders focused on financial returns. Instead, it is accountable to a legally embedded mission, which allows for genuine environmental and social commitments.

What Patagonia's Innovation Looks Like in Practice

Patagonia's innovations—like recycled materials, repair programmes, and organic sourcing—aren't just the result of formal R&D. They arise from a commitment to consistently ask a fundamental question: what are the real consequences of our actions, and can we find a better way?

This question drives innovation because it’s uncomfortable. It forces the company to examine its practices without defensive filters. It uncovers issues that a less honest approach might miss. This constraint—finding more sustainable solutions—encourages creative problem-solving in ways that a purely commercial focus would not.

Lessons

Constraint drives innovation. Patagonia's commitment to environmental responsibility has made it more innovative, forcing the question, "What else can we use?"

Authenticity is commercially valuable only when genuine. Patagonia's brand value stems from the authenticity of its commitments. A company trying to mimic its strategy without the same operational integrity will not earn the same level of trust.

Governance shapes behaviour more reliably than culture. Chouinard's ownership transfer acknowledges that good intentions alone aren't enough for long-term mission alignment. Legal and governance structures provide more durability.

The long view is a competitive advantage. Patagonia's willingness to accept short-term costs for long-term mission alignment has built a brand, customer loyalty, and product quality that rivals can't match.

Summary

Patagonia does not provide a one-size-fits-all template for businesses. Its unique ownership structure, founder's values, and market position mean that others can't easily copy its model. However, Patagonia shows proof—fifty years' worth—that responsible innovation can coexist with profitability. Taking environmental and social impacts seriously can lead to a real competitive advantage. This evidence is important because some still argue that being responsible and successful in business don’t mix, and that claim lacks strong support.

Sustainable and Responsible Innovation: Designing for the World We Actually Want

For most of its modern history, innovation has been evaluated primarily on two dimensions: does it work, and can it make money? These are legitimate questions. They are not, however, the only ones.

The consequences of innovation extend well beyond the organisation and the customer.

New technologies reshape labour markets, affecting millions of workers who had no voice in the decision to develop them. Products designed for convenience generate waste that persists for centuries. Business models optimised for engagement can have unintended effects on mental health.

Innovations that create enormous value for some people also impose costs on others who receive none of the benefit.

This is not saying that innovation is not important. The problems the world most urgently needs to solve, for example, climate change, resource scarcity, inequality, and global health will not be addressed without it.

However, it does highlight how we innovate matters as much as whether we innovate. And it suggests that the organisations best positioned for the coming decades are those that take the responsibility embedded in innovation seriously. They should see it not as a constraint to be managed, but as a dimension of quality.

The Sustainability Imperative

The relationship between innovation and environmental sustainability has moved in a relatively short time. It has moved from a niche concern to a central strategic question.

The scientific consensus on climate change is unambiguous. The regulatory environment in most major economies is tightening, with carbon pricing, emissions standards, and sustainability disclosure requirements reshaping the commercial context in which organisations operate. Consumer, investor, and employee expectations are shifting in ways that make the environmental footprint of an organisation's activities increasingly visible and increasingly consequential.

For innovative organisations, this creates both pressure and opportunity. The pressure is to reduce the environmental impact of existing products and processes. This is being achieved through more efficient manufacturing, more sustainable materials, reduced packaging, and lower-carbon supply chains. Essentially, ongoing incremental innovation.

The opportunity is significant. The transition to a low-carbon economy is one of the largest structural changes in the history of industrial capitalism. Structural change of this scale generates innovation opportunities of corresponding magnitude. Renewable energy, electric mobility, circular-economy business models, sustainable agriculture, green construction, and climate-adaptation technologies are all domains where innovation is vital and urgent. And the commercial opportunity is enormous.

The companies that approach this as an innovation challenge consistently outperform those that approach it as a compliance challenge. They ask how they can create genuinely better products and services that are also more sustainable.

Circular Economy Thinking

The circular economy offers one of the most powerful frameworks for rethinking the relationship between innovation and sustainability. The conventional industrial model is linear: resources are extracted, processed into products, sold to consumers, and eventually discarded. Value is created once and destroyed at the end of the product's life.

The circular economy challenges this logic at every stage. Products are designed for longevity, for repairability, and for eventual disassembly and reuse of components. Business models are structured around access, rental, and remanufacture rather than single-sale ownership. Waste from one process becomes input for another. The system is designed to retain the value of materials and energy in circulation rather than allowing them to degrade into waste.

This is not an environmental aspiration dressed up as a business strategy.  It is increasingly a genuine competitive model.

Michelin, with Connected Fleet developed a business model around selling tyre performance rather than tyres. It retains ownership of the product and therefore the incentive to make it as long-lasting as possible.

Interface, the carpet manufacturer, pioneered a take-back scheme that allows carpet tiles to be returned at the end of life for reuse in new products.

Caterpillar's remanufacturing business reconditions used components to as-new performance at significantly lower cost than producing new ones.

In each case, circular thinking has created a commercially viable model that also reduces environmental impact.

Responsible Innovation and Ethical Dimensions

Sustainability in the environmental sense is one dimension of responsible innovation. The ethical dimensions are broader and, in some ways, more difficult to navigate.

Artificial intelligence raises questions about algorithmic bias. The ways in which systems trained on historical data can reproduce and amplify existing inequalities. A hiring algorithm trained on data from a historically male workforce will tend to undervalue female candidates. A credit-scoring model trained on data that reflects systemic disadvantage will tend to perpetuate it. The technology is not malicious; the consequences are real.

Responsible innovation in AI requires confronting these implications directly, at the design stage rather than after the damage is done.

Biotechnology raises questions about the limits of intervention in natural systems. Questions that are simultaneously scientific, ethical, philosophical, and political. Neither markets nor regulators have yet developed fully adequate frameworks to manage this.

Platform technology raises questions about market power, data ownership, and the psychological effects of systems designed to maximise engagement. The innovators who built social media platforms were solving genuine problems of human connection and information access. Many of the consequences, such as misinformation, attention disorders, and the erosion of privacy, were unintended. Whether they should have been anticipated and what responsibility their creators bear for addressing them are questions we’re still trying to address

What responsible innovation requires in each of these contexts is not the abandonment of ambition but its expansion. Not just a commitment to asking not just ‘can we build this?’ and ‘will it sell?’ but "what are the likely consequences for society?’

Inclusive Innovation

Responsible innovation has a positive dimension that is sometimes overlooked. That dimension is inclusion. The deliberate design of innovations that create value for people who have historically been underserved or excluded.

Historically, much innovation has been designed by and for relatively affluent people in wealthy economies. The needs of lower-income populations, of communities in developing economies, of people with disabilities, of older adults have often been treated as secondary or specialist concerns. Not as mainstream opportunities. The result has been systematic underinvestment in solutions to problems affecting the majority of humanity.

Frugal innovation is the development of products and services that deliver genuine quality at significantly lower cost. You typically see this in markets in developing economies.

The Jaipur Foot prosthetic limb, developed in India and now used by millions worldwide, is robust, affordable, and tailored to the specific needs of its users in ways that expensive Western prosthetics are not.

M-Pesa, the mobile money service launched in Kenya, extended financial services to millions of people who had no access to traditional banking infrastructure.

The insight that inclusive innovation generates is not just social. The constraints imposed by designing for underserved populations frequently produce solutions that are more elegant, more robust, and more transferable to other contexts than innovations designed for the most privileged customers.

Embedding Responsibility in the Innovation Process

The question of how to make innovation more sustainable and responsible ultimately comes down to process. Where in the innovation process are considerations are introduced and with what weight?

Introducing them late is expensive, often ineffective, and typically limited to damage control. Environmental impact assessments conducted after design is fixed, and ethical reviews conducted after a system is trained and deployed are better than nothing. But they are not responsible innovation.

Embedding responsibility at the beginning of the innovation process is what genuine responsible innovation looks like.

It means integrating consideration of environmental impact, social consequences, and ethical implications early. As part of the design thinking, agile sprints, innovation strategy, and the organisation's culture.

This is more demanding than compliance. It requires that the people making innovation decisions have a broader and more diverse set of concerns in mind than commercial return alone. It requires leadership that genuinely values these dimensions. Not just in communications but in the decisions it makes and the trade-offs it is willing to accept.

Summary

Innovation has always changed the world. The question of what kind of world it changes it into is one that every innovative organisation now needs to answer. In the choices it makes about what to build, how to build it, and for whom. That question is not separate from the commercial and competitive questions this series has addressed throughout. It is, increasingly, the same question.

Case Study: Procter & Gamble and the Connect and Develop Revolution

In the early 2000s, Procter & Gamble (P&G) made a surprising move. The company admitted its internal innovation model was failing. It decided to source most of its innovations externally and shifted to open innovation.

This led to Connect and Develop. A programme that became one of the most studied corporate innovation initiatives in the last two decades. It highlighted both the potential and challenges of open innovation.

The Problem It Was Solving

By the early 2000s, P&G had over 7,500 scientists and engineers, making it one of the largest R&D operations worldwide. The company spent nearly $2 billion a year on R&D, yet its innovation productivity was declining.

CEO A.G. Lafley pointed out that P&G's R&D was strong but isolated. The company missed valuable external knowledge, for example, in universities and small firms. The belief that the best ideas came from P&G's labs was proven wrong.

Lafley set a bold goal: 50% of P&G's innovations should come from outside the company. The aim was to reshape R&D by focusing on connecting external ideas with internal resources rather than cutting budgets.

How Connect and Develop Worked

The programme was based on a simple idea: for nearly every innovation challenge, someone likely had a solution. The goal was to find that person or organisation and bring their knowledge into P&G's business.

P&G built a network of Technology Entrepreneurs. These experienced professionals, often with scientific backgrounds, were based in major innovation hubs. Their job was to connect with universities, research institutes, and inventors. They aimed to identify opportunities that matched P&G's needs. The company also shared its technology needs online, inviting proposals.

Internal processes needed to change, too. A connection with an external innovator was only useful if P&G could act on it quickly. This required new skills, governance structures, and cultural shifts.

The Results: What Connect and Develop Produced

The Swiffer is a standout success of Connect and Develop. Its core technology is a dry-cleaning cloth that traps dirt using electrostatic attraction. They sourced it from a Japanese company. P&G licensed it and launched one of its most successful products of the decade. The Swiffer didn't originate in P&G's labs, but the company's marketing and distribution led to its global success.

Another example is the Pringles printing technology. When P&G wanted to print on Pringles crisps, it faced a tough challenge with food-safe inkjet printing. Instead of developing it in-house, P&G found a small bakery in Bologna, Italy. They struck a licensing deal in months, while internal development would have taken years.

Mr Clean Magic Eraser, Oil of Olay Regenerist range, and many fragrances also use externally sourced technologies. By the mid-2000s, over 35% of new products included external elements, up from 15% at the programme's start. R&D productivity increased by nearly 60%.

The Harder Lessons

While Connect and Develop is seen as a success, the full story reveals deeper insights.

Cultural resistance within P&G was significant. Many scientists and engineers struggled to embrace external ideas. The not-invented-here syndrome persisted despite new policies. It needed changes in incentives and leadership over time.

Identifying promising external ideas was easier than integrating them into P&G's processes. Many connections that seemed promising early on didn't meet P&G's rigorous standards.

Managing intellectual property became more complex. With multiple external technologies involved, questions of ownership became critical. This required careful legal planning.

Building trust with external inventors and smaller firms was vital. P&G had to learn to manage these relationships, which was challenging for an organisation used to internal collaboration.

What It Changed

The lasting impact of Connect and Develop goes beyond the products it created. It shifted the way P&G and many other organisations viewed the boundaries of innovation.

Traditionally, companies believed innovation belonged within their walls. They hired talent, built labs, and protected outputs. Connect and Develop demonstrated that this view was limiting. The real unit for innovation is the network and connections to a broader knowledge ecosystem.

This change affected P&G's approach to partnerships, acquisitions, suppliers, and customers. It changed how internal R&D works. Now, it doesn’t just create innovation; it also finds and incorporates ideas from outside.

Lessons

The fifty per cent target mattered. A vague goal wouldn’t have changed behaviour. A specific, measurable target from the CEO drove necessary changes.

Internal capability enables external innovation. P&G's success in Connect and Develop relied on its strong commercial, scientific, and manufacturing abilities. Without these, external ideas lead to interesting projects rather than successful businesses.

Culture change requires structural change. Simply stating that external ideas are valued isn’t enough. If incentives favour internal invention, real change won’t happen. Structural changes - new roles, processes, and governance were crucial too.

Open innovation changes R&D's role, not its importance. P&G didn’t cut its internal R&D spending. Instead, it redirected funds to the capabilities needed to be effective partners.

Summary

Connect and Develop showed that open innovation is more than a theory or strategy. It's a genuine organisational capability that needs careful development and strong leadership. When done well, as P&G demonstrated, the rewards are significant. When done poorly, it fails to deliver the benefits of both open and closed models.

Open Innovation: Why the Best Ideas Don't Always Come From Inside

For most of the twentieth century, corporate innovation was largely closed.

Successful companies built big, well-funded internal research and development (R&D) departments. They protected their discoveries with patents and secrecy. The logic was clear: if knowledge drives competitive advantage, keep it in-house.

IBM, Bell Labs, and Xerox PARC exemplified this model. They produced remarkable scientific advances. For instance, Bell Labs gave us the transistor, the laser, information theory, and Unix. The idea was simple: hire the best minds, provide resources, and safeguard their output.

Then, things changed. Markets grew more complex. Technologies converged. The pace of change sped up. Many companies realised that key ideas were not just coming from their labs. They also came from universities, startups and adjacent industries. Even their own customers. The closed model was costly and impractical, leaving value untapped.

This shift led to the concept of open innovation.

The Concept and Its Origins

Henry Chesbrough, a professor at the University of California, Berkeley, coined the term open innovation in his 2003 book. He argued that in a world of widespread knowledge, companies could no longer rely solely on their research. Useful ideas were everywhere. Companies that accessed and integrated external ideas would have an advantage.

In an open model, ideas could flow in from outside. Unused internal ideas could flow out through licensing, spin-offs, or partnerships.

This was a major shift. It changed the question from "How do we protect our knowledge?" to "How do we make the most of all available knowledge?" Intellectual property remained crucial. But it became a tool for collaboration, not just a barrier to competition.

How Open Innovation Works in Practice

Open innovation crosses the boundary between an organisation and its environment.

External knowledge sourcing is a straightforward method. It involves seeking ideas and technologies from outside. Instead of waiting for internal R&D, organisations look outward. They ask if someone else has already solved the problem.

Procter & Gamble's Connect and Develop programme, launched in the early 2000s, is a well-known example. Facing limits on internal innovation, P&G aimed to source 50% of its innovations externally. They built a network of partners comprising inventors, researchers, and small companies. They created processes to quickly evaluate and integrate external ideas. This led to a faster product pipeline. For example, successful launches like Swiffer and Pringles printing technology.

Innovation ecosystems and platforms represent a structural form of open innovation. Here, external developers and users can add value to their capabilities. Apple's App Store is a prime example. It opened its platform to independent developers. As a result, it increased the iPhone's innovative capacity without hiring those developers.

Crowdsourcing and open challenges apply open innovation to specific problems. Organisations post challenges and invite responses from a wide pool of contributors. InnoCentive pioneered this model, linking organisations with solvers from various fields. The insight is that the best problem-solver may be someone with diverse knowledge.

Large corporations are also using venture capital and engaging with startups to drive innovation. Corporate venture arms invest in promising startups. This gives established companies early access to new technologies. Accelerator programmes and partnerships give startups resources. They also keep corporations linked to new ideas.

Outbound open innovation is less talked about but equally important. This means allowing internal ideas or technologies to be used outside the company. This can happen through licensing, spin-outs, or open-source releases. The reasons for doing this vary. Licensing can earn money from unused technologies. Open-source can create helpful ecosystems. Spin-outs can unlock value that a corporate structure can't.

The Advantages and Challenges

The appeal of open innovation is strong. It increases the diversity of ideas accessible to an organisation. It reduces costs and accelerates internal development by building on existing work. It allows exploration of more possibilities than internal R&D budgets support. Plus, it creates potential network effects. Engaging with an external ecosystem enriches that ecosystem.

However, open innovation has challenges. Organisations adopting it without considering the complications often struggle to sustain it.

Managing intellectual property is complex in an open innovation context. When ideas cross boundaries, ownership, licensing, and confidentiality issues arise. Missteps can lead to legal trouble and damage trust in partnerships.

Integration is another challenge. Finding an external idea is one thing. Embedding it into the organisation's products and culture is another. Many initiatives gather external input but fail to turn it into commercial outcomes. This is because their internal processes aren't set up to handle outside material.

There's also a risk of overvaluing external ideas at the expense of internal capabilities. Open innovation should complement strong internal capabilities, not replace them. Organisations that stop investing in their knowledge base may lose the ability to evaluate and adapt what they access.

Open Innovation and Organisational Readiness

The key insight about open innovation is that it’s not just a technology or platform; it’s an organisational capability. Like all capabilities, it requires intentional development.

A culture that is closed off to outside ideas will struggle with open innovation. The cultural elements discussed previously - psychological safety, curiosity, and a willingness to engage with uncertainty - are essential for the outward orientation that open innovation requires.

The structure must support this aspiration, too. We need roles for managing partnerships, clear processes for evaluating ideas and strong governance for intellectual property. These elements are not optional; they’re essential for making open innovation a practice.

The Broader Significance

Open innovation matters beyond the individual organisation. Universities have become more active partners with business. Startups have become a primary source of radical innovation for large companies. Cross-industry collaboration has produced innovations that no single sector could have generated alone.

The closed model of innovation was not wrong for its time. In a world where knowledge was scarce and concentrated, internalising it made sense. But the world has changed. Knowledge is now abundant, widely distributed, and increasingly collaborative in its production. The organisations best equipped for this environment are not the ones with the highest walls. They are the ones with the most productive relationships.

Open innovation is not about giving things away. It is about recognising that in a connected world, the boundaries of your organisation are not the boundaries of your potential.

One Idea, Many Rhythms: How Innovation Works Across Different Industries

Innovation is often seen as a universal concept. But if you explore how different industries innovate, you’ll find a richer and more complex picture. I’ve worked on innovation briefs across many different categories over the years, but the way we’ve approached ‘new product development’ has been very different.

Pharmaceutical companies, fashion brands, tech startups, and breakfast cereal makers all innovate. Yet their timescales, risks, regulations, and success criteria vary greatly.

Recognising these differences changes how we view the approach and requirements of innovation.

Let’s delve into four distinct categories.

Pharma: The Long Game

Patience is a strategic asset in the pharmaceutical industry. Drug development is one of the most costly and time-consuming processes in any sector. Developing a new drug can take 10 to 15 years and cost around $2 billion.

The failure rate is staggering. Most drug candidates that enter clinical trials never reach the market.

Still, the industry keeps investing. Why? Because the potential rewards are massive. Without innovation, a pharmaceutical company has a ticking clock. Patents expire, and generics fill the market.

Pharma's innovation is defined by rigour and portfolio thinking.

Rigour is essential due to strict regulatory and ethical standards around drug safety. Portfolio thinking means no single drug can support an entire organisation’s innovation strategy. Companies spread risk across various compounds, knowing that most will fail, but a single success can cover everything.

Pharma doesn’t move as fast as tech startups. It builds long-term processes with staged investments and careful gatekeeping. There's a tolerance for years of work that may ultimately fail.

Fashion: Innovation at the Speed of Culture

In fashion, almost everything shifts. While pharma measures innovation in decades, fashion counts in weeks. Fast fashion, led by brands like Zara and H&M, has turned a two-season cycle into a continuous flow of new products. Zara, for example, can take a design from concept to store in just two weeks.

This type of innovation is about cultural awareness and operational agility. Zara’s model focuses on how it produces rather than what it produces. Integrated supply chains, small production runs, and feedback loops allow for real-time responses to customer preferences.

Fashion also highlights where innovation happens. In pharma, it’s in the lab. In fashion, it’s where design, supply chain, and trend forecasting intersect. This blend of creativity and precision is hard to replicate.

However, fashion faces a growing tension between rapid innovation and sustainability. The environmental impact of producing vast amounts of short-lived clothing is significant. This poses a challenge: how to maintain momentum while managing scarce resources.

The companies that solve this will shape the industry's future.

Technology: Iteration as Philosophy

The tech sector has greatly influenced modern views on innovation, sometimes negatively. Familiar mantras like “move fast and break things” can encourage poor quality if misapplied.

Top tech companies treat product development as a continuous loop, not a linear path. The model of research, development, and launch has been replaced by a more fluid approach. Products are released early, user behaviour is observed, and the product evolves based on feedback.

The launch is just the start of the innovation journey.

This method works in tech partly because software updates are cheap and instant. The cost of making mistakes is low. This allows for quick corrections without losing years of effort or money.

What tech has encouraged is the practice of testing assumptions early. Instead of creating a complete product, you build a minimal version to learn if your core idea is correct.

This principle has spread beyond tech for good reason. The logic is sound: reduce the cost of being wrong by failing sooner.

FMCG: The Innovation Paradox

Fast-moving consumer goods (FMCG) present a unique innovation challenge. These markets are large, competitive and have tiny margins. Consumers tend to stick to familiar brands, making it hard to disrupt habits.

This creates the FMCG innovation paradox. Companies like Unilever, Procter & Gamble, and Nestlé invest heavily in innovation. But their size makes radical changes risky and rare.

New flavours, reformulated products, and improved packaging are the staples of FMCG innovation. These are incremental, carefully tested, and rolled out with military precision.

The testing process in FMCG is thorough. New products often go through consumer research, regional trials, and retail performance modelling. The innovation funnel is highly systemised. A product is deemed a failure if it doesn’t achieve a sufficient repeat purchase rate.

Yet disruption does happen, often from entrepreneurs and challenger brands.

The craft beer movement challenged major breweries. Direct-to-consumer brands disrupted legacy personal care giants. Often, disruption arises from a different model of engaging with consumers.

IN SUMMARY

When you compare these four sectors, the differences are clear.

This means there is no single template for effective innovation. The best approach depends on your industry. Consider your failure costs, market pace, regulations, and consumer expectations.

Recognising these differences and adapting your innovation process is essential for any organisation. The challenge lies not in finding a universal formula but in understanding your industry's rhythm and ensuring your approach is fit for purpose.