Open innovation in the automotive

industry
Serhan Ili1, Albert Albers2 and Sebastian Miller3
1

ILI CONSULTING, Niddastrae 17a, 76229 Karlsruhe, Germany. ili@ili-consulting.de

Institute of Product Development Karlsruhe, University of Karlsruhe, Kaiserstr.10, 76128
Karlsruhe, Germany. albers@ipek.uni-karlsruhe.de
3
McKinsey & Company Inc., Sophienstrae 26, 80333 Munchen. Sebastian_Miller@mckinsey.com
2

Automotive Original Equipment Manufacturers (OEM) have historically invested in their own
research and development (R&D) to boost their innovativeness. Because of an increasing
innovation and cost pressure, the automotive industry needs to look outside their own
boundaries to escape from this productivity dilemma. While there is a tendency to look
outside for external sources to increase the innovativeness, there are hardly any external paths
to market outside the current business yet. Our study shows that Open Innovation proves to be
more adequate in the attempt to achieve a better R&D productivity for companies in the
automotive industry than a closed innovation model.

1. Introduction

he automotive industry is trapped by cost

and innovation pressure and it is about to
experience a revolutionary discontinuity in generating innovations. In our opinion, in the next
1012 years, the way of creating and proting
from innovation will change completely in the
automotive industry. One of the reasons for these
changes is the customers. They want more and
more car for the same old price. Their demands
and expectations are driving Original Equipment
Manufacturers (OEMs) into a race to innovate.
In addition, mature markets in industrialized
countries provide only marginal growth as they
are almost saturated. As a consequence of this,
OEMs have to focus more than ever on customer
desires. Other drivers who cause innovation pressure are strict environmental protection guidelines
and safety conditions. Competition also increases
innovation pressure for OEMs due to the imperative to build and sustain exciting brands with
innovations that appeal to customers on an emotional level. But generating innovations is an expensive issue. In 2006, the research and
development (R&D) outgoings for one innovation
246

added up to h7080 million at Porsche, BMW and

VW, and Daimler even spend 4h150 (Bratzel and
Tellermann, 2007). At the same time, price erosion
and shorter product life cycles continue to force the
industry to reduce costs dramatically.
However, simultaneously increasing innovativeness and controlling costs will be the key
approach in the future to achieving strategic
business objectives. The seismic shift resulting
from cost and innovation pressure forces the
automotive industry to search for new strategies
to increase the R&D productivity. The current
mindset of generating and exploiting innovation
is reaching its limits. Is Open Innovation the new
imperative for creating and proting from technology as Chesbrough (2003b) states?
Open Innovation is a phenomenon that has
become increasingly important for both practice
and theory over the last few years in the automotive industry. A cultural trend toward Open
Innovation can be observed and it has taken on
greater saliency in light of the successful application in other industries. Open Innovation seems
to have taken hold strongly in software industry
(West and Gallagher, 2006) and also in consumer
goods (Dodgson, Gann and Salter 2006). It would

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Open innovation in the automotive industry

be interesting to examine Open Innovation in a
context where it does not yet seem to have made
an impact: the automotive industry.
Open Innovation seems to provide a broad range
of benets to cope with the contemplated challenges in order to sustain competitiveness in this
rapidly changing environment. Methods to exploit
technologies through innovations and methods
to increase the range of innovation opportunities
can be integrated. Hence, the most important
benet is the chance to increase the productivity
of own R&D. But there is a need for a contingency
approach regarding the adoption of Open Innovation in automotive industry. Through Open Innovation, the role of R&D will change completely and
new capabilities and competences will be required
e.g. regarding intellectual property rights or due
diligence expertise to evaluate external technologies. Moreover, the cultural change due to Open
Innovation in R&D should not to be underestimated. Both researcher and developer need to open
up their entrepreneurial responsibility. They need
to advance their productivity by using external
sources and by expanding the markets for their
technologies.
It remains an open question whether the concept of Open Innovation proves to be more
adequate in the attempt to achieve a better
R&D productivity for companies in the automotive industry than a closed innovation model. The
relevance of Open Innovation for the automotive
industry and their potential benets motivated
our exploratory research report. We sought to
answer the following questions:
1. Is the Open Innovation model appropriate for
the automotive industry and to which innovation paradigm does the automotive industry
currently tend to?
2. Which external sources and external paths to
market are currently used by the automotive
industry and which benets passed up according to this?
3. Which essential implications occur for the
automotive industry regarding new methods
of R&D management?
4. Which barriers and enablers can occur by
adopting Open Innovation practices?

2. Theoretical background
Since Chesbrough published his book in 2003, the
concept of Open Innovation has received wide
attention from practitioners and researchers. His
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contribution could be considered seminal due to

its impact on research activity in academia. Open
innovation implies that rms increasingly rely on
external sources of innovation by emphasizing
that ideas, resources and individuals ow in and
out of organizations (Chesbrough, 2003a). Chesbrough differentiates between two kinds of Open
Innovation: inbound, where new ideas ow into
an organization, and outbound, where unused
technologies can be acquired by external organizations with business models that are better suited
to commercialize a given technology (Chesbrough and Crowther, 2006).
Open Innovation is a complex issue that received contributions from different research
streams. The relevance of innovation was rst
brought to public perception by Schumpeter in
(1934), who identied innovation as the main
driving factor economical progress for entrepreneurs. Solow re-emphasized that innovation and
technical progress are the main drivers for economic growth with his important empirical studies (Solow, 1957). In his seminal paper, Arrow
(1962) also made an important contribution with
his research result about the Information Paradox. This explains the difcult situation of a
sellers need to reveal information about the
technology to the potential customer and to
convince the customer acquiring the technology
without disclosing all the information.
At that time, many scholars associated a strong
internal R&D capability with innovativeness.
Chandlers (1990) research shapes the picture of
an inwardly focused, vertically integrated model
of industrial innovation. While in-house R&D
has traditionally been an important source of
technical know-how for rms (Mowery, 1983), it
is not the only possible source. Nelson and Winter
(1982) suggested to source knowledge externally.
Cohen and Levinthal (1990) readdressed this
matter in their concept of absorptive capacity by
emphasizing the correlation between internal research activities and the capability to exploit
external knowledge. Zhara and George (2002)
later scrutinized and extend the concept of absorptive capacity. Tushman and Katz (1980)
advised the channeling of external information
by gatekeepers. Yet another milestone in this
subject matter is represented by von Hippels
(1986) lead-user approach, which proposes the
advantages of customer integration in the development process. Pisano (1990, 1991) states how
established and new market players can commensally co-exist in a supplierbuyer relationship.
Teeces (1986) inuential article deals with the
R&D Management 40, 3, 2010

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Serhan Ili, Albert Albers and Sebastian Miller

prospects of complementary assets that allow
companies to generate additional returns from
innovation. Powell (1990) shows that rms use
formal relationships, such as licensing agreements, alliances and joint-ventures as well as
informal relationships to source expertise outside
their boundaries. Arora et al. (2001) discuss the
rise of intermediate markets especially in technology-intensive industries, such as the elds of
information technology and telecommunication.
Laursen and Salter (2006) address a positive
correlation between open search activities and
innovativeness. Katz and Allen (1982) shape the
not invented here syndrome, which states that
inert structures within organizations favor expertise that has been developed in-house.
Chesbroughs work plays an instrumental role
in providing an umbrella for various research
streams. He builds an academic community
around Open Innovation to motivate other researchers for further research: Gassmann and
Enkel (2004) provide important implications for
practice with their three core processes: outsidein, inside-out and coupled. Von Hippel and
von Krogh (2006) analyze the importance of free
revealing as a basic constituent of Open Innovation. Piller and Walcher (2006) explore Internetbased toolkits designed to create competition
between users ideas. Chesbrough and Crowther
(2006) conclude that companies of lower technologies and more mature industries apply notions of
Open Innovation, particularly concepts of inbound open innovation. West and Gallagher
(2006) summarize the lessons learned from open
source software development regarding the challenges of managing Open Innovation. With our
research project, we not only want to advance the
state of the art but also aim at stimulating further
research regarding Open Innovation, especially in
the automotive industry.

3. Exploratory research report

West et al. (2006) suggest ve levels of analysis to
encourage future research of Open Innovation:
(1) individuals and groups, (2) implications for
rms, (3) interorganizational value networks, (4)
industry or sector and (5) national institutions
and innovation systems. Most of the past research
about Open Innovation has been based on case
studies on rm level. In our study, we have chosen
the (4) industry level of analysis. Other studies
have well documented a widespread utilization of
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R&D Management 40, 3, 2010

sive sectors like pharmaceuticals, information

technology as well as consumer goods (Chesbrough, 2003a, b).
To our knowledge, no study has been conducted on Open Innovation in the automotive
industry. While case studies have been carried out
of Open Innovation, surveys are another important way to expand the empirical evidence on
Open Innovation. Therefore, we have designed
this exploratory research report, whose prime
purpose is to highlight interesting preliminary
ndings about open innovation perceptions in
the German automotive industry.
The status quo regarding Open Innovation
has been evaluated among all major German car
manufacturers and automotive suppliers. The
sample of participants comprises 42 companies
including ve OEMs, representing approximately 780,000 employees and h275 billion turnover. In order to increase the proportion of
quantitative gures, only companies with
4200 employees and 4h100 million have been
selected. To ensure the focus on the German
market, R&D activities in Germany and turnover in German automotive industry of at least
50% were required. First, a questionnaire was
sent to ask for general company information,
quantitative data and an estimation of the importance of several Open Innovation concepts
and methods for their company. Depending on
the results of the questionnaire, a semi-structured personal interview was conducted thereafter. The semi-structured approach was chosen
to ensure the comparability of the results on the
one hand and to allow the interviewee emphasize important issues on the other. The interviews focused on four aspects: (1) external
sources for innovation, (2) operations and processes, (3) external exploitation and (4) personal
opinion on future trends in industry and their
own company. Eight members of the executive
board, 25 R&D managers and nine operational
managers were interviewed.

4. Findings
4.1. Is the Open Innovation model
appropriate for the automotive
industry and to which innovation
paradigm does the automotive
industry currently tend to?
Although a trend toward Open Innovation can be
observed, an overall recommendation for every
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Open innovation in the automotive industry

company and innovator regarding the appropriateness of Open Innovation has not been given to
date. There is a need for a rm- and an industryspecic breakdown. Gassmann (2006) argues that
the more an industrys idiosyncrasies correspond to
developments and trends like (1) globalization, (2)
technology intensity, (3) technology fusion, (4) new
business models and (5) knowledge leveraging, the
more appropriate the Open Innovation model
seems to be. Based on this assumption, we asked
about the relevance of each trend and development
within the automotive industry. The aim is to
provide evidence about how appropriate Open
Innovation is and will be for the automotive
industry today and in 10 years (Exhibit 1).
The results show that today, Open Innovation
is already appropriate for the automotive industry, and that it will be a crucial factor in the next
10 years. The occurrence of the rst four trends
and developments ranges from 62% to 93%.
According to automotive experts, only knowledge
leveraging of today 53% and in future 65% will
not be distinctive. The fact that knowledge leverage will concentrate on a few experts in the future
suggests the importance for rms to identify
experts and commit them exclusively to the rm.
Online technology market places like NineSigma,
Innocentive or yourEncore could support the
automotive industry in this challenge. The importance of increasing technology intensity and
fusion implies that integration of external technology as well as intensive collaboration with
other industry sectors will become a crucial factor
to increase innovativeness. The impressive relevance of new business models in future clearly
shows potential for innovative business ideas.

After we have provided evidence of Open Innovation for the automotive industry, it is now
necessary to analyze to which paradigm the
automotive industry currently tends to. Chesbrough (2003a b) describes the principles of the
two paradigms with six categories: (1) eld of
expertise, (2) function of own R&D, (3) attitude
regarding research, (4) market ambition, (5)
sources for ideas and (6) intellectual property.
With the contrasting principles, we dene the
current situation regarding Open Innovation in
the automotive industry (Exhibit 2).
The results show clearly that the automotive
industry currently tends to a closed innovation
paradigm even though the Open Innovation
model is absolutely appropriate for the automotive industry. Indeed, a change in the mindset has
started that not all ideas and innovations must be
created by own capacities; however, the main
aspect of R&D is still to create the most and
best ideas in the industry instead of using internal
and external ideas as well. The small amplitude at
(3) might show a tendency toward Open Innovation. In our opinion, the amplitude has been
caused by the recent cost pressure in the automotive industry. Increasingly more rms have
started to save costs in research. They rather
focus on application-oriented development than
investing in own research. The handling of the
intellectual property is defense orientated so that
competitors are not able to prot from the rms
ideas. Currently, there is no proactive sale of
intellectual property, and in some cases intellectual property is only sold on request in the same
industry. With our research results, we found
evidence that Open Innovation is appropriate

The relevance of each trend and development within the automotive industry.
How do the idiosyncrasies of the automotive industry correspond with the following trends and
developments - today and in ten years?

(1) Globalization

75%

(2) Technology fusion

75%

(3) Technology intensity

68%

(4) New business models

62%

(5) Knowledge leveraging

0%

53%

Today

low

93%

92%

88%

90%

65%

In 10 years

100%

high

Exhibit 1. The relevance of Open Innovation in the automotive industry.

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Serhan Ili, Albert Albers and Sebastian Miller

Contrasting Principles of Closed and Open Innovation

Which statement reflect rather your firms attitude?

Closed Innovation
(1)
Field of expertise

0%

100 %

Open Innovation

16%

(2)
Function of the own
R&D

21%

(3)
Attitude regarding
research

31%

(4)
Market ambition

29%

(5)
Sources for idea

35%

(6)
Intellectual property

18%
Categories according Chesbrough (2003)

Exhibit 2. The status quo of Open Innovation in the automotive industry.

for the automotive industry, but that at the same

time, a tendency toward a closed innovation
paradigm still prevails.

4.2. Which external sources and external

paths to market are being currently
used by the automotive industry and
which potential benets are passed up
according to this?
With the use of purposive inows and outows of
knowledge, the automotive industry can defy the
recent cost and innovation pressure. Open Innovation assumes that rms can and should use
external ideas as well as internal ideas, and
internal and external paths to market (Chesbrough et al., 2006). Based on this denition,
we identify which external knowledge sources
and external paths to market are currently being
used by the automotive industry and which
potential benets are passed up according to
this (Exhibit 3).
In essence, we assert that the automotive
industry predominantly uses own R&D and
their direct environment as a trigger for innovation. Customers are the most important source
for innovation, followed by competitors and
suppliers. Governmental regulations are an additional source for innovation. Other innovative
sources are of small relevance. Currently, rms
have a small external radius, which causes many
potential benets from other external sources
that are passing up. The automotive industry
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R&D Management 40, 3, 2010

could easily increase their science and technology base and thus their innovativeness by tapping new external sources. In any case, the
automotive industry has started to look outside
boundaries to increase innovativeness. First attempts have shown that there is a positive
correlation of open search activities and innovativeness. In particular, there are high innovation
potentials from examples of other industries.
OEM 4 states: It was amazing, how one of
our product developers was surprised, as he
found out that the medicine equipment technology provides technology solutions for noiseless
blower. That technology has a high potential to
contribute to the customer well-being in the
interior. OEM 5 purposively uses the expertise
from Ritz Carlton in terms of their competency
in comfort for ergonomic studies for new cars.
Many suppliers use and nancially support
knowledge competence from start-up rms especially from other industries. Suppliers 2, 6, 9, 10
and 17 make use of technology market places to
get in touch with these hidden champions and
support them with venture capital; in return,
they claim the sole exploitation rights.
While there is a tendency to look outside their
own boundaries for external sources to increase
innovativeness, there are hardly external paths to
outside the current business with own intellectual
property and least of all with otherss intellectual
property. License parties from the automotive
rms are mainly the competitors. Only Porsche
uses systematically through its subsidiaries
Porsche Consulting and Porsche Engineering
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Open innovation in the automotive industry

External sources
Please rate the following external sources regarding their importance for generating ideas or innovations?

External sources

(0)
(1)
(2)
(3)
not used rarely used sometimes used often used

Customers

87%

Competitors

64%

Direct environment
as a trigger for

Supplier

62%

Lawmaker/Regulations

ideas and innovations

59%

Other industries

43%

Universities

37%

Research institutes

36%

Engineers, Consultants

30%

Consortium

24%

Start-ups

23%

Communities

21%
0%

100 %

Exhibit 3. External sources used by the automotive industry.

License parties
Who are your license parties?

License parties
Competitors

55%

Same industry, but other

geographical markets

46%

Supplier

27%

Joint Venture

18%
18%

Other industries

18%

Research institutes

Conflict
avoidance
defensive

0%
0%

100%

Exhibit 4. License parties in the automotive industry.

two forms of external exploitation of their intellectual property (Exhibit 4).

The automotive industry possesses several unused patents and most of the rms even do not
know about their potential value for other rms.
OEM 1 argues: There are a plenty of patent
garbage. OEM 4 complete: Most of the engineers
are so focused on automotive that they are not
aware of the potential of external exploitation.
The automotive industry needs to expand their
methods in order to identify and benet from
technology solutions of external sources and additional exploitation outside the current business.
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4.3. Which essential implications occur

for the automotive industry regarding
new methods of R&D management?
There is a lack of use of appropriate methods
within the R&D management for both outsidein and inside-out (Gassmann and Enkel, 2004).
It is no longer enough to use a few classical
methods.
4.3.1. Outside-in methods
Classical searching methods lead to classical solutions. In fact, these searching methods often do
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Serhan Ili, Albert Albers and Sebastian Miller

not have enough potential for a unique selling
proposition (USP) but rather for a me-too-innovation as OEM 4 states. Learning journeys
and trend scouting are promising methods to
achieve innovations with differentiation characteristics. For this reason, rms like BMW, Daimler and VW have created so-called trend scouts
in various technology regions for instance in Palo
Alto, North America and Tokyo. Supplier 2 uses
learning journeys to pick up important information: I have installed a project team and distributed them all over the world to pick up all
relevant information about the hybrid technology. Now we know where we can source the
different competencies. Besides these active
search methods, there are new passive web-based
methods. BMW uses a method called Virtual
Innovation Agency. Also, VW provides an online
interface that allows engineers from outside the
company to submit their ideas and innovations.
Such web-based tools need a human gatekeeper,
which can secure a stronger impact on the rms
innovativeness. To conclude, all experts agreed
that there is a need for action regarding new
searching methods of R&D management: a look
outside their own industry boundaries to increase
innovativeness (Exhibit 5).
4.3.2. Inside-out methods
There is a need to increase the exploitation of own
intellectual property, within and outside the current business. Methods like licensing and corporations mainly used to exploit intellectual
property. But the primary aim is conict avoid-

ance and not prot maximization. The majority

of the automotive rms grant a license only on
request; there is no mindset of active exploiting.
Only one supplier exploits his patents, which are
not suitable to its current portfolio. They consider
such an approach as a new business model, and
indeed they are drawing prot. So far, supplier 2
searches for suitable license parties of its own
industry and not via online market places. The
next step will be a more open one using online
market places to exploit own intellectual property
(Exhibit 6).

4.4. Which barriers and enablers can

occur by adopting Open Innovation
practices?
One barrier of integrating external sources is the
apprehension that external ideas and technologies
do not t the brand image. The own R&D needs
to adapt these ideas and technologies to the
corporate strategy and this is the point where
internal R&D has no extra time and free space.
Other present barriers are missing acceptance for
external ideas and the absence of a top-down
target to integrate a certain number of ideas and
technologies from external sources. All relevant
ideas and technologies come from within our own
R&D (OEM 2). We are a world market leader.
There are no external ideas which we had not
already in pipeline (OEM 1). The rms can
counteract to these barriers with the integration
of own engineers during the search activities

Outside-in methods
Which methods do you use for tapping external sources?.
Selected* methods
* from 45 suggested methods

71%
52%
48%

Methods for
me-tooinnovations

49%
48%
44%
41%

Methods for
exclusive
innovations

40%
38%
35%

0%

100 %

Exhibit 5. Outside-in methods in the automotive industry.

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R&D Management 40, 3, 2010

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Open innovation in the automotive industry

Inside-out methods
Which methods do you use for external exploitation of your intellectual property?
Inside-out methods
63%

Reciprocal license agreements

59%

Licensing

57%

Alliance
Joint Venture

Conflict
avoidance
defensive

47%

Patent sale

38%

Business unit sale

24%

External training

18%

Grant-back license

External
exploitation
active

15%

Consulting

13%

Personnel exchange

3%

0%

100 %

Exhibit 6. Inside-out methods in the automotive industry.

coupled with an incentive system. Incentive systems are also an important point for exploiting
own intellectual property. Currently, there is
absolutely no mindset not to mention processes
and methods supporting active sale of intellectual
property. The rms do not want to motivate their
own R&D to develop innovations for someone
else (OEM 1). Just imagine our engineers would
develop an innovation outside our current business. It wont work (OEM 2).

5. Conclusion
The study aims to provide a comprehensive overview from the theoretical and practical perspective, with the prime purpose being to highlight
interesting preliminary ndings about open innovation perceptions in the automobile industry.
With our research question above, we want to
identify global conclusions and recommendations regarding the relevance and the adoption
of Open Innovation in the automotive industry in
the context of strategy, process, methods and
culture.

creases awareness of potential benets to all other

employees involved. Open innovation should be a
result of an explicit top-down strategy.

5.2. Process
Currently, R&D processes do not yet meet the
demands for Open Innovation. New elements like
gatekeepers need to be introduced. Also, we
strongly recommend to design and install two
process steps in the innovation process. We are
currently implementing and analyzing the following inside-out and outside-in processes at
Porsche:
(1) Innovation impulse step: as a comprehensive
process step to manage internal and external
innovation inputs.
(2) Innovation transfer step: as a comprehensive
process step to maximize the benet of continued
and discontinued internal and external ideas and
innovations with the aim to increase the R&D
productivity.
Comprehensive results will soon be published
in corresponding journals.

5.1. Strategy

5.3. Methods

A sustainable support from top-management is

one of the most important key factors for implementing Open Innovation. Only a top-down
strategy to open up the innovation process in-

There are important implications for new methods of R&D management. Each company has to
nd its own way to tap external sources or exploit
their intellectual property. But the methods

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Serhan Ili, Albert Albers and Sebastian Miller

should have one thing in common: they should
have the ability to look outside their boundaries
and industries: just open.

5.4. Culture
The greatest danger in times of turbulence is not
the turbulence: it is to act with yesterdays logic.
This quote from Peter F. Drucker describes
perfectly the crux of the matter. As long as there
is no change in the mindset of how to create and
prot from technology, the R&D management
will not benet from the powerful opportunities
of Open Innovation. In our opinion, the biggest
challenge of practicing Open Innovation is to
change the R&Ds attitude and thus their peoples
mindset. They need to understand that there are
several people who know about their business. It
is essential to prot from them.
After we have given evidence with this paper
about Why the automotive industry should use
Open Innovation, in our next paper we want to
show How Open Innovation can be implemented within the R&D. We want to stimulate further
research of Open Innovation in the automotive
industry. Please consider this as an invitation to
join us.

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Serhan Ili graduated at the Karlsruhe Institute of

Technology (KIT) with a diploma in Industrial
Management and Engineering. After his studies
he worked as an innovation manager at Porsche
AG. He received his PhD at the Institute of
Product Development Karlsruhe in product development and innovation. His research focuses on
the implementation of Open Innovation in the
product development process. In addition, he is
general manager of the innovation consulting rm
ILI CONSULTING.

r 2010 The Authors

Journal compilation r 2010 Blackwell Publishing Ltd

Albert Albers, born 1957, is full professor of the

IPEK Institute of Product Development at the
University of Karlsruhe. After working as head of
development of coupling systems and torsion
vibration dampers at LuK GmbH & Co. OHG,
he switched to IPEK in 1996. His research focuses
on models for product development processes as
well as the support of product development by
methods for computer-aided engineering, innovation and knowledge management in mechanical
and automotive engineering. He is a member of
acatech the German Academy of Science and
Engineering. He is a member in the Association of
German Engineers (VDI) and works there in the
advisory boards for product development and
systems and of the society for materials. In
2008, he was elected president of the assembly
of faculties in Germany. Prof. Albers has published the results of his work in 4350 scientic
publications at conferences and in journals as well
as in several books.
Sebastian Miller is consultant at an international
top management consultancy. He graduated from
University Karlsruhe (TH) with a diploma in
Industrial Management and Engineering. During
this time, he furthered his expertise on innovation
and strategic management at University of St.
Gallen (HSG) and Federal Swiss Institute of
Technology Zurich (ETH).

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