-Interview Report- Co-creating New Value through Open Innovation

Galvanized by “All-electric Homes” to Take Action

I think Osaka Gas has been a pioneer in open innovation in Japan. Could you tell us about the story behind the launch?
Higuchi In 2008, Osaka Gas started preparing to launch its open innovation initiative. At that time, although a number of overseas companies had already started, few companies in Japan had implemented such initiatives. The main factor driving our focus on open innovation at that time, was the emergence of “all-electric homes” and the huge amount of public attention it drew.
Do you mean the concept triggered a feeling of impending danger in you?
Higuchi Yes, it galvanized us. We certainly had a strong feeling of being at risk, thinking there would be no future for us if we continued to partner only with other companies in the gas industry. The new “all-electric homes” concept placed us in a situation where we had no choice but to engage in open innovation. Therefore, we began preparing in 2008 and launched our full-fledged initiative in April 2009. The Open Innovation Office was established in 2010 to become the first section specializing in open innovation in Japan.
Yuji Higuchi
It seems it was really a pioneering initiative. Was it welcomed in Osaka Gas?
Higuchi No, it wasn’t. Things didn’t go so well. Researchers in our company maintained it would be ridiculous to obtain technologies from external parties with whom we had no previous relations. I certainly understood their argument because I was also a researcher. Open innovation requires us to determine whether the proposed technologies and our prospective partner companies could be trustworthy. It also involves the disclosure of our difficulties in technological development, which would arouse opposition from researchers. However, believing open innovation a necessary step for our company, we petitioned the top management to urge each division to submit at least a few requests for external technologies they needed. As a result, in 2009, the first fiscal year of the initiative, 40 requests were submitted and 25 of these were fulfilled with technologies proposed by external parties. These achievements generated genuine company-wide recognition for open innovation.

The Key is How Well You Connect Company Staff with External Proposers

Can you describe the actual process of matchmaking?
Higuchi The first step is to interview staff about their needs and to fill in a needs sheet. To bridge connections with companies in search of potential proposers, we first consult public small- and medium-sized enterprise support organizations located in most municipalities. Meanwhile, we also post online requests calling for external proposals that meet our in-house needs.
How many requests are submitted?
Higuchi Approximately 70 requests are submitted by divisions across the Daigas Group annually. About half of these are fulfilled with desired technological proposals and these are then replaced with newly submitted requests in a continuous cycle. While some of the difficult requests are left unmet for a long time, it seems that most of these have been submitted to serve more as a kind of antenna for possible hints into future paths, rather than with expectations for fulfillment.
Yuji Higuchi
What steps do you take after receiving technological proposals from external parties?
Higuchi We introduce proposers to the staff in need of proposals. This is the final step that we, at the Open Innovation Office, must take. Since we are the matchmakers, we leave the subsequent process to the “couples” (laughs). We nevertheless want to be successful matchmakers. Therefore, we thoroughly analyze the in-house needs and enthusiastically explain the difficulties that in-house requesters face, due to the lack of desired technologies, at needs briefings with prospective proposers. We take great care to convey a sense of urgency for these technologies. We also give prospective proposers advice on effective ways of presenting their proposals to our staff according to the staff members’ respective personalities.
Given that the entire Daigas Group covers a vast scope of technologies, you, as matchmakers, should also have vast amount of technological knowledge, right?
Higuchi Definitely. I myself was originally a researcher, and the other members of our office are also experts in a wide range of fields, including chemistry, and information and communications. Researchers naturally aspire to achieve mastery in their own research area. Similarly, we are just striving to achieve mastery of our own area: open innovation. We can genuinely identify with in-house staff in need of proposals. Our office has staff not only in Japan but also in Silicon Valley where one member is stationed to obtain information from overseas startups and keep up to date with the latest information.
Yuji Higuchi

Quadrupling the Normative “Three per Thousand” Success Rate

What results has your office produced as a specialized section?
Higuchi We have set steps 0 to 5 as a standard for accessing the results of our work. Following these steps, our results over 11 years can be described as:
STEP 0: Put out 739 requests for proposals
STEP 1: Received 6,458 seed proposals
STEP 2: Interviewed 3,008 external prospective proposers
STEP 3: Arranged for 1,299 external prospective proposers to meet in-house requesters
STEP 4: Helped develop 432 proposals into concrete projects
STEP 5: Yielded positive results for over 80 projects adopted as useful technologies
This is an undeniable success example.
More than 80 projects have been succeeded in 11 years. Do you believe this result deserves praise?
Higuchi In the world of research and development, we often use the term “three per thousand,” which means that, if you succeed in three out of the 1,000 projects you implement, you should feel satisfied. Of the about 1,000 proposals we received, 12 resulted in adopted technologies, meaning our success rate was fourfold the “three per thousand” standard. In other words, our open innovation initiative has helped the Daigas Group yield the results that it could have achieved if it had had three times more researchers.
I see. With that understanding, it certainly is a great achievement.
Higuchi However, we are just matchmakers who serve as a bridge between two parties. It’s the in-house staff who introduces external technologies and leverages them for technological development or business success. I think it’s wonderful that our company, as a whole, has a culture of actively accepting external technologies. At the Open Innovation Office, we aim to be a close companion who supports their efforts.
Please give us some successful examples.
Higuchi One example is the high-altitude training studio “30 Peak” run by Daigas Group company, OG Sports Co., Ltd. This is a new type of sports gym where users can train in spaces with low oxygen concentrations equivalent to up to 2,500 m above sea level. After receiving the request for equipment for creating a low-oxygen environment, I approached a physical and chemical device manufacturer and succeeded in having the requester introduce the technology of the external company. OG Sports has already opened three gyms of this kind. This is an undeniable success example.

the high-altitude training studio “30 Peak”

Have any proposals resulted in products?
Higuchi There is a product named “Spot Silencer.” It’s a device that offsets and reduces noise by superimposing opposite phase sound waves. Osaka Gas originally had the technology but as we are not a manufacturer, we were unable to mass-produce such a device. Therefore, we put out a call for prospective partners who could prototype and mass-produce a new device using this technology. We then found an excellent manufacturer with OEM production capacity which lead to the successful commercialization of the technology.
“Spot Silencer.”

Toward Firmly Rooted Co-creation

How would you explain Osaka Gas’s success in open innovation?
Higuchi One major factor behind our success was the fact that we were really serious because the “all-electric homes” had a massive impact on us. I feel that this sense of impending danger surrounding our very survival drove us to tackle the initiative seriously and has immensely helped us succeed. Another factor is that open innovation is an easy to implement business style for us. In B2B2C, Osaka Gas can be positioned as the middle B. Since manufacturing is not our main business, we are free to accept anything from anywhere. We can almost disclose all technologies we need. Manufacturers cannot do this, because it would mean revealing secrets about their product development. We are fortunately well-positioned for open innovation.
Yuji Higuchi
What future vision do you have?
Higuchi The Daigas Group has now disclosed the seeds it has to call for partners who can utilize the technologies of the Group. In this aspect too, we have achieved very good results in terms of the number of submitted proposals and the percentage of successful projects. We hope to devote further efforts to this area. Another promising model is the “sharing of technological needs” model.
What do you mean?
Higuchi In Japan, there are several gas companies aside from us, and we have noticed that these companies all have common technological needs. We are preparing to launch an open innovation business whereby outside companies can utilize our system, for a fee basis, to search for technologies that meet common technological needs to ours.
You expanded to create a new business in the end.
Higuchi We are in an era where the principle of self-reliance is limiting, and creating new value requires co-creation with external parties. Opening our door widely will help us open up possibilities that would be unimaginable if we intended to make do only with in-house resources. We at the Open Innovation Office are currently in charge of providing opportunities for co-creation. But, the ideal situation is for all divisions of the Daigas Group to become able to build relationships with external parties on their own.
What will happen to the Open Innovation Office then?
Higuchi I guess we may graduate or be disbanded (laughs). It’s not a joke. But it probably is the ideal path for progress in the future.
Thank you for joining us today.
Yuji Higuchi Yuji Higuchi
General Manager, Open Innovation Office, Innovation
Department, Osaka Gas Co., Ltd.
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