Open Innovation

Definition

Open Innovation focuses on a conscious combination of internal and external knowledge to explore new opportunities and paths for the company. The Open Innovation approach assumes that companies should have permeable firm boundaries to commercialize external (as well as internal) ideas by deploying outside (as well as in-house) pathways to the market.


Open Innovation can appear in two different forms:

Outside-in: The outside-in part of open innovation opens up a company’s innovation processes to many kinds of external inputs and contributions. These inputs are integrated to the internal innovation process to accelerate and enrich the innovation and development process.

Example of outside-in: Idea challenges where external knowledge is collected to find innovative and creative solutions to a predefined problem set.

Inside-out: The inside-out innovation requires organizations to allow unused and underutilized ideas and knowledge to go outside the organization for others to use in their businesses and business models. So, internal assets can become valuable by sharing them with partner using different types of contracting models.

Example of inside-out: Through licensing internal inventions not being used are taken outside.

History: From Closed to Open Innovation

Closed Innovation: The closed innovation model assumes that innovation happens inside the company borders by using internal resources available. The R&D department is in response to develop ideas that may become an innovative product that will be sold on the market successfully. In turn, the resulting revenues will be reinvested in R&D. The closed innovation process was prevailing in the past. Companies could establish and increase their market power and create formidable entry barriers.
Through the effects of globalization the world became more connected and knowledge could spread easily and much cheaper. New companies build business models that were able to use dispersed knowledge by integrating it in the internal innovation process. For that reason the classic closed innovation model was in trouble. The permeable firm boundaries enabled companies to accelerate the innovation process, to reduce R&D costs, and to develop products that satisfy customer needs better. This new approach to innovation was defined by Henry Chesbrough as Open Innovation.
Today, many companies look for a good balance between the closed and open innovation approach to maximize the benefits of both approaches.

Traditional Innovation
Open Innovation
Only internal knowledge
Intern and extern knowledge
To take advantage of R&D we have to discover, develop and deliver with ourselves
External R&D may have value for us
If we discover something we, can be the first on the market
We don’t attempt to do the original research in order to profit from it
The company first on the market with an innovation will win
A better business model is better than be the first on the market
With the must and best ideas we will win
Combine internal and external ideas and we will win
Shield the innovation process so that competition doesn’t benefit from our ideas
We should profit from others’use of our innovation process

Advantages of Open Innovation

  • Innovation process is accelerated
  • R&D costs are reduced
  • Shorter development cycles
  • Higher customer product acceptance by integrating customers in the development process early
  • Fitted solutions to customer needs
  • Stronger relationship between customers, company and participating stakeholders

Disadvantages of Open Innovation

  • Revealing of internal knowledge
  • Competitive disadvantages as a result of revealing intellectual property
  • R&D is still needed to develop the results of Open Innovation further
  • Employee hostility against Open Innovation
  • Need to align corporate strategy and Open Innovation
  • Output of Open Innovation can not be planned and foreseen

Examples

Hollywood

Hollywood, which for decades has innovated through a network of partnerships and alliances between production studios, directors, talent agencies, actors, scriptwriters, independent producers and specialized subcontractors (such as the suppliers of special effects). The mobility of this workforce is legendary: Every waitress is a budding actress; every parking attendant has a screenplay he is working on.

Procter&Gamble

Procter&Gamble launched the program “Connect & Develop” with the objective to create better and cheaper products for their customers. Ideas from outside the firm boundaries were integrated and developed further. The entire firm strategy aligned to the Open Innovation approach and today the 35% of products have their idea origin outside the company.
Examples of products developed through C+D: Swiffer, Febreez and Oral B products