Open Innovation: What Is It?

Open Innovation allows organizations to generate new ideas quickly and economically. Additionally, it allows them to not rely solely on their internal research and development teams. In today’s competitive marketplace, every organization must be consistently innovating, or risk falling behind its competitors. New ideas are the bread and butter of any organization, and without constantly innovating, organizations stand to quickly go the way of the dinosaur.

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What Is Open Innovation?

The father of Open Innovation and author of Open Innovation: The New Imperative for Creating and Profiting from Technology, Henry Chesbrough provides the best open innovation definition:

Open innovation is “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.”

So, then what is open innovation? Open innovation is the ability for an organization to generate new ideas from two sources: external (competitors, academia, startups, think tanks, etc.). This is known as the “outside in” form of open innovation.

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Furthermore, “inside out” open innovation involves an organization sharing certain ideas with the marketplace. They do this in hopes that another entity will be able to take the idea and make it actionable. The goal is that it opens up new efficiencies for the industry or revenue opportunities each player can take advantage of. This strategy is often utilized by larger players, who, once an idea has taken the next step in its evolution, can purchase the startup who made the breakthrough. They can also use their economies of scale to box out smaller competitors trying to take advantage of a similar breakthrough.

Another form of “inside out” open innovation involves joint ventures, and usually involves licensure agreements and patent discussions as part of the exchange of information.

Open innovation acknowledges that corporations can’t innovate at the pace and cost required to remain competitive on their own. Relying solely on internal research and development teams limits product and service ideation, is costly, and can take too long.

Potential Pitfalls:

There are some potential pitfalls with open innovation. They include:

  • Proprietary information departing from an organization that was not meant to be shared
  • The potential for an organization to lose its competitive advantage
  • The lack of early determination as to how external ideas will be brought into an organization, synthesized, and used

Open Innovation Examples

Open innovation works in practice in a variety of industries and via a number of different arrangements. For example, it is common for large corporations to take equity stakes in up-and-coming startups. If the startup hits on a solution or new technology, the investor company will often acquire the startup. We see this play out often in the tech industry. One successful example involves Samsung, who acquired SmartThings. SmartThings is an IOT company, and incorporated the technology as its own internal IOT platform.

Open innovation can also work between academic institutions and large corporations – this happens frequently in healthcare and pharma. For example, a company like Pfizer may partner with a lab at Harvard to conduct clinical trials or cutting-edge medical research.

Open Innovation Companies

There are a number of open innovation companies that are proving the value of sharing ideas. One of our favorites is Lego, who engages its customers in the ideation stage of product development, which is largely why the company has continued to grow through the decades.

Lego runs a site – Lego Ideas – that allows Lego aficionados to create projects to win prizes and potentially have their creation made into a real Lego product. What better way to ensure a product is desirable than to have the customers create what they want to purchase? Lego has gained innumerable ideas from this contest and has deepened its connection to fans in the process.

Facebook is another open innovation company and hosts an annual “Hackathon” to generate fresh ideas from employees. While this is internal open innovation, it is still a beneficial approach to idea development. Employees from all over the company have an opportunity to lend their expertise to areas of the company they don’t work in to share their ideas. This type of open innovation also helps the organization maintain an entrepreneurial culture as well as fostering relationship building throughout the company.

Helping Organizations Stay Open for Business

Open innovation paves the way for new ideas and reduces upfront investment in research and development. However, corralling these ideas can be tricky and using an open innovation platform may be warranted. Companies such as Brightidea allow companies to crowdsource ideas on their Cloud software.

Choosing which open innovation platform to use should be driven by the specific business model of an organization. A great deal of consideration should also be made to the patents and licensing needs of an organization.

Open innovation allows organizations to obtain information they need as well as share unused or little used ideas externally to help other organizations with their development efforts.

These days, good open innovation examples and ideas can come from anywhere! It only makes sense for organizations to cast a wider net for ideas as they continue to innovate and ideate.

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