In today’s rapidly evolving business landscape, innovation has become the vital element of success. Companies that can constantly generate innovative ideas and solutions are the ones that thrive, while those that fail to innovate fall behind.
But what if there was a way to unlock even greater innovation potential? Enter open innovation, a concept that has revolutionized industries worldwide. Open innovation (OI) is about breaking the traditional boundaries of innovation and tapping into a much broader group of ideas and expertise. It involves collaborating with external partners, customers, and even competitors to drive innovation.
Open innovation is a strategy to foster innovation in companies through relationships and cooperation with their environment. This approach shifts away from the traditional model where all innovations originate solely within the organization.
Companies are embracing open innovation out of the need to be more competitive in an ever-changing and increasingly competitive environment. In this sense, OI has become the main driver of change in a business sector that needs to be flexible and resilient, rapidly adapting to change through innovation (Saura et al., 2023).
Traditionally, companies innovate with their own resources (human capital, equipment, infrastructure, capital, etc.), which are limited, thereby restricting creativity and the identification of new opportunities.
The idea of open innovation arises as a new management paradigm, assuming that corporate innovation activities are more similar to an open system than the traditional vertically integrated model. Thus, companies establish connections with their environment.
On the other hand, Álvarez and Bernal (2017) emphasize that there are differences in the open innovation practices of companies in developed and developing countries, with the former making better use of this new way of innovating.
There are different models of open innovation; however, the current trend is to involve customers in the development of new products or the enhancement of attributes of existing products.
In this article, we will explore why open innovation is the key to unlocking untapped potential and how it can help companies stay ahead in today’s hyper-competitive market. From fostering a culture of creativity to accelerating the pace of innovation, open innovation has the power to transform the way we approach problem-solving.
So, let’s delve deeper and discover why adopting OI is crucial for companies seeking to stay at the forefront of their industries.
What is Open Innovation?
Open innovation is about breaking the traditional boundaries of innovation and tapping into a much broader group of ideas and expertise. It involves collaborating with external partners, customers, and even competitors to drive innovation.
Henry Chesbrough was the first to coin the term ‘open innovation’ in his book ‘Open Innovation: The New Imperative for Creating and Profiting from Technology’ (2003). He defines open innovation as ‘the use of both internal and external knowledge flows to accelerate internal innovation and expand markets for external use of that innovation.’
‘Open innovation assumes that companies can and should use external as well as internal ideas, and internal and external paths to market… Valuable ideas can come from inside or outside the company and can go to market from inside or outside the company,’ Chesbrough highlights (2003).
In the process of open innovation, internal agents (the company) and external agents (customers, researchers, suppliers, research centers, competitors, companies from other sectors, etc.) collaborate. Therefore, it is not just a technological challenge, but rather a change in the management and processes of the company.
In OI, as indicated by Iglesias et al. (2015), stakeholders for the company (suppliers, customers, human resources, etc.) provide support for the development of new products, thus becoming value creators alongside the company’s personnel.
As a strategy, open innovation allows the incorporation of knowledge, experiences, or technologies that contribute to improving products, processes, organizational and commercial activities, and integrates collective intelligence in the search for external knowledge (Álvarez and Bernal, 2017).
Types of Open Innovation
The paradigm of OI represents a shift from the traditional controlled and closed R&D models to open and flexible ones. According to Chesbrough’s publication (2014), two types of open innovation can be identified based on the flow of ideas: ‘outside-in’ and ‘inside-out.’
Involves opening up the company’s innovation processes to various types of information and contributions from the external environment. It has received more attention in both academic research and business practice.
Requires organizations to allow their unused or underutilized ideas to go outside so that others can use them in their companies and business models.
The Role of Collaboration
Collaboration plays a crucial role in open innovation. By collaborating with external partners, companies can access a broader set of resources, knowledge, and expertise. This collaboration can take various forms, including joint research and development projects, licensing agreements, and strategic partnerships.
By working together, companies can combine their strengths and overcome their weaknesses, leading to the development of innovative solutions that would not have been possible with internal efforts alone.
What is Closed Innovation?
Closed innovation is a system in which research, development, and innovation (R&D&i) projects, as well as the commercialization of their results, are exclusively managed with the knowledge and means of the company.
Traditionally, in closed innovation, R&D&i projects can only originate within the company and end up in their own market. Therefore, knowledge, technology, processes, and intellectual property originate from and belong to the company.
The closed innovation model’s main disadvantage is the limitation in the availability of resources for managing R&D&i projects, as not all the best ideas and talents are within the same company.
Principles of Open Innovation and Closed Innovation
The following table presents the principles governing closed or traditional innovation and the principles of open innovation:
Table 01. Closed Innovation and Open Innovation.
|Principles of Closed Innovation||Principles of Open Innovation|
|Smart people in the field work for us.||Not all smart people work for us, so we must find and leverage the knowledge and expertise of brilliant individuals outside our company.|
|To benefit from R&D, we must discover, develop, and deliver it ourselves.||External R&D can create significant value: internal R&D is needed to capture a portion of that value.|
|If we discover it, we will get it to the market first.||We don’t have to be the origin of the research to profit from it.|
|The company that brings an innovation to the market first will be the winner.||Creating a better business model is better than being first to market.|
|If we generate the majority and the best ideas in the industry, we will be the winners.||If we make the best use of internal and external ideas, we will be the winners.|
|We should control our intellectual property (IP) so that our competitors don’t benefit from our ideas.||We should benefit from others’ use of our intellectual property, and we should buy others’ intellectual property whenever it adds value to our business model.|
Examples of Open Innovation
There are numerous successful examples of OI in various fields around the world. One of the most successful examples of the importance of open innovation occurred in the healthcare sector during the COVID-19 pandemic, where many companies and governments joined forces to develop vaccines, design and manufacture personal protective equipment, and medical devices (Liu et al., 2022).
Here are some cases of well-known and lesser-known companies that illustrate the diversity of experiences:
General Electric (GE)
As one of the world’s largest companies, GE is a leader in implementing various open innovation models. Their “Open Innovation” approach focuses on collaboration between experts and entrepreneurs worldwide to share ideas and solve problems.
One of GE’s projects is “First Build,” a co-creation platform that connects designers, engineers, and thinkers to share ideas with other members. The ideas presented focus on solving problems and creating new home appliances.
Procter & Gamble (P&G)
P&G launched its “Connect+Develop” initiative, aimed at leveraging external partnerships to drive innovation. Through this initiative, P&G collaborated with external partners, including small startups and academic institutions, to co-create new products and technologies.
This open innovation approach helped P&G significantly increase its innovation output and gain a competitive advantage in the market.
Currently, companies are adopting new open innovation models. Among other models, Coca-Cola has developed its Freestyle vending machine, which allows users worldwide to mix their favorite flavors and suggest new flavors for Coca-Cola products.
The machine records the flavor chosen by the consumer so that they can get it from other Freestyle machines located worldwide using the Coca-Cola mobile app. This open innovation model puts consumers at the heart of the production process.
Samsung is considered one of the most innovative companies. Even though the company has an internal R&D unit, it also promotes open innovation, particularly with startups.
The company employs open innovation models such as partnerships, accelerators, acquisitions, and funding for startups during their early stages.
LEGO Ideas allows fans and customers to submit their product ideas, which are then reviewed by LEGO. If an idea receives enough support, LEGO may turn it into a real product and share the profits with the original creator.
Communities provide Lego with thousands of new ideas each year, creating a flow of ideas from the people who use their products. This open innovation approach in the product design phase is one of the factors that contributed to Lego’s success.
Characteristics of Open Innovation
According to OVTT, the keys to OI are openness, collaboration, and the pursuit of creativity. It also indicates that an organization’s innovations and technologies can be bought, sold, licensed, borrowed, and reinvented before reaching the traditional market and from any audience it interacts with.
Companies that apply open innovation are characterized by being flexible, practicing collaborative work through building networks and alliances with stakeholders, and benefiting from favorable conditions offered by the environment, such as regulatory framework, research centers, availability of funds, among other factors.
Additionally, Álvarez and Bernal (2017) identified the main factors and characteristics of each factor that favor OI in both developing and developed countries.
The Benefits of Open Innovation
The benefits of open innovation are manifold:
- Allows companies to access a wider range of ideas and perspectives. By involving external partners and stakeholders, companies can tap into a wealth of knowledge and expertise that may not exist within their own organization. This not only increases the chances of generating innovative ideas but also helps identify new market opportunities.
- Accelerates the pace of innovation. By leveraging external resources, companies can bring new products and services to market more quickly, giving them a competitive edge. This is especially crucial in today’s fast-paced business environment, where speed is essential.
- Promotes a culture of collaboration and fosters creativity. By involving a diverse range of individuals and organizations, companies can create an environment where ideas flow freely and cross-pollination of ideas occurs. This can lead to the development of truly innovative solutions that may not have been possible through closed innovation.
Advantages of Open Innovation
Open innovation offers several key advantages:
a) Reduction in time and costs for R&D projects.
b) Involvement of customers in the process.
c) Risk reduction.
d) Discovery of new talents.
e) Incorporation of external innovations in the form of ideas, patents, technologies, and products.
f) Easy commercialization of generated innovations.
Challenges of Open Innovation
While open innovation offers numerous benefits, it also comes with its share of challenges and risks:
- Intellectual property management: Collaborating with external partners requires companies to ensure that their intellectual property is protected and that necessary agreements are in place to prevent unauthorized use of their ideas and technologies.
- Balancing openness with confidentiality: While involving external partners and stakeholders is important, companies must also safeguard confidential information and trade secrets. Striking the right balance between openness and confidentiality is essential to ensure the success of open innovation initiatives.
In addition, Livescault (2019) in their article identifies some challenges that companies and other organizations must overcome to promote open innovation. These challenges include:
a) OI may require time and effort to learn how to manage effectively.
b) Intellectual property issues.
c) Companies need a cultural organizational change.
d) Different management approaches.
How to Foster a Culture of Open Innovation in Your Organization
Fostering a culture of open innovation requires a mindset shift and a commitment to embrace external ideas and knowledge. Here are some key steps to foster a culture of OI in your organization:
- Leadership support: Leadership plays a crucial role in driving OI. Leaders should actively promote and support the idea of open innovation, emphasizing the importance of collaboration and the value of external ideas.
- Create cross-functional teams: Encourage the formation of cross-functional teams that bring together individuals from different departments and backgrounds. This diversity of perspectives can lead to more innovative solutions.
- Reward collaboration: Recognize and reward individuals or teams that actively collaborate with external partners and contribute to open innovation initiatives. This can help create a culture of collaboration and encourage more employees to get involved.
- Invest in training and development: Provide training and development opportunities for employees to improve their skills in areas such as collaboration, communication, and problem-solving. This can help employees become more effective contributors to open innovation initiatives.
Implementing Open Innovation in Your Organization
Implementing open innovation in your organization requires careful planning and execution. The research by Jabeen et al. (2023) highlights the impact of external stimulus, COVID-19, on business model innovation and the key role of open innovation management in seeking business model innovation, which may also involve digital transformation.
In this regard, Trzeciak et al. (2022) identified four programmatic constructs supporting open innovations, such as cooperation with the environment, knowledge and technology transfer, organizational maturity, and ensuring and maintaining implementation capacity.
Here are some key steps to consider:
- Assess your innovation needs: Identify areas in which your organization can benefit from open innovation. Determine specific challenges or opportunities that open innovation can help address.
- Identify potential partners: Identify potential external partners who can contribute to your open innovation initiatives. This may include startups, academic institutions, industry experts, or even customers.
- Establish collaboration mechanisms: Define the processes and mechanisms through which collaboration will take place. This may include joint R&D projects, licensing agreements, or strategic partnerships.
- Monitor and evaluate progress: Regularly monitor and evaluate the progress of your open innovation initiatives. Measure the impact and effectiveness of collaboration and make necessary adjustments.
Tools and Platforms for Open Innovation
There are several tools and platforms available to facilitate open innovation. These tools can help companies connect with external partners, manage collaborative projects, and capture and evaluate ideas.
Some popular open innovation software includes IdeaScale and Planview. These platforms provide a centralized space for companies to collaborate and manage their open innovation initiatives, making the process more agile and efficient.
Open innovation is a powerful approach that can unlock untapped innovation potential for companies. By breaking traditional boundaries of innovation and embracing external ideas and knowledge, companies can accelerate the pace of innovation, access a wider range of ideas, and foster a culture of collaboration and creativity.
The open innovation strategy aims to redefine the boundaries between the company and its surrounding environment, allowing the company to be more permeable and participate in the working networks of different actors, towards the creation and commercialization of new knowledge (Di Minin et al., 2016). In this way, companies must adopt this new approach in their development strategies.
Lastly, Chesbrough (2014) highlights that open innovation will go beyond collaboration between two companies and, in the future, the design and management of innovation communities will become more relevant.
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