Open innovation was invented and established by the American economist Henry Chesbrough. He coined the definition of the term open innovation and has subsequently authored three books on the subject.
Open innovation, often called co-innovation, is the name for the strategy of acquiring knowledge from outside a business. The merging of internal and external sources produces innovation in the company which otherwise would be difficult or impossible to develop alone.
Opening up internal processes of innovation to the outside world and using external sources accelerated as digital transformation began and new digital business processes began to emerge and expand.
But what are external sources? They can be business partners, customers, universities, subject matter experts, research institutions, suppliers and start-ups. They are incorporated exclusively or partially into the process of innovation developing ideas for new products, technologies and services.
Collaborating to innovate
These communities of interest can improve the results of joint projects and allow risks to be better shared.
Small & Medium Enterprises (SMEs) that seek innovation using internal experts alone have access to a smaller, more limited set of solutions. The benefits of open innovation are clear:
- More ideas are produced – and more innovative ones – often by access to completely different points of view and skillsets.
- Knowledge and insights about customer needs and markets are shared.
- Discussions on new/emerging technologies and expertise produce new solutions.
- Innovation quality increases, which speeds up development. The expertise required is already exists so does not have to be built in-house.
- Development risks are reduced because they are shared through collaboration and reduced by working with experienced experts.
- Public funding is sometimes available, such as when working in R&D consortiums.
Preparing and implementing open innovation
As with any process that happens in the digital world, the culture and structure of a business has to be ready to allow an exchange of innovation.
“Leading by letting go” is a completely new form of management in many businesses. However, managers have to embrace this philosophy to succeed in open innovation. Because transformation does not happen overnight, there are various ways of gradually joining the open innovation movement:.
- Through crowdsourcing. Businesses set up their own platforms and invite the submission of ideas.
- Through free, independent open innovation platforms.
- Through permanent open innovation platforms. Procter & Gamble, for example, opened up its doors ten years ago and created “Connect + Develop” (C+D), an interactive platform of ideas where the company publishes its research needs.
- Through lead user methods. This approach involves innovative users and experts in the process through workshops. Not only do users and customers from your own market work together, lead users from related industries that face similar challenges get involved too. This opens up a wide range of solutions and creates the basis for innovation.
- Through feedback on concepts and prototypes. Opening up innovation processes enables quick feedback, especially from customers who try out concepts and prototypes.
The benefits of open innovation for SMEs include:
- Exploration and implementation of internal ideas that would otherwise remain unresearched.
- Exploitation and access to external ideas.
- Unknown and partially concealed innovation potential can be better used.
- Showcasing growth potential resulting in greater motivation for backers.
- Bigger businesses provide access to knowledge and resources that would otherwise be unaffordable.
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SME on the inside, SME on the outside
Many small and medium sized enterprises have insufficient financial resources for targeted processes of innovation. That’s why they have to get creative when looking for the resources they need. It often means outsourcing certain abilities and skills. This includes research in areas that are not part of their core competence.
SMEs can use open innovation to collaborate with other SMEs. Profitable products, technolgies and services can emerge from working relationships with partners from the industry.
Success in this instance comes from combining traditional forms of (internal) innovation with newer forms (open innovation).
Open innovation is possible in these forms:
- Outside-in: Ideas that come from the outside are explored through an innovation lense, e.g. software or product licence. These ideas are often processed further in innovation management areas and departments.
- Inside-out: This involves spinning off ideas and processes that have been produced inside the business. The innovation partner in this case is usually a start-up founded especially for this purpose.
- Cooperative: The development of ideas takes place jointly and not in stages. For example, processes and costs can be optimised when manufacturers and suppliers work together.
Open innovation on a platform
Technologies allow businesses to run open innovation projects more easily. Collaboration platforms help build communities of interest, consisting of customers, partners and suppliers.
SMEs that pursue long-term innovation strategies can use software that addresses defined user groups and invites them to a brainstorming campaign, or similar.
A series of examples show that platforms can be developed for different tasks:
- Innocentive helps mainly to solve technical issues. Developers and engineers all over the world use the service.
- Social projects are developed jointly on platforms like One Billion Minds.
- 99designs offers graphic designers and Web designers a platform. Businesses and private individuals can develop designs there.
- BRENET, the ‘National Competence Network for Building Technology and Renewable Energies’ in Switzerland offers planning processes and instruments for the transfer of knowledge and technology. This makes building simulation easier.
- Konica Minolta has established a cooperation with the British street magazine The Big Issue. Together they launched an edition to the market that featured augmented reality technology. The augmented reality journey in the magazine helps homeless vendors tell their stories.
Open innovation in all its different forms reveals a simple yet remarkable fact: when many minds work on the same problem, tasks are solved better and more quickly.