What is Open Innovation?

Author: Jiyoon Ahn Edited by: Inês Barreiros

Open innovation is a term coined by Professor Henry Chesbrough, who defined it as “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.” Until the early 21st century, most innovation was ‘closed’, which was based on the belief that internal resources are the most reliable and trustworthy, and that closed doors would distance competitors. Over the past couple of decades, more businesses have been opening up their product development process to external ideas from suppliers, independent inventors, and academic researchers.

Figure from http://www.geglobalresearch.com/blog/growing-middle

One major difference between ‘closed’ and ‘open’ innovation is reflected in how companies develop their ideas. A company may have ideas and technologies that are not useful for their core business. In the closed innovation paradigm, such technologies are often shelved until a market opportunity arises. In contrast, with open innovation, the company can share their ideas and license unutilised technologies. This way, the company can capitalise on more of its advances, which leads to increased chances of internal innovations being successful.  On the other hand, outside technologies could be useful for the firm’s core business. By gaining early access to new and diverse ideas from outsiders, the duration of the development cycle can be reduced.  Overall, these collaborations ensure that the best ideas get to the market faster, thus increase the efficiency of the innovation process. The differences between closed and open innovation are summarised in the table below.

The spread of open innovation can be attributed to various factors. The mobility and availability of highly educated and skilled people have increased over the years. There has been an expansion of venture capital, which allows promising ideas and technologies to be taken and developed outside of the company in the form of spin-offs. In addition, there has been a rapid improvement and increased use of the Internet as a knowledge distribution platform.


Implementation of open innovation

It is important to note that innovation is almost never completely closed or open. Most companies employ a mix of closed and open innovation depending on their innovation goals. The important questions to be asked are what parts of the project are open to whom and for what purpose, and who gets to extract the value. Accordingly, the participants should have aligned innovation goals and also need to agree on IP ownership and use.

Open innovation can be implemented in various ways, not limited to but including the following examples:

·       Companies may choose to license or sell their IP to others. Microsoft recently sold about 1500 of its patents to Xiaomi, as part of a collaboration agreement between the two companies. By acquiring patents from Microsoft, which included voice communication, multimedia and cloud computing, Xiaomi hopes to expand its market internationally. As part of the agreement, Xiaomi will preload Microsoft Office and Skype on its devices.

·       Companies may choose to merge with or acquire other companies, including start-ups. Samsung Accelerator, as a part of their Global Innovation Center (GIC), taps into the culture and innovation of places like Silicon Valley. By investing in start-ups, Samsung wants to evolve from a purely hardware-driven company to one that also leads in software and services.

·       Companies may form partnerships or joint ventures, most often with academia. AstraZeneca Open Innovation Platform was launched to identify and establish mutually beneficial collaborations that will lead to the discovery and development of new medicines. Similarly, Hewlett Packard Labs Innovation Research Program aims to get universities around the world involved in joint research with HP Lab Scientists.

·       Companies may look for ideas via crowd-sourcing. Eli Lilly Open Innovation Drug Discovery (OIDD) program is an online platform for researchers to submit small molecules for drug screening.

·       Companies may look to solve problems via idea competitions. Many tech companies use hackathons to get outsiders to contribute to their goals. The International Space Apps Challenge is NASA’s annual global hackathon, where NASA puts out challenges relating to their current work for which anyone around the world can develop innovative solutions.

Of course, open innovation presents risks and challenges such as the potential for the company in question to lose its competitive advantage as a consequence of sharing their innovations. There is also increased complexity of controlling innovation and regulating how contributors affect a project. Therefore, companies should experiment with this new approach in innovation to learn both how to implement it successfully and to learn more about its long-term significance. Most importantly, companies should be willing to transform their internal culture to one that accepts collaboration. An open innovation culture has proved to be valuable for many businesses in a global marketplace and it will continue to do so in the future.