Innovation, as defined in the OECD's Oslo Manual (2018), is the introduction of a new or significantly improved product, process, marketing method, or organizational practice within business operations, reflecting the evolving landscape of modern workplaces.
Over the past two decades, innovation has surged, primarily due to the digital revolution and the increasing recognition of the need for sustainable development, which has challenged traditional business models. As a result, companies have had to go beyond their conventional expertise to remain competitive. Two approaches have emerged to meet this need: open innovation and in-house innovation. These approaches often complement each other, and a successful innovation strategy often involves the balanced integration of both methodologies. What’s the optimal balance between open innovation and in-house innovation to achieve sustained success?
What is Open Innovation?
In 2003, Henry Chesbrough, a researcher at the University of California, noted a crucial finding: companies driving the most disruptive innovations thrive through external partnerships. Departing from the conventional internal innovation model, they foster innovation by collaborating with diverse entities like universities, startups, design firms, and research laboratories. Chesbrough's observation led to the conceptualization of open innovation.
Fostering external partnerships to propel innovation isn’t a novel concept, with collaborations between companies and, for example, universities and suppliers on research and development far from a new development. However, over the past two decades, extensive research into open innovation has significantly evolved the concept, integrating insights from a range of innovation, strategy, and economic frameworks. The exponential growth of open innovation has highlighted the importance of collaborating with external entities to invigorate innovation and enable companies to adopt a much more structured and strategic approach.
Because open innovation enables the discovery and utilization of ideas, technologies, and expertise not accessible internally, the approach fosters collaboration among a network that forms an entire open innovation ecosystem, enabling companies to unlock previously unattainable potential and enter untapped markets.
Responding To Accelerating Change
Numerous studies point to the rapid acceleration of innovation over the last two decades. The UN highlights the swift evolution of technologies like artificial intelligence, biotechnology, robotics, automation, new materials, and quantum computing. At the same time, globalization, shorter product life cycles, digitization, and the ever-increasing pace of change have also propelled companies toward investing in open innovation. Today, in recognition of its importance, most major corporations allocate resources specifically to the pursuit of open innovation.
"Integrating a solution from an external partner to meet a customer is becoming increasingly more frequent."
- Kevin Collins, Head of Co-Creation and Partner Management at FUJITSU
The Benefits of Open Innovation
Open innovation has numerous advantages and offers companies a tangible competitive edge. By opening R&D, innovation, purchasing, and marketing departments to tactical collaborations, companies can:
- Harness strategic external inputs to enhance innovation.
- Tap into a vast pool of external skills that might otherwise be prohibitively costly to internalize.
- Access novel technologies.
- Expedite the innovation process, fostering agility.
- Address customer needs more effectively.
- Expand into new markets.
The Key Success Factors in an Open Innovation Program
To ensure you maximize the benefits of open innovation, establish strong collaborations, and avoid challenges, it’s important to follow a number of best practices:
- Clearly define shared objectives among your innovation partners.
- Formalize collaborations through contracts covering commercial and intellectual property.
- Secure high-level sponsorship and engage senior leadership to ensure adequate resources and committed actions.
- Acknowledge and address strategic, organizational, and cultural differences with partners.
- Provide internal training to combat the "not invented here" (NIH) syndrome.
- Avoid viewing relationships with external entities solely as transactional, and strive instead for genuine partnerships.
- Use suitable management tools, ideally a platform offering the ability to discover, monitor, and manage external partnerships effectively.
"The key to success is to establish a relationship of trust at the beginning and both parties must be clear about what they can gain from this.”
- Elise Cardin, Patents Director at SAINT GOBAIN
Open innovation, by its very nature, can work in a wide array of potential models. These models vary depending on the stakeholders involved, the industry sector, and the type of project being undertaken.
A model that interlinks open innovation and internal innovation, where external partners are regarded as a supplement to internal innovation efforts, is often advantageous.
In an innovation ecosystem of “coopetition”, entrusting all innovation efforts to external sources can have its risks, so it's advisable to engage external resources while retaining some essential skills in-house.
Blending Ideas in The Research Phase
The ideation phase thrives on openness. Ideally, it should encompass both internal channels (such as marketing and R&D teams) and external channels (for example, by scouting startups, crowdsourcing, and engaging experts).
The primary challenge at this stage is sorting and filtering ideas as it involves overseeing multiple external contributions across diverse channels as well as from within the company. Using a platform to efficiently manage, filter, and assess the myriad of ideas is highly recommended.
Connecting Internal and External Development
Following the idea validation stage (which encompasses feasibility, viability, and customer and consumer feedback), two paths can be pursued during the development phase:
Internal Development Capability
If the company has the capacity to internally develop the solution, an in-house expert can collaborate with the firm’s R&D department. If required, the company can seek external help with accessing patents or protected expertise.
External Expertise
If internal expertise isn’t available or the pace of execution is insufficient, call on external experts, who should liaise with an internal point of contact. This internal expert can collaborate with the company’s open innovation team or an independent ecosystem like Plug and Play.
In the first scenario, the in-house expert tends to specialize in a particular area. Conversely, in the second scenario, the internal expert’s role is more comprehensive and holistic.
"Set up a matrix in which internal and external work together intimately and constructively. It takes time and is not intuitive for everyone in the company.”
- Mathieu Vandermolen, VP of Intellectual Property & Open Innovation at BIC
Conclusion
Maximizing the benefits of this hybrid internal and open innovation model often requires fundamental shifts in a company’s strategy, organizational structure, and methodologies, and the adoption of a suitable platform to effectively oversee the partner ecosystem. However, the benefits are significant. By integrating both internal and external resources, companies can combine the innovation skills of their workforce with the expertise and know-how of external entities to accelerate the innovation process, encourage idea exchange, and amplify the value of their products or services for the end customer.
