Open Innovation is one of these buzzwords you can barely escape in the innovation world. And for a reason: If open innovation processes are institutionalized in an organization, they are a strong sign of innovation maturity. However, there is a lot of confusion, sometimes even among innovation managers, about what open innovation actually means. One of the reasons is that open innovation is not one thing. It's a whole category of innovation activities and processes that share one commonality: They involve third parties beyond the own organization. Let's take a closer look.

What is open innovation?

"Open innovation" refers to an innovation approach where organizations use external ideas and technologies in their own business and allow unused internal ideas to flow out to other organizations for their use. More formally, the term open innovation is "the purposive, recurrent and institutionalized use of inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively."

Widely acknowledged as the "father of open innovation," UC Berkeley Professor Henry Chesbrough originally introduced the term in 2003. Today, open innovation refers to much more than using stakeholders' internal and external ideas; or internal and external paths to market, advanced technology, and improve an organization's prospects. Nearly 20  years since its first formal mention, open innovation has also come to describe a company's ability to institute a cultural change, specifically its attitude towards interfirm collaboration. 

 

"The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow."

- Rupert Murdoch

 

When we talk about "ideas" in the context of open innovation, we use the broadest possible meaning - including new technologies, trends, business models, or a new approach to launching a new product or service. And when we say "from external parties" or "from outside the organization", it, again, encompasses many very different scenarios and parties, such as EOM suppliers, customers, fans, universities, schools, competitors, governments, the public, etc..

But what about "crowdsourcing" - is that the same thing then? No, not quite. Again, as so often in the world of innovation, crowdsourcing is a buzzword leading to a lot of confusion around what it means. Originally, it refers to scenarios, where a challenge owner (e.g., a company) offers the challenge on a platform where a large group of people individually offer to contribute to the solution, often for monetary compensation. In open innovation scenarios, the challenge audience is selected for a specific reason, not just based on their readiness to help with a predefined purpose. And usually, external ideas are combined with internal ideas and/or knowledge. Learn more about the difference between open innovation and crowdsourcing in this blog article.

 

Why is open innovation so important?

Open innovation challenges the old prevailing views on the source of competitive advantage in large enterprises. In his groundbreaking book Open Innovation: The New Imperative for Creating and Profiting from Technology from 2003, Chesbrough argued that in the face of changing market circumstances, such as globalization, digitization, shorter product life cycles, or complex social and economic challenges, large companies could no longer afford to rely solely on their internal ideas and capabilities. Instead of pursuing innovation on their own, Chesbrough advises companies to leverage external sources of ideas. By embracing external input, they were in a much better position to advance their business.

This recommendation contrasted strongly with established views on managing innovation, which stated that multinationals with generous R&D budgets could theoretically handle all innovation efforts in-house. However, Chesbrough's extensive field research and academic study of iconic companies both within and outside Silicon Valley proved otherwise. In the face of changing market trends, even well-established organizations recognized the limitations of their innovation capabilities. To stay relevant and profitable, these organizations would therefore resort to a new way of innovating called open innovation.


Further reading: 

Jorge Rufat‐Latre, Amy Muller, and Dave Jones - "Delivering on the promise of open innovation"

Henry Chesbrough - "Open Innovation: The New Imperative for Creating and Profiting from Technology"

 

"Open innovation is not about outsourcing R&D to somebody else. It's really all about leveraging and enhancing your internal capabilities."

– Henry Chesbrough

 

What are "living labs?"

Living labs are open innovation networks where users, consumers, households are systematically involved in the emerging, iterative development of new solutions. There are several types of living labs:

  • Living Labs to experience and experiment with ubiquitous computing were established at a number of research institutes during the late nineties and counting.

  • Living Labs as open innovation platforms: Companies, NGOs governmental offices, universities, and citizens, collaborating for the creation, prototyping, and validation of new solutions, products and services in real-life situations.

  • Living Labs exposing testbed applications to the target audience, like users and consumers. The idea is to use open scenarios to test software and services outside closed lab environments.

If you are interested in a deep dive into the world of living labs, take a look at these resources:

 

What is an open innovation platform?

The term open innovation platform usually refers to either, very generally, a system of stakeholders and rules to conduct open innovation (see living labs above) or, more specifically, a software platform with dedicated functionality to conduct open innovation. Open innovation platforms in the sense of dedicated software can be very different in nature again, due to the many variations and scenarios of open innovation. Just consider insourcing product ideas from the Facebook fan community of Bernina (Bernina Sewing Machine Lovers) and corporate-startup collaboration to get access to emerging technologies faster (case in point: Beiersdorf startup collaboration). Entirely different requirements, stakeholders, and approaches. All open innovation. And there are dedicated software solutions for both (and more).

 

What is the difference between closed innovation and open innovation?

In the "closed innovation" world, there is a strong belief that companies should control the creation and management of ideas and, therefore, intellectual property. Companies engaging in closed innovation tend to believe that the smart people in the business all work for them. They think that only by isolating ideas and inventions from the competitive outside world they may win the race. This paradigm of inward orientation is often referred to as the "Not-invented-here syndrome."

The open innovation approach is just the opposite. Not only can you collaborate internally and externally, but open innovation can also be implemented through various modes, depending on the direction of knowledge flows. Additionally, open innovation builds on the belief that knowledge sources for innovation exist both inside and outside the boundaries of a company. 

Closed Innovation vs Open Innovation

Open innovation's philosophy is based on the idea that companies may not employ all the bright minds in the world, but they can still work with them. With open innovation, companies can tap into the collective knowledge and expertise of their key audiences and stakeholders, such as:

  • Customers, consumers, users, fans
  • Suppliers
  • Research institutes
  • Universities, students
  • Startups
  • Technical consultants, associations
  • Partner companies from adjacent markets
  • Inventors

To leverage these external expert sources, organizations must set up appropriate structures and mechanisms like:

  • independent open innovation teams 
  • spaces for innovation and interaction
  • digital tools and platforms
  • staff rotation
  • training

Learn more about structures and mechanisms that enable open innovation in this report by the University of Cambridge.

Organizations must also nurture a culture that accepts new ideas, encourages experimentation, promotes trust and sharing, and supports continuous learning and adaptation (read more about building a culture for open innovation here). Open innovation also promotes change as the source of value for an organization. While supporters of closed innovation typically see collaboration with external parties as cumbersome, unmanageable, and potentially dangerous (especially IP-wise), open innovation practitioners believe the exact opposite, i.e., all knowledge outside the organization's boundaries can be specified and managed. In contrast, collaboration in general brings value to the company (learn more about open innovation's potential to drive growth in this report by the World Economic Forum). 

 

"Most innovation comes from outside your industry applied to your own."

- Tony Hsieh

 

What are the modes of open innovation?

Open innovation is an exercise in knowledge exchange, transfer, and management. Knowledge can either flow towards an organization (outside-in), away from it (inside-out), or in both directions (coupled).


Outside-In 

The outside-in approach – undoubtedly the most popular mode among successful global players – has two main focuses: the acquisition of ideas and the integration of partners into the development and implementation process. 

To let knowledge flow into an organization, companies can: 

  • Engage in technology scouting – see GSK;
  • In-license IP – To produce the Lord of the Rings, Peter Jackson had to get a license from the Saul Zaentz Company, which holds movie rights to J. R. R. Tolkien's work;
  • Set up joint university research programs – see Merck with UC San Diego in the fight against neglected tropical diseases;
  • Fund startup companies in their industry or in adjacent industries – see VIA by Veolia
  • Collaborate with intermediaries, suppliers, and customers to improve their open innovation practice – see Siemens


Inside-Out 

In the inside-out approach, internal knowledge is exploited externally. To let knowledge flow out, companies can:


Coupled

Finally, in the coupled process mode, companies can simultaneously let knowledge flow in and out of their boundaries by creating:

 

Further reading:

Oana-Maria Pop – "Open Innovation – Your 3 Options For Getting It done

 

"You can invent alone, but you can't innovate alone."

- Gijs van Wulfen 

 

What are the main benefits of open innovation?

Open innovation offers tremendous potential for more growth and value while also helping to tame associated costs. The following list displays some of the key open innovation benefits:

  • Access to more creative and innovative ideas
  • Access to experts and specialists
  • Access to customers and fans / Building a community
  • Keeping employees engaged
  • New perspectives and avoidance of operational blindness
  • Creating new products and services
  • Innovating old products and services
  • Faster development times
  • Lower development risk
  • Speedier time to market
  • Decreasing costs throughout the entire process
  • Improved brand image through cooperation
  • Staying ahead of the competition

 

"How do companies gain access to the right competencies at the right point in the innovation process? Want. Find. Get. Manage."

- Henry Chesbrough 

 

What are the main challenges of open innovation, and how do you address them?

When organizations are faced with open innovation, they are simultaneously confronted with a dilemma. Using internal know-how is costly (internal R&D spending). But it is safe IP-wise, logistically and tactically easy, and can lead to modest but generally positive results. On the other hand, using outside know-how is often less costly. But it is risky IP-wise, logistically, and tactically difficult (involves more negotiation, more scouting, often via 3rd parties), but can lead to genuinely disruptive solutions and long-term success. 

Let's go over the four most common challenges to open innovation and how companies can overcome them.


Challenge #1: Legal — Fear of intellectual property (IP) complications

The first perceived barrier to open innovation is the potential "threat" of IPR (Intellectual Property Rights). This fear emerges because collaboration with external stakeholders seems to be at odds with the very purpose of IP management, which is to protect and provide exclusive control over certain ideas. It is commonly voiced as, "We have a no patent, no talk policy", "If we start sharing our ideas without an agreement in place, they will get stolen," or "Our researchers should under no circumstances communicate with outside stakeholders." 

As it turns out, however, the strategic use of IP can actually enhance open innovation returns instead of crippling them. When companies let go of a reactive, protective perspective of IP and instead lower the barriers for externals to work with their IP, the returns can quickly outgrow the benefits of ownership. Moreover, since innovation not only refers to products but also to services and business models, IP might not be an issue at all. Some companies will be more interested to develop relationships rather than acquiring IP and will therefore find a way to deal with it.

While engaging in open innovation can lead to unintended spillovers, i.e., knowledge and information being transmitted into unwanted channels, focusing too much on IP can impede valuable collaborations with startups or SMEs. As a result, more organizations are simplifying their IP agreements and setting basic rules for collaboration.  


How to overcome it

The IP "threat" is often linked to both the maturity of a company's IP department and its managers. In other words, companies whose IP departments and leaders do not understand the many types of disclosure and sharing that can be used in an open innovation project will likely block open innovation efforts from the start. 

To overcome this issue, companies can provide advice and training to their key people and departments involved in IP management. To minimize the risk of unwanted spillovers, they can also promote controlled and case-dependent IP sharing and involve the IP department/specialists in new product development decisions early on. They should regularly train relevant stakeholders on IP matters that arise during collaboration and assume a long-term perspective on managing the IP portfolio.

Intellectual property still offers several benefits: IP provides plenty of details on innovation (in the case of patents), easy transferability, and trust that ideas will not be misappropriated. Companies successfully engage in open innovation by creating an intellectual property strategy that is fully in line with their innovation strategy. That means their strategy considers the technological environment of the organization, as well as its knowledge distribution. This means that – taking on a more poetic approach – in turbulent times (when knowledge is dispersed), giving away IP is a good strategy. When waters are calm (and knowledge is owned by a few), straightforward agreements such as licensing or acquiring knowledge might be the more promising option.


Key take-aways:

  • IP protection is not at odds with open innovation and is not essential in open innovation projects because forming relationships can be more valuable 
  • If implemented correctly, IP mechanisms enhance the value of open innovation 
  • IP concerns are signs of an immature IP department/management
  • Overcoming IP issues starts with training and continues with increased collaboration between those tasked with managing IP 


Further reading: 

Does IP Have To Cripple Open Innovation?

 

"We need diversity of thought in the world to face the new challenges." 

- Tim Berners-Lee

 

Challenge #2: Legal/Operational — Fear that open innovation cannot be closed 

A second challenge, and closely related to the first, is the fear that the open innovation process and/or agreement cannot be "closed" or is difficult to disassemble – from both an IP and partnership perspective. This fear is typically voiced as, "If we invest in open innovation infrastructure and staff, it will be hard to repurpose the space or retrain the staff later", "If we enter into a collaborative agreement, it will be hard to split the benefits" or "If we build an ecosystem with our partners, we become too inter-dependent; the activity becomes too risky."

Some management scholars call this the "IP disassembly problem" and define it as the "process by which organizations decrease their overall openness in innovation." They might just devote more resources to internal R&D. It could also result in leaving, terminating, or canceling existing open innovation initiatives. 

Terminating in-house R&D projects is noticeably different from terminating R&D with many partners. The stakes are certainly higher and the ripple effects of ceasing to collaborate are more easily felt, especially in networks and ecosystems. In other words, when resource integration between open innovation partners runs deep, allocating IP rights at the closure of an open innovation project, or when one or more of the vital actors leave the project, can be problematic.


How to overcome it

Even the most experienced companies should orchestrate only part of their innovation activities with outside stakeholders, and typically with preferred partners. This limits the threat of any disassembly problems significantly. Less experienced companies can experiment with open innovation only on occasion and should typically do so in a highly controlled environment – e.g., via a crowdsourcing exercise or a one-off idea campaign. With this approach, the open innovation engagement will not be long enough to cause any harm.

Additionally, companies can also factor in some flexibility and orchestrate relationships by designing mutually beneficial IP agreements that partners can adhere to (or withdraw from) over time. At IMEC, an international R&D and innovation hub specializing in nanoelectronics, the partners are given several options from the start. For example, the orchestrator ensures that IMEC members receive maximal access or co-own the IP created within the innovation ecosystem. They also enable members to reap the full benefits of joint research, while only having to carry out and pay part of it. Finally, partners can do proprietary joint research with multiple parties in parallel. This flexibility ensures that there is never a true disassembly. Instead, the partners engage in continuous re-negotiation of their boundaries and needs.


Key take-aways:

  • Terminating in-house R&D projects is different from terminating R&D with many partners, the latter is more complex and has potential ripple effects
  • Open innovation processes and agreements are difficult to disassemble but can be designed with flexibility from the start
  • OI initiatives can be run in a highly controlled fashion and only on occasion, thus limiting potential issues
  • The IP/partnership disassembly issue can be overcome through adequate leadership and orchestration

 

Further reading:

The Challenge of Closing Open Innovation

IP Models to Orchestrate Innovation Ecosystems

 

"In a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (i.e. patents) from other companies. In addition, internal inventions not being used in a firm's business should be taken outside the company."

- Henry Chesbrough

 

Challenge #3: Strategic — Fear of being overwhelmed/scaling

Our third challenge deals with capacity. Or the lack thereof. Once engaged in open innovation campaigns with third parties and research with potentially unknown communities of experts and users, some companies will find themselves unprepared or unable to analyze and process the information received. This experience might prevent them from further experimentation. Some typical statements include, "Collecting ideas from our suppliers sounds great, but follow-ups are time-consuming and will take away resources from other areas" and "If we ideate with more stakeholder types, the complexity of this task cancels out any potential benefits."


How to overcome it

While chasing new products, services, or business model ideas, many organizations mistakenly believe they must survey or involve every stakeholder group. In reality, successful open innovation is a matter of being selective and focused, finding and motivating the right audience. While some situations may come with a certain level of complexity (e.g. surveying all stakeholders of an auto-maker logistics company), in most cases, companies can be selective about their audience and through this, control the ideation process closely. 

One of the most common mistakes companies make as they engage in open innovation is to assume that the process will be identical to a closed (internal) innovation project. However, the two require different skillsets, especially in terms of communication style, incentives, motivation, and analysis of the input and data received. 

First, set your expectations — what's the desired outcome? How much input of the desired type can your team realistically manage? Next, look at your experience with internal innovation management and adjust it according to the factors relevant to open innovation. Limit the audience to a group that likely holds the answer to the questions you want to ask. Make the group as diverse as possible, but don't over-invite. When audience and goal are adequately aligned, scale in the sense of "numbers of participants" and the resulting amount of input will not be as daunting anymore as it may have seemed at first. Finally, utilize technology. By using dedicated innovation software for open innovation, audience management, as well as selection and evaluation of ideas, become transparent and streamlined, while knowledge itself is stored safely for future reference. Btw, UC San Diego is a great example of how to successfully engage 60,000 people across a large university campus through continuous experimentation and learning.

When entirely inexperienced, organizations should build up their confidence and capacity by engaging well-known partners, like suppliers. Among "friends," it doesn't have to be perfect from the start. As a next step, they can move on to partners not as well known, such as startups, universities, and eventually even the public. A great example is the collaboration between Baxi Heating and Coventry University to end energy poverty. By partnering with a trusted and culturally compatible collaborator, Baxi successfully generated a new business model and eventually engaged in co-creation. 


Key take-aways:

  • Open innovation can be challenging to scale unless the right tools and strategies are in place
  • The fear of being overwhelmed signals inadequate infrastructure and/or protocols for open innovation – like the inability to decide on the right audience, topic, etc.
  • Companies should engage stakeholders progressively without paralyzing the organization or department that initiates the collaboration and continuously refine their practice
  • Companies should engage close partners first and then move on to partners they work less closely with
  • Using enterprise innovation software as well as other tools can make scaling open innovation a relatively easy and frictionless task

 

"In the end, open innovation is not for you – it is for the communities you are serving."

– Jenny Turner, EWB Australia

 

Challenge #4: Cultural — Miscommunication 

Miscommunication (resulting in a reluctance to collaborate) is another wide-spread barrier for companies, especially in the case of networks and ecosystems. 

Open innovation can (and often does) mean different things to different stakeholders and to different groups within the same organization. For example, in innovation ecosystems, each stakeholder will have their own role and incentive and contribute differently to open innovation and value creation (see the case of P.R.O.F. and their 300+ members). Success also strongly depends on a company's innovation "engine." That could be sales and marketing, R&D, finance, legal, or procurement. Unless an orchestrator or a common code of conduct (i.e., the corporate culture) explains the benefits and scope of open innovation, different groups might refuse to collaborate. For example, co-developing a new product with suppliers might seem like an excellent initiative for marketing but poses a potential threat to R&D or the legal department. 

Some typical ways in which this barrier is described include, "Our sales and marketing teams speak the language of open innovation, but the R&D teams do not," "Open innovation sounds great in theory, but it will lead to an identity crisis (our people will fight over conflicting priorities)," or "Our leaders are not making open innovation attractive; there is no incentive to collaborate."

 

How to overcome it

Good communication around open innovation starts with leaders who both inspire and incentivize others to contribute, as well as a culture that promotes openness and collaboration. Open innovation requires leaders to identify the often fragmented knowledge around OI (e.g., OI principles found in areas like R&D procurement, customer insights, etc.) and create a comprehensive framework. By aggregating insights and communicating them broadly, all stakeholders will benefit. Additionally, open innovation leaders must find the right route to success. It doesn't always take an expensive open innovation lab. Instead, focusing on more straightforward concepts like training or inspirational keynote speakers may do the trick. Finally, open innovation leaders must serve as role models. They should use their status to communicate with employees on open innovation topics, actively support them, and reassure employees that open innovation is here to stay.

In terms of culture, open innovation will thrive in a space where new ideas and collaborators are readily accepted and not regarded as a threat. Processes should be flexible enough to meet new conditions and solve new problems, and there should be routines to develop new ideas. Additionally, a culture of open innovation should also give employees the physical space — and the necessary time to collaborate. As this conflicts with daily business, top management support is required.

For coping with a potential identity crisis, it is critical to understand how employees feel and talk about open innovation. In a case study about experimenting with open innovation and crowdsourcing at NASA, Hila Lifshitz-Assaf finds that NASA engineers who gave open innovation a chance expanded and even reconstructed their professional identity from "problem solvers" to "solutions seekers." Those who failed to dismantle their boundaries, however, stayed skeptical about open innovation and tended to block potentially meaningful solutions from being implemented.

 

Key take-aways:

  • Communication is key to running successful open innovation programs.
  • To make open innovation successful and install it for the long run, it requires leadership and top management support.
  • Open innovation requires a framework, ideally forged from the fragmented knowledge and routines already existing in various departments.
  • Make sure you understand the feelings around open innovation in your organization; inspiring keynotes, training, and — again — communication can help.

"Let's go invent tomorrow rather than worrying about what happened yesterday!" 

– Steve Jobs

 

The future of open innovation

15 years after the OECD Conference that labeled it as an important trend in R&D and nearly 20 years from the official coining of the term, open innovation is alive and kicking. Today, this discipline continues to evolve and has since become a science in its own right (here is Frank Piller at RWTH Aachen explaining the science bit). Moreover, the rising confidence in open innovation is also reflected in the multitude of available study programs, conferences, toolkits, industry reports, and even MOOCs (massive open online courses).

As for what the future holds, the trends seem to indicate that:

  • Open Innovation as a method will become more ingrained in the day-to-day work of companies and therefore less visible. So much so, that we won’t even think about it calling it anything other than “collaboration.”
  • The technologies enabling Open Innovation to happen will become more ubiquitous, customizable, affordable, and easier to use. We will see more solutions for active partner scouting and management, deal flow management, and even reputation management for companies working in complex networks.
  • Knowledge will flow more smoothly and rapidly between collaborators and the capturing and interpretation of this data will become easier. Companies will increasingly license technologies off the shelf, filter information in highly sophisticated and personalized ways, get alerts for interesting projects, and adjust their ecosystem's "permeability" (how easily can one join a group of collaborating companies).
  • We will see more Open Innovation in peripheral or unlikely spaces (see TousContreCorona) or with unique application areas (such as art wars).

 

Further reading: 

Viima, A HYPE Company- Open Innovation: What Is It and How to Do It

Henry Chesbrough, Wim Vanhaverbeke and Joel West – "New Frontiers in Open Innovation"

Institute for Manufacturing – Cambridge University – "How to Implement Open Innovation"

 

 

Oana-Maria-Pop-pillar-page-image

Meet HYPE's Head of Open Innovation

 
Meet Dr. Oana-Maria Pop, HYPE's first Head of Open Innovation. Oana is a social scientist by training and has a deep fascination with inter-company collaboration. She is a longstanding collaborator of HYPE's but since 2019, she supports our efforts full-time. In her role, Oana helps HYPE customers with scoping, establishing, professionalizing, and even reviving Open Innovation programs. From topic and audience selection to program governance and rewards & recognition, she's always happy to be your sparring partner for all things Open Innovation. If you have an open question about any of HYPE's dedicated Open Innovation support services, benchmarks, or programs, do not hesitate to give her a shout.