Open Innovation - Definitions, Benefits and Examples

Book a FREE Call

Open Innovation implies the use of both internal and external flows of knowledge to accelerate internal innovation in order to extend the market for the external usage of innovation.

How did open innovation appear?

Definitions of open innovation

The open innovation paradigm was made popular by Henry Chesbrough in his 2003 book – Open Innovation – The New Imperative for Creating and Profiting from Technology.

In the book, Henry says that open innovation is „a paradigm where companies can and should use ideas both from the interior and from the exterior in order to advance the technological capabilities which it already has.”

Later, he offers a more concrete definition of open innovation, saying that „Open Innovation implies the use of both internal and external flows of knowledge to accelerate internal innovation in order to extend the market for the external usage of innovation.”

Indeed, these two innovations are entirely clear for a non-initiated reader. To bring more light to the subject, we will show you the concept of open innovation in relation with closed innovation.

Closed innovation vs Open innovation

The main difference between these two paradigms of innovation is in the way in which the companies deal with idea generation and their bringing to life, the launch to market.

The companies which approach the closed innovation paradigm base their activity on the idea that efficient innovation is about a certain control over the innovation process and everything that comes with it. In this case, companies have to come up with their own ideas inside the company, ideas which are then used to develop, produce, and promote by themselves. This is like saying – If you want to do something right, you have to do it by yourself.

This thing functioned properly until the end of the 20th century when the so-called „knowledge workers” raised in numbers, in, and also became more flexible. This is also when the idea of intellectual work and intellectual property became more popular.

Another main difference between these two paradigms is that which deals with the way in which companies select ideas: Both paradigms understand and accept ideas which seem promising at first but prove to be failures, but the paradigm of open innovation also accepts ideas which don’t seem promising but can prove to be successful. This mindset can be found among all successful companies nowadays, where ideas aren’t good or bad until they are tested.

Types of open innovation

Now that you’re aware of what open innovation is and how it came to be, let’s take a look at types of open innovation which are categorized based on two factors:

• Level of inclusion

• Purpose

The 4 levels of inclusion of open innovation

• Intracompany – At the level of a company or organization. Even though this is somehow against what open innovation is supposed to be, this is mostly relevant in the case of big companies with lots of people and departments.

• Intercompany – Between two or more companies or organizations.

• For experts – For people outside the company who have relevant knowledge and expertise in a certain field.

• Open to the public – For all the people from outside the company, no matter what level of expertise they have.

The 4 purposes of open innovation

• Marketing – To communicate certain information

• Insight – To gain information about the market and the consumers

• Talent – To connect with experts

• R&D – To develop services and products

Open Innovation – Where does it stand compared to other types of innovation?

We have tried before to categorize various types of innovation, in this article called Everything you need to know about innovation – The Innovation Process and Types of Innovation. In that article, we have talked about various approaches to innovation, which we separated according to several factors: the object of innovation, market evolution, how drastic the innovation is and others.

There, we have talked about product innovation and process innovation, technological innovation, disruptive innovation all the way to social innovation and open innovation. As you can see, these types of innovation don’t necessarily have anything in common and many of them can’t even be put in the same category – is based on different factors – like technological innovation and social innovation, for example, two types of innovation which can be intersected.

What we mean by this is that there is not one single list of types of innovation or special approaches to particular situations, no. Innovation is as vague as it is complex. A lot of times, it doesn’t have to do with anything other than culture or mindset while other times it deals with the most complex technologies.

When it comes to open innovation, we place it somewhere in the middle of it all – first, it is a mindset, a way of looking at things and the belief in the power of information as a resource and its free circulation, both inside and outside the company.

Second, there are indeed processes and rules and organizational structures that not only allow this flow of information but they must support it too and encourage the employees to have an innovative mindset when they develop new products and services.

When a company decides to externalize some processes and to share information and resources with those on the market and the consumers, it doesn't send any other message than transparency, a quality that most brands nowadays aspire to.

Benefits of open innovation

The paradigm of open innovation offers a lot of advantages to companies that decide to innovate in this way.

1. It encourages the involvement of a broader audience

Through its nature, the innovation process implies more people and more companies, something which contributes to the awareness of a broader audience towards your innovative initiative.

2. It encourages the involvement of a more relevant audience

If in the case of open innovation the audience is somehow limited by the relations and connections your company has, in the case of open innovation, you can reach out to any audience you want, to test a new product. Of course, this is a longer process but the results are worth it.

3. It helps companies lower costs

This is a result of the fact that a lot of resources, such as salaries or work hours of certain employees can be saved by the outsourcing of some processes.

4. It Involves clients in the product development process

If you want to develop successful products, you need to build them starting from your customer’s needs. If you really want to find out what their needs are, what better option you have than directly asking them?

5. It Improves brand image

The simple fact that a company chooses to outsource processes and share information positions it as a transparent company, something that many companies nowadays aspire to be.

6. Helps companies win trust

As we previously mentioned, transparency is a quality that most brands want to associate with. Along with the feeling of trust these companies give, there is also the possibility of their mistakes being forgiven.

7. Helps with the development of partnerships

The simple flow of ideas and information that is at the base of the open innovation paradigm is the one that can open new doors and roads towards new relationships between companies.

8. Helps with finding experts and talent

An open innovation approach can help you attract new talents in your company, from the most unexpected places. This is why this attitude which stays at the base of the open innovation paradigm is so used and appreciated by the companies from nowadays.

How you can apply open innovation

If you understood the principles at the foundation of the open innovation paradigm, you might have understood by now what you have to do to use open innovation in your company. You probably also understood that there’s no exact „recipe” to apply open innovation. To make it easier for you, we want to show you six proven ways, used by successful companies to apply open innovation.

1. Ideation/Solution Contests.

These contests have countless benefits for your company and for the attendees. On one hand, companies can position themselves in a positive light, especially when it comes to finding solutions or ideas for good causes and also strengthen the relationship between your company and the customers.

On the other hand, this contest are ideal career launchers for young talents who want to develop innovative solutions and contribute to various causes.

In our article – Everything you need to know about innovation – The Innovation Process and Types of Innovation we were offering the following examples of open innovation initiatives, two contests that took place at the beginning of 2020, in the context of the COVID-19 pandemic – #EUvsVirus and The Global Hack, two global hackathons that called for solutions from all fields and industries that suffered or needed to change.

2. Crowdsourcing

In the context of open innovation, Crowdsourcing uses resources from outside of the company to come up with new ideas. This guarantees a wide range of perspective while solving a problem, something that leads to better results.

Unlike Idea/Solution Contests, in the case of crowdsourcing, a company has less control over the process.

3. Idea Ecosystem

These ecosystems are organized environments where a continuous dialogue between the company and the consumers takes place. They are perfect for developing products and receiving feedback in real-time. These can either take place as face-to-face meetings, like organized focus-group or online, under various platforms, forums, or even Facebook groups.

4. Open Innovation Lab

Open Innovation Labs are spaces from inside the company where employees can test different hypotheses, ideas, or solutions. They have the role of facilitating experimentation and reduce costs while testing prototypes or MVPs of various products.

5. Team of colleagues

This method consists of a collaboration between colleagues, preferably in an organized environment, like the open innovation lab, with the purpose of developing, testing, and implementing innovative ideas of services or products.

In 2006, Netflix launched a challenge towards all those who could create an algorithm that can make more specific recommendations than what the company was already using.

Examples of open innovation

LEGO

LEGO is one of the companies that constantly interact with its customers, offering them the space necessary for them to manifest their creativity and to contribute to new LEGO products.

LEGO’s open innovation initiatives can be seen, first of all, on the open platform LEGO Ideas, where fans can post their personal creations made with LEGO pieces, and if they are voted by fans they can then be evaluated and proposed for production. Find out more about how the platform works here.

NETFLIX

The famous streaming service also adopted the open innovation paradigm earlier, back when it wasn’t as famous as today. Precisely, in 2006, Netflix launched a challenge towards all those who could create an algorithm that can make more specific recommendations than what the company was already using. The rule was that the winning proposals must be 10% more precise than what the company was already using.

The competition lasted for three years, time in which 40.000 teams from almost 190 countries joined. Out of the 40.000 teams, only two managed to pass the 10% threshold, and only one called BellKor’s Pragmatic Chaos won the big prize.

If we look backward, this probably happened at the beginning of the company’s ascension towards the form we know today, the suggestion algorithm being one of the main features of the product.

PHILIPS

Philips is a top-notch example of open innovation, being veterans in the field.

În 2003, they opened, in Eindhoven, the High Tech Campus, some sort of European Silicon Valley, where over 140 companies work. The campus allowed the company to effectively work in the proximity of other companies, something that allowed the exchange of resources and information that is at the basis of open innovation.

Along with the Campus, Philips also has a platform – Innovate with Philips, were it allows the users to share innovative ideas that can be then taken to production.

QUIRKY

Quirky is a platform that allows users to share their product ideas by filling in a form and then, every month, some of the ideas are chosen and built into real products.

Another benefit is that products that aren’t chosen are still getting feedback.

Do you have a product idea? It wouldn’t hurt to check out what you can do on Quirky.

HACKATHONS

We have talked about hackathons before, in the context of social innovation and also when we talked about innovation generally.

Hackathons are events where multiple attendees with different backgrounds – programmers, marketers, business, and product developers, and others collaborate on projects which are usually proposed by a company. These are the Idea/Solution contests we were mentioning earlier.

For example, #EUvsVirus is a hackathon that took place in April 2020 as a reaction of the COVID-19 pandemic. The Global Hack is another example. A lot of similar events happened – at a global or European level – in the context of the global pandemic.

Facebook is one of the companies that is constantly organizing hackathons, both among the employees and outside people, which last between 24 hours and a couple of days, to develop new features for the social media platform. There is a rule though, which states that you have to work on something unrelated to your day-to-day job.

Conclusion

In this article we presented the open innovation paradigm and everything that goes with it – from how it came to be, to how it was widely adopted nowadays as general practice in successful companies.

You must remember these:

• The difference between closed innovation and open innovation.

• The types of Open Innovation and the two dimensions that are at the base of the types of open innovation.

• Common practices for applying open innovations

Want to become a master innovator? Read our other articles on innovation:

Dou you want to boost your sales by applying innovation in your company? Book a FREE Call and let’s talk about how we can help you.