Accelerating your innovation results
Open innovation is a new innovation trend that many major companies are adopting all over the world. In this section, you can learn about the open innovation definition, its origins and benefits, and types of innovation (closed innovation and open innovation). ennomotive uses the combination of engineering crowdsourcing and open innovation for accelerating technological innovation projects.
What is open innovation?
Open Innovation: Definition
Open innovation is a business management model for innovation that promotes collaboration with people and organizations outside the company. In this sense, open innovation challenges are a true cultural break from the company silo mentality and the secrecy traditionally associated with the corporate R&D culture. This innovation model becomes viable when the company acknowledges that there are many bright professionals and greater knowledge outside the organization. It is in this very moment when the opportunity to attract those external individuals and/or companies becomes more real. Companies implement open innovation practices in different ways such as alliances between companies, research chairs in universities, crowdsourcing competitions, and innovation ecosystems.
Open Innovation: Origins
Collaboration and co-creation have always been around, maybe since humans started trading or since the cottage industry exchanged practices from other regions and cultures.
- Cisco may be the most important OI pioneer. Its acquisition strategy allowed the company to grow quickly during the late 90’s. The goal of these acquisitions was to make hardware compatible with software in new technological products. This customer-driven innovation strategy helped Cisco overperform Bell Labs or Lucent by effectively translating big tech investments into business growth.
- Another trailblazer is, undoubtedly, the pharmaceutical company Eli-Lilly, spearheaded by its R&D strategy manager. The company reflected on how to make use of collective intelligence to improve the traditionally low innovation success rates in the pharmaceutical industry. Consequently, e.Lilly was born around the year 2000, the first open innovation platform to connect with global scientific knowledge. This platform is the origin of Innocentive, Eli Lilly spin-off, whose goal was to allow other pharmaceutical and consumer goods companies to use this open model.
- The third initiator is Procter & Gamble, the company that created in 2000 the so-called Connect & Develop their new open innovation process. P&G’s ultimate goal was to continue growing by $2 billion annually while keeping a steady R&D investment. Procter managed to have up to 50% of its innovations coming from the outside and, consequently, its R&D productivity increased by 60%.
The term Open Innovation as we know it was coined by Henry Chesbrough, associate professor and head of the Open Innovation Center of the Haas Business School of the University of California.
“Open” versus Traditional “Closed” Innovation
Companies use innovation to generate and apply knowledge, develop new products and services, new business models, and ultimately obtain business results.
Traditionally, companies innovated only using internal resources. The main reasons were the non-commercial focus of the scientific community and their need to protect their valuable assets.
Such companies prioritized the volume of resources, the number of projects, and the investments in innovation. Consequently, organizations with closed innovation models tend to have big research departments generating plenty of in-house knowledge. The more, the better.
These organizations typically measure innovation performance using ratios like the percentage of R&D spending. However, it is well-known that this ratio, alone, only shows the project investment volume but does not reflect the actual business outcome.
Nowadays, companies that use closed innovation models usually encounter the following issues:
- The internally generated knowledge is incomplete. The contribution of external sources is a must since technology is evolving very fast globally.
- Sometimes, this knowledge does not make it to market, either because it does not exactly meet the market needs or because it takes too long. In fact, when innovation is too slow, either the knowledge becomes obsolete or business priorities change.
- The priority is to keep the same resources and budget year after year. Besides, external innovation is viewed as a competitor, hence the infamous “Not invented here”.
The so-called open innovation has emerged recently as a new innovation model. It encourages companies to use the existing external knowledge rather than reinvent the wheel. This way, it is considered positive to establish links with other companies, universities, tech centers, and other knowledge sources.
This type of innovation was born at the beginning of the century due to the arrival of the Internet which enabled an easy connection with available knowledge anywhere in the world.
This is what happens in organizations that use open models:
- The company collaborates with external knowledge generators.
- The main focus of the innovation department is to connect and integrate in-house teams with external knowledge sources.
- Internal innovation still remains but it focuses on the creation of knowledge that cannot be found outside, as long as this is marketable.
Comparison between open and closed innovation models
|Closed Model||Open Model|
|Use knowledge from internal sources||Internal + External knowledge sources|
|Low (typically 20-30%) success rate||Double innovation success rate, up to 80%|
|A lot of rework, low productivity||40-60 % productivity increase|
|Low speed of innovation||High speed of innovation (x 3)|
From a Traditional Innovation Funnel to a Rocket process Model
Traditional innovation uses a funnel process that allows the selection of the most attractive ideas and then develop and prototype. Under this approach:
- the ideas and development efforts remain mostly internal
- some reliable suppliers may make contributions throughout the entire process.