What is Open innovation/origin/working/advantages/disadvantages

Ahmad JavedJuly 28, 2023

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What Is Open Innovation?

Open innovation is a business management model that promotes disruptive development in the company, through the decentralization of its innovative mindset .

In other words, it seeks innovation through the creation of external partnerships with other people and organizations.

It starts with the acceptance that there is an intellectual limitation in a small group of people, however capable they may be.

In other words, a company alone will never have all the knowledge necessary to create new solutions, follow trends or reinvent itself .

Therefore, opening space for outside participation, with other agents being able to contribute with expertise, proves to be a smart initiative.

The Origin Of The Concept

The principle of open innovation, although not by that name, is quite old and refers to discoveries from a long time ago .

Even in the 17th century, with the advance of the great navigations, it was necessary to define a more precise coordinate system so that the vessels could have greater predictability in their routes.

From this demand, different people, endowed with specific knowledge, developed the correct calculation of longitude determination, making it possible to reach the initial objective.

Over the years, new joint contributions were created, and what was more rudimentary became systemic.

Although notions about Open Innovation point to a distant past, the concept as we know it emerged in 2003 , from the launch of the work “ Open Innovation: How to create and profit from technology ”, by Henry Chesbrough.

Chesbrough coined the term and is considered the father of open innovation.

Its role is so important that we’ve separated an entire topic to talk about later in this article.

How Does Open Innovation Work?

The truth is that there is not just one way to implement open innovation, as we will detail when talking about the different types.

Partnerships with other companies and startups are one of the most common ways.

However, there is also funding for research in educational institutions and think tanks , in addition to hackathons and crowdsourcing and other alliance models to go in search of information and technology .

It is important to note that, at Open Innovation, it is not necessarily necessary to share everything that is discovered.

The purpose is to seek knowledge that can be useful for your business, but even what does not apply to your company’s reality can be passed on.

Open Innovation: Advantages And Disadvantages

Before your company implements the concept and guidelines of open innovation, it is important to be aware that there are many advantages, but also some points of attention of the management model.

If you can maximize the positives and minimize the negatives, the chances of success are huge.

Benefits

Openness to new opportunities: by promoting partnerships with employees, startups and external companies, you can have a broader view of your own business, allowing for more disruptive innovation
Acceleration in the implementation of innovations: when sharing knowledge and technology with other agents, the trend is for processes to be faster, as working together prevents overload
Reduction of risks and costs: concentrating the responsibility for generating innovation is usually more expensive and dangerous, unlike the search for partnerships, where external contributions make these factors to be mitigated
Increased ROI: adding the above advantages, we have a greater return on investment , as an innovation implemented in an exempt, fast, cheaper and safer way promotes a greater chance of profit
Valuing intellectual properties: knowledge is a value that needs to be encouraged, but it doesn’t always work that way. With open innovation, knowledge gets the recognition it deserves
Networking: by interacting with specialists from different areas and segments, the company increases its network of contacts , and strengthening this type of partnership opens the way for future opportunities
Growth of learning capacity: no company can master all knowledge, but when it exchanges information with specialized agents, it manages to learn a little more about that content.

Disadvantages

If your company doesn’t pay attention to some details, open innovation can bring some disadvantages, such as:

Possible leakage of relevant information: When you open up to partnerships, you have to be careful to share only the desired data , which does not compromise your business
Dependence on external knowledge: it is not because your company has opened its innovation process that it can no longer develop improvements internally. Your core business still needs to rely on your own insights
Loss of control over intellectual property: open innovation needs to be seen as a form of learning and not as an alternative to completely delegating your creative capacity.

What Types Of Open Innovation?

As we mentioned earlier, there are different ways a company can apply open innovation.

Learn about the three types of implementation of this knowledge management model:

Inbound

It is the model in which a company seeks knowledge or technology from an external source specialized in that type of solution to improve its internal processes.

Most agreements are like that.

A very characteristic example is when an organization uses a university, a startup, an incubator or a think tank to develop a particular service to be incorporated into the business.

Thus, in possession of this new technology, the company becomes more competitive and manages to satisfy the pains of its customers , in addition to promoting benefits for society in general.

Outbound

It is the opposite of the previous model.

Here, a company develops an innovative solution and transfers it to another organization , in a partnership system.

In this case, the company generates revenue from the sale of its private property, as is the case with the granting of patents and licenses, for example.

Coupled

It is nothing more than the combination of the two previous models.

That is, if on the one hand the company seeks new ideas from partners, it also helps, in some way, to deliver an innovative counterpart .

It is a kind of marriage, in which each of the agents delivers the best they have, in search of solutions that bring positive results for both.

Open And Closed Innovation: Understand The Differences

The closed innovation model, as the name suggests, is when a company seeks creative solutions on its own , with its resources, often without having the ideal knowledge and technology to do so.

Likewise, the type of content generated is not shared with the outside world.

It’s as if the company lives inside a bubble , oblivious to everything that happens around it.

Companies that adopt closed innovation run the risk of becoming obsolete, as they view all types of technology and externally generated knowledge as competitive work , something they cannot or should not appropriate.

Other features of this model are:

Slowness in the innovation process
High cost for creating and implementing solutions
Greater risk in the implementation process, as there is no assessment of whether the solution meets market needs or not
Lack of integration with external resources.

As you can see, it is an antithesis to the Open Innovation model.

Henry Chesbrough And Open Innovation

Henry Chesbrough was responsible for diagnosing the inefficiency of closed innovation and the need to create a new model.

In an interview with Época Negócios magazine in 2009, the Open Innovation guru talked about the changes that sharing technology and knowledge can generate in the mindset of companies.

According to him, promoting this type of initiative only adds to all the agents involved in the innovation process.

After all, companies will reduce costs , gain time and reduce risks in the development of solutions.

However, he points out that for the system to work, it must be a two-way street.

In the same way that companies use the expertise of partners for their own benefit, they must also share their knowledge with others.

How To Implement Open Innovation In Your Company?

Any company can implement open innovation, as long as it is willing to live a digital transformation .

Startups, because of their raison d’être, may find it easier to adopt this model .

Those who do not work directly with technology, however, can also do it.

Below are some ways to implement Open Innovation:

hackathons
crowdsourcing
Customer and partner feedback
working space
Open APIs.

Challenges In Implementing Open Innovation

Any change requires an adaptation period , especially when we are talking about a reality so different from the conventional one, such as the implementation of open innovation.

Aside from the natural challenges that every disruptive transformation process requires, your company must be especially careful with two important details.

The first concerns the legal aspects related to intellectual property.

Ensure that contracts are drafted in a secure manner, that protects the company in relation to its rights, and place confidentiality clauses if you do not want to disclose certain information.

The second is more operational in nature, which is taking ideas off paper and putting them into practice.

For this, it is vital to have professionals who focus on the feasibility of the project , whether economic or productive.

How To Create A Culture That Encourages Open Innovation?

For open innovation to be seen naturally, managers must develop an enabling environment for this culture to be established.

The following tips can help with this mission:

Know how to differentiate novelty from innovation. Something new in your company is not necessarily innovative in general
Value your intellectual property
Implement courses, training and mentoring for your employees
Keep an eye on market talent
Establish innovation metrics
Stimulate the community
Brainstorm and learn to listen
Promote a horizontal hierarchy.

Open Innovation: Examples Of Companies That Use

Based on what we’ve covered so far, you can already have a good idea of how to create and stimulate open innovation.

To understand how this process happens in practice, there is nothing better than observing large companies that have already taken this step for some time and are reaping the rewards of implementing this management model.

Check below four examples of Open Innovation initiatives developed by giant organizations in their segments.

Nature

A forerunner in several important aspects, such as sustainability and social responsibility , Natura is also one of the first Brazilian companies to invest in open innovation in the country, with the Natura Startups Program .

The initiative, created in 2014, aims to facilitate the connection with entrepreneurs, seeking to accelerate innovation and boost the organization’s culture.

Among the solutions sought by the company are:

Achieve sales excellence
Continuously improve the customer experience
Have a more efficient supply chain
Promote quality of life and development.

In all, the project has evaluated more than 5,000 startups and more than 1,100 have interacted directly with the company.

Netflix

When we think of innovation, Netflix is one of the first companies that come to mind, but it wasn’t always that way.

When it was still just a remote DVD rental store, it launched the Netflix Prize , a challenge for external audiences that consisted of developing a filtering algorithm for movie suggestions that was superior to the existing one.

Whoever won the contest would take home $1 million and full credit for the work done.

In all, more than 40,000 projects were submitted and great initiatives were presented.

However, whoever placed first in the competition ended up not winning.

This is because, despite being an excellent solution , the cost of implementation was very high for the time.

So, the great champion ended up being the team that presented an algorithm almost as good, but with a more affordable value.

P&G

The multinational P&G was another company to develop a very interesting open innovation project.

Created in 2000, under the name of Connect & Develop , the initiative aimed to change the company’s innovation mindset , so that half of the solutions were developed through external partnerships.

In seven years of project, the goal was completely achieved and the group was able to cut costs and have an increase of 85% in its productivity.

As if those numbers weren’t enough, P&G made about $3 billion in annual sales with partner companies thanks to shared innovation.