Wondering what is open innovation and whether it suits your team? It is a way of innovating where you use outside ideas as well as your own, and let unused ideas leave the company too.
It is one approach within the wider topic of what is innovation, so start there if the basics are new to you.
| Item | Value |
|---|---|
| Term coined | 2003, by Henry Chesbrough |
| Core idea | Internal and external ideas, and internal and external paths to market |
| Chesbrough’s book | Published in 2003 by Harvard Business School Press |
| Directions of flow | Inbound and outbound |
| Outbound routes | Licensing, joint ventures or spin-offs |
These figures come from Temera’s overview and Wikipedia’s open innovation entry. Descriptions of the concept can change, so check the sources before you rely on them.
How open innovation works
Open innovation is a paradigm that assumes firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology. According to Temera, the term was coined in 2003 by the economist Henry Chesbrough, and his book on the subject was published that same year by Harvard Business School Press. You can read the wording in Temera’s blog post.
The thinking behind it is older than the label. Wikipedia notes that the benefits of openness were discussed as far back as the 1960s, especially for cooperation between firms on research and development, as set out on its open innovation page.
A more recent definition describes a distributed innovation process based on purposively managed knowledge flows across organizational boundaries. That wording also covers creative consumers and communities of user innovators, so it is not only about companies swapping ideas with each other.
Inbound and outbound open innovation
Open innovation moves in both directions. With inbound open innovation, a company buys or licenses processes or inventions from other organisations instead of relying entirely on its own research. Wikipedia explains this on the same page.
Temera adds that inbound work can include contests and competitions that gather ideas on a particular issue. Its overview also names incubators, accelerators and corporate venture capital as less widespread inbound activities, in its blog post.
With outbound open innovation, inventions the firm is not using in its own business are taken outside the company. Wikipedia lists these routes:
- Licensing the invention to another organisation.
- Setting up a joint venture with a partner.
- Creating a spin-off company.
Temera says the outbound approach is less used, because it is considered less safe in protecting a company’s intellectual property and resources. That caution is a reason to decide early what you are willing to share.
Open versus closed innovation
In a closed model, ideas mainly come from internal teams. Temera describes open innovation as the alternative, one that envisages the free flow of ideas and technologies from and to the outside. Designorate compares the two models like this:
| Area | Closed innovation | Open innovation |
|---|---|---|
| Source of ideas | Ideas mainly come from internal teams. | Ideas can come from both inside and outside the organisation. |
| Risk | The company carries most of the innovation risk alone. | Risk can be shared with partners. |
| Customer involvement | Customers are usually involved later, after the product is developed. | Customers can be involved early through feedback, co-creation, testing and idea submission. |
The comparison above comes from Designorate’s closed versus open innovation table, so check that source before you rely on it. Neither model wins everywhere, and the same source says the closed model is best suited for highly confidential projects, protected technologies and industries where control is essential.
Benefits and risks of sharing ideas
Wikipedia lists several benefits for companies that collaborate globally. Among them:
- Reduced cost of conducting research and development.
- Incorporation of customers early in the development process.
- Potential for completely new business models.
The same page is just as direct about the risks. They include the possibility of revealing information not intended for sharing, and increased complexity of controlling innovation and regulating how contributors affect a project, as listed on Wikipedia.
Temera also points to increased costs in relation to agreements with partners. Weigh these costs against the savings before you commit to any partnership, using the Temera overview as one checklist.
Where open innovation shows up in practice
Startups are a common example. Wikipedia says open innovation has allowed startup companies to produce innovation comparable to that of large companies, by leaning on outside resources and knowledge.
Governments can encourage it too. In the UK, knowledge transfer partnerships are a funding mechanism that encourages partnership between a firm and a knowledge-based partner, according to Wikipedia.
Temera notes that open innovation often focuses on relationships between start-ups, research institutes, consultants, universities and inventors. Designorate lists Apple and P&G as companies that implemented open innovation to create new products.
Using open ideas without losing control
Start by deciding what you are willing to share and what you must protect. A clear boundary between the two makes every later partnership easier to judge.
Involving customers early is one of the benefits listed above, and the guide on what is design thinking covers a user-centred method for doing that. Once outside ideas arrive, a small test helps you see which ones hold up, and the guide on what is a minimum viable product explains one way to run that test.
Treat each partnership as an experiment, not a permanent commitment. If the idea is highly confidential, the closed model may still be the safer choice.
Frequently asked questions
What is open innovation in simple terms?
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It is an approach where a company uses ideas and technologies from outside its walls as well as its own, and lets its unused inventions go outside too. Temera describes it as a free flow of ideas and technologies from and to the outside.
Who coined the term open innovation?
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Temera says the economist Henry Chesbrough coined it in 2003. Wikipedia adds that the underlying benefits of openness were discussed as far back as the 1960s.
What is the difference between inbound and outbound open innovation?
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Inbound means bringing in outside inventions, for example by buying or licensing them. Outbound means taking unused internal inventions outside the company through licensing, joint ventures or spin-offs.
What are the main risks?
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Wikipedia lists the possibility of revealing information not intended for sharing and increased complexity of controlling innovation. Temera adds increased costs in relation to agreements with partners.
