Open Innovation is about increasing the innovation potential of firms by opening them up to new ways of working with external organisations. Whether this takes the form of new co-working agreements, acquisition of start-ups with interesting technologies, or spinning out new developments into external companies the ultimate goal is the same: to increase innovation and increase value as a result.
These practices have existed, and been studied, for many years and the dynamics of Open Innovation are truly remarkable and to some practicing disciples it represents the nirvana of organisational innovation. The term Open Innovation (OI) was brought to us by Stanford Professor Henry Chesbrough in 2003, based on his observations of technology firms, yet is certainly not exclusive to the technology world as many other industries from Pharmaceuticals to FMCG have been through these changes, and their practices are still evolving today.
As organisations look to create value from Open Innovation, this thought piece gets into the weeds and fundamentals of the original Open Innovation definitions presented by Chesbrough and asks that given the broad church of activities being applied under its banner should one not look to widen this faith out so as not to constrain any Open Innovation believers. The piece will draw on the work of John Golightly from his time at the Big Innovation Centre.
Going back to the start
The term Open Innovation was first defined by Henry Chesbrough in his influential 2003 work:
“Open Innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology. Open Innovation combines internal and external ideas into architectures and systems whose requirements are defined by a business model.”
In 2006, following feedback he revisited and refined this definition, emphasising the prescriptive as well as descriptive value – not just that some organisations use Open Innovation but that all should:
“Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that 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.”
He contrasted this approach with the more traditional (at the time) closed innovation system where companies generate their own innovative ideas, and then develop, manufacture, market, sell and support that product or service. While the polarized view of open and closed is a good way showcase and compare and contrast the benefits of each system, it is fair to say that, in the main, a completely closed organisation is, if it ever existed, now historic relic, and that companies have for many years opened up aspects of their value chain. They may not have been as open within and transparent with their Innovation and Research and Development, but the traditional functional activities have been open for decades.
Instances of this can be seen in the types of partnering and strategic alliances that were prevalent pre-Chesbrough’s 2003 definition, for example licensing, supplier relations, outsourcing, joint venture, consortia, clusters and innovation networks. This is also supported when you look at the knowledge management domain and the whole piece around ‘Absorptive Capacity’ and the works of (Cohen & Levinthal, 1989, 1990) who argued since the late 1980s that ‘the ability of a firm to recognise the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities’ suggests that firms can benefit from technology developed outside the organisation.
What’s the big deal?
So, if companies have been working together and collaborating for all this time, what is so special and unique about Open Innovation, and why are organisations embracing it? Chiefly, it is because Open Innovation draws together various aspects of licensing, supplier relations, outsourcing, joint venture, consortia, clusters and innovation networks and how the organisation generates innovative ideas, then develops, and brings this to market into a more cohesive and coherent concept. It also gives it a focus and a priority within organisations, and it develops those ideas from being ad-hoc activities understood in a piecemeal fashion, to being fundamental to how companies innovate. In doing so it becomes part of a robust business process.
This renaming of many existing practices under the category of Open Innovation may just have been a natural consequence as decision makers came to recognise and understand what it meant and what variety of activities firms were doing then it became easier to encapsulate under the one term.
So how best to express this for your business, since Open Innovation takes a wide variety of forms? The range of business models is huge which can be defined as being open and therefore as part of an Open Innovation approach. The sheer range is well illustrated in the spiral diagram developed by leading Open Innovation consultancy 100%Open (shown as Figure 1).
Figure 1: Business Models, from closed to open (Source: 100%Open)
With this vast array of definitions and flavours do you end up with confusion across the business, or does the flexibility of the definition and available business models prove useful as it allows them to be tailored to the needs of the business? Ask a range of businesses what it means, and you’ll undoubtedly have this challenge and benefit played back to you in responses like:
- “Maximising the value of external partners to bring new technologies and innovation to our part development pipeline”
- “Translating insights (from different channels) into execution”
- “Turn external ideas into exploitable value”
- “Putting information, technology and stuff out there to get more stuff back”
- “How we benefit from the internal and external networking with partners, collaborators, key stakeholders and funders, so together we can make a bigger contribution than doing stuff on our own”
- “Contribute to an ecosystem…benefit from being an integral part of the whole”
It’s a case of whatever works best for you. All flavours and definitions are valid if they get the job done and deliver the results for the stakeholders. We can get to hung up on definitions sometimes with the first few slides of presentations taken up by citing the various historical definitions. As you start to be mindful of this vast array of approaches all in some way tagged under this broad church of Open Innovation, you end up moving away from the definitions provided by Chesbrough and more to that used by Innovation practitioners such as 100%Open:
“A relationship between businesses that depends on sharing the risks and rewards of collaboration”
Putting aside the a globally recognised standard or universally accepted definition, Open Innovation has come a long away and continues to mature into a management concept and framework, as a methodology for organisations to interact and change, and that companies are adapting it to fit the needs of their businesses.
It may not be the vehicle for spiritual enlightenment for all things innovation but, no matter what you call it, define it as, or believe in with regards opening up versus keeping things closed there are incredible benefits to be had from applying it as part of your innovation strategy. Fellow Future Shaper Jonty Slater showcases the benefits P&G generated from switching to a more Open Innovation model in his thought piece Power of the Global Crowd.
As innovators, change makers and upstarters, we are asking you, our crowd, to take a look at our challenges page. This is a new addition to our Future Shapers Platform where we give a shout out to our partners Open Innovation asks.
We are not getting into the Open Innovation space as a service provider as we are lucky enough to have a number of fantastic partners including IdeasUK, Leading Edge Only and Blue Globe Innovation.