Companies should take advantage of the wealth of knowledge available to advance their innovations.
Open Innovation is a decentralised approach to value creation, meaning that companies, no matter how resourceful, can’t innovate on their own.
The concept of open innovation has been introduced by Henry Chesbrough in his 2003 book “Open Innovation: The New Imperative for Creating and Profiting from Technology”. It was defined by Chesbrough and Borgers as “a distributed innovation process based on purposively managed knowledge flows across organisational boundaries.”
There are two types of open innovation: inbound and outbound. In outbound open innovation, the company uses external resources to develop new projects. This approach leads to cost reduction and increased efficiency. Other companies have invested money and time into building a product that works and can be integrated and used right away. In the case of open inbound innovation, companies share their underutilised resources with the outside world. As a result, the company is exposed to new business models and industries which expands the R&D department and makes it more economically sustainable. Open innovation is different from the traditional R&D vertical integration model where companies leverage only internal resources to drive change.
The principles of open innovation according to Chesbrough (2003) are as follows:
1. "Not all the talented people work for us”. Many talented professionals work for other companies, some for competitors. Companies have to look outside the boundaries of their industries or business models to find and leverage ideas that can be used to improve the innovation processes.
2. A combination of internal and external R&D can create significant value. Companies that move away from relying only on the internal R&D processes have significant benefits. Some of these benefits include short product life cycle, reduced costs, the use of innovative technologies and increased innovation outcomes.
3. In traditional R&D practices, companies that create the most and have the best ideas win. In an open innovation mindset, companies can make money by integrating new technology into the existing business or licensing it to other firms. When these collaborations don’t work, both established businesses and start-ups need to rethink the way they create economic value in an environment of “technical and market uncertainty”.
4. Open innovation is about making the best use of internal and external ideas. In other words, companies should use the ideas discovered and tested by others. They don’t have to use R&D resources when a suitable solution for a problem is available. An essential aspect of this collaboration is that when many parts contribute to the development of a project, the company gets many diverse and creative ideas from different domains and the innovation burden is shared.
5. Open innovation is not in conflict with intellectual property rights. Companies leverage internal and external resources that are owned by the company or by other people. It is possible however to make a profit from open innovation projects by carefully managing intellectual property rights and protecting cooperative alliances. To be profitable, intellectual property rights should be available to others through cooperation and licensing.
Worldwide companies understand the importance of partnering with start-ups, venture capitalists, accelerators and educational institutions to bring innovative products to market. To increase efficiency and efficacity, businesses should look beyond the boundaries of their R&D departments to enrich their innovation ecosystem.