The COVID-19 pandemic has brought open innovation to the foreground, with experts from different industries putting their heads together for the greater good.
For instance, Ford, United Auto Workers, 3M, and GE Healthcare have combined forces to build ventilators using F-150 seat fans, 3D printed parts, and portable battery packs.
While it may sound like the latest buzzword, open innovation has been around for almost 20 years. But now, as digital transformation and the startup age kick into high gear, C-suite members are finally taking note of the theory first coined by a University professor.
Read on as we find out what open innovation is, and why it matters more now. We’ll explore key benefits, types, and examples of the concept in action, and will study several open innovation models you can experiment with to drive progress and transformation in your business.
What is Open Innovation?
Open innovation is the practice of a company opening its R&D department to input from people outside the company, or, to employees from other departments within the organization. By breaking down traditional silos between departments, and welcoming external experts and researchers, companies remove the limitations that a classic, secretive model may place on innovative efforts.
The concept of open innovation was created in 2003, by Henry Chesbrough, a research professor at the University of Berkeley. Today, useful knowledge is widely distributed, and there is no company, no matter how big, that can maximize the potential of innovation entirely on its own. Chesborough explains that this model offers companies a decentralized approach to innovation that empowers growth.
Open vs Closed Innovation
Before we dive into open innovation, let’s first see how it compares to the opposite approach of closed innovation.
Closed innovation is the traditional model of ideation, research, and development that relies entirely on internal resources and expertise to generate, manage and sustain new business ideas. All information is contained within the company, often within the R&D department, with no sharing with external parties.
Open innovation, by comparison, refutes the classic approach by welcoming creative talent, research professionals, and subject matter experts from outside the company. The open innovation strategy is rooted in the belief that increased information sharing and collaboration will invariably deliver better results.
Types of Open Innovation
Companies can use open innovation in myriad forms, putting the philosophy to practical use in a way that best suits its business objectives. As we consider the different types of open innovation, we can develop a clear understanding of how best to use it.
We can classify open innovation according to four levels of inclusion:
- Intracompany - Open innovation efforts inside the organization. While this type may sound contrary to the overarching philosophy of open innovation, intracompany innovation brings together resources from multiple departments.
- Intercompany - Open innovation between two (or more) companies. The perfect example of this type is a corporate accelerator.
- For experts - Open innovation that brings in people from outside the organization who possess the required experience and knowledge to provide relevant input.
- Publicly open - Open innovation that invites all people from outside the organization regardless of their previous knowledge or reputation.
After we determine the level of inclusion, we can define the purpose of use as one of the following:
- Marketing to promote brand messaging and convey key information to the target audience.
- Gathering insight to identify and evaluate valuable information about current market trends and customer preferences.
- Finding talent to enhance the overall skill set and productivity of the company’s workforce.
- R&D to develop new products or services.
When we cross-reference the level of inclusion with the use case, we have 16 types of open innovation.
For example, let's say your business wanted to fill new positions quickly. With an intracompany approach to finding talent, you can identify people within your ranks who possess valuable skill sets.
If you want to develop products that reach the broadest possible audience, you can use a publicly open model to get insight from experts and potential customers during development.
The level of inclusion you wish to work with, and the primary goal are vital aspects that will determine which type of open innovation your business should choose. With these parameters in mind to guide your open innovation strategy, you can reap great rewards.
Benefits of Open Innovation
So, why should your business consider this method of innovation? Here are five benefits of open innovation for corporations that wish to use outside talent for R&D:
Access latest industry talent
Despite a push to train more developers and IT professionals in emerging fields like fintech, cybersecurity, healthtech, blockchain, and mixed reality technologies, there simply isn’t enough talent available to satisfy the market demand. If your business puts its stock in closed innovation, it limits the chances of innovating even more.
Open innovation enables companies to collaborate with as many bright minds as possible so that you can keep your company at the bleeding edge.
Access essential infrastructure and technology
While some startups can bootstrap their way to the big time, many are crushed by a lack of resources. Without the capital or technology to properly develop a concept, it often proves impossible to get an idea off the ground.
Open innovation presents new partnership opportunities, enabling startups to build relationships with university research facilities or larger enterprises that have the resources to bring products to market.
Develop additional revenue streams
Sometimes, certain projects don’t fit with the core business model. Rather than letting them go completely, a company can use open innovation to develop unrelated ideas externally. In doing this, they can establish new revenue streams and start new partner businesses that are separate from the primary business model.
User-generated content is a powerful channel where companies leverage the feedback and ideas of their customer base to build brand awareness and social proof. But co-creation doesn’t need to stop at marketing—you can use it to innovate, too.
By involving customers in early stages of product development, you connect with the community you are trying to serve and implement their ideas in a way that helps ensure the final products and services are aligned with what matters most to your customers.
Reduce costs and development timescales
Larger enterprises can get stuck in their ways, held back by red tape and stringent processes. Meanwhile, smaller startups may have talent but often struggle because of a lack of resources and financial muscle.
By coming together, a partnership reduces costs for small startups and accelerates product life cycles for bigger companies. The union also spreads the risk for both companies.
Electrolux’s Head of Open Innovation, Lucia Chierchia, reiterates that such partnerships are not a one-way street, as the bigger company providing the financial and infrastructure support also gains a lot.
“There is big value when it comes to innovations from outside our company, and we needed to find a way to capture this value and build something new together with smart, external people.”
Examples of Open Innovation
Rapid developments in technology have encouraged more companies to experiment with new methods in the last decade.
Here are some open innovation examples from some of the most well-known companies in the world:
The dominant force in social media nurtures innovation on the inside with company hackathons, which help Facebook surface some of its best ideas from within its own ranks. These events give employees the opportunity to discuss and develop initial versions of product ideas they might have before product teams take on the
By opening the floor to everyone—not just developers—Facebook offers all employees the chance to think creatively, and it can even prove to be a springboard for some budding entrepreneurs to launch new ideas or segway into new career paths.
Dutch technology corporation, Philips, is an early adopter of open innovation, as the company made a shift in that direction back in 1998 when it opened the R & D ecosystem now known as the High Tech Campus Eindhoven.
The campus is home to over 200 companies, with entrepreneurs, researchers, and product developers from all over the world coming together to create new ventures.
Many of the projects created on campus focus on solving real-world problems, such as the challenges posed by overpopulation, climate change, and failing healthcare systems.
Another intercompany example is the Samsung Accelerator program, which brings together entrepreneurs, designers, innovators, and experts, and offers them office spaces, capital, and product support to yield exciting new solutions.
The initiative provides a platform for four potential avenues of open innovation:
- Commercial partnerships between Samsung and other companies.
- Venture capital funding to offer R&D investments to new startups and external businesses.
- Mergers and acquisitions where Samsung can acquire new talent and integrate small teams into the corporation to build new products for Samsung.
- Corporate accelerators, like those that already run in Palo Alto, San Francisco, and New York.
UNDP (For Experts)
The United Nations Development Programme (UNDP) promotes investment and collaboration for social good on an international scale. As mentioned earlier, the global pandemic has been a catalyst for innovation, with experts from all fields working overtime to figure out solutions that can help the world in the new normal.
As Rwanda struggled to cope with rising cases, the UNDP Accelerator Lab brought health professionals together with the Ministry of ICT and Innovation to design and deploy anti-epidemic robots.
These advanced robots help screen people and detect COVID-19 cases at Kigali International airport, and provide additional services in the local hospitals and treatment centers, including food and medication delivery.
Coca-Cola (Publicly Open)
When it comes to innovation, Coca-Cola is no stranger. The soft drinks company famously launched “New Coke" in the mid-80s. The rebranded product and new taste formula was a disaster. Sales plummeted, and the company was inundated with complaint calls. Eventually, the product was discontinued in the face of public backlash.
Today, “New Coke” is recognized as one of the worst marketing mistakes in history, offering companies a cautionary tale on why they shouldn’t mess with a working formula.
Nowadays, the company involves customers by allowing them to suggest and mix their own flavors in a freestyle dispenser machine. With the mobile app, customers can record their favorite new tastes, and get it from other machines in different locations.
Coca-Cola learned its lesson, but it didn’t put the company off innovation completely. By putting customers at the heart of product development, Coca-Cola gets valuable insight from public opinion, before they dare to launch any new products.
Different Open Innovation Models
Now that you understand the key benefits of open innovation let's look at some of the most effective models. Here are three ways you can apply open innovation at your business:
Open innovation challenge
An open innovation challenge is an event where entrepreneurs, researchers, and specialist teams compete against each other to try and solve a defined problem in the industry. One example is Unilever’s innovation portal, which seeks solutions to problems companies face with packaging, transportation, and storage of food products.
Innovation challenges help companies gather ideas and find solutions. Usually, the problems are well-defined, like the Unilever program. However, it can sometimes require a broader approach to encourage thinking around a more diverse range of ideas. For example, the AT&T Accelerator Challenge strives to find new ways of enhancing the engineering capabilities of students.
Open innovation partnerships
Crowdsourcing takes a similar approach to an open innovation challenge, where a corporation partners with an accelerator to source innovation. The company comes up with an initial problem, question, or theme, and encourages people from outside to put forward ideas or potential solutions.
This model reduces R&D costs, and cuts down on production time, as your company can maintain open communication channels with your audience, getting input at every stage of production. As this process fosters connections between internal stakeholders and external innovators, crowdsourcing is an excellent method of building partnerships that offer mutual value.
Open innovation labs
An open innovation lab is a dedicated workspace that operates outside the normal routines and practices of the business.
Quite often, the teams that work in these labs comprise new hires and external experts, who will collaborate to provide solutions to targeted problems or else come up with ways to improve the existing products, services, or systems at the company.
Liberty Mutual opened an innovation hub called Solaris Labs, located in a Boston branch of WeWork. The lab has the goal of building and testing new products based on emerging trends and customer research.
The team in the lab operate like a startup in several ways, as they:
- Partner with universities for relevant research
- Sponsor corporate accelerators that incubate startups
- Engage with startups in the Boston area
By setting up the lab in a WeWork, the company breaks away from the corporate mold and gets access to the fast-paced energy of the startup space. In doing so, it enables the team to think and work differently.
How to Become an Open Innovation Company with MassChallenge
When success has come easy at an established enterprise for many years—or even decades—shifting the proven paradigm can seem folly. The prospect of transforming well-ingrained practices and processes in a massive company not only seems risky, but it is also a daunting project.
And yet, ignoring the changing tides in your industry is a mistake no company can afford. Even if your business is secure now, there is no guarantee traditional methods of innovation will keep you at the top.
Becoming an open innovation company allows you to spread risks, reduce costs, and tap into the raw power of new talent and technology. Instead of limiting your company’s progress with a traditional, in-house focus, you open the door to valuable partnerships, ideas, and expertise in your industry.
Ultimately, this approach can drive transformation and sustainable growth for your company. What an accelerator, like MassChallenge provides, is the hub for bold problem solving, innovation, and acceptional entrepreneurs who all team with a variety of essential stake holders. Becoming involved with accelerators facilitates access, supports emerging talents and technology, and bolsters any organizations goals by maximizing open innovation.
Learn more about MassChallenge and what it means to be a partner or an expert for the global network for innovators who are working to solve massive challenges.