Open innovation is being embraced increasingly at corporations for two main reasons:
- Just because they can generate a high volume of interesting internal ideas for innovation programs doesn’t mean they need to (or should) act on those ideas on their own to drive their businesses forward.
- Large enterprises can't assume they will routinely come up with worthwhile ideas for all potential innovation initiatives solely in-house or unearth commercialization opportunities for any intellectual property they own.
The reality is seeking input, advice, and insights outside their companies can provide the fresh perspective corporate leadership teams need to unlock truly innovative ideas — ones that can not only help their core business near term but also future-proof their organizations and make their companies more resilient long term.
Enter the open innovation model. Here's what the approach entails.
What is open innovation?
The concept of open innovation offers corporations a means to improve their existing products or services or explore entirely new markets and/or business models with the aid of an outside innovation partner.
These external sources can bring their own innovation ideas to the table or simply work with enterprises' internal R&D and/or innovation teams to execute on ongoing or proposed innovation programs.
With his book "Open Innovation: The New Imperative for Creating and Profiting from Technology," author and organization theorist Henry Chesbrough made big waves across the entire business landscape.
Henry referred to the open innovation process "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."
With incumbents more vulnerable to economic downturns and market shifts than seemingly ever before, open innovation affords them the opportunity to stay ahead of the curve (and competitors) by conducting innovation experiments that can future-proof their businesses.
At the same time, it also opens the door for large enterprises to establish (or renew) relationships with outside parties (more on them shortly) who can help them tackle problems and address market opportunities that they would otherwise be unable to take on single-handedly, often due to a laser-focus on the core business.
Open innovation vs. closed innovation
There are certainly innovation programs corporations prefer to execute independently, due to their sensitive nature. (After all, they don't want competitors catching wind of a big, new initiative that could disrupt their space.)
But that doesn't mean there aren't times when an open innovation approach can't benefit these businesses.
- Closed innovation affords enterprises a secure and private way to turn their IP into new offerings for their customers or even enter adjacent markets to serve an entirely new audience. The benefits of this approach essentially boil down to having complete ownership and control over the direction of innovation work and the ability to tap into the wealth of internal knowledge and expertise from employees who have intimate knowledge of their companies' space.
- Open innovation, on the other hand, can reduce corporations' risk tolerance and expenses by sharing resources for joint projects with external partners who want to solve the same problem as the enterprise. Entering into such an alliance enables scaled companies to build new products, strengthen existing ones, go to market faster, better understand customer segments, refine buyer personas, penetrate new markets, and/or create new business models (i.e., startups).
"The decision to pursue an open or closed [innovation] ecosystem isn't really a binary, but a question of placing your company on a spectrum," Copenhagen Business School's Carmelo Cennamo and Harvard Business School's Feng Zhu recently wrote for Harvard Business Review.
Translation? Both innovation avenues merit consideration. But enterprises must evaluate when it's ideal to grant access to proprietary data and insights to third-party partners who can help undertake innovation initiatives and when their organizations should conduct fast, cheap, and 'weird' innovation experiments internally.
Open innovation examples
There are many types of open innovation initiatives large enterprises can carry out today. Common ones include:
Crowdsourcing and hosting contests
There are many examples of this open innovation option at major brands:
- IKEA created "Co-Create IKEA" to get ideas and inspiration for new product ideas by conducting a campaign that leveraged social media to connect with customers.
- Starbucks launched the "My Starbucks Idea" platform to make it easy for its customers to share concepts for new offerings and improvements to existing ones.
- Hyundai, Kia, and LG developed the "EV & Battery Challenge" to discover 10 startups their corporate venture capital team could back for product development.
Learning their customers' preferences and ideas for enhanced offerings and hearing from aspiring entrepreneurs with early-stage companies of their own helped these corporations innovate in and away from their core businesses and identify worthwhile investments that can pay off for years to come.
In other words? They discovered an entirely new corporate innovation lever that didn't require exhaustive internal resources. Instead, they could rely on the public and existing startups to aid their efforts to unearth novel ideas for product and process improvements and identify new investment opportunities.
Forming a corporate accelerator program
Helping early-stage startup founders and leaders with everything from product development productivity and acceleration to customer relationship management via a corporate accelerator doesn't just benefit startups.
It also helps corporations think about and aim to solve core business problems in new ways, exposes them to new audiences, and provides potential acquisition options (i.e., startups that can be folded into the main business or given sizable financial backing to thrive on their own).
This type of corporate-startup partnership simply needs a strong framework and dedicated stakeholders (e.g., a portfolio manager, a 'co-pilot' to project-manage work with multiple startups) to benefit both parties.
Collaborating with 'adjacent' partners
This could be health systems collaborating with medical researchers to develop digital devices and therapeutics.
Or, it could be consumer packaged goods brands and restaurants working with a variety of agricultural stakeholders to unearth new ways to improve sustainability across the AgriFood value chain.
Or, it could be two automakers creating a joint venture to build new car-manufacturing technologies together.
Corporations across industries — from energy, to aerospace, to retail — can capitalize from working with non-competitors in or adjacent to their space by taking advantage of their subject-matter expertise and unique outlook.
Hiring an advisory or consulting firm
From EY and McKinsey, to Deloitte and Bain, the big players in the corporate consulting arena specialize in collective qualitative and quantitative insights tied to enterprise clients and their industries, markets, and competitors to offer strategic recommendations that can help them maintain a competitive edge.
This may not seem like an open innovation approach at first glance. But this relationship isn't a one-way street, with advisors sharing advice and moving on to the next client. Execs and R&D/innovation leaders are heavily involved.
Each shares their thoughts on what can move the business forward. Then, consultants use that input to inform their suggested action plans tied to scope in question (e.g., advising on soon-to-launch innovation programs around AI).
Building startups with a venture builder
"Firms that execute their R&D through decentralized, independent startups in this way are innovating faster than those that do not," High Alpha Innovation CEO Elliott Parker wrote in "The Illusion of Innovation."
With macroeconomic conditions changing all the time, Elliott noted it's inevitable this volatility "will result in more partnerships and perhaps more corporations investing and incubating external startups from scratch."
One partnership many corporations engage in today is working with outside venture-building experts that have experience building companies from the ground up with scaled enterprises across industries and verticals.
The goal is to solve big customer, market, partner, or business problems for these businesses.
Exploring open innovation partnerships
The only way to know if open innovation is right for a corporation? Their C-suites must:
- Conduct an internal assessment of capabilities, bandwidth, resources, budget, et cetera.
- Evaluate partner options, based on who can best help them achieve business goals.
- Share an SOW with potential partners and the mutual benefits of working together.
- Execute on an initial project (a one-off program) before committing to a long-term union.
- Assess if the desired ROI from said project was met on time and under budget and provided value to both parties (e.g., revenue earned, audience exposure, insights generated).
Closed innovation is essential. It always will be.
But leaders at large enterprises would be wise to allocate time and resources to open innovation as well. Who knows? It could help them unlock growth and transformation they couldn't realize on their own.
