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What is open Innovation?
Growing attention has been devoted to the concept of "Open
Innovation", both in academia but more importantly in business. Henry Chesbrough, who
coined the term, describes in his book "Open Innovation: The New Imperative for Creating and Profiting from Technology" (2003) how companies have shifted from so-called 'closed' innovation processes towards a more open way of innovating.
Traditionally, new business development processes and the marketing
of new products took place within the firm boundaries (Figure 1).
Figure 1 Closed innovation
However, several factors have led to the decline in the effectiveness of closed
innovation (Chesbrough, 2003). First, the mobility and
availability of highly-educated people has increased over the years. As
a result, large amounts of knowledge exist outside the research
laboratories of large companies. In addition to that, when employees
change jobs, they take their knowledge with them, resulting in
knowledge flows between firms. Second, the availability of venture
capital has increased significantly recently, which makes it possible
for good and promising ideas and technologies to be further developed
outside the firm, for instance in the form entrepreneurial firms.
Besides, the possibilities to further develop ideas and technologies
outside the firm, for instance in the form of spin-offs or through
licensing agreements, are growing. Finally, other companies in the
supply chain, for instance suppliers, play an increasingly important
role in the innovation process.
As a result, companies have started to look for other ways to
increase the efficiency and effectiveness of their innovation
processes. For instance through active search for new technologies and
ideas outside of the firm, but also through cooperation with suppliers
and competitors, in order to create customer value. Another important
aspect is the further development or out-licensing of ideas and
technologies that do not fit the strategy of the company. Consider, for
example, ASML, which is a Philips spin-off.
Open Innovation can thus be described as: combining internal
and external ideas as well as internal and external paths to market to
advance the development of new technologies.
Figure 2 Open innovation
What does this mean?
In the first place, the shift described above means that companies
have to become aware of the increasingly importance of open innovation.
Not all good ideas are developed within the own company, and not all
ideas should necessarily be further developed within the own firm's
boundaries. The table below further illustrates this:
| Closed innovation principles | Open innovation principles |
| The smart people in the field work for us. | Not all the smart people in the field work for us. We need to work with smart people inside and outside the company. |
| To profit from R&D, we must discover it, develop it, and ship it ourselves. | External R&D can create significant value: internal R&D is needed to claim some portion of that value. |
| If we discover it ourselves, we will get it to the market first. | We don't have to originate the research to profit from it. |
| The company that gets an innovation to the market first will win. | Building a better business model is better than getting to the market first. |
| If we create the most and the best ideas in the industry, we will win. | If we make the best use of internal and external ideas, we will win. |
| We should control our IP, so that our competitors don't profit from our ideas. | We should profit from others' use of our IP, and we should buy others' IP whenever it advances our business model. |
The business model plays a crucial role in this is. After all, how
and when external knowledge is required and used is to a large extent
determined by the companies' business model which describes how value
can be created from innovations and which elements have to be sourced
internally or externally
Reference: Chesbrough, H. (2003), "Open Innovation: The New Imperative for Creating and Profiting from Technology", Harvard Business School Press.
