A holistic definition of innovation
At its core, innovation is a journey of continuously discovering business and customer problems that matter and solving these creatively through innovative solutions that work better than alternatives, in a way that delivers value. This journey includes a few broad stages: challenge identification, idea generation, solution design and validation, solution development and delivery and scaling.
Depending on the nature of the challenges, these solutions can be about new/better products or offerings, commercial or pricing models, entire business models, operational processes, customer experiences, workflows and ways of working.
Understanding Open Innovation
Open innovation is about opening any part of the innovation journey to the outside world, for the purpose of collaboration, to enhance the inputs and outputs in all parts of the process. This approach challenges the notion that all innovation must occur within the organization. Instead, it advocates for the integration of external ideas, technologies, and resources into the innovation process.
Henry Chesbrough, an expert in the field, explored this model in his 2003 book, "Open Innovation: The New Imperative for Creating and Profiting from Technology." The idea behind it is that firms should not seek to be entirely self-sufficient (ie depend solely on their own capabilities to innovate), but open up and seek to leverage external partnerships for new ideas and inspiration, to co-create innovative solutions, lower the risk and cost of R&D and solution delivery, and to speed up the cycle of solution testing/validation and delivery of new offerings to the market.
However, open innovation has made an impact long before the book. As far back as 1714, the British government set up the Longitude Prize, offering a significant cash reward for solving a complex navigation problem. This historical example laid the groundwork for what we now recognize as crowdsourcing — a method of tapping into external expertise to solve specific challenges.
Open innovation is also a two-way street or in other terms, it includes both "outside in" and "inside out" approaches. "Outside in" is when an organization brings external ideas and technologies into its activities and processes, and "inside out" is when it shares its ideas with others. These flows of information and resources enable and accelerate innovation processes.
Why Open Innovation matters
Many organizations have shifted part of resources away from self-sufficiency models to Open Innovation, for several reasons:
- Collaboration and co-creation can reduce the costs and risk of research and development, solution testing or incubation and delivery. By partnering organizations share investments in innovation, de-risk new ideas and accelerate time to market.
- Insights, ideas, expert knowledge and innovation capabilities are rarely concentrated in any one organization. The start-up and innovation ecosystem has grown in most industries and number and sophistication of ecosystem partners (startups and scaleups, academia, corporates, investors, public authorities) has increased as a result.
- As businesses, ecosystems and technologies become more global, companies have a wider reach. The Internet has made it easy for them to collaborate around the world. Foreign partners can often provide cheaper labour and different forms of technology.
Examples of open innovation programs
- Knowledge sharing and technology collaborations. These are methods of sharing insight or technologies through knowledge sharing platforms and events, licensing agreements, joint R&D agreements.
- Idea challenges or competitions. Firms often offer rewards for successful contributions by setting up competitions, sometimes soliciting ideas from employees or other partners and sometimes encouraging timeboxed structure developments in sprints known as "hackathons," which are common when developing software. These are short-term events, usually lasting between a day and a week, used by organizations to access and generate a large number of new tech ideas.
- Co-creation of solutions with strategic partners: Collaborative two- or three-way partnerships with suppliers, customers, or other stakeholders including start-ups can drive co-creation efforts to develop innovative solutions. Diverse perspectives and expertise often result in more innovative ideas.
- Venture Client Model of corporate-startup collaboration: pioneered by firms like BMW Garage, it is a corporate program where corporations act as clients to innovative startups, providing them with real-world challenges to solve in exchange for commercial fees and solutions, not equity investments.
- Research Partnerships with Universities and the public ecosystem of innovation infrastructure and resources: Collaborating with universities and other public research bodies allows organizations to tap into academic research expertise, as well as other facilities for innovation enablement to access cutting-edge ideas and technology.
- Corporate accelerators. These are structured programs that accelerate startup development through funding, mentorship, office space, and other resources in exchange for equity in the startup and access to emerging technologies, offerings and business models.
When Open Innovation May Not Be Ideal
While open innovation presents numerous advantages, it may not always be the best approach in certain scenarios, such as when:
- When organisations progress very only with internal resources and efforts
- When confidentiality or intellectual property concerns are paramount eg. Certain technology capability is a massive source of competency and competitive advantage
- The organization lacks the necessary infrastructure or resources to manage external collaborations effectively.
- Cultural or organizational barriers hinder collaboration ability.
Some tenets of successful open innovation initiatives
To harness the full potential of open innovation, there are a few critical principles to consider, when looking into what drives success:
- The needs for clear objectives: Clear, specific goals and objectives are needed to guide open innovation initiatives, decision-making and resource allocation. When designing any new program or initiative, the question "What is your overall goal for innovation?" helps provide clarity of purpose and outcome for the innovation teams. Such goals could be to collect new ideas or technologies, to design or test new ideas quickly with external partners or to design disruptive solutions that open up new markets. In addition, it is important to engage internal business stakeholders to identify the key business challenges that require outside help and focus. This will help to establish buy in and to determine what projects and partners can help and how.
- Culture change is real: open innovation requires a culture that values collaboration, openness, and knowledge sharing both internally and externally. The switch to open innovation can create a culture shock in organizations that are used to being self-reliant. Some people may be reluctant to accept external ideas or technology. Others may be unwilling to share information that they have developed. The key to breaking down barriers to change and fostering an environment that welcomes open innovation values and behaviours is to get top-level managers acting as champions for the initiatives.
- It's all about relationships: open innovation is about cultivating solid relationships with a diverse network of partners, including startups, universities, and industry peers, as well as about the ability to reach out, scout for and engage with the right partners. In addition, collaboration succeeds where there is trust, alignment in expectations, open and transparent communication with external partners and good relationships. Open innovation, like any other business activity is all about the people involved.
- Open innovation creates ventures that need appropriate business models: Open innovation efforts often differ from other simple technology transactional models, such as licencing. Co-creation efforts that involve two- or three-way partnerships require clarity of the roles of partners in delivering a joint offering and proposition, complex cost and revenue sharing considerations, clear measures of value/success.
- Open innovation is still innovation: like any innovation initiative, open innovation involves uncertainty and requires experimentation and risk-taking, recognizing that not all initiatives will succeed but can provide valuable insights and lessons learned. In addition, initiatives require not only partnerships but also a structured process and an internal operating model for delivery of required activities, that include dedicated resources, funding, Governance, to support open innovation initiatives effectively.
A few examples of success
- Procter & Gamble (P&G): P&G is a pioneer in open innovation, with its "Connect + Develop" program being a prime example. This initiative aims to collaborate with external partners to drive innovation across various product categories. Through Connect + Develop, P&G has established over 2,000 open innovation arrangements. One notable success story from this program is the development of the Febreze brand. P&G partnered with external entities, granting them licenses to use the Febreze brand name in different product categories such as air filters and vacuum bags. This collaboration led to the creation of innovative products like Febreze Set & Refresh, developed in partnership with Zobele, an Italian manufacturer of air fresheners. The combined expertise of P&G and its external partners accelerated product development, resulting in successful market launches.
- Bosch: has embraced open innovation through various initiatives such as Bosch Venture Client Model, which facilitates collaboration between Bosch and startups. In this model, Bosch acts as a "venture client," providing startups with access to resources, expertise, and market opportunities and purchasing from startups innovative solutions, tailored to Bosch's needs. This approach allows Bosch to tap into the agility and creativity of startups while supporting their growth. Additionally, Bosch collaborates with research institutions and universities worldwide through research partnerships that enable Bosch to access cutting-edge research and technologies, enabling innovation across its business units.
- BMW Garage: operates the BMW Startup Garage program to engage with startups and accelerate innovation. The program focuses on scouting for startups with disruptive technologies relevant to BMW's business areas, including mobility services, autonomous driving, and digitalization. Selected startups receive support from BMW experts, access to resources, and opportunities for collaboration. Through the BMW Startup Garage, BMW collaborates with startups to co-create innovative solutions, driving forward its innovation agenda and staying ahead in the competitive automotive industry.
- Coca-Cola: has embraced open innovation through initiatives like the Coca-Cola Founders platform. This platform enables Coca-Cola to collaborate with entrepreneurs and startups to develop innovative solutions in the beverage industry. Coca-Cola Founders provides selected startups with funding, mentorship, and access to Coca-Cola's resources and networks. By partnering with startups, Coca-Cola seeks to drive innovation, explore new market opportunities, and stay responsive to evolving consumer preferences. Through open innovation, Coca-Cola continues to introduce new products and expand its presence in diverse markets globally.
- Telefonica: a global telecommunications company, Telefonica has a long tradition in open innovation through its startup accelerator program and now CVC, Wayra. Wayra scouts for promising startups in key areas of technology and digital innovation, providing them with funding, mentorship, and access to Telefonica's resources and networks. This way Telefonica fosters collaboration and accelerates the development of innovative solutions, ensuring its continued relevance to customer needs.
- Cemex Ventures: Cemex Ventures has established a Global acceleration program, called Leaplab to drive innovation in the construction industry. Cemex Ventures invests in startups and technology companies with disruptive solutions in areas like construction technology, sustainability, and urban development. In addition to investment the program offers Cemex an avenue to work with the startups to pilot, test and scale propositions and business models in areas like green construction, enhanced productivity, supply chain, and the future of construction.
- Enel X: Enel X, a subsidiary of the multinational energy company Enel, is committed to driving innovation in the energy sector through open innovation initiatives. One such program is the Enel Innovation Hub, which fosters collaboration between Enel and startups to develop innovative solutions in areas like renewable energy, e-mobility, and smart grids. Startups receive support from Enel experts, access to pilot projects, and opportunities for investment and commercialization.
These examples highlight how leading corporates can leverage open innovation approaches and structured programs to drive creativity, foster collaboration, and accelerate the development of innovative solutions across various industries. Through strategic partnerships with external stakeholders, these companies can rapidly and efficiently design and launch new solutions, explore new technologies and remain at the forefront of innovation, ensuring they stay relevant in times of change and in competitive markets. For most companies open innovation usually sits alongside internal innovation efforts, as part of a diversified innovation portfolio. ---