William Chesbrough, who was early to detect a paradigmatic change in the domain of Innovation, introduced the term Open Innovation. Chesbrough opens our eyes to see that companies should make use of external resources to reach their full potential. There are basically two reasons why you should take on a more external view on innovation. Firstly because a lot is happening outside of your organization (outside-in), and secondly because there are a lot of opportunities outside of your organization (inside-out).
Definition:
“Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.” (Henry Chesbrough; 2006, Open Innovation: Researching a New Paradigm)
Outside-in: Not all smart people work for you.
Your organization might have the brightest of minds working on innovation, but do you think they can outsmart the masses of bright people outside the walls of your R&D department? Smart organizations like P&G give the right example. By 2010, P&G wants 40% of their innovations to be coming from sources outside the company. One of the means P&G uses to accomplish this is Innocentive: a platform where a community of over a 100.000 researchers think about the challenges that are put on the website by companies that will pay for the solution to their problem. Companies don’t have to originate the innovations to profit from them: external R&D can create significant value.
Inside-out: 80% of all patents within companies is never used.
Not only should companies profit from Intellectual Property from outside organizations. Intellectual property that isn’t used by organizations, can still be used by others. About 80% of patents in large organizations remain unused while these patents could earn money in other organizations through licensing. In this respect the strategy and size of a company should also be looked at as an impediment to innovation. Small initiatives often don’t fit the company strategy very well or are initially too small to enjoy the economies of scale that large organizations pursue. For radical innovation to occur however companies should not confine themselves to such limitations as size or strategy. Some initiatives should be given a chance outside organizations in spinoffs or joint ventures.
Where Chesbrough focuses mainly on patents and technological innovations, we can take the concept of open innovation a step further with the insights of MIT professor Eric von Hippel. Von Hippel’s work is focused on the enormous innovation-potential that companies can find with their users. When involving users in the process of innovation, products and services are developed that have an inherent fit with needs in the market.
The open innovation paradigm raises new innovation management issues to cope with. Is your organization ready to work with other companies to innovate? Are you ready for the ideas of your customers? Do you know what’s happening outside of your organization? Are you in shape to open up?
Recommended reading:
- Open Innovation: Researching a New Paradigm
~ Chesbrough, Vanhaverbeke, West (2006)
- Democratizing Innovation
~ Eric von Hippel (2005)
- The Wisdom of Crowds
~ James Surowiecki (2004)
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