“Open innovation asserts that a company or organization should make greater use of external ideas in its business and allow its own ideas to go out beyond its own boundaries to others to use in their businesses” – Dr. Henry Chesbrough.
The concept of open innovation has been highly popular after the decade of its first introduction. It creates a single coherent framework out of several areas: R&D, licensing, and intellectual property, to name a few. Nowadays it has been extended to broader issues of corporate business models and the growing sector of the service economy.
Reluctance to make technical challenges public or to openly share sensitive information, are common traits for many companies. For example, major graphic cards producers NVIDIA and AMD will not share with video game developers what the GPU is doing to render the game graphics, thus making performance optimization really difficult. A correctly applied open innovation can, however, yield significant payoff. Several dimensions of value can be identified:
Faster, More Successful Technology Development
Open innovation allows companies to leverage in a new way a solution that already exists. Thus the innovation team can focus on finding answers rather than trying to create them. Learning within the organization will happen faster and technology development initiatives will have a higher probability of success.
Increased Probability of Breakthrough Ideas
By not limiting the human capital to a specific organization, lacking skill sets can be complemented and a fresh set of eyes can bring a new approach or solution to a problem. The probability of breakthrough products is increased by expanding the talent pool and by inspiring a team to continuously improve.
Improved Team Productivity
It is very appealing to work on important projects with talented people from other organizations or industries. Team productivity is boosted by keeping the top technical talent motivated and by engaging external sources of talent. Engaging in innovation activities is also a great way for top employee retention.
Expanded Revenue Opportunities
Open innovation enables additional revenue opportunities for intellectual property and technology developed within a company. They can be created in the form of licensing, selling, establishing a joint venture, setting up supplier agreements, or even starting up a spin-off company.
Case study: Partnering to Revolutionize the Laundry Category – Tide Pods®
Tide Pods bacame a $500 million dollar brand in its first year while available in only one market. It was possible because of a strategic partnership between P&G and MonoSol established over a decade ago. P&G brought a deep history of cleaning and surfactants, while MonoSol brought the world’s leading experience in water-soluble film delivery systems. The video below tells the story of the collaboration.
The value of open innovation is substantial. Sourcing innovative ideas for faster learning, increasing the probability of breakthrough ideas, improving team performance and generating new revenue opportunities are just a few of the potential benefits.