Why should you have an open innovation strategy?

By Katerina Mansour - 18 January 2021

Open innovation has become a popular corporate innovation model worldwide. But with its popularity also comes a certain dose of scepticism. Indeed, open innovation is still perceived by some as a somewhat exotic and vague function in corporate settings.

So are there tangible benefits to open innovation? Or is it really just PR, all style and no substance?

While it can be agreed that its ROI is hard to demonstrate, there are in fact many concrete advantages to structuring open innovation in large companies. Below we provide some key arguments as to why corporate business units should strongly consider building an open innovation strategy.

What exactly is open innovation?

Open innovation is a term that was coined by Henry Chesbrough, professor and author of Open Innovation: The New Imperative for Creating and Profiting from Technology. He essentially defines a split in innovation strategies, consisting of either open or closed approaches.

In closed innovation, corporates focus on their internal resources. The mindset is that the best ideas will come from them, that discovering an idea first provides better chances of entering the market first, or that IP needs to be controlled internally. It’s easy to see how such an internalised approach could quickly become restrictive.

Open innovation, on the other hand, promotes collaboration between internal and external players (customers, tech partners, etc). Adopting an open innovation strategy provides corporates with the opportunity to leverage external knowledge and R&D. This, in turn, helps them achieve key goals:

  • the creation of strong products
  • reaping monetary and reputational benefits from innovation
  • building a solid business model
  • profiting from intellectual property, etc.

However, unlike closed innovation, open innovation can help corporates reach those goals faster and at lower costs.

While closed innovation approaches have historically led to significant successes for large firms, with traditional R&D being the norm, the shift towards open innovation is only increasing.

open innovation - collaborative operating models versus R&D

Startups’ involvement in corporate innovation

Startups play a key role in assisting corporates with their open innovation strategies. Corporates have increasingly opted to work with startups to achieve key business goals. More and more corporates are going through innovation labs, accelerator programmes and incubators to find relevant startups to work with.

innovation vehicles built by corporates

Accenture research shows that around 80% of corporates are interested in working with or knowing more about startups. At Early Metrics, we help corporates both discover and evaluate startups that could be of interest for an investment, acquisition, or partnership. In many cases, this helps speed up the open innovation process.

The benefits of adopting an open innovation strategy

While there is an extensive list of benefits in adopting an open innovation strategy, here we focus on a few key areas.

Mitigation of risks and costs

Working with experts helps reduce risks and can also cut costs. Coming up with innovative products or services is becoming increasingly challenging, leading to growing R&D costs for sometimes poor results.

Collaborating with other players on the market means you won’t need to start from scratch, bearing significant costs along the way. The costs of training specific employees would no longer be needed if that expertise is already secured within your partner’s structure. Investments in numerous prototypes both in terms of resources and labour could be outsourced to a partner instead. Reducing or splitting costs can be a game changer, considering how costly innovation strategies have proven to be for corporates.

Furthermore, risks linked to innovation can be reduced when external experts are involved in defining, approving and executing new ideas. According to Stanford Social Innovation, 80% of innovations come from someone outside the field where the innovation occurred.

Faster time-to-market

Since the entire innovation process no longer falls onto just one entity, the time-to-market for a product or service can be significantly faster. Delegating tasks, splitting responsibilities, leveraging additional workforce and resources are all benefits that can come with open innovation.

Faster time-to-market also means better odds of coming out with a product or service before your competitor. Coming up with a truly innovative idea and deploying it fast enough to beat competitors is a common goal today. This goal can be difficult to achieve for corporates using closed innovation strategies.

Improved products or services

Open innovation can include a wide variety of strategies, including crowdsourcing. Thanks to crowdsourcing, corporates can quickly and efficiently gather feedback and insights directly from their own customers. This direct feedback can help identify areas of improvement but also determine tangible ideas to meet customers’ demands and expectations. Ultimately, external parties can bring about ideas and solutions that a company’s internal staff might have missed.

Furthermore, since collaborating with external parties helps save time, internal teams will have more time to focus on other topics. The time and costs gained by leveraging insights and ideas from customers ultimately helps corporates improve their products and services at a faster pace, more accurately. This could explain why according to PwC, 35% of corporates say customers are their most important innovation partners.

Company culture

According to a McKinsey report, 94% of senior executives believe a corporate’s culture and team are the most important drivers of innovation. Adopting open innovation strategies can be a way to attract young, bright minds to your company.

Opening up opportunities for non C-level employees to be involved in the innovation process, can also help retain employees. Surveys have shown millennials and Gen X employees would leave their job not only for more money, but also a more innovative environment. According to an Accenture survey, they’re also more keen to work in startups or small companies, rather than corporates. Adopting an open innovation strategy can help corporates appeal more to the younger generations. These younger generations are often looking to be part of an exciting project that is staying on top of innovation.

Open innovation will become the norm

Ultimately, corporates have increasingly become aware of the benefits an open innovation strategy can supply. The numerous open innovation programmes launched both by corporates and independent players looking to assist corporates help illustrate this trend.

However, it’s worth noting that according to McKinsey, the Covid-19 crisis has led to a decreased focus on innovation for companies in several sectors. Indeed, surviving the crisis has become the focus for many, who see innovation as less of a priority.

Nevertheless, considering the importance innovation continues to hold in terms of a company’s success, it’s unlikely corporate innovation will be put on hold for too long.

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