Home » Open Innovation

Open Innovation, Closed Innovation and Related Terms

October 9, 2011 Open Innovation 1 Comment

When people ask me what open innovation is, I suggest they should view open innovation as a philosophy or a mindset that they should embrace within their organization. This mindset should enable their organization to work with external input to the innovation process just as naturally as it does with internal input.

In a more practical definition, open innovation is about bridging internal and external resources and acting on those opportunities to bring better innovation to market faster.

It does not really matter whether this external input is in the form of open innovation, crowdsourcing, user-driven innovation or co-creation (read later in this post). It is “just” about getting more external input.

This is in contrast to the old model of closed innovation, in which a company maintained complete control over all aspects of the innovation process and discoveries were kept highly secret. In closed innovation, you do not attempt to assimilate input from outside sources into the innovation process, and you avoid having to share intellectual property or profits with any outside source.

Also, in a closed innovation environment, activities are often segregated within an R&D department where the best and the brightest are expected to make sure the company gets to market early with new ideas to gain the “first mover” advantage. In contrast, in open innovation your company works with external companies during the innovation process.

Open innovation is very much about soliciting ideas from outside, but it goes deeper than just involving others in the idea generation phases; the contribution from outside your company must be significant. It is also more than just a partnership where you pay for specific services. Everyone involved in an open innovation process focuses on problems, needs, and issues and works them out together.

Furthermore, you can argue that closed innovation primarily focuses on products and services, whereas you are more likely to use open innovation to work with a broader range of the different types of innovation including business models, channels, and processes.

Too often, companies fall into the trap of considering open innovation approaches only during what is called the front end of innovation. Once they have gotten input from external sources during the front end of innovation, they do everything themselves. Granted, it is a good thing to get more diverse input early on, but why stop there? Open innovation is an approach that can work and should be used in any stage of the innovation process, not just in the early phases during the front end of innovation.

Companies miss out on the full potential of open innovation when they shut down to external resources later in the process. Perhaps companies are more willing to accept external input during the front end of innovation, when everyone expects more creativity and openness. Once this phase is completed, companies go into execution mode, which is less complex if they only use the internal resources they already know very well.

This next insight might be a bit strange given the current focus, but in five to seven years, we will no longer talk about open innovation. The term “open innovation” will disappear and we will just view this as “innovation.” The key difference is that innovation will have a much higher external input that what we see today.

This evolution will take longer in some industries than in others. The length of a product/service development cycle, the level of intellectual property involved/created and the amount of financial investment needed impact the time it takes for industries to adopt fully to open innovation models.

Ultimately everyone will get to the same place – using an open innovation model – and we will just call it innovation. Thus, there is no need to have a stand-alone open innovation unit as you end goal as you start building open innovation capabilities; it should rather become part of your company’s innovation DNA.

Crowd-sourcing, user-driven innovation, co-creation and ecosystems

Where do crowdsourcing, user-driven innovation and co-creation fit into the open innovation picture? In general, these are tools and techniques that can be used within the paradigm of open innovation, but these terms overlap, which leaves plenty of room for confusion. Here’s a quick review.

Crowdsourcing is “the act of outsourcing tasks, traditionally performed by an employee or contractor, to a large group of people or community (a crowd), through an open call,” according to Wikipedia. Crowdsourcing should not be confused with open innovation, but rather thought of as one tool that can be used to bring external input into your organizations as your pursue open innovation.

Many companies mistakenly seem to view crowdsourcing more as a marketing tool than as an open innovation tool. Crowdsourcing gives companies great opportunities to interact with customers and users. Using crowdsourcing, companies can collect ideas, let the crowd vote on them, and set up prediction markets that can bring outside input to any number of decisions. Crowdsourcing has enormous appeal to savvy marketing executives who understand the power of social media. While the marketing benefits alone are often enough to justify the launch of crowdsourcing initiatives, the real innovation opportunities possible are quite valuable as well.

User-driven innovation, on the other hand, is a technique in which companies observe their users in order to gain new insights that can be used in the innovation process. Some confuse this with open innovation because they believe everything that is done with users or customers constitutes open innovation. However, it does not become open innovation until you really start opening up throughout the whole innovation process. It is not open innovation if you just observe others in the early stages of the innovation process – although this can bring much value – and then do everything internally in the same way as you have always done it.

Co-creation is probably the term that is closest to open innovation although it seems to focus more on co-creation with customers rather than with other companies in an ecosystem. Co-creation is viewed as a process in which companies and active customers share, combine, and renew each other’s resources and capabilities to create value through new forms of interaction, service, and learning mechanisms. It differs from the traditional active firm / passive consumer market construct of the past.

I like how C. K. Prahalad and Venkat Ramaswamy argued that “value will be increasingly co-created by the firm and the customer…rather than being created entirely inside the firm.” Co-creation in their view not only describes a trend of jointly creating products, it also describes a movement away from customers buying products and services as transactions, to those purchases being made as part of an experience. The authors hold that consumers seek freedom of choice to interact with the firm through a range of experiences. Customers want to define choices in a manner that reflects their view of value, and they want to interact and transact in their preferred language and style.

Ecosystem is another term worth noting in the open innovation context. With open innovation comes the need to create value networks that include all the potential categories of external sources that can support your innovation effort. Your ecosystem may include customers, suppliers, academic institutions, innovation marketplaces or intermediaries, private labs, government-supported labs and research institutes, government- supported innovation initiatives, and even competitors.

At first, this list may seem overwhelming especially for a small company, but understand that your ecosystem will start small and grow gradually overtime. It may eventually become significantly more complex but that complexity also brings with it a wealth of opportunities. The ability to build and cultivate good relationships within your ecosystem is a key component of open innovation success.

You can read further on how big and small companies view open innovation differently and how they can overcome those differences to get mutual benefits out of this paradigm shift in my next book; Making Open Innovation Work. It is due late October.

Share |

Currently there is "1 comment" on this Article:

  1. Hi Stefan, a very useful post as there is still uncertainty out there as to the definition of open innovation.
    I agree entirely that 'open innovation' will become more common and eventually merge into 'innovation as usual' in a few years. But I also wonder if the open/sharing mindset that drives OI will spread out beyond innovation to other functions within the organisation such as logistics or recruitment? I suggested in a recent blog that if we keep extrapolating this it gets really interesting, perhaps leading to companies being less like individual organisations and more like integrated networks or a new version of Japanese kieretsu (http://original-ventures.com/2011/08/15/the-future-of-open-innovation/). It's good to think that the 'personality' of OI will spread out and provide benefits in other more routine functions.

Archives

Twitter