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Why Open Innovation is Not for Small Companies

July 30, 2012 Open Innovation 33 Comments

This blog post was first published more than two years ago. I decided to re-post it because the topic is still relevant and because of the value in the many great comments that my fairly provocative thoughts generated. If you want to read more about open innovation between big and small companies, you should take a look at my on book on this topic: Making Open Innovation Work. It is free of charge : – )

Back to the post…

It is difficult to find good cases on how smaller companies have engaged with open innovation. It is also difficult to give strong advice on how such companies should engage with open innovation.

I have reflected much on this and I am approaching a conclusion that is slightly provocative: Open innovation is for big companies; not small companies.

Let me provide some reasons for this:

• Small companies are most often based on one product, service, technology or platform. They are bound to find partners around this in order to prosper let alone survive. This is, however, not open innovation in my mind. This is simply entrepreneurship.

• Small companies are not big enough to engage with open innovation, which I view as more of a mindset in which they innovate across many types of innovation and business functions. They just don’t have the organizational infrastructure – and need – to engage with open innovation.

• Small companies have a role to play in open innovation ecosystems, but they get the backseat. The big companies take the driver’s seat. In open innovation, companies either control the projects or they contribute to them. Big companies prefer projects where they are in control whereas smaller companies do not even get a choice unless they have something unique that allows them to run an ecosystem.

These are just some of my reflections on an important topic. It would be great to hear your views on this and also on how you would suggest small companies should embrace open innovation. That would be interesting for a follow-up post on this topic.

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Currently there are "33 comments" on this Article:

  1. There are companies, mostly the bigger ones, that naturally lead but it is the smaller company that they are looking to connect with. I would not call these the ‘backseat’ as they potentially have the expertise, the solution the bigger guy is seeking out. That is not a backseat role, they can drive the project and the bigger company provides the navigation.

    I dont also relate to your point, they don’t have the mindset. Really? They can’t command the vast resources that the bigger company can throw into the pot of OI, much wasteful, unproductive and irrelevant as they have to focus upon there position, otherwise they lose the way.

    I can’t get your point of “this is, however, not open innovation in my mind. This is simply entrepreneurship”. Many of the success stories offered by the bigger company are the highly focused, one platform, one product range that needs exposure and deeper resources to grow the solution seen as having potential, that is where the bigger company can provide their platform and often global react.

    No Stefan, stop looking at OI from the fifty thousand foot perspective and recognize it is the smaller, highly focused company that fuels the bigger one in many OI initiatives. Apply a different set of thinking to what OI can deliver to the smaller company instead of stating “Open innovation is for big companies; not small companies.” Rubbish.

  2. I think this is very interesting. My bias is that open innovation is good, but not when it means ignoring or completely giving up IP rights. Small companies get crushed in open innovation when it means they give up their IP rights. Small companies cannot compete on marketing muscle or market presences. They have to own their IP to compete against large companies.

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    @ValuenIP (twitter)

  4. Todd Boone says:

    Interesting and I think intentionally provovative.

    This depends on how you define open innovation. From my perspective, doesn't a small company participating in an open innovation style landscape also benefit? I think that your point is about who owns the process and the participation dynamics within. I would argue that process ownership and participation are two different things and both can be beneficial regardless of organization size. Smaller companies may not always (or rarely) own the process but that does not mean they are not benefiting.

    Open innovation can give smaller companies the opportunity to compete in previously unattainable markets. In fact, I think smaller companies can be more nimble. And to quote Henry Chesbrough: “Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology”.

    Contributing to or owning seems to be a more accurate question. So owning is perhaps more frequently done by a larger company, but I don't think it's accurate to exclude smaller firms from the equation. And, I don't believe that you need to be a larger company to use external ideas or paths to market.

  5. Todd Boone says:

    One other think I forgot to mention – what is your definition of small?

  6. One of our clients is a one man company that did a challenge and simple prototype/proof of concept for $90,000 and is $100% happy.

  7. David Locke says:

    Newport Corp does open innovation by taking the ideas they need to enable and contribute to their product roadmaps, but don't have time and other resources to accomplish and letting other entities take them and achieve their realization. They do not establish contracts or cultural fit. They turn it loose knowing that they will make a lot of money from it once the open innovator is successful. They keep their management focused on what Newport Corp is doing.

    Newport Corp is a big company. But, they are not doing open innovation in the manner typical of other large companies. Other large companies think that control and licensing is the way to make open work. But, open fails under these conditions as do the large companies doing open in this manner.

    I do not see why a small company cannot innovate in the manner of Newport Corp. It doesn't eat managerial focus, revenues, nor profits. It builds a world that will need things not yet imagined until something points the way. That something might as well be open.

    It is true, however, that open software is used to undermine complementors of prime vendors, an such a situation does not exist for early phase startups.

  8. Stefan Lindegaard says:

    Thanks for your great comments! Todd is right that this is intentionally provocative as I think we need a discussion on this. My experience tells me that it is very hard to find cases of small companies that do well on open innovation. Why is this so?

    I gave some reasons in my posts and despite your good counter-arguments, I still think they hold. A key thing here is how we define open innovation and how we define small companies. On the latter, I define this as companies with less than 100 people that are still trying to establish themselves on just one product, service or technology platform.

    The more time, I spent with open innovation, the more I realize that this is not a particular tool, but more of a mindset. I have also learned that requires quite an internal structure to make it happen properly – and yet even companies with the resources to back fail miserably.

    Some smaller companies seem to grow in an open innovation-like way without knowing or paying special attention to this. This is what I mean by entrepreneurship.

    They also grow like this because today you can no longer hide in an ivory tower until your development is done and then try to sell your products or services. You need to work with partners from day one. Is this open innovation? Perhaps, but I view open innovation more of a deliberate process based on a selection of choices on how to innovate. In this case, the smaller company does not have a choice. It is partner up or die and it is a matter of succeeding with their single platform or die.

    Things change when they start building a portfolio of products, services and portfolios as they by then should have more resources that can be shifted around and they are thus able to make more choices on where to put their efforts.

    @Paul, I spend lots of time within the open innovation community – big/small companies, consultants and academics. I do not think I only fly around in the 50,000 feet perspective. This takes me back to my first in this comment. Where are the cases in which small companies do well on open innovation without this being a case of survival/getting to the next stage? Where are the smaller companies that have a specific open innovation strategy? If there are lots of such companies, why have we not yet been able to devise a formula on how to do this?

    I know lots of organizations and governments that crave for this, but I just don´t know anyone who can deliver this "magic bullet" with regards to open innovation to small companies.

    On the other hand, we are beginning to see clear patterns on what it takes for larger companies to embrace open innovation. The good ones are picking up on this and they will be reaping some interesting benefits in the coming years.

    @Paul, you disagree with my point on smaller companies taking the back seat. Yes, they are very important to the open innovation programs of larger companies, but that is not the same as saying that they are in the driver´s seat. They contribute and sometimes critically, but they are still contributing to more than controlling the situation.

    This is also why we have the bully-syndrome. Larger companies still need to behave better and to create real win-win situations rather than just focusing on their own benefits. This is still a big issue in the open innovation community and it happens because the large companies are in the driver´s seat.

    @Dale, I agree that the more IP value a small company can bring to the table – and keep control of – the better a situation do they get.

    @David, it sounds as if Newport have a natural understanding on how to innovate. Unfortunately, this is not something we see that often. Great for them…

    @Todd, please note that I never said that small companies do not benefit from open innovation. Of course they do. My point is more around the fact that they do not control the situations themselves. They contribute based on the programs of larger companies.

    Great discussion :-)

  9. Maarten Munster says:

    Just a quick reply concerning the backseat/driverseat discussion.

    If you look at this topic from a network perspective you will simply find that a large company is a bigger node in the network than a small company is, thus having more connections. Since OI is all about external networking it is not a surprise that a bigger node appears to do better in OI. So if you're trying to find a compare both companies the results will always be skewed.

  10. We are a crowdsourcing platform, http://www.atizo.com, for exploring the needs of stakeholders. We have a lot of small companies (between 100 and 300 employees) using our services. But for small companies it was important that we broke down our service into modules and start our prices at EUR 2'000. Otherwise the risk is just to high for small ones to just explore.

  11. One important criterion is how the product involved gets to market. The smaller the company, the tougher it is to reach the critical mass needed. Ironically the smaller the company, the more they need a partner. The earlier they engage, it becomes Open Innovation, the later they engage it's more a distribution arrangement.

    So Stefan, I don't agree about your points about participation of small companies in OI. Just because they are not often in a position to control it, doesn't mean they aren't an integral part. I can think of many examples, particularly in Biotech, where small companies commercialise technology and products which originate in universities, ultimately by working with larger ones. In that case they have an input OI and an output OI. They often work with other partners with complementary expertise to deliver, which demonstrates the mindset. Doesn't that count?

  12. I know you have been searching for a greater relationship of OI and the smaller company Stefan, both at the 50,000 ft perspective and on the ground. Being provocative back!

    I think you touch on the real inhibitors in your reply. It is in the mindset, and the larger organization has the strategic imperative on OI a lot more in its strategy to grow and can apply dedication and resource. The small company struggles to relate and align strategy and innovation activity far more.

    Secondly do small companies define innovation down into the different types? They would respond to opportunites in more open ways but do they structure this as open innovation, more they would 'feel' this is just natural innovation.

    You can label these, such as your feeling this is more entrepreneurship, I can live with that in a small organization.

    I would tend to agree also with your point of there being a need for some level of internal structure to make it happen on a sustaining level but many smaller companies do not have a formalised process for innovation or for development let alone going that one granular level down to OI. I just think we need to think about this differently to get closer to the 'magic bullit' many are desiring.

    I have recently being trying to get open innovation more into the IMP3rove approach for innovation and SME's here in the EU. They have a framework which works through the PLM approach. Consultants engage with each company to try and understand their existing innovation practice and then try to measure it on the IMP3rove framework. This is time consuming and often not engaging enough for the SME. I would argue if you could build into this an initial new open innovation challenge so they learn to work outside the organization it would advance understanding and the open innovation learning could become a catalyst to a more formal innovation structure. The engagement provides the type of stimulus and incentive to open up the mindset to OI. What do you think?

    • Heather says:

      really interesting post Paul. Could you explain what you mean by:

      " if you could build into this an initial new open innovation challenge so they learn to work outside the organization it would advance understanding and the open innovation learning could become a catalyst to a more formal innovation structure."

      Do you mean incentivise going through the IMP3rove assessment process for SME'S through a 'challenge' , or do you mean for consultants to facilitate cross org. challanges? Or perhaps something else. I am interested in this area and specifically how to catylise innovation in SMES. thanks

  13. Just read this interesting post from Jose Baldaia which adds to the debate – http://bit.ly/9ZvOB4

  14. @all – great discussion – great points;-)

    I think that there is a major barrier for smaller companies to engage in OI, and that barrier is that they can not – yet – copy what larger enterprises are doing in the field.

    They cannot do this for various reasons – but I think the foremost are that looking at all the large enterprises running OI, it`s obvious that they have a very longterm plan – and thereby expects ROI to hit in – not in the next quarter – but more in a decade from now. Small companies cannot enter such longterm efforts for a bundle of reasons. So in essence, I think that the small companies don`t have any problems en believing in the "religion" of OI – but they just cant defend the longterm investment and dedication to engage.

    That said, I can see a plethora of benefits in using OI in small companies, especially if you move a way from only thinking of using it for new products/services – and if you think alternatively about your audience.

    I think that the engagement should be based on a definition of where the small company is positioned in the "food chain". In many cases, the small company, is part of a "food chain" containing suppliers, external consultants, distributors, resellers, agents ect. along with their direct customers – and off course their employees. So the small company should think in topics like these;

    How to engage our suppliers in order to create increased demand for our products ?

    How to bridge knowledge from our direct customers to our distributors to enhance our services?

    How to create a forum for capturing ideas from our resellers, that could help them increase our product positioning ?

    My point is – if you concentrate on topics/efforts where at least one part of you "food chain" will benefit – you will benefit automatically!

    Hope it makes sense;-)

  15. I don't really agree with you. Small companies may have potential at times for open innovation.

    Julie

    LifeSpace Entrepreneurship

  16. Depends how you define it Stefan. In your post you appear to be implying (deliberately provocatively I suspect ;) that you need to have the resources to engage in multiple relationships to be “engaging in OI”. In which case, you are right! because small companies simply don’t have that resource, and are necessarily very, very, focused. However, this is missing the point. As innovation intermediaries we connect small companies to bigger ones all the time – are they “doing OI” or simply building their company through external relationships? Does it matter?? I suspect this is semantics. What matters is that companies are engaging with each other for mutual benefit, not that you can stick a label on it and call it OI.

    To your last point, again, this depends upon the nature of the partner. We try to make sure that both sides of the connection have aligned goals, and respect each other’s needs, so that the smaller partner does not end up regretting the connection. We would not for example, introduce a large company looking for an acquisition to a small one that doesn’t want to be bought, but that’s because we strive to be commercially neutral.

  17. Stefan,

    Some old fashion thinking from you side here. Open innovation is (or is not) for all sizes. It depends on the mindset, conviction, and the business model. Im my field (biopharmaceutical development) traditionally build on secrecy and assymetry of information OI is an afterthought and lip service for the big players, and small biotech companies equally. I am convinced that open innovation is perfectly suited for all healh care related businesses. So convinced that I am launching the world's first open-sourced drug development enterprise. Please visit us at http://www.transparencyls.com
    TS

  18. Vassilis Mantas says:

    Following is an extract (actually the final part) of the,

    Open Innovation: Activating the Entrepreneurial Mindset

    Vassilis Mantas, Klas Eric Soderquist

    Athens University of Economics and Business, Athens, Greece

    a desk research study presented at

    “The 5th European Conference on Entrepreneurship and Innovation"

    University of Athens, Greece

    16-17 September 2010

    From the above brief analysis, it seems relevant to suggest that OI practice through WBIs (Web-based Intermediaries) indeed is a breeding domain for entrepreneurial activity. Through participation in WBIs EM (entrepreneurial mindset) is activated and SE (strategic entrepreneurship) is achieved within the duality of large and small firms. Further research is needed in order to investigate these phenomena in more depth. Specifically, we suggest the following questions for further investigation:

    1. ….

    2. It seems that via engagement in OI large firms are making use of small firms’ or individuals’ knowledge. To what extend will this be equally beneficial for both? Any such study should not take into account only monetary factors but also intangible assets valuation such as reputation, brand name, customer base, etc.

    3. What are the implications of OI expansion for innovation and entrepreneurship policy makers? OI is about activating unutilized knowledge and dispersing creative resources. Wealth is produced by achieving new uses of knowledge. On an aggregated level, as long as combined existing knowledge is used and transformed in new knowledge, the overall sum is positive. But at the level of national economies further examination is needed to reveal if OI hinders or fosters small ventures growth. It might be the case that small firms grow up as more opportunities become available. In contrast it could be revealed a step-back from venturing when small firms or individuals supply their inventions to be used by established large firms. If this step-back becomes the dominant logic then entrepreneurial activity of small firms and individuals might be lost and consequently start-ups growth will diminish. This is something that might have tremendous implications in the distribution of the wealth around the globe and should puzzle policy makers.

  19. Hello Stefan (and all the contributors).

    Seems like your provocative title and statements worked! As I take it your aim was fueling a discussion, which could feed you with arguments for why SME's should engage in Open Innovation, as this is of interest to a lot of us, especially in out little corner of the world. :)

    From my point of view it all depends on how you define Open Innovation: With crowd sourcing on one end and co-creation or/and collaborative innovation on the other.

    If you only believe OI is the 'wacuum the market for ideas' definition then you're right. I think it would be a poor strategy and overwhelming task for most SME.

    But if you believe OI to be more of a mindset, networking approach to innnovation than this crowdsourcing, opening of (or outsourcing of) your innovation set-up, then I think you could add a lot of value and sense in helping SME work with a OI approach, in which they could combine their own product/service/platform/competence to meet the challenges we're facing in this increasingly complex and global world we're all living in.

    I think Maarten Munster networking comment is right on regarding your backseat question.

    So from my perspective it's all about how broadly you look at OI. For me it would make perfectly sense to talk about OI models (or formulas) which makes sense for different types and sizes of business, but I don't know if that would fit into your picture of the OI concept?

    I hope you can find the time to post a follow post some time soon. I would be very interested in reading your further thoughts on this.

  20. Jen Groff says:

    This very much depends on the scope of the small business or organization. The Learning Games Network consists of about 7 employees, but our niche is that we design and facilitate the development of digital learning games. Much of this builds on technologies and platforms developed at MIT (from which this non-profit is a spin-off), but we mix, remix and forge innovations all the time. This requires not only expertise in game design and cognition, but innovation and creativity in both across an array of content domains. I think we do open innovation quite well, because that IS our work.

  21. I realize I am weighing in at such a late date, but I am currently working with a smaller company helping to establish an Open Innovation Program and was doing some background work to see what best practices are out there. I ran across this blog dates November 9, 2010 entitled 'Why Open Innovation is Not for Small Companies' and was quite tickled to read a blog from March 9, 2010 from the same source that was titled 'Why Smaller Companies Should Embrace Open Innovation'. Quite humorous to play both ends against the middle, probably for discussion sake, but it really underscores the idea that Open Innovation is still in it's infancy, and to start to draw conclusions as to where it should be applied and how is premature at best.

    The actionable questions fro developing OI programs have always been how to you mine/capture ideas and how do you vet them for further work. In that case there is no differentiation in size of company. Every company, solopreneur or multinational conglomerate can, and should, have an OI program. It is the lifeblood of an organization and to say small companies should avoid it is short-sighted.

    ….my two cents, albeit late….

    Cheers,

    Kurt C Schneider

  22. simona grama says:

    Hi,

    I saw the discussion about the relation between the size of the company and open innovation, do you think the companies from the business incubators can be implicated in open innovation project?

    In my opinion it would be possible, because the incubator offer them the possibility to be in contact with the other entrepreneurs from the business incubator and to be also in contact with the external partners of the incubator.

    Do you have some example of open innovation projects developed in business incubators?

    Thanks for the answer!

    • Heather says:

      this is something we intend to do in York, UK starting sept 2011. We will be facilitating OI between large-small and small-small companies within our business incubator, SCY Phoenix Centre. Small-small company co-creation has already been observed as a natural fallout of working in close proximity to non-competitive creative – digital micro businesses. Having studied OI practices we decided to have a go at facilitating these relationships (with a focus on the SME involvement.) As I run a business network of 450 creative – digital businesses, sourcing potential partners is easier. I will keep updating as we progress, with what works and what doesn't. Anyone interested in observing our first year, please let me know.

      • Joshua says:

        Thanks for your response in respect to implementation of OI in business incubators. I am currently researchning also on stimulating industrial development through open innovation business incubators with focus to SMEs. I am therefore interested in your progress and developments as you indicated.

      • Joshua says:

        I proposed adopting OI approach in business incubators to facilitate more effectively start-ups and ultimately stimulate industrial development for the case of developing countries. I am therefore interested to follow your findings.

  23. I could not disagree with you more! SMB's need a competitive advantage and generally speaking innovation is the only solution. – Aaron Kocourek

    • Stefan Lindegaard says:

      Hi Aaron, I understand you disagree. I provide more views in another comment on this post. Here you will probably see that we are not too far from each other.

  24. Francisco says:

    I think OPEN INNOVATION public awareness is equal to = MASS (Number of people) x ACTIVITY (Ideas flowing) x VISIBILITY (number of public mentions in the MASS or out of it).

    Thus your conclusion might be right and wrong. And it is good… you made me come up with this equation which I am using to drive success in smalls companies open innovation… thanks… I call this reverse unaware open innovation!…

    Best regards!
    Fran

  25. David Cruickshank says:

    One interesting observation is how large and small companies differ in their views relative to intellectual property. While many large firms do indeed thrive from ensuring that the appropriability strategy is predicated upon exclusivity, you see it even more pronounced with smaller firms as they are often protecting a single or very small number of patents. This invariably leads to becoming very rigid in any effort to collaborate on technology projects beyond cross licensing background IP. __With the larger software firms in pursuit of platform business models, the exclusivity and desire for high degrees of freedom is true with respect to the platform, but open innovation is considered a very sound approach and encouraged at the app layer above the platform.__Where OI is of value to the larger firm is that from becoming more organized to pursue open innovation with outside firms, it creates an opportunity to increase absorpbitive capacity. ____From an alliance prespective it also enables firms to go beyond exploitation of existing innovations through OEM and cross lic deals to pursuing mor exploration with partners to find novel ways to leveraqe sustaining innovation as well as to drive formation of disruptive innovations too.

  26. Daragh Nolan says:

    How big was Apple when it generated it's first "innovative" idea?

  27. I do not think that i will agree with you Open innovation has received increasingly attention in scientific research, but so far it has mainly been analyzed in large, high-tech multinational enterprises (MNEs) drawing on in-depth interviews and case studies.

    SMEs are the largest number of companies in an economy, but they are under researched in the open innovation literature so it would be not scintifically correct to approach such conclusions. Take a few minutes for example to read an article that "diminishes"the implementation of Open Innovation in MNCs http://www.fastcodesign.com/1670416/why-open-inno

  28. Pierre says:

    I'm higly interested in this discussion.

    The question is, accoring to me : how to get inside OI world whereas i'm small ?
    Big plaforms such as innocentive or ninesigma are clearly not adapted to small businesses : huge projects, huge amounts of money, huge schedules, loosing the IP…

    We think that small companies are innovative, flexible and motivated to achieve great things.
    We feel that they would like to get the benefit of OI without knowing were to start…

    Today, small companies have no tool to get in OI and that doesn't mean that they pdon't want to get the benefit of OI !

    We launched a prototype platform here in France to check this : http://www.ydeapolis.com
    Hope this new accessible tool will give them an answer :-)

    Any comment is welcome.

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