4 Top Reasons why Organizations use Open Innovation.
When Henry Chesbrough coined the term ‘Open Innovation’ in his book, ‘Open Innovation – The New Imperative for Creating and Profiting from Technology’, he probably had no idea how widely the Open Innovation strategy would spread in just a decade.
“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.”
Back in 2003, he predicted the key drivers of Open Innovation to be the socio-economic changes in the workforce, globalization, new technologies which allow collaboration over large geographic differences and the emergence of market institutions which enable trade in ideas. However in a series of interviews with senior managers and leaders at companies that have an active Open Innovation strategy, across diverse industry segments, the BigInnovationCentre, UK, found that we have already gone much beyond what Chesbrough outlined. Open Innovation leaders today, take those early key drivers for granted. Instead, here’s what they highlighted as the key reasons their organizations have adopted Open Innovation methodologies.
Innovation is the lifeblood of an organization. Top performing companies launched significantly more products in the market and generated 20% more revenue from new products, than the low performers.
This need drives a large section of organizations to adopt Open Innovation techniques to gain competitive advantage by leveraging a larger intellectual talent pool. Tapping into the collective conscience of fleet-footed, smaller innovators enables a faster collection, and conversion, of new ideas.
Many organizations have chosen Open Innovation to help reduce costs by encouraging flexibility. This is equally applicable to their supply chain, their research and development units, and in some cases, even in their branding and marketing efforts. Open Innovation methods are uniquely positioned to leverage mass contact geared towards understanding customers better and engaging them. It also provides a good way to gain access to emerging markets at low costs.
The reasons behind their strategy may differ though. For some it’s the direct result of having to tighten their belt due to shrinking budgets, others have taken to it proactively to optimize operating costs.
External Forces and Policies
As Chesbrough predicted,certain external forces and policies continue to drive open innovation. The technology platforms available today to seek, evaluate, manage and monitor ideas and inputs from a large variety of Open Innovation partners and contributors are a key driving factor. Without them, Open Innovation may not have evolved as much. Technology advances are also disrupting traditional business models and creating situations that are best addressed by Open Innovation. Some organizations have also adopted strategic Open Innovation partnerships with SMEs to improve their standing in procuring public contracts.
Employee Motivation and Organizational Efficiency
Some organizations have taken to OI methods to reduce operational inefficiencies, by actively collaborating with external sources that already have ideas, techniques or products that they need. Why reinvent the wheel? Of course, the organization needs to have a strong and open culture to avoid falling into the “not invented here” syndrome.
One often unrecognized side-effect of open engagements is that they help keep employees connected and challenged. The opportunity to interact with outside experts is an encouraging stimulus. It helps bring together smart minds from diverse background and different perspectives to tackle a common issue.
It’s not hard to see why leading brands like P&G, Budweiser and Coca Cola are utilizing open innovation techniques to improve their bottom line. Open Innovation strategies are quite diverse and flexible and can be applied to a wide variety of scenarios. It just requires some out of the box thinking on the part of organizations to find ways to leverage it.