Why Companies are Moving from Closed to Open Innovation

Why Companies are Moving from Closed to Open Innovation

By Jessica Day

Until fifteen years ago, closed innovation was the gold standard for protecting proprietary information and beating out the competition. Closed innovation is based on a model of internal and centralized research and development, with all ideas being produced, developed, created, commercialized, and implemented in-house.

Why Companies Preferred Keeping Ideas Internally

There was a strongly held belief that all  innovative ideas and  the best wealth of knowledge was internal. Corporate and industrial espionage, and the poaching of knowledge workers, were commonplace in the age of closed innovation as organizations worked to provide the best brain pool for their exclusive business ideas.

Formal arrangements for the protection of original ideas were often set up, especially if the business would lose a lot of money should the venture fail. After all, if you had invested all the time and money to foster innovative ideas created by your own employees, you would definitely want to make sure that those ideas were unique to you, and that you wouldn’t have to fight rivals in the marketplace because they had a similar idea. It was thought that being the first to market was better for the company, even if it wasn’t necessarily the best product of its kind.

Why Make the Move From Closed to Open Innovation?

In the past ten or fifteen years, though, there has been a drastic transition happening. The focus and insistence on closed innovation has been falling behind, and businesses and organizations are increasingly opting for what is known as open innovation. The term open innovation is said to have been coined by Professor Henry Chesbrough in his book Open Innovation: The New Imperative for Creating and Profiting from Technology.

Essentially, the largest concession made with open innovation is realizing that the wealth of knowledge does not lie internally. How could it, with over 8 billion people in the world? Odds are that somebody with a winning idea could come from outside your corporation.

Open innovation allows for the integration of customers, partners, and other stakeholders in the innovation process. This is helped by a mindset change specifically related to research and development. With closed innovation it was believed that, in order to protect business concerns, all research and development needed to happen internally. Now, there is more acceptance of the reality that external research and development can have its place.

How Increased Connectivity Is Facilitating the Move

One of the biggest reasons for even the possibility of this move from closed to open innovation is the increasing connectivity provided by the internet, social media, and avenues of communication. This increased connectivity helped to change that mindset behind internal/external research and development, as the market is even more accessible. It is easier to invest in external research and development if you know that it means it will give you a better product, and these days, the best product will be more successful than the first product. Consumers are more discerning than ever as they know the wealth of options available to them.

Where Else Can Open Innovation Be Useful?

The government has incorporated open innovation by providing a direct link to citizens and their needs. Through the use of open innovation, citizens are able to directly voice their concerns to the government. In turn, the United States  government has been able to prioritize solutions that are most important and relevant to the citizens. 

For small businesses and individuals, have also reaped the benefits from open innovation. Crowdfunding sites like Kickstarter and IndieGogo are well known, providing vanity and passion projects an avenue to find their fellow geeks and be brought to fruition. This kind of support would not have been possible even twenty years ago.

The Bottom Line is that Innovation Affects the Bottom Line:

But when you get right down to it, businesses would not be transitioning to open innovation if it did not affect their bottom line. There is risk in anything you do, especially with innovation because you are bringing a new idea to market. However, there are a lot of benefits associated with innovating.

Open innovation has reduced costs, accelerated time to market, increased differentiation in the market, and created new revenue streams for the company.  When you’re not focused on the extreme vertical integration required to research and develop all ideas in-house, you can instead focus on cornering the market with one or two big ideas. You can get started by launching your own innovation community or by finding out more about PreScouter services.

Image courtesy of freerangestock.com.

If you have any questions or would like to know if we can help your business with its innovation challenges, please contact us here or email us at solutions@prescouter.com.

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