The difference between the new and old ways of innovating
As most of you already know, open innovation (OI) is a buzzword that is often misunderstood, and therefore, misused. Simply put, OI refers to the fact that companies should look beyond their own walls to accelerate and enhance their innovation process. This paradigm can be subdivided into 3 types of activities: inbound, outbound and coupled OI activities. It can be applied to any type of organization whether it is a firm, a university or even a public institution. In this article, I’ll cover the main firms’ open innovation practices and what makes them different from the closed innovation model ones.
Inbound activities refer to the concept of getting information from outside of the boundaries of an organization. It can be done by acquiring external technologies or even smaller companies. You can see this practice used by big tech companies like Apple, Alphabet and Facebook when they acquired promising start-ups with cutting-edge technologies. The cost of acquiring such technologies/companies isn’t cheap, but nowadays, time is the enemy. Developing such knowledge and know-how internally is just not an option anymore due to a lack of resources and time. Other practices include the exchange of information with partners including the integration of best practices from suppliers and clients. Nowadays, it is crucial for a firm to get as much information as possible from the outside world because the internal knowledge is simply not enough to maintain a high level of innovation.
Outbound activities are the opposite of inbound activities. When you are getting information from the outside world, another firm or organization is providing it to you. This firm is actually doing an outbound activity, unless you have hired industrial spies! Sharing information with the outside world is not only positive for innovation globally, but it can also be a source of revenue for a firm’s R&D investments. For example, a firm can develop a new technology or service that do not fit in its business model. Instead of throwing it on the shelves, it can be sold through a license to another firm who is more suited to sell it. Much has been written about Tesla patents giveaway, but it is a clear example of outbound activity. In this situation, it allows Tesla to create an industry standard which can have the impact of increasing the market for electrical cars but also to accelerate the global investment for new infrastructure adapted for this new fleet of vehicles.
Coupled OI activities
When an organization combines outbound and inbound, it has created an established network to share information with various partners. An easy example of this would be an interaction between a university and a firm. Let’s look at it from the firm’s point of view. A company might require some researchers to solve a problem concerning a specific technology in development. These researchers would integrate the firm temporarily to work on this specific project (inbound). After months of collaborative R&D, not only the main problem has been solved, but a whole new product emerged from that process which doesn’t fit in the firm’s business model. Here lies one of the most important aspect of open innovation: you can make money from products that you won’t commercialize. Indeed, the company still profit from the new product by licensing it or selling it to another party (outbound).
Other examples of coupled OI activities are accomplished by P&G. It performs inbound activities thanks to an in-house program called Connect&Develop that easily allows the firm’s stakeholders to suggest new innovation ideas. Outbound activities are performed as well since the company have a policy to make available any technologies developed internally that haven’t been used by the company after a certain amount of time.
So what’s new?
Most CEOs will tell you that all these activities were being done before. Looking out to collaborate with suppliers or universities isn’t new. Licensing has been done before as well. Alliances also existed to share risks and capital. The only thing that is new is that in the old paradigm, companies looked outside their boundaries when they felt that it was needed. Today, it is not a choice anymore. Except for a few industries where it might be more difficult, any company that wants to increase its innovation performance must adopt an open innovation strategy. It is a new mindset that involves opening up the business model and for companies that can afford it, setting up a structure to manage it.
If you think your company can’t afford to put in place an open innovation structure or you aren’t sure how it applies to you, there are consulting firms that can help you understand how it works. These firms often offer training about open innovation. They can also conduct a diagnosis of your firm’s innovation process and provide a strategic report in which you can find the best OI strategies to put in place for your firm in order to enhance your innovation performance.
Wrapping it up
There era of open innovation is already there. Most of you are probably already adopting many of those practices in their firms. Some firms have fully integrated this concept but most of the others are dealing with it on a punctual basis. However, open innovation is a concept and it’s up to you to decide which practices apply most to your company and industry.
Which type of firm are you and what type of practices have you adopted?
Special thanks to Mikaël Heroux-Vaillancourt for helping me with providing concrete examples of open innovation in the industry. This article was originally published on LinkedIn.
If you’d like to know more about the concept, you can follow Mikaël or Georges on LinkedIn. Have any questions? Ask them in the comments below or feel free to send a message.