In this article, we will delve into the types of open innovation and the key differences between them, followed by classic example of each and lastly, a word of advice for managers.

You are sold on open innovation and ready to implement it into your corporate strategy. However, before you can start, let’s clarify the difference between internal and external open innovation.

Both play an important role in your overall open innovation strategy. And although both are forms of open innovation, they are implemented differently.

In this article, we will delve into the key differences between internal and external innovation, provide a classic example of each and lastly, a word of advice for managers. 

Internal open innovation: Let your employees’ creativity run free

Internal open innovation is the idea that all your employees can be a part of the innovation process – not just your R&D teams. Each of your business units understand your company and the challenges it faces differently, and by allowing everyone to participate in innovation, you welcome creativity. You never know what will come from opening up your innovation process. 

For example, employees on your sales floor should be encouraged and able to participate in identifying new business challenges, proposing new solutions, and giving feedback. This can be true for all departments (marketing, legal, etc.). Your innovation process should give ample opportunities to all employees to think creatively and to explore new ideas and ways to improve your business. In the long run, this will lead to a higher ROI and will help safeguard your place on the market. 

Having a smooth internal open innovation process and a strong innovation culture will be necessary for external  open innovation.

External open innovation: Your silos are only slowing you down

As the name suggests, the first type of open innovation is external. As the name suggests external open innovation is exactly that, external: collaborating with outside partners to share information, technology, and business opportunities. These external partners form your innovation ecosystem. This ecosystem will mostly consist of startups, but can also include: rival companies, universities, research labs, ad consultancies.

By having the freedom to pick your innovation ecosystem, you are able to pick well-suited partners, thus enabling you to do better work. In this logic, even your fiercest competitor can be an excellent collaborator.

A classic example of this is the Renault-Nissan-Mitsubishi Alliance. All three vehicle manufacturers are competitors. So, why have they decided to work together? The answer lies in the added value of co-creation. Alone, they might bring incremental innovations to the market. Together, the sky’s the limit- and supercharging growth and performance is the goal.  

Combining their different expertise, resources, and know-how has led to tremendous success. By forming an alliance, they can better tackle future technological disruptions from competitors, while innovating in areas such as electric and autonomous vehicles and  connectivity.

However, this type of alliance is not easily done. Having an adapted process for external collaboration is the key to success. You’ll need to think about how to stay in contact with external collaborators and have the appropriate tools in order to identify and qualify new potential collaborations.

Related Article: What is Open Innovation?

Google Types of Open Innovation

Google’s philosophy: Disrupting from the inside out

Google’s founders Larry Page and Sergey Brin saw the importance of internal open innovation early on, making it an integral part of Google’s DNA as early as 2004. 

What did Google do? Larry Page and Sergey Brin’s 20% rule gives Google employees one day per week to work on company-related projects. These side projects can be almost anything that interests the employee. These side projects allow employees to collaborate, and network, while building a strong culture of innovation.

Some of Google’s most successful products have stemmed from these efforts, such as Gmail, Google Maps, and Adsense. Google’s 20% rule is a great example of how creative and innovative employees can be, if they are set free. 

How is Google benefitting? Google’s side projects represent a large share of the company’s profits. They also have helped create a “Google ecosystem” that contains the majority of tools customers need. The benefit of simplicity is invaluable for Google and has created a loyal customer base. 

On top of monetary benefits, its Internal open innovation strategy has various other positive side effects: empowering employees, fostering a sense of responsibility, employee retention, and a strong culture of innovation. 

Nestlé & Starbucks types of open innvation

Nestlé & Starbucks: Brewing profits

These two multinational companies can be seen as potential rivals in the coffee industry. Regardless, they have decided to team up to create new products for Starbucks’ Consumer Packaged Goods and Food Service Division. A prime example of how large corporations can come together for collaboration and for external open innovation

What are they doing? In August 2018, Nestlé and Starbucks announced a new global alliance. They will now work on a new range of roast and ground coffee products, under the Starbucks brand. But, they aren’t stopping there. They will also capitalize on the expertise and knowledge of both companies to innovate new products for coffee lovers. This means using Starbucks industry knowledge of coffee harvesting and customer insights, and Nestlé’s extensive food production and distribution networks, and financial resources. Add to that their speed to market, and together they form an unstoppable duo.

The partnership quickly launched new products, starting with Starbucks branded Nespresso pods. More recently, the partnership launched a new line of creamers inspired by Starbucks drinks. This is a first non-coffee item for Starbucks, and it would not have been possible without Nestlé’s support. 

How are they benefitting? Nestlé has expanded its premium coffee portfolio, while also acquiring a perpetual global license of the Starbucks brand. This means Nestlé can focus on creating new products – by taking advantage of its existing production lines. The Swiss company can also profit from Starbucks customers, by rebranding already existing Nestlé products under the famous mermaid logo. Starbucks, on the other hand, is benefitting from Nestlé’s global presence and greater exposure on supermarket shelves – the coffee at home category.

It’s easier said than done

As we’ve seen, open innovation can take many forms, through internal or external means. But, which should your company invest time and resources in? Well, the answer is both. Companies big and small should view their employees as necessary resources for innovation, and, when obstacles arise, turn to external partners to reach their innovation goals.

However, you need a well-running machine before being able to start collaborating with your innovation ecosystem. The simplicity of just walking over and speaking with a colleague is lost when working with external innovators. This added layer of complexity (NDAs, communication, workflow management, etc.) should not be underestimated. In fact, this should be your number one concern when restructuring your external open innovation strategy. 

Before implementing an external open innovation strategy, it’s imperative that your internal innovation process and company culture is aligned with the principles of open innovation. If not, external open innovation will undoubtedly be harder to execute.