What is open innovation? Learn all about it, who coined it, and some classic examples. 

Do you remember AOL and their CD-ROMs sent by mail? Where has the one-time online juggernaut gone? This company like many others in the past failed to innovate. It’s unfortunate to see companies rise so high to then just fall. So, what can be done to avoid failures like AOL? The answer lies in open innovation. But, what is open innovation?

Businesses in the past relied on Closed Innovation. A strategy that depended on internal R&D teams, patented technologies, and mergers and acquisitions. This type of innovation strategy was successful. Companies were able to hold onto their competitive advantage due to their superior technological supremacy.

However, as product cycles shorten and technology advances at an even quicker pace, companies of all sizes have had to think outside the box. They were forced to rethink their innovation strategies and processes. Now relying more than ever on partnerships with outside collaborators to keep innovating. The days of confiding just in Closed Innovation are long gone.

From closed to open

In 2003, Dr. Henry Chesbrough, a professor from the University of California Berkeley and founder of the World Open Innovation Conference, coined this new type of innovation process Open Innovation. He defined Open Innovation as the following: “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.”

Dr. Henry Chesbrough who coined open innovation.

This encompasses looking at the innovation process from a completely different lens. Open Innovation is centered around collaboration, participation, and a decentralization of the innovation process. Companies no longer depend on just their internal R&D teams, but source ideas, knowledge, and even technology from outside their organization. This strategy allows for a shorter innovation process, because instead of creating new technologies at every step, companies use existing technology from partners.

Cisco, with a much smaller budget and less expertise, counted on partnerships and collaboration to stay competitive.

Is Open Innovation a new concept? Not really. An early adopter of it was Cisco. Early on, Cisco did not have the resources or talent to develop disruptive innovation. An additional barrier the company faced was the dominance by the likes of AT&T Bell Laboratories (now Nokia Bell Labs). AT&T and others had impressive research labs and patents to show for their research efforts. Cisco, with a much smaller budget and less expertise, counted on partnerships and collaboration to stay competitive.

For example, in 1995 AT&T spent $732 million in R&D, while Cisco spent $96 million in purchasing R&D (licensing technology from partners and entering partnerships or ventures). While AT&T was busy spending time and money on developing new technologies, Cisco was busy buying and acquiring what it needed. This difference in strategy allowed the much smaller Cisco to stay technologically competitive. Cisco’s gamble paid off, now they are a leader in the telecommunications industry, with yearly revenues exceeding $49 billion. Not bad, huh?

Open Innovation today

The concept and definition of Open Innovation is continuously evolving as the world around us changes. Joel West, a professor at the Keck Graduate Institute of Applied Life Science gives us a modern definition. He states:

“open innovation employ [s] markets rather than hierarchies to obtain and commercialize innovations.”

Joel’s holistic definition encompasses other actors in innovation, such as universities, research institutions, consumerscompetitors, and not only the market.

As global markets have changed and intensified, businesses have realized they can no longer innovate on their own. Competition is too steep and moving too quickly to be closed off to the outside world. You can’t do it all on your own.

Related Article: Types of Open Innovation

Not only does Open Innovation accelerate the innovation process, but it also reduces costs, decreases risk, and creates new revenue streams for firms. Due to these benefits, companies from all industries are now confiding in Open Innovation.

No one can do it on their own

Now, that we have defined Open Innovation, and why it has become an important innovation strategy. We will highlight examples of how Open Innovation can be used to disrupt industries and boost revenues. The following companies have shown how opening up can bring in new innovations and business opportunities.

Beer on a bar table, Heineken open innovation.
Heineken: Brewing new ideas through crowdsourcing

Heineken believes that great ideas can come from anyone. The Dutch company’s Innovators Brewhouse is an innovation space for entrepreneurs, investors, universities, and other stakeholders. Its goal is to solve some of Heineken’s most pressing issues. Their current challenge is their cleverly named Drop the C Challenge. Here, Heineken is aiming to reduce its carbon footprint. To accomplish this, the company has set its eyes in crowdsourcing ideas. The brewer is not limiting potential innovations. It’s searching for innovations in materials for packaging, eco-friendly sources for brewing products, reuse of brewing byproducts, solutions for cooling and distribution models, and solutions that drive societal change.

In return for brilliant solutions, Heineken is offering access to its global network, advising via a 3-day workshop, access to Heineken coaches, and lastly, a pilot contract. This demonstrates the high level of understanding that Heineken has towards Open Innovation. The company understand that Open Innovation must be mutually beneficial for it to succeed.

Food on the table, Accor Hotels & Too Good To Go open innovation partnership.
AccorHotels & Too Good To Go: Reducing food waste

An unusual partnership between French hotel giant AccorHotels and Danish food app Too Good To Go has resulted in both increased revenues and less food waste for AccorHotels restaurants. Before this partnership, food prepared in AccorHotels would end up in the trash, now, thanks to Too Good To Go, users of the app can buy hotel restaurant food at a fraction of the regular price. A win-win, right?

Today, there are more than 500 participating hotels in Europe. This is both increasing revenue for AccorHotels, while simultaneously increasing users for Too Good To Go. We can’t forget about the environmental aspect, as of today, more than 13,000 meals have been saved so far in the UK alone. In this partnership, the technology developed by Too Good To Go is being used by an unlikely industry, the hospitality industry. Benefits are plentiful for both companies.

cybersecurity with wavestone, open innovation
Wavestone & Alsid: Securing the web

Wavestone, is a Paris based consulting firm with 2,800 employees. The firm is dedicated to business transformation. Through its experience in consulting clients, Wavestone has understood that Open Innovation is not just for large companies. It is also key for its own organization. The company is a firm believer that the consultancy industry must continuously innovate – just like all others. To spur up innovation, the firm established an accelerator program for B2B startups named Shake’Up.

This program aims to both enrich Wavestone’s value proposition by becoming more knowledgeable of the startup environment and trends. As well as, help startups in the Shake’Up program by providing expertise and business opportunities. With this aim, the program has already accelerated 12 startups.

One of them is Alsid, a cybersecurity solution for companies using Active Directory. This collaboration improved Wavestone’s knowledge of the cybersecurity industry, and at the same time, it also provided valuable product development consultation to Alsid- a win-win partnership. Thanks to this collaborative partnership, Alsid has defined its services and is well underway to conquer the cybersecurity industry. Just this past April, they raised $14.7 million to continue expanding its offering.

Open innovation – open to interpretation?

As seen, Open Innovation can be executed in many different ways. Depending on the industry, the size of the company, and your overall strategic goal. Open Innovation can also take many different forms. A startup might see Open Innovation as a way to increase revenue by licensing its technology to larger firms, or they might see Open Innovation as a way to partner with companies with more resources and expertise.

Large companies might see Open Innovation as a way to shortcut the innovation process or a way to shift their corporate innovation culture to one that is more dynamic and agile. However, what doesn’t change, are the fundamentals of Open Innovation. These are: easy exchange of information, knowledge, and innovations with external collaborators, a mechanism to accelerate internal innovation, and a collaboration that leads to mutual benefits for all partners.

Without partnerships and collaboration, future business opportunities will be untenable.

All companies need to understand the power of open innovation. If not, at the very least, they risk missing business opportunities or in the worst of cases, becoming obsolete. As innovation exponentially increases, businesses can’t forecast what opportunities lie ahead. Without partnerships and collaboration, future business opportunities will be untenable.

Remember, no one wants to be left out of the club and by not joining now, that could be you in the near future.