Open Innovation

Throughout the history of business enterprise, there have been only three directions for business:

1. Sideways, maintaining the status quo;

2. Backwards, in a state of decline;

3. Forward, moving in a path of growth and change.

"Open Innovation" is a concept embraced by organizations that decide to meet the challenges of a constantly changing business environment by adopting a more fluid approach to internal and external intellectual property (IP) identified as patents, trademarks, and copyrights.  The concept and business model became public discussion in 2003 with the publication of Open Innovation: The New Imperative for Creating and Profiting from Technology, by Dr. Henry Chesbrough, professor at Harvard Business School.  Dr. Chesbrough defines Open Innovation as "the use of purposive inflow and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively."

The assumption underlying open innovation is that there are unlimited "potentially useful ideas" outside a Company's walls.  Accepting this premise and using it as a guiding principle, firms can become active buyers and sellers of intellectual property.  These buying and selling activities combine external and internal ideas, as well as, external and internal paths to market.  Acquiring new intellectual property enables firms to enter new markets and develop new products, allowing all parties involved to succeed.

That success is often accelerated versus firms that restrict the entire process of research, development, and commercialization to ideas generated internally, as in the "Closed Innovation" model.

Why should you, as a business owner, executive, manager, or entrepreneur, be interested in open innovation? If revenue, speed, and savings are meaningful to your organization, then you will be interested in exploring how this concept and approach can help companies enhance one, if not all three, of these critical aspects of operating in a constantly changing business world.

The first priority in today's economy is top line revenue.  It is understood that selling more of one product line or selling new products to an existing customer base is far more efficient and cost effective than establishing a new customer for a new product. Thus, acquiring external IP (or
in-licensing) for your own development and distribution can add to the top line revenue more directly when the existing customer base is in an appropriate target market.  Additionally, IP that resides internally can be capitalized upon by external licensing (or out-licensing) if opportunities for development and commercialization have not already been realized and the required investment for development and marketing are:

1. Either beyond the capabilities of the firm;

2. Limited resources are committed elsewhere for returns in a shorter time frame;

3. Directed to competing opportunities for greater returns.

Therefore, companies that need improved, increased, and broader revenue streams should implement programs for the in-licensing and out -licensing of IP.

Another high priority for businesses is speed to market.  The open innovation model is dependent upon collaborative partnerships to generate ideas and produce innovations that will result in faster market acceptance for new products. For organizations that support collaboration with outside partners, products can be developed, engineered, and marketed in shorter time frames because the partners have unique capabilities to contribute and are equally interested in achieving success quickly.  The collaboration in the open innovation model contrasts significantly with the closed innovation model, within which, engineering and development processes  can be impeded because of internal competitive interests between departments or divisions of companies.  When speed is of the essence, an open innovation approach can secure stronger market positions faster.

Profitability can be achieved by raising revenue while maintaining costs, maintaining revenues and reducing costs, or raising revenues at a greater rate than costs are rising.  Open innovation can save a company money while searching for new and improved innovations that will achieve the goals of the organization.  Specialized skills and talents funded by outside research and development teams are less expensive than building internal teams to accomplish the same objectives, particularly when the innovation is considered ground breaking technology that can only be advanced through the use of expensive equipment and tools.  Reducing the costs of research, development, and engineering plays a major role in how soon a company is able to bring products to market, reach the break-even point, and achieve profitability. 

Open Innovation is not a rigid plan or software product being universally applied to all sizes and types of businesses. It is a philosophical methodology that depends upon the commitment and support within each organization that adopts the open innovation principles. There are numerous benefits for companies that implement open innovation programs. Your company may want to consider learning more about how to establish cultural changes to reinvent the way IP is perceived and leveraged, how to scout for research and development partners or marketing partners, and how to in-license or out-license intellectual property to meet the demands and challenges of a continuously changing business landscape.