Innovation Best Practice: Open Innovation

This article is the first in a series highlighting innovation best practices, designed to help businesses understand what differentiates established models, and what support is open to them.

Open Innovation is a term which became fashionable from 2003 onwards, when it was coined by Henry Chesbrough, a professor based at the Haas School of Business in California. He spotted that there was an increasing trend of organisations looking beyond their existing resources for ways to develop and commercialise new products, services and processes.

While this has arguably always been a recognised way that businesses innovate, Chesbrough argued that the onset of the information age (i.e. digital transformation), has rapidly accelerated this trend – enabling even small organisations to significantly increase their capability to bring new ideas to market.

While there are lots of different models for open innovation, they generally take two forms – inbound and outbound.

Inbound innovation normally refers to organisations looking beyond their own internal R&D team, as well as their usual supply chains, to identify insights, capabilities, and possible new collaboration partners. They then work together to develop ideas towards market. The benefits of this are not just developing new solutions. Working collaboratively can also speed up the process of innovation dramatically.

A great example of inbound open innovation is when the NHS worked closely with several Formula One teams to rapidly develop and produce new types of ventilators during the Covid pandemic. The time and cost associated to get a new ventilator approved by the UK’s medical regulator dropped exponentially. Sometimes mainstream brands like Nike work with fashionable micro companies to inject creativity and new thinking on materials into their products.

Open innovation doesn’t always need to be physical. Many digital firms run Hackathons with partners and intermediaries, looking for new ways to identify potential new products and services – as well as to spot talented companies that they can collaborate with.

And open innovation can also happen across different sectors, or between the research base and the private sector. (see Knowledge Transfer Partnerships, below).

Outbound innovation refers to organisations that open their ideas and/or information for others to develop into new products and services. This may entail giving third party partners a “right to roam” over IP which is developed in-house and doing licensing deals to share in any profit that arises from their commercialisation. In this way, companies that develop IP are maximising the chances of income that they may not otherwise achieve themselves. Large companies such as IBM, Qualcomm and Philips generate millions of dollars per annum from licensing their IP.

Probably the most famous type of outbound open innovation is the API (application programming interface). Many digital businesses have come to understand that they can create new platforms for innovation by publishing APIs and other, interoperable applications which other organisations build on. This benefits both parties – especially if they share user information. If you’ve recently “signed on with Google”, you’ve participated in this form of open innovation.

In the 20 years or so since Open Innovation became a buzzword, there is a growing recognition that innovators can collaborate not just with other organisations, but also with users/consumers too. This approach enables significant user-testing before a formal launch.

Below are some recognised models of open innovation:

• Joint ventures
• Competitions/challenges
• User/consumer participation
• Joint research
• Hackathons
• API feeds
• Software Development Kits (SDKs)
• Online platforms asking for collaborators
• Benchmarking of costs

Despite coming in many different forms, the common factor around open innovation is an open mindset. This stems from the realisation that it is impossible for any single company to have all the capability, perspective or market awareness to fully capitalise on new ideas. Once you acknowledge that, you’re halfway to developing an open innovation mindset.

What are the benefits of this approach for a large firm and a small firm?

The benefits to open innovation are straightforward, although not always immediately obvious. Both large and small firms need to prioritise their activities and it isn’t always apparent when (open) innovation will pay off.

But large companies get the benefit of expertise and knowledge from other sectors or fields of discovery. Despite big businesses such as Rolls Royce or EDF operating many collaborative partnerships with their suppliers and with universities, they remain open to the idea of working with highly innovative, agile small firms which may just bring in new perspectives, ways of working and technologies that might transform their business model. Diversity is therefore a crucial factor in open innovation.

For small firms, open innovation can create new routes to markets for their fledgling product or service. Big companies often take the role of “Lead customer”, helping to prove new ideas work by providing access to their internal capability and customer base.

For both large and small organisations, an agreed framework of trust is essential. Small companies should not be fearful that big ones will steal their ideas and people and big businesses must trust small firms with their market insights and intellectual property.

How does KTN facilitate open innovation?

KTN’s purpose is to connect innovators for positive change. As well as speaking to individual businesses and making connections for them, we have developed several tried and tested models for open innovation:

Innovation Exchange
Innovation Exchange is a KTN programme specially designed to help organisations search for game-changing solutions to challenges and bring them to market faster.

Innovation Networks
Through KTN’s Innovation Network programme, we’ve united some of the best minds and greatest thinkers from across the UK in cross-sector areas of innovation, development and new technologies.

Knowledge Transfer Partnerships (KTPs)
Knowledge Transfer Partnerships (KTPs) are designed to build long-lasting and mutually beneficial collaborations between business and the UK’s world-class research base.