Global networking and rapid technological change are driving the transition from closed to open innovation. By opening up the innovation process to employees and external innovation partners, a number of significant advantages can be realized.
But what is it?
What is Open Innovation
Simply put, Open Innovation in a business context is when a company or organisation doesn’t rely solely on its own internal (usually pre-determined) innovation and R&D teams and resources. Instead, they deliberately combine these assets with external sources such as specialist agencies to breathe new life into their innovation process. It can be a real quantum shift in thinking for many companies however there are enormous advantages.
Time savings: reduction of time-to-market
The time of product development from the first steps to market launch (= time-to-market) is becoming increasingly important due to shorter life cycles and increased market competition. Open innovation can shorten the development time by handing over activities to innovation partners in the sense of a division of labour.
Tasks that require implicit knowledge of the customer (ie: market research and after-market research) can also be outsourced. The time-consuming trial-and-error process then does not take place at the manufacturing level but prior to commencement of production of a project
Cost savings: reduction of cost-to-market
In view of globalized markets and the associated price dumping, companies are striving to reduce the costs of the innovation process from the start of planning to market launch (= cost-to-market).
In addition, there are reductions in research and development budgets that further promote the trend towards open innovation. The previously mentioned division of labour reduces not only the development time of innovations but also their cost.
Cost savings are particularly noticeable where companies take on tasks that require investment in certain resources, such as developing prototypes. The production of prototypes can be very expensive for the manufacturer, as several prototypes often have to be developed before a customer-accepted prototype is created. However, innovative external innovation partners often have resourceful minds in their ranks who are experienced with working on prototypes.
Novelty level: increase of the new-to-market
Another central advantage of open innovation is the new-to-market factor. It describes the perceived novelty of innovation for the consumer. In product innovations, in particular, the degree of innovation is often low because only incremental innovations are produced. Existing products are only developed further from the traditional innovation process without creating functional added value. Innovations, on the other hand, which are created with the involvement of the new eyes of external innovation partners, open up new functionalities and potentially even create new markets.
The sporting goods sector offers numerous examples of this. This is how the trend sport of kite surfing was born out of the need of surfers for higher and further jumps. Some surfers started to experiment with homemade combinations of surfboards and hang-glider sails and developed a completely new kind of sport equipment. Other recreational sporting equipment such as skateboards and surfboards were not developed in the classic R&D departments but can be traced back to user innovations.
Therefore, if a manufacturer succeeds in integrating particularly innovative partners into the open innovation process, this can significantly increase radical innovations and thus the factor new-to-market.
Linking of knowledge: Greater idea and knowledge base
Through open innovation, numerous external and internal sources of ideas and knowledge can be tapped and used to take innovation management to a new level. Around one hundred R&D projects are required to place twelve successful innovations on the market. The number of ideas needed to start 100 projects is much higher. Innovation, therefore, requires many ideas:
Innovation through a change of perspective
One of the biggest advantages of Open Innovation is the cross-linking of knowledge and know-how from different industries and areas, which opens up new perspectives. Solutions that are already successfully used in other areas can be transferred to their own innovation projects. This makes it possible to develop ideas and solutions that nobody would have thought of before.
Conclusion: Why do we need Open Innovation?
Open innovation is the answer to changing market conditions and customer needs. In the age of digitalization, only those companies will be among the first few to actively access broad knowledge and thus provide better, faster and cheaper solutions than others.