Open Innovation Defined

Can you imagine the response of management if you were to suggest you should license your patents to competitors, hand over your hardly-used trade secret to emerging start-ups, and examine what potential collaboration might be like with other organizations in aligned segments?

The likely response is a swift “are you mad?” as the leadership looks at you with that funny expression you expect when you’ve done something which is not quite socially right.

Emerging presently, however, there is a movement in the innovation space called Open Innovation whose core tenet is that you do just that.

The thinking is, if you have unused intellectual property or uniqueness, the best economic results are obtained by licensing it to competitors who might make use of it, rather than let it sit idle. And, conversely, by actively seeking out competitors that have something valuable to your business and reaching accommodations with them to get you access.

Open Innovation is one of the ramifications of the Innovation Economy which is based on the premise that competitive advantage derives from how well you use know-how, not what know-how you have. Knowing how to use know-how well in a particular problem space is a hard to replicate capability that requires development, investment, and (more often than not) long and sustained effort. This is why it is a source of competitive advantage.

Open Innovation is the current de-rigor fashionable business model amongst innovators in many industries. It is especially popular in industries where products do not have very great levels of differentiation, like fast moving consumer goods. It is equally well adopted for industries where the products are very differentiated, like aerospace.

On the other hand, companies that have chosen not to pursue Open Innovation are tending to lag competitors. This is because they are forced to rely only on their own R&D efforts, rather than taking what’s best from industry around them. Failing to share is turning out to be a significant competitive dis-advantage.