Twenty Years of Open Innovation

Weekly Business Insights from Top Ten Business Magazines | Week 329

Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Since September 2017 | Week 329 | December 29, 2023-January 4, 2024

Strategy & Business Model Section | 2

Twenty Years of Open Innovation

By Henry Chesbrough | MIT Sloan Management Review | December 21, 2023

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Twenty years ago, the author introduced the concept of open innovation in an MIT Sloan Management Review article. Where do we stand two decades later? 

Open innovation emphasizes drawing on external resources — such as customers, startups, crowdsourcing platforms, and universities — to develop ideas for new products and services. More formally, it can be defined as a distributed innovation process involving knowledge flows across organizational boundaries, for both pecuniary and non-pecuniary reasons. To innovate, we need to move knowledge from where it resides to where it is needed. Often, this means moving people so that knowledgeable workers can collaborate together to create something new. At other times, it might require new workflows and structures to create incentives and procedures to move that knowledge. To achieve success with open innovation, organizations need the ability to mobilize and access their knowledge across all of their silos — whether functional, departmental, or geographic — to design, develop, and deliver the innovations that their customers want.

There’s much to celebrate about two decades of open innovation. One survey of 125 large companies also found that organizations that employed open innovation were getting better innovation results.  Despite this success, much remains to be done. For open innovation to succeed, it is not enough to identify possible useful sources of knowledge, access those sources, negotiate possible collaborations with them, and then incorporate that new knowledge into new innovative products and services. More in-depth studies find, in fact, that the biggest problems that organizations face in using open innovation often come from inside, rather than outside, their own walls. Collaborating and coordinating with external actors in open innovation often requires changes to organizational workflows and can trigger defensive responses from internal innovators.

Organizational boundaries that facilitate greater focus and specialization in critical activities can become barriers to open innovation when they result in silos. Useful knowledge flows well within the silo but does not move well between silos, such as different departments, functional areas, or geographies.  There are other ways to overcome the barriers imposed by internal silos. One simple but effective method is to enable people to rotate their positions within an organization, from one silo to another.  A complementary strategy for rising above internal silos is to assign senior executives responsibility for major customers of the organization.  Another mechanism to move knowledge across organizational boundaries is to enable members of each group, function, or department to buy or sell outside the organization if their internal counterparts are unresponsive to their needs. 

Getting beyond silos is key to the success of open innovation, a method that has made its mark. 

3 key takeaways from the article

1. Open innovation emphasizes drawing on external resources — such as customers, startups, crowdsourcing platforms, and universities — to develop ideas for new products and services. To innovate, we need to move knowledge from where it resides to where it is needed. Often, this means moving people so that knowledgeable workers can collaborate together to create something new.
2. There’s much to celebrate about two decades of open innovation. One survey of 125 large companies also found that organizations that employed open innovation were getting better innovation results.  Despite this success, much remains to be done.
3. The biggest problems that organizations face in using open innovation often come from inside, rather than outside, their own walls. Collaborating and coordinating with external actors in open innovation often requires changes to organizational workflows and can trigger defensive responses from internal innovators.  Getting beyond silos is key to the success of open innovation, a method that has made its mark. 

Full Article

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Topics:  Creativity, Innovation, Strategy, Performance, Silo