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The term open innovation refers to an innovation strategy that calls for sharing information around research and development (R&D) of new products and services to authorized personnel both within and outside the organization. This means that rather than focusing on secrecy and hiding information, such as in a closed innovation model, an open innovation model instead looks to both internal and external ideas around how best to design and build something new. Open innovation processes have been steadily gaining popularity over the years, especially with the rise of venture capital markets and the wide availability of, and access to, skilled workers.
Closed innovation models are generally focused on the idea that successful innovation relies on complete control and ownership of every step in the process, especially in regards to intellectual property such as trade secrets and patents. However, closed innovation can suffer from a variety of issues, such as impractical ideas and ineffective focus. For example, if a bank is trying to come up with a new process, they need to make sure that the process is both feasible and in line with the bank’s business model. If it does not meet these requirements, then a large amount of time spent on internal innovation can be unnecessarily wasted.
In contrast, companies utilizing open innovation models will often times have an internal R&D team that takes external knowledge and applies it to the project. This external knowledge can come from a variety of sources, such as customers, universities, and even collaborations with rival companies. This allows for more voices to be heard, and for more ideas to be gathered than in traditional, internally developed products. By getting more information from more sources, businesses and organizations can ensure that they have the most relevant information for their end product. Furthermore, this allows more voices the opportunity to spot potential problems and identify the ways to correct and realign as needed. Proper open innovation management is necessary to make the most of this approach. This means that managers should ensure that all relevant information is being brought in and utilized, rather than just focusing on current ideas with no outside feedback.
Open innovations allow for competitive advantages in the following ways: