Using Open Innovation as a Growth Strategy

Innovation is the key to forward-thinking businesses, especially in today’s competitive tech industry. Excellent product design happens when a company successfully identifies its customer’s problem and then builds an actionable solution, preferably one that strikes a nuanced balance between cost-efficiency and ingenuity.

We’re living in an age of uncharted growth for electronics. Each passing day the market gets a little more crowded.

Software development is advancing exponentially worldwide, and hardware manufacturers are constantly researching methods for improving their product cycle to keep pace. Traditionally, this type of research is conducted behind closed doors in small-scale productions and independent focus groups. However this process can be slow and inefficient, which in the tech world, can be disastrous.

As consumer trends continue to buck and redefine industry standards, savvy businesses must adapt to the ever-changing landscape if they want to survive.

Enter the well-known but seldom utilized concept: open innovation.

What is open innovation?

Henry Chesbrough of UC Berkeley’s Haas Business School defines open innovation as, “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.”

In other words, Chesbrough’s definition establishes open innovation as a form of symbiotic relationship between a business and entities outside of that business. According to Chesbrough, businesses that engage in open innovation expand internal efforts by actively seeking insight from external sources in a variety of ways.

Global communication network and AI (Artificial Intelligence) concept.

Evolution

Brand loyalty campaigns and social media has resulted in a generation of consumers expecting the businesses they patronize to lead ubiquitous innovation efforts. In response, savvy companies are steadily incorporating new ways to get their customers involved in the creative process.

One such company—that realized dramatic financial gains as a result—is the childhood favorite and toy giant, Lego.

In the early 90s, Lego fell on hard times. Children have always enjoyed the iconic plastic bricks (or midnight landmines, if you ask any parent) but there wasn’t a compelling need to fork over additional dollars past the initial purchase. Sure, the brand name was practically synonymous with childhood fun, but outside the oversized bucket, there was nothing to draw repeat business.

Dedicated to regaining both the market share and their once-coveted shelf position, Lego started a program called “Lego Ideas” that invited individuals to participate in a co-creative process. The opening of their innovation program resulted in the development of new Lego brick models—which the company now packages and sells—along with the exploration of other avenues, such as production sets of feature films, iconic structures around the world, and age-themed playsets.  

Now, Lego is everywhere—from the top of children’s Christmas lists to the marquee at local movie theatres. This apparent success is due, in large part, to the adoption of open innovation.

Benefits

In the absence of open innovation, large corporations historically held a competitive advantage over smaller, private companies—specifically due to a larger pool of resources, both financial and human. Businesses that could afford to invest in these efforts were able to more easily maintain their market share, thereby scaling the terrain to make it harder for potential competitors.

While larger companies have the advantage of using their prestige to attract the attention of innovative contributors, up-and-coming businesses can still capitalize on the opportunity to shine within innovation-rich atmospheres. Smaller companies can be more dexterous with resources, are apt to take more significant risks, and generally, possess a more streamlined chain of command that can result in swift decision-making. Open innovation, therefore, can lead to a quicker production time with smaller companies.

According to a Tech Pro survey, 92 percent of business leaders feel that innovation is critical to business success. This number is hardly a surprise given that 83 percent of consumers are willing to pay a premium for products that are considered “innovative”—sometimes even as high as forty percent.

Chesbrough sang the praises of open innovation, calling it a “more profitable way to innovate because it can reduce costs, accelerate time to market, increase differentiation in the market, and create new revenue streams for the company.”

With this list of potential advantages, companies can’t afford to ignore open innovation as a viable option for driving business forward.

Methods of open innovation

The number of ways businesses can engage in open innovation is a testament to the need and importance for innovation itself. Companies should consider both their goals and their resources when deciding which method is most beneficial.

Crowdsourcing

Crowdsourcing – a term coined in 2006 – is more than just a buzzword, it’s a highly effective open innovation practice.

Advances in technology have not only made a concept like crowdsourcing possible, but also readily accessible. With several user-friendly crowdsourcing platforms on the rise, businesses can now outsource complex problem solving needs from creative experts around the world. Entrepreneur.com, a globally recognized authority on innovative business ventures, describes crowdsourcing as a “must have” for large organizations looking to gain a competitive edge.

Also noteworthy, of the brands that earned the “best global brands” title in 2014, 85% used crowdsourcing in some form of another.

Hiring freelance innovators

Businesses dedicated to developing innovative solutions can turn to freelance solutions to draw options from the outside market.

By trading a salaried R&D team for pay-per-project freelancers, businesses can continually infuse fresh ideas and fresh thinking into their practice. The use of freelancers also allows businesses to select experts specific to their needs.

The growing adoption of open innovation practices may be why the number of freelancers filling the US workforce also continues to increase. According to the Freelancers Union, the percentage of professional freelancers is expected to grow precipitously from 34 percent in 2014 to 50 percent by 2020.

Fostering user innovation

Businesses aren’t the only ones who can benefit from the flexibility and fluidity that open innovation allows, some of the best discoveries come directly from product users.

Users that innovate products of their own volition are free to develop specifications as they see fit, rather than relying on manufacturers to act as their (often imperfect) agents. As a parallel example, we can look at extreme sports — wakeboarding, powerbocking, extreme ironing (no seriously, look it up) — almost all of which developed out of customers using equipment in ways that were not originally intended.

Companies that monitor how customers use their products can adopt and celebrate user innovations, therefore giving potential customers another compelling reason to do business with them (and existing customers to stick around).

In Closing

By utilizing open innovation, companies of any size, from start-ups to enterprises, can expand their resources through external means. As a more decentralized approach to complex problem solving, companies and individuals alike can vastly reduce production costs from any stage of manufacturing.

Open innovation, when employed strategically, infuses fresh ideas into stagnating business models, creates the opportunity for nuanced and cost-saving approaches, and, hopefully, can save a down-and-out company from buckling to a crowded, competitive industry.

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