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LEAD Innovation Blog

Read our latest articles on innovation management and innovation in a wide range of industries.

Date: 03-Oct-2018
Posted by: Daniel ZAPFL

Open Innovation vs. Closed Innovation

 

The demands on innovation management have changed dramatically in recent years. In the traditional understanding, the in-house R&D department is the most important source of innovation. An opening to the outside world to better meet the increased demands changes this classical understanding. In this blog post we shed light on the two approaches Open Innovation vs. Closed Innovation, which at first glance point in different directions.

What is the difference between Closed Innovation and Open Innovation?

The distinction between open innovation and closed innovation is determined by the way in which innovation is created. While a closed innovation is developed in a self-contained company environment, Open Innovation incorporates external knowledge into innovation management. [1]

Paper Innovation process

 

OPEN INNOVATION                                                  CLOSED INNOVATION

Chesbrough.png 

Quelle: Chesbrough (2003)

 

1. Closed Innovation

A closed innovation is based on the view that innovations are developed by companies themselves. From the generation of ideas to development and marketing, the innovation process takes place exclusively within the company.

Place of innovation = within the company

Opening to the outside is therefore impossible. Innovations are only developed within clearly defined company boundaries. Know-how, technology, processes and intellectual property remain under the control of the innovative company. The function of this approach can be compared to that of a perpetuum mobile: [2]

  • Companies invest large sums in internal research and development (R&D) in order to establish it as a know-how centre.
  • These R&D departments provide significant technological inventions that lead to innovative products and solutions.
  • As a result, the innovation process is characterized by a closed system, with fixed company boundaries and internal R&D activities.

In order to successfully implement a closed innovation in the company, certain factors must be taken into account. Closed Innovation places very high demands on employees, for example, so the company should always strive to hire highly qualified employees. It is also important to protect one's own intellectual property accordingly.

 

2. Open Innovation

Open innovation means opening up the innovation process beyond company boundaries in order to increase one's own innovation potential through active strategic use of the environment. Innovation therefore arises through the interaction of internal and external ideas, technologies, processes and sales channels with the aim of the company to develop promising innovative products, services or business models. Own employees, customers, suppliers, LEAD users, universities, competitors or companies of other industries can be integrated.

Place of innovation = inside and outside the company

However, the exchange of knowledge and the networking of know-how typical of open innovation do not mean free access to a company's knowledge and technology. The term refers only to collaborative networking. Open innovation can therefore involve high costs for the use of licenses and other intellectual property.

One example of a successful open innovation is the IBM InnovationJam platform, which cooperates on a network basis with other companies and universities from various countries such as Switzerland and Saudi Arabia. The internet music exchange Last.fm invites its users to so-called "hacker days" to develop new applications. Further, more detailed information on Open Innovation can be found in our blog articles "Definition Open Innovation" and "Best Practice Open Innovation - that's how the best do it".

 

3. The principles in comparison

 

OPEN INNOVATION

CLOSED INNOVATION

Company philosophy

The Best from anywhere 

Conscious import and export of knowledge to improve and accelerate your own innovations.

We can do it, we will do it

Innovations emerge from the company's internal resources.

innovation ideas

Open exchange of ideas beyond company boundaries

internal ideas

Role of the customer

Active co-innovators

Passive recipients

Mobility Employees

high

low

Venture Capital

plays an important role

plays only a minor role

Qualified persons

The company works with bright minds inside and outside the company.

It is important that the brightest minds in the industry work for the company. Highly qualified employees, especially researchers and developers, are the most important source of innovative ideas.

Role of R&D

Innovation can come from inside and outside. External R&D can create significant value, but internal R&D is still needed to capture part of this value.

Design, development and marketing of in-house innovations: Our own innovative ideas, technologies, processes and markets offer a long-term competitive advantage.

Competition 

To lead the competition, it is not necessary to offer the best ideas, but to make the most of internal and external ideas.

To lead the competition, it is necessary to offer the best ideas.

 

 

Developing a better business model is more important than being the first on the market.

The winner is who brings the innovation to market first.

Intellectual Property

Innovation does not have to be created in order to profit from it. A competitive advantage can be created and profit can be generated by others using their own intellectual property and the company acquires third-party intellectual property.

The own know-how is treated confidentially in order to protect it and to avoid free rides by competitors. Patents, copyrights and protection of intellectual property were intended to protect the company's ideas and research from the theft of ideas by other companies.

 

Why the importance of Open Innovation is constantly growing

In recent years, the form of closed innovation has become less and less important. According to Henry Chesbrough, the following factors are responsible for this development: [3] 

  1. The availability and mobility of highly qualified specialists is increasing.
  2. The availability of venture capital is increasing.
  3. The innovative environment of a company offers external opportunities for unused potential innovations.
  4. The increasing number of competent customers and specialized suppliers available as cooperation partners.

The innovative environment of a company is thus becoming increasingly important and the quality and quantity of external know-how is constantly increasing.

 

Open Innovation or Closed Innovation?

Although the importance of open innovation is increasing, it may make sense for a company to continue following the approach of closed innovation or a mix of open and closed innovation. Whether a company prefers open or closed innovations as part of its innovation strategy depends in particular on three factors: [4]

1. Complex innovation: If technologies are very closely linked, open innovation can carry certain risks: inappropriate elements could be included that harm the innovation process itself or even have a negative impact on the entire product range. A prime example of this is Apple with its highly integrated and coordinated product range. The company is therefore more inclined towards closed innovation.

2. Unique innovation: A closed innovation is usually preferred when an innovation produces fundamental technological improvements that give the company an unassailable advantage over its competitors. Open Innovation therefore works best where innovation is an ongoing process in which benefits can be generated through cooperation.

3. High competition: In industries with intensive competition, closed innovation is usually better suited to exploit advantages for the company itself.

 

Conclusion: Combining two complementary principles

Open Innovation includes innovation potentials where they contribute to the improvement of one's own entrepreneurial knowledge. Open innovation is therefore not only a "substitute" for closed innovation, but should be seen as complementary. The innovation activities of external actors such as customers, suppliers, universities or other companies should be seen as a complement to their own innovation processes. However, the prerequisite for opening up to the outside world is stable internal innovation structures and processes in order to successfully integrate and utilize external knowledge. [5]

5 tips for a future fit innovation process

 

Sources:

[1] Open Innovation: The New Imperative for Creating and Profiting from Technology, von Henry William Chesbrough, 2003

[2] Open Innovation. Geschäftsmodelle, Prozesse, Chancen und Risiken, Hasan Mutlu, 2013

[3] Open Innovation. Geschäftsmodelle, Prozesse, Chancen und Risiken, Hasan Mutlu, 2013

[4] Strategisches Management - Eine Einführung: Analyse, Entscheidung und Umsetzung von Gerry Johnson, Kevan Scholes, Richard Whittington, 2011

[5] https://blog.iao.fraunhofer.de/von-closed-zu-open-innovation-verandern-die-neuen-spielregeln-unser-innovationsmanagement/

Daniel ZAPFL

Born in Graz, Austria. After positions as project manager & head of innovation of the project management at LEAD Innovation, Daniel Zapfl has been responsible for the success of the innovation projects of our innovation partners since January 2018.

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