Open innovation
Open innovation is the deliberate use of external as well as internal ideas and paths to market.
The smartest people do not all work for you. Open innovation is the admission, and the strategy built on it.
Open innovation, a term from Henry Chesbrough, is the deliberate use of external as well as internal ideas and paths to market. Instead of relying solely on its own laboratories and channels, a firm draws on outside partners, universities, suppliers, customers, and even competitors for ideas, and licenses out the ones it cannot use itself.
Against the closed model
The traditional model was closed: a firm generated ideas internally, developed them internally, and brought them to market internally, guarding everything. Open innovation argues that this is increasingly wasteful, because useful knowledge is now widely distributed and mobile. No single firm, however large its research budget, has a monopoly on good ideas, and clinging to the closed model leaves valuable knowledge unused on both sides of the boundary.
Flows in both directions
Open innovation runs two ways. Outside-in brings external ideas and technologies into the firm, through licensing, partnerships, acquisitions, or crowdsourcing. Inside-out takes internal ideas the firm will not commercialise and sends them outward, through licensing, spin-offs, or shared ventures, so they create value rather than gathering dust. Many firms find the inside-out flow harder, because it means letting go of ideas they instinctively want to hoard.
The discipline it requires
Openness is not the absence of strategy; it sharpens the need for it. A firm must decide what to protect and what to share, how to absorb external ideas effectively, and how to capture value when it does not own everything. Absorbing outside knowledge itself requires capability; a firm with no internal expertise cannot judge or use what it takes in.
Open innovation is best read not as generosity but as a recognition that the boundary of the firm is porous and that advantage now comes partly from how well a company connects to the knowledge outside it. The closed fortress is no longer the safest design; the well-connected hub often is.