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Open Innovation applies the principles of free trade to innovation, advancing new ideas through the use of tools such as partnerships, joint ventures, licensing and strategic alliances. By collaborating with outsiders—including customers, vendors and even competitors—Open Innovation enables the laws of comparative advantage to drive the efficient allocation of R&D resources. By reaching beyond corporate borders, a company can import lower-cost, higher-quality ideas from a wide array of world-class experts to improve the speed, quality and cost of innovation. This approach allows the business to refocus its own innovation resources where it has clear competitive advantages. Ideas also are exported to businesses that can put them to better use.
Usage and effectiveness among survey respondents
How Open Innovation works:
Open Innovation requires companies to:
- Focus resources on its core innovation advantages. Allocate resources to the opportunities with the best potential to strengthen the core businesses, reduce R&D risks and raise the returns on innovation capital.
- Improve the circulation of innovation ideas. Develop information systems to capture insights, minimize duplicative efforts and advance teamwork.
- Increase innovation imports. Gain access to valuable new ideas, complement core innovation advantages, improve the company's collaborative abilities and build its reputation as an innovative partner.
- Increase innovation exports. Establish incentives and processes to assess objectively the fair market value of innovations. Carefully structure joint ventures and strategic alliances to protect the company's rights, raise additional cash and strengthen relationships with trading partners.
| Related topics | Bain capabilities |
Companies use Open Innovation to:
- Clarify core competencies
- Maximize the productivity of new product development without increasing R&D budgets
- Decide quickly and efficiently whether to buy or sell patents and other intellectual capital
- Promote faster, higher-quality innovations
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Selected references
Chesbrough, Henry William. Open Business Models: How to Thrive in the New Innovation Landscape. Harvard Business School Press, 2006.
Chesbrough, Henry William. Open Innovation: The New Imperative for Creating and Profiting from Technology. Harvard Business School Press, 2003.
Chesbrough, Henry W. and Andrew R. Garman. "How Open Innovation Can Help You Cope in Lean Times." Harvard Business Review, December 2009. pp. 68-76.
Christensen, Clayton M., and Michael E. Raynor. The Innovator's Solution: Creating and Sustaining Successful Growth. Harvard Business School Press, 2003.
Hagel, John, III, and John Seely Brown. "Productive Friction: How Difficult Business Partnerships Can Accelerate Innovation." Harvard Business Review, February 2005, pp. 82-91.
Huston, Larry, and Nabil Sakkab. "Connect and Develop: Inside Procter & Gamble's New Model for Innovation." Harvard Business Review, March 2006, pp. 58-66.
Linder, Jane C., Sirkka Jarvenpaa, and Thomas H. Davenport. "Toward an Innovation Sourcing Strategy." MIT Sloan Management Review, Summer 2003, pp. 43-49.
Nambisan, Satish, and Mohanbir Sawhney. The Global Brain: Your Roadmap for Innovating Faster and Smarter in a Networked World. Wharton School Publishing, 2007.
Prahalad, C.K., and Venkat Ramaswamy. The Future of Competition: Co-Creating Unique Value with Customers. Harvard Business School Press, 2004.
Rigby, Darrell K., and Chris Zook. "Open-Market Innovation." Harvard Business Review, October 2002, pp. 80-89.
Selden, Larry, and Ian C. MacMillan. "Manage Customer-Centric Innovation—Systematically." Harvard Business Review, April 2006, pp. 108-116.
Surowiecki, James. The Wisdom of Crowds. Anchor, 2005.
Terwiesch, Christian and Karl Ulrich. Innovation Tournaments: Creating and Selecting Exceptional Opportunities. Harvard Business School Press, 2009.
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