What Open Innovation Can Mean for Small Companies

“From small to large businesses Open Innovation principles have been and will be used as a relevant innovative strategic and performance tool for companies.”

“Open Innovation” is the common term for a process that promotes product development and strategic growth in which a company looks outside its own boundaries for technical ideas or solutions to add into its product development plans.

Explicit in Open Innovation practice is the idea that not everything has to be invented internally. This article offers a brief overview of Open Innovation practice and how smaller companies can best benefit from it. For more examples, please see the case studies.

Large businesses have been embracing and practicing “Open Innovation” approaches at least since the 1990s, to great success. Not long after becoming CEO at Procter & Gamble in 2000, A.G. Lafley famously made it a corporate objective that 50% of the company’s revenues would come from new products.

To generate the faster flow of new products required, they would utilize an Open Innovation model. Open Innovation practices are not only for global conglomerates. However, these practices are ones that small-to-medium companies can also utilize to great advantage.

At the highest level, Open Innovation can improve a company’s product development process in one or more of several ways:

  • Significantly increase speed to market
  • Generate better product ideas, features, or specs
  • Identify new product platforms for the future
  • Introduce a company to new partners, technical capabilities and/or supplier relationships

Open Innovation can be used at all phases of the research and development cycle. Let’s look specifically at some of the ways companies can apply these principles with the diagram below.

Let’s invent a computer peripherals company for the purposes of illustrating the different parts of the chart.

In Box A, both the technology is in a very early phase, and the company is very early in their product development cycle. They can use Open Innovation technology searches to explore different technology options for future application potential.

For example, in the 1990s, computer printer companies considered different types of inkjet printing, thermal transfer printing, and other technologies as they built their technology roadmaps into the future.

An Open Innovation search at that time could have identified new technologies to explore for future product suitability especially very early-stage ideas emerging among academic and other research institutions.

Deal structures in this category often take the form of research sponsorships/partnerships, equity investments, or options.

Box B represents scenarios in which a specific technology is developed enough so that a company can confidently identify it as the basis for a new product platform.

For example, our fictional computer peripherals company might have identified piezoelectric inkjet technology as the future platform for their printer line-up.

An Open Innovation search at this juncture would identify different piezo electric solutions, leading to potential partnership or licensing arrangements.

Box C represents the most common kinds of technology searches in an Open Innovation model: when a company seeks product extension or improvement ideas for a product line already in market.

In this case, the company needs new technology ideas that are quite developed – that is, market ready. For example, if our computer peripherals company sought to add scanning or faxing abilities to its printer line, it might seek compact, new scanning technologies that could be folded into the current printer packaging design without too much footprint expansion.

An external technology search in this case would focus on ready-for-market technologies which could lead to a relatively quick deal often in either a license or joint venture structure.

…small and mid-sized companies are likely to find the most value in Boxes B and C…

Finally, Box D is for “defensive.” This box represents out-of-the-box thinking by product managers and development teams responsible for more mature product lines.

These teams are often thinking defensively about their product family and want to preserve market position by reaching proactively out into the future.

An Open Innovation technology search in this instance can identify technology options that could either be disruptive or protect against a competitor’s disruptive offering.

Deal structures in this instance can include equity positions or other investment options, as well as research or operating joint ventures.

Notice that this chart focuses solely on the product development phase and technology phase there is nothing here about company size.

However, small and mid-sized companies are likely to find the most value in Boxes B and C, which are nearer-term strategies. Boxes A and D can be expensive for smaller firms, who cannot easily afford longer-term, higher-risk investments.

Think for a moment about the product development challenges your firm is facing right now how could Open Innovation practices be used to break your logjams? Call us today to learn more!