Open vs Closed Innovation: Which Is Best For Your Business?

Innovation isn’t as simple as it once was. 

It’s an extraordinary time for businesses to explore digital change, and the demand for creativity is accelerating. But for early-stage startups or businesses who are starting to explore the possibilities of innovation, it can be difficult to decide which road to take.

In this post, we break down two main types of innovation, and which one you should consider for your business. Open vs closed innovation has been a long-time conversation starter in the corporate world— let’s dive into the fundamental differences between the two.

What is Closed Innovation?

Closed innovation simply means innovation that is developed by a company’s internal team. Within clearly defined company boundaries, the entire innovation process from start to finish takes place exclusively within the organisation.

With no external resources, influences, technology and intellectual property remains under the control of the company. Several innovation experts have criticised the concept of closed innovation, on the basis that if businesses want to drive change, they should open their doors and allow external expertise. 

So, why do organisations choose closed innovation?

Closed innovation relies on the idea that internal expertise has the ability to produce new businesses and new opportunities.

It’s the idea that the responsibility to innovate lies solely within the business, from start to end. By keeping all innovative processes in-house—the development stages, testing, marketing, etc—everything happens with the team.

It also means that all intellectual properties, technology, marketing materials, etc, belong to the company and therefore hold no risk of external control.

Where do the ideas come from?

You might think keeping innovation in-house makes it easier to develop and nurture a culture of innovation, but it’s not always the case.

More often than not, ideas come from higher management and their leaders, which means there are still several people in the organisation with little involvement in the innovative future of the business.

What is Open Innovation?

Open innovation, on the other hand, is exactly what it sounds like. It’s an alternative to the traditional closed innovation, and in recent years, it’s been growing in popularity.

Unlike closed innovation, it’s based on the belief that knowledge and creativity aren’t confined to the four walls of a company, and that experts from outside the business can also contribute to its innovation.

When companies open their innovation, they also welcome intellectual property to be shared both ways—the more knowledge comes in, the more educated decisions can be. 

Why use open innovation/who uses it?

When companies choose open innovation, the capacity for improvement is considerably higher compared to if they were to choose closed innovation. 

By tapping into more knowledge and more expertise, leaders can take innovation management to the next level.

It’s worth noting that the exchange of knowledge and resources doesn’t mean external people have free-access into the innovating business. It’s a collaborative way of working, which usually means added costs for licences to protect business property.

Open vs closed innovation: which is right for your business?

Deciding whether you should go forward with open or closed innovation depends entirely on your business, what your goals are, and what your innovation strategy looks like.

Open innovation, while allowing for more diverse and multi-faceted growth, isn’t without its risks. Here are a few questions to ask yourself when considering open innovation:

1. How complex is your innovation?

When choosing between open and closed innovation, the first thing to consider is the complexity of your strategy.

If your project leans heavily on technology, for example, open innovation can get tricky.

Let’s look at Apple. The tech giant uses software that is highly integrated and coordinated, and no external implementations are allowed. If Apple operated an open innovation process, they could open the product up to potential complications and risks to the product range.

It can also leave the product open for imitations, which needless to say, can hurt a brand immensely. It’s why so many businesses feel secretive about their products and opt for closed innovation.

2. How unique is your innovation?

The next thing to consider is how unique your innovation is in the market. 

When a company produces a fundamental technological improvement, they often choose a closed innovation process. Let’s say you’re innovating a product that you predict will give you an unassailable advantage over your competitors. You’ll probably want to minimise any chances of risk and interference from external organisations.

But if your project is an ongoing process that could benefit from external cooperation, open innovation can help you tap into multiple resources so you can build the best possible product.

3. How high is the competition?

Similar to assessing the uniqueness of your innovation, consider the level of competition facing both your organisation and your project.

Businesses belonging to industries with intense and close competition may choose to work within a closed innovation model, to avoid any possible exploitation of their ideas.

Why businesses are moving away from closed innovation 

15 years ago, closed innovation was the norm. It was how businesses protected themselves and beat out the competition.

And for many, there was no other way. Closed innovation came from the strong belief that the best wealth of knowledge came from within the company, and not much else was needed to win great innovation.

But over the last ten years, many businesses have been transitioning from closed to open innovation.

The insistence that the best creativity and knowledge comes from within a company is getting outdated. New entrepreneurs are sceptical. Long-standing businesses are questioning the way they’ve always innovated. 

After all, how can it possibly be true if there are 8 billion people in the world? Obviously, there are other people that can contribute to an innovative undertaking.

Organisations that choose to innovate openly allow customers, partners, stakeholders and others to be involved in the entire innovation process. And one of the biggest reasons why so many businesses are going in this direction is the increased connectivity we have available to us in our digital era. In other words, collaboration is easy now.

Social media, digital networking and communication have made collaboration easier than it ever has been—external research is more accessible than ever. But here are a few more reasons why so many organisations are transitioning from closed to open innovation:

• Limited talent pool

It’s logic. There are 8 billion people in the world, and perhaps just 100 at a company.

For many businesses, the dependence on the internal talent pool simply isn’t enough, and bringing in external help is the only way to reach their innovative goals

• High pressure on employees

If you keep all your innovation in house, you’re putting huge amounts of pressure on your internal team. 

It’s up to them to come up with great ideas, develop them, execute projects and track progress. If management and leadership teams aren’t involved or are not leading as they should, they risk creating a company of overwhelmed employees.

• Need for faster innovation

In some industries, innovation moves fast. Consumer awareness is high, and competition is fierce. For smaller businesses, relying on internal employees to build innovative products isn’t sufficient enough to keep up with the market.

Encourage a culture of innovation with idea management software

Whether you choose a closed or open innovation process, one thing stays the same—a smart way to help you manage ideas will give you a better chance of success.

That’s where idea management software comes in. By capturing and collecting fresh ideas throughout the whole year, you can build a truly innovative culture of thinkers and doers.

Learn more about idea management software and how it can transform your company’s innovative possibilities by scheduling a chat with someone from the Submit team. We’ll walk you through exactly what you can do with idea software, and show you how it can help you build a better company culture that values and supports innovation.