What is Open Innovation?

Exploring how companies come up with new and groundbreaking ideas.

By on November 26, 2012

The term “open innovation” was coined in 2003 by Henry Chesbrough, a professor at the University of California, Berkeley, in his book “Open Innovation: The New Imperative for Creating and Profiting from Technology.” It’s used to describe the practice of tapping into resources, experts and organizations outside a company and combining these with internal capabilities to generate new ideas and meet objectives. Some businesses create programs like the Verizon Innovation Program to collaborate with entrepreneurs and established companies. Others cast a wider net and employ crowdsourcing to generate new ideas.

Procter & Gamble, for example, employed the collaborative model of open innovation by partnering with other businesses. In 2000, then CEO A.J. Lafley proposed a goal to acquire 50 percent of innovations from outside the organization. Within six years, the success rate for innovations more than doubled and R&D productivity jumped by nearly 60 percent, while the cost of supporting and running the division fell. As a result of the open innovation approach, P&G has created some of its most popular products, including the Pulsonic Toothbrush that was developed with a leading Japanese firm and Febreze Candles, which grew from a partnership with a leading candle company.

Other organizations take a different approach to open innovation. Crowdsourcing is a way for businesses to tap into the collective intelligence and sentiment of a wide number of consumers. The goal is to speed up change and idea generation by outsourcing creative work to the public. For example, the White House’s Office of Science and Technology Policy used crowdsourcing to spur innovation in the government sector and Lay’s asked its fans to help develop a new potato chip flavor.   

Companies large and small are realizing that collaboration is the key to their businesses. Through open innovation, organizations will be able to form partnerships and generate the creative ideas that will keep them competitive in the future.