3. What is Open Innovation?

We are increasingly experiencing rapid, sudden, and unpredictable changes in our society due to macro phenomena that we cannot control. The COVID-19 pandemic serves as the latest illustration of how uncertain the economic landscape has become, and the importance of companies to respond with swift and innovative solutions in order to maintain competitiveness and sustainability. This is affecting not only new and modern businesses but also more traditional sectors and companies. In particular, small- and medium-sized enterprises (SMEs), which play a crucial role in many countries’ economies, are now facing an uncertain future unless they continuously innovate and adapt their offerings, processes, and business models[14].  A closed approach to business can hinder a company’s growth and competitiveness, while a more open and adaptable attitude can result in substantial benefits [15].

Open innovation provides opportunities for businesses to generate innovation cycles for products, services, and techniques in a shorter time frame. This approach also helps reduce research and development costs and addresses resource shortages. The concept of open innovation recognizes that knowledge is widely available and organizations must look beyond their own resources to generate innovation. In other words, businesses must use external sources to complement their assets to generate innovation[16]. That is why recently, the agri-food sector has increasingly embraced open innovation as a means of driving growth. This industry is experiencing a surge in the number of open innovation projects being undertaken. The reason for this is that consumers’ food-related needs are constantly evolving in today’s globalized economy. They are increasingly seeking customized products that offer personalized consumption experiences. This can include specialized diets that cater to specific dietary needs or preferences, such as organic, low-fat, low-carb, or allergen-free foods. Additionally, many consumers prioritize positive nutrition and use food and drink to improve their health.

To meet these challenges and develop suitable new products, the agri-food industry must increase its innovative capacity. Open innovation, which involves collecting ideas from external sources to trigger innovation processes and increase competitiveness, is seen as a remedy to this problem. Collaboration with partners is becoming increasingly important for agri-food businesses, particularly smaller ones, as it allows them to conserve their resources and still pursue innovation development [17].

Open Innovation Definition

The term “Open Innovation” was coined by Chesbrough (2003)[18], and defined as follows:

“Open Innovation is a paradigm which assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology. Open Innovation combines internal and external ideas into architectures and systems whose requirements are defined by a business model.”

The initial definition was very ambiguous and prompted a variety of definitions of Open Innovation[19]. Chesbrough (2006) revised the definition to “Open Innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.”

Open Innovation profits large companies by providing enough innovation to fully exploit their complementary assets and small and medium companies by fully exploiting their innovative potential.

Open Innovation practices are adopted for four primary reasons:

• Cost: Cost savings / additional revenue
• Speed: Shorter time to market
• Flexibility: Strategic agility through more options
• Quality: Improving R&D output quality

The study of open innovation is simpler in big companies compared to SMEs. This is because SMEs have fewer resources and less technology to exchange with other companies. Despite this, it’s important to understand the differences between SMEs and big companies in terms of open innovation because they excel in different types of innovation (Lee et al., 2010).

Thinking about SMEs it is known that an SME could excel in inventing new ideas within their field of business, but often lacks the resources such as production facilities, marketing channels, and global connections to successfully introduce their innovations to the market. Furthermore, the market’s behavior plays a vital role in the success of the innovation. SMEs specifically require external knowledge exploration to obtain sources of knowledge for innovation, as well as external knowledge exploitation to profit from their innovations (Henttonen and Lehtimäki, 2017).

Quiz:

Describe a few areas in which Open Innovation can benefit your business.

Source: Freepik

How does Open Innovation Differ from Closed Innovation? Here you will learn about the main differences between open and closed innovation concepts and their comparison [20] [21] [22] [23] [24] [25].

Quiz:

We must discover and develop everything ourselves in Open Innovation (True/False)

Think about closed innovation one more time. What are the main limitations of this strategy in your opinion?

Trigger Mechanisms of Open Innovation

There were five main mechanisms due to which the concept of Open Innovation was born.

1. Global megatrends– increasing competition and complexity, less control and predictability of businesses led to the explosion of diversity and challenge-based knowledge-building systems. For example, unified sustainable development goals, grand challenges, crowdsourcing, creating competitions to invite new ideas and companies. Additionally, the convenience of having information and knowledge gave birth to a global connectedness, making the scale-up of businesses easier.
2. The five erosion factors– The aviation industry has made it easier for skilled workers to move around the world, which has improved the diversity of hiring practices in different industries. However, this has also made it easier for start-ups and small to medium-sized businesses to get funding through venture capital and seed funding. Product life cycles were shortened, supply relationships were stronger than ever, the dominance of the United States was reduced significantly and knowledge was distributed across several actors in the value chain, geography and the people that worked in the organisation. This means the employees in your company can easily leave leading to high attrition rates and making it increasingly difficult for management to retain knowledge spill overs.
3. Technological drivers: instant exchange of knowledge, the growth of ideas, magnification of spill overs and new business opportunities opened up through the Internet, computational power, and the rapid growth of e-commerce and Digital transformation.
4. Customer behaviour: consumers became increasingly educated and informed, and as a result companies had to change their ways to communicate sophisticated customer needs, identify lead users, target sustainable consumers and open up new markets to their businesses. It was not easy to market and sell the products to an educated audience, since customers became more aware of the value that they are being provided with the products they buy [26].

Quiz:

In today’s world, which of the following is not a reason for Open Innovation?

1. Customer behaviour
2. Increasing complexity
3. Rapid technological advancements
4. Long product life cycles