Since its foundation in 2010, the collaborative platform OpenIdeo has developed into one of the world’s largest Open Innovation spaces with close to 24,000 ideas generated from participants located in more than 195 countries (OpenIdeo 2020). How does the platform essentially work and how does it create and capture value?
OpenIdeo’s business model
OpenIdeo creates value by connecting firms seeking new ideas to their problems with a large number of innovators, who are looking to create change and partner up with sponsors that have the resources and capabilities to turn their concepts into reality.
Utilizing the design thinking methodology, creative minds respond to a challenge or question raised by a sponsor organization (OpenIdeo 2020). The platform then captures value by receiving financial support from the sponsors participating in the respective challenge.
According to Sawhney, Prandelli and Verona (2003) who classified virtual innovation intermediaries, OpenIdeo is an Innovation Marketplace Operator, because it connects sellers of intellectual property with potential buyers. When looking at OpenIdeo’s business model, the question remains why companies with often large R&D departments and expenditures are seeking to collaborate with individuals outside their firm boundaries.
The concept of Open Innovation
Henry Chesbrough (2003) was one of the first researchers to discover a fundamental shift away from the Closed Innovation model in which a company generates, develops and commercializes ideas inside the boundaries of its organisation.
The rationale for this trend is that companies started realising that a large proportion of desirable knowledge lied outside their company and that external R&D can create significant value if combined with internal ideas (Chesbrough 2003). This concept is referred to as Open Innovation.
West and Sims (2016) have elaborated on two types of collaboration outside firm boundaries, specifically communities and crowds. Virtual communities, that are commonly found due to huge technological advancements in the past can be defined as consolidation of individuals or organisations that unites a common goal regardless of geographic attributes (West & Sims 2016). In such communities, governance is typically informal, and the innovators primarily have cooperative relationships among one another (Boudreau & Lakhani 2009).
At OpenIdeo, this form of Open Innovation is found in the so-called “Alliances”, where innovators can form partnerships and work towards a common objective without a third-party company being involved in the interactions. Besides communities, OpenIdeo also engages crowds via crowdsourcing, a process in which an institution or company reaches out to a group of individuals and proposes the voluntary undertaking of a task (West & Sims 2016).
Remaining thoughts
Although the concept of Open Innovation is not new, many companies still appear to be reserved when it comes to sharing their personal challenges with individuals outside the firm.
However, I believe that stepping forward and sharing your business needs with bright talent can yield tremendous potential for your firm.
First and foremost, it is impossible to hire all of the world’s smartest minds at your company. Additionally, when described on a high-level, a business challenge can be formulated in a way that no sensitive information is transmitted to competitors. With respect to R&D expenditures, sponsoring a challenge on OpenIdeo implies much lower R&D cost per headcount and should be considered before increasing your internal human resources.
What is your take on this? Do the potential benefits from Open Innovation justify the risks of exposing your intellectual property and inflating your R&D costs? I am looking forward to your thoughts.
References
Boudreau, K., Lakhani, K. 2013, ‘Using the Crowd as an Innovation Partner’, Harvard Business Review, pp. 62-69.
Chesbrough, H.W. 2003, ‘The Era of Open Innovation’, MIT Sloan Management Review, pp.35-41.
OpenIdeo 2020, Homepage, viewed 12 September 2020, <https://www.openideo.com/>.
Sawhney, M., Prandelli, E., Verona, G. 2003, ‘The Power of Innomediation’, MIT Sloan Management Review, pp.77-82.
West, J., Sims, J. 2016, ‘How Firms Leverage Crowds and Communities for Open Innovation’, Forthcoming in Allan Afuah, Christopher L. Tucci and Gianluigi Viscusi (eds), Creating and Capturing Value through Crowdsourcing, Available at SSRN: https://ssrn.com/abstract=2823279.
Hi Svante, thanks for your article and allowing me to get to know OpenIdeo.
I think regarding innovation, you need to take into account the possibility of disruptive innovations for your innovation strategy. Therefore, you should not only focus on your core business, but also invest into technologies that can potentially cannibalize your own products and services. It is better that you come up with these innovations, instead of your competitors. For these side businesses, I can see Open Innovation being a helpful tool. For some companies it might help making a priority list of their intellectual properties. Based on this, they can define below which priority ranking order they are feeling comfortable collaborating with third parties, and which not.
Thank you for your comment Dennis. I fully agree with your opinion. If you don’t collaborate with externals to come up with disruptive innovations, most likely your competitors will. Your suggestion to create a priority list sounds like a good decision basis for evaluating which ideas to share outside your firm borders and which not. Let’s see where the road of Open Innovation will take us! Would you be willing to collaborate on an Open Innovation platform?
Hi Svante, thank you for sharing your thoughts about this topic. I definitely think that open innovation benefits bring immense benefits such as a pool of knowledge sharing however, in the technology industry where marginal cost of production is extremely low, it definitely bares risks for these companies. My hope is that technology companies would at least leverage open innovation when it comes to issues such as climate change, societal injustice and privacy concerns.