Companies are shifting from the traditional closed model of innovation to embrace a more practical and smarter way of innovation – “Open Innovation“, a term originally coined by then Harvard Business School Professor Henry W. Chesbrough.

Aditya Purohit has summarized the approach in his blog “What is an Open Innovation approach” as follows.

Moving from the “Closed Innovation” thinking that all R&D needed to be in-house and use only internal resources to develop intellectual property (IP) for new products or services, “Open Innovation” defines the antithesis of the traditional approach. “Open Innovation” (OI) helps companies look beyond their boundaries to seek and utilize inflows & outflows of knowledge, to accelerate innovation.

The concept of OI entails a series of activities that help with the integration and interaction with external sources of knowledge. This could include everyone in the ecosystem right from suppliers, clients, and customers to competitors, research institutes, and non-customers from completely different industries. The objective boils down to stimulating innovation by creating strategic alliances and networks. This process is characterized as the “Outside-In” processes.

The other way in which OI is approached is the “Inside-Out” process. The idea is for companies to appropriate value by bringing ideas to the market, trade their IP, and undertake technology transfer to the external market for further development of the technology/idea being transferred.

The primary aim here is to exploit their intellectual property developed beyond the firm’s boundaries. This is done either by licensing / joint ventures / spin-off’s the technology / ideas to other companies / industries. The value generated isn’t restricted to financial gain only. It’s about collectively engaging a larger audience to support an idea and thereby have a new business model for innovation in new markets.

Both aspects, the outside-in approach to secure new knowledge, and the inside-out process to bring ideas to the market, can be combined in a hybrid OI process which leads to co-creation between complementary partners via network alliances, joint ventures, and other vehicles of cooperation. This is where digital platforms and social media for idea exchange and community building, and advanced analytics come into play to bring together problem-solvers and those demanding an innovative solution.