Open Innovation definition from thought leader Henry Chesbrough:
“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. This paradigm assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.”

A shorter definition from Joel at the Open Innovation Blog:
“Open innovation is using the market rather than internal hierarchies to source and commercialize innovations.”

When companies are engaged in an open innovation process their boundaries are semi-permeable,  ideas & technologies can flow in and out. Advantages of open innovation include shorter time to market, finding new technologies & ideas, access to additional competence, cost reduction + efficiency and access to new markets.

This innovation approach acknowledges that most of the smart people in the world don’t work for your company.

“The new competition is not about internal knowledge and focus, but rather about an organization’s ability to reach out, partner, and develop outside relationships and subsequent products based on these relationships.”
– Chris Thoen, Managing Director of Open Innovation at P&G

An IBM Global CEO Study showed the top 3 sources of innovative business ideas were employees, business partners then customers. Internal R&D was ranked 8th. I did a post on the old vs new innovation paradigm here.

Companies who want to innovate need to partner with outside organisations to create “innovation networks” to achieve successful innovation.  This is a shift from firm-centric innovation to network-centric innovation.

In their book, The Global Brain, Nambisan and Sawhney say:

“Emphasis on the network as the focal point and the associated opportunity to extend, optimize, and enhance the value of a stand-alone entity by making it more intelligent, adaptive, and personalized is the essence of network-centricity. Network-centric innovation can amplify or enhance innovation reach, innovation speed, and the quality of innovation outcomes.”

Choosing the right network model is important, don’t just use trial and error to find the right innovation framework. Not all externally focused innovation is completely open. There are different models of “network-based” innovation that are emerging that range from open source communities to tightly governed partner ecosystems.

Under Nambisan and Sawhney’s framework there are four network-centric models of innovation to choose from Orchestra, Creative Bazaar, Jam Central and MOD Station. When deciding which model to follow companies should spend time understanding their culture, what they require from new products to deliver growth and the competitive landscape.

Companies don’t have to be completely open, the framework below allows you to define just how open your innovation model is. As you will know, some form of governance is essential all the time, irrespective of how open you are.

Satish Nambisan emphasised in this article on his blog that, “A company has to develop a deep understanding of the various external innovation networks that exist and relate them to its own unique market and organizational context. Only with such an understanding can it position itself appropriately in the landscape of network-centric innovation.” Context matters.