Open innovation: a new vision for growth

Innovation is a key factor for development, growth, and competitiveness, both in a business and social sphere. Back in the 1940s, the economist Joseph Schumpeter was already arguing in his book Capitalism, Socialism and Democracy, that this was the main driver of long-term economic growth and prosperity. 

This need to innovate in order to produce new products, services, processes and technologies that replace existing ones, as well as changing how things are done, is outlined in his "creative destruction” concept. Here, he argued that technological and business progress happens when old forms of production are abolished and new ones created.

Today, business competitiveness on a global scale, together with the challenges of climate change, makes investment in the field of RD&i more pressing than ever. So much so that, according to the United Nations, investment in innovation will reach 9.5 billion dollars in 2030 compared with 1.5 bn in 2020. 

But how are we going to innovate? Is innovation the same now as it was two decades ago? The complexity of the world and its new technologies, as well as the huge volume of information available in the research and development field, have given rise to new methods in which collaborations between different parties take centre stage, offering the opportunity to innovate more quickly and sustainably, with lower risks. This is what's known as open innovation. Want to learn more? Keep reading.

Open innovation: what is it and why is it important?

Open innovation is a concept coined in 2003 by Henry Chesbrough in his book Open Innovation: The New Imperative for Creating and Profiting from Technology, to define the business innovation process in which internal and external ideas are combined within platforms, architectures and systems from outside of an organisation.

However, before getting down to the details of the concept, it's important to understand what closed innovation means, to avoid confusion. This refers to the type of innovation that traditionally was prevalent at companies - and still is - and that relies only on one's own resources. Taking a hierarchical, vertical and restricted approach, contacts, information, processes and new ideas are all held internally within the company. There is no external exchange of any kind.

To counter this method, Chesbrough came up with the concept of open innovation, which he defines as "the inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of said innovation". From his perspective, this vision of innovation makes the most of users' input, as well as that of other agents such as investors, universities, associations, intellectual property holders, and so on.

In short, open innovation fosters relationships between companies, with universities, technology centres and other resources that can offer further know-how.

Types of open innovation: inbound and outbound

Chesbrough identifies two paths along which ideas flow in an open innovation process: from "outside in” and from "inside out”: 

• Open innovation from "outside to inside" (inbound). This is the most common form and consists of organisations seeking and acquiring knowledge, technologies and solutions from external entities for internal use. The company's innovation processes are thus open to information flowing from outside. Some examples of this type of innovation are: collaborations with startups, collaborative research with universities, hackathons, and company acquisitions, among others. 
• Open innovation from "inside out" (outbound). This type of innovation refers to the process by which an organisation offers up and releases its own unused or underused ideas to external entities. This allows others to use them for their own companies or business models, which can be managed through licensing or with a company merger.

While both types involve collaboration, the reality that we live in a world where knowledge is far spread means, according to the supporters of this type of innovation, that companies can no longer depend entirely on their own research, development and innovation (closed innovation) to compete on equal terms. Due to the limitations of closed innovation, the open version has grown in recent years and given rise to new ecosystems that foster open innovation.

Open innovation ecosystems

The design and management of innovative communities and ecosystems is important in extending open innovation beyond simple collaboration between two companies. The chance to come into contact with organisations of all kinds increases efficiency by making it easier to identify new opportunities and creative solutions to complex problems. 

Experts in Innovation and Entrepreneurship, such as Eric von Hippel or Andrew Hargadon, identify different open innovation ecosystems:

• Corporate: companies design new products and services through licensing agreements or joint development.
• Academic: companies and universities collaborate via the transfer of scientific and technological knowledge.
• Entrepreneurial: fast-growing companies collaborate with larger ones through incubators, accelerators or support programmes.

In recent years, moreover, open innovation has also reached the public sector, which seeks collaboration with companies and authorities to come up with new solutions to social and environmental problems. This is a go-to option, for example, for local authorities to encourage the development of apps that use public data in order to inform citizens of specific matters and make their day-to-day lives easier.

When to apply open innovation

Open innovation is an effective strategy to improve innovation and competitiveness. However, there are times when it might not be the best option, so it's important to assess the benefits and risks involved in sharing RD+i-related information. According to Henry Chesbrough's book, the advantages and risks are as follows:

Advantages

• Access to external knowledge and resources which might otherwise be inaccessible. This speeds up the innovation process and improves product and service quality. 
• Cost and risk reduction. By collaborating with others, the risks associated with developing new products and solutions are spread out and minimised.
• Creating shared value. Collaborating with partners can help to get the client and their needs on board from the start of development, in turn improving their satisfaction and securing greater loyalty.

Risks

• Lack of control. Cooperating with external partners often goes hand in hand with a certain loss of control over the innovation process and results, making it difficult to manage intellectual property.
• Coordination issues. While it's true there is a trend in open innovation towards the participation of more parties, this can also prove challenging as problems with coordinating and managing the project may arise. 
• Conflict of interest. Throughout the collaboration, it sometimes becomes clear that the participants have different goals, leading to problems.
• Disclosing critical information. Another risk entailed by this type of innovation stems from disclosing company information that is not meant to be shared under this collaboration framework.

Products and services resulting from open innovation

Open innovation has enabled companies around the world to develop new products and services, thanks to the collaboration and participation of external stakeholders. A few examples of this are:

LEGO "The Big Bang Theory”

LEGO has created the online open innovation platform LEGO Ideas, aimed at its customers, who can submit their own ideas for LEGO sets, and vote on those from other participants, for the company to then mass produce. Thanks to this initiative, one of the most successful LEGO Ideas sets is "The Big Bang Theory" set.

Taiwan Semiconductor Manufacturing Corporation (TSMC)

The most important semiconductor manufacturer in the world launched an Open Innovation Platform, where it helps to improve the industry for this sector, characterised by the broad diversity of internal and external design suppliers. 

Through the 3DFabric Alliance, it offers a complete set of advanced 3D packaging and stacking technologies that deliver enhanced performance in applications that are increasingly in demand. This allows them to help their clients to correctly manufacture their solutions at the first attempt, saving on costly reviews of the chip design.

Android

The Android operating system by Google is an example of open innovation (with nuances in terms of its execution and business model). The American tech company, which bought the operating system in 2005, released it as open source three years later, encouraging developers from all over the world to improve it and launch new applications and services. Android has thus helped to foster a remarkable and sustainable ecosystem based on open source software and promoting innovation.

Open innovation and business competitiveness

In recent years, open innovation has been and will continue to be a significant trend globally, especially at tech companies and start-ups, according to the Global Innovation Index 2022 by the World Intellectual Property Organisation. This is a valuable tool for companies looking to stay ahead of the curve in an increasingly competitive and changing business environment, as well as for public authorities seeking to roll out solutions that improve the quality of their citizens’ lives.

In this quest for innovation, the principal factor is human talent, so it's essential for people to have the most up-to-date professional knowledge about current technologies and trends. 

That’s why, to promote employability in this sector, Banco Santander is committed to three key concepts: lifelong learning, reskilling and upskilling. To this end, it has created the Santander Open Academy website, a unique and pioneering global programme. 

If you would like to keep growing personally and professionally, head over to the Santander Open Academy website, where you'll find 100s of opportunities to train together with internationally renowned institutions. Access training in technology, languages, research, investigation, soft skills, internships and female leadership, which will help you to improve your employability or refocus your career.

Do you want to become a lifelong learner and increase your job opportunities? The Santander Open Academy website has plenty of options to help you achieve your goals. Check out the website and remember: you can sign up for as many courses as you like. Make the most of this opportunity!