Forces impacting business are changing on almost a daily basis. In just one year, we’ve seen headlines go from labor shortages and spiraling wages to cost-cutting and uncertainty leading the narrative. This, paired with the emergence of generative AI, is dominating the headlines.
But beyond the topical whiplash, something more fundamental – and perhaps even more important –has been changing for business - the growing importance of open innovation. In fact, open innovation has now emerged, as a preeminent leading practice.
IBM’s latest survey revealed that a large majority of business leaders – 84%, to be specific – believe that open innovation plays an important role in their growth strategy. 61% say that innovation conducted within the business (or ecosystem partners) is more successful than innovation conducted within an organization operating alone. Even more, 63% want to encourage new ideas from outside their organizations.
New financial analysis, based on IBM’s latest survey, revealed something even more startling. Financial returns achieved from open innovation are dramatically greater than those that have been achieved through traditional innovation. Financial returns where open innovation was used produced as much as four times greater when compared to traditional innovation. For example, every dollar spent on traditional innovation generates on average $5.70 in revenue back to the business, while a dollar spent on open innovation generates on average $21 in revenue return. The increase is significant and an advantage to all business leaders looking to increase ROI.
Open Innovation Vs. Traditional Innovation
So, what do we mean when discussing open innovation versus traditional innovation? Why is it important to work closely with ecosystem partners? And if open innovation is really driving all these great benefits, why aren’t more organizations embracing it?
For many years, organizations have been using traditional innovation.
While traditional innovation is directed from the inside out, germinating new ideas from within the business that are evaluated, developed, and ultimately launched through the internal lens, open innovation is the reverse of traditional innovation and evolves outside the organization allowing for greater collaboration. Open innovation is generated in business ecosystems or platforms, and new ideas inherently involve or require multiple entities and individuals.
Open Innovation Benefits
Open innovation has clear advantages and benefits to the business, ranging from marketplace accuracy to process efficiency.
- “Outside-In” Format – Because open innovation follows an “outside-in approach to innovation, organizations don’t need to wonder if a new idea will resonate in the marketplace. The idea emerged from the marketplace and subsequently and the wants and needs of the marketplace are reflected.
- Organizations are not constrained by their own talent, experience, or resources because the ecosystem can offer exponentially greater breadth and depth of talent, experience, and resources.
- With techniques such as Agile sprints or minimum viable products development process can be compressed to months or even weeks in some cases.
...And Some of the Challenges
With the clear advantages open innovation provides, why aren’t all businesses adopting it?
Put simply, open innovation isn’t particularly easy. First, opening something as competitively important as innovation means organizations need to not only understand but also have trust in their business partners and the ecosystems. This requires businesses to let go of long-held beliefs around innovation approaches shrouded in secrecy and think outside the box about what is possible when expanding the trust circle and involving an entire ecosystem.
Because open innovation is heavily reliant on effective ecosystems, businesses can run into challenges if the communication flow becomes muddy. Here are some of the top open innovation challenges within the ecosystem.
- Complicated communication – Ecosystems are intricate, and our research suggests that 54% of business leaders feel constrained in their engagement with ecosystems because of the high level of complexity involved.
- Unclear governance –Governance surrounding ecosystems isn’t always clear. 52% of research participants believe that obscure ecosystem governance creates roadblocks.
- Lack of engagement –An ecosystem is only as effective the individuals who are engaged. 53% of respondents indicated that even with the best of intentions, prospective ecosystem partners don’t really seem to want to engage.
Navigating Challenges Through Collaboration
So, what can business leaders do to overcome some of these open innovation barriers? The greatest beneficiaries of open innovation in ecosystems are the organizations that lead the charge, so it’s critical to think beyond being a homogenized fish in a big pond. This begins an expanded view of what collaboration entails, you’ll be able to identify roadblocks, help others, and share ideas for how to overcome challenges. This means being an orchestrator and not an observer. While it’s not easy and involves having a bigger vision, it can position you and your organization to be at the center of a continually evolving and growing dynamic community. And that is the key to the success of open innovation.
For more information on open innovation, please visit the IBM Institute For Business Value website.