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Two approaches to open innovation

10.18.2013
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In a global economy that thrives on access to the finest minds, it is almost accepted wisdom that more expertise will reside outside of your organisation than inside it.

As such, the open innovation movement has grown to represent the various thoughts and philosophies around the utilisation of this external knowledge.

When it comes to open innovation, there are typically two distinct approaches you can take. This blog will look at each in turn.

Outside-in

The first approach is one that is arguably most familiar to managers, as it’s typified by the crowdsourcing movement. It sees an appreciation that there are many more experts outside the organisation than inside it, and as such seeks to draw that knowledge inside, often via crowdsourcing competitions.

Such thinking should not however be limited to crowdsourcing ideas and solutions, for it can also involve partnerships. For instance, Amazon are well known proponents of this approach, as they partner with hundreds of other retailers around the world, letting them sell their wares via the Amazon platform. This gives Amazon a far greater range of products than they could stock themselves, whilst also of course giving them the customer insights that come from us buying more things via the Amazon website.

Inside-out

Whilst outside-in style innovation has gained attention due to the rise of crowdsourcing in recent years, there is little doubt that inside-out innovation has a greater history, for this style of innovation is typified by outsourcing.

The open innovation approach is slightly different however. It’s widely accepted that companies should not outsource that which differentiates them from their competitors. With open innovation however, the belief is that the core processes that give you your edge, could also be of value to other organisations, thus outsourcing them, or letting others insource them, could give you a valuable revenue stream.

Indeed, by adopting such an approach, rather than giving away your crown jewels, you are instead ensuring that your competitors are stuck in follower mode rather than leader mode.

What’s more, by selling your core processes outside of the organisation, you drive considerably more ‘business’ through them, thus forcing them to become ever more efficient and productive, which will of course benefit the internal customers just as much as external ones.

A fine example of this in action is at Toyota, who require that all suppliers use the same rigour and standards in their manufacturing as Toyota themselves do.

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