Shortened product life cycles and increased R&D costs together with greater competition can especially hurt small and medium-sized firms. Their cost structure and market size means any R&D investments are leveraged over a smaller number of product families and total number of products, as compared with larger competitors. Now, some smaller firms are successfully turning to open innovation to overcome these inherent challenges.
The phrase, open innovation, was coined by Henry Chesbrough and is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and also to expand the markets for external use of innovation. This paradigm assumes that firms can use external ideas and internal ideas as well as internal and external paths to market these ideas, as they look to advance their technologies.
Applying open innovation and building a unique business ecosystem that will facilitate it, can provide a competitive advantage that even larger firms will have difficulty matching. Unfortunately, online challenges have revealed that today's designers are still quite oblivious to open innovation, and the long-established fierce competition among them also does not foster this crucial openness. So, how does one begin this process and what might ease the learning curve here?
Since knowledge and best ideas are needed to "make a dent in the universe," comfortably residing outside one's own organization is the first step. To then combine this humility with a confidence in one's capabilities and a commitment to own and proactively build a transparent connection with "the best-of-the-best" is the next step.
Humility, confidence and transparency are a disarming combination. By offering to exchange experiences, thoughts and ideas, one can begin exploring opportunities and testing the waters on a small project. The learning and confidence that is gained with each partner during these initial hands on projects can then be utilized when jointly tackling larger and increasingly riskier projects. As one's competencies and reputation grows, one can improve the terms of collaboration as well as gain access to increasingly attractive partners.
This process is a combination of strategic planning and opportunism and one initiates the process by making a best guess of where one can leverage one's capabilities. Then one adjusts as new knowledge and experience is acquired, providing a better view of the landscape.
As an example, our team of design researchers has accomplished surprising results though open innovation by creating strong relationships through exchanging design research knowledge and experience. This led us to new knowledge, ideas and concepts and collaboration with creative professionals in online social networks where we further developed and tested concepts.
Using open innovation and crowdsourcing, we gained new and inspiring insights ranging from translating marketing insights into design criteria, design and the U.S. economy and innovation in design education.
In a relatively benign environment, opening up in this way is a proven winning strategy and some measure of risk seeking behavior actually constitutes a competitive advantage. Even if this behavior at first leads to minor losses, in the long run, these losses are more than compensated for by increased exposure to a greater variety of new and lucrative opportunities. Risk aversion and even risk neutral strategies are actually inferior strategies here. The trick is to willingly accept the concept of sunk costs, cutting losses and boldly moving forward with the realization that one can increase one's catch by fishing in waters outside the small pond in the back yard.