Open Innovation: What is it and how does it contribute to a long-term business strategy?

Open Innovation has emerged as a key strategic approach for integrating external knowledge into an organization, but why?

It’s no secret that companies, much like animal species in their respective ecosystems, require constant adaptation and evolution to meet the needs of the market and society at large. In this Darwinian scenario of business evolution, as with all economic environments, the resources allocated to constant adaptation are limited and must be distributed across several critical areas essential to a company’s survival. While investment in innovation is non-negotiable for a company with a long-term vision, companies must adopt new formulas that go beyond the traditional internal innovation to which they already allocate resources in the usual manner.

It’s within this demanding and ever-changing context that the term we are analyzing today—Open Innovation—emerged. Today, we will take the time to understand what this type of innovation means for a company and how it affects its future. Let’s start from the beginning.

What is Open Innovation?

Before delving into its implications, we must first explain what Open Innovation is. The concept of Open Innovation was introduced just two decades ago by Henry Chesbrough, an American academic from the University of Berkeley. He proposed that companies don’t have to rely solely on internal processes based on internal knowledge to meet their innovation needs. Instead, Chesbrough coined a new model—Open Innovation—where companies go beyond their natural boundaries by incorporating external knowledge to solve challenges within their own organizational structure.

In this way, the Open Innovation model encourages collaboration with different companies, startups, organizations, or external professionals to advance in the major R&D challenges through the expertise of these third parties in areas where the company may lack key knowledge. Open Innovation is thus a combination of internal talent with external knowledge—a disruptive concept that has revolutionized how companies invest in innovation, enhancing their competitiveness.

How does it apply to a company and what does it result in?

These processes are incorporated into a company through various methodologies and tools that must be applied and developed to ensure that the company’s needs align with the opportunities offered by these external agents. It is essential for this to be supported by a strategic innovation plan with clear objectives. This plan should identify the main challenges or development areas for the company over the coming years, led by a dedicated Open Innovation team. This team will be responsible for driving future challenges, acting as a bridge between internal talent and external knowledge—a crucial role that requires the right legal and financial mechanisms to ensure the success of future projects.

There are three main methodologies of Open Innovation that can be applied within a company’s structure:

1. Inbound Open Innovation: This model involves the company adopting an innovative solution already developed by a third party. The company identifies an internal challenge or need and selects potential collaborative partners based on the project’s requirements and their compatibility with the company. This is what Professor Chesbrough refers to as “outside-in.” One well-known tool in this methodology is the Venture Client model.
2. Outbound Open Innovation: In this case, the company has developed an innovative solution but makes it available to third-party companies for commercialization. Companies with a strong focus on innovation may have limited options for bringing their solutions to market, so they ensure their continuity through third parties who need these innovations for their own survival. This is what Professor Chesbrough calls “inside-out.”
3. Coupled Open Innovation: This hybrid model involves several agents signing a collaborative innovation agreement, allowing each party to benefit from the results based on the needs of their respective markets. These companies are often from different sectors, and through this methodology, they generate synergies and solutions that would otherwise be impossible due to economic and structural barriers.

Open Innovation: Main advantages for a company

These are some of the main improvements that Open Innovation can bring to companies:

1. Access to new concepts and ideas: This is perhaps the most obvious advantage. Opening the door to collaboration introduces new, often disruptive, concepts into organizations unfamiliar with them, allowing for organizational evolution in many areas.
2. Cost reduction: Since projects are shared in terms of responsibility and tasks, companies don’t face the high costs associated with going it alone in these fields. Additionally, internally implemented technology improves efficiency.
3. Greater flexibility and speed in the market: Collaborating with external agents who have more expertise in the company’s needs allows the company to flexibly adapt to market demands.
4. Creation of new opportunities and businesses: Sometimes, collaborations lead to products or services that don’t fit into the company’s traditional commercialization model. However, this type of innovation creates pathways to bring them to life through external collaborators.
5. Continuous improvement of internal talent: When internal talent works alongside external knowledge on projects, it enhances the company’s know-how, creating a breeding ground for future developments through internal channels and fostering professional growth.
6. Creation of new value nodes: Integrating third parties into the innovation strategy improves long-term relationships with other companies.
7. Access to talent: It enables the company to work with external talent that possesses skills the company may not have internally.

Ormazabal Startup Switch: Do you know our Venture Client vehicle?

Ormazabal Startup Switch is Ormazabal’s new open innovation vehicle. Its goal is to strengthen the company’s innovation path by identifying new startups and technology providers that can support competitiveness through the integration of new technologies, the attraction of diverse talent, and the enhancement of the company’s internal innovation ecosystem.

This new tool, based on the Venture Client model, will enable the creation of collaborative environments with external agents to help solve horizontal challenges within the organization. To achieve this, Ormazabal Startup Switch has a dedicated website where various challenges for which we seek collaboration are posted. This publicly accessible site allows international startups to submit their solutions and proposals with the goal of achieving a proof of concept with Ormazabal for each of these challenges.

This collaboration format offers startups an opportunity to accelerate their growth by providing a test bay within an established company like Ormazabal, where they can test their solutions in real-world conditions.

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