Open innovation is the process of opening a business valve that allows inflow and outflow of the contextual knowledge for the future of the company and its major stakeholders. The open innovation business model believes that knowledge is spread around the world and we cannot bring every powerful and necessary minded people in one place, but we can try to enlarge the circle and network to use their knowledge through different form of engagement. Innovation targeting new products creates a competitive advantage; open innovation develops this advantage fast and reliable. Chesbrough, who coined the term open innovation, defines an open innovation as a paradigm that assumes that the firms can and should use external as well as internal ideas to reach internal and external paths to market.
Procter & Gamble’s radical strategy of open innovation, for example, produces more than 35% of the company’s innovations and billions of dollars in revenue [1, p. 1]. In late 1980s P&G moved from a centralized strategy to a ‘globally networked internal model’ and beginning of this century, P&G moved from Research and Develop model to Connect and Develop (from R&D to C&D)-“Not Invented Here or Proudly found elsewhere” [1, pp. 1-3]. Many companies are still in a principle that the innovation must reside within the R&D of their company and it is the only a way to develop new products. One of the unique feature in P&G in its innovation strategy is the involvement of every production process interacting with customers .
- OPEN INNOVATION
One has to think critically and analytically to answer a simple question “who invented the mountain bike?” Mountain bike was not invented in Research lab of a big bike company or not invented by any locomotive professors. It was simply collection and modification of existing best benefits from bikes and motorbikes done by a group of young guys around northern California who wanted to have a change in their ride.
This group had invented these bikes and started selling their invention to other bike lovers 10 to15 years before the big companies realized the said market and technology. After 30 years, sales of mountain bikes accounted for more than 60% of bike sales in America.
The original idea of the open innovation was argued by Henry Chesbrough who defines “conceptually, it is a more distributed, more participatory, more decentralized approach to innovation, based on the observed fact that useful knowledge today is widely distributed, and no company, no matter how capable or how big, could innovate effectively on its own” . The customers or users are more empowered now and they will be empowered even more in coming future in all sort of industries. Not only the inventors but also the manufacturers have to meet or even exceed the customer’s expectations .
The flexibility and the quick response to its customer’s voice and choice in the manufacturing provide competitive advantages to the companies. The ideas of open innovation originated from an experience and not merely the literatures. Since the knowledge is widely distributed, the new paradigm of open innovation argues that the company should welcome necessary external ideas as well as available internal ideas in order to speed up the creation of the value [5, p. 3].