Open or internal innovation: what will suit your company

Over the past two years, innovation in Russia has experienced a real Renaissance. Despite the difficult economic situation, the companies have not reduced their innovative activity, as some experts assumed, but, on the contrary, are actively implementing innovative development strategies, only now they are of a more short-term nature.

Within the framework of these strategies, it is possible to use both innovations from the open market and internal developments. Let’s figure out what approach and when it is better to apply.

So, what’s better? Open innovations based on interaction with external structures, or internal innovations developed within the company? To understand what type of innovation is suitable for a particular company, you need to understand each of these concepts more deeply. A spoiler – the concept of “best format” does not exist.

Open innovation: formats and principles

Open Innovation (OI) is a strategy in which the company involves external sources, including startups, universities, innovation laboratories and individual experts, in the process of creating and developing new products, services and technologies. This strategy is based on the idea that innovative solutions can be found and developed not only within the company, but also outside.

The features of this approach are partnerships and collaborations between the players of the innovative ecosystem.

According to a new research report by The Economist sponsored by SUSE, about 95% of companies today use open innovation tools, with 54% doing so in the “majority” or “all” of their projects.

Open innovation can take many forms, including:

Corporate accelerators or piloting programs; incubators; point scouting: partnering with startups to develop new products or introduce new technologies. According to our observations, companies that are just starting innovative activity prefer the format of accelerators, which involve the search and piloting of startup solutions. The very structure of acceleration programs is quite simple and consists of the following stages: search for projects; expertise; acceleration part; demoday. In the future, as the innovative environment in the company changes, many prefer to save time and focus on point scouting of projects under clear requests from the business. Such scouting allows companies to stay up to date on the latest technology trends, find new growth opportunities and provide a competitive advantage in the market.
Open innovative platforms: creating online portals where companies and third-party experts can exchange ideas and solutions. Last year, we had experience in creating a similar corporate innovation platform with banking and retail companies, where they could exchange pilot cases and other useful insights in the field of innovation. In Russia, this format is just gaining popularity, there are platform cases for retailers RITA (Retail innovation Tech Alliance), there is an Association of Industrial Innovations with large players in industry.
Cooperation with universities and scientific laboratories: exchange of knowledge and scientific research for joint product development. Today, a big bet is being made on universities and innovative projects that they can offer. A whole series of educational intensities with students is being held, incubators and venture studios are being launched on the basis of some universities. Individual companies also open their departments in universities.

Metrics for the success of open innovation include the number of successful joint projects, the increase in profits from the introduction of new products, an increase in the number of partnerships with external organizations and an increase in customer satisfaction.

Internal innovation: why companies need it

The model of internal innovation (II) implies a broader concept including R&D, corporate entrepreneurship projects, and think tanks. In addition, there are growth teams that create innovative products and services as part of the product approach.

Today in Russia, we see an upward trend in corporate entrepreneurship. And this is also due to the advantages of internal innovations, which include more direct control of processes, preservation of privacy (which is especially important for companies today) and corporate specifics.

Internal innovations also include programs for the development of entrepreneurial thinking of employees, which, like accelerators from open innovations, can last from several weeks to several months. Such programs help:

Develop product thinking skills among employees.
Integrate internal solutions developed within the program into business processes with a real impact on the company’s activities.
Get measurable economic impact from implemented solutions/products.

Corporate entrepreneurship projects help not only stimulate employees to think out of the box, but also to come up with real working solutions and products that the company can test and scale if successful.

However, internal innovations also have disadvantages – this approach can limit access to new ideas from the outside. We often observed how internal developments competed with startups from the market, which led to competition and some closure of the company for external solutions.

How to determine the optimal innovation format for your company

Let’s imagine that you are a company that wants to start actively involvement in the innovative agenda. How do you choose the right format?

Analysis of the company’s goals and strategies. First of all, it is necessary to identify which goals the company wants to achieve by introducing innovations. If the goal is to pilot and test new technologies rapidly, open innovation may be preferable.
Assessment of resources and competences. Analysis of available resources and competencies will help determine how effectively the company can work with external partners. When working with innovation, especially at the beginning, this is one of the key stages. If the company has a limitation or the level of closure is high, internal innovations may be the best option.
Market and competitive research. Studying the market situation and competitor strategies can help determine which innovation formats are most relevant to your industry. Who is already using developments/innovations and which ones?
Assessment of the potential of partnerships. If the company is ready for partnerships, assess the potential for cooperation with external structures and how this may affect the development of your company.

What the market has demand for today

Actively observing the market, we can say that now the division is 50/50 – it is difficult to say that some format outweighs. We see the encryption of internal innovations even more towards HR functions, because the role of HR is changing today – perhaps not as quickly as we would like, but already many corporations distinguish this role as a strategic, and not just an operating one.

Open innovations are also in demand, but in a format that allows you to find solutions quickly, test hypotheses and shoot results.

From experience, we can say that the middle ground is the most suitable option for a corporation. Understanding the goals and strategy of the company, the willingness to openly look and experiment in search of improving operational efficiency and finding growth points, we recommend developing simultaneously work with innovations from the open market and internal innovations and entrepreneurial thinking of employees. This set of tools and approaches will help you work on business indicators of the company’s success.