Open market innovation is a term that was first coined by Darrell Rigby and Chris Zook. Its basic premise is that companies can reach beyond their internal environment. So rather than relying on the company’s research and development department for the latest innovations the company reaches out to the market using such techniques as licensing, joint ventures, and strategic alliances or innovation partnerships to bring ideas in or to put ideas out.
It is also a term promoted by Henry Chesbrough who defines it as
“a paradigm that assumes firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology”
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The advantages of seeking external sources to import and export ideas not only increases a company’s ability to innovate but also should assist staff retention. Creative people will be more motivated if their ideas are being used externally in terms of licensing arrangements with outside firms rather than simply being tossed to one side. Such licensing arrangements can also provide the company with additional revenue.
Obviously there are risks from such open market undertakings too. With the main risk being not able to effectively monetize from the ideas that are collaborated across organizational boundaries. This risk is best mitigated by putting a deal structure in place to protect your company’s best interests.
Done effectively open market innovation can extract creative ideas from government laboratories, universities, suppliers, customers and even the public as a whole. General Electric have effectively involved external sources for ideas by creating a web site where businesses, entrepreneurs, scientists, innovators, students and anyone else can submit ideas to help create a cleaner, more efficient and more economically viable power grid. Ideas are submitted via an ecoimagination web site and the best ideas are assisted with financial investment.