Open Market Innovation

By Martin Gilliard

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”
open market innovation

(Photo Credit: opensourceway)

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. 

Before embarking on open market innovation you should…

  • Define your objectives. Have you got a particular problem domain that needs solving? Have you got great ideas that don’t tie in particularly well with your businesses core competencies but don’t want to see these ideas go to waste? New consumer needs to satisfy?
  • Consider what networks you already have available. Is your organization a member of any external groups? Do you employ interns through the summer from the local university? Does your Internet facing web site encourage participation from the public? Do you meet with your top suppliers / customers? All of the aforementioned are avenues that you can explore for sharing ideas.
  • Consider adjacent products that may complement and enhance your existing brands. Procter and Gamble did this with their Crest brand, they expanded from Crest toothpaste to Crest electric toothbrushes, Crest floss and even Crest whitening strips.

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