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Corporate innovation can be of two types – open and closed. In this article, we will clarify what the main differences, advantages and disadvantages of these two approaches are.
The traditionally established model assumes work with closed innovations.
Historically, divisions and departments were formed within large companies, the main purpose of which was research and development work (R&D). In such departments, the whole process took place from the idea to the finished product, all stages were within the organization.
Benefits of closed innovation:
- All work on innovations is under the full control of the top management of the company.
- Information about innovative developments does not spread to the outside world, which means that it creates additional competitive advantages in the form of technologies that are unique for the market.
Disadvantages of closed innovation:
- New technologies in this model of corporate innovation are developed with limited corporate resources. The same employees of the department, no matter how talented they are, cannot endlessly generate new ideas.
- The corporation is left without external expertise, which often helps to refine the idea and product before the innovation goes to market. Without such expertise, the risks of failure increase significantly.
A more modern model of open innovation involves outsourcing, experts, innovators and technology. This model makes it possible to solve the problems of internal innovation faster and much more efficiently. For companies that do not have their own department for innovations, the open innovation model becomes the only solution to the problem of effective innovative developments.
Benefits of open innovation:
- The process of developing innovations becomes much more efficient and faster.
- There is no need to maintain an entire department of employees on a permanent basis, which means that the costs of innovation are significantly reduced.
- Opportunity to get an objective expert assessment from the outside.
- Ability to choose among numerous startups and projects.
Disadvantages of open innovation:
- Openness to the market logically gives rise to a number of risks associated with information leakage that gives competitive advantages in the market. In addition, the risks in terms of corporate cybersecurity should not be forgotten.
- There are always risks of making the wrong choice among startups and companies offering innovative products and technologies and making financial investments that will not bring results.
- Another disadvantage of innovation openness is the risk that talented employees of the corporate innovation team may be lured into competing companies.
So, which is better?
Irina Kalashnikova, co-founder and CEO of GoTech Innovation: “Our experience of cooperation with corporations shows that the most effective use of a hybrid model that combines internal and external tools for working with innovation. For example, a corporation independently develops innovative technological solutions internally, but at the same time uses external resources (startups or expertise) to test and optimize the product. In any case, in order to keep up with the rapid technological progress, corporations need to strengthen internal resources with effective external practices”.