About Open Innovation

The term open innovation shall characterise a system where innovation is not solely performed internally within a firm, but in a cooperative mode with other external actors (Fredberg et al. 2008). Open innovation is opposed to closed innovation, in which companies use only ideas generated within their boundaries, characterised by big corporate research labs and closely managed networks of vertically integrated partners (Chesbrough 2003). Open innovation has emerged as a major new trend in innovation management practice. Today, a Google search lists more than 1.5 million pages using this term. A search in “Business Source Elite”, a bibliographic database, lists 190 scholarly papers about the topic, with more than 60% being published in the last two years.

The goal of open innovation is to rapidly acquire new knowledge to dramatically shorten the product development lifecycle and deliver new, high value products to customers faster than the competition. Procter & Gamble, for example, is a pioneer of open innovation. Today, P&G has 23 billion dollar brands, 20 $500 million brands and invested more than $2.2 billion in innovation last year. During a December 2008 analyst call, A.G. Lafley, CEO of P&G, reported that 50 percent of the company’s innovations today are developed with outside partners, compared with 15 percent six years ago. In 2003, revenues for P&G hit $43.37 billion. In 2008, P&G reported revenues of $83.5 billion. Meanwhile, P&G’s R&D budget grew from $1.92 billion to $2.32 billion. But most importantly as a percent of revenue R&D went from 4.8% to 3.4%.