In recent decades, inter-organizational relationships have advanced and developed significantly. These interconnections occur with different goals and motivations.
Organizational connections of different businesses from different industries create a network that makes them aware of the innovations of other sectors from where they can understand new concepts, products, services, and innovations to be shaped and integrated as new forms within their network. Today, many innovations occur through collaboration between different organizations. These approaches are called Openness Innovations. Open innovation is “the use of deliberate income and discharge of knowledge and in some cases revenue to accelerate internal innovation, and expand the markets for external use of innovation.
It is worth mentioning; that organizational innovations are based on two main models: closed and open innovation. The distinction between open innovation and closed innovation is determined by the way in which innovation is created. While a closed innovation is developed in a self-contained company environment, Open Innovation incorporates external knowledge sources into innovation management strategies.
The main philosophy behind the Closed Innovation model is that victorious innovation requires control. Organizations must pursue their ideas until they can implement them in the market. This model has been the dominant method in many research and development activities of industry-leading organizations throughout most of the twentieth century.
Successful companies invest heavily in R&D processes and hire the best people to develop the best ideas. As a result, they could be the first company to launch innovative products and services and make the most profit. These organizations then would re-use the profit in research and development activities repeatedly. However, in the new Openness Innovation model, organizations pursue their ideas and innovations from other organizations. Therefore, boundaries between the organization and the environment become wider. In general, Open Innovation Organizations collaborate in various stages of research and development to widen the space for value creation through either new partners with complementary skills or unlocking hidden potential in long-lasting relationships.
In pursuing potential opportunities, an organization that uses the Open Innovation model is more likely to succeed. In other words, by expanding the boundaries of the organization’s activities beyond the limits of industry and exploiting the innovations of different sectors, the organization has wider opportunities to improve and secure its competitive position.
In any research and development process, researchers and managers of organizations must decide between Open and Closed Innovation strategies. An organization that pursues Closed innovation may miss out on alternative opportunities since many ideas may form outside the organization’s current specialty, skills and strengths, or their pursuit requires a combination of in-house and out-of-organization technologies. To successfully implement a closed innovation, the company should always strive to hire highly qualified employees, provide significant technological investments into R&D, and control intellectual property and expertise in technology and digital transformation.
Even so, the Open Innovation approach arises through the interaction of internal and external ideas, technologies, processes, and sales channels with the company’s aim to develop innovative complementary services, products, or business models. However, exchanging knowledge and collaborative networking can involve high costs for using licenses and other intellectual property.