This is the third installment in a series of articles about corporate venture capital-as-a-service (CVCaaS). In parts one and two, we defined what CVCaaS is and how it can help companies meet sustainability targets. In this piece, we deconstruct the difference between “closed” and “open” innovation—and explain how the latter can provide significant benefits.
What is open innovation and why is it important?
Intellectual property (IP) is, in many ways, the engine of the modern economy. Organizations that create something completely novel can lead the world to transformative new heights. Just look at titans of modern technology like Apple, whose iPhone was arguably the invention of the century. Its effect was so striking that by 2011, its 56% market share was nearly the same that market leader Nokia had enjoyed the year that the iPhone was released. Four years later, Nokia’s own market share had collapsed to 2%. Nokia has become the poster child for the impact of disruptive innovation.
All companies, obviously, want to avoid the fate of Nokia and they must take strategic steps to do so. But disruptive innovation is not the only reason to innovate. These are the three main drivers:
- Stay competitive in existing businesses, against existing competitors
- Avoid being disrupted from the outside, by new entrants (as mentioned above)
- Explore and expand into new businesses
Apple is infamous for keeping its cards close to its chest. It reportedly developed the iPhone in total secrecy, with a small cadre of employees working round-the-clock on a project code-named “Purple”. Company boss Steve Jobs erected an impenetrable firewall to the outside world—even to others within the company.
Closed Innovation
Apple achieved runaway success via this ultra-“closed” method. This style of innovation usually has the following characteristics:
- Starts from a “blank sheet of paper”
- Knowledge of project is limited to employees
- Expertise is similarly confined within an employee network
- IP remains within company gates
- Can easily lead to failure
- First-mover advantage is a big possible prize
Open Innovation
As discussed in the first blog post in this series, not every company wants to or can innovate like this. While potential rewards are huge, risks are similarly formidable. Cultural, financial, regulatory, market and other pressures (including the need to meet sustainability targets, the subject of our second blog) often incentivize a different kind of research and development (R&D) process: so-called open innovation.
This model sees external partners and collaboration replace internal fiefdoms and secrecy. Open innovation usually embraces the following principles:
- Supports the existing business model of the established corporate (or is closely adjacent to it)
- R&D achievements come into the corporate half- or fully baked
- Knowledge diffuses between the startup and established corporate
- Expertise similarly multiplies and builds on itself
- The whole is greater than the sum of its parts
These benefits explain why CVC has exploded in popularity in the last several years, growing from fewer than 500 active CVC units in 2011 to more than 2,000 as of 2022. Considering the drivers of innovation discussed above, CVC—and open innovation more broadly—can help companies achieve all three objectives. No one can foresee when the next iPhone may arrive and disrupt an entire industry—or indeed, the entire global economy. But open innovation can help companies achieve their innovation goals—from dabbling to disruption—in a relatively low-risk way that works within their existing frameworks.
In our next blog post, we will discuss how to address the gap between start-up innovations and the business units with the power to scale-up these innovations and create real impact.
Reach out to Emerald today to find out more about how we can help you achieve your innovation goals.