5 mins read

Open Innovation vs. Closed Innovation: Which Model is Right for You?

October 9, 2023
Dr. Afnizanfaizal Abdullah, General Manager of Technology Commercialisation
5 mins read

Choosing the right innovation model is important for businesses. This involves deciding between a closed model, which relies on a confidential research and development (R&D) department, and an open model that looks outward to form industry partnerships thriving on collaboration. 

Both open and closed innovation come with their own sets of advantages and challenges. Knowing which of these approaches is right for your business could be the factor that sets your company on a path to long-term success. Let’s break down these two approaches to learn more!

What Is Open Innovation and Why Is It Important? 

Open innovation is the practice of looking beyond your own team to collaborate with external experts, researchers, and customers to innovate and develop better solutions. 

In business, this means coming together with several companies to work on a joint venture. Each company brings its own unique expertise and resources to the table. For instance, one might provide advanced technology, another could offer a comprehensive distribution network, and yet another might contribute market research data. This type of collaboration enables you to execute projects more efficiently and effectively by pooling together ideas, resources, and technology to achieve something greater than what could be done alone. 

The advantages of open innovation is obvious with companies like LEGO, who launched a co-creation platform in 2008 with CUUSOO to tap into the collective creativity of LEGO’s customer base. Known as LEGO Ideas today, this online platform encourages fans to submit and vote for new set designs. Highly-voted designs that pass LEGO’s official review process will then be turned into actual LEGO sets, complete with credit and a percentage of sales given to the original designer.

LEGO’s example demonstrates that open innovation offers the following benefits: 

  1. Rapid innovation and development. Collaborating with external stakeholders makes it possible to tap into a pool of ready concepts and technologies to bring ideas to commercialisation quicker. 
  2. Lower research and development costs. R&D is expensive. Sharing the financial load with partners allows you to take on projects you would have struggled to fund alone. 
  3. Diverse perspectives and expertise. Opening the doors to external collaborators invites diverse perspectives and cross-disciplinary conversations to explore solutions you might not have considered otherwise.

Open innovation can also bring with it certain challenges: 

  1. Information leaks. Open innovation often requires sharing confidential information with external partners. Even under legal agreements, sensitive information may be leaked and your proprietary tech or ideas might be misused. 
  2. Difficulty managing collaborations and partnerships. Coordination is key, but each company you collaborate with will have its own culture, timelines, and goals. Bridging these gaps will require strong project management skills, time, and a good dose of patience. 

What Is Closed Innovation and Its Benefits? 

Closed innovation is when a company relies solely on its own R&D. Everything is in-house, from idea generation to product development, and commercialisation. 

In certain companies, closed innovation looks like restricted access with only a select few knowing what’s happening in the R&D department. This department is given all the resources it needs to develop new products while the broader company waits in anticipation for this team to unveil innovations that will enhance the company’s competitive advantage. 

Apple is a prime example of a company that thrives on a closed innovation model. Let’s take the development of the original iPhone, for instance. With Steve Jobs wanting to create a product that would redefine what a phone could be, this project had extremely tight security measures. It went by the code name “Project Purple” or “P2”, and Steve Jobs had development teams scattered across Apple’s Cupertino’s campus so that even the company’s own employees would be unaware of the scale and scope of the project. Everything about the iPhone was developed in-house, with Apple controlling every aspect of the product from conception to market launch. 

Like Apple demonstrates, there are advantages to keeping innovation tightly under wraps: 

  1. Protection of intellectual property (IP). Operating in a confidential mode reduces the risk of your ideas leaking into public domain or into the hands of competitors. 
  2. Complete control over the innovation process. From the first scribble on a napkin to the final product launch, closed innovation allows you to set your own agenda, timelines, benchmarks, and the quality of standards to adhere to. This level of control is helpful to ensure your end product aligns perfectly with your brand and business objectives. 

However, closed innovation is also known to have potential drawbacks: 

  1. Limited viewpoints and ideas. While this model ensures a cohesive vision, it also means you might be missing out on innovative external perspectives.
  2. Higher research and development costs. Keeping everything in-house can be costly. Every misstep or failed project has direct consequences for your finances, and without external partnerships to share the burden, you will have to maintain deep pockets to sustain long-term closed innovation. 

Deciding Between Open and Closed Innovation 

Choosing an innovation model is not a coin flip. Rather, it’s a decision that requires you to consider your industry, size, and culture.

Firstly, the nature of the industry you are in is a significant determining factor. If you are in a fast-paced environment that requires quick injection of fresh ideas and rapid development cycles, an open model will serve you better. However, if you are in an industry like pharmaceuticals where IP protection is important, a closed model will make more sense. 

Secondly, your company’s size and resources also play a big role. Smaller companies may find the shared financial burden of open innovation more manageable, while bigger companies may prefer the control that a closed model offers. 

Lastly, assess your company’s culture and flexibility. A dynamic, collaborative culture that is agile and receptive to change will serve as good grounds for an open model. However, if your business values control and has systematic ways of doing things, a closed model will align better. 

The Hybrid Innovation Approach

Think both an open model would work for you, as well as various aspects of a closed approach? This is common! Many businesses are increasingly adopting a hybrid or mixed model to combine elements of both open and closed innovation. For instance, while Apple largely uses a closed model, the company is not averse to acquisitions and partnerships when it makes sense. This hybrid approach offers the flexibility and advantages of both models while giving your business the agility to adapt in an innovation landscape that never stands still. 

How MRANTI Supports You in Your Innovation Journey

MRANTI is committed to supporting your innovation journey, regardless of whether you choose an open or closed model. If you are adopting open innovation, MRANTI helps you to validate your ideas, develop research prototypes, and get MATCHed for mutually beneficial partnerships. On the flip side, if you are practising closed innovation, secure IP protection for your game-changing ideas with the help of MRANTI. 

So, ready to elevate your innovation game? Find out What’s Next for you and how you can turn your ideas into real-life impact.