Open Innovation and External Sourcing

A sentence you often hear in corporate innovation programs: “Hundreds of startups applied from outside, but we could not move forward with any of them.” One question is enough to see where the problem is: “If a startup says yes to you, who owns it inside?” The answer is usually a long silence.

Open innovation is the work of systematically bringing ideas and technology into the company from outside, and sending them out from inside. The core observation of Henry Chesbrough, who popularized the concept in academia, was that most of the smartest people in your field do not work for you. But that observation means something only if there is a structure inside that can absorb that intelligence.

When you need it

Open innovation is knocking if your internal R&D capacity does not cover the breadth of technology areas you care about, if your product development cycle is clearly slower than rivals or startups, or if customers use and adapt your product in ways you did not foresee.

LEGO Ideas is a good example. Fans share their own set designs on the platform; when a design reaches a certain number of supporters (10,000) LEGO takes it into review, and selected ones can become official products. Here the customer is both the source of ideas and the first demand test. The method works because the brand has a community of scale.

Procter & Gamble's “Connect + Develop” program in the early 2000s is another well-known corporate example: the aim was for a significant share of the company's new products to be developed with outside partners. That ambitious target also shows how much the internal culture had to change.

It can also be too early. If your internal product strategy is not clear, you cannot say what to look for outside; open innovation then turns into random idea collection. If your IP and legal processes are not ready to work with outside partners, that should be the first step.

What most teams miss

Open innovation programs mostly focus on the “opening outward” part: a portal, a contest, an accelerator program. The real difficulty is inside. If there is no owner to take an idea or technology from outside, bring it into the company and carry it to product, sales and operations teams, many interesting contacts die without reaching anyone.

The second obstacle is cultural: the “not invented here” syndrome. Internal teams can see an outside solution as a threat to their expertise. The way past this is to redefine the internal teams' success measure from “what we invented ourselves” to “the solution that reaches the customer faster.”

The third, and most often skipped: open innovation is not one-directional. Giving out technology you do not use (licensing, spin-offs, open-sourcing) is as much a part of the strategy as bringing things in. A patent or technology sitting on a shelf only costs its owner.

Collecting ideas from outside is easy. The hard part is making the decision that lets an idea find an owner inside.

Unlike strategic partnerships, this strategy rests not on a particular partner but on a process and a door; unlike radical innovation, it is concerned not with where an idea comes from but with how it gets in.

The playbook

1. Clarify the need: “which problem are we looking for outside?”

Open innovation starts not with a general invitation but with a clear problem statement. Work with internal teams to identify three or five problems “we cannot solve or solve too slowly.” For each, write the success criteria, budget and timeline. A clear problem brings clear applications.

2. Assign an “intake” owner and process

Every outside idea should have a business-unit sponsor inside. This person is responsible from evaluation to pilot. Set the decision time: within how many weeks will an external partner's application get an answer? A startup waiting months for an answer goes elsewhere.

3. Standardize IP and partnership terms in advance

Negotiating legal terms from scratch each time kills the process. Prepare standard templates for pilots, co-development and licensing. Answer in advance who owns what, how revenue is shared and how confidentiality is protected. A template that is fair toward small partners builds trust.

4. Start with small pilots

Instead of buying an outside solution with a big investment right away, test it with a limited pilot: short time, clear metric, low cost. If the pilot succeeds, make the scale-up decision against criteria set beforehand. If it fails, document why; that knowledge improves later searches.

5. Build the outbound arm too

Build an inventory of technologies and IP you do not use. Which can be licensed, co-developed with partners or spun off? This both generates extra revenue and strengthens the ecosystem perception that “working with this company brings mutual benefit.”

What to measure

• Time from application to decision: How fast do you answer an outside partner? A leading indicator of intake capacity.
• Pilot-to-scale conversion: How many outside solutions actually enter product or operations? Far more meaningful than application count.
• Contribution of externally sourced innovation to revenue or cost savings: A lagging measure that shows the program's real value.
• Internal owner satisfaction and participation: Are internal teams willing to work with outside solutions? A measure of cultural resistance.

Pitfalls

The showcase program. Hackathons, contests and accelerators produce press releases but no results if nobody inside owns them. Every program needs a business-unit sponsor.

Slow corporate reflex. Offering outside partners contract processes that take months sends the best partners elsewhere. Speed is the currency of open innovation.

One-way flow. A company that only takes in and gives nothing is noticed by partners. An ecosystem cannot be sustained without mutual benefit.

Start this week

1. Write the three clear problems you need to solve in the next six months and note next to each which outside sources (startups, universities, communities) could be looked at.
2. List the inbound interest and applications from the past year; check how long each took to get an answer and who owned it.
3. Set up a short meeting with legal about a pilot agreement template; the target is that a pilot can be signed in under two weeks.