Decrease and Sharing of R&D Risk and Costs

Open Innovation enables firms to share the risk and the costs of their R&D process. Shared partnership leads to more skills, technologies, resources and human capital from the partners’ side than the one already available in-house. This significantly decreases the expenditure, needed for achieving specific pre-determined projects. Thus, the risk of failing to produce innovative goods or services is distributed amongst the partners and does not weight on a single entity.

Furthermore, Open Innovation also facilitates a closer link with a firms’ customer base and allows businesses to tap into their client’s personal preferences, expertise and innovative ideas. This not only creates a good image for the company but also provides it with a diversity of ideas and lower R&D costs.

This makes the Open Innovation approach highly beneficial for small companies or start-ups which often lack sufficient internal resources to take up large innovation projects. Sharing the financial burden and acquiring resources, otherwise unavailable in-house, allows such businesses to overcome entry barriers and step into markets facing fewer constraints.

Faster R&D process

Open Innovation also helps firms to expedite their time to market. An emerging business can choose to acquire valuable technology through in-licensing or a purchase of ownership rights than to lose precious time in developing its own substituent of the technology from scratch. This aspect is highly valuable in turbulent and disruptive markets such as the IT industry, where a specific sub-component is needed to produce a fully-built product.

Apart from that, opening the boundaries of a company and allowing the incorporation of knowledge generated by partners, customers, education, and public institutions leads to the development of a higher intellectual capital[1] through the acquisition of new ideas, valuable external know-how, expertise, etc. Thus, the Open Innovation model shortens the development time for new products or services and significantly reduces the time-to-market.

Leveraging Instruments

Open Innovation creates a myriad of possibilities to influence the state of the market and the behaviour of other prominent actors in the commercial environment. Patents pools, for instance, where huge amounts of valuable IP are shared amongst members, have the potential to produce technological breakthroughs that disrupt whole markets or create new ones. “Defensive patenting”, on the other hand, is a common business practice of firms, acquiring the largest possible patent portfolio in the technological field in which they operate in order to mitigate any potential future litigation over copyright infringement. Such ‘arms race’ practices are common for jurisdictions, where the costs for defence in a patent infringement suits are extremely high. Defensive patenting is opposed to aggressive uses of patents, where patents are acquired in order to enforce patent rights against accused infringers far beyond the patent's actual value (patent trolls) or where patents prevent competition to enter a specific market or to develop their own products (patent fencing or patent thickets).

[1] Coras E.L., Tantau A. D., Open Innovation – The good, the bad, the uncertainties, The USV Annals of Economics and Public Administration, Volume 14, Issue 1(19), 2014