Why smaller companies should embrace open innovation

Open innovation at small and medium-sized enterprises (SMEs) presents both great opportunities and great challenges. Forming open innovation relationships can give a growing enterprise access to resources that might normally are beyond their reach with the potential for greatly speeding up time to market. At the same time, working with larger–and in some case much larger companies–is not without its perils.

Let’s consider a growing startup or a small company that is on its way to become a mid-sized enterprise. The early phases are very much about executing on single, great product, idea or technology. However, as the company grows focus tends to shift towards control rather than keeping the visionary thinking and bold approaches that build the company. This must be re-ignited. Open innovation can be the vehicle for accomplishing this objective.

Because of the high level of risk-taking involved with young ventures, leaders of entrepreneurial enterprises often have healthy or even outsized egos; it takes a certain amount of hubris to believe you can defeat the high odds against the success of a new venture. This can lead you to believe that you and your people have the best ideas. But in reality, there is a strong possibility that the best people and the best ideas are to be found outside your organization.

One key reason for Procter & Gamble to initiate open innovation programs was that they learned that for each of their 7,500 R&D people there were 200 people outside the company with equal skills and competences. An ignorant – and arrogant – company would ignore these 1.5 million people, arguing they do not matter as they do not work for us. P&G did not ignore this. They understood they should connect their own organization with the best and brightest from the outside world. Given the limited size of smaller companies, this mindset becomes even more important.

As I wrote earlier, SMEs often start with one great product or service idea and as they grow they might fail to recognize that innovation is about more than just bringing the core product or service to market. Innovation can occur at all stages of the business process, from the business model itself through to the customer experience. By broadening their thinking about what actually constitutes innovation, SMEs can more easily see the wisdom of open innovation, which can help them innovate in areas where they may not have internal expertise.

Let me know if you have any comments on this or if you know of smaller companies that have adapted open innovation. It would be interesting to get to know more about their processes, failures and successes in order to get a better understanding of how this is different from large companies. Since small and large companies meet on open innovation, they need to start learning more about each other on this.

  • http://www.innowise.eu Markus Schroll

    Stefan, we absolutely agree. Based on research driven case studies as well as on consultancy projects in SMEs of the Digital Economy we developed a concept called “innovation 3.0″ or “embedded innovation” as the next innovation paradigm based on open innovation.
    The notion of “embeddedness” is introduced to mark the increasing challenge of integrating firms into their surrounding communities to assure the absorption of their exploitable knowledge.

    The basic concept is described in
    http://www.innowise.eu/Dokumente/Innovation%203.0.pdf.

    You will find case studies and the impact on business modelling for SMEs here:
    http://www.innowise.eu/Dokumente/Business%20Model%20Innovation%202010.pdf

    If your are interested in the necessary organizational competence development for open innovation in SMEs have a look at http://www.innowise.eu/Dokumente/Organizational%20Competences%20for%20Open%20Innovation%202010.pdf

    You will find further in-depth case studies on open innovation in SMEs on our website http://www.innowise.eu/index.php?id=Reports&lang=En

    All articles and some more on open innovation from the perspective of SMEs will be published in the book (coming soon) Hafkesbrink, J./ Hoppe, H. U./ Schlichter, J. [Eds.] (2010): Competence Management for Open Innovation –Tools and IT support to unlock the innovation potential beyond company boundaries.

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