Closed innovation, first articulated by Henry Chesbrough in his book “Open Innovation: The New Imperative for Creating and Profiting from Technology,” represents a traditional approach to innovation. It is characterized by the belief that a company’s internal R&D capabilities and resources are sufficient to drive innovation and maintain competitiveness. In a closed innovation model, organizations typically do not actively seek external input or partnerships for innovation but instead focus on developing ideas and technologies internally.
Closed innovation is distinguished by several key characteristics:
1. Internal Focus
In a closed innovation model, the primary focus is on leveraging internal resources, talent, and capabilities to generate ideas, develop products, and solve problems. R&D departments and in-house experts play a central role in the innovation process.
2. Secrecy and Intellectual Property
Closed innovation often emphasizes protecting intellectual property (IP) and maintaining secrecy. Companies are more inclined to file patents and safeguard their innovations from competitors, which can limit the sharing of knowledge and ideas with external partners.
3. Linear Innovation Process
Closed innovation tends to follow a linear innovation process, where research and development activities are conducted sequentially. Ideas progress from initial concept to development, testing, and eventual commercialization within the organization’s boundaries.
4. Limited External Collaboration
External collaboration is limited in closed innovation. Companies are less likely to seek input, feedback, or partnerships with external entities, including customers, suppliers, universities, or startups, in the innovation process.
5. Self-Sufficiency
Closed innovation assumes that a company possesses the necessary resources and expertise to innovate independently. It relies on the organization’s internal capabilities to address market challenges and opportunities.
Advantages of Closed Innovation
Closed innovation offers several advantages for organizations:
1. IP Protection
By maintaining control over the entire innovation process, companies can protect their intellectual property through patents, copyrights, and trade secrets, reducing the risk of IP theft or infringement.
2. Confidentiality
Closed innovation allows companies to keep sensitive information, proprietary technologies, and strategic plans confidential, preventing competitors from gaining insights into their operations.
3. Focused Resources
Organizations can allocate their resources, including R&D budgets and personnel, more effectively toward specific innovation projects without the distractions of external partnerships or collaborations.
4. Speed and Efficiency
Closed innovation can lead to quicker decision-making and innovation cycles, as organizations do not need to navigate complex external partnerships or negotiate agreements.
5. Total Control
Companies have full control over their innovation processes, allowing them to maintain a clear strategic direction and alignment with their business goals.
Disadvantages of Closed Innovation
While closed innovation has its advantages, it also comes with limitations and disadvantages:
1. Limited External Insights
Closed innovation can lead to a lack of exposure to external insights, market trends, and emerging technologies, potentially causing companies to miss valuable opportunities.
2. Missed Collaborative Opportunities
Organizations may overlook opportunities for collaboration with external partners, startups, or academia, limiting their access to diverse expertise and resources.
3. Risk of Isolation
A closed innovation model can isolate companies from broader industry and technological developments, making them less adaptable to changing market conditions.
4. Slower Adoption
Closed innovation models may result in slower adoption of innovative solutions, as companies may need to rely solely on their internal capabilities to develop and commercialize new technologies.
5. High Costs
Maintaining comprehensive internal R&D capabilities can be costly, especially for smaller organizations or those operating in rapidly evolving industries.
Real-World Examples of Closed Innovation
Several well-known companies have historically employed closed innovation models:
1. Apple Inc.
Apple is renowned for its closed innovation approach. The company develops its hardware and software in-house, keeping its product development processes highly secretive. Apple has maintained tight control over its ecosystem, from the design of its devices to its app store.
2. Coca-Cola
Coca-Cola is another example of a company that has historically relied on closed innovation. The company’s secret formula for its signature beverage has been closely guarded for over a century. Coca-Cola has maintained control over its product development and marketing strategies.
3. Ford Motor Company
Ford has a long history of closed innovation in the automotive industry. The company has traditionally designed and manufactured its vehicles internally, from the concept stage to production. While it has embraced external partnerships in recent years, Ford’s legacy is rooted in closed innovation.
Significance of Closed Innovation
Closed innovation continues to play a significant role in various industries and has its place in the innovation landscape. Its significance lies in the following areas:
1. Protecting Core Competencies
Closed innovation allows organizations to protect their core competencies and maintain a competitive edge by safeguarding their proprietary knowledge and technologies.
2. Focused Innovation
Companies with well-established R&D capabilities can achieve focused and efficient innovation by concentrating their resources and expertise on specific projects without external distractions.
3. Strategic Control
Closed innovation models enable organizations to maintain full control over their innovation strategies and align them with their broader business goals and objectives.
4. IP Monetization
Companies that develop valuable intellectual property can monetize their innovations through licensing agreements, generating additional revenue streams.
5. Risk Mitigation
Closed innovation can help organizations mitigate the risks associated with sharing sensitive information or technologies with external partners.
The Evolution of Closed Innovation
It’s important to note that the innovation landscape is evolving, and some companies that historically embraced closed innovation are adopting more open and collaborative approaches. These shifts are driven by the recognition of the value of external insights, the increasing pace of technological change, and the need for greater agility in responding to market dynamics.
Conclusion
Closed innovation, characterized by its reliance on internal resources and the protection of proprietary knowledge, continues to have relevance in today’s business landscape. While it offers advantages in terms of IP protection, confidentiality, and resource allocation, it also presents limitations, such as limited external insights and potential isolation from emerging trends.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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