Open innovation is the deliberate use of external knowledge, partnerships, and technology alongside internal resources to advance an organization’s innovation goals. It is not an open door for unsolicited ideas. It is a managed set of relationships with external parties who bring something your organization needs, in exchange for something they need from you.

The assumption open innovation replaces is that your best ideas already exist inside your organization. Most large companies have concluded that assumption is too expensive to maintain.

What Open Innovation Actually Requires

Open innovation is the practice of deliberately sourcing knowledge, ideas, and technology from outside the organization and integrating them with internal capabilities to create value faster than either party alone. Running it well requires knowing which model fits your situation, what you are offering external partners, and how ideas will move from the outside in.

Henry Chesbrough’s foundational research at UC Berkeley, which first defined the term in 2003, showed that the most innovative large organizations were not simply inventing internally. They were building deliberate pathways for external knowledge to enter, and internal knowledge to exit, in ways that created value for both sides.

Procter and Gamble’s Connect+Develop program is among the most studied examples. When it launched in 2001, fewer than 15% of P&G’s product innovations involved significant external contribution. Within seven years, that figure exceeded 35% and the company’s R&D productivity improved substantially — without a proportional increase in R&D headcount.

Why Open Innovation Is Harder to Run Than It Looks

Opening up to external ideas creates coordination costs that closed programs do not face. Intellectual property management, partner alignment, and internal absorption of external knowledge all require governance processes most organizations build only after early programs fail.

McKinsey research on open innovation effectiveness finds that the companies with the highest return from external collaboration are those with the strongest internal absorptive capacity — the organizational ability to recognize, evaluate, and apply external knowledge. Without it, external ideas stall when they enter, regardless of quality.

This is the most underestimated cost of open innovation: the internal readiness required to do something useful with external input. Building that readiness requires investment in roles, processes, and governance, not just in external relationships.

The Four Main Models

Open innovation is not a single program type. Four distinct models serve different organizational objectives, and the right choice depends on what you are trying to accomplish and what you are prepared to offer in return.

Challenge programs. The organization posts a defined problem and invites external teams to compete with solutions. NASA’s Center of Excellence for Collaborative Innovation and Unilever’s Foundry both use this model for specific technical challenges. The key design decision is the prize or recognition structure — what external participants receive for their contributions.

Partnership and co-development. The organization works alongside an external partner — typically a startup, university, or specialist firm — to develop something neither would produce alone. Co-innovation at this level involves shared IP agreements, joint investment, and sustained collaboration under uncertainty.

Platform ecosystems. The organization builds a platform that external developers, suppliers, or users build on top of. LEGO’s Ideas platform lets fans submit product concepts and vote on others. Submissions that reach threshold support enter a commercial evaluation process — demonstrating that the most durable platform models give contributors a real stake in outcomes.

Startup programs. The organization creates structured pathways for startups to develop solutions to defined corporate challenges, typically in exchange for access to internal data, customers, or distribution channels.

Concepts to Understand First

  • Open Innovation — The practice of using external ideas, expertise, and paths to market alongside internal ones.
  • Innovation Ecosystems — The network of actors — organizations, institutions, individuals — who collectively produce and spread innovation in a shared domain.
  • Co-Innovation — Joint development of products, services, or processes with an external partner.
  • Ecosystem Innovation — Innovation emerging from the interaction of multiple independent organizations in a shared system.
  • Crowdsourcing — Using a distributed group to contribute ideas, solutions, or resources to a defined challenge.

Guides That Show You How

  • How to Innovate — The strategy layer: portfolio decisions and organizational design before you open up to external partners.
  • How to Manage Ideas — Once external ideas start flowing, you need a system for evaluating and advancing them.
  • How to Use AI for Innovation — AI capabilities are increasingly part of what external partners bring to co-innovation programs.

Frequently Asked Questions

Who should own an open innovation program internally?

It depends on the model. Challenge programs often sit within R&D or the central innovation function. Partnership and co-development programs typically need a dedicated business development or ventures role with budget authority. Platform ecosystems require product ownership. The most common mistake is assigning open innovation to a team with no authority to act on what external partners produce.

How do you protect intellectual property in open innovation?

Define IP boundaries before any collaboration begins. The safest structure specifies what each party brings to the collaboration as background IP, what gets developed jointly, and who owns the resulting output under what licensing terms. Most successful programs use tiered agreements: each party retains rights to its own prior work, and jointly developed output follows a pre-agreed commercial structure.

How do you select the right external partners?

Identify the specific capabilities or knowledge your organization lacks, define what you will offer in return, and evaluate candidates on both capability fit and operational compatibility. Cultural alignment matters more in open innovation than in transactional supplier relationships because joint development requires sustained collaboration under conditions where outcomes are uncertain and timelines shift.

What is the difference between open innovation and crowdsourcing?

Crowdsourcing is one method within open innovation. It uses a large, distributed group — often public — to submit competitive responses to a defined challenge. Open innovation is broader: it includes bilateral partnerships, ecosystem participation, startup programs, and any other deliberate use of external knowledge in the innovation process. Crowdsourcing is a tool; open innovation is a strategy.

How long does it take to see results from an open innovation program?

Partnership-based programs typically take 12 to 24 months to produce first commercial outputs, assuming the partnership structure is well-defined and internal absorption capacity exists. Challenge programs produce validated solution candidates in 3 to 6 months. Platform ecosystems take the longest to mature — typically 2 to 4 years before external contributions reach commercial scale consistently.