1. What is Open Innovation?
Open Innovation is a process in which banks turn to outside sources to fuel innovation in order to improve product lines and shorten the time required for bringing the products to market from other companies including start-ups, FinTechs through partnerships and collaborations. This method of innovation involves sharing and cooperation between companies.
Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation and expand the markets for external use of innovation, respectively.
2. What are sandboxes?
Sandboxes are open platforms where Banks and FinTechs can work together at low cost.
Sandboxes provide the opportunity to advance open innovation, providing a testing environment for new technologies, processes and products.
3. Why do Banks need Open Innovation?
- Open Innovation can reduce the costs of innovation
- Makes Banks more innovative, thereby improving customer experience
- Helps in winning new opportunities
- Helps to gain competitive advantage
- Meet increasing customer demands for innovation
4. Bottlenecks of Closed Innovation
- Large investments for supplying the internal Research and Development departments
- High level of patent cost
- Slow Innovation process
- Limited market share
- Long term planning for resource allocation
5. Benefits of Open Innovation
- Increase the pool of knowledge
- Can reduce the costs of internal R&D
- Better balance of resources to search and identify ideas, rather than generation
6. Challenges faced by Open Innovation
- Not an easy task to search and identify relevant knowledge sources
- Less likely to lead to distinctive capabilities and more difficult to differentiate
- Maintaining controls and cybersecurity within an open innovation ecosystem
- External R&D is also available to competitors
- Need sufficient R&D capability in order to identify, evaluate and adapt external R&D
- Developing a business model demands time consuming negotiation with other actors
- Cost of development and evaluation is high
- Conflicts may arise between commercial interest and strategic direction
7. Differences between open and closed innovation
|CLOSED INNOVATION||OPEN INNOVATION|
|Mostly internal ideas||Both internal and external ideas|
|Low workforce mobility||High workforce mobility|
|Low role of venture capital||Active role of venture capital|
|Few new businesses||Many new businesses|
|R&D creates profit only when the company invents, develops and markets everything themselves||External R&D can create value|
|Develop the product internally and be the first to market||External R&D can generate profit be forming forces with outside parties|
|Aim to get the innovation to the market first||It is more important to develop a better business model than to be the first in the market|
8. What are the key drivers for Open Innovation?
- Innovation Capacity – The need for generation of more revenues from the launch of new products drives a large section of organizations to adopt Open Innovation techniques to gain competitive advantage by leveraging a larger intellectual talent pool. Tapping into the collective conscience of fleet-footed, smaller innovators enables a faster collection, and conversion, of new ideas.
- Competitive/Financial Advantage – Many organizations have chosen Open Innovation to help reduce costs by encouraging flexibility. This is equally applicable to their supply chain, their research and development units, and in some cases, even in their branding and marketing efforts. Open Innovation methods are uniquely positioned to leverage mass contact geared towards understanding customers better and engaging them. It also provides a good way to gain access to emerging markets at low costs.
- External Forces and Policies – The technology platforms available today to seek, evaluate, manage and monitor ideas and inputs from a large variety of Open Innovation partners and contributors are a key driving factor. Without them, Open Innovation may not have evolved as much. Technology advances are also disrupting traditional business models and creating situations that are best addressed by Open Innovation.
- Employee Motivation and Organizational Efficiency – Organization needs to have a strong and open culture to avoid falling into the “not invented here” syndrome. One often unrecognized side-effect of open engagements is that they help keep employees connected and challenged. The opportunity to interact with outside experts is an encouraging stimulus. It helps bring together smart minds from diverse background and different perspectives to tackle a common issue.