Strategic approaches towards open innovation in small- and medium-sized companies

by Stefan Stumpp

In this article I will try to show some strategic ways for opening up boundaries of small- and medium-sized companies (SME). The given strategies – by no means exhaustive – are taken from two studies. A first study draws upon a survey of 1.489 SMEs of different size and from different industries. The study identified the following five strategies for open innovation.

1. Supply-Chain-Strategy:

This strategy is characterized by an intensive cooperation between actors along the supply chain, more precisely the cooperation with direct suppliers and customers. Suppliers can provide ideas for improved technological solutions or process innovations. Direct Customers may provide insights about their own needs. Research organisations, universities or networking partners are less relevant as partners for innovation.

2. Technology-oriented strategy:

Technology-oriented SMEs are characterized by an intensive cooperation with universities, research organisations, experts for intellectual property rights and network partners. The main aim is to foster technology and foresight changements in industrial structures. It is supposed that particularly universities and research organisations are key drivers for the identification of new technologies.

3. Application-oriented and demand-driven strategy:

Here, SMEs interact with both, direct and indirect suppliers and customers. Also network partners are involved in the innovation process. Here, the main aim is generating knowledge about consumer needs and consumer behaviour for innovation potential. According to the study, the indirect and potential customers give the strongest impact for innovations for this type of strategy. Indirect customers may provide insights about new ideas beyond existing products and markets.

4. Full scope strategy:

This strategy is characterized by a high diversity of the involved innovation partners. The main aim is generating knowledge about markets and technology. This strategy involves a high interaction with stakeholders along the supply chain, research organisations, universities an network partners. The example of the family-owned company Devan will give proof for this strategy. This firm produces textiles as well as chemical auxiliary substances like dyes or care products for a functional and aesthetic changement of the textiles (e.g flame-retardant textiles, antimicrobial textiles). For innovative marketing and distribution, Devan cooperates with the retailing industry. For insights in consumer needs, Devan directly cooperates with customers. As SME, Devan has not enough resources for an adequate research and development. Devan compensates this barrier by cooperating with network partners like research organisations and universities from Belgium, France and Germany for technological and scientific input (more information about the case of Devan here).

5. Closed strategy:

The closed innovation strategy is characterized by a corporate management of  internal control of all innovation activities. There is no interaction with external partners during the innovation process. In the literal sense it is exactly the antitheses of an open strategy; it consciously excludes external influence.

These strategies shows (except from type 5) that SMEs generally pursue an open innovation strategy to realize market-related objectives such as meeting customer demands or to foster technology. In addition, another survey among 605 Dutch innovating SME identifies further strategies to remove a number of barriers for open innovation in SME, e.g. poor human resources or a high risk of failure.

Outsourcing:

Outsourcing describes an arrangement in which company tasks like financing or human resource management are taken over from people outside the SME. It’s also possible to outsource research and development tasks (as mentioned with Devan).

Venturing:

Another (rare) option for SMEs is the co-establishment of a venture capital company with partners. It would be possible to pool expertise and innovation potential. At the same time, the risk of failure could be minimalized.

Licensing:

Licensing can be differentiated in in-licensing and out-licensing. In-licensing is the purchase of licenses or external property rights to accelerate the innovation process or to buy know-how. Out-licensing is the external commercialisation of innovations.

Different requirements of SMEs are reflected in the choice of partners for innovating, as described in the strategies. Some SMEs focus on consumer needs, others focus on innovative business models, value creation processes, know-how-pooling, minimising risk, saving resources or other reasons.