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Open Innovation Strategies for Small and Medium-Sized Enterprises

Collaboration helps accelerate innovation

For SMEs, opening up in-house innovation processes can be crucial for their competitiveness. Cooperations make it possible to pool a wide variety of competences and quickly launch successful products with the support of others. Steinbeis 2i GmbH has been conducting a project called “Open Innovation for SMEs in Baden-Wuerttemberg” involving a variety of event formats and coaching sessions aimed at raising awareness of open innovation. The project, which has now been successfully implemented, examined the specific challenges, processes, and strategies of open innovation at small and medium-sized enterprises.

According to the 2015/2016 Innovation Report issued by the German Chamber of Commerce and Industry, 47 percent of the companies it surveyed stated that open innovation is a key strategy for coming up with innovations. Micro-businesses with less than ten employees are especially likely to view open innovation as a good way to come up with ideas. Opening a strategic door to innovation processes at a company in order to actively introduce and use external know-how requires the right internal and external structures, plus a correspondingly open approach to innovation management. It is becoming increasingly clear that investing in such methods is worth the effort, especially given the growing importance of open innovation strategies to competition. Digital solutions also hold tremendous potential in this area.

The “Open Innovation for SMEs in Baden-Wuerttemberg” project, which is backed by the Baden-Wuerttemberg Ministry of Economic Affairs, Labour, and Housing, shows that small and medium-sized enterprises in the state are already good at using collaboration to accelerate innovation processes or bring in external knowledge from outside the company. Although companies fear that their intellectual property will be used without authorization (plagiarism) and that expenses and profits will not be shared fairly, around half of the 120 SMEs surveyed felt that the main problem would actually be finding a suitable partner for their projects.

SMEs therefore need support while trying to line up collaborative projects, if not also in order to define the right strategy for entering into an open innovation project. Often companies only start to overcome hurdles when the urgency to do something becomes critical for extrinsic reasons, for example if there is a shift in competition or if customer requirements change. Business coaching can help identify hurdles and find suitable alliance partners. Engendering a sense of trust in open innovation is of central importance for SMEs, but they need help to do this.

The majority of companies surveyed for the project by Steinbeis 2i already apply classic open innovation methods (“Open Innovation 1.0”). For example, the following ideas are already considered par for the course:

Almost all of the companies said that they are involved in R&D projects. According to 75 percent of the respondents, the reasons for these cooperations is that they need to be involved in new developments but they do not have the resources to do so by themselves. Two-thirds of firms also use collaboration to strengthen their own market standing. Another motivation is access to new markets, which for over 50 percent of the companies was an important reason for alliances. For example, sharing know-how and technology through license agreements is seen as an effective way to introduce products to other regions or sectors of a market.

There are a number of factors relating to market pressures that motivate SMEs to enter into open innovation. If a market is experiencing shake-out, the only way to survive may be to join forces with business partners, share resources, and shoulder risks in order to introduce new products or enter new markets. This is one reason why the main point of alliances is often to engage in R&D with others. For this to work, SMEs need to establish a basis of trust and become a partner of equals. This is why one popular approach is to seek bilateral alliances with other SMEs. These are kept simple by maintaining the focus on the same market, and they do not try to avoid calculated risks. A key issue in this respect is safeguarding intellectual property during collaboration. One particular challenge SMEs point to is when they collaborate with large companies. In such instances, SMEs worry that if things go wrong, their proprietary rights may not be watertight enough to shield their solutions from plagiarism. As a result, they would like more support in exercising their rights.