Open vs. Closed Innovation: Which Strategy Fits Your Business?
Benedict Breitenbach
Wed Jun 25 2025
Table of Contents
Imagine you want to develop a new cake recipe. You could retreat to your kitchen, try out different ingredients, and perfect the recipe entirely on your own—without involving anyone. Or you could ask friends what they like in a cake, share your first drafts on social media, and use the feedback to optimize the result.
Both paths may lead to a delicious outcome—but they differ fundamentally in their approach. This is precisely the case in the world of innovation: today, companies must decide whether to design their innovation processes as openly as possible—in collaboration with customers, partners, and external experts—or whether to develop and control everything internally.
What Does Innovation Mean Today?
Innovations today emerge under changed conditions. Digitalization, networked markets, and shorter development cycles require companies to regularly review their innovation strategies.
The European Commission defines innovation as:
“the implementation of new or significantly improved products, services or processes that create economic or societal value.”
European Commission 2014/24/EU Article 2 Paragraph 22: What is innovation?
Open vs. Closed Innovation
The term Closed Innovation describes an approach in which new ideas, products, or processes are developed exclusively within a company. Innovation work takes place largely in isolation—for example, in internal R&D departments or through proprietary patents. The goal is to protect and fully control knowledge and competitive advantages.
In contrast stands the concept of Open Innovation, coined by Henry Chesbrough in the early 2000s. He defines Open Innovation as the deliberate use of external knowledge, ideas, and technologies to complement internal development processes. This opens up innovation processes—for example, through collaborations with universities, startups, customers, or other companies.
In practice, it is increasingly evident that many companies combine elements of both approaches or adapt strategies depending on the project.
Deficits in Innovation
Despite successful innovation processes, there are often uncertainties regarding patent rights and profit sharing. Especially in times of increasing innovation pressure—triggered by challenges such as the energy transition, mobility shift, and rising sustainability demands—this issue is more pressing than ever. Additionally, modern technologies like cloud solutions increasingly facilitate collaboration in the spirit of Open Innovation.
Only 22% of companies in Europe have a structured innovation governance
EUIPO Observatory Activity Report 2019
Poor planning in this area can lead to problems in determining ownership of a specific product or project. A key factor in this case is intellectual property rights, also known as IP rights.
These intellectual property rights are not untouchable. In almost every employment contract in a company’s research department, employees and researchers assign their intellectual property rights to the employer.
your.eu.law
Strategies Compared – Opportunities and Risks
Both strategies offer specific advantages. The following table contrasts the two approaches using several strategic criteria.
| Criterion | Closed Innovation | Open Innovation |
|---|---|---|
| Source of Knowledge | Internal know-how, own R&D | Combination of internal and external knowledge |
| Control over IP (Intellectual Property) | High – intellectual property remains within the company | Rather low – potentially high with clear regulations |
| Innovation Speed | Tends to be slower – longer development times | Potentially faster – through external impulses or idea acquisitions |
| Cost Structure | High internal investment in R&D | Outsourced effort through partnerships or external contributions |
| Risk Distribution | Risk lies entirely with the company | Shared risk through collaboration |
| Culture and Mindset | Secrecy, security, knowledge protection | Openness, exchange, trust, and network culture |
| Typical Application Fields | Highly sensitive technologies, pharma, defense | Consumer goods, software, digital platforms |
Practical Examples
Open Innovation at LEGO
In the early 2000s, LEGO was in economic trouble. With the platform LEGO Ideas, the company created a way for fans worldwide to submit their own building set ideas. The best suggestions—evaluated by the community—are regularly added to the product catalog today. LEGO benefits from the creativity of its users and strengthens customer loyalty at the same time.
This open innovation approach has proven to be a real competitive advantage: it brings fresh impulses, reduces the risk of missing market needs, and fosters strong brand engagement. More on LEGO's strategy
Closed Innovation at Apple
Apple traditionally follows a very closed innovation approach. Research, design, software development, and production are largely in-house. New products are often developed in secret—sometimes for years—before hitting the market.
This strategy gives Apple maximum control over quality, launch timing, and intellectual property. It creates room for radical innovations—but requires high financial and human resources and a consistently shielded development process. Source
When Does Which Approach Fit?
Open and Closed Innovation are not opposites, but strategic options. Which one is appropriate depends heavily on context—such as the industry, innovation goals, timeline, or a company’s openness to collaboration.
A structured view of the framework conditions helps avoid making decisions purely intuitively. Questions like those shown in the illustration help determine which side the strategy should be approached from.
The goal should always be to use the advantages of both approaches.
The art lies in benefiting from both the speed of open exchange and the confidentiality of internal development. At OriginStamp, we always recommend (except in rare cases) a hybrid form of both approaches.
But how can this be done?
As Secretive Yet Fast as Possible: A Hybrid of Both Approaches
Such a hybrid should always be initiated from the perspective of Closed Innovation. This ensures that questions regarding patent rights and shares don't arise after development. From this starting point, however, everything should be conducted in the spirit of Open Innovation, as its benefits clearly outweigh the downsides.
It is crucial to define a budget cap to monitor and contain all outsourced processes—ensuring economically viable innovation.
True to Henry Chesbrough, the father of the Open Innovation concept, who emphasizes:
“Not all the smart people work for you.”
– Henry Chesbrough, Open Innovation: The New Imperative for Creating and Profiting from Technology (2003)
This quote highlights: The true competitive advantage lies not in complete control, but in strategically opening up to the outside—while consciously protecting what is critical.
So How to Proceed?
1. Project Definition and Scope
First, the innovation initiative must be clearly defined:
What technological, functional, and market areas does the project cover? What are the intended outcomes—incremental improvements, radical innovation, or exploratory research? Based on this, the required competencies and resources are determined.
Tools & Methods:
- Miro or Whimsical: for visualizing innovation fields
- Business Model Canvas or Lean Canvas: for strategic alignment
- Notion or Confluence: for structured project documentation
Note: IT security (e.g., data classification, access protection) should be considered at this stage.
2. Resource Check: Internal vs. External
The next step is an internal analysis:
- 1. Are all required resources available internally (e.g., specialists, labs, data, infrastructure)?
- 2. Can critical parts be developed and controlled in-house?
If the answer is “yes,” the project can be fully executed internally. Companies with high capital and talent density—like Apple or Google—prefer this route to maintain full control over IP and avoid external dependencies.
Tools:
- Skill-matrix tools (e.g., TeamRetro, Mural)
- Airtable or Asana: for assigning tasks to internal/external resources
- HR software (e.g., Personio): for capacity planning
Legal Note: If key competencies are lacking, later collaboration is no longer just optional—it must be strategically structured, especially in regulated industries.
3. Classifying External Needs
In most cases, external needs become apparent. These should be differentiated:
- 1. What can be developed in-house but requires occasional input?
- 2. What can be created via co-creation (e.g., with startups, universities, suppliers)?
- 3. What must be fully outsourced (e.g., specialized engineering, deep tech, simulations)?
This breakdown forms the basis for strategic partner selection and contract design.
Tools:
- Jira Service Management or ClickUp: to manage external work packages
- Slack Connect or Microsoft Teams Guest Access: for structured communication with partners
4. Legal and Organizational Safeguarding
Before involving external actors, legally sound structures must be in place. Critical contract types include:
- IP Assignment Agreements
- Non-Disclosure Agreements (NDAs) with specific scope
- Compensation Models: time-based vs. success-based remuneration
According to the study “Open Innovation and Intellectual Property Management” (EPO, 2021), unclear IP rules led to conflicts or delays in over 30% of cases examined.
Tools:
- DocuSign or Contractbook: for digital contracts
- Legito or ClauseBase: to generate legally sound templates
Important Threshold:
For project values over €50,000 or developments with patent potential, a notarial certification or legal IP safeguarding is recommended—especially for international partnerships.
5. Budgeting and Financial Control
Especially with fully outsourced modules, economic control is essential. Recommended:
- 1. A fixed budget with clearly defined phases
- 2. Milestone or fixed-price contracts with change request clauses
Without precise budgeting, projects can quickly become economically unviable—a common reason for failure in SMEs with limited innovation budgets.
Tools:
- Excel with forecast model or Finos: for budgeting
- Xentral or Odoo: for finance and contract management
- Timeular or Clockify: for time and effort tracking
Tip: A hybrid of fixed price + change requests is recommended. Example: 80% fixed price, 20% flexible upon internal steering committee approval.
6. Governance in Collaboration
The most risk-intensive but also most valuable phase is peer collaboration. This is where co-creations often emerge. Key issues to clarify contractually:
- 1. Who is the legal owner of the innovation?
- 2. Who is considered co-author—with implications (license, revenue share, patent rights)?
- 3. What happens if a partner exits?
A legally secured innovation process prevents IP disputes or launch-blocking conflicts.
Tools:
- ContractHero or Legalsign: for secure archiving
- PandaDoc: for managing contract templates
- Juro (with API integration): for scalable contract management
Warning:
According to EUIPO (2023), poor governance is the main cause of legal disputes in Open Innovation partnerships with SMEs—especially when roles (contractor vs. co-innovator) are not clearly defined.
7. Documentation and Knowledge Transfer
Finally, the entire innovation process must be documented—internally and with external partners:
- 1. What decisions were made and when?
- 2. Who contributed what?
- 3. What rights were transferred or jointly held?
Structured documentation not only protects against legal disputes but also preserves innovation knowledge in the long term.
Tools:
- Notion or Confluence: as a central internal innovation wiki
- Jira or ClickUp: for complete task and decision logging
- IPwe or PatSnap: for patent and IP tracking (e.g., filings, licenses, expirations)
Tip: A good practice is a monthly IP review by legal + project leads, especially for co-innovation projects with patent potential.
Protect yourself early from later claims—use this overview of impulses and questions to reflect on your innovation strategy and make it future-proof.
