Closed innovation: what is it, how does it compare to open innovation and more!

Closed innovation is founded on the assumption that the company possesses all it needs in terms of resources and knowledge to innovate, all the while keeping close control of its intellectual property and safeguarding itself from future competitors.

Although this kind of innovation is beneficial when it comes to security and management, it can also come with its drawbacks, including few ideas and high investment in company research and development (R&D).

To gain a deeper understanding of how this idea operates, read our content.

What is closed innovation?

Closed innovation refers to a framework of product, service or process design innovation where everything is done inside the company.

In such a model, the firm bases its innovations solely on its internal resources, for example, research and development centers, engineering and design departments, and intellectual property, to develop and enhance its innovations.

Closed innovation is, however, constrained by internal capacity of the firm and limited diversity of ideas. These at times hinder the pace of innovation relative to firms using a collaborative approach.

Examples of closed innovation

Here are some transparent examples.

• Apple: Apple is the quintessential example of a firm that has traditionally practiced a closed innovation strategy. The firm has a reputation for innovating its products in-house, from the design of the hardware to developing the software;
• Intel: Intel, a leader in the semiconductor industry, also exemplifies closed innovation. The company invests heavily in internal research and development to create and improve its microprocessors. Intel controls every aspect of its chip development, from initial design to manufacturing, without relying on external partners for its technological innovations.

What is the difference between closed and open innovation?

The primary distinction between closed and open innovation is the way they approach it. Although both have technology as both a medium and an objective, there are significant differences.

With closed innovation, all R&D and commercialization of innovations occur within the company itself.

The company uses only its internal capabilities, eg, R&D staff, to develop and introduce new products.

Contrarily, open innovation requires cooperation with outside sources like universities, competitors, startups, and even customers.

Such a model capitalizes on the variety of outside ideas and knowledge, allowing for faster and more varied innovation.

One of the downsides, however, is that open innovation creates issues in intellectual property management and coordination among the parties involved.

The benefits of closed innovation

Closed innovation provides numerous benefits to those companies that adopt this strategy:

Complete control of the process

One of the most significant benefits of closed innovation is complete control of the entire development process by the company. With this, the company can ensure a high degree of consistency and congruence with its strategic goals.

After all, it will be easier to create products that are consistent with the purpose and philosophy of the company when activities are internalized.

The members of the team who work in the company are already more familiar with such values ​​and can easily convert them into production.

Intellectual property protection

While in the closed model of innovation, it is easier for the company to protect innovations and trade secrets, as development happens within a controlled environment.

This minimizes the potential for information leakage to competitors and allows the company to maximize its innovations before others reach the market.

Higher level of confidentiality

Keeping new product or technology development within the company enables it to work with a higher level of confidentiality.

This is especially critical in highly competitive markets, where surprise can be a strong competitive strategy.

Alignment with corporate culture

Closed innovation makes it possible for innovations to be created in alignment with the culture and values ​​of the company, consistent with its corporate personality. This makes integration of new products into established portfolios easy and their internal acceptance.

Faster, more centralized decision-making

Since all innovation activity is conducted internally, decision-making becomes faster and more centralized.

Thus, the firm is able to react promptly to changing markets, adapting development if necessary without being dependent on outside partners.

Main restrictions and drawbacks of closed innovation

Although superior in some respects, closed innovation has some important restrictions and drawbacks:

• Lack of diversity of ideas: As the entire innovation process is done internally, the firm loses the chance to add new viewpoints and outside ideas. The biggest issue is that these ideas might enhance and diversify the development of products and services;
• High research and development cost: The presence of a strong internal R&D setup can be very expensive. It requires significant investment in laboratories, technology, and expertise, and such investments can reduce the potential for innovation in small organizations.
• Risk of technological isolation: Relying solely on internal means poses a risk of alienating the company from developments and trends happening outside. This could lead to a competitive advantage if other firms are taking more open and collaborative approaches to innovation.
• Slow innovation: Closed innovation may be slower, as the entire process is dependent upon the in-house capability of the company. The absence of external collaboration usually translates into longer development times and delays in product launch.
• Risk of obsolescence: As technology is changing rapidly, dependence on in-house capabilities can result in innovation obsolescence if the company is not able to match the rate of change in the international marketplace.