Being a small and medium-sized enterprise (SME) comes with both good and bad sides concerning innovation activities. An SME can be fast to adapt to new technological and market changes, thanks to their flexible and streamlined processes, low hierarchy, as well as good interactions and openness among staff. Being small, agile, and flexible may provide an SME with a competitive edge in the market and lead them to become a forerunner in the given business. Due to their flexibility, SMEs can faster respond to the needs and demands of society and partners, which makes them attractive potential collaborators, especially for large organisations. However, a lack of human, financial, and operational resources can severely limit the innovation possibilities of SMEs, such as, e.g., research and development (R&D) of new products and services. That can, in return, slow down or even completely stop the SME from developing further and competing with the much bigger rivals.

Therefore, in this paper, we argue that one way for SMEs to overcome limitations and use their flexibility as an advantage is to collaborate with other companies (especially larger organisations) to innovate. When looking for potential business partners for innovation, it is crucial for SMEs to find the ‘right’ partner. That would be a company with complementary resources and expertise, a similar type of organisational culture, and reliability. However, when the partner is a large organisation, besides benefits, SMEs can encounter challenges, such as abuse of power and conflicting operational and management strategies. However, these difficulties should not stop an SME in their search for suitable partners, considering that there are big companies searching for their smaller and more flexible counterparts and the partnership between the two can be mutually beneficial.

Open Innovation

Open innovation (OI) is best described as innovative activities that are “generated by accessing, harnessing, and absorbing flows of knowledge across the firm’s boundaries” (Chesbrough 2017, p. 35). Obtaining new knowledge from business partners and applying it for innovative activities is a collaborative endeavour between two or more companies joined in partnership to get access to and share innovative technologies, financial resources, and talent (Gurca, Bagherzadeh, Markovic & Koporcic 2021). Sharing resources can, for instance, decrease the chance of failure when presenting a new product to the market, as the speed of innovation is one of the important factors in achieving a positive result (Chesbrough 2003).

OI can be divided into three main categories: Inbound, Outbound, and Coupled OI (Gassmann et al., 2010). Inbound OI is when a company benefits from complementary knowledge of its partners and other external sources (Tobiassen & Pettersen, 2018). In other words, the company is using external knowledge, ideas, technologies, and alike, as a source or input for their internal innovation processes. This type of OI is usually used to accelerate and improve in-house innovative R&D processes. Outbound OI refers to internal innovations and capabilities being brought externally. This type of OI is used to leverage a firm’s existing capabilities outside of the firm (Chesbrough and Crowther, 2006). Finally, Coupled OI describes a co-creation or co-innovation activities, where companies are using their complementary resources and forming joint ventures, alliances, and other types of business relationships, to innovate (Enkel et al., 2009). An important thing to keep in mind is that these three categories can have various degrees of openness (Huizingh, 2011).

A large established company partnering with an SME that has developed a new technology but lacks the funds and infrastructure to present it to the market is an example of Inbound and Outbound OI. In this case, the large company would be the provider of monetary funds that are needed to bring the new technology to the market. In return, the SME is a provider of the said technology. Out of this collaboration, the large company gains the new technology and further develops it in-house with their R&D team, which provides an example of an Inbound OI. The SME is an example of an Outbound OI, as it shares the new technology in return for money and new market opportunities (Chesbrough and Crowther, 2006). Coupled OI could be found in between the Inbound and Outbound, where companies share their technology, talent, and infrastructure needed for the production and distribution of the product, more or less equally (Enkel et al., 2009).

An example of a large company that welcomes the Inbound OI with SMEs is Samsung. Considering Samsung’s big internal R&D unit, collaborating with SMEs perfectly complements their business model, as it allows them access to many innovations that smaller companies have developed. For instance, Samsung has purchased an Internet of Things (IoT) company called SmartThings to get access to their IoT platform (see Viima article). This benefits their R&D team as they can use these technologies in the development of their new and upcoming products, while SmartThings receives a monetary reward (for their Outbound OI), which ultimately benefits both companies.

Benefits and dangers of Open Innovation

Next, we present a list of potential benefits and dangers that a company, especially an SME, should consider when searching for a suitable partner for an OI. The best approach is to develop a plan or a strategy on how to maximise the benefits and cope with the potential dangers of OI before embarking on that journey.

Benefits:

• Sharing talent between the companies
• Ability to use the needed infrastructure for product development
• Co-creation of new products and technologies
• Improved market advantage
• Reduced costs and faster development of innovation
• Creation of additional streams of revenue for all involved companies

Dangers:

• Technical difficulties
• Loss of intellectual property
• Struggle with inter-firm politics
• Damaging the partner’s reputation
• Loss of competitive advantage
• Very costly and time-consuming

Conclusions

Due to limited internal resources, SMEs often struggle to create innovations in-house or to commercialise them on the market. As a potential solution for these challenges, we presented Open Innovation through collaboration with larger companies. In addition to various benefits, for the partners involved, we have also listed some of the dangers to consider prior to entering such collaborative activities.

About the authors

Dr. Nikolina Koporcic earned her Ph.D. in Economics and Business Administration in 2017, at the Åbo Akademi University. Currently, she is a Senior Researcher at Laurea University of Applied Sciences. In addition, she is the Visiting Senior Lecturer at the Luleå University of Technology, the Adjunct Professor at the University of Turku, and holds an affiliation with Åbo Akademi University. Nikolina’s research areas include co-creation of value, open innovation, corporate branding, entrepreneurship, business relationships and networks. In particular, she is studying the importance of Interactive Network Branding for small firms in business markets. Nikolina has published 16 peer-reviewed academic articles, 3 books, 8 book chapters, 21 conference proceedings, and 3 Laurea Journal articles. orcid.org/0000-0001-5050-3819

Mato Koporcic is a practitioner with a wide range of experience gained working for different companies in Croatia, Germany, and Canada. His interests are in circular economy and sustainability from a B2B perspective.

Reference list

• Chesbrough, H. 2017. The future of open innovation: The future of open innovation is more extensive, more collaborative, and more engaged with a wider variety of participants. Research-Technology Management, 60(1), 35-38.
• Chesbrough, H., & Crowther, A. K. 2006. Beyond high tech: early adopters of open innovation in other industries. R&D Management, 36(3), 229-236.
• Enkel, E., Gassmann, O., & Chesbrough, H. 2009. Open R&D and open innovation: exploring the phenomenon. R&D Management, 39(4), 311-316.
• Gassmann, O., Enkel, E., & Chesbrough, H. 2010. The future of open innovation. R&D Management, 40(3), 213-221.
• Gurca, A., Bagherzadeh, M., Markovic, S., & Koporcic, N. 2021. Managing the challenges of business-to-business open innovation in complex projects: A multi-stage process model. Industrial Marketing Management, 94, 202-215.
• Huizingh, E. K. 2011. Open innovation: State of the art and future perspectives. Technovation, 31(1), 2-9.
• Tobiassen, A. E., & Pettersen, I. B. 2018. Exploring open innovation collaboration between SMEs and larger customers: The case of high-technology firms. Baltic Journal of Management, 13(1), 65-83.

Web links:

• 16 Examples of Open Innovation – What Can We Learn From Them? (viima.com) (accessed 05.03.2023)