OI (Open Innovation) in Digital Health: Concept and Framework Overview

What is OI?
Open Innovation (OI) was first proposed in 2003 by Henry Chesbrough, a professor at the Haas School of Business, University of California, Berkeley. It refers to the approach whereby enterprises leverage complementary internal and external resources during the technological innovation process, emphasizing the integration of internal and external innovation resources as well as the sharing of benefits and risks with partners.

Open innovation is an innovation model that stands in stark contrast to closed innovation. The core tenet of this model posits that enterprises should not rely solely on their own research outcomes, but rather leverage R&D processes or innovative inventions from other companies for long-term development. Furthermore, the model advocates that a company’s proprietary inventions should not be confined to internal use, but should be commercialized externally to maximize their value.
impact. The ultimate goal of open innovation is to achieve greater returns and stronger competitiveness at a faster pace and lower cost.

OI Model
1. Product Platform
To provide participants with a framework or toolkit that is accessible, customizable, and extensible, this approach requires the development and introduction of a relatively mature product. The goal for participants is to extend the functionality of the platform product while enhancing its overall value. Existing software frameworks include Software Development Kits (SDKs) and Application Programming Interfaces (APIs). This model is more common in markets with strong network effects, where products typically need to integrate into such frameworks (e.g., mobile phones or online applications) to attract more developers to adopt the platform toolkit.

2. User Engagement
This approach requires extensive user participation and interaction. By doing so, companies can accurately track customer traffic while enhancing user engagement in product design and management processes.

3. Collaborate on Product Design and Development
Similar to product platforms, this approach also requires collaborators to participate in the development of the enterprise’s products. Unlike product platforms, however, although the sponsoring organization provides a platform for collaborators to conduct R&D and other activities, it retains decision-making authority over the final product. This method enables companies to develop the best possible products at the fastest speed while simultaneously reducing overall development costs. Recently, Professor Henry Chesbrough has suggested that this open innovation model can be applied to the optics and optoelectronics industry.

Advantages and Disadvantages of OI

Advantages:
1. Reduce operational costs of research
2. Enhance Productivity
3. Engage Customers Earlier
4. Improve the accuracy of market research and customer targeting
5. Enhance Synergy Between Internal and External Innovation
6. Increase the potential for viral marketing

Disadvantages:
1. Increased risk of information leakage
2. Decline in sponsor competitiveness due to intellectual property leakage
3. Increased Difficulty and Complexity of Regulatory Innovation
4. A unified standard or tool is required for the definition and identification of external innovation
5. To maximize profits from external innovation, enterprises need to reformulate their innovation strategies

Closed Innovation and Open Innovation
The closed innovation paradigm posits that successful innovation requires control. Specifically, a company should maintain control over all aspects of its operations, including ideation, production, marketing, distribution, services, and financing. In the early 20th century, academic and government institutions were not involved in the commercial application of science. Consequently, new product development was conducted entirely through internal corporate research, with little to no direct communication or interaction with external entities. In recent years, the following factors have paved the way for open innovation:
(1) Increased availability and mobility of skilled workers
(2) Growth of the Venture Capital Market
(3) The growing number of external options for existing concepts
(4) Continuous Enhancement of External Suppliers’ Capabilities

Knowledge is no longer the exclusive domain of companies; it resides within employees, suppliers, customers, and competitors. Innovation can arise through either closed or open innovation models, yet the debate over which paradigm will dominate in the future remains unresolved.

The Impact of Open Innovation on China's Pharmaceutical Industry

1. Enhancing the Competitiveness of Pharmaceutical Companies
In an open innovation environment, certain foundational technologies are readily accessible from outside pharmaceutical companies. Enterprises can directly purchase these technologies from external firms or acquire newly established ventures after the technologies have been developed, thereby fully exploring their potential applications or reconfiguring the value chain to achieve breakthroughs in value creation. This approach saves time and costs associated with early-stage R&D, shortens product development cycles, improves R&D efficiency, and enhances the competitiveness of pharmaceutical companies.

2. Promote the Optimized Allocation of Innovation Resources
Compared with closed innovation, open innovation breaks down corporate boundaries that restrict the flow of innovation resources. Surplus resources can be transferred outside the enterprise, while insufficient resources can be introduced from external sources, thereby enabling resources to flow across enterprises within the pharmaceutical industry chain. For an individual enterprise, the impact of this characteristic may not be particularly significant; however, it holds substantial importance for the innovation activities of the entire pharmaceutical sector and society as a whole, and will attract more social resources into innovation efforts within the pharmaceutical industry.

3. Accelerate the Pace of Innovation in the Pharmaceutical Industry
Enterprises adopt an open innovation model, integrating customers into the innovation process through information technology and other means. This transforms customers into collaborative producers, enabling companies to gain a thorough understanding of customer markets and needs, thereby guiding the direction of industrial innovation. This approach helps clarify corporate innovation objectives, shorten the time required for market acceptance of products, rapidly capture market share, outcompete rivals, and enhance corporate influence.

4. Reduce the Cost of Innovation Risk
Open innovation transcends the boundaries of individual enterprises, allowing diverse innovation stakeholders to share corporate innovation risks and enhance success rates. Given that pharmaceutical companies possess distinct areas of expertise—some specializing in basic research, others in product development, and still others in commercialization—collaboration among these complementary entities enables them to expand their reach, increase the likelihood of successful innovation, mitigate the risk of failure, and effectively consolidate their respective strengths.

By Liu Nan

VCBeat’s Chief Advisor for the Glossary of Trending English Terms in Internet Healthcare: Zhao Xinyuan, current CEO of Beijing Yingtai Kelong Technology Co., Ltd., and member of the Technical Guidance Committee of HL7 China.

VCBeat is currently recruiting volunteers to analyze trending English terms in digital health. We welcome you to share your insights. Please follow the VCBeat WeChat Official Account: VCBEAT, and contact us!