Extending Open Innovation – How to Orchestrate Your Knowledge Flows

It includes several distinct approaches, including open source, crowdsourcing, IP licensing, university collaborations, startup engagements, corporate venture capital, supplier-driven innovation, and user innovation – to name a few. All of these processes involve the flow of knowledge across organizational boundaries.

The main hurdles in open innovation are internal changes, dealing with resistance and internal complexities, and external relationship management. Overcoming these challenges is key to effective open innovation management.

Let's revisit the typical open innovation funnel—from ideation to scaling with an internal knowledge base and an external knowledge base. This sets the stage for the traditional Inside-Out and Outside-In open innovation approaches, like bringing startup technologies into the corporate or spinning off ventures. But of course, the reality within a company doesn’t reflect a straightforward funnel. Internal knowledge barriers create silos, making it tougher for insights to flow smoothly.

These challenges don’t fit perfectly within the traditional Open Innovation framework, which focuses on Outside-In and Inside-Out knowledge flows.

A more complete understanding of Open Innovation (incl. CVC) and its successful implementation requires an understanding of its role in increasing the permeability of internal knowledge boundaries, allowing for Inside-In knowledge flows from an Open Innovation/CVC unit to another corporate or business units.

Additionally, some of the most prominent current concepts from innovation management, such as ecosystems, are driven by knowledge flows that also don’t fit within the traditional Open Innovation model. These include Outside-Out knowledge flows, which connect startups to each other and to important customers or complementary partners outside of the firm’s internal boundaries.

Orchestrating Four Knowledge Flows

Let’s illustrate this with a simple two by two matrix. On the supply side, we look at the origin of knowledge and distinguish between knowledge that originates inside or outside of the corporate boundaries. On the demand side, we look at where knowledge is applied, either inside or outside the corporate boundaries. We’ll have four blocks showing four distinct knowledge flows.

• Inside-Out: focus on the externalization of internal knowledge into the external knowledge base
• Outside-Out: focus on the orchestration of external knowledge across external knowledge boundaries
• Outside-In: focus on the integration of external knowledge into the internal knowledge base
• Inside-In: focus on the connection internal knowledge across internal knowledge boundaries

The traditional knowledge flow that CVC focuses on is known as Outside-In. This is already well known, and involves, for instance, accelerating the market through investments in companies, projects, and ecosystems. CVC also works to establish collaborations between businesses and ventures, helping to close the innovation gap. In addition, CVC fosters and surrogates M&A, incorporating external knowledge to support these transactions.

CVC’s role then shifts to Inside-Out, where the focus is on creating investable assets by validating if it makes sense to spin-off a corporate venture. CVC also evaluates internal knowledge and invests in corporate spin-offs. Finally, CVC serves as a mentor to corporate ventures, providing access to investors and customers, as well as sharing industry expertise to support intrapreneurs.

Overall, CVC’s mandate is to support and accelerate innovation by bridging the gap between internal and external knowledge. By investing in companies and providing mentorship and expertise, CVC helps to create a thriving market for innovative ideas.

Outside-Out Knowledge Flow

In the Outside-Out model, CVC acts as an Ecosystem Enricher and Shaper, focusing on orchestrating external knowledge across boundaries.

Curating businesses - For instance, SAP.io, BASF Venture Capital, and Hitachi Ventures create exclusive workshops, events, or platforms for matching external partners to enhance both customer service and startup support.

Another practice is promoting ecosystems – which we saw at Hyundai Cradle and their involvement in H2 Mobility. Here, the CVC promotes working groups or ecosystems in order to accelerate a potential market’s infrastructure.

Another practice is validating pre-due diligence – For example, in the case of an anonymized CVC we look at in the paper, where a customer of the corporate mother planned to do a proof of concept (PoC) with a startup the CVC wanted to invest in. To do so, the CVC leveraged the relationship of the mothership with the client, to incorporate the results of that PoC prior to a real due diligence. This saved time and money.

Sharing deal flow - Intel Capital highlighted the importance of sharing interesting ventures with other (C)VC units. This is part of the Venture Capital game and follows kind of a pay-it-forward principle.

Inside-In Knowledge Flow

At the Inside-In knowledge flow, CVC can be seen as Cross-Silo Knowledge Brokers. Here, the focus lies on connecting internal knowledge across internal knowledge boundaries.

For example, one practice is what we call venture-informed decision-making. Many of the CVCs we investigated were curating and sharing their external venture knowledge to guide the corporate executives’ strategic decision-making. BASF Venture Capital, for instance, is regularly invited to strategy meetings to share their venture insights, that ultimately inform BASF’s corporate (and business unit) strategy.

Another practice from BASF Venture Capital is reciprocal exchange, where CVC managers talk to experts from the business units. They ultimately invested in a company that a colleague from the corporate parent recommended and would have been missed otherwise.

Finally, CVCs can inspire intrapreneurs; for example, Hitachi Ventures established a residency program, in which corporate employees have the opportunity to be mentored by CVC employees and work on real-world valuations and application within the venture world, to ultimately foster the entrepreneurial spirit of the mothership.