Upgrade your Innovation Funnel: Introducing Open Innovation

Published on Jun. 18, 2024

Unsatisfied with your company’s innovation output? Your focus on an outdated innovation funnel model might be to blame.

Widespread dissatisfaction with innovation endeavors has been extensively documented in various specialized publications, from an extensively quoted survey by McKinsey, which found only 6% of executives are satisfied with their company’s innovation performance, to a Harvard Business Review article citing an “innovation crisis.”

In this context, it’s only fair that innovation thought leaders have been trying to pinpoint the exact constraints preventing companies from accessing all the potential innovation could bring. From this perspective, looking at the structures enabling innovation has become a key intuition. And this is precisely where rethinking the innovation funnel model starts to matter.

In fact, today’s fast-paced and increasingly disruptive landscape has been quick to highlight the innovation funnel’s inherent limitations. From limited idea sources to siloed operations, if not managed effectively, this approach might have become stagnant to the point where it could inadvertently hinder companies’ abilities to innovate effectively.

Here’s a look at current potential issues arising from the innovation funnel approach and how companies are evolving to apply open innovation instead.

What is the Innovation Funnel?

The innovation funnel is a conceptual framework used for innovation efforts to guide ideas from initial concepts to market-ready products or services.

Using the visual representation of a funnel illustrates the process of filtering and refining numerous ideas into a few viable innovations.

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Since its popularization in the later decades of the 20th century, the innovation funnel has been seen as a useful tool because it provides a structured framework for managing the innovation process within an organization. As such, it has been praised for providing clarity, focus, and progress-tracking capabilities, among other advantages.

What is the difference between innovation funnel and pipeline?

While both are concepts used within the innovation ecosystem, they represent two distinct approaches and methodologies.

On the one hand, the innovation funnel, as a conceptual model, illustrates how a large number of initial ideas are filtered through various stages to produce a few viable innovations. As such, it focuses on the filtering and refinement process, showing how many ideas are discarded as they move through the funnel’s stages.

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On the other hand, the innovation pipeline presents a linear approach that focuses on the flow and progress of innovation projects from conception to completion. However, unlike the funnel, the pipeline might keep a constant number between the input and output of projects, as the goal here is more about maintaining progression and focusing on project execution.

On a practical level, the innovation funnel can be helpful in managing early stages of innovation when maximizing idea generation is key. In contrast, the pipeline is typically more valuable for later stages of innovation when execution is a priority.

Innovation funnel stages

The innovation funnel stages are perhaps one of this model’s key merits. They are a crucial feature for innovation visibility that has driven its popularity over the years.

Designed to systematically filter, refine, and develop ideas, they provide a clear framework for companies wanting to ensure only the most viable and valuable innovations reach the market. Typically, the innovation funnel stages are divided into steps as follows:

1. Ideation

At the start, companies must generate a large pool of ideas through processes to create a constant stream of new concepts. From design-thinking sessions to brainstorming, the organization puts its existing knowledge and resources to work, including cross-functional teams, departments, or innovation labs, in the process.

2. Idea Assessment

The second stage involves sifting through the pool of ideas to identify the most promising ones. Evaluation criteria typically include aspects such as feasibility, potential market impact, or alignment with the company’s strategies. The ideal output at this stage is a short list of ideas worthy of further exploration.

3. Concept Development and Prototyping

This stage aims to develop selected ideas into detailed concepts or prototypes. Ideas are put into motion, generating tangible prototypes and technical feasibility studies, concept testing, or business case developments. By the end of this stage, early prototypes emerge for the most promising ideas, and teams have a clearer understanding of each idea’s potential for the organization.

4. Development

Building from the knowledge brought by the previous stage, companies are ready to approve the most promising concepts and turn them into fully developed products or services. This stage often involves a close collaboration between R&D, engineering, and design teams to end up with fully developed products or services ready for final testing.

5. Testing and Validation

It’s time to test the developed products or services to ensure they meet market and performance expectations. The examination can take many forms, from beta testing to pilot launches, quality assurance testing, or regulatory compliance tests. This is also the time to gather user feedback for final adjustments. The expected output from this stage is to have validated products or services that have been adjusted and are now ready for launch.

6. Implementation

Products or services are now set to join the market. This means efforts move into the arena of marketing and promotion so that a successful market introduction is achieved.

7. Post-Launch Review and Improvement

Every innovation funnel strategy should present a continuous improvement approach so that companies evaluate the product or service’s performance after its launch. This provides useful insights not only for improving the product or service but also for future innovation cycles.

Challenges and Limitations: Why the Innovation Funnel might be Outdated

To say that a lot has changed in the innovation ecosystem in the last two decades would be an understatement. In a world where technology has radically transformed client expectations and product life cycles, research and development processes have also been fundamentally altered.

Today, the pace of innovation has accelerated to vertigo-inducing speeds in an effort to keep companies aligned with tech-intensive and globally competitive markets.

In this context, the limitations of the innovation funnel can be traced back to one single source: the fact that the model suggests companies should rely primarily on internal resources in each stage. From ideation, which depends mainly on employees and R&D teams, to closed screening and development processes, external input is usually minimal, often limited to suppliers or contracted researchers.

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This perspective can result in a number of unsatisfactory outputs. The process may start with a limited idea pool, but larger struggles to innovate effectively can also be identified.

Left to their own devices, companies might exhibit strong risk-averse tendencies, with development cycles hindered by bureaucracy or a general culture that discourages innovation or meets it with suspicion.

By relying solely on internal perspectives, companies may take winding pathways that ultimately lead to failure, including increasing internal investment unnecessarily or halting innovation efforts altogether.

This is precisely where the potential of the open innovation funnel comes in to save the day.

From the Innovation Funnel to the Open Innovation Funnel

As the limitations of the conventional innovation funnel are increasingly understood, open innovation has been reshaping innovation protocols and helping companies overcome previous constraints.

To quote Henry Chesbrough, who introduced the concept of open innovation in 2003: “Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.”

This definition bluntly states how open innovation surpasses previous frameworks: it declares that companies should leverage external ideas and knowledge. Through this approach, partnerships, collaborations, and acquisitions become part of the innovation lexicon, so organizational boundaries transform into permeable surfaces to facilitate a free flow of ideas and technologies in and out of the company.

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Collaborative development, shared resources, knowledge sharing, and flexibility are all concepts tied to the open innovation funnel, a framework designed to help companies advance their innovation capabilities.

As such, open innovation provides a structure for developing quicker innovation through leveraging the specialized knowledge of external partners, resulting in:

  • An expanded idea pool
  • Faster problem solving
  • Rapid prototyping and testing
  • Potential to access new markets, technologies, and distribution channels

A key strategy within open innovation that is making waves across multiple industries is thestrategic alliance of startups and conventional companies. Capable of bringing in new perspectives, talent, and expertise, this approach provides an alternative for innovation success that helps reduce costs related to R&D and shorten development cycles.

Procter & Gamble, NASA, Netflix, and Samsung stand out as some of the critical players profiting from adopting the open innovation funnel. Still, the approach can be tailored for all types of organizations.

At Plug and Play, we’re experts in tailor-made open innovation implementations. We run over 100 programs worldwide through our alliance with corporations, guiding innovation journeys toward success.

Our goal is to maximize innovative capacities throughout the whole cycle: from conceptualization and strategic definition to market pilot launches, including specific innovation programs, investment strategies, and venture building.

With 50 hubs around the world, local expertise, and an international presence ready when you need it, we’ve built a comprehensive innovation ecosystem that allows us to find the startup you need for your Business Strategy, even if the perfect fit is on the other side of the world.

More than 15 years of guiding clients to success prove that our expertise is in boosting your R&D and innovation efforts.

Our mission? To help you innovate with confidence and drive your company to new heights.

Reach out to our innovation experts, and let’s talk about how we can help you.