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8 External Sources of Innovation
End2End Innovation | Frameworks & Methods | Innovation Culture

8 External Sources Of Innovation

8 External Sources Of Innovation

Back in time, companies relied mainly on their internal capabilities to generate innovative ideas and to transform these ideas into real products and services. However, nowadays many innovation leaders are increasingly focusing on “mixed” innovation strategies by combining internal innovation drivers and external partners and thus open up innovation to the outside world.

Having looked more closely at a company’s internal innovation sources, we will examine the most important external sources in this article.

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Academic and research institutions that run innovation programs funded by the company 

Partnerships between companies and universities are one of the key drivers of the innovation economy. As many companies integrate open innovation approaches to expand their internal R&D efforts, universities have become a vital source of innovation. Companies provide funding for talented faculties and students for industry-relevant research. Meanwhile, universities are including entrepreneurship as part of the academic curriculum to boost innovative thinking among students.

As of 2017, more than 200 colleges and universities have started dedicated innovation or entrepreneurship centers as members of the Global Consortium of Entrepreneurship Centers. By the end of 2020, Evonik will direct € 100 million worth funding for the topic of digitalization in strategic partnership with IBM and the University of Duisburg-Essen. By investing in development and testing of digital technologies and the development of digital skills, the specialty chemicals company has the vision to push forward digitalization in the chemical industry and strengthen its position in the digital world.


Startups as a source for monitoring the corporate ecosystem of your business and fruitful partnership and investment opportunities

One of the fastest growing sources of innovation for big companies are startups. As the relevance of startups in international economics has increased rapidly in recent years, companies in all industries are more and more concerned with the opportunities and risks that these newcomers provide. Startup monitoring and potential future partnerships, therefore, play an important role in creating disruptive products and business models. Startups aggressively experiment with new technologies; artificial intelligence, robotics, or blockchain to come up with futuristic ways of providing business value. Understanding these insights by larger companies can play an important role in their own innovation strategy, portfolio, and activities. (Read more: Startup Relationship Management Explained)

The white paper by the World Economic Forum on the collaboration between technology startups and corporates published in 2018 states that a large majority of companies today see the importance to digitize and to enter in contact with the startup world in order to foster innovation. However, more than half of the cooperation attempts still fail because of a conflict between aspiring entrepreneurial newcomers and more structured and risk-averse corporations.

So how can large companies move from confrontation to cooperation with these newcomers? DZ Bank, a central banking institution in Germany, was able to create a transparent and company-wide overview of all innovation activities and fintech cooperations on one central innovation platform. Which startups might disrupt the industry or are relevant to the business model? Who is already connected to which startup within the corporation? The new innovation approach facilitated cross-departmental monitoring of the corporate environment and enabled the identification of gaps and opportunities in the innovation portfolio of DZ Bank.

Tech and Trend Scouts

External scouts that identify and analyze trends and technologies

Today, the survival of many companies is linked to the continuous and automated recognition and analysis of the opportunities and risks of new technologies and trends. If there is not enough manpower available in your innovation team, it makes sense to get external help. In addition to software that automatically evaluates and clusters all trend and technology information, a dedicated team of external trend and tech scouts can deliver a continuous flood of data.

Time-consuming innovation activities, such as scouting and monitoring startups or new technologies, can be outsourced to third parties. These actors can deal intensively with what is happening in an industry and summarize the results, e.g. trend agencies, technology institutes, market research companies or consulting firms. External trend scouts can identify, describe, and report upcoming trends usually related to certain domains or industries. Technology scouts provide scientists and engineers in R&D divisions with information regarding emerging technologies. 

What is already a common approach in the fashion business, also works for all other industries. You can address the most pressing questions and gain authentic insights from around the world. This valuable information and inspiration can be used directly as input for your innovation campaigns. Companies will benefit from collective intelligence and can let potential customers evaluate product and business ideas.

Software and Consulting Companies

Software and consulting companies that provide solutions and services for innovation management

Partnerships with innovation management software and consulting companies represent a vigorous source for building innovation management ecosystems and support companies with tools to purposefully collect and process data on new trends or technologies. It is key to use the services of companies that offer solutions for the entire innovation landscape, not just a system for an idea or trend collection and thus bring a company’s innovation approach to a whole new level. By starting with a comprehensive environmental scanning of relevant trends, technologies, and startups and connecting those pieces of information on one platform, companies can detect opportunity spaces to innovate and grow in. The integration of all data collected will give a fairly accurate prediction of whether a detected change is a hype that will quickly disappear or a real trend that will maybe stay with us for many years.

A software-supported innovation process combined with a comprehensive methodology and consulting offers will create the necessary framework to develop and execute a sustainable innovation strategy. It is important to cooperate early with external drivers of innovation in order to continuously develop technology leadership.

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External Crowds and Communities

Independent experts, innovators or generally people that are active in crowdsourcing platforms, innovation competitions, or developer networks.

Innovation communities appear to be an attractive approach for many corporations to access the necessary skills for various innovation activities. Competitions and hackathons have contributed quite largely on some company’s successes. Fortune 500 corporations such as AT&T and American Express frequently fund online creativity competitions to trigger innovation among their customers and public in general. Kickstarter and other crowdfunding platforms let ideas compete for sponsorship. Many more companies started using competitions to foster efforts to innovate more. However, it can also be a very cost-efficient way to source innovation from people with useful skills outside the company. An example of crowdsourcing is P&G’s “Connect + Development” platform where P&G shares its present challenges and needs coming from various business units and anyone can submit a proposal to solve this problem.

Company Suppliers

Other firms that fall into the value chain of the company

Among external innovation sources, suppliers have significant innovation potential because they know their customer’s business, its potential challenges, and innovation opportunity spaces. Especially, when a long-term cooperation is established among customers and suppliers, the latter are usually more involved in the companies’ businesses. As suppliers become more engaged in and informed about companies' plans and strategies, they will be more qualified to contribute to the innovation efforts of the company and strengthen future business relationships with the company.

In the automotive industry, for example, the willingness of suppliers to invest in technology is known to be a key differentiator of successful customer-supplier cooperation. Such innovations can provide customers with the superior manufacturing capacity, improved product performance and adaptability required for long-term market competitiveness. For more insights on this, check out "Increasing Supplier-Driven Innovation" by John W. Henke Jr. and Chun Zhang, published at MIT Sloan Management Review.

External Partners

Other medium and large companies that can be partners through collaboration, licensing, joint venture, etc.

Companies look for strategic partnerships with external companies in order to bring innovation into their ecosystem more efficiently. Such cooperation is often a cornerstone of innovation in a continuously transforming environment. Let’s discuss the recent partnership of Airbus and Audi. These two companies have teamed up to develop real, near-term urban mobility solutions. Airbus – with its on-demand helicopter platform Voom – will join forces together with Audi to deliver an end-to-end transportation service, starting in São Paulo and Mexico City. This cooperation will offer high-quality ground transportation provided by Audi vehicles and helicopter transport with Airbus’ Voom service, delivering customers a seamless travel experience. This partnership aims to address both current and future challenges of urban mobility, focusing on the world’s most densely populated cities.

The Customer

Customers who give feedback and reviews about the company’s products and services

Every company strives to offer its customers what they ask for. In recent years, companies have been looking for customer input that focuses on results rather than solutions. By gathering data, they try to find out what the customer is intending to achieve by using a certain product or service. Moreover, due to decreased trust, companies let their customer segment groups test their products or services before purchasing them.

Customer expectations pressure firms to regularly innovate to meet consumer needs. In today’s e-commerce, if your online store does not deliver within a day, your business is at risk. Do you know how Amazon got into the cloud computing business? Amazon's retail customers, the thousands of small businesses using Amazon's eCommerce platform, were not mature enough to take advantage of cheap computing and storage in the cloud. This gave Amazon the idea of starting a new company that enabled small retailers to reduce their IT costs with a simple cloud computing service. 

Some may rightfully argue that asking customers for solutions might as well limit the innovation process. The reason is that most customers have a quite incomplete scope of reference and knowledge about the business. Thus, some precautions need to be considered when ‘’listening to your customer’’.

The Bottom Line

Building a network of internal and external innovation sources is a necessary approach to overcome challenges such as time and resource bottlenecks in innovation management. However, this can only be achieved through effective corporate innovation management.

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