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Definition: Open Innovation is the innovation paradigm coined by Chesbrough ('03) that holds that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology.
The central assumption of OI is that, in a world of widely distributed knowledge, companies should not rely entirely on their own research, but should instead buy or license processes or inventions (e.g. patents) from other companies.
Internal inventions that are not being used in a firm's business should be taken outside the company (through licensing, joint ventures or spin-offs).
See also Co-creation, Co-design, Conjoint Analysis.