Open Innovation for Digital Transformation: Opportunities and Challenges at the Municipal level

Open Innovation, which is characterized by collaboration between internal and external actors, has been an effective strategy for companies to generate new products or services. In the public sector, it has been an important approach to generate solutions aimed at Digital Transformation, especially in local contexts (e.g., city level) where resources are limited and needs are specific. This article focuses on a case study in two state capitals with more than 1 million inhabitants where Open Innovation facilitates Digital Transformation (DT) and faces unique geographical, economic, and cultural challenges. Using a qualitative methodological approach, including semi-structured interviews and document analysis, the study identifies the critical need to incorporate digital technologies to improve public services and promote digital inclusion, despite challenges such as restricted budgets and resistance to change. The results highlight the potential of Open Innovation as a catalyst for DT, emphasizing the importance of synergy among actors, effective governance, and personalized strategies for local needs. We conclude that Open Innovation can significantly boost DT in municipalities, but its success requires overcoming operational, legal, cultural, and political barriers. This study contributes to the literature by offering practical insights for the effective implementation of Open Innovation in the digital era, emphasizing collaboration and citizen participation for an inclusive Digital Transformation.