The rapid development of the internet and social media have democratized the innovation opportunities for small startups and individual innovators. This is creating more ways for companies to exploit external ideas for their internal innovation. The dominant use of open innovation today is in idea generation. However, some companies have gainfully applied open innovation across other phases of product development, including concept development, detailed design, manufacturing and sales. The academic literature in this area is rapidly evolving and is covering many different concepts associated with open innovation. At the same time, product development processes are also evolving and are being integrated with more digital tools and electronic workflows. Although many companies are saving R&D costs by utilizing open innovation methods, there clearly is a need to understand the right open innovation tools and processes to maximize the returns from this strategy; one approach does not fit all. This thesis builds a taxonomy of open innovation and discusses its applicability to modern product design processes. This thesis studies the applications and benefits of open innovation in all phases of product design, and suggests strategies for an optimal mix of open and closed innovation processes and tools applicable to modern product design. Challenges in incorporating open innovation and managerial strategies to overcome them are also discussed.