The Open Innovation(OI) paradigm is based on the assumption that the collective intelligence of a group of people exceeds that of a single individual in terms of ideas, resources and knowledge. Thus, OI involves to a great extent the element of collaborative development. Both inward and outward OI narrow down to joint efforts from participating stakeholders. Inward OI involves partnerships, the product of which is beneficial for two or more of the participants. For example, in-licensing requires licensing payments, which typically have two components – a fixed fee and a variable component: a royalty over the gross or net revenues (in percent) or the sold units (fixed amount per unit). This dual character of the payments is designed to share the risk between parties and maximise their commitment and mutual effort in the contractual relationship.
Outward OI, on the other hand, involves sharing internal assets, the external exploitation of which is expected to increase the profit for all participants. Such was the case of Procter & Gamble engaging in a joint-venture with Clorox Co., creating the plastic wrap Glad Company. P&G had the IP rights behind an innovative technology and Clorox occupied the leading position in this market segment. In this way, although rivals, the collaboration between the two led to a hugely successful joint enterprise, which profited both participants, without harming their individual market integrity.
Nonetheless, the quid pro quo character of the paradigm may lead to social dilemma situations, in which the selfish actions of one or more individual actors results in a “freeze” or a withdrawal from the whole collaborative OI project. On the other hand, a central problem for the OI rationale is how to organize this collective intelligence and motivate participants to contribute in the collaborative project.