Internal (“closed”) innovation was the dominant paradigm amongst commercial entities in the recent past. The term was not familiar back then but was coined after the appearance of the opposed concept of Open Innovation in 2003[1]. Organizations employing the traditional closed innovation model rely heavily on internal resources to drive their innovation and scarcely turn to external knowledge. Closed innovation postulates the company’s complete control over the whole process, leading to innovation. This includes conducting sole in-house research for own development needs, strictly keeping the developed IP out of external reach; ensuring qualified employees stay within the company to ensure a productive long-term R&D cycle; etc. The corporate culture which can be seen in closed innovation communities includes the apriori assumption that any solutions developed outside the company frame are unreliable (the so-called ‘Not-Invented-Here’ syndrome), and the understanding that the company’s most valuable and resource-worthy IP (also called crown-jewel) is not to be disclosed under any circumstances to third parties.

Related Managerial Challenges:

  • Resource allocation and market barriers. Closed innovation requires the setup and maintenance of internal R&D departments, which oblige companies to make large investments in order to supply their need for innovation. This could be perceived as an entry-barrier for any new competitors, willing to step on the market. Thus, an environment, in which all major actors employ closed innovation favours market monopoly and excludes any newcomers;
  • Ideas down the drain. The strict control over the company’s intellectual property results in “shelfing” research products, not taken over by development for whatsoever reasons, thus denying the company or the inventor to capture any potential value from them;
  • Long term-planning. The allocation of large resources for own R&D activities necessitates a careful assessment of the long-term return of the capital invested. This includes the uncertainty that the research results can be successfully migrated to the development process. Thus, closed innovation entails larger risk for companies during their innovation process;
  • High levels of patent costs. Vigorously protecting IP company products calls for the patenting of every research product and a constant process of patent maintenance and enforcement against infringers. This entails considerable costs for the patent owner, especially in jurisdictions in which the overall sum of patent fees reaches considerable heights.

Resulting Management Techniques

  • IP autonomy. Companies focus only on selling but never buying IP resources. They create what they need and use it for their own purposes exclusively;
  • Fight for the cream of the crop. Companies compete to attract the experts in the field for their use only and are prone to invest larger resources in human capital;
  • Adoption of a straight-forward approach, which has no interest in horizontal collaborative efforts or the exchange of ideas.

[1] Chesbrough H., Open Innovation: The new imperative for creating and profiting from technology, 2003, Harvard Business School Press, ISBN 9781578518371