In the last couple of decades, several reasons have started to oust the Closed Innovation model in favor of the spread of Open Innovation. Such factors include but are not limited to globalization, the rise of information technology, the appearance of private venture capitals and the continuously expanding access to knowledge.
According to the father of the term – Henry Chesbrough, “[o]pen innovation is a paradigm that assumes 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.” In other words, the Open Innovation approach puts a stress on blurring firm boundaries and permitting the free flow of knowledge in order to gain full potential of the company’s investment and to maximize its capabilities in innovation and value capture. Apparently, two major facets of the Open Innovation concept could be distinguished – outside-in, which draws external knowledge for “in-house” purposes (i.e. in-licensing), and inside-out (i.e. out-licensing, spin-offs, etc.).
In a broader aspect, Open innovation does not just narrow down to firms, consortia, investors and other economic entities. Even though firms are the main focus of attention in OI literature, the concept involves actors from different backgrounds, such as: academia, government and public institutions, individuals/users, even whole communities etc.
- The central problem for management is how to maximize the returns through internal innovation while following the Open Innovation (OI) model. OI is not just the increase on the informational input of the firm, but requires an appropriate utilization of the drawn knowledge. Therefore, finding the perfect equilibrium between inward and outward OI in order to maximize profit is a major challenge;
- Too much openness can have a negative impact on the firm’s long-term innovation process since it might lead to competence and knowledge leakages and decreased control. Closed innovation, on the other hand, deprives companies from a wide range of external benefits, hindering them from realising the full company potential. Thus, an appropriate combination between openness and adequate protection has to be found by management;
- Firms need to become aware of the large number of actors on the scene (academic institutions, public research centers, consumers, competitors, etc.) and decide which corporate agendas can be achieved independently with internal resources and which should be pursued in collaboration. “Spotting” potentially profitable partnerships is another sub-challenge in this process;
- Motivating entities to contribute in the mutual OI effort and to generate valuable knowledge is another key management challenge. This could be achieved by the conventional method of giving financial returns to contributors (identical with the traditional closed innovation model) but other alternatives for ensuring the supply of external knowledge exist too (ensuring fame, professional and personal recognition, satisfaction, ideological motives, etc.).
Resulting Management Techniques
- Firms enhance their competitive intelligence. They tend to sponsor research, become members of trade consortia and scan the horizon for partners and useful ideas and strategies (including competitors and their resources);
- Firms become prone to consult consumers and other non-conventional actors on how to refine their products, or come up with ideas for follow-ups;
- They come up with increasingly complex methods for motivating voluntary contributions in the process of Open Innovation, i.e. providing platforms for users to give ideas on how to better a product they use, etc.;
- Firms accept to let go of IP when this will lead to value capture (spin-offs, patent pools, etc.).