Open innovation
Open innovation is a collaborative approach to innovation that emphasizes leveraging knowledge from both internal and external sources to develop new products and services. This concept, first popularized by Henry Chesbrough in 2003, contrasts with traditional innovation models where research and development are confined within a company. Open innovation recognizes that external collaborations, such as partnerships, licensing agreements, and joint ventures, can often be more effective in bringing innovations to market.
The model is informed by the increasing availability of information due to technological advancements and the greater mobility of skilled workers, which allows knowledge to flow more freely across organizations. Additionally, customers and users are recognized as valuable sources of innovative ideas. While open innovation presents opportunities for shared risk and reward, it also introduces challenges, such as the potential loss of competitive advantage and the complexity of managing intellectual property. Overall, open innovation represents a paradigm shift in how businesses approach the development and deployment of new ideas, encouraging them to rethink their relationships with intellectual property and external partners.
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Subject Terms
Open innovation
The traditional model of innovation holds that innovation, research, and development are activities that take place within a company. The knowledge that is leveraged to develop new innovations comes from the employees who work at the company, and the firm then seeks to capitalize on the innovative developments by protecting that innovation. This is contrasted with open innovation, which leverages knowledge both internal and external to the company. Open innovation acknowledges that the firm may not always be the only vehicle for bringing innovations to market. Licensing, collaboration, and joint ventures (JVs) or even spin-off companies are all valid and potentially more appropriates way to utilize knowledge than having it remain in-house.
Overview
The term open innovation was first articulated and championed in 2003 by Henry Chesbrough, executive director at the Center for Open Innovation at the University of California, Berkeley, although its roots can be traced back to collaboration between select companies in the 1960s. Chesbrough defines open innovation as a model in which knowledge both internal and external to the firm is leveraged to bring new products and services to market. This paradigm promotes both internal and external routes to market.
One of the central ideas of open innovation is that information availability has increased dramatically with the evolution of communications in the workplace due mainly to technological advances. Furthermore, with changes to the labor market resulting in people changing jobs more frequently than in previous generations, highly intelligent people are now more mobile than ever. This means that by default, knowledge is more widely distributed than before, and it becomes riskier for firms to rely on their own internal knowledge without reference to innovation taking place in other firms and other sectors. Innovation can also come from other sources external to the firm; customers and users of products and services may also be sources of new processes, strategies, or products. This is combined with a changing business environment in which venture capital to finance innovation and for entrepreneurial start-ups is more prevalent than ever. Through joint-ventures, licensing agreements, or spin-off companies, knowledge generated by—but not used by—a firm can be capitalized upon in an appropriate business vehicle
Open innovation changes a company’s relationship with intellectual property. Rather than seeing it as something to create, guard, defend, and protect, open innovation values intellectual property that resides outside the company and realizes that it should be licensed when it advances a company’s position. It also acknowledges that businesses may not have the capability or capacity to fully utilize all the intellectual property developed in-house and that there is value in licensing this intellectual property to others.
The possible benefits of open innovation are numerous. Because there are substantial risks and costs associated with research and development, partnering with others shares this investment and research risk. Successful innovation also means shared rewards. Hand-in-hand with exploring new products and services, Chesbrough encourages companies to explore new models in which to deploy innovation. One of these fast-developing models still being explored is called rapid business model prototyping.
The model also holds potential disadvantages compared to traditional closed innovation. The broadest concern is that sharing intellectual property may result in a company's loss of sustainable competitive advantage. Additionally, attempting open innovation may require considerable resources to ensure the process is carried out appropriately and advantageously, thereby increasing costs, and may also create a more complicated system for tracking and analyzing innovation.
Bibliography
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Chesbrough, Henry, Wim Vanhaverbeke, and Joel West. Open Innovation: Researching a New Paradigm Oxford: Oxford UP, 2006. Print.
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