Open Innovation
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Open innovation is a term used to promote an
information age The Information Age (also known as the Computer Age, Digital Age, Silicon Age, or New Media Age) is a historical period that began in the mid-20th century. It is characterized by a rapid shift from traditional industries, as established during ...
mindset toward innovation that runs counter to the
secrecy Secrecy is the practice of hiding information from certain individuals or groups who do not have the "need to know", perhaps while sharing it with other individuals. That which is kept hidden is known as the secret. Secrecy is often controvers ...
and silo mentality of traditional corporate research labs. The benefits and driving forces behind increased openness have been noted and discussed as far back as the 1960s, especially as it pertains to interfirm cooperation in R&D. Use of the term 'open innovation' in reference to the increasing embrace of external cooperation in a complex world has been promoted in particular by
Henry Chesbrough Henry William Chesbrough (born 1956) is an American organizational theorist, adjunct professor and the faculty director of the Garwood Center for Corporate Innovation at the Haas School of Business at the University of California, Berkeley and Mai ...
, adjunct professor and faculty director of the Center for Open Innovation of the
Haas School of Business The Walter A. Haas School of Business, also known as Berkeley Haas, is the business school of the University of California, Berkeley, a public research university in Berkeley, California. It was the first business school at a public university i ...
at the University of California, and Maire Tecnimont Chair of Open Innovation at Luiss. The term was originally referred to as "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". More recently, it is defined as "a distributed innovation process based on purposively managed knowledge flows across organizational boundaries, using pecuniary and non-pecuniary mechanisms in line with the organization's business model". This more recent definition acknowledges that open innovation is not solely firm-centric: it also includes creative consumers and communities of user innovators. The boundaries between a firm and its environment have become more permeable; innovations can easily transfer inward and outward between firms and other firms and between firms and creative consumers, resulting in impacts at the level of the consumer, the firm, an industry, and society. Because innovations tend to be produced by outsiders and
founders Founder or Founders may refer to: Places *Founders Park, a stadium in South Carolina, formerly known as Carolina Stadium * Founders Park, a waterside park in Islamorada, Florida Arts, entertainment, and media * Founders (''Star Trek''), the ali ...
in
startups A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model. While entrepreneurship refers to all new businesses, including self-employment and businesses that never intend t ...
, rather than existing organizations, the central idea behind open innovation is that, in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (i.e. patents) from other companies. This is termed inbound open innovation. In addition, internal inventions not being used in a firm's business should be taken outside the company (e.g. through licensing, joint ventures or
spin-offs Spin-off may refer to: *Spin-off (media), a media work derived from an existing work *Corporate spin-off, a type of corporate action that forms a new company or entity * Government spin-off, civilian goods which are the result of military or gov ...
). This is called outbound open innovation. The open innovation paradigm can be interpreted to go beyond just using external sources of innovation such as customers, rival companies, and academic institutions, and can be as much a change in the use, management, and employment of
intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, cop ...
as it is in the technical and research driven generation of intellectual property. In this sense, it is understood as the systematic encouragement and exploration of a wide range of internal and external sources for innovative opportunities, the integration of this exploration with firm capabilities and resources, and the exploitation of these opportunities through multiple channels. In addition, as open innovation explores a wide range of internal and external sources, it could be not just analyzed in the level of company, but also it can be analyzed at inter-organizational level, intra-organizational level, extra-organizational and at industrial, regional and society (Bogers et al., 2017).


Advantages

Open innovation offers several benefits to companies operating on a program of global collaboration: * Reduced cost of conducting research and development * Potential for improvement in development productivity * Incorporation of customers early in the development process * Increase in accuracy for market research and customer targeting * Improve the performance in planning and delivering projects * Potential for synergism between internal and external innovations * Potential for viral marketing *Enhanced digital transformation *Potential for completely new business models *Leveraging of innovation ecosystems


Disadvantages

Implementing a model of open innovation is naturally associated with a number of risks and challenges, including: * Possibility of revealing information not intended for sharing * Potential for the hosting organization to lose their
competitive advantage In business, a competitive advantage is an attribute that allows an organization to outperform its competitors. A competitive advantage may include access to natural resources, such as high-grade ores or a low-cost power source, highly skilled ...
as a consequence of revealing intellectual property * Increased complexity of controlling innovation and regulating how contributors affect a project * Devising a means to properly identify and incorporate external innovation * Realigning innovation strategies to extend beyond the firm in order to maximize the return from external innovation


Models


Government driven

In the UK, knowledge transfer partnerships (KTP) are a funding mechanism encouraging the partnership between a firm and a knowledge-based partner. A KTP is a collaboration program between a knowledge-based partner (i.e. a research institution), a company partner and one or more associates (i.e. recently qualified persons such as graduates). KTP initiatives aim to deliver significant improvement in business partners’ profitability as a direct result of the partnership through enhanced quality and operations, increased sales and access to new markets. At the end of their KTP project, the three actors involved have to prepare a final report that describes KTP initiative supported the achievement of the project's innovation goals.


Product platforming

This approach involves developing and introducing a partially completed product, for the purpose of providing a framework or tool-kit for contributors to access, customize, and exploit. The goal is for the contributors to extend the platform product's functionality while increasing the overall value of the product for everyone involved. Readily available software frameworks such as a
software development kit A software development kit (SDK) is a collection of software development tools in one installable package. They facilitate the creation of applications by having a compiler, debugger and sometimes a software framework. They are normally specific to ...
(SDK), or an
application programming interface An application programming interface (API) is a way for two or more computer programs to communicate with each other. It is a type of software interface, offering a service to other pieces of software. A document or standard that describes how t ...
(API) are common examples of product platforms. This approach is common in markets with strong
network effect In economics, a network effect (also called network externality or demand-side economies of scale) is the phenomenon by which the value or utility a user derives from a good or service depends on the number of users of compatible products. Net ...
s where demand for the product implementing the framework (such as a mobile phone, or an online application) increases with the number of developers that are attracted to use the platform tool-kit. The high scalability of platforming often results in an increased complexity of administration and quality assurance.


Idea competitions

This model entails implementing a system that encourages competitiveness among contributors by rewarding successful submissions. Developer competitions such as hackathon events and many
crowdsourcing Crowdsourcing involves a large group of dispersed participants contributing or producing goods or services—including ideas, votes, micro-tasks, and finances—for payment or as volunteers. Contemporary crowdsourcing often involves digita ...
initiatives fall under this category of open innovation. This method provides organizations with inexpensive access to a large quantity of innovative ideas, while also providing a deeper insight into the needs of their customers and contributors.


Customer immersion

While mostly oriented toward the end of the product development cycle, this technique involves extensive customer interaction through employees of the host organization. Companies are thus able to accurately incorporate customer input, while also allowing them to be more closely involved in the design process and product management cycle.


Collaborative product design and development

Similarly to product platforming, an organization incorporates their contributors into the development of the product. This differs from platforming in the sense that, in addition to the provision of the framework on which contributors develop, the hosting organization still controls and maintains the eventual products developed in collaboration with their contributors. This method gives organizations more control by ensuring that the correct product is developed as fast as possible, while reducing the overall cost of development. Dr.
Henry Chesbrough Henry William Chesbrough (born 1956) is an American organizational theorist, adjunct professor and the faculty director of the Garwood Center for Corporate Innovation at the Haas School of Business at the University of California, Berkeley and Mai ...
recently supported this model for open innovation in the optics and photonics industry.


Innovation networks

Similarly to idea competitions, an organization leverages a network of contributors in the design process by offering a reward in the form of an
incentive In general, incentives are anything that persuade a person to alter their behaviour. It is emphasised that incentives matter by the basic law of economists and the laws of behaviour, which state that higher incentives amount to greater levels of ...
. The difference relates to the fact that the network of contributors are used to develop solutions to identified problems within the development process, as opposed to new products. Emphasis needs to be placed on assessing organisational capabilities to ensure value creation in open innovation.


In science

In
Austria Austria, , bar, Östareich officially the Republic of Austria, is a country in the southern part of Central Europe, lying in the Eastern Alps. It is a federation of nine states, one of which is the capital, Vienna, the most populous ...
the
Ludwig Boltzmann Gesellschaft The Ludwig Boltzmann Gesellschaft (LBG) is an Austrian network of specialized research institutes that are not part of a university. It was founded in 1961 and named after physicist Ludwig Boltzmann Ludwig Eduard Boltzmann (; 20 February 18 ...
started a project named "Tell us!" about mental health issues and used the concept of open innovation to
crowdsource Crowdsourcing involves a large group of dispersed participants contributing or producing goods or services—including ideas, votes, micro-tasks, and finances—for payment or as volunteers. Contemporary crowdsourcing often involves digita ...
research questions. The institute also launched the first "Lab for Open Innovation in Science" to teach 20 selected scientists the concept of open innovation over the course of one year.


Innovation intermediaries

Innovation intermediaries are persons or organizations that facilitate innovation by linking multiple independent players in order to encourage collaboration and open innovation, thus strengthening the innovation capacity of companies, industries, regions, or nations. As such, they may be key players for the transformation from closed to open modes of innovation.


Versus closed innovation

The paradigm of
closed innovation Before being open, innovation happened in closed environments often performed by individuals, scientists or employees. However, the expression closed innovation was coined later and not before the paradigm of open innovation became popular by work ...
holds that successful innovation requires control. Particularly, a company should control the generation of their own ideas, as well as production, marketing, distribution, servicing, financing, and supporting. What drove this idea is that, in the early twentieth century, academic and government institutions were not involved in the commercial application of science. As a result, it was left up to other corporations to take the
new product development In business and engineering, new product development (NPD) covers the complete process of bringing a new product (business), product to market, renewing an existing product or introducing a product in a new market. A central aspect of NPD is prod ...
cycle into their own hands. There just was not the time to wait for the scientific community to become more involved in the practical application of science. There also was not enough time to wait for other companies to start producing some of the components that were required in their final product. These companies became relatively self-sufficient, with little communication directed outwards to other companies or universities. Throughout the years several factors emerged that paved the way for open innovation paradigms: * The increasing availability and mobility of skilled workers * The growth of the venture capital market * External options for ideas sitting on the shelf * The increasing capability of external suppliers These four factors have resulted in a new market of knowledge. Knowledge is not anymore proprietary to the company. It resides in employees, suppliers, customers, competitors and universities. If companies do not use the knowledge they have inside, someone else will. Innovation can be generated either by means of closed innovation or by open innovation paradigms. There is an ongoing debate on which paradigm will dominate in the future.


Terminology

Modern research of open innovation is divided into two groups, which have several names, but are similar in their essence (discovery and exploitation; outside-in and inside-out; inbound and outbound). The common factor for different names is the direction of innovation, whether from outside the company in, or from inside the company out: ;Revealing (non-pecuniary outbound innovation) This type of open innovation is when a company freely shares its resources with other partners, without an instant financial reward. The source of profit has an indirect nature and is manifested as a new type of business model. ;Selling (pecuniary outbound innovation) In this type of open innovation a company commercialises its inventions and technology through selling or licensing technology to a third party. ;Sourcing (non-pecuniary inbound innovation) This type of open innovation is when companies use freely available external knowledge, as a source of internal innovation. Before starting any internal R&D project a company should monitor the external environment in search for existing solutions, thus, in this case, internal R&D become tools to absorb external ideas for internal needs. ;Acquiring (pecuniary inbound innovation) In this type of open innovation a company is buying innovation from its partners through licensing, or other procedures, involving monetary reward for external knowledge


Versus open source

Open source Open source is source code that is made freely available for possible modification and redistribution. Products include permission to use the source code, design documents, or content of the product. The open-source model is a decentralized sof ...
and open innovation might conflict on patent issues. This conflict is particularly apparent when considering technologies that may save lives, or other open-source-appropriate technologies that may assist in
poverty Poverty is the state of having few material possessions or little income. Poverty can have diverse social, economic, and political causes and effects. When evaluating poverty in ...
reduction or
sustainable development Sustainable development is an organizing principle for meeting human development goals while also sustaining the ability of natural systems to provide the natural resources and ecosystem services on which the economy and society depend. The des ...
. However,
open source Open source is source code that is made freely available for possible modification and redistribution. Products include permission to use the source code, design documents, or content of the product. The open-source model is a decentralized sof ...
and open innovation are not mutually exclusive, because participating companies can donate their patents to an independent organization, put them in a common pool, or grant unlimited license use to anybody. Hence some open-source initiatives can merge these two concepts: this is the case for instance for IBM with its '' Eclipse'' platform, which the company presents as a case of open innovation, where competing companies are invited to cooperate inside an open-innovation network. In 1997,
Eric Raymond The given name Eric, Erich, Erikk, Erik, Erick, or Eirik is derived from the Old Norse name ''Eiríkr'' (or ''Eríkr'' in Old East Norse due to monophthongization). The first element, ''ei-'' may be derived from the older Proto-Norse ''* ain ...
, writing about the open-source software movement, coined the term ''the cathedral and the bazaar''. The cathedral represented the conventional method of employing a group of experts to design and develop software (though it could apply to any large-scale creative or innovative work). The bazaar represented the open-source approach. This idea has been amplified by a lot of people, notably
Don Tapscott Don Tapscott (born June 1, 1947) is a Canadian business executive, author, consultant and speaker, who specializes in business strategy, organizational transformation and the role of technology in business and society. He is the CEO of the Tapsc ...
and Anthony D. Williams in their book
Wikinomics ''Wikinomics: How Mass Collaboration Changes Everything'' is a book by Don Tapscott and Anthony D. Williams, first published in December 2006. It explores how some companies in the early 21st century have used mass collaboration and open-sourc ...
. Eric Raymond himself is also quoted as saying that 'one cannot code from the ground up in bazaar style. One can test, debug, and improve in bazaar style, but it would be very hard to originate a project in bazaar mode'. In the same vein, Raymond is also quoted as saying 'The individual wizard is where successful bazaar projects generally start'.


The next level

In 2014, Chesbrough and Bogers describe open innovation as a distributed innovation process that is based on purposefully managed knowledge flows across enterprise boundaries. Open innovation is hardly aligned with the ecosystem theory and not a linear process. Fasnacht's adoption for the financial services uses open innovation as basis and includes alternative forms of mass collaboration, hence, this makes it complex, iterative, non-linear, and barely controllable. The increasing interactions between business partners, competitors, suppliers, customers, and communities create a constant growth of data and cognitive tools. Open innovation ecosystems bring together the symbiotic forces of all supportive firms from various sectors and businesses that collectively seek to create differentiated offerings. Accordingly, the value captured from a network of multiple actors ''and'' the linear value chain of individual firms combined, creates the new delivery model that Fasnacht declares "value constellation".


Open innovation ecosystem

The term Open Innovation Ecosystem consists of three parts that describe the foundations of the approach of open innovation, innovation systems and business ecosystem

While
James F. Moore James F. Moore studies co-evolution in social and economic systems. He is best known for pioneering the Business ecosystem approach to studying networks of organizations that together constitute a system of mutual support and that co-evolve contr ...
researched business ecosystems in manufacturing around a specific business or branch, the open model of innovation with the ecosystem theory was recently studied in various industries. Traitler et al. researched it 2010 and used it for R&D, stating that global innovation needs alliances based on compatible differences. Innovation partnerships based on sharing knowledge represents a paradigm shift toward accelerating co‐development of sustainable innovation. West researched open innovation ecosystems in the software industry, following studies in the food industry that show how a small firm thrived and became a business success based on building an ecosystem that shares knowledge, encourages individuals' growth, and embeds trust among participants such as suppliers, alumni chef and staff, and food writers. Other adoptions include the telecom industry or smart cities. Ecosystems foster collaboration and accelerate the dissemination of knowledge through the
network effect In economics, a network effect (also called network externality or demand-side economies of scale) is the phenomenon by which the value or utility a user derives from a good or service depends on the number of users of compatible products. Net ...
, in fact, value creation increases with each actor in the ecosystem, which in turn nurtures the ecosystem as such. A digital platform is essential to make the innovation ecosystem work as it aligns various actors to achieve a mutually beneficial purpose. Parker explained that with platform revolution and described how networked Markets are transforming the economy. Basically there are three dimensions that increasingly converge, i.e. e-commerce, social media and logistics and finance, termed by Daniel Fasnacht as the ''golden triangle of ecosystems''. Business ecosystems are increasingly used and drive digital growth. and pioneering firms in China use their technological capabilities and link client data to historical transactions and social behaviour to offer tailored financial services among luxury goods or health services. Such open collaborative environment changes the client experience and adds value to consumers. The drawback is that it is also threatening incumbent banks from the U.S. and Europe due to its legacies and lack of agility and flexibility.


See also

* :Open innovation intermediaries *
Collaborative innovation network Collaborative innovation is a process in which multiple players contribute towards creating new products with customers and suppliers. Collaboration can occur in all aspects of the business cycle, depending on the context: * Procurement and suppl ...
*
Collaborative network A collaborative network is a network consisting of a variety of entities (e.g. organizations and people) that are largely autonomous, geographically distributed, and heterogeneous in terms of their operating environment, culture, social capital an ...
*
Frugal innovation Frugal innovation or frugal engineering is the process of reducing the complexity and cost of a good and its production. Usually this refers to removing nonessential features from a durable good, such as a car or telephone, in order to sell it in d ...
*
Ideas bank An ideas bank is a widely available shared resource, usually a website, where people post, exchange, discuss, and polish new ideas. Some ideas banks are used to develop new inventions or technologies. Many corporations have installed internal id ...
*
Innovation Innovation is the practical implementation of ideas that result in the introduction of new goods or services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a new or changed entity ...
*
Innovation intermediary Innovation Intermediaries is a concept in innovation studies to help understand the role of firms, agencies and individuals that facilitate innovation by providing the bridging, brokering, knowledge transfer necessary to bring together the range of ...
*
Open-source appropriate technology Open-source appropriate technology (OSAT) is appropriate technology developed through the principles of the open-design movement. Appropriate technology is technology designed with special consideration to the environmental, ethical, cultural, so ...
*
Open data Open data is data that is openly accessible, exploitable, editable and shared by anyone for any purpose. Open data is licensed under an open license. The goals of the open data movement are similar to those of other "open(-source)" movements ...
*
Open research Open research is research that is openly accessible and modifiable by others. The central theme of open research is to make clear accounts of research methods freely available via the internet, along with any data or results extracted or derived ...
*
Open-source hardware Open-source hardware (OSH) consists of physical artifacts of technology designed and offered by the open-design movement. Both free and open-source software (FOSS) and open-source hardware are created by this open-source culture movement and a ...
*
TED (conference) TED Conferences, LLC (Technology, Entertainment, Design) is an American-Canadian non-profit media organization that posts international talks online for free distribution under the slogan "ideas worth spreading". TED was founded by Richard Sau ...


References

* * * * * *


External links

*
Innovative Ideas Sources
* *How to Reap the Benefits of the “Digital Revolution”? Modularity and the Commons. 2019. By Vasilis Kostakis, published in ''Halduskultuur: The Estonian Journal of Administrative Culture and Digital Governance'', Vol 20(1):4–19, doi = 10.32994/hk.v20i1.228 . Bogers, M., Zobel, A-K., Afuah, A., Almirall, E., Brunswicker, S., Dahlander, L., Frederiksen, L., Gawer, A., Gruber, M., Haefliger, S., Hagedoorn, J., Hilgers, D., Laursen, K., Magnusson, M.G., Majchrzak, A., McCarthy, I.P., Moeslein, K.M., Nambisan, S., Piller, F.T., Radziwon, A., Rossi-Lamastra, C., Sims, J. & Ter Wal, A.J. (2017). The open innovation research landscape: Established perspectives and emerging themes across different levels of analysis. Industry & Innovation, 24(1), 8-40. {{Open navbox Innovation Crowdsourcing Free culture movement Business models