Innovation and entrepreneurship are at the heart of "creative destruction". In his book, Open Innovation, Henry Chesbrough describes a new paradigm of open innovation that is in contrast to the traditional closed model. To understand open innovation, it is worthwhile to review the older model of closed innovation.
The Closed Innovation Model
Under the concept of innovation that prevailed during most of the 20th century, companies attained competitive advantage by funding large research laboratories that developed technologies that formed the basis of new products that commanded high profit margins that then could be plowed back into research. This vertical integration of the research function meant that firms that could not afford such research were at a disadvantage. The vertically integrated concept of the research and development pipeline is depicted in the following diagram: Closed Innovation Concept
In the above diagram, the red lines represent completed research projects, some of which may have resulted in patents, but that never made it to development. This often is the situation if the innovation is not useful to the company's core business. Such completed research projects often are shelved until a market opportunity arises to use them, if such an opportunity arises at all. Chesbrough observed that this closed model began to change in the 1990's, when firms such as Cisco Systems competed very effectively with research-endowed companies such as Lucent Technologies (which inherited most of Bell Labs).
Erosion of the Closed Innovation Paradigm
There now are many famous cases in which companies have developed disruptive technologies but have nonetheless failed to capitalize on them. One reason for failure is that managers often wrongly assume that just because customers are fascinated by an innovation, there also exists a corresponding business model. Henry Chesbrough used the Xerox Palo Alto Research Center (PARC) as an...
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