A critical examination of open innovation theory and practice.
Jonash R.S & Sommerlatte.T. (1999) refer to Joseph Schumpeters’ view on innovation; he defined innovation as “encompassing the entire process, starting from a kernel of an idea continuing through all the steps to reach a marketable product that changes the economy.” However in this current economic climate there are ranging views on the area of innovation differing in many ways. In theory there are two types of innovation; Open Innovation and Closed Innovation.
Closed Innovation was the initiative that all innovation took place within the workforce. That a company should be able to control and implement their own ideas, produce the product, market it, distribute it, service and finance it and support it solely within the organisation. The characteristics of open innovation were that the employees were very intelligent thus able to process everything needed without external help. Research and development was a key focus as management seen this as the area which would be most profitable. Companies felt that controlling their IP would disable competitors from profiting from their ideas. However they had to be the first to discover products and new ideas which proved to be quite difficult. Chesbrough discovered that several factors lead to the erosion of closed innovation. These included better education thus highly intelligent students, venture capital was available and other companies among the supply chain have an insight now. As a result of this firm have taken other approaches to innovation and gained the help of external sources to achieve a more efficient and effective innovation process, this was seen by “Open Innovation”. Fowles and Clark (2005:46) denote that “Many innovative companies relied almost entirely on their in-house scientists and assessed their innovation ability based on the number of patents turned out in a year.” Firms, mainly those in the technology industry, are starting to move away from this traditional model of closed innovation and are experimenting in open innovation. A good example of this is IBM, a well-known company that has moved away from the closed model and released five hundred patents in order to adopt open innovation. The term Open Innovation was coined by Henry Chesbrough in 2003. Chesbrough defines this new information paradigm as (2004:23): The Open Innovation paradigm assumes that firms can and should use external as well as internal ideas, and internal and external paths to market, as they look to advance their technology. Open Innovation assumes that internal ideas can also be taken to market through external channels, outside a firm's current businesses, to generate additional value Chesbrough outlines that in order for companies to stay competitive, they should reevaluate their business model so that ideas can be created within their organisation and can be shared or sold to other users of infornation therefore these ideas can progress. Likewise he believes that through sharing information, organisations can gain new knowledge, that they perhaps did not have the facilities to progress on their own. Marketing Week claims (2008:17) “At its heart is a belief that the seeds of innovation are more likely to be found outside businesses than within.” One of the main reasons for the shift from closed innovation to open is the rising cost of Research and Development (R&D) within traditional closed structure. Chesbrough (2007:24) states that “The rising costs of technology development would imply that only the big will get bigger” This therefore would leave little if not no room for emerging innovations in the market place, if they were not introduced by one of the bigger corporations. For example Intel shares their costs and risks with other companies this in turn helps them gain a competitive advantage by developing new products while their rival firms remain stationary by only focusing on their cash cows. With...
References: Jonash, R.S. & Sommerlatte, T. (1999). The innovation premium. How next
generation companies are achieving peak performance and profitability. Reading: Perseus Books
Chesbrough, H.W. (2003). Open Innovation: The new imperative for creating and profiting from technology. Boston: Harvard Business School Press
Fowles, S. & Clark, W. 2005, "INNOVATION NETWORKS: GOOD IDEAS FROMEVERYWHERE IN THE WORLD", Strategy & Leadership, vol. 33, no. 4, pp.46
Chesbrough, H.W. 2007, "WHY COMPANIES SHOULD HAVE OPEN BUSINESSMODELS",
MIT Sloan Management Review,
vol. 48, no. 2, pp. 22
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