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Open innovation is a term promoted by Henry Chesbrough, adjunct professor and faculty director of the Center for Open Innovation at the Haas School of Business at the University of California, in a book of the same name, though the idea and discussion about some consequences (especially the interfirm cooperation in R&D) date as far back as the 1960s. Some instances of open innovation are Open collaboration, a pattern of collaboration, innovation, and production. The concept is also related to user innovation, cumulative innovation, know-how trading, mass innovation and distributed innovation.
“Open 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”. Alternatively, it is "innovating with partners by sharing risk and sharing reward." The boundaries between a firm and its environment have become more permeable; innovations can easily transfer inward and outward.
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. 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).
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 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.
Open innovation offers several benefits to companies operating on a program of global collaboration:
Implementing a model of open innovation is naturally associated with a number of risk and challenges, including:
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 (SDK), or an application programming interface (API) are common examples of product platforms. This approach is common in markets with strong network effects 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.
This model entails implementing a system that encourages competitiveness among contributors by rewarding successful submissions. Developer competitions such as hackathon events 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.
While mostly orientated towards 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.
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 recently supported this model for open innovation in the optics and photonics industry.
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. 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.
The paradigm of closed innovation 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 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:
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.
Open source 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 reduction or sustainable development. However, open source 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, 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 and Anthony D. Williams in their book Wikinomics. 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'.
Open-source specialist François Letellier advocates that open source (or free software) is a natural way of innovation in the software industry and that it is an exemplary and very effective form of open innovation, with open-source projects/communities act as innovation intermediaries.