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Open Innovation

The traditional approach to innovation is that this occurs inside the firm with no interaction with external sources. This ‘closed innovation’ philosophy usually reflects management concerns over confidentiality and avoiding pre-emptive actions by competition. In the face of increasing technological complexity and the need to optimise the acquisition of new knowledge, some organisations are engaging in ‘open innovation’ involving collaboration with external parties (Chesbrough 2003).

Huang et al. (2010) posited that open innovation enables an organisation to be more effective in both creating new products and enhancing existing value-added activities. They proposed that the process creates value by leveraging many more ideas from a variety of external sources and allows greater value capture in the utilisation of the firm’s existing assets (Chesbrough 2007). Christensen et al. (2002) argued that firms manage open innovation in different ways depending on (1) their position in the innovation system, (2) the stage of product/service maturity and (3) the scale of the value proposition.

Lichtenthaler (2009) explained that open innovation is very useful when an organisation is seeking to accelerate market acceptance for a new technology or new market standard. He found that firms which emphasise radical innovation are not always able to develop all the required knowledge internally. Therefore, there is a need to rely on complementary external sources to support the creation of a commercially viable new proposition. Lazzarotti et al. (2010) posited that as firms increase their R&D activities this will accompanied by more involvement in forming collaborative links with other organisations. In their view open innovators often choose an aggressive technology with the aim of becoming a first mover in existing or new markets. Lichtenthaler (2008), proposed the following actions may increase the effectiveness of open innovation:

  • 1. Incorporate external thinking into the strategic planning process.
  • 2. Convert planning outcomes into a set of prioritised project briefs.
  • 3. Utilise a structured process for the Make/Buy/Partner decisions.
  • 4. Look inside the company first when seeking new ideas.
  • 5. Treat collaborative idea searches as a mutually beneficial process.
  • 6. As new data is acquired, use it to update and further refine the project brief.
  • 7. Establish and maintain alignment with all internal and external relationships.
  • 8. Use a structured process for planning and negotiation.
  • 9. Negotiate with a focus on ‘win-win’ outcomes.

Open innovation may involve a large number of different actors. This approach is known as a ‘boundary spanning activity’. There are two key dimensions influencing the innovation process; namely the number of partners involved and the internal versus external focus of the innovation programme. The risk facing firms, especially in high-tech sectors, is that by a relying too heavily on closed innovation, they may miss new market opportunities. This is because many new opportunities may fall outside of the organisation’s current business activities and technological competence, or can only be exploited by working with other organisations (Chesbrough 2007). To avoid this outcome, management should recognise that the boundary between a firm and the surrounding environment must be porous, enabling the development of a collaborative approach to knowledge exploitation.

Some high-tech firms are exploiting social media platforms to create open innovation approaches that can provide access to a wider source of new knowledge and ideas. This is known as ‘crowd sourcing’, and one of the leading players in it is the American corporation Cisco. It initiated its first online idea-generation competition in 2007. The first competition generated 2500 ideas from 104 different countries (Ebner et al. 2009).

Van de Meer (2007) demonstrated that innovative Dutch companies operating in both high-tech and low-tech industries have successfully adapted their culture and knowledge management systems to cope with engaging in open innovation. Chesbrough and Crowther (2006) documented the adoption of open innovation in mature and consolidated industries, concluding that firms mainly employ inbound open innovation to optimise project development and create growth opportunities through the identification of promising new technologies. Lazzarotti and Manzini (2009) concluded that open innovation is not an ‘all-or- nothing’ approach, because a continuum exists between open and closed innovation. This means firms have several alternatives in relation to utilising this management paradigm.

Chesbrough and Crowther noted that low-tech and mature firms mainly use open innovation to in-source relevant knowledge and technologies, whereas outbound open innovation is far less widespread among these types of firm. Kang and Kang (2009) identified three inbound sourcing methods: information transfer from informal networks, R&D collaboration and technology acquisition. Simard and West (2006) distinguished between deep ties, which enable a firm to capitalise on existing knowledge and resources, and wide ties which are more appropriate for locating new technological and market opportunities. Collaborations can have explorative or exploitative purposes and this will tend to be reflected in the type of actors in an innovation network. Dittrich and Duysters (2007) opined that explorative collaboration seems to require weaker ties. This implies a more informal way of working, in comparison with exploitative collaborations, which are based instead on established and formalised interorganisational relationships.

Buganza et al. (2011) studied eight Italian firms known to be early adopters of open innovation. They examined the inbound dimension of how links to an ‘external organisation’ are established to access new knowledge and technologies. They collected evidence at three levels: (1) the purpose for creating the network and the types of actors with which the firm mainly establishes collaborations, (2) the types of ties established with external partners and (3) the process of creation of the network. Dissimilarities between firms operating in different industries were identified. Firms working in industries with low R&D intensity tend to create their open innovation networks with the aim of exploring new trajectories and innovation opportunities to employ new technologies in their existing markets. In contrast, firms operating in industries characterised by high R&D intensity are also focused upon exploiting their current technologies when entering into interorganisational networks. Presumably this approach has the aim of improving existing products in order to compensate for their high investment in research activities.

Buganza et al. observed the prevalence of weak ties to support exploration activities of firms working in low R&D intensity industries, with a number of new actors continuously entering the network and replacing previous partners. Through these interorganisational relationships, these firms attempted to put together the different pieces of knowledge which they lacked and that are usually very different from project to project. In contrast, firms in high R&D intensity industries tended to develop new knowledge together with the actors of the network and therefore to establish deeper ties with their partners. Low R&D intensity firms were found to use open innovation to explore new technologies, which they did not want to manage internally because of factors such as cost, flexibility and research effectiveness.

In relation to organisational structure, firms established completely new units dedicated to open innovation or re-organised existing units to deal with the new approach. The aim of the new or revised structures was to strengthen the systematic scanning of available technologies and ideas coming from inside as well as outside the firm, and enhance evaluation of new innovation alternatives.

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