Wednesday, June 13, 2012

Open vs Closed Innovation - What is the Difference? - Which is Better?

Open innovation

Although the idea and discussion about some consequences (especially the interfirm cooperation in R&D) date back at least to the 60s, open innovation is a term promoted by Henry Chesbrough, a professor and executive director at the Center for Open Innovation at the University of California, Berkeley, in his book Open Innovation: The new imperative for creating and profiting from technology.[1] The concept is related to user innovation,cumulative innovationknow-how tradingmass 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”[2] or "Innovating with partners by sharing risk and sharing reward."[3]. 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)[4].

Closed versus open innovation

The paradigm of closed innovation says that successful innovation requires control. A company should control (the generating of) their own ideas, as well as production, marketing, distribution, servicing, financing, and supporting. The main cause behind this idea is that, in the beginning of the twentieth century, universities and government were not involved in the commercial application of science. Some companies therefore decided to do it all on their own. They created their own research and development departments to be able to control the whole new product development (NPD) cycle inside the company. 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 ‘castles’, 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.[1][4] There is an ongoing debate on which paradigm will dominate in the future.
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Open source versus open innovation

While open source and open innovation might conflict on patent issues, they are not mutually exclusive, as 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 the two concepts, this is the case for instance for IBM with its Eclipse platform which IBM is advocating as a case of open innovation, where competing companies are invited to co-operate inside an open innovation network.[5]
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[6] 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 – as open-source projects/communities act as innovation intermediaries.
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See also


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