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In the early years, Gassmann stated that in order to generate competitiveness, companies rarely resort to share innovative results. Over the years, although many firms still continue to invest large considerable resources in Research & Development (R&D) to seek new innovative opportunities on their own, Wallin & Krogh (2010) observed a change, which is the rising trend of increasing number of firms started to follow the phenomenon of "open innovation"
According to Huizingh (2010) 'Open innovation has become one of the hottest topics in innovation management.' Hence, a need to look into the concept of open innovation that signify a new model for organizing technological innovation in large R&D intensive companies (Chesbrough 2003, cited in Christensen et al. 2005, p. 1533). Instead of sustaining in the old model, known as closed innovation, in contrast allowing open innovation to attract more and more companies to consider moving towards it.
This paper addresses the notion behind open and closed innovation, its business models and highlighting the pros and cons of each principle. Presenting the importance for a company to consider moving towards an open innovation business model, what are the costs as well as ways it can be implemented in practice. In relevance, two case companies would be analysed in depth regarding their attempt to implement an open innovation approach. The paper concludes withâ€¦â€¦.
2. Open Innovation
The term for open innovation generally refers to the opening up of the innovation process; it is a description of a paradigm shift from a closed to an open model (Chesbrough 2003a, cited in Chesbrough et al. 2006). Wallin and Krogh (2010) conceptualised open innovation as the exchanging of ideas, knowledge and technology of companies with external parties in order to improve their efficiency.
On the other hand, the most seen definition of open innovation would be by Henry Chesbrough, Chesbrough et al. (2006) 'Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.', also suggested that valuable ideas may come from both internal and external of the company and similarly applied to the paths to market, which can be seen cited in several articles (e.g. Huizingh 2011; Chiaroni et al. 2011; Dahlander and Gann 2010).
The topic on open innovation is most often compared and contrasted to closed innovation, as in the past, most firms practice closely to the closed innovation model and had succeeded in it. Nevertheless, in the last decade the rising trends such as globalization, outsourcing and flexibility encouraged increasing number of firms to concentrate on core competencies to gain competitive advantage, resulting in the outdated of 'do-it-yourself' mentality of innovation management Gassman (2006).
Open Innovation involves two processes which are namely the inbound open innovation and outbound open innovation. Further reading would define and touch on the advantages and disadvantages of these two different processes.
2.1 Inbound Open Innovation
They key to inbound (ourside-in) open innovation is the process of bringing in ideas, technology and resources to enhance and develop the business Linegaard (2010). (Chesbrough and Crowther 2006, Chiaroni et al. 2011) define inbound process as 'the practice of leveraging the discoveries of others', it is to open up and gain from the external knowledge for internal use to improve the business of the firm as well as to avoid over reliance to their own internal R&D. A popular example would be Apple Inc., with the combination of their own expertise and skills with those found outsideÂ the organization to deliver the resultÂ of their product, the Ipod.
There are basically two types of inbound innovation, which are acquiring and sourcing respectively. Acquiring can be understood as firms apply the method of licensing-in to acquire and expand their expertise from the knowledge outside (Dahlander and Gann (2010), whereas sourcing is the use of existing ideas and technologies found externally by scanning the external environment preceding the initiative to internal R&D work (Chesbrough et al. 2006).
2.2 Outbound Open Innovation
The reverse term of inbound open innovation, outbound (inside-out) open innovation is defined as the external exploitation of innovation opportunities of internal knowledge. Similarly (Chesbrough and Crowther 2006, Chiaroni et al. 2011) describe the outbound process as 'rather than relying entirely on internal paths to market, companies can look for external organizations with business models that are better suited to commercialize a give technology'. An example would be Royal Philips Electronics, making their own skills and resources available to the external through methods such and contracts and intellectual property (IP) licensing.
Two types of outbound innovation are selling and revealing, selling in which firms make profit from selling or licensing out their inventions, technologies and resources and revealing refers to ' how internal resources are revealed to the external environment'(Dahlander and Gann (2010).
Closed innovation refers to the closed of both process and outcome and where a proprietary innovation is developed in-house (Chesbrough 2003a, cited in Huizingh 2011).
Attained competitive advantage by funding large research laboratories, form basis of new products that commanded high profit margins plowed back into research.
Ways to implement Open Innovation
Advantages and Disadvantages of Inbound Open Innovation (Dahlander and Gann (2010)
Able to build upon each other's work resulting a stream of innovations- Collective invention (Allen 1983)
Able to capture profits from an innovation
Absence of strong IPR means better chance of advancements E.g. Wikipedia
Focus less on ownership, increase the interest of other parties
Evidence of success
Full leverage in R&D
Difficult to capture increasing benefits
Tedious task to choose what internal knowledge to disclose
Easier for large companies to structure in making decisions E.g. Files to patent or disclose
Possible occurrence of market failure due to reluctance to reveal changes
Confidential information may be revealed to licensee in a licensing agreement - Solution: IP rights through patents
Struggle to compromise when involving two or more parties
Transaction costs in transferring technologies
Difficult to estimate potential value of out-licensing
Companies might over commit in areas they invested
Many firms lack in the ability to put licensing into practice
Advantages and Disadvantages of Outbound Open Innovation (Dahlander and Gann (2010)