The rise of the open paradigm


Open Innovation model has been introduced by Chesbrough to address this issue that why former leading multinationals like Philips, Xerox and IBM was not able to reap the full benefits of their hefty R&D expenditures, and how relatively new-born firms like Intel were able to grow rapidly in the past decades. In fact, a paradigm modification which occurred in recent years led us to experience development in commercializing innovations. The 'old' closed innovation model requires control. In other words, it demands that enterprises must generate their own ideas and then develop, market, distribute, and support them on their own. The closed paradigm convoys this message that enterprises should be strongly self-reliant, since we cannot be sure of availability and capability of others` ideas. This paradigm focuses on investing in internal innovation which leads to breakthrough innovative achievements. These innovations enable the firms to introduce new products to the market in order to get higher margins because of these products. This cycle of internal investment continues to bring further breakthroughs. Firms closely protect their intellectual properties that arise from these internal innovations; therefore rivals can barely exploit these ideas for their own profit (Chesbrough, 2003).

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Shift to the open paradigm

According to Chesbrough due to several reasons closed model has been eroded. One is because of spinoffs; the mobility of highly experienced and skilled professionals has climbed dramatically in the past decades, and they take a good deal of knowledge with them to their new employer. The next factor is that many people nowadays obtain university trainings, which paves the way for spilling over of knowledge to other enterprises. A further factor is that the presence of private venture capital to support innovations is growing, which helps many SMEs to initiate and organize on their own. There are other erosion factors such as decreasing the shelf life of specific technologies, strong rivalry from foreign enterprises due to globalization, and a wide availability of knowledge. Moreover, many formerly mass-markets has been evaluated into multiple niche markets with tailor-made products, which are other factors which made the closed model obsolete .All these mentioned erosion factors have become the closed paradigm increasingly outdated.

The new paradigm, which is known as Open Innovation, requires enterprises to open their innovation activities in order to connect internal and external ideas. Prominent case studies reveal that firms have gained value from opting for external sources of innovation and the paradigm shift is having a real impact on firms' innovation performance (Nambisan and Sawhney, 2007a; RTM, 2007).

"Idea suppliers" has increasingly become important, the ones who supply knowledge and ideas in the quest for innovation rather than tangible components (Johnsen et al., 2006). In distant industries we can also find this concept frequently (Gassmann and Zeschky, 2008). Examples such as the BMW I-Drive show that searching for technological solutions in distant industries can add dimension to the solution space, and can assist to mitigate the problem of "industry blindness" (Gassmann and Zeschky, 2008; Dürmüller, 2007).

1.2. Objectives of paper

2. Literature Review( content of open innovation)

We encounter different aspects and definitions of the Open innovation in different researchers` papers on Open Innovation which makes it hard to build a coherent body of knowledge about this relatively new concept. This section addresses three content aspects of open innovation. First, several classifications of openness are discussed. Next, the dimensions of Open innovation are elaborated, and finally, the focus shifts to the various aspects of open innovation effectiveness.

2.1. Classification of openness

As mentioned, open innovation can be shaped in many distinct forms and tastes and it has not single clear cut concept. Through classifying we can make it more understandable. However, open innovation comes in many shapes and tastes, which makes the concept more rich, but hinders theory development. Therefore, it seems necessary to develop open innovation frameworks. At first we need to recognize that open innovation reflects much less a contrast (open versus closed) than a range of various degrees of openness (Dahlander and Gann, 2010). Moreover, open innovation includes various activities such as, inbound, outbound and coupled activities (Gassmann and Enkel, 2004), and each of these activities can be more or less open. The many-faceted nature of open innovation should be reflected by its measurement scales and allow the dimensions to be not correlated.

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Second, many authors has used the inbound versus outbound dimensions in open innovation and pecuniary versus non-pecuniary interactions. These four terms can be labeled as acquiring, sourcing, selling, and revealing. This model may be a good initiating point for empirical research for different organizations and in different contexts to better understand the activities and compare each of the four strategies and their effectiveness.

Third, the various knowledge flows in open innovation is another perspective which needs to be addressed. Lichtenthaler and Lichtenthaler (2009) have differentiated between three knowledge processes which are: Knowledge Exploration, Knowledge Retention, and Knowledge Exploitation. All these processes can be performed either internally or externally. An interesting issue here is to what extent companies have to develop their capacities or whether the capacities can compensate for each other, which may enable the companies to opt for a specific and differentiated innovation strategy. According to Dahlander and Gann's (2010) it is crystal clear that internal R&D is a key complement to openness for outside ideas, however that it is less clear whether the outside ideas can be considered as substitute for internal R&D or not.

Fourth, through distinguishing between process and outcome of innovation we can define four groups for the open innovation practices. However, both the process and the outcome of innovation can be open or closed, see Fig. 1. Where a proprietary innovation is being developed in-house, both the process and the outcome are closed, and this situation reflects the closed innovation. In the second category, which is private open innovation, by using the input of external partners or by externally exploiting an internally developed innovation, the outcome is closed (a proprietary innovation) but the process has been opened up. According to the second dimension, the outcome of the process of innovation can be either proprietary (closed) or available to others (open). During the recent years, the interest for this dimension has started to grow because it has become obvious that advantageous systems do not always be equal to strong intellectual property protection. Spending valuable resources to innovation and then to give away the outcome for free seems highly questionable for economists (e.g., Lerner and Tirole, 2005; Kogut and Metiu, 2001), however in some cases it economically works and creates economic values. Standard setting is a common example of such public innovation, in which the original innovators share an innovation with others to use in order to reap the benefits of a de facto market standard; examples include the introduction of JVC's VHS videotape in 1976 and the IBM PC in 1981. The final dimension is labeled as open source innovation. It refers to situations where both the innovation process and the outcome are open. The best known example of this category is open source software. M#{1h}



Innovation Outcome




1.Closed Innovation

3.Public Innovation


2.Private Open Innovation

4.Open Source Innovation

Figure 1 Various ways of innovation based on the openness of both the process and the outcome of innovation.

2.2. Dimensions of Open Innovation

The main proposition of open innovation is opening up the innovation process. We usually hear this definition for open innovation: 'applying conscious inflows of knowledge in order to accelerate internal innovation and exploiting outflows of knowledge to expand the markets for external use of innovation' (Chesbrough et al., 2006: 1). The first process is called inbound open innovation and the second outbound open innovation.

Therefore, it is possible to recognize two conceptually distinct dimensions of Open Innovation: (1) Inbound or outside-in Open Innovation: which can be defined as the practice of exploiting the innovations of others. To put it differently, Inbound open innovation is internal use of external knowledge. Through establishment of relationships with external innovative firms we can gain access to their technical and scientific competences to improve our firm's innovation performance; (2) Outbound or inside-out open innovation: in this dimension companies look for external organizations which have well developed business models suited properly to commercialize a given technology. In other words, it is the practice of launching partnership with external firms in order to take advantage of innovation opportunities commercially.

As mentioned, inbound open innovation suggests internal use of external knowledge, while outbound open innovation defines the opposite concept. The external and internal knowledge relate to the three knowledge processes: knowledge exploration, knowledge retention, and knowledge exploitation, which can be practiced either inside or outside a firm's boundaries. We need to emphasize on the exploration and exploitation processes across boundaries, since open innovation research mostly deals with them. Both inbound and outbound open innovation consists of various activities, for instance, identified three inbound and outbound activities, namely licensing agreements (in and out), non-equity alliances, and technical and scientific services (purchase and supply). Scrutinizing empirical studies reveal that those organizations perform more inbound than outbound activities; it indicates that firms are unsuccessful to capture potential benefits of this sector. Procter & Gamble allegedly only applies 10 percent of its technologies (Huston and Sakkab, 2006) and Motorola`s estimation on the potential of licensing out was $10 billion annually (Lichtenthaler, 2007). Explanations for external under exploitation can be possibly a combination of following factors; historical reasons, the possibility to use existing relationships, and the risk of diffusing relevant knowledge, and the most important the fear of giving away corporate 'crown jewels.

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In fact, we can elicit that firms which practice the outside-in dimension prevails largely belong to low-tech industries, whereas inside-out Open Innovation model is far more being applied among high-tech companies.