Advantages and drawbacks of open innovation

This essay draws upon a comparison between open and closed innovation by first discussing the concept of open innovation. After comparing both systems and highlighting some drawbacks and providing relevant examples, the paper will conclude. Intro: Discuss the concept of open innovation; definition. -Open innovation according to Chesbrough (2003) is the idea that firms can harness outside ideas to advance their own business, while leveraging their internal ideas outside their current operations will likely thrive in this new era of open innovation. -It is the paradigm assumes firms can and should use external ideas + internal ideas ; internal + external paths to market to advance their technology, business. The rational for open innovation systems There is growing attention to the concept of open innovation. Traditionally, the process of business development and products took place within the firms boundaries.

The closed innovation paradigm holds the view that successful companies: -hire the best and brightest people in the industry.
-develop products and services in house -must get an innovation to market first to profit. -lead R&D investments to discover the best and most plentiful ideas giving them mkt leadership. -control IP to prevent competitors from profiting from its ideas.

From Coombs & Georghiou (2002)s paper, large corporations have historically played an important role in R&D. However, a new trend in r&d has become apparent in:
increasing role of smaller companies outsourcing of some R&D activities to research institutions globalisation and collaborative R&D

Chesbrough in 2003 sought to confirm Coombs & Georghious hypothesis that innovation processes were becoming increasingly distributed across the organisation. To finally respond to the closed innovation paradigm,
a. b. c. d. Increasing mobility availability of skilled workers mean that not all smart people will cluster in a large firm. Large bodies of knowledge exist outside the firm. This means that when workers leave, they take their skills and knowledge with them. Growing availability of VC markets make it possible for ideas and technologies to be further developed outside the firm, Eg: entrepreneurial firms. Spin-offs & licensing agreements, are growing. Increasing availability of highly capable outsourcing partners Increasing complexity of products and services costs and risks of internal R&D and growing r&d budget constraints. Single firms dont have the resources to internalise all scientific knowledge to design develop manufacture and market all products and ss.

Open innovation results as alternative model to encourage collaboration of r&d and firms. In light of the challenges of the closed paradigm, OI encourages firms to tap on the worlds competencies, ideas and resources, instead of relying on developing capabilities solely in the firm. Research Spinning In | | Development Spinning Out

The best talent cannot be clustered within a company. Engage with the best within and without the company. External r&d can create significant value Company can profit from research without originating it. Better than getting to the market first is building a better business model Companies that make the best use of internal and external ideas win Companies can profit from others use of IP.

Benefits of OI
Firms can leverage internal and external knowledge and gain access to new applications Access specialist technics and tap additional manpower. Achieve critical mass while remaining lean. More and better ideas with good intelligence gathering capabilities.

MIT Sloan Review: Why companies should have open business models Key to the concept of open innovation is an open business model. Open business models:
create value by leveraging on more and better ideas by including a variety of external concepts and capture value by utilising a firms key assets and resources and also that of other firms.

2 factors that dampen innovation are

rising costs of technology development shortening life cycle of new products

Companies find it difficult to justify investments in innovation.

Open business models address these issues by leveraging external r&d, saving time and money. External r&d and technology reduces innovation cost and saves time and money.
Pringle print initiative by P&G, where words and pictures can be printed on each chip was developed at a fraction of the cost, since P&G found and adapted an ink jet technology from an Italian bakery. P&G by licensing technologies from around the world products like spinbrush (a battery operated toothbrush) revenue of 200m in the 1st year.

Case Study of IBMs implementation of the open business model a more profitable company. 1. 2. 3. 4. IBM reduced its overheads drastically with a massive layoff & asset writeoff In its search for new revenue soures, IBM offered its production line for use by other companies Established research alliances with Toshiba corp among many others to share high costs and risks of innovating its semiconductor process. Regarding IP, IBM shifted from its defensive approach (preventing leakage of IP) offensive approach (licensing IP out to external parties) to companies such as Intel, Motorola, Texus instruments.

Drawbacks of OI. OI still has certain potential negative consequences. Open innovation may not suit every company and every business model. When implementing open innovation, companies have to be very careful because of potential strategic threats.
The possibility of revealing IP not intended for sharing which could decrease the firms competitive advantage, undermine future products Open innovation can be one sided with large firms feeding off small ones. Greater overhead costs of managing collaborations spin ins and spin offs.