Open innovation has become a worth wile advent in order to pursue the latent of innovation in high-tech organisations. Open innovation describes that the precious ideas can come from within the organisation or outside the organisation. These ideas can be commercialised through internal or external channels of an organisation. According to Chesbrough (2006) open innovation means that the valuable idea can come from inside or outside the company and can go to market from inside or outside the company as well.
The prominence and the recognition of the openness in the process of innovation across the boundaries of organisation has been realised to utilise the external knowledge in order to sustain its competitive advantage by balancing its internal and external sources. The open innovation process has become the integral part of the innovation and business strategy of an organisation. Backer and Cervante (2008) claims that the idea of open innovation does not focus only on the knowledge sourcing but also the integration of internal innovation with the exploitation of external knowledge with a firm’s partners.
Open innovation is the practice of precious knowledge gained either from inside or outside the organisation which gives significant boost to the internal research and innovation process of an organisation. The open innovation can also be used to broaden the markets in order to gain the access of external innovation capabilities. Chesbrough (2008) suggest that the 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.
Another view of open innovation is that the organisation incorporates the external knowledge and capabilities of innovation in the process of new product development, which provides a different approach to the innovation in an organisation. Sisodiya et.al. (2013) defined open innovation as a firm’s purposive pursuit and integration of external inputs for new product development, offers an alternative perspective on innovation.
Open innovation in light of Joseph Schumpeter theory
The theory of Schumpeter gave a view that the organisation that wishes to finance the innovation must not support research process from the previous production. Organisation should not relocate the previous productions resources into the new innovation because it is considered as a problem in the financial and economic growth of a firm says Schumpeter (1934). ‘Companies should seek credit, which is provided by what Schumpeter called ‘capitalist’ ‘. This capitalist is now known as venture capitalist or venture investor in the new paradigm of open innovation. (F??bioLazzarotti. et.al. 2011)
Therefore the Joseph Schumpeter theory assists to understand and recognise the new era of open innovation which even high tech companies like Intel has started following as the company started supporting the Research and development process through external venture capitalists.
Rogers’ theory of diffusion of innovation and open innovation
The Rogers theory of innovation helps to understand the concept of open innovation. The Rogers (2003) theory of innovation defines that the communication channel is one of the ways through which the individuals or institutions can create or share their valuable ideas. This theory of sharing ideas through communication channels between individuals or institution might help organisations to move from closed innovation paradigm to the more open innovation era. According to sahin (2006), Rogers theory of diffusion of innovation claims that the communication is one of the processes through which participants transfer information to one another so that they can reach to a point where they can understand each other.
The open innovation paradigm has changed the role of utilising and accessing the external knowledge and incorporates this knowledge with internal research and development process of an organisation. In the open innovation paradigm various communication sources can be used In order to connect the potential inventors and innovators to share their idea and communicate with each other, for example crowd sourcing through which researchers can share their idea on a single platform. Sahin (2006) also states in article that Rogers theory of innovation describes that the source can be any individual or institution which creates a message and communication channel is the mean through which sender can transfer the message to the receiver.
Ulrika and Jonny cited in their article that Rogers’s theory of innovation describes that the successful adoption of innovation requires ideas of management, practices and behaviours. These various parameters which form organisational programs structure must be arranged in well ordered. Rogers theory of innovation defines that the successful adoption of innovation requires the management of ideas, practices, behaviours and structures with the aim of bringing these different aspects of organisational and program structures with alignment (Ulrika H. Westergren , Jonny Holmstr??m. 2012).
The Rogers theory of innovation also describes the aspect of social networks in the adoption of innovation process. The open innovation paradigm has changed the relation between the technological innovation and social network because the connections and relations outside the organisation through which external knowledge can be shared and accessed are given much more importance as contrast to the closed innovation paradigm. According to Westergren and Holmstrom (2012) the researchers have highlighted that the social networks and technologies structure need to be changed if a firm has to move from the closed innovation to open innovation paradigm.
Limitations of existing theories
The open innovation paradigm provides the external contacts and connections to access the external knowledge which accelerates the internal innovation process; however there are certain limitations which needs to be considered before accessing the external contacts and connections to access the external knowledge.
One of the key limitations which open innovations paradigm is unable to protect is the risk of leaking the potential internal knowledge. When a firm access the external knowledge or collaborate with external institutes in order to boost its internal research and development there is always a risk of losing the key knowledge. Open innovation helps organisations to speed up the innovation process by accessing the external collaborations, but the firm always has the big risk of leaking the its core knowledge and thus the company might lose the differential advantage which it can possess through vertically integrated and established closed innovation process. This is one of the main limitations of open innovation paradigm. According to Gould (2012), the open innovation process leaves the consideration of negative knowledge leakage. The risk of negative knowledge leakage is that the firm might lose its differential and competitive advantage if the core ownership of the knowledge which has to be gained by research is leaked.
Another important potential limitation of the open innovation is that in the exploitation of external knowledge through different partners outside the organizations, a firm needs to collaborate with these partners. The theories of open innovation process do not well define the process of stake holder involvement which arise the cultural conflict issues while collaborating with other partners in practice, specifically with international partners. The open innovation paradigm has this potential limitation that it does not define the well integrated process while collaborating with the partners in the open innovation process which creates conflict between an organsiation and its partner organization where it seeks the exploitation of external knowledge. Lichtenthaler (2011) claims that the in the process of open innovation a firm needs many international partners but cultural difference and its management issues has not been taken into account yet.
One of the potential limitations of open innovation is that when an organisation is dependent on external sources and partners for the innovation, it might encounter with the additional cost of communication to control and deal with its external partners and stake holders. In the process of exploiting the external knowledge through its external partners and collaborations the firms lose the control over the knowledge. (J.West and M.Bogers. 2013).
There may be limits to search effectiveness. Moreover, Stuermer et. al. (2009) show that when a firm relies on external sources of innovation it may face hidden costs related to communication and control. Another possible trap is that overly positive attitudes towards external sources of innovation may hamper search effectiveness. All in all, firms must confront a tradeoff between the benefits and costs of obtaining innovation from external sources by aligning search breadth and depth, which potentially allows them to overcome some of the impediments of relying on external sources of innovation.
Shifting paradigms from closed to open innovation in IBM
One of the most successful brands IBM, a market leader in patents which received 4500 patents in 2009 in United States of America, had changed the innovation paradigm from closed to open. Researchers in the company had started participating in the international academic conferences and it helped to create and design the computer sciences program at Columbia University. The IBM then manages to have collaboration between the researchers in the company and professors in the universities and IBM changed the way of hiring its employees and it has taken steps towards recruiting graduates from universities and other research centres. IBM had started seeking knowledge outside its boundaries through by using this open innovation paradigm. (Chesbrough, 2006).
It was very difficult for an established company like IBM to move towards open innovation from an established and vertically integrated process, but due to increase in competition the company had to shift towards the open innovation paradigm as it had single largest annual lost in the American corporate history in 1992. IBM was facing real challenge from its competitors and it was losing its market rapidly. The company could not perceive open innovation as the means of financial return because of its historical negative experiences. The company perceived this open innovation paradigm as a complex process rather than an opportunity for its financial returns. The company did not set its priorities properly for exploiting the knowledge through the open innovation. The IBM also had very bad experiences of implementing open innovation process for exploiting the knowledge which lacks the credibility of the company towards this approach. This is due to the fact that IBM had never perceived the opportunity of open innovation as to generate financial return by using different approaches of open innovation it rather saw it as very complex process towards its operation and business model. (Celeyades et.al. 2013).
IBM has started making alliances and joint ventures to access the external knowledge and researches to boost its internal development. The company started collaborating with other research institutes but the company felt a pressure as it discovered this process fairly complicated. For example the alliance between the ETH Zurich and IBM specifically on the research of nanotechnology was different of its kind. According to Gassmann. et.al. 2010, IBM and ETH, both had rights to jointly market the intellectual property. This process of jointly marketed the intellectual property excelled the commercialization pressure on IBM which IBM arranged to manage later on.
IBM needed to follow open innovation paradigm and concentrate on the access and use of external knowledge and integrate it into its own research and development processes rather focusing on the traditional close innovation and vertical integration approach. IBM then focused and diverted its approach to the opportunity of different approaches of generating financial return by using open innovation process such as intellectual property and licensing and it had changed its perception of losing and leaking knowledge because of this open innovation paradigm. IBM could focus more on managing, monitoring and make use of intellectual property through which it could generate more revenue which would help the growth of company (chelsborough, 2006).
IBM had also started collaborating with the universities to exploit knowledge through the process of open innovation. It has started making partnerships with various universities around the world in order to pursue and get benefits from open innovation paradigm. The company also collaborates with different universities to solve the climate changing issues around the world as its one initiative with the universities collaborations. The company has started the open collaboration research program (OCR), the aim of this program is to promote the culture of research through its collaboration with universities. The company is involved in research with universities in various projects such as olive open cloud image system and open Iaas cloud framework and ecosystem are some examples (IBM, 2013).
The IBM has its own student portal to share knowledge with each other. An IBM developer can start sharing an idea of a project on the company web portal or it can start a project through creating a community page where the registered students from various partnerships universities with IBM can share their ideas and knowledge towards this project. IBM also has share university research program and the main objective of this research program is to connect the researchers from the partnerships universities to the research professionals working at IBM where they can collaborate with each other for a specific area of interest and research. This program is limited for the specific area of interest and research rather than an innovation program with diverse area of research (IBM, 2013).
The above initiatives for exploiting and accessing external knowledge through the different collaboration and partnership universities give the insights that the IBM had already moved towards the open innovation paradigm form closed innovation paradigm as the company wants to exploit the external knowledge by using different potential channels used in open innovation paradigm.
Conclusion
The innovation paradigm has changed from closed to open innovation. The open innovation paradigm has provided the significant boost to the industrial research and innovation processes. Industrial sectors are keen to exploit and access knowledge outside of their boundaries to accelerate their innovation processes. The Joseph Schumpeter theory helps in understanding financial aspect of open innovation and Rogers’ theory of diffusion of innovation can be used to enlighten the communication and social network aspects of open innovation network. However there are certain limitations to the existing theories which include the risk of leaking the core knowledge of a firm due to which it might lose the differential and competitive advantage over its competitors, and to exploit the external knowledge a firm needs to collaborate with different partners while the existing theories do not give any insights to the cultural issues which arise in result of the collaboration with different collaboration partners. IBM had gone through the different stages of moving towards the open innovation paradigm. The company had perceived it as a complex process of moving from closed to open innovation rather than exploiting the financial benefits out of it. Later the company has started collaborating with different partners for exploiting the external knowledge towards the research and innovation process and moved from internally bounded closed innovation paradigm to the open innovation paradigm.
References
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