Investigating open innovation strategies: a simulation study

Abstract

Taking a knowledge-based approach to innovation, we distinguish between four different innovation strategies that vary in how knowledge is sourced and exploited: open innovation (OI), closed innovation, outbound OI, and inbound OI. We build an agent-based simulation model to explore the competitive performance profiles and innovation creation potential of these different strategies. Our simulation research allows for modelling the micro-foundations of open innovation and for studying innovation strategies in different market conditions. We find that the relative financial payoffs associated with the different innovation strategies vary over time: some strategies win out in the short-term, others in the long-term. Our results also suggest that a focused closed innovation strategy can lead to higher financial performance when all the resources are concentrated on internal R&D and commercialisation. Open innovation, and in particular the inbound side of it, is a beneficial long-term strategy, whereas closed innovation may be more profitable in the short run.