Organizing for Open Innovation:: Focus on the Integration of Knowledge

Abstract

O ver the past decade, an increasing number of firms have started actively to involve customers, suppliers, and other parties in product and process innovation. This phenomenon is commonly referred to as ‘‘open innovation.’’ Open innovation can help firms by reducing the cost of product development and process improvement, accelerating time to market for new products, improving product quality, and accessing customer and supplier expertise outside the organization. One recent much-publicized example is Nokia, which cooperated with a community of more than 450 volunteer open source software (OSS) developers who created many applications, such as mapping software, games, and GPS, for the company’s N800 Internet Tablet device. As recent research and examples from practice show, open innovation often is a better way to innovate than go-it-alone innovation. Yet previous research has shown that there are several managerial challenges to organizing and implementing innovation that extends beyond firm boundaries. For example, when firms invite volunteer users to contribute their knowledge to innovation, they cannot apply traditional organizational hierarchy or leadership authority to directing, incentivizing, and monitoring volunteers’ efforts. However, researchers have only begun to focus on how managers can design their organizations to facilitate the use of outside knowledge in the innovation process. In this paper, we seek to shed light on the issue of organization design and open innovation. In the first section, we discuss innovation from a knowledge-based view and argue that organizing for innovation is a matter of integrating different knowledge domains. The next section presents and discusses the concept of open innovation. In the third section, we argue that organizing open innovation is a matter of selecting the right mechanisms for integrating domain knowledge held by people outside and within firm boundaries. Here we develop a five-step model for managers who are considering starting open innovation projects. The basis for this model is a stipulation of the effectiveness of four different mechanisms for integrating domain knowledge in open innovation. In the conclusion, we discuss design implications for managers.