The hidden risks of incumbent open innovation: A reappraisal of the US national innovation ecosystem

Abstract

Innovation scholars over the years have highlighted several benefits of using a more Open Innovation (OI) approach to commercialize industrial R&D. In this study, however, we ask if there are any systemic risks incurred when incumbent R&D organizations use OI without considering its long-run societal and economic implications? Our answer is yes. Specifically, we assert that OI practices have a strong potential to jeopardize sustainable technical change at the level of the national innovation system in the imminent future. We use a historical case study of the US ecosystem to highlight three types of social costs incurred on the national innovation system through incumbent OI, and three key social benefits the entrepreneurial network state exerts over the ecosystem that are equally important for OI. We document how the most recent wave of industrial R&D also corresponds with a techno-economic paradigm that increases the rate of invention but skews the direction of innovation towards short-term profits. As such, a key insight of this study is that unless technology managers embrace a more long-term stakeholder orientation, OI will continue to lead to externalizing the riskiest aspects of R&D to the taxpayers, while privatizing the rewards for industrial R&D executives and shareholders at the expense of what is best for society. A number of implications follow for public policy to create a more stakeholder friendly national innovation system.