Effects Of Open Innovation Research Articles

How open innovation affects the drivers of competitive advantage

PurposeThis paper aims to explore how community‐controlled open innovation affects cost‐ and differentiation‐based competitive advantage, and to explain how it allows some sources of economic rent to remain while others are taken away. Although models of competitive‐advantage remain relevant, open innovation means that the main drivers of performance are changed. Open innovation means that there are implications for firms' ability to profit from intellectual property that they do not own. The paper seeks to address those issues.Design/methodology/approachThe work is conceptual.FindingsEconomic rents from property rights disappear, those from economies of scale and capital requirements are reduced, but those from experience‐curve effects, differentiation, distribution, and switching costs remain. Similarly, rents from the difficult‐to‐imitate resources of networks and reputation remain intact, and while those from employee knowhow and culture remain, they are likely to be in reduced amounts.Research limitations/implicationsPropositions are provided for empirical testing. There also is a need to identify breakpoints between open‐innovation benefits and the costs associated with lost innovation skills, and a need to extend this work to firm‐controlled and third‐party controlled open innovation.Practical implicationsFor some firms open innovation will not adversely affect competitive advantage but those whose advantage is driven by barriers to entry, skills in innovation and anticipating customer needs, or that rely on proprietary product designs, can lose in the longer term.Originality/valueWhere the majority of work examining open innovation addresses property rights, economic rationales, governance, and processes, this work focuses on the effects of open innovation on strategy content and consequent firm performance.

How does openness affect the importance of incentives for innovation?

When firms open up to external resources for innovation, do internal incentives still matter? This paper investigates the moderating effect of open innovation on the relationship between incentives and innovation using a survey database of British firms. Whilst both openness and incentives are positively associated with innovation efficiency, a substitution effect is found between openness and incentives. Whilst long-term incentives appear to enhance efficiency to a greater extent than short-term incentives, the substitution effect of openness is stronger regarding long-term incentives.

Open minds, open innovation

Not so many years ago, the term “open innovation” was unknown to the intellectual property community. While the concept existed, there was little evidence that it existed, or that it was likely to gain any currency at all, before the publication in 2003 of Henry Chesburgh’s Open Innovation: The new imperative for creating and profiting from technology. Since then, the term has gained momentum in common parlance. However it is only in the past year or two that open innovation is becoming something that is more widely and positively spoken of as something which a business might participate in, rather than as something rather strange and risky, to be indulged in by others — preferably in North America and the Asia-Pacific. What exactly is open innovation? According to Henry Chesburgh, it is a paradigm that assumes that businesses both can and should use external ideas as well as internal ideas, and internal and external paths to market, when seeking to advance their technology. Since the boundaries between a business and its environment have become more permeable, it is increasingly for innovations to flow both inwards and outwards. In a world of widely distributed knowledge, no-one can afford to rely entirely on their own research: it makes better sense to buy or take a licence from other companies. In terms of outward flow, internal innovations which a business owns but doesn’t use should be licensed out or shared through joint ventures or spin-offs. As a way of doing things, this is not exactly rocket science and has been around for a long time. However, in the past this approach has generally been Plan B, when the preferred option of growing, protecting and monopolising one’s own innovation needs to the point of self-sufficiency could not be achieved. The importance of Chesburgh’s contribution is in the paradigm shift in corporate thinking: open innovation is portrayed as Plan A, the ideal option which both reduces R&D costs and focuses them more efficiently, which leads to improved quality and more consumer choice, and which is not merely open in the inward-outward sense but which encourages greater transparency of licensed technology itself. It seems to me that one of the most interesting potential effects of open innovation is to shift the balance of importance as between different intellectual property rights. A closed innovation model places the greatest emphasis upon control of intellectual assets by a single proprietor: the exclusionary role of patents for inventions and, to a lesser extent, statutory design monopolies, are valuable tools for achieving this end, as is the role played by contract and general legal principles regarding the protection of trade secrets such as manufacturing know-how. With control of a market secured by such means, the role of the trade mark is relatively small. This is because a trade mark is not generally capable of excluding a product or a technology from the market: all it can do is to prevent its commercial exploitation under a particular name or origin-identifier. Once open innovation is practised, the inevitable consensual sharing of technology diminishes the importance of the most exclusionary monopoly rights. Given the typical effects of open innovation such as the development of products and processes for an entire market rather than for a specific manufacturer, competing products will increasingly use the same parts and accessories, will operate in the same manner and will therefore decreasingly compete in terms of proprietary features which are difficult for the consumer to compare. At this point, the trade mark assumes a far greater importance since it is the one statutory right over which a business—even if it chooses to share its use through licensing or franchising—cannot afford to lose control. It is also the one intellectual property right which is capable of both storing and growing any goodwill which its owner attracts, thus enhancing a business’s value. If open innovation hasn’t reached you yet, there’s a good chance that it soon will. And when it does, be sure to keep an open mind when you assess its benefits. Journal of Intellectual Property Law & Practice, 2012, Vol. 7, No. 1 EDITORIAL 1

Modularity, Industry Life Cycle and Open Innovation

This paper discusses the incentives behind, and effects of open innovation in different stages of an industry life cycle. It argues that in the beginning of an industry life cycle, open innovation policies usually serve the dual purpose of exploring distant knowledge sources, and exploiting potential network effects to strengthen the installed base of a technology. In the later phases of the industry life cycle, after the emergence of a dominant design, open innovation incentives and effects depend largely on the product system architecture. Modularity at different parts of the product system is an important dimension which influences the types of open innovation strategies implemented by firms.

The Effect of Open Innovation on Industry: Strategic Alliances under Schumpeterian Competition

The Effect of Open Innovation on Industry: Strategic Alliances under Schumpeterian Competition

Technology Alliance Portfolios and Financial Performance: Value‐Enhancing and Cost‐Increasing Effects of Open Innovation*

Firms increasingly adopt an open innovation model in which they rely on technology alliances to complement and supplement their internal innovation efforts. Although previous studies provide in‐depth insight into the impact of technology alliances on the innovation performance, they remain relatively silent on how technology alliances eventually influence the financial performance of the firm. The purpose of this paper is to develop and test a conceptual framework that disentangles both the value‐enhancing and cost‐increasing effects of technology alliances on financial performance. The model was tested with a sample of 305 Belgian manufacturing firms. Combining data from the Belgian Community Information Survey (CIS IV) database and the BELFIRST database, structural equation analyses were conducted on the connection among technology alliance portfolio diversity, product innovation performance, and financial performance. This study's data provide empirical confirmation for the assumption of existing research that technology alliance portfolio diversity has an indirect positive impact on financial performance via increased product innovation performance. However, a direct cost‐increasing effect of technology alliance portfolio diversity on financial performance is observed. Moreover, the structural equation analyses suggest that, in the short‐term, the direct cost‐increasing effect of technology alliance portfolio diversity exceeds the indirect value‐generating effect of technology alliances. These findings contribute to the current research on open innovation in two important ways. First, these results support the open innovation model by illuminating the interconnectedness between internal and external innovation strategies. In particular, technology alliance portfolio diversity has a positive impact on internal innovation efforts, which increases product innovation performance. Second, the findings complement the focus of existing open innovation research on the value‐generating properties of technology alliances, directing attention to the cost‐increasing effects of such collaborative strategies. On a managerial level, these findings suggest that, when making technology alliance decisions, managers not only should consider the potential benefits of such collaborative strategies but also should take into account the additional costs of intensifying the technology alliance portfolio.

Outbound open innovation and its effect on firm performance: examining environmental influences

Firms may open up their innovation processes on two dimensions. While inbound open innovation refers to the acquisition of external technology in open exploration processes, outbound open innovation describes the outward transfer of technology in open exploitation processes. Prior open innovation research has focused on the inbound dimension, whereas the outbound dimension has been relatively neglected. Therefore, this article addresses the relationship between outbound open R&D strategies and firm performance. We use data from 136 industrial firms to test four hypotheses on the moderating effects of environmental factors in the relationship between open innovation strategies and firm performance. The results show that the degree of technological turbulence, the transaction rate in technology markets, and the competitive intensity in technology markets strengthen the positive effects of outbound open innovation on firm performance. By contrast, the degree of patent protection does not facilitate successful open innovation. The results are crucially important to managers because they show under what environmental conditions open innovation strategies enhance performance.

Network board continuity and effectiveness of open innovation in Swedish strategic small‐firm networks

Increasing adoption of open innovation as an alternative route to research and development necessitates the development of new ways to organize innovation, as well as reassessment of existing ways. Much like traditional corporations that subscribe to the closed innovation paradigm, novel organizational arrangements targeting open innovation, such as small‐firm networks, employ boards to effectively manage joint research‐and‐development activities. These boards are similar yet different from traditional corporate boards; as such, they may have different requirements for proper functioning. We use 5‐year longitudinal data on 53 Swedish strategic small‐firm networks to investigate how the boards should be organized to help improve the innovative status of network participants. We expand the set of tools available for effective organization of the boards' operations and emphasize the effects of network board continuity (rates of renewal) on network members' innovative performance. We argue that the relationship is curvilinear (U‐shaped) and demonstrate that it is more pronounced in larger networks.