May 19, 2007

Cumulative, open and user innovation

This week I was at the European Academy of Management (EURAM 2007) conference, held at the HEC campus at Jouy-en-Josas, a half-hour outside of Paris. Of the two track related to open innovation, I spent almost all my time at the track on “Managing Open Innovation through Online Communities.”

On Thursday morning, I kicked off the track with a keynote linking open innovation and open source software. My slides will be (now are) available online.

As I found out, most of the audience was familiar with the original Chesbrough book Open Innovation, but were not using the concepts in their research. This is an issue I’ve encountered before. Some of it is because Chesbrough’s choice of terminology is oh descriptive and generic — adding “open” as a modifier to “innovation” can and has been used by other researchers in a sense not consistent with Henry Chesbrough’s definition. In other cases, there is an attempt to piggyback on the recent popularity of the buzzword in industry and academia.

So I want to highlight one small part of my talk — that which contrasts the innovation models of Chandler, Chesbrough, Scotchmer and von Hippel.

Alfred Dupont Chandler, Jr. is America’s greatest business historians, the one primarily responsible over the past 40 years for our understanding of how and why the modern American (and later, multinational) corporation developed. In books such as the The Visible Hand (1977) and Scale and Scope (1990), he showed how companies of the late 19th century and early 20th century diversified and integrated to command dominant positions in their respective markets.

Most of the companies he selected had significant administrative (organizational) innovations that helped define our modern conception of how to build a large corporation. While railroads or Sears Roebuck did not have a significant product innovation effort, it was impossible to write about the US (or German) chemical industry without considering the role of the internal industrial R&D lab in the success of the large firm.

Such vertical integration of R&D to product development and distribution is the exact opposite of what the original Open Innovation book was attacking. It’s not that open innovators (such as IBM) can’t have in-house R&D, but their innovation strategies should not be defined only in terms of progressing internal technologies to internal investigations to a firms own R&D funnel. Over and over again, I illustrate this using Figures 1.1 and 1.1 from Chapter 1 (by Chesbrough) of our 2006 book.

But open innovation overlaps heavily with two other streams of research on innovation. Researchers on each side often omit the links, either because they don’t know them, because they are emotionally or intellectually invested in one paradigm, or (legitimately) for parsimony or compactness. Still, both paradigms have strong links back to open innovation.

The better known of the two is the user innovation paradigm of MIT’s Eric von Hippel. Promulgated with his 1988 book (Sources of Innovation) and a series of journal articles, von Hippel focused on the idea that firms could tap into both the knowledge and desire of users to solve their own needs. In some cases, it’s a classic win-win, as users get a better solution and producers gain a broader (or deeper) solution to sell.

The user innovation paradigm is the theoretical basis for a large stream of open source software research (particularly from Karim Lakhani), as it is an excellent fit to the entire Apache experience. (As far as I know, the only research that interprets OSS through open innovation paradigm is my own work with Scott Gallagher). Von Hippel has combined his earlier work, the open source work, and other evidence along the way in his 2005 book Democratizing Innovation.

The other stream is the concept of cumulative innovation. Some of this ties back to the cumulative processes of public science (analyzed, by among others, Paul David). But perhaps the most single-minded pursuit of the topic has been by Suzanne Scotchmer, both in her 2004 book and in various papers.

So who does innovation? Below is a table I prepared summarizing the four perspectives:

Focal Firm
Suppliers
Customers
Rivals
Chandler
X



Chesbrough
X
X
X
X
Scotchmer
X


X
von Hippel
X

X

† In my original slides, I limited von Hippel to user innovation, but my audience reminded me that his 1988 book also included supplier innovation — which has been de-emphasized in subsequent work by von Hippel and his followers.
Chesbrough’s 2003 book certainly acknowledges the influence of von Hippel’s earlier book. Our 2006 book acknolwedges both books — although the mention of the later book is cursory only because it came out about the same time as we sent our manuscript to Oxford (October 2005). Conversely, many of the current user innovation researchers have a potential open innovation angle if they chose to pursue it.

So far, I’m not aware of anything that links Chesbrough to Scotchmer — perhaps because one is management and one is economics, or perhaps because the former favors strong IP rights and the latter is more about weakening (at least slightly) IP protection.

Right now, I don’t know how I’m going to pursue this comparison, but it seemed useful to my fellow researchers attending the conference and the track.

Update: Ironically, as I was preparing to come to Europe, Al Chandler died at the age of 88. But the Chandlerian approach towards understanding large firms will long survive him.

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2 comments:

Marcel Bogers said...

I find this discussion of the different streams of literature and their relationships very useful and important. In my opinion, there is a lot of value in drawing on these various field to explain certain phenomena, both theoretically and empirically. In fact, I would even argue that there is a lot more literature out there that could be helpful in explaining open innovation and user innovation. And not to forget, such research could also strengthen those other streams of research if there are also able to make sense of user/open innovation.

At the EURAM 2007, I presented a paper in which my co-authors (Allan Afuah and Bettina Bastian) and I make an effort to tie this idea of users as innovators to the broader literature on organization and innovation. In short, the idea is that manufacturers and users are often likely to conduct local rather than universal or global searches for knowledge they need in order to innovate to solve the users' needs (due to their cognitive and organizational constraints and path dependencies). A second dimension that we identify in our framework is the tacitness of knowledge that gives rise to difficulties in transferring knowledge between users and manufacturer (if they can locate it in the first place). While our framework uses some of the existing explanations of Eric von Hippel about user innovation (e.g., the sticky information argument), we think that such a framework can be useful to both extend this literature and explore its relevance to a wider stream of research. For instance, we think that manufacturers' existing capabilities and incentives to invest in innovating for users can hamper the development of "radical" innovations and thus make it more likely that users innovate by themselves in such occasions.

While Joel West’s keynote set the stage for a very interesting conference with valuable and constructive discussions, the conclusions of Karim Lakhani’s keynote also provided some food for thought and thus future research. He presented some conclusions as well as starting points that can help researcher in the field of open (source) and user innovation to develop the field and make sense of what they observe. He for example also referred to this idea of local search, which is often problematic as knowledge is dispersed in the economy (as already indicated in Hayek’s 1945 article in The American Economic Review). In any case, it is clear that there are still many important questions unanswered but that there are important hints for where to look for some of the answers. Let's just hope that our own cognitive limitations as researchers don't lead us to search too locally and ignore other potentially useful research.

Marcel Bogers
Ecole Polytechnique Fédérale de Lausanne (EPFL)
(Swiss Federal Institute of Technology)

Alex Diong said...

Joel,

Thank you for sharing with regards to Open Innovation. I do share similar interest in trying to understand Innovation better and how organization can benefit from a good innovation framework and processes within an organization and how it can be implemented effectively.

Can you share some of the obstacles that most companies face when trying to implement Open Source Innovation within their own organizations and what they have done to overcome it.

Alex.