August 28, 2007

What is Open Innovation?

On this website, we have been using this definition from Henry Chesbrough’s introduction (on page 1) of the 2006 book:
Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.
This is a comprehensive definition, but not very pithy. I often get asked “what’s open innovation,” and have been casting about for another definition.

In discussing open innovation with Marcel Bogers during my visit to EPFL last spring, I came up with this definition:
Open innovation means treating innovation like anything else — something that can be bought and sold on the open market, not just produced and used within the boundaries of the firm.
Then I couldn’t find where I wrote that down (as it turns out, as a May 21 draft in my blogging software), so I reconstructed it with this even more pithy version:
Open innovation is using the market rather internal hierarchies to source and commercialize innovations.
This has an obvious debt to Oliver Williamson and his concept of TCE.

The one problem with either definition is that it has a blind spot for donated innovations — the “innovation benefactor” of Chesbrough’s 2003 Sloan Management Review paper — such as the National Science Foundation or the Sloan Foundation. But rather than try to add another sentence to subsume this case — which tends apply more to universities than to firms — perhaps I should just bound the claims:
Firms that embrace open innovation employ markets rather than hierarchies to obtain and commercialize innovations.

Update: The Open Innovation Community is maintaining a web page that compiles various definitions of the term.

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Marcel Bogers said...

I think this claim, "firms that embrace open innovation employ markets rather than hierarchies to obtain and commercialize innovations", covers the field of open innovation quite well. However, given its pithiness, it might also be unclear, in the sense that it might not be that different from other definitions and that it is a very (too?) general definition. Also, it seems to suggest that hierarchies are not important at all, which is probably misleading as it can be required to capture the value of open innovation.

Still, I think two observations are important here. First of all, it is important to link the literature on open innovation to other fields, such as TCE. So, from that point of view, this is a good starting point. Second, the fact that it is such a general definition (one which nevertheless sounds good) seems to suggest that everything (outside a firm's boundary) is about open innovation. Although this might be true according to many people, it is not the most valuable way to define the field.

Therefore, I think it is important to focus more specifically on sub-fields in the open innovation paradigm. (I think the field of entrepreneurship, for example, has been going through a similar process.) The full overview and exact definition of open innovation can only be complete by identifying and investigating the parts of which it consists. Perhaps, there should be more attempts on defining what is part of open innovation (and what open innovation is not). I personally think that the book "Open Innovation: Researching a New Paradigm" by Chesbrough, Vanhaverbeke and West provides a good starting point for this because it distinguishes various aspects of open innovation.

In conclusion, I agree with the suggested definition, which is indeed pithier, and I embrace such an attempt. But at the same time, it seems important to build some kind of a clearer framework (or even taxonomy) of what open innovation is. This will increase its practical value as a concept. Perhaps just adding some clear examples to the concise definition proposed above might work, although this does not solve the problem of how open innovation is different from or relates to other fields. While this might be a rather basic issue, I think it is still a major challenge for open innovation as a field (see also another part of this blog).

Reed Felton said...

Nice definition Marcel. I would add additional context. Open innovation allows for a more random puposefulness reflecting what is often the nature of innnovation itself. Hierachy of pupose as it relates to the value of ideas is helpful, as is the concurrent recognition that the innovation process is often non linear. The structure of hierarchy and its benefits of defining desired outcomes liberates the innovators creative efforts to a more effective focus. My understanding of the concept can easily be construed as contradictory but innovation can easily embrace puposefulness and randomness concurrently.
All that said, the brevity and simplicity of your definition is elegant.