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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