April 20, 2012

What "innovations" are inbound?

In doing several lit reviews of open innovation, I was struck by how often studies of inbound “open innovation” weren’t about innovation — at least as it has been defined 40 or 50 years of innovation studies. This sort of sloppiness fogs the interpretations of empirical findings and the cumulative nature of the scientific process. Here is my first cut in this blog at trying to cut through some of this fog.

First, let’s leave aside the question of non-innovative content. Sourcing Wikpedia articles or product reviews from consumers isn’t innovation, any more than newspaper reporters or Consumer Reports are creating innovations. It’s just content. Yes, some text would fall under the “creativity” lit, but writing a tertiary semi-encyclopedia and movie reviews doesn’t seem like it would even fit that category.

However, what seems to the most common mess is when “innovation” is used as a synonym for “knowledge” or “invention” or other things that tend to be antecedents of innovations.

We know that an “invention” is not an “innovation” — from various sources including Joseph Schumpeter, Chris Freeman, Ed Roberts and Henry Chesbrough. For example, in my AOM conference paper with Marcel Bogers (Bogers and West, 2010: 4) we wrote:
As conceptualized by innovation scholars, the industrial innovation process comprises both a technical component (invention) and also the commercialization of that technology (innovation). Schumpeter (1934: 88) concluded that technical inventions “not carried into practice ... are economically irrelevant,” while Freeman (1982: 7)† argued that “inventions ... do not necessarily lead to technical innovations. In fact the majority do not. An innovation in the economic sense is accomplished only with the first commercial transaction.” …

[Another] definition of innovation … is given by Roberts (2007: 36): “Innovation is composed of two parts: (1) the generation of an idea or invention, and (2) the conversion of that invention into a business or other useful application.”
This very same sentiment is articulated in the Chesbrough’s prequel to his open innovation manifesto:
The inherent value of a technology remains latent until it is commercialized in some way. (Chesbrough and Rosenbloom, 2002: 530).
But that’s only part of the mess, which goes beyond the invention vs. innovation distinction. Other inputs include the provision of knowledge, components or complements, as Marcel and I wrote in a paper published earlier this year (Bogers and West, 2012: 62):
Discussions of distributed innovation processes tend to blur the distinctions between innovation and its origins and effects. However, all the firm-centric perspectives consider how firms access external sources of knowledge to supplement their own knowledge as an input to their innovation efforts. …

In some cases, firms will rely on external actors to supply knowledge that serves as an input to creating their own innovations. This includes basic scientific research produced and disseminated through open science1 processes, knowledge of market needs and demands obtained from customers, or broad- cast search used to identify promising avenues for future innovation (David, 1998; Lilien et al., 2002; Jeppesen & Lakhani, 2010).

The external innovator may also commercialize his or her innovation in the form of a product that is sold to the focal firm (cf. Shah & Tripsas, 2007). These products may be components or other materials that are integrated by the firm into its own products, as has become the norm in the personal computer industry (Dedrick & Kraemer, 1998). Alternatively, the research and development (R&D) of an equipment supplier is used to produce innovations incorporated in tools purchased by producers, as when domestic machine tools improved the post-war German auto industry. Supplier innovations may thus come in the form of materials, components and equipment; Laursen and Salter (2006) found that suppliers were the most common source of external knowledge for innovation among 2,707 UK manufacturers.

Finally, complementary innovations produced by external participants may be provided directly to users. In some cases, these complementary products are sold by for-profit firms, as is common with third party computer software (West, 2006). In other cases, the complements are provided by individuals, whether in the form of user support (Lakhani & von Hippel, 2003), synthesized musical instruments (Jeppesen & Frederiksen, 2006) or game modifications (West & Gallagher, 2006). While such information, goods or services do not directly involve the firm, they do increase the value of the firm’s products and thus improve its ability to profit from its innovations (cf. Teece, 1986).
Nothing in this discussion is meant to suggest that scholars shouldn’t study the various external sources of inputs that firms use in their innovative efforts. The only point is to draw the distinction between the firm’s innovations and its various antecedents and correlates — just as we distinguish between purchase intention and actual purchase, or market share and profitability.

Similarly, the OI processes can be used to study external sourcing of things other than innovations, as long as the distinctions are clear. The “open source software” model and “open innovation” are not the same thing — even though there are important theoretical and empirical overlaps.

In the same way, nothing here would say we can’t study other processes and draw parallels to open innovation. For example, I think many of the OI processes might apply to nonprofits, even though Chesbrough (2003; Chesbrough and Rosenbloom, 2002) requires alignment to business models. (Perhaps someone should first try to extend the concept of a revenue or business model to nonprofits or even government agencies.)

Also, sometimes we can’t measure innovation process directly, but we can measure something else: patents. That’s why thousands of papers use patents as a proxy for “innovation” when (per Schumpeter, Freeman, etc.) we know they are just inventions. It would be foolish of me to suggest that such patent studies should (or would) go away, but we still need to remind ourselves that the output of a technical invention process is only imperfectly correlated (even at the most efficient firm) with a firm’s output of technological innovations.

† Although Chris Freeman’s (1982) original edition is out of print, the identical point is made by Freeman and Soete (1997: 6).


Bogers, Marcel and Joel West. 2010. “Contrasting Innovation Creation and Commercialization within Open, User and Cumulative Innovation,” Working Paper, http://ssrn.com/abstract=1751025

Bogers, Marcel and Joel West, “Managing Distributed Innovation: Strategic Utilization of Open and User Innovation,” Creativity and Innovation Management, 21, 1 (March 2012): 61–75. DOI: 10.1111/j.1467-8691.2011.00622.x

Chesbrough, Henry and Richard S. Rosenbloom, "The role of the business model in capturing value from innovation: evidence from Xerox Corporation's technology spin‐off companies," Industrial and Corporate Change 11, 3 (June 2002): 529-555. DOI: 10.1093/icc/11.3.529

Freeman, Christopher. 1982, Economics of Industrial Innovation, Cambridge, Mass.: MIT Press.

Freeman, Christopher & Luc Soete, 1997, Economics of Industrial Innovation, 3rd edition, Cambridge, Mass.: MIT Press.

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