December 10, 2015

Finding the limits of open innovation

In preparing for #AOM2016 and another session on open innovation, one of the potential participants raised the issue of the limits of open innovation. I am certain sympathetic: since 2006, I have noticed “open innovation” used as though it were a sacred incantation or magic pixie dust that somehow could turn lead into gold or gruel into caviar. And as has long been said, a theory of everything is a theory of nothing.

It seems to me that idea of “limits” has at least three possible meanings.

1. When Does OI Work?

OI started as a normative managerial theory in a book from HBS Press. So one limit on OI is on when it works and when it doesn’t work.

I have heard Henry Chesbrough say for many years that we need to know more about failure of OI in practice, including at the 1st and 2nd annual World Open Innovation Conference. The oldest example (I know of) for this call is his 2012 interview with a Swedish website, where he said:
The question of unintended side effects for open innovation is one area where we need a lot more work since academics are still publishing open innovation success cases for the most part.  Companies are trumpeting their successes; consulting firms are packaging open innovation services for interested clients – none of these groups so far have had much to say about open innovation failures.
As Marcel Bogers and I surmised in citing this lack of open discussion of managerial failure:
Finally, little is known about the failures of open innovation. Chesbrough speculates that this is because companies and consultants are trumpeting their successes and hiding their failures, thus making it difficult for researchers and managers to learn from those failures (Pop, 2012).
2. What Is and Isn’t OI?

Not everything that is called OI is actually OI. This is a challenge I have faced on the program committee for both WOIC conferences and three special issues (RP, ICC, and now CMR) on OI.

Perhaps Chesbrough’s first OI definition was published in 2006:
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. Open Innovation is a paradigm that 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 (Chesbrough 2006: 1)
The latest Chesbrough definition of OI is
open innovation is a distributed innovation process based on purposively managed knowledge flows across organizational boundaries, using pecuniary and non-pecuniary mechanisms in line with each organization’s business model. (Chesbrough & Bogers, 2014: 27).
It allows for non-firm organizations to utilize OI, although (unfortunately) it implies that the external partner must be an organization — ruling out out organizations sourcing innovations from individuals (e.g. crowdsourcing).

Still, from this, I would suggest at least two limits on the definition of open innovation.
  • Open. Knowledge flows across firm boundaries are needed for it to be “open”. By this measure internal contests may use OI (or crowdsourcing) principles, but do not involve firms being open (in the sense of having permeable firm boundaries).
  • Innovation. I sometimes see “open innovation” papers with no evidence of an actual innovation (at least as defined by Chris Freeman or the pioneers of innovation studies.) Getting a crowd to provide free user generated content on your website may be (or once have been) an innovative business model, but it’s not open innovation.
Conversely, just because something is not called open innovation doesn’t mean it isn’t: practices similar to open innovation has been around for decades (if not centuries). For example, much of the research on how firms use open source software in the period 2000-2010 is about open innovation, even though it isn’t called that. Similarly (as Frank Piller and I noted in our 2014 book chapter), some economic activity is both user innovation and open innovation, but neither is a proper subset of the other.

3. What are the Limits to OI’s Theoretical Predictions?

There is a minor debate whether OI is a theory, paradigm, framework, phenomenon, or something else. (A similar and much longer argument exists over the “resource-based view” vs. “resource-based theory”). That said, empirical (including qualitative) OI academic research over the past 10+ years has contributed to theory by making causal claims about what happens and what doesn’t.

Every theory in any field has boundary conditions — conditions when the theory applies and when it does not. These are the limits of the theoretical predictions that can be made by a theory (or paradigm etc.)

Sometimes these limits demark a frontier: I would argue that crossing firm (organization) boundaries is an essential prerequisite. At the same time, that frontier can change:
  • Chesbrough’s 2003 HBS book emphasized economic transactions between organizations, but West & Gallagher (2006) identified the importance of individuals as a source of innovation (and that they might have non-economic motives).
  • The HBS book assumed that OI only applied to profit-making firms, but Chesbrough and Di Minin (2014) have shown how the principles of OI have been applied in government and not-for-profit settings.
Finally, as in any theory, researchers seek to define the moderators of any causal effects. Yes, we believe the direct effects are true, but under what conditions? Tens of thousands of papers have been published by finding the mediators and moderators of well-accepted causal theories, and such papers have earned tenure for hundreds (if not thousands) of researchers.

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