How open is innovation?

Abstract

This paper is motivated by a desire to clarify the definition of ‘openness’ as currently used in the literature on open innovation, and to re-conceptualize the idea for future research on the topic. We combine bibliographic analysis of all papers on the topic published in Thomson's ISI Web of Knowledge (ISI) with a systematic content analysis of the field to develop a deeper understanding of earlier work. Our review indicates two inbound processes: sourcing and acquiring, and two outbound processes, revealing and selling. We analyze the advantages and disadvantages of these different forms of openness. The paper concludes with implications for theory and practice, charting several promising areas for future research.

Introduction

How does openness influence firms’ ability to innovate and appropriate benefits of innovation? These questions lie at the heart of recent research on innovation (e.g. Chesbrough, 2003a, Helfat, 2006, Laursen and Salter, 2006a). Their answers require a conceptual frame that defines and classifies different dimensions of openness. There has been a range of important papers published on the topic and it is timely to take stock on where the research stands to advance it further. Our review shows that a variety of definitions and focal points are used, but that these do not yet cohere into a useable analytical frame. The absence of such a framing device makes it difficult to compare and evaluate the advantages and disadvantages to openness at the level of the firm.¹

A starting point for the idea of openness is that a single organization cannot innovate in isolation. It has to engage with different types of partners to acquire ideas and resources from the external environment to stay abreast of competition (Chesbrough, 2003a, Laursen and Salter, 2006a). This has stimulated questions about the role of openness in innovation that emphasizes the permeability of firms’ boundaries where ideas, resources and individuals flow in and out of organizations. In this view, external actors can leverage a firm's investment in internal R&D through expanding opportunities of combinations of previously disconnected silos of knowledge and capabilities (Fleming, 2001, Hargadon and Sutton, 1997, Schumpeter, 1942). The downsides of openness can also be considerable, although there is less focus on this in the literature. Openness can result in resources being made available for others to exploit, with intellectual property being difficult to protect and benefits from innovation difficult to appropriate.

In defining openness, Chesbrough (2003a, p. XXIV) argues that “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 firms look to advance their technology”. Chesbrough's definition of openness, the most commonly used in the literature, is broad and underscores that valuable ideas emerge and can be commercialized from inside or outside the firm. The concept has common currency for at least four reasons. First, it reflects social and economic changes in working patterns, where professionals seek portfolio careers rather than a job-for-life with a single employer. Firms therefore need to find new ways of accessing talent that might not wish to be employed exclusively and directly. Second, globalization has expanded the extent of the market that allows for an increased division of labour. Third, improved market institutions such as intellectual property rights (IPR), venture capital (VC), and technology standards allow for organization to trade ideas. Fourth, new technologies allow for new ways to collaborate and coordinate across geographical distances.

In spite of rising interest in using the openness construct, systematic studies of openness remain cumbersome because of conceptual ambiguity. The extant literature presents the concept of openness in quite different ways; Laursen and Salter (2006a) equate openness with the number of external sources of innovation, whereas Henkel (2006) focuses on openness as revealing ideas previously hidden inside organizations. Our approach is to provide an analytical frame of different forms of openness and the associated advantages and disadvantages for each type.

To do so, we review the literature by an analysis of all papers published on open innovation in Thomson's ISI Web of Knowledge (ISI) to August 2009. Our starting point is a focal firm and the different forms of openness available to this organization. We systematically analyze the literature and its intellectual pillars by investigating the work that scholars cite. To get a sense of the community that has formed around this concept, we provide an overview of who has been working with whom in advancing the concept. After establishing these broad trends, we read all papers and categorized them in a systematic fashion. We develop an analytical frame by structuring the analysis in two dimensions: (1) inbound and (2) outbound (Gassmann and Enkel, 2006) versus (3) pecuniary and (4) non-pecuniary. This enables us to discuss two forms of inbound innovation—Acquiring and Sourcing; and two outbound—Selling and Revealing.

To date, the literature has been imbalanced in its strong focus on benefits of openness. Thus, we also pay close attention to disadvantages. We suggest that these factors might affect reasons why some firms gain and others lose from openness.

The paper is organized in six sections that combine to develop a framework based on prior conceptual and empirical work. The next section presents our method, followed by a review of the antecedents of openness found in literature on theories of the firm. Section four presents the different types of openness which emerged from our literature review. Our review enabled us to classify articles according to different focal points and these clustered according to the types that form the basis of our review. In section five we discuss implications for theory and practice, articulating promising areas for future research. The paper ends with concluding remarks about the study of open innovation.