Over the last two decades, the need by companies to achieve consistent growth has increased, and this can only be realized through innovation. Vanhaverbeke and Chesbrough, notes that, “The increasing complexity of technologies, the (typical) over-utilization of own R&D personnel, the specialization of technology players such as universities and high tech start-ups and the emergence of more effective technology markets with new types of intermediaries and technology services companies as main growth accelerators are important drivers of the popularity of open innovation among practitioners” (Vanhaverbeke and Chesbrough, 2014, pp. 2). Companies seem to be shifting to open innovation which is seen to be flourishing (Chesbrough, and Ghafele, 2014, pp. 5). There have been several drivers for open innovation as stated above. Many countries around the world fund research centers, universities, and also companies to drive researchers that have a potential of triggering innovations. Universities generally refer to the concept of open innovation as technology transfer and are capable is capable of initiating cooperation within an industry. Universities and non-profit institutions have increasingly produced a lot of quality work that is accessible to firms in the course of their operations (Cantamessa and Montagna, 2016, pp. 156). Firms can obtain technologies from research institutions instead of inventing them by themselves. These factors have led to the prevalence of open innovation.
Open innovation has been prevalence due to its nature of making it possible for firms to have access to external technologies. Innovation takes place in both predictable and unplanned setups where the planned setup refers to innovation within structures such as R&D units (Djellal, Gallouj, and Miles, 2013, pp.98-117). Open innovation is using inflows of knowledge to enhance internal innovation while at the same time using outflows of knowledge to promote external use of innovation (Salter, Vanhaverbeke, and Chesbrough, 2014, pp. 806). The realization that innovation can also originate from the external environment has immensely contributed to the prevalence of open innovation. In other words, helpful innovations can arise from outside or inside of the business and can proceed to the market in a similar manner (Salter, Vanhaverbeke, and Chesbrough, 2014, pp. 806). The idea of open innovation operates on the assumption that companies are in a position to use internal and external plans and pathways to the market in an attempt to progress with their operations.
Unlike open innovation, closed innovation holds that firms should control and own intellectual property rights to achieve successful innovation. Moreover, open innovation has also been prevalent since knowledge was widely diffused such that no single firm would claim a monopoly in its field. For large firms, open innovation means selling or purchasing inventions while for small companies it means partnering and sharing innovations with other firms (Curley and Salmelin, 2017, pp. 41). Here issues have been raised as to how much information a firm can share while still ensuring that it preserves its sensitive data.
Firms that practiced closed innovation operated their research and development R&D units where they developed new products and services and then incorporated them within the firm. Internal R&D was perceived to be a strategic tool since it created a barrier to competitors in the market. It is only big firms with a substantial resource base and long-term research programs that were in a position to compete with such companies. Therefore, in closed innovation firms would only reveal their technologies once they were ready for use and still attach intellectual property rights to these innovations. Open innovation does not necessarily mean that firms should completely discard internal R&D since it can be used to achieve additional benefits. A technological transfer is achieved better when a company continues to take part in internal R&D (Hu, Jefferson, and Jinchang, 2005, 784). Scholars have argued that, “Under open innovation, large firms do not abandon this approach, but rather augment their traditional R&D practices with inbound sourcing of external technologies throughout the product development process, as well as controlled outflows of internal technologies seeking new markets through outbound licensing”, (Salter, Vanhaverbeke, and Chesbrough, 2014, pp. 805). In the era when firms heavily relied on their R&D units, they made great developments and safeguarded them with secrets, and in other cases, they used legal measures to protect their intellectual property to ensure that competitors cannot access it.
In today’s market, the concept of closed innovation is obsolete as it is not possible for a company to maintain the secrecy of its inventions and thus being replaced by open innovation. One of the contributing factors was the increase in availability and mobility of skilled workforce since the labor market is connected to market know-how. It is common practice that higher compensation packages influence human resources and thus this leads to information leakages. Consequently, firms shifted from closed innovation to open innovation due to increased labor market mobility (Chesbrough and Appleyard, 2007, pp. 60). Moreover, over the last two decades, private venture capital has progressively grown making it possible for new companies to finance their goals of commercializing ideas leaking from the corporate research labs. Also, ideas cannot be kept pending as failure by a firm to use its innovations may lead to other firms exploiting such ideas. If a company funds a discovery and fails to pursue it in time those involved in making the discovery can seek it as individuals and therefore, the concept of closed innovation was shuttered.
Traditional intellectual property attaches a high value on secrecy and control of innovations a practice that inhibits collaborative innovation and knowledge sharing. Firms that have embraced the concept of open innovation have adjusted their IP to ensure that they reap its benefits while at the same time avert risks (Henkel, Schöberl and Alexy, 2014, pp. 879). Intellectual property has been used interchangeably with closed innovation. However, concerning open innovation, a company can license its intellectual property to others. IP which is traditionally known to inhibit open innovation has also been used to accelerate it. Intellectual property rights compel companies to reveal their inventions or technologies to the public without the fear of others claiming ownership a measure which fights secrecy (Pénin and Neicu, 2018, pp. 72). They can play the roles of protecting and disclosing information at the same time which enhances open innovation. IP are signals to potential collaborations, licensees, and investors (Pénin and Neicu, 2018, pp. 62). Open innovation has been prevalent in the last decades as a result of IP since it allows dissemination of inventions while at the same time safeguarding them from free-riders such as competitors and technology buyers. By opening up to external sources of knowledge, a firm is likely to accelerate time to market, reduce the cost of innovation, and meet insufficiencies in its R&D (Hagedoorn, 2002, pp. 480).
Moreover, Chesbrough, Vanhaverbeke, and West say that, “In the closed innovation model, companies had to take their discoveries to market themselves, both because they would obtain more money that way, but also because there weren’t many other companies who knew enough to utilize the technology successfully” (Chesbrough, Vanhaverbeke, and West, 2014, pp. 6). The intermediate markets have significantly affected intellectual property rights. There are firms whose field of specialization is developing new technologies; others have focused on creating new products, while others specialize in special services. Through intermediate markets, internally-owned competencies are much used as they are made available to be used by other firms. The problem comes in because other firms have to know what a particular technology can do before buying it. The fact moment they get an explanation of what it can do, then the technology has already been shared yet the buyer may end up not buying it. The customer may go ahead and develop similar technology and claim ownership of original ideas. As a result, companies have shifted to open innovation and thus its prevalence.
Companies need to provide clear information on what they want concerning solution specifications, environmental impact, and performance parameters to attract providers who possess the correct solutions they require (Resnick, 2015). The quality of solutions a firm can obtain through open innovation is depended on the workforce working on it whereas the clarity of information given determines the quality of providers. In as much as companies have their R&D units which they can use to create technologies and maintain secrecy, they need people to do those things, yet they cannot have them without explaining to them what they want. Therefore, the changing nature of intellectual property rights and the need for clarity in sourcing for competent, skilled labor has also led to the prevalence of open innovation.
Open innovation has become prevalent due to its ability to contribute to firms’ competitive advantage. It brings universities, companies, individuals, and other agencies together to create new technologies. It enhances the establishment of relationships between different parties in an ecosystem (Curley and Salmelin, 2017, pp. 47). The network formed provides a framework that reduces research costs, increases the rate of innovation, as well as spreads the risks of innovation. Also, with open innovation, a shared vision is achieved, and thus a creative culture is created among all the parties including end-users (Reed, Storrud-Barnes, and Jessup, 2012, pp.58-73).
Additionally, products developed through open innovation appear to be more relevant since many stakeholders are involved and they offer more effective solutions (Rohrbeck, Hölzle, and Gemünden, 2009, pp. 420-430). It is the desire of every organization to establish a substantial competitive advantage of which increased efficiency, and low operational costs are vital ingredients. In achieving competitive advantage, firms have realized that they need to depart from the traditional R&D units and instead look outside their walls for in doing so they will have access to the best human resource (Rigby and Zook, 2002, pp. 3).
Traditionally, firms created developments by what they considered as closed funnels only to realize later that they were spending a lot of resources to develop competencies that were already in existence (Cantamessa, and Montagna, 2016, pp. 155). Therefore, firms decided to spend some of the R&D budgets to acquire competencies already developed by other firms and thus resulting in an open funnel. Innovative ideas mostly originate outside the firm where R&D labs are also considered to be open systems which banks on their external ideas to create ideas. Internal R&D units build new knowledge and also raise a company’s capability to incorporate external information (Salter, Vanhaverbeke, and Chesbrough, 2014, pp. 806). Open innovation through creating links with research institutions and universities and joining professional bodies helps firms recognize existing external opportunities that can be maximized on to develop new ideas (Salter, Vanhaverbeke, and Chesbrough, 2014, pp. 806).
Similarly, open innovation has been prevalent as it provides access to new technologies, expertise, and new concepts of R&D as well as promotes an open culture which leads to improved competitive advantage. Open innovation also improves efficiency in that a firm uses competencies already developed by others instead of reinventing them. It keeps employees motivated since they are in constant interaction with external experts which is to mean that they are also challenged and encouraged to do more.
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