Analysis of Open and Closed Innovation Strategies: A Detailed Report

This report provides a comprehensive overview of open and closed innovation models, as presented in a lecture by Mohammad Rahman. It begins by defining open innovation as the use of both internal and external knowledge to create successful innovations, as conceptualized by Henry Chesbrough. The report contrasts this with closed innovation, where all innovation activities occur within a company's boundaries. It explores the advantages and disadvantages of each strategy, emphasizing that a combination of both may be the most effective approach. The report further delves into the innovation process, distinguishing between invention and innovation, and highlights the problems associated with open innovation, such as the potential loss of sensitive information and the influence of market needs. References to key academic papers and researchers are included to support the analysis.

Unit 8: Innovation and
Commercialization
Lecture 10
1Unit Leader: Mohammad Rahman

Open and Closed Innovation
Unit Leader: Mohammad Rahman 2

Open Innovation:
Open innovation is an innovation management
model as developed by Henry William
Chesbrough (born 1956) is an American
organizational theorist. He is known for coining the
term open innovation which assumes that
innovation is based on firms’ need to combine their
internal and external technological developments
to produce a successful innovation that creates
added value for the firm.
Unit Leader: Mohammad Rahman 3

Open Innovation (Con’t):
Open innovation has been defined as: the use of
purposive inflows and outflows of knowledge to
accelerate internal innovation, and expand the
markets for external use of innovation,
respectively (Chesbrough, 2003).
Unit Leader: Mohammad Rahman 4

Link
• https://www.youtube.com/watch?v=GD2wCS2xwWQ
Unit Leader: Mr Syed 5

What is Closed Innovation?
A company that chooses to keep its innovation efforts closed has its
projects developed only within clearly defined boundaries. Know-how,
technology, processes and intellectual property remain under one’s
control; without collaboration with other market players or
universities, for example.
In short, according to Professor Henry Chesbrough himself, Closed
Innovation is based on the view that innovations are developed
internally. From the generation of ideas to development and
marketing, the process occurs exclusively within the company.
Unit Leader: Mohammad Rahman 6

The Difference Between Closed Innovation
and Open Innovation:
Unit Leader: Mohammad Rahman 7

Which of the Two Strategies is
the Best of a Company?
• As you have seen, the place of Closed Innovation is within the
company itself. It is a strategy that places very high demands on
employees, so it is necessary to hire highly qualified employees and
protect intellectual property accordingly.
• Open Innovation is more linked to collaboration, often coming from
outside the company.
• It is up to each organization, within its prerogatives, to decide which of
the models is most adherent to it. What the experts on the subject –
including Professor Henry Chesbrough himself – recommend is the
combination of the two strategies.
• Innovation activities of external actors, such as clients, suppliers,
universities or business partners, should be seen as a complement to the
organization’s own efforts. The basic prerequisite for this is the
structuring of stable innovation processes in order to integrate facilitate
the collaboration and absorb the results obtained.
Unit Leader: Mohammad Rahman 8

The Innovation as a Process:
• The Concept of Innovation advances through the innovative effort that is developed within society and
the economy, with the intervention of all kinds of agents. They may be public or private and include
firms, the state, universities and non profit institutions.
• It consists of an idea or scheme, of foreseeing the possibility of a new product, process or system’.
‘Innovation’, meanwhile, is taken as ‘the first commercialization of a new product, process or system
corresponding to the introduction on the market of the conversion (into a good or service) of such
innovation’.
• Hence the main difference between them is that ‘innovation’ is actually the introduction on the market
of a new product, process or system, whereas 'invention' is only its discovery and creation.
• In practice the notion of innovation is very Most researchers have focused on technology related
innovation such as the introduction of products that need radical changes in the production process.
• The concept of innovation, however, can be seen as going beyond the radical innovation of technology-
based products.
• It can be regarded as something that brings improvements to products and processes, changes to
organizational structures and activities, to exploit new markets.
Unit Leader: Mohammad Rahman 9

Domains of the Concept of
Innovation:
Unit Leader: Mohammad Rahman 10

Problems with Open Innovation
• Problems not resolved by open innovation despite the success of open innovation in the
academic environment this innovation model is not held to be perfect.
• It seems to be a linear model par excellence, consisting basically of a variation of the
‘stage-gate’ mode characterized by a funnel with holes that would let ideas be exchanged
throughout the process.
• Open innovation view favours the sharing of information, but this openness can lead to
the flight of sensitive knowledge, both commercial and technological. The challenge
proposed is how to strike a balance between an exchange of knowledge.
• Another problem is related to the opening up to the flows of knowledge and learning with
respect to the global economy. If this is confirmed, then obviously there is an
incompatibility that the model does not explain.
• The final problem concerns the strong influence of market and customers needs as
sources of innovation in global economy. These are critical factors to product, process,
organizational and market innovation.
Unit Leader: Mohammad Rahman 11

Summary:
• The view of innovation strongly based on R&D and the absolute need to
develop internal capacity.
• The readiness with which the concept has been embraced by companies is
questioned, too.
• This acceptance could perhaps be explained by the simplicity of the new
model, the limitations of the supposed 'closed innovation ‘model and the
false myth that this latter one is still followed by a great many firms.
• It has further been argued that the approach of this dichotomy gives the idea
that opting for one of the two models automatically excludes the other, in
the belief that if something is wrong then the opposite must surely be right.
• Such polarization does not allow something to be partly right and wrong at
the same time.
Unit Leader: Mohammad Rahman 12

References:
Abernathy, J., & Clark, K. (1985). Mapping the winds of change. Research Policy, 3,
322. http://dx.doi.org/10.1016/0048-7333(85)90021-6 Allen, T. J., & Cohen, W.
(1969). Information flow in research and development laboratories.
Administrative Science Quarterly, 14(1), 1219.
http://dx.doi.org/10.2307/2391357 Bainbridge, D. I. (1996). Intellectual Property.
Financial Times (3rd ed.). London: Bitman Publishing.
Barney, J. B. (2001). Is the resource based view a useful perspective for strategic
management research? Academy of Management Review, 26(1), 4156.
http://dx.doi.org/10.5465/amr.2001.4011938 Caraça, J. M. G. (1993). Do Saber ao
Fazer: Porquê organizar a Ciência? Lisbon: Gradiva. Caraça, J. M. G., Lundvall, B.
A., & Mendonça, S. (2009). The changing role of science in the innovation process:
from Queen to Cinderella? Technological Forecasting and Social Change, 76(6),
861867. http://dx.doi.org/10.1016/j.techfore.2008.08.003 Chesbrough, H. (2003a).
Open Innovation: The new imperative for creating and profiting from technology.
Boston, MA: Harvard Business School Press.
Unit Leader: Mohammad Rahman 13

Any Questions?
• Thank you very much.
Unit Leader: Mr Syed 14