In a recent post Tim mentioned a comment by a representative of an Australian university tech transfer office at an investor’s conference the other week. As Tim says, he was declaring the death of open innovation and a return to ‘sensible’ IP strategy, where we patent everything and then try to sell it or license it out.

If you’ve been reading Tim’s thoughts on patents or my post on the evidence for the Gollum effect of IP being a barrier to innovation, you can probably guess our opinion on the ‘death of open innovation’ declaration.

We are concerned that there is a growing confusion about what open innovation is (and isn’t) so I thought I’d write about an excellent review of the topic by Linus Dahlander (Stanford) and David Gann (Imperial College, London) that’s about to be published in one of the leading academic journals on innovation.

As Linus and David point out, open innovation is far from being a new phenomenon.

In the late 19th century, Edison’s laboratory – the Invention Factory at Menlo Park, displayed characteristics that in many regards had an open approach to innovation. The commercial development of electric lighting, for instance, was the product of a team of engineers that recombined ideas from previous inventions, collaborating with scientists, engineers, financiers and people in marketing outside the laboratory.

However, what is changing in innovation is the steady increase in the use of external ideas and external paths to market. Far from being a fad, this changing face of innovation is part of a shift towards alliance capitalism where companies pursue specialization but also collaborate to access capabilities that make their specializations more valuable.

I think the highlight of the review paper is a reminder that open innovation is a continuum (not just open versus closed as the only options), and that open innovation takes on several forms. The 2×2 matrix categorizing open innovation into inbound versus outbound and pecuniary versus non-pecuniary is particularly useful.

Inbound and outbound innovation is straightforward but the pecuniary versus nob-pecuniary dimension means that a lot of innovation isn’t based on ownership and formalized transactions. There are times when firms can give away technology and ideas as part of their innovation strategy. As Tim has said previously, free can be a valid business model in the right circumstances.

But here is where the conference speaker got confused. Revealing is not the only form of open innovation. When we think about open innovation as a range of activities that firms undertake to create and capture value by externalizing the innovation process, we start to see how common open innovation really is. Linus and David’s review shows the diversity of open innovation in the following table.

So….open innovation isn’t new, it’s not just about giving away ideas and it’s not going away.

Source: Dahlander, L., Gann, D.M., How open is innovation? Res.Policy (2010), doi:10.1016/j.respol.2020.01.013