Open Innovation

Until the middle of the 20th century, corporate innovation was based on the assumption that full control of the entire new product development process will secure the long-term competitiveness of the company. Large companies invested heavily in corporate research and strongly competed for the best researchers. New findings were kept confidential to prevent outflow of knowledge and secure competitive advantage (closed innovation paradigm). At the beginning of the 1980s, many large corporations failed to appropriate the value generated by its corporate research institutions and were outperformed by new emerging companies investing significantly less resources in research and development (R & D) but relying on externally available resources. This anomaly founded the shift from a closed to an open [Page 515]innovation paradigm. Introduced by Henry William Chesbrough in 2003, open innovation is 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. The boundaries between a firm and its environment are permeable, allowing in- and outflow of knowledge. Within the last 10 years, open innovation has had a significant impact on management theory and has changed the way firms innovate. This entry provides an overview on the theory of open innovation and its implementation based on the three core modes of open innovation: outside-in innovation, inside-out innovation, and coupled innovation. The next section illustrates how existing implementations of open innovation differ in the motivation of interaction, in the direction of knowledge flow, in the type of involved external collaborator, and in the method of interaction used. The last section discusses managerial challenges and current business practices.