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Closed or open innovation?

The promise of open innovation over the past decade has received increased attention, especially in the media. Popular open source projects – Wikipedia, open source software and various open government initiatives – have also led corporations to ask questions about whether they might also benefit from open innovation. 

In this paper we provide a framework for managing both open and closed innovation. We highlight how companies can utilize a mix of open and closed forms to ensure innovation.  We provide a simple framework for this process, specifically by highlighting how specific types of innovation problems can optimally be match with specific types of open and closed forms of organization.  

Research Summary

The idea of open innovation encompasses a wide range of external actors that an organization might work with, for example: users and “crowds,” customers, suppliers, and universities.    

While there is much hype about open innovation, as of yet there is no framework to decide when open innovation might be useful.  In our research we develop this framework for deciding when innovation should be open, and when not.  We specifically highlight how the nature of the innovation “problem”—how complex it is and how dispersed the knowledge required to solve it—play a central role in choosing the appropriate governance forms.  For example, some forms of openness—for example, various forms of crowd sourcing or innovation contests—provide access to knowledge which might be dispersed and thus not readily available internally.  Organizations can craft and manage their innovation by appropriately specifying the types of problems they are seeking to solve, and then match innovation problem types with various open and closed forms of organization.

Overall our framework not only provides a tool for different types of innovation problems, but we also highlight why certain types of problems can effectively be matched with certain types of closed or open governance forms.  Some organizational forms naturally maximize communication and knowledge sharing, others powerfully use incentives and yet others provide ways for individuals to create and capture value.   At the nexus of these considerations, we provide an overall framework for managing both open and closed innovation, one that shows how open innovation has clear benefits for solving problems in some situations, but clear costs in others. 

Our theory overall is prescriptive in that we provide some guidance for managers who are trying to navigate a complex web of popular practices and jargon related to user innovation, crowdsourcing and innovation contests.   We highlight how the optimal governance of innovation is contingent on the nature of the innovation problem to be solved, thus helping to bring some much-needed clarity to present calls for increased openness.   

Research published

Read the published research. “Closed or open innovation? Problem solving and the governance choice” Research Policy 43 (2014).

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