Open innovation

Based on Wikipedia: Open innovation

The Death of the Corporate Laboratory

For most of the twentieth century, if you wanted to invent something truly groundbreaking, you needed a castle. Not a literal one, of course, but something equally imposing: a sprawling corporate research campus, staffed with hundreds of scientists, funded by millions of dollars, and protected by tall walls of trade secrets and non-disclosure agreements. Bell Labs gave us the transistor this way. Xerox PARC created the graphical user interface. IBM built the mainframe computer industry.

Then the castle walls came tumbling down.

What replaced them is a concept called open innovation, and it represents one of the most profound shifts in how humans create new things since the Industrial Revolution. The basic premise sounds almost heretical to anyone trained in traditional business strategy: your best ideas might not come from inside your company. And your own inventions might be more valuable if you give them away.

What Open Innovation Actually Means

The term "open innovation" was popularized by Henry Chesbrough, a professor at the University of California's Haas School of Business. His definition has evolved over the years, but the core insight remains constant: in a world where knowledge is widely distributed, no single organization can monopolize all the smart people or good ideas.

Think about it this way. A century ago, if you were a brilliant physicist, your career options were limited. You might work at a university, which cared more about publishing papers than commercializing products. Or you might join one of the few industrial research laboratories that existed. Knowledge was concentrated in a handful of institutions.

Today? That same brilliant physicist might work at a startup in Seoul, consult for a venture capital firm in Silicon Valley, teach online courses to students in Lagos, and collaborate with researchers in Munich—all simultaneously. Knowledge has become liquid, flowing freely across borders, organizations, and industries.

Open innovation is the acknowledgment that this liquidity is unstoppable. Rather than fighting it, smart organizations learn to swim with the current.

The Two-Way Street

Open innovation flows in two directions, and understanding both is crucial.

Inbound open innovation means bringing external ideas into your organization. This could involve licensing a patent from a university, acquiring a startup, partnering with a competitor on research, or simply paying attention to what your customers are inventing on their own. The key insight is that useful knowledge exists everywhere, and your research and development team, no matter how talented, represents only a tiny fraction of the world's problem-solving capacity.

Outbound open innovation flows in the opposite direction. This is where things get counterintuitive. Traditional business wisdom says to guard your intellectual property jealously, to patent everything, and to sue anyone who infringes. Outbound open innovation suggests that sometimes your inventions are more valuable when they leave your building.

How could giving away your ideas possibly help you?

Consider a pharmaceutical company that develops a promising compound for treating a rare disease. The market is too small to justify the billions needed for clinical trials. Under the old model, that compound sits on a shelf, generating zero revenue. Under open innovation, the company might license the technology to a smaller firm specializing in rare diseases, or spin off a new company to pursue it, or donate it to a nonprofit research foundation. The original company might receive licensing fees, or equity in the spinoff, or simply the goodwill of having contributed to medical progress. Either way, the innovation reaches patients who need it.

Why Now? The Four Forces

Several factors converged to make open innovation not just possible but necessary.

First, skilled workers became mobile. In the 1950s, an engineer might spend an entire career at a single company. Today, the average tenure is measured in years, not decades. When employees move between firms, they carry knowledge with them. This is devastating if you're trying to maintain secrecy, but beneficial if you're trying to absorb new ideas.

Second, venture capital created an alternative path for commercializing inventions. An engineer with a breakthrough idea no longer needs to convince their employer's bureaucracy to fund it. They can quit, raise money from investors, and build a startup. This external option disciplines corporations to either move faster on internal innovations or risk losing them entirely.

Third, external suppliers became vastly more capable. Complex products once required vertical integration because no outside firm could manufacture components to the required specifications. Today, contract manufacturers in Shenzhen can build almost anything from a set of blueprints. This frees companies to focus on what they do best while sourcing everything else from specialists.

Fourth, the internet collapsed the cost of coordination. Collaborating with a researcher in another country once required expensive travel, slow mail, and frustrating time zone calculations. Now it requires only an internet connection. This makes it practical to tap into expertise wherever it resides.

The Dark Side of Openness

Open innovation is not without risks. Anyone adopting this approach must wrestle with some serious challenges.

The most obvious danger is inadvertent disclosure. When you open your doors to external collaborators, you create channels through which confidential information can escape. A partnership with one company might reveal trade secrets to their other partners. A presentation at an academic conference might tip off competitors. Even well-intentioned collaborators might accidentally share sensitive details.

There's also the competitive paradox. The same openness that lets you absorb external knowledge also exposes your internal knowledge to absorption by others. If you license your technology to a partner, that partner might use it to compete against you. If you publish your research openly, your competitors can build on it without paying for the original development work.

Managing external innovation is inherently more complex than managing internal research. When all your scientists work in the same building, following the same processes, using the same tools, coordination is relatively straightforward. When your innovation network spans dozens of organizations across multiple continents, ensuring that everyone is working toward compatible goals becomes a significant challenge.

Perhaps most subtly, open innovation can lead to strategic confusion. When your development roadmap depends on external contributions that you don't control, planning becomes difficult. What happens if a key partner goes bankrupt? What if a licensing deal falls through? What if the open-source project you depend on takes a direction incompatible with your needs?

Startups and Giants: An Unlikely Partnership

One of the most fascinating applications of open innovation is the symbiotic relationship between startups and large corporations.

Startups have agility, creativity, and tolerance for risk. They can pivot quickly, experiment freely, and pursue ideas that would be too speculative for a large company's quarterly earnings report. What they lack is resources: money, manufacturing capability, distribution channels, regulatory expertise, and brand recognition.

Large corporations have the opposite profile. They possess vast resources but often struggle with bureaucratic inertia, risk aversion, and the "not invented here" syndrome that makes them dismiss external ideas. Their very success can blind them to disruptive innovations that don't fit their existing business models.

Open innovation creates a bridge between these two worlds. A startup might license technology from a large company's research labs, gaining access to innovations that the corporation has no intention of commercializing itself. Or a corporation might acquire promising startups, absorbing their innovations and talent before competitors can.

This partnership benefits both sides. Startups get the resources they need to scale. Corporations get access to innovations they couldn't develop internally. And society gets faster progress on problems that matter.

Platforms and Ecosystems

One powerful form of open innovation involves creating platforms that others can build upon.

A software development kit, often abbreviated as SDK, is a perfect example. When Apple releases tools that allow outside developers to create iPhone apps, it's practicing open innovation. Apple doesn't have the resources to create every possible application its customers might want. By opening its platform to external developers, it gains access to millions of creative minds working to make the iPhone more valuable.

This approach exhibits what economists call network effects. The more developers create apps for a platform, the more attractive that platform becomes to users. The more users a platform has, the more attractive it becomes to developers. This creates a virtuous cycle that can propel a platform to dominance.

But platforms also create complexity. Someone needs to set standards, resolve conflicts, enforce quality, and maintain the underlying infrastructure. The platform owner takes on significant responsibilities in exchange for capturing a portion of the value created by the ecosystem.

Competitions and Crowds

Another approach to open innovation harnesses the power of competition.

Hackathons—intensive events where programmers compete to build something impressive in a limited time—have become a staple of the technology industry. Companies sponsor these events to identify talented engineers, generate new product ideas, and build community goodwill. Participants benefit from the challenge, the learning experience, and the potential for prizes or job offers.

Crowdsourcing extends this principle to larger scales. When Netflix offered a million-dollar prize to anyone who could improve its recommendation algorithm by ten percent, it attracted thousands of teams from around the world. The winning solution combined insights from multiple approaches that Netflix's internal team had never considered.

These competitive approaches provide organizations with access to a vast pool of creative talent at relatively low cost. The prize money, even when substantial, is typically far less than what it would cost to employ all those competitors full-time. And the diversity of approaches ensures that at least some participants will try unconventional solutions that internal teams might never have considered.

The Cathedral and the Bazaar

In 1997, a programmer named Eric Raymond wrote an influential essay comparing two approaches to software development.

The cathedral model resembled traditional product development. A small group of experts would carefully design every element, implement their vision in private, and only reveal the finished product when it was ready. This was how most commercial software had always been built.

The bazaar model looked more like an open-air market. Anyone could contribute. Development happened in public. Quality emerged not from top-down control but from the collective judgment of many participants. This was how the open-source movement was building Linux and other free software projects.

Raymond argued that the bazaar model could produce remarkably good software, perhaps even better than the cathedral approach. The key insight was Linus's Law, named after Linux creator Linus Torvalds: "Given enough eyeballs, all bugs are shallow." When thousands of people examine code, errors that might escape a small team become obvious.

But Raymond also recognized limitations. You cannot, he admitted, create something from nothing using the bazaar approach. You need a wizard to start the project, to create the initial vision and architecture that others can then improve. The bazaar is excellent for testing, debugging, and incremental improvement. But original creation still requires individual genius.

Open Innovation in Science

The principles of open innovation have begun to transform scientific research as well.

In Austria, the Ludwig Boltzmann Gesellschaft launched a project called "Tell Us!" that applied crowdsourcing to mental health research. Rather than having scientists decide which questions to investigate, the organization invited the public to submit their own research questions. This open approach surfaced concerns and priorities that academic researchers had overlooked.

The organization also created a "Lab for Open Innovation in Science" to train researchers in these techniques. Twenty scientists learned how to incorporate external input into their work, how to collaborate with non-experts, and how to communicate their findings to broader audiences.

This represents a significant departure from how science has traditionally operated. Academic research has long been organized around individual investigators or small teams working in relative isolation, competing for priority and publication. Open innovation suggests that some scientific problems might benefit from more collaborative approaches.

The Knowledge Transfer Partnership

The United Kingdom has developed an interesting mechanism for encouraging open innovation between companies and research institutions.

A Knowledge Transfer Partnership, commonly abbreviated as KTP, brings together three parties: a company seeking innovation, a research institution with relevant expertise, and a recent graduate who serves as a bridge between them. The graduate, called an associate, works at the company while maintaining ties to the academic institution.

This structure addresses a persistent problem in technology transfer. Companies often don't know what academic researchers are working on. Researchers often don't know what problems companies need solved. And even when both parties are aware of each other, they often struggle to communicate across the cultural divide between industry and academia.

The associate serves as a translator and connector. They understand academic research methods but work daily in a commercial environment. They can identify which academic insights might have practical applications and help adapt theoretical knowledge to real-world constraints.

Innovation Intermediaries

As open innovation has spread, a new category of organization has emerged: the innovation intermediary.

These are individuals or organizations whose primary purpose is to connect parties who might benefit from collaboration. They serve as matchmakers in the marketplace of ideas, linking companies with relevant research, connecting startups with potential corporate partners, and facilitating the flow of knowledge across organizational boundaries.

Innovation intermediaries can take many forms. Some are consulting firms that specialize in technology scouting, identifying relevant inventions from around the world for corporate clients. Some are online platforms that match organizations seeking solutions with solvers who might have answers. Some are regional development agencies trying to strengthen local innovation ecosystems.

What they share is a focus on connections rather than creation. They don't innovate themselves; they make it easier for others to innovate by reducing the friction of collaboration.

The Tension with Intellectual Property

Open innovation exists in tension with traditional intellectual property systems.

Patents, copyrights, and trade secrets were designed to encourage innovation by giving inventors temporary monopolies over their creations. The theory is that without such protection, innovators couldn't recoup their investments, and innovation would slow.

Open innovation challenges this theory. If valuable innovation increasingly comes from collaboration rather than isolated invention, do we still need strong intellectual property protections? Might those protections actually impede innovation by preventing the free flow of ideas?

This tension becomes particularly acute for technologies with humanitarian applications. If a company develops a life-saving medical treatment, should patent protection allow them to charge whatever the market will bear? Or should such innovations flow freely to anyone who can use them?

The open-source software movement suggests one resolution. Rather than abolishing intellectual property, some organizations use it strategically to maintain openness. A copyleft license, for example, uses copyright law to require that anyone who modifies an open-source program must share their modifications under the same terms. The legal machinery designed to restrict access is turned instead to guarantee it.

Some companies have experimented with patent pools, where multiple firms contribute patents to a common resource that all members can use freely. Others have pledged not to assert their patents against open-source projects. IBM, the company that once symbolized the closed corporate research model, has become a major contributor to open-source initiatives.

The Ongoing Debate

Not everyone is convinced that open innovation represents the future.

Critics argue that the benefits of openness have been exaggerated while the merits of closed innovation have been overlooked. Some inventions, they contend, truly do require the sustained investment that only a large, integrated organization can provide. The transistor wasn't invented through crowdsourcing. The iPhone wasn't designed by a bazaar.

There's also the question of appropriability. If you can't capture the benefits of your innovations, why invest in creating them? Open innovation might lead to free-riding, where everyone waits for others to do the hard work of invention.

The reality is probably that different situations call for different approaches. Some innovations require the deep expertise and patient capital that only closed research environments can provide. Others benefit from the diversity and speed of open approaches. The skill lies in recognizing which is which.

Connections to the Weeb Economy

The principles of open innovation illuminate many aspects of fan communities and creative economies.

Fan fiction, fan art, and other derivative works represent a kind of outbound open innovation, where original creators allow—or at least tolerate—external parties building upon their intellectual property. This generates value that the original creators could never produce themselves, while expanding the audience and cultural significance of their works.

The relationships between Japanese media companies and their international fan communities exemplify both the benefits and tensions of openness. Fan translations, once legally precarious, sometimes become official localizations. Fan communities identify market demand before companies recognize it. Enthusiast expertise often exceeds that of official employees.

At the same time, intellectual property conflicts persist. Companies struggle to balance openness with control. Fans push the boundaries of acceptable transformation. The most successful creative franchises seem to be those that find a sustainable balance—open enough to benefit from fan creativity, closed enough to maintain commercial viability.

The Future of Open Innovation

Where does open innovation go from here?

Some researchers predict that openness will become the default, with closed innovation relegated to narrow special cases. Others expect a backlash, as companies discover the hidden costs of coordination and the dangers of inadvertent disclosure.

What seems certain is that the walls between organizations will continue to become more permeable. Knowledge will flow more freely. Collaboration will span more boundaries. The companies, institutions, and individuals who thrive will be those who learn to participate effectively in these flows—absorbing relevant knowledge from outside while contributing valuable knowledge to others.

The castle gates have been breached. The question now is not whether to participate in the bazaar, but how to do so wisely.