Open vs Close Innovation

The paradigm of closed innovation holds that successful innovation requires control. Particularly, a company should control the generation of their own ideas, as well as production, marketing, distribution, servicing, financing, and supporting. What drove this idea is that, in the early twentieth century, academic and government institutions were not involved in the commercial application of science. As a result, it was left up to other corporations to take the new product development cycle into their own hands. There just was not the time to wait for the scientific community to become more involved in the practical application of science. There also was not enough time to wait for other companies to start producing some of the components that were required in their final product. These companies became relatively self-sufficient, with little communication directed outwards to other companies or universities.

Throughout the years several factors emerged that paved the way for open innovation paradigms:

  • The increasing availability and mobility of skilled workers
  • The growth of the venture capital market
  • External options for ideas sitting on the shelf
  • The increasing capability of external suppliers

These four factors have resulted in a new market of knowledge. Knowledge is not anymore proprietary to the company. It resides in employees, suppliers, customers, competitors and universities. If companies do not use the knowledge they have inside, someone else will. Innovation can be generated either by means of closed innovation or by open innovation paradigms. There is an ongoing debate on which paradigm will dominate in the future.