Open Versus Closed Innovation Essay Example for Free

diffuse Versus disagreeable in(p) Innovation EssayOpen Versus unkindly Innovation BY celestel 979 A Critical Look at the Effects of In the Innovative Firms of the Twenty-first Century June 17, 2010 Abstract In todays fast paced business world, which first appearance method should companies adopt, sensory(a) or closed innovation? In this paper we allow explore the methods of closed and open innovation. Then we result explore the pros and cons of both innovation methods and discuss which method pass a agencys em supplant in the business world of the twenty-first century.After reviewing the results this paper explores the particle implications that innovative firms should be sensible of regarding Open and Closed nnovation and recommendations will be made for future research in this argona. Introduction land Looking back even off a few decades companies viewed innovation strategies very differently then they do today. It was supposed that successful innovation needed i nternal confine and secrecy from others in the market. Large corporations used to prevail the field of innovation because they were the only ones who could afford to invest it step to the forestanding scale RD.Any confederation that move to enter the market would get under ones skin to pick up large amounts of resources to be able to even attempt to argue with the RD f the large corporations (Chesbrough, 2003 Herzog , 2008 Aylen, 2010 Kodama, 2005 Trott Hartmann, 2009). In the current economy start-up companies have found ways to bypass the large RD investments of the past. Instead of doing their own research these new entrance are getting their loveledge and technology from orthogonal their company by either investing in rele caravant startup companies, or partnering with other companies up, downhearted or horizontally on the value chain (Chesbrough, 2003).With the expanding options on how to obtain innovative ideas, processes, and growths the big skepticism remains should companies used a closed or open pproach to innovation? And does the open and closed methods work for all companies? (Almirall Casadesus-Masanell, 2010) In this paper we take a critical look at what closed and open innovation is, what the pros and cons are to both options, and try to determine if one method is dampen then Closed Innovation The main theory behind Closed Innovation is the belief that successful innovation requires control (Chesbrough, 2003).Companies that follow the Closed Innovation (C) ensample ( go out Figure 1) believe in self-reliance and that they should follow these rules to accompany A firm should hire the best and smartest people ? Profiting from innovative efforts requires a firm to discover, develop, and market everything itself universe first to market requires that research discoveries set about within the firm Being first to market excessively ensures that the firm will win the Leading the industry in RD investments results in coming up with opposition the best and most ideas and eventually in winning the competition Restrictive IP management essential prevent other firms from profiting from the firms ideas and technologies (Herzog, 2008) Cl companies attempt to do everything on their own from innovative ideas, evelopment, manufacturing, advertising, promotion, distribution, service and even financing. If the innovative ideas or projects are non pursued or are discarded part way they are stored internally and will not be profitable to the company or useful to the peace of the world unless they are used internally at a after date. This creates a great firing of umteen potentially great innovative ideas, products, services, and processes. If a company hires Cl it fuck be involve that many innovations will be lost as companies do not have the ability or resources to turn every idea or technology nto a successful innovation the market stick out use.The main reason a company would choose Cl would be because they a re scared of having their dexterous investments stolen by their competitors (Herzog , 2008 Chesbrough, 2003). pic Open Innovation Companies have reached the understanding that not all innovations have to originate internally and that if they do have an internal innovation and do not have the ability to act upon it they freighter still profit from it by partnering, Joint ventures, licensing or selling the innovation to another company. In Open Innovation (01) companies must ind a balance between keeping important internal secrets and still working(a) with other companies to nominate and produce valuable ideas, processes, resources, finances and support (Herzog , 2008).Companies that follow the 01 model (see Figure 2) believe in the following principals Not all of the smart people work for us, so we must find and tap into the knowledge and expertise of bright individuals outside our company External RD value We dont have to originate the research in order to profit from it Buildin g a part business model is better than getting to market first If we make he best use of internal and external ideas, we will win We should profit from others use of our intellectual property, and we should buy others intellectual property whenever it advances our own business model (Chesbrough, 2003) 01 encourages the Joining of resources from firms across all aspects of the value chain. Companies now realize that innovations they cant use or can be used further by other companies can lead to additional profits that they could have never obtained on their own (Almirall, Casadesus-Masanell, 2010).Kodama, (2005) expands 01 even further to talk about creating strategic communities See vermiform appendix 1), a convenient process of speeding up a firms innovation. To be able to quickly maturate a variety of knowledge of great use, managers from different areas, from inside and outside the firm, can make a strategic community with internal and external members, which could involve cu stomers. A huge benefit is that strategic communities are not bound by the same limitations as the official organization. Now that we have explored what Cl and 01 is we will now go on to look at why one of the methods might be better then the other for companies competing in the twenty- irst century and why companies decide to choose one either Cl or 01.Open versus Closed Innovation 01 involves risk such as knowledge and sensitive teaching leakage and the risks must be weighed against the benefits that would be gained from participating in 01. One more trouble with 01 is that easily some areas open up to help the flow of knowledge it has been found that to keep sensitive cultivation secure at that place has actually been a reduction in the amount of information being dowry between internal departments which could effect the companies internal innovation (Trott Hartmann, 2009). It has been found that 01 is especially needed in field such as knowledge-intensive industries where competition is strong and companies need to work together to be able to gain a competitive advantage in the field (Trott Hartmann, 2009).Almirall Casadesus-Masanell, (2010) study showed that 01 works better then Cl for partnerships that are fixed and have low to medium complexity levels but they also found that when there is high complexity involved that Cl is the best method to follow. Another discovery was that the benefits can be greater in flexible partnerships over fixed partnerships. The model of flexible partnerships effectively says, If you cant fgure out how to put the pieces together internally (confgure two subsystems optimally), it is critical to have lots of different pieces (complementary subsystems) to choose from and know how to put them together externally. (Almirall Casadesus- Masanell, 2010) Chesbrough and Crowther (2006 as sited in Aylen, 2010) said that 01 traditional and mature industries. A big business between 01 and Cl is how they go through their idea lists.Cl managers go through and proceed with the ideas they see as beneficial to their company and iscard what they see as bad ideas or ideas they know their firm does not have the resources to accomplish. Whereas a 01 manager would go through their idea list and sort them into three categories, innovations their company can pursue internally, ideas they can approach other companies about, and ideas that will not work at all. thus the 01 model gets to profit from the ideas that the Cl model would have otherwise discarded or stored for a later date (Chesbrough, 2003). Even though 01 has been adapted by many organizations as the best way to be successfully innovative the theory is not perfect.Trott Hartmann, (2009) point out that 01 is very linear and does not put forward any feedback or feed-forward mechanisms unlike the newer innovation models such as the Cyclic Innovation Model (Berkhout, A, Patrick van der Duin, Dap Hartmann Roland Ortt,(2007), cited in Trott Hartmann, 2009) . This newer model suggest feedback and feed-forward techniques and also that the innovation process is cyclic, meaning new innovations grow from honest-to-god innovations. Cl has been very successful for some companies such as Apple they swept the market with the iPod and this outline and product put them back into the playing ield after have been struggling for years to catch up with the innovations of other major players. Another example of Cl is the Wii by Nintendo which was extremely innovative with their new product features (Almirall Casadesus-Masanell, 2010).Some very large companies have tried Cl techniques and had some devastating effects as a result, such as IBM and Xerox but both these examples were able to overcome these problems with the help of 01 techniques. Procter and risk and Philips have successfully adapted 01 and have gone so far as to hold conferences on he topic and even published their own reports on the subject. Trott Hartmann, (2009) provide a list of companies and the reasons they choose to become part of a strategic alliance (See Appendix 2). It has been noted by Chesbrough, (2003) that near the end of the 20th century a number of things happened that caused Cl to be taken into question by many firms.