Sunday, February 28, 2010

Open Innovation Entering the Mainstream

Open Innovation in Global Networks (OECD 2008) is a 132 page (2.5 Mbyte PDF). Ironically, while advocating openness in research, the OECD have issued their report as a read only PDF file (with a copyable executive summary). The PDF e-Book version is sold for US $22 and the print paperback edition, including the PDF version, for US $33. There is a
short readable article from the OECD staff "Making the Most of Open Innovation in Post-crisis Era" (Andrew WYCKOFF & Miriam KOREEN).

Table of Contents

Executive Summary

Chapter 1. Open Innovation in Global Networks

The concept of open innovation Applications of open innovation: user innovation, lead markets and open source Open innovation in the innovation literature Drivers of open innovation: demand and supply factors Global networks and innovation ecosystems Open innovation across industries Modes of open innovation The advantages and disadvantages of global innovation networks Global innovation networks and intellectual property

Chapter 2. Empirical Measures of Open Innovation

Case studies and surveys

Trends in R&D collaboration
Innovation surveys: the role of networks and collaboration
Patents: co-inventions and co-applications
Trends in licensing
Some tentative conclusions

Chapter 3. Insights from the Company Case Studies

General overview
Quantitative findings on the globalisation of innovation
Qualitative findings: open innovation on a global scale
Towards an integrated model of open innovation

Chapter 4. Policy Implications

Policy issues related to globalisation and open innovation
Policy responses
Towards a different innovation policy? ...

Executive Summary

Globalisation increasingly affects how companies in OECD countries
operate, compete and innovate, both at home and abroad. Global competition
drastically shortens product life cycles, while the growing integration of
different technologies makes innovation riskier and more costly. Companies
more and more internationalise knowledge-intensive corporate functions,
including R&D, and simultaneously open up their innovation process to
collaborate with external partners (suppliers, customers, universities, etc.).
This clearly has important implications for policy making, given the
contribution of (business) innovation to economic growth.

In order to match the growing demand for innovation from customers,
suppliers, etc., with the worldwide supply of science and technology, (large)
companies increasingly adopt so-called “ecosystems of innovation” across
countries. They link into these global innovation networks with people,
institutions (universities, government agencies, etc.) and other companies in
their own or different countries to solve problems, source knowledge and
generate ideas. These global innovation networks include own R&D facilities
abroad as well as collaborative arrangements with external partners and
suppliers, in which firms depend in various ways on the expertise of the
different partners.

While open innovation is not totally new, the organisation of innovative
activities (technological as well as non-technological) across firm boundaries
is clearly on the increase, with more balance between internal and external
sources of innovation. Other terms have also been used to describe this trend,
and all stress to some extent the openness of innovation activities: open
source, open standard, open research, user-driven innovation, etc. The fact
that the term “open” is usually thought of as cost-free creates confusion;
however, in contrast to open source, for example, open innovation typically
implies the payment of licence fees as well as other financial arrangements. In
this context, therefore, open does not mean free.

New evidence on global innovation networks based on case studies as
well as on large-scale data sets shows that:

  • The main reason for locating research and/or development facilities abroad
    is the proximity of large and growing markets. Other important factors are the availability of engineers and researchers, and the company’s proximity
    to other activities (production, sales).
  • Suppliers and customers are the most sought-after innovation partners.
    While universities and public research institutes are generally considered
    an important source of knowledge for companies’ innovation activities,
    especially in more upstream research and exploration activities, they
    represent only a small share of innovation collaborations.
  • Larger firms innovate more openly than small firms. Innovation survey data
    indicate that large companies are four times more likely than small and
    medium-sized enterprises (SMEs) to collaborate on innovation.
  • Geographical proximity matters in global innovation networks. Companies
    seem to prefer innovation partners that are geographically close. As the
    only information available concerns the number of collaborations, however,
    the fact that companies may enter collaborations with more distant
    partners only if they are strongly motivated by market demand or
    excellence seeking may be masked.
  • Differences among industries are significant. Collaboration on innovation is
    important in manufacturing as well as in services, notwithstanding some
    differences among countries. Industries such as chemicals,
    pharmaceuticals and information and communication technology (ICT)
    typically show high levels of open innovation.

The degree of openness in innovation models differs, depending on
factors such as the importance of the technology, the strategy of the firm, the
characteristics of the industry, etc. Companies traditionally seek to retain
their core capabilities and determine what to outsource or with whom to
collaborate. Their core competencies (in technology and markets) are
developed internally to the greatest extent possible, but open innovation may
be a faster, less risky alternative to internal development in order to diversify
(in terms of technology and/or markets).

In industries characterised by rather short technology life cycles, e.g. the
ICT, electronics and telecommunications industry, companies have sought
external partners in order to keep up with new developments in and around
their industry. In industries characterised by rather long technology life cycles
and strong protection of intellectual property rights (IPR) (e.g. pharmaceutical,
chemical and materials industries), companies mainly look outside the firm to
keep up with research. In industries in which patents are important but can be
more easily circumvented (e.g. the transport equipment industry and the fastmoving
consumer goods industry), companies set up collaborations to keep
pace with new developments. They seek technologies or products that have
proven their market potential, which they can improve, scale up and

The largest benefit of open innovation is a much larger base of ideas and
technologies. Companies source external knowledge in various ways:
partnerships with external parties (alliances, joint ventures, joint
development, etc.); or acquisition or sale of knowledge (contract R&D,
purchasing, licensing). In addition to these common modes, open innovation
is increasingly realised through corporate venturing (equity investments in
university spin-offs or in venture capital investment funds).

Open innovation is not only about sourcing external knowledge
(“outside-in”) as companies look for ways to generate additional revenue
from in-house innovations (“inside-out”) especially when the technology
has future potential but is not part of the firm’s core strategy. Companies
also increasingly use venturing to find external partners for
commercialising innovations that are not used internally (divestment, spinout,

Theft of intellectual property (IP) is seen as the most important risk to
global innovation networks. Unique knowledge may be revealed to external
partners that may later become competitors. Working closely with external
partners can create uncertainty about the appropriation of the benefits of
technology collaboration. When collaborating with larger companies, SMEs
especially may face larger risks because they typically have fewer resources
and limited expertise in IPR issues. The effective management of IP is crucial
for identifying useful external knowledge and particularly for capturing the
value of a firm's own intellectual property rights (IPR).

Successful open innovation also depends on the open character of the
business model. As knowledge has become companies’ key resource, open
innovation needs to be embedded in an overall business strategy that
explicitly acknowledges the potential use of external ideas, knowledge and
technology in value creation. Owing to the integration of different
technologies, industry borders are shifting or even disappearing, necessitating
new business models and organisational structures, including the effective
management of human capital (open culture, diversity, etc.).

Global innovation networks significantly influence national and regional
innovation systems. The ecosystems or networks of innovation of
multinational enterprises (MNEs) create cross-border nodes between regional/
national systems of innovation. MNEs also link S&T actors in different
countries, and their ecosystems often span clusters and industrial districts in
specific industries across countries. In this context, geographical proximity
permits localised learning.

Science, technology and innovation policies can no longer be designed
solely in a national context. As a country’s attractiveness as a location for R&D
and innovation activity becomes a priority, framework conditions that affect the location of production as well as costs (production, labour, tax) become
critical. Appropriate structural policies, such as labour market and
competition policies, as well as the public infrastructure for innovation and a
highly skilled workforce, are essential.

In addition, global innovation networks have some more specific policy

  • Universities and public research organisations increasingly play a
    significant role in the open innovation strategies of firms both as a source of
    basic knowledge and as potential partners. Support for basic research must
    therefore continue. Given the scarcity of public resources and competition
    to attract R&D-related foreign direct investment (FDI), countries must
    balance their research efforts and investments in specific fields with the
    need to be open and develop sufficient absorptive capacity in a range of
  • World-class clusters and networks remain important but integration across
    fields and borders may require different interfaces and competencies. The
    potential for innovation depends on how well knowledge flows and how
    well the system is connected: policies to foster or enable the development
    of world-class clusters and networks.
  • Sharing intellectual property may require different kinds of management
    tools in firms and public research organisations. Companies participating in
    national R&D programmes may need to share IP with foreign subsidiaries/
    partners or seek to commercialise it in foreign markets, but may be
    constrained by national regulations.
  • Investing in people and fostering cross-functionality and mobility and a
    “culture of innovation” is crucial, as open innovation implies that people
    must be able to work in networks and across borders, sectors and at the
    interface of converging technologies. It also requires openness to a
    geographically mobile workforce.
  • Open innovation stresses the broad characteristics of innovation. Much
    public support for innovation still focuses on R&D and technological
    innovation and less on non-technological innovation or other forms of
    user-driven innovation. While open innovation involves service firms,
    much public support for innovation still targets manufacturing firms.
    Policy attention focuses more on the supply side of innovation and less on
    building market demand for innovation (e.g. through publ ic
  • National R&D programmes need to be more open while ensuring benefits
    via reciprocity and cost-sharing agreements. Also arising from open
    innovation is the question of capturing national benefits from cross-border
    spillovers of the ecosystems of innovative firms. Potential national benefits
    must be communicated and demonstrated to public stakeholders.
  • Building a strong knowledge base is necessary to develop next-generation
    innovation policies and best practices. A strong knowledge base will be
    necessary to identify policy implications and develop next-generation
    innovation policies and best practices. OECD work over the coming years
    will seek to address these issues. ...

From: Open Innovation in Global Networks, OECD 2008

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