0.2 21st century economic development  (Page 4/13)

To address this challenge, many large firms have adopted a strategy of acquisition, buying innovative small firms to assimilate into their own product/service offerings. Meanwhile, others have looked to collaborate with partners, including academia, in order to support their innovation activity.

During recent years, collaborative approaches have received increasing interest, particularly within the paradigm of Open Innovation , which not only embraces openness in sourcing of innovations, but also in how they are developed and taken to market. As shown in [link] this Open Innovation approach significantly expands innovation potential by increasing opportunity flow in terms of markets as well as ideas.

Open Innovation is a concept developed by Henry Chesbrough (Chesbrough 2003, Chesbrough 2006) recognising a change in how businesses innovate. The concept is defined by Chesbrough as:

“ …the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology. ”

As the definition implies, Open Innovation is not only about where companies source knowledge for their own innovations but ways in which they manage innovations that arise which may not fit with the conventional strategy. Examples of both these strands may include licensing in IP to develop, while licensing out IP, which may not fit with the core business.

Chesbrough outlines how the development of this concept is highlighted by the challenges faced by many major companies who are struggling to sustain their innovation performances. To address this they have to look beyond their (often global) internal capabilities and engage in innovation with a variety of partners. Whereas internal R&D could produce sufficient innovation he describes how this has been challenged by ‘ erosion factors ’ including:

• The increasing availability and mobility of skilled workers – i.e., the precious human capital they enjoyed is no longer exclusive and therefore a competitive advantage
• The venture capital market – i.e., the increased availability of investment has removed (or at least reduced) a barrier to entry for new competitors
• External Options for Ideas Sitting on the Shelf – i.e., the ability to ‘spin-out’ new products or services through alternative and/or new channels
• The Increasing Capability of External Suppliers – i.e., if the inputs to the company include more ‘value-add’ then the company can add less value

Many of the concepts in Open Innovation are not new. For example, earlier models of innovation describe how ‘ firms search for linkages to promote inter-firm learning and for outside partners to provide complementary assets ’ (OECD 1996), which ties in with the paradigm described by Chesbrough. Furthermore, the pressure of the Knowledge Economy in challenging hierarchical structures and replacing them with flatter alternatives, often involving semi-autonomous teams is an effect that was apparent before Open Innovation (World Bank 1999).