These days, the former leading industrial enterprises are finding remarkably strong competition from many newer companies. Companies such as Intel, Microsoft, and Cisco conduct little or no basic research on their own. Although they have been very innovative, these companies have innovated with the research discoveries of others. And there is a legion of other, even newer companies waiting to supplant these firms if an opportunity should arise. They are likely to rely on someone else’s discoveries to ascend to leadership.
What accounts for the apparent decline in the innovation capabilities of so many leading companies, at a time when so many promising ideas abound? Closed innovation. It is a view that says successful innovation requires control. In closed innovation, a company must hire the best and the brightest people, so that the smartest people in their industry work for them. In order to bring new products and services to the market, they must be discovered and developed from within. If they discover it, they will get it to market first and, thus, declared the winner. If the lead the industry in making investments in R&D, they will discover the best and the most ideas and will come to lead the market. Therefore, they should control their intellectual property so that their competitors don’t profit from their ideas.
Today, several factors combine to erode the underpinnings of Closed Innovation. One factor is the growing mobility of highly experienced and skilled people. The logic of Closed Innovation was further challenged by the increasingly fast time to market for many products and services, making the shelf life of a particular technology ever shorter. When these erosion factors have impacted an industry, these assumptions and logic that once made Closed Innovation an effective approach no longer applied.
Open Innovation is emerging in the place of Closed Innovation. Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology. Although the Open innovation process still weeds out false positives (now from external as well as internal sources), it also enables the recovery of false negatives, that is, projects that initially seem almost worthless, but turn out to be surprisingly valuable.