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Open innovation is one of the most compelling models for the Internet economy. The theory, developed and refined by Professor Henry Chesbrough, explains the decentralized structure of the technology industries, the importance of knowledge-flows and diffusion, the use of proprietary and open source models for appropriation, and the viability of small firms in entering competitive markets.
In a recent paper, scholars look more closely at "open innovation" to predict when and how firms will benefit from knowledge outside the firm. J. Adegbesan and J.E. Ricart, Appropriating Value from External Technology: Absorptive Capacity Dimensions and Innovation Strategy, IESE Business School Working Paper No. 669 (SSRN 2007).
A central insight of the paper is that firms cannot simply “buy competitive advantage” (from the smarter guy who works elsewhere:), although doing so will usually speed up access to technologies. Firms must be able to appropriate value from external technologies to benefit from open innovation.
The significance of appropriation is that it underlies the intuition of economists that innovation leads to more innovation. In explaining the failure of innovative firms, [David] Teece argued that under a “weak appropriability regime,” “markets don’t work well... profits from innovation may accrue to the owners of certain complementary assets, rather than the developers of the intellectual property."
According to Teece the strength of the “appropriability regime” is a function of the legal mechanisms available to protect innovation... and thus it is a measure of the imitability of the innovation. As such, value appropriation depends on the ability to prevent imitation or replication of an innovation... Here, an essential concept- that innovation does not arise from technology itself, but rather the commercialization aspects of refining, shaping and diffusing technology into specific markets. Increased knowledge-flows and prospective markets for technology are merely inputs for innovation, but whether innovation occurs will depend on commercialization of technologies.
Adegbesan/Ricart refer to the ability of firms to appropriate, and thus commercialize, external technologies as absorptive capacity. This capacity is determined by firms’ technical knowledge and awareness of the market in which the technology will be commercialized; absorptive capacity enables firms to link external technologies with internal knowledge and resources to thereby capture value in their diffusion to the market. Firms need to invest in absorptive capacity in line with their innovation strategies, and/or derive their innovation strategies in view of their absorptive capacity endowments. Firms should also direct their innovation strategies towards the development of technical and market capabilities for future value appropriation. The research is an important contribution to the literature on open innovation. As Chesbrough described open innovation as the “use of purposive inflows and outflows of knowledge” in innovation, this article suggests that firms that assemble their internal capabilities and resources for the process of open innovation will be the most successful in the new economy.
posted by Noel Le @ 6:49 AM | Academia, Markets: Business, Investment & Innovation
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