The Distinction Between Open Source and Open Innovation - Essay Example

?Open Innovation: Theory on the Frontier [ID “Open innovation is a phenomenon in search of a theory”. Open innovation has received much hullabaloo: Ever since Chesbrough (2003) opened the discussion, the idea has been represented and discussed in companies ranging from 3M to Google. Yet the theoretical understanding of it, and indeed whether or not it actually works or is superior to closed innovation, is scant at best and virtually non-existent at worst. Which industries benefit from open innovation? How does corporate culture impact it? Can open innovation be introduced at McDonalds at the fry cook level, or is it only feasible among people with Ph. Ds? Does every individual personality work with open innovation, or are some personality types more effective under closed system? Might open and closed be points on a continuum that should be shifted for different circumstances? Might there be hybrid approaches, such as beginning a project using open innovation and finishing it using closed? How can open innovation be balanced against the needs of management? Does open innovation reduce or increase transparency? Many of these questions have been answered only summarily, some not at all, and some might be in principle beyond the present ability to answer. Yet theory guides research just as research guides theory: Creating a theory of open innovation, however tentative and likely to change, could help to create hypotheses that could be tested, models that could be explored, and predictions that could be proven or disproven. This paper advances a theory of open innovation that claims that open innovation is in fact a more specific case of a general balance between the costs and benefits of command and control, and that open innovation is from an organizational behavior and institutional theory perspective a shift to bottom-up practices; as such, it depends crucially on loyalty to the institution, involvement in decision-making, corporate culture, management avoiding chilling effects, and other factors. I identify open innovation as a solution to the intellectual property version of the tragedy of the commons problem and as the internal flipside of the open source movement. Open innovation will be defined for the purposes of this paper as “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” (Chesbrough, 2003). Open innovation involves firms creating institutional practices to reap the benefits of internal innovation, such as with “innovation time” initiatives, and external innovation. Open innovation is in essence the model of most universities. Within the university system, a researcher's data is owned by the university and/or by the companies or stakeholders that funded or initiated the study, yet they also retain some copyright and control. The information is made publicly accessible, either subsidized to be free or for a nominal fee, so that research can be facilitated. Researchers have tremendous latitude to experiment and investigate down their own lines of inquiry. Open innovation, then, alongside the parallel but distinct concept of open source, is an attempt to replicate the intellectual output of the university and of similar institutions that allow information to be more freely created and disseminated. Albert (2008) points out how antithetical this is to many traditional notions of corporate capitalism: The assumption made is that companies both reap 100% of the benefit of communal intellectual property yet retain 100% in-house, which are contradictory assumptions. In practice, firms are faced with a difficult dilemma. Both internally and externally, they must control access to their information to remain competitive and prevent competitors from harming them, yet doing so reduces the net amount of innovation. Innovation depends on cross-referencing. Knowledge doesn't occur in a vacuum: If someone looks at a problem and can't be sure what others have done in regards to it, then everyone reinvents the wheel. Newton and Leibniz both independently invented their own calculus to do the tasks they needed: Imagine what two brilliant minds could have done if there was coordination, not even in conjunction but simply in terms of not replicating the same information so that Leibniz or Newton could have worked on something else. Dawkins (2008) recounts that Darwin hadn't heard of Mendel's work with genes and wonders what might have been had he known. In this age of highly specialized degrees and knowledge and electronic communication capable of coordinating the entire planet, there is no excuse for information not to be available when it's necessary. The question then shouldn't be, “How much innovation can be tolerated before profit is interfered with?” but “How much profit can be tolerated before innovation is harmed?” The issue is the tragedy of the commons (Gross, 2006; David; 2005; Lemley, 2005). Fencing off the commons is a way of polluting it and reducing its provision for everyone. One of the most common misunderstandings regarding intellectual property rights, particularly copyright, is that the actual creators are the main beneficiaries of the grant. In reality, it is the large companies that employ creators and then strip them of their copyright through contracts who actually benefit from the grant society intended as a reward for authors. This important misunderstanding is no accident. Misleading "romantic notions of authorship" are systematically spun by the companies who stand in the shoes of creators to justify the generous monopoly right rewarded to them. Another major myth regarding "intellectual property" protection is that it is the same as more traditional forms of property such as personal property or real estate...Copying another's intellectual creation does not end the owner's right to make use of the original. Intellectual property rights are created only as a means to encourage further creativity for the ultimate benefit of all society, while more traditional forms of property rights are designed to protect the personal and private interests of their owners. This crucial distinction can be seen when considering that one's house is not intended to pass into the public domain at some time; nor does anyone have a fair use right to borrow another's car. Intellectual property is intended to have ownership "holes", to be imperfect in its control, while real or personal property are more absolute in the their grants to owners. (Gross, 2006). Lemley (2005, 1031) argues that this commons is a very strange one indeed: “The economics of property is concerned with internalizing negative externalities - harms that one person's use of land does to another's interest to it, as in the familiar tragedy of the commons. But the externalities in intellectual property are positive, not negative, and property theory offers little or no justification for internalizing positive externalities. Indeed, doing so is at odds with the logic and functioning of the market...[F]ree riding is desirable in intellectual property cases except in limited circumstances where curbing it is necessary to encourage creativity...[E]conomic theory demonstrates that too much protection is just as bad as not enough protection, and therefore why intellectual property law must search for balance, not free riders”. The issue is a prisoner's dilemma matter of coordination, cooperation and defection. If everyone agreed to share their information fully in the marketplace, the marketplace as a whole would benefit from more innovation. Companies would still benefit by producing products and innovators would still be paid for their innovation, but no one would be reverse-engineering or reinventing the wheel in some form. But if enough companies defect, hiding their innovation, then they get the benefit without reaping the cost. The vital insight as regards open innovation is that this is true internal to companies as well as externally. If we imagine the innovation commons as a sea filled with starfish that, when farmed, create more starfish, then companies are chains and boat patrols in this sea keeping monopoly over some areas and preventing starfish from spilling over, despite the fact that this reduces the net number of starfish. But the company does so for its own sake, not for the sake of its employees. Any driver of any boat could go over to another boat with starfish. Companies, then, don't just want to shield their innovations from competitors, but also from employees. Engineers from the companies' perspective would ideally forget everything they did the moment they went home and remember it anew when they came to work, and forget it entirely when they quit. They wouldn't take anything they had learned to other companies so that those companies can benefit from their innovation. Open innovation is thus not opposed to but actually the flipside of open source. Open innovation is the phenomenon wherein the intellectual property is shared internally within the company and creators, open source is the phenomenon wherein the intellectual property is shared externally among companies and creators. Of course, open innovation is not internal to the company exclusively either. Recent innovation policies have moved to crowd-sourcing from product “enthusiasts” and volunteers, selecting innovation from other fields, and taking prompting and innovation concepts from “customers and end-users” (Rockefeller Foundation, 2011). “Companies from Toyota to eBay have applied “open and user-driven” processes to their product development with revolutionary results. Increasing connectivity now offers an unprecedented opportunity to harness global creativity and add value to products and services” (Rockefeller Foundation, 2011). Thus, open innovation is not just an internal version of open source, but is also an input version: Open innovation is the process where companies get input from the intellectual commons, whereas open source is the process wherein companies make output back into the commons. Open innovation does have advantages granted by command and control. “The open source model has proven to be an extraordinarily powerful way to refine programs that already exist — Linux, for instance, is an elaboration of the venerable Unix operating system, and the open source Firefox browser builds on Netscape’s old Navigator — but it has proven less successful at creating exciting new programs from scratch. That fact has led some to conclude that peer production is best viewed as a means for refining the old rather than inventing the new; that it’s an optimization model more than an invention model” (Carr, 2007). Open innovation is similar in that what it tends to do is not to create entirely new products, though that has certainly occurred in the case of Google Mail, but to synthesize products or improve them, like with the creation of Post-It notes and improvements to Google Maps (Griffin and Moorhead, 2009, 460-466; Casnocha, 2009; Trimble, 2010; Govindajaran, 2010; Boulton, 2008). 20% time at Google created Gmail, Google Maps, Google News and Google Talk. But it's important to note that those innovations, however well-designed, were not totally new or utterly innovative products. Gmail is a mail client: That technology is two decades old, with models including Outlook, Yahoo Mail, and Hotmail. Google engineers, being generally tech-savvy people, knew what the faults were of existing mail systems and avoided them. Google News is simply a good way of looking at news sites: It's a different type of search engine. And Google Maps basically combined GPS technology with MapQuest. Similarly, the Post-It Note was created when Art Fry took an idea he had of a bookmark and combined it with an adhesive that a fellow 3M engineer had made that was a very poor glue (which is why it was ideal for Post-It Notes, since it could be removed and reapplied many times; Casnocha, 2009). Open innovation, then, should be viewed as a surging upwards or weeding process. The engineers are like a wild crop: Growing every which way, innovating in response to their own micro-conditions, etc. Management selects which crops are viable, but it does not kill those that aren't; instead, it leaves them be, hoping that they might yet grow into something useful. In open innovation and innovation time approaches, engineers are never discouraged from pursuing a project with their own time, but those projects aren't picked up unless they're clearly valuable. This ties in with Govinadajaran's (2010) point that innovation is mostly about execution and not about ideas. The world is full of ideas: People constantly produce them. Most of these ideas are bad, ill-conceived, incomplete or obsolete. Many more are good, but implementing them is the challenge. Everyone has an idea for a novel or a movie: Very few have the skill, time, talent, capital and execution ability to bring together the full book or the full screenplay. A very few ideas are so good, like the laws of relativity or universal gravitation, that they are themselves highly elegant and need little implementation, but these ideas are few and far between: Even transcendent geniuses like Newton and Einstein spend decades producing ideas of far less merit or doing research before coming up with the elegant, intrinsically valuable idea. Execution is the hard part, and open innovation has the risk where everyone comes up with ideas and no one has the time, wherewithal or interest to make them viable. Trimble (2010) points out that, if taken literally, 20% time applied to the workforce in a company where 60% of overhead is labor costs means that “twelve points” of the company’s assets are being potentially frittered away! “Even if you cut it down by extending the 20 percent policy only to a subset of employees, those are huge numbers... The hidden risk in the 20 percent policy is that you end up generating a mountain of great ideas on paper that never become anything more than a mountain of great ideas on paper” (Trimble, 2010). Luckily, empirical evidence indicates that firms are willing to honestly embrace the open innovation and even the open source bandwagon in particular contexts. In the Linux community, firms, “without being obliged to do so” by any legal or contractual means, give back about half of their code to the community while retaining half, “eliciting and indeed receiving informal development support from other firms. That is, they perform a part of their product development open to the public—an unthinkable idea for traditionally minded managers” (Henkel, 2006). Selective revealing is a good model for balancing the profit incentive with the innovation incentive. This means could be made even more complex for even broader open innovation implementation. For example: Some innovation could be offered for free while other elements offered at a premium; a company could sell 30% of their code, share 30% and retain 40%. Some innovation could be “rented”, or old versions could be released open source. Certainly within the company and to established consumer “fans”, “declassification” could occur after five years. Thus, open innovation should be understood as the mirror image of open source and as a solution to the intellectual commons problem is the era of electronic communication. Future research should thus investigate open innovation and open source jointly, determine to what extent the intellectual commons can be fenced off before innovation declines, and examine alternatives such as those proposed (partial public release of code or intellectual property, returning more work to the public domain faster, allowing older versions of programs to become open source, recruit volunteer assistance alongside innovation time policies) that could return the market and the intellectual property commons to a more appropriate equilibrium. Theoretical models such as “innovation maps” looking at the way that borders are drawn on the collective intellectual content of society would follow. Researchers should certainly recognize that the distinction between open source and open innovation is largely arbitrary. Works Cited Albert, M. 2008, “Socialism As It Was Always Meant to Be”, Z Net. Boulton, C. 2008, “Google's 20 Percent Time Projects Pay Dividends for the Rest of Us”, eWeek, October 13. Carr, NG. 2007, “The Ignorance of Crowds”, Strategy + Business, May 29. Casnocha, B. 2009, “Success on the Side”, The American, April 24. Chesbrough, HW. 2003, Open innovation, Harvard Business Press. David, PA. 2005, “A TRAGEDY OF THE PUBLIC KNOWLEDGE ‘COMMONS’? Global Science, Intellectual Property and the Digital Technology Boomerang”, Development and Comp Systems: 0502010. Dawkins, R. 2008, The Greatest Show on Earth. Govindajaran, V and Trimble, C. 2010, The Other Side of Innovation, Harvard Business Press. Griffin, RW and Moorhead, G. 2009, Organizational behavior: Managing People and Organizations. Cengage Learning. Gross, RD. 2006, “Tragedy of the Commons”: Intellectual Property Rights in the Information Age”, MIT Press. Henkel, J. 2006, “Selective revealing in open innovation processes: The case of embedded Linux”, Research Policy, vol. 35 issue 7. September. Lemley, MA. 2005, “Property, Intellectual Property, and Free Riding”, Texas Law Review, vol. 83, p. 1031. Rockefeller Foundation. 2011, “Advancing Innovation Processes to Solve Social Problems”. Trimble, C. 2010, “Google and the Myth of Free Time”, Harvard Business Review, August 17. Read More