Open Innovation

Open Innovation is a term promoted by Henry Chesbrough, a professor and executive director at the Center for Open Innovation at Berkeley.

The central idea behind open innovation is that in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (i.e. patents) from other companies.

In addition, internal inventions not being used in a firm's business should be taken outside the company (e.g., through licensing, joint ventures, spin-offs). In contrast, closed innovation refers to processes that limit the use of internal knowledge within a company and make little or no use of external knowledge.

Prior to World War II, closed innovation was the paradigm in which most firms operated. Most innovating companies kept their discoveries highly secret and made no attempt to assimilate information from outside their own R&D labs. However, in recent years the world has seen major advances in technology and society which have facilitated the diffusion of information.

Not the least of these advances are electronic communication systems, including the internet. Today information can be transferred so easily that it seems impossible to prevent. Thus, the open innovation model states that since firms cannot stop this phenomenon, they must learn to take advantage of it.

It is the business model of the firm that determines what external information to bring inside, and what internal information to take outside.

Despite the striking similarity in names, open innovation has little in common with open source which emphasizes sharing rather than patenting and selling inventions. There are a number of open source business models that are merging facets of each concept together.