We are seeing a paradigm shift – Society has undergone drastic changes due to globalisation, the intensity of technological change and shift in industry borders. The force of globalisation contributes to higher mobility of capital, labor and knowledge, which has lowered entry barriers and increased competition. The intensity of technological change has contributed to a shorter product life cycle, that forces companies to innovate faster. The shift in industry boundaries in for example telecommunication and banking has created new opportunities, that is now seen within cross-product, cross-firm and cross- industry business models. Failure to recognise and address these forces can delay time-to-market for products and services, increase development costs and consequently affect competitiveness. The task of managing innovation, knowledge flows and market exploitation is vital to companies of any size and industry. The digital era of technology has contributed to powerful ways to reach beyond the conventional boundaries of a traditional vertical model, of internal R&D activities. The logic of the closed business/innovation model has been challenged by changes in society and this once very successful model to innovation, is no longer sustainable to meet market demands.
There has been a “Paradigm shift” in how companies commercialise industrial knowledge. Open Innovation has become the new buzzword within Innovation management (Kuhn, 1962). The old mantra ‘if you want something done right, you’ve got to do it yourself’, represents the closed innovation model, with a centralised approach to R&D, with a high level of control within the innovation process – from generation of own ideas, through R&D stages, to implementation – a model that has become the old business model of the 20th century according to Henry Chesbrough, 2003. This approach worked well as long as markets were growing and the technological shifts were more or less predictable. However, as technology has emerged into society, this has forced organisations to keep pace with the speed of change in order to stay competitive, which implies that firms must also have a wider knowledge base.
In this knowledge society the governance mechanism needs to acknowledge open innovation, in order to break cumulative paths and create new technological paradigms, which brings another level of ‘raw’ solutions in the exploitation of knowledge. Knowledge is due to globalisation and technology widely distributed and located among suppliers, customers, partners, start-ups, consultants, universities, or research institutes. Organisations must aim to access this knowledge through collaborative innovation processes in order to increase innovation performance through cost reduction, shared risk, and increased value creation. Open innovation is defined as: ”The use of purposive inflows and outflows of knowledge to accelerate internal innovation and expand the markets for external use of innovation, respectively. 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 they look to advance their technology”, (Chesbrough, 2005).
Open innovation has become the umbrella term that enables organisations, academics and practitioners to rethink innovation strategies in a networked world. The diffusion of open innovation activities is seen through practices such as Crowd Sourcing, Co-Creation, Collaborative Innovation, Open Source. All of which share one attribute in common: to involve, integrate and exploit knowledge from external sources such as customers, suppliers, communities, companies etc.
As the Internet has accelerated and technology has emerged into society, the interaction between companies and consumers has changed. To a larger extend we see that today organisations acknowledge consumers as contributors, developers, designers and producers. e.g. when Lego introduced Lego Mindstorms, Lego experienced that within three weeks more than 1000 advanced users, had hacked into the software and made unauthorised, yet original modifications that were completely unforeseen by Lego. The users had a need, that the software were not providing and to make it better they started to innovate, modify, strengthen and advance the capabilities of the software.The users became the forefront of the overall success of Lego Mindstorms, which actually changed the entire business model of how Lego saw their customers. Rather then having a “downward spiral”, they harvested the creativity, imagination and intelligence of the crowd and today Lego has learned to exploit a collaborative and open relationship with its customers.
“Innovation happens when a customer becomes a co-creator of value, an active subject of the innovation process, and is not merely a passive object”.
Camilla Gad Krogsgaard