Open Innovation: More Than Supply Chain Management


 

Open innovation has become very, very popular.  Inevitably, perhaps, this tremendous growth has created some problems in definitions.  While lots of people talk about open innovation, they often mean different things when they say it.  As the person credited with originating the term[i], I want to try to clarify the definition, so we can all be clear on what open innovation is.

My desire for clarification was prompted by a blog post the other day that discussed open innovation, and treated it as though it was simply supply chain management dressed up in a fancy new label.  Here is the link to that blog post:  http://www.procurementleaders.com/blog/my-blog–david-rae/who-should-own-supplier-enabled-innovation-568086

Taken on its own terms, it’s not a bad post.  There’s nothing wrong with discussing supplier-enabled innovation, and how to innovate by working more closely with one’s key suppliers.  And the comments of the person from Electrolux show that there appears to be real value from doing this.

Just don’t confuse this with “open innovation”!  Yes, open innovation includes this supplier-enabled innovation, but it has many more aspects to it beyond simply leveraging suppliers for innovation.

To recap briefly, open innovation is about letting others use  your ideas and technologies in their innovation (inside out) and making use of others’ ideas and technologies in your innovation process (outside in).  You can find the most recent formal definition of open innovation below. [ii]  These twin tracks of open innovation have been part of the concept since I wrote the book Open Innovation back in 2003.  Yet 12 years later, many people still ignore Inside Out, and focus only on Outside In.  That’s what this supply chain blog post did:  it completely ignored Inside Out, and conflated supplier-enabled innovation with open innovation.

This error has also been made in the academic literature.  Groen and Linton in 2010 wrote an article in Technovation[iii]  that asserted that open innovation was just a restatement of supply chain management.  They even went on to claim that this relabeling was inhibiting dialogue between innovation and supply chain scholars.

This is both silly and wrong.  Innovation is about the creation of new products, services and processes, while supply chain is about the management of existing products, services and processes throughout the value chain.  Open innovation includes many more innovation actors than does the concept of the supply chain:  universities, research consortia, business models, venture capital, IP management, ideation contests, innovation communities, to name but a few.

These entities have no role to play in the supply chain literature.   And that doesn’t even include the whole Inside Out part of Open Innovation, with mechanisms like outlicensing, false negatives, spinoffs, donations to an intellectual commons, or setting standards.  To state that open innovation is just supply chain management by another name simply shows that these academics haven’t done their homework.

Innovation is ultimately about growth.  Open innovation is a new model of innovation that places external knowledge on an equal footing to that of internal knowledge.  More subtly, it is the integration of internal and external knowledge that becomes a critical skill in a world of abundant, useful knowledge.  Supply chain management suggests that suppliers can play an important role in innovation.  Open innovation would agree, but would go on to suggest that the rabbit hole goes much, much deeper than that.

So let’s get our terms straight, and get on with the business of innovation.

 

 

By

Henry Chesbrough

Faculty Director, Garwood Center for Corporate Innovation

 

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[i] https://en.wikipedia.org/wiki/Henry_Chesbrough

[ii] “…we define open innovation as a distributed innovation process based on purposively managed knowledge flows across organizational boundaries, using pecuniary and non-pecuniary mechanisms in line with the organization’s business model. These flows of knowledge may involve knowledge inflows to the focal organization (leveraging external knowledge sources through internal processes), knowledge outflows from a focal organization (leveraging internal knowledge through external commercialization processes) or both (coupling external knowledge sources and commercialization activities)…”  From Henry Chesbrough and Marcel Bogers, chapter 1, in New Frontiers in Open Innovation, Oxford University Press, 2014.

[iii] Groen, A. J. and Linton, J. D. 2010. Is open innovation a field of study or a communication barrier to theory development? Technovation, 30(11-12): 554