The Importance Of Open Market Innovation

Knowledge is arguably the most important source of competitive advantage for a firm (Lin & Wu, 2010), (Roy & Sivakumar, 2011), (Grant, 1996). Within the technology sector in particular, opportunities are often temporary and at risk of imitation or further innovation and obsolescence, in which case the opportunity is lost (Katila & Mang, 2003). Sustaining and extending knowledge based competitive advantages in these dynamic industries requires a continuous approach to exploiting innovation. However, complex and rapidly changing technologies result in wide distribution of industry knowledge across firms (Lin & Wu, 2010). It is within this environment that open market innovation has gained popularity as a means to exploit innovation.

Open market innovation uses strategies such as licensing, joint ventures, and strategic alliances to improve the speed, cost and quality of innovation. Traditionally companies have operated within a closed model of innovation, accumulating large portfolios of Intellectual Property (IP) in an attempt to provide design freedom, block competitors or to hedge against litigation. As a result, IP portfolios may have had very little real value. Contrastingly, ‘open innovation implies that companies should be both active sellers of IP when it fits their own business model and active buyers of IP when external IP fits their business model’ (Chesbrough, July - Aug 2012).

In support of open market innovation, Kogut and Zander (August 1992) posit that ‘as an incumbent firm moves away from its knowledge base, its probability of success converges to that of a start-up organisation’. They propose that the decision of whether to buy or sell innovation comes down to three elements: how good a firm is currently doing som...

... middle of paper ...

...t access. To attract innovative cooperation a company must either have some capability to access desired markets that inventors cannot duplicate (Quinn, Summer 2000) or have valuable knowledge or expertise.

Successful alliances are those that have a high degree of innovation and market coverage (Stuart, 2000) and are characterised by trusting behaviour and collaboration. (Cravens & Shipp, 1993) If an inter-corporate relationship is based on a high degree of trust, mutual access is a much more likely alliance outcome. (Stuart, 2000) Thus, the greater the trust in a relationship, the greater is the outsourcer’s ability to exploit IP. (Roy & Sivakumar, 2011) The more equal contributions of core competence, specific objectives, decision making, the more successful the alliance (Cravens & Shipp, 1993), provided that the ownership of resultant benefits is clearly defined.