Introduction
Currently, the concept of innovation management has changed significantly. As such, innovation no longer relies on traditional research and development, but firms have to look for innovation outside the firm, which makes the classical comprehension of innovation challenging (Dowsett, 2020). As such, open and closed innovation models come in handy whenever a firm intends to d adopt a new product and remain competitive. However, the two models are not similar as they are different and identical in various aspects.
Comparison of Open and Closed Innovation Models
| Aspect | Open innovation | Closed innovation |
How Innovation Is Done |
· The primary difference between the closed and open innovation models revolved around how innovation is done. This is such that firms using open innovation depend on an external source for knowledge to develop products. (Lopez-Vega & Vanhaverbeke, 2009)
· The open innovation model is unique in that it focuses on ensuring that the firm combines all its internal and external technological advancements to create fruitful innovation that creates additional value for the company( Chesbrough, 2003) · Technology, intellectual property rights, machinery, and useful resources are shared amongst innovators. · Open innovation operates on the basic principle of no knowledge monopoly; instead, the companies can utilize the available collective ideas and knowledge to remain competitive (Marques, 2014). This is such that with open innovation, all external influences, such as the customers, suppliers, employees, and competitors, are all factored in (Dowsett, 2020). |
· In contrast, in closed innovation, the innovation is done within a self-contained setting, with no external sourcing of information (Marques, 2014).
· Contrary, the closed innovation model takes a different approach, as all the creative steps that eventually lead to innovation originate from the companies’ internal staff, whereby all the product development and testing happen in-house (Dowsett, 2020). · With closed innovation, the entire technology, intellectual property rights, and machinery belong to the firm and remain under its regulation (Dowsett, 2020). · The closed model is old-fashioned as it pressures the workers if any new product is to be made. |
| Role of Research and Development (R&D) | · Apart from differing in how innovation is done, open and closed innovation are similar as they both utilize R&D. Although R&D relies on external sources, it does not mean open innovation does not utilize it.
· Although open innovation uses external R&D to create value for itself, it also requires internal R&D to grasp the required value (Marques, 2014). · Although the discovery does not have to belong to the company, the firms using open innovation must engage in basic research for it to benefit. |
· Companies using closed innovation also utilize R&D but take a different approach to how they utilize R&D.
· In such companies, the R&D is tasked with developing, designing, and marketing its internal innovations. Hence, a company using a closed innovation model must develop and discover something before it can profit from the product (Marques, 2014). · Typically, closed innovation is essential as it will give the company a long-term competitive advantage over its main competitors. |
Comparison of Advantages and Limitations
| Advantage/Limitation | Open innovation | Closed innovation |
| Sourcing | · Open innovation allows crowdsourcing. One of the advantages is that since open innovation relies on internal and external knowledge, its innovation is open to unsettling ideas that might enhance the product even though marketing time might be delayed (Borrero, 2022). | · Closed innovation does not allow crowdsourcing as the process is usually done in a very clear and internally designed structure (Borrero, 2022). As such, the workers, especially those with startup ideas, will get proper guidance for their new ideas and receive valuable feedback much faster during their initial process (Borrero, 2022). |
| Legal compliance | · In most cases, legal compliance is complicated. This is such that with open innovation, the innovators have access to vast information that will significantly influence the company’s finished product (Borrero, 2022). | · Legal compliance is less complex since the innovation in the closed innovation is carried out within a highly regulated setting. It insinuates that legal compliance is often less complex than that of open innovation (Borrero, 2022). |
| Cost | · Open innovations are cheaper than closed ones since open innovations as innovators depend on other people’s research in designing a new product (Borrero, 2022). | · Closed innovation is expensive. Everything is done internally, insinuating that innovators must conduct their research, which can be expensive and time-consuming, which will scale down the innovation process. More so, open innovation can lead to important and yet unwanted by-products which do not align with companies’ business model (Panagopoulos,2016 |
| Keeping up with competitor | · Innovation teams must focus on what the competition is up to as they share resources and ideas | · innovation team will lose focus on what their competitors are up to in the sector (Borrero, 2022). In doing so, the innovation team will find it hard to execute outside ideas as they operate in a closed setting |
Open Innovation Practices and Firm Innovation Performance
Open innovation can significantly impact the firm’s performance by allowing the company to capitalize on external resources. In doing so, open innovation will influence the firm’s performance in the following ways. First and foremost, open innovation affects performance because it leads to firms accelerating their innovation process (Mubarak & Petraite, 2020). Currently, companies are faced with numerous internal and external problems which they have to handle due to the competitive nature of the markets (Bigliardi, 2020). Therefore, since innovation is becoming challenging when companies use open innovation, they can exploit their internal and external technology, which helps them gain a competitive advantage (Bigliardi, 2020). This is true considering that open innovation strategies will allow companies to collaborate with external stakeholders and, in the process, have access to a broader pool of ideas and resources that they can use to develop efficient products.
More so, open innovation affects the company’s performance in that it will allow the company to develop more innovative products. This is such that open innovation will enable the company to tap into new technologies and emerging trends that can inspire a new product (Ozkan, 2015). For instance, Procter & Gamble Co. developed a website known as connect and develop that can be used for open innovation to improve workers’ productivity (Dogson et al., 2006). Hence, from the above example, open innovation helped improve its performance as it was named the 2013 New Product Pacesetters winner, having produced the best 7 out of 10 non-food products (Ozkan, 2015). Hence, as seen in the above example, open innovation helps companies produce more innovative products.
Conclusion
From the above, innovation is one of a company’s most important aspects, as it helps provide the company with a competitive advantage over its major competitors. As such, the two standard innovation models are open and closed innovation models. Open innovation relies on internal and external sources of information, while closed innovation depends on internal staff. However, both models have advantages and limitations affecting the firm’s performance. Furthermore, due to numerous internal and external challenges, most companies prefer open innovation as it helps accelerate their innovation and also helps them develop various new products and services.
References
Bigliardi, B., Ferraro, G., Filippelli, S., & Galati, F. (2020). The influence of open innovation on firm performance. International Journal of Engineering Business Management, 12, 1847979020969545.
Borrero, S. (2022, February 16). Differences and examples of open and closed innovation in companies. Retrieved February 26, 2023, from https://finnovating.com/news/closed-vs-open-innovation/
Chesbrough, H. W. (2003). Open innovation: The new imperative for creating and profiting from technology. Harvard Business Press.
Dodgson, M., Gann, D., & Salter, A. (2006). The role of technology in the shift towards open innovation: the case of Procter & Gamble. R&d Management, 36(3), 333–346.
Dowsett, B. (2020). What is the difference between open and closed innovation? Retrieved February 26, 2023, from https://www.taxcloud.ie/blog/2020/difference-between-open-and-closed-innovation
Lopez-Vega, H., & Vanhaverbeke, W. (2009). Connecting open and closed innovation markets: A typology of intermediaries.
Marques, J. P. (2014). Closed versus open innovation: evolution or combination? International Journal of Business and Management, 9(3), 196.
Mubarak, M. F., & Petraite, M. (2020). Industry 4.0 technologies, digital trust and technological orientation: What matters in open innovation? Technological Forecasting and Social Change, 161, 120332.
Ozkan, N. N. (2015). An example of open innovation: P&G. Procedia-Social and Behavioral Sciences, 195, 1496–1502.
Panagopoulos, A. (2016). Closed vs open innovation. The Palgrave Encyclopedia of Strategic Management, 1-4. doi:10.1057/978-1-349-94848-2_336-1
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