Open innovation has grown considerably since it was first proposed by Henry Chesborough back in 2003 to the point that the majority of organizations are practising it in some shape or form. Most analyses of the returns of these investments have focused on the benefits organizations have derived, but a new paper from the European Union’s Joint Research Council explores the wider societal benefits of open innovation.
The researchers perform a sectoral analysis across 16 EU countries to explore the role open innovation plays in stimulating not only innovation in those countries, but economic growth.
The analysis finds that open innovation does indeed seem to have an impact upon the innovation output of a country, especially when developing networks aimed at improving the breadth of relationships rather than the depth of relationships.
“If we consider the industry-country unit of observations as “systems of actors”, then increasing the number of connections and collaborations amongst the “nodes” within each system increases the likelihood of introducing more innovations at the aggregate level, since the more knowledge is shared among a wider variety of actors the more innovation tends to be distributed,” the authors say.
The benefits of open innovation tend to decrease as the ecosystem grows however, as each extra node adds progressively less as the network as a whole becomes more homogeneous.
Economic advantages
In terms of economic advantages, again networks focusing on breadth rather than depth appear to have the biggest impact, although as before, there is an inverted U-shaped effect whereby too many connections spread across a network can harm the economic advantages of open innovation. This is largely due to the increased transaction and coordination costs, together with information leakage risks that come from attempting to manage large numbers of relationships.
What’s more, the authors also suggest that broad networks are much more likely to result in incremental innovations that can benefit from the diversity of perspectives available in such a network. For more radical innovations however, a deeper network is likely to be much more valuable as it provides access to exclusive and specialized knowledge.
As such, it’s likely that only deep and persistent relationships are going to deliver significant economic and strategic returns in the medium to long term.
“Overall the analysis supports for the presence of positive returns of OI on innovative outcomes, both on overall innovation and, more specifically, on product and process innovations. A positive return is also found between a deep knowledge sourcing and value added levels. However, OI suffers of possible diminishing returns: relying too much on external knowledge can be detrimental for sectors innovativeness,” the authors conclude. “An OI mode seems from our analysis not to be associated to any economic growth pattern. Additionally, not even innovation manages to be found significant in explaining growth.”
The authors believe that their findings can help guide policy makers activities, especially in helping to foster a broader range of partner firms in any innovation ecosystem, with a particular focus on the conditions required for knowledge and innovation networks to flourish.
