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Towards a Theory of Open Innovation:
Three Core Process Archetypes
Oliver Gassmann*, Ellen Enkel*
*Institute of Technology Management, University of St. Gallen, Switzerland

Open Innovation is a phenomenon that has become increasingly important for both practice and theory over the last few years. The reasons are to be found in shorter innovation cycles, industrial research and development's escalating costs as well as in the dearth of resources. Subsequently, the open source phenomenon has attracted innovation researchers and practitioners. The recent era of open innovation started when practitioners realised that companies that wished to commercialise both their own ideas as well as other firms' innovation should seek new ways to bring their in-house ideas to market. They need to deploy pathways outside their current businesses and should realise that the locus where knowledge is created does not necessarily always equal the locus of innovation - they need not both be found within the company. Experience has furthermore shown that neither the locus of innovation nor exploitation need lie within companies' own boundaries. However, emulation of the open innovation approach transforms a company's solid boundaries into a semi-permeable membrane that enables innovation to move more easily between the external environment and the company's internal innovation process. How far the open innovation approach is implemented in practice and whether there are identifiable patterns were the questions we investigated with our empirical study. Based on our own empirical database of 124 companies, we identified three core open innovation processes: (1) The outside-in process: Enriching a company's own knowledge base through the integration of suppliers, customers, and external knowledge sourcing can increase a company's innovativeness. (2) The inside-out process: The external exploitation of ideas in different markets, selling IP and multiplying technology by channelling ideas to the external environment. (3) The coupled process: Linking outside-in and inside-out by working in alliances with complementary companies during which give and take are crucial for success. Consequent thinking along the whole value chain and new business models enable this core process.
Keywords: Open Innovation; Archetypes; Trends; Capabilities, R&D Process
seek ways to bring their in-house ideas to market by deploying processes outside their current businesses can A) Introduction start an "era of open innovation". Examples of products invented for a specific market which then became a Shorter innovation cycles, industrial research and great success in other markets are numerous: the development's escalating costs as well as the dearth of TCP/IP protocol, which was invented for military use resources are reasons why companies are searching for and lead to the world-wide web (internet), the joy stick new innovation strategies. The phenomenon is technology in the game industry that BMW used to reinforced by the increasing globalisation of research, develop "iDrive" as a navigation aid in the new BMW 7 technologies and innovation, by new information and and 5 series, or Teflon, which was invented for space communication technologies as well as by new missions and became a market success as kitchenware. organisational forms and business models' potential. However, emulation requires more than a few Only companies that wish to commercialise both changes in a company's innovation paradigm. One of their own ideas as well as other firms' innovation and these changes is transforming a company's solid boundaries into a more semi-permeable membrane to incentive: "Beat Microsoft". enable innovation to move more easily between the Open innovation means that the company needs to external environment and the company's internal open up its solid boundaries to let valuable knowledge innovation process. Another change is to fully integrate flow in from the outside in order to create opportunities those external knowledge sources that are a prerequisite for co-operative innovation processes with partners, for enriching the internal knowledge base. customers and/or suppliers. It also includes the Creating a new, flexible innovation strategy means exploitation of ideas and IP in order to bring them to combining approaches that take market demands and market faster than competitors can. Open innovation the company's vision into account. The question principles therefore describe how to deal best with remains: how can these elements of an open innovation strategic assets in order to meet market demands and strategy be best combined in respect of the industry company requirements. speed (clock speed), the product architecture, the The open innovation approach is about gaining knowledge intensity of the research, or the form of the strategic flexibility in the strategic process and creating a industry's competitiveness? critical momentum in innovation diffusion in order to generate customer acceptance and create industry standards. B) Open Source as Pioneer Open Source is the most prominent example of the revolutionising of the conventional innovation process: 2. Research Methodology and Data Sample
world wide, several thousand programmers develop highly sophisticated software that competes with The database that we revisited for open innovation was Microsoft's products. The Open Source approach is the originally used for an analysis of companies' activities phenomenon of co-operative software development by in four areas related to the innovation process. This data independent software programmers who, on demand, had been collected during research projects over the last develop lines of codes to add to the initial source code 10 years. Different types of data had been collected in to increase a program's applicability, or enable new each area, and different data collection methods had been used to ensure the quality and accuracy of the The idea behind this approach is co-operative software subsequent data analysis. creation outside firm boundaries, which is thereafter (1) In the area of intellectual property management freely available. However, the source code too has to be we co-operated with 9 transnational companies for 8 freely available. This principle drives the evolutionary months by means of workshops in order to identify development and improvement of the software. Famous strategies of and approaches to IP management within examples of the development of Open Source software co-operative innovation processes. We used interviews, are Linux, the Apache server or Freemail. The Open questionnaires and participating observation to collect Source approach, which has been broadly discussed in data. This action research approach allowed us to practice and theory (see the special issues of Research develop a model of IP Management for co-operative Policy (2004) and Management Science (2005 innovation processes (see Gassmann, Bader, 2004). forthcoming)), started the discussion on opening up the (2) To investigate external knowledge sourcing, we company's internal innovation process. conducted and compared case studies by means of 55 The core questions to be researched were: Is the semi-structured interviews in 23 multinational Open Source innovation approach transferable and, if companies, using listening posts in order to access so, under which conditions? Enabling factors for this innovation clusters like Silicon Valley or Singapore and successful model are the short design-build-test cycles to trace the technological knowledge transfer to (rapid change of generations), new releases' low companies' R&D centres. We were able to identify three transaction costs, the great number of ideas that are different modes of listening posts according to their enabled by the number of programmers involved and main goal: the match-maker, trend scout and technology which, in turn, create variation and mutations as well as outpost (see Gassmann, Gaso, 2004). the selection criteria (survival of the fittest, the principle (3) In the area of decentralised R&D, which formed on which acceptance within the user community is the largest data sample, we investigated 89 companies. based). Other success factors are a stable structure This provided us with a comprehensive overview of the which entails an accepted system architecture and physical and geographical structure of a firm's R&D language, the communication, which is a combination organisation and processes (see Gassmann, von of ideas and technical solutions, as well as the strong Zedtwitz, 1998, 1999, 2003; von Zedtwitz, Gassmann, creating an essential contribution to IBM's innovative (4) Based on the data analysis of the above- power. Since research and development activities form mentioned areas in the last phase of our data collection the most important base of IBM's success, it has for the open innovation research, we collected data in invested approximately $5 billion per year, which is 5- two action research projects. In the area of outside-in 6% of its revenue, in research and development since innovation, and through a workshop structure, we collected data in 10 companies, as well as in 13 This investment's success is verified by IBM's companies in the area of customer-driven innovations. constant leading role in the number of US patents Overall we collected data through twelve workshops, registered since 1993. Between 1993 to 2002 IBM questionnaires, side visits and interviews over a period registered 22,357 patents and generated $10 billion in of 16 months with a special focus on the field of licensing alone. And the number of patents is still increasing: 3,288 patents in 2002 and 3,415 in 2003. The Sandmeier, Wecht, 2004). company owns an active patent portfolio of more than IBM's industry solution laboratory (ISL) in Zurich 23,000 American patents and more than 40,000 world Rüschlikon is exemplary of the concept of open wide. "But what's more important than the statistics is innovation. IBM follows most of the principles of the the effect that these discoveries and patents are having in open innovation approach, which seems to be one the marketplace – and that's what really makes reason for the organisation's innovation successes. something ‘innovative'." (IBM 2004). Concomitantly with the increasing number of patents, IBM has explored a new business by exploiting its knowledge through licensing. It took IBM ten years, but now a huge part of 3. A case of Open Innovation – IBM
its revenue is earned through patent licensing to outside Industry Solution Lab Zurich
partners in order to get ideas to market through its own licensing programme. IBM is a successful and established enterprise in the The sustained success of IBM's research is also based fast growing IT market. IBM can look back on a long on the constant development of its research strategy. On history of research and development activities, analysing this development it becomes clear that IBM impressive innovation as well as good customer did not replace one strategy with another, but built on experience. This company was one of the first past experiences. While centrally financed research enterprises that was forced to see its competitors programmes and technology transfer became core in the conquer a place in this highly dynamic industry. The 70s, this was supplemented in the 80s with collaborative increasing complexity of the IT market established new research teams, co-ordinated agendas and joint projects players in the hardware (e.g., Cisco and HP) and with a focus on more effectiveness. "The 1990s saw an software (e.g., Microsoft, Oracle and SAP) sectors. interesting shift in our industry as significant The information and communication technology's innovations began to be made by IT teams within our growing influence as well as the partial merger of leading customers' technology staffs." (McQueeney, traditional disciplines, e.g., biology and medicine, leads to even more dynamics and complexity. Meanwhile new Joint research projects with customers lead to media and globalisation offer new opportunities (e.g., e- mathematical optimisation concepts providing solutions business), but also lead to more technology and market to supply chain and customer relations problems. In the uncertainty. It is therefore essential for an enterprise like 90s, the work on customer problems as well as the IBM to not only invest in research and development, but research into the market place complemented the current to open up its innovation process and to focus research strategy which gives a key position to creating consistently, both operatively and strategically, on business advantages for customers and investing in e- market and customer demands. In the 8 research labs (which focus on basic research (McQueeney, 2003). This new focus on research and long-term development of core competencies) and strategy was initiated by the wave of newly founded, the 30 development labs (oriented towards short- and dynamic companies and these enterprises' structural and middle-term projects) approximately 3400 people are organisational problems which did not allow employed world wide. The industry solution labs (ISL) entrepreneurs to develop their promising ideas within and on demand innovation services (ODIS) initiative their companies. IBM learned from venture capitalist aim at co-ordination and co-operation between the companies and introduced incubator organisations. research and development labs and at subsequently These changes were necessary to develop innovations outside IBM's core business, called "emerging business opportunities" or EBOs, within IBM. This was workshops, are focused to address the current and additionally supported by the early integration of potential IBM customers' immediate and specific need, business partners and customers as well as market such as value chain optimisation. The workshop can also research and development analysts into the innovation be targeted more broadly to address long-term goals, process. This approach enabled concepts like the first- such as increasing mind share by focusing on an array of of-a-kind projects (FOAK), the on demand innovation services (ODIS), the industry solution lab (ISL) and the methodologies and context-specific information with the global technology outlook (GTO) (McQueeney, 2003 circa 20 participants who mainly come from higher and IBM 2004). IBM successfully used their existing management positions, specific knowledge, such as and potential lead customers to test new technologies, to technological, market and industry trends or current build collaborative teams and to perform road-mapping project outcomes, is also exchanged. Because of the delicate and strategic issues discussed at these The IBM industry solution lab in Zurich Rüschlikon workshops, 90% are held in-house and limited to one aims to establish relationships with academic and company. The workshops can be initiated in different industrial partners in Europe in order to leverage their ways: The customer could meet up with an ISL current technical knowledge and to follow those employee at a conference or workshop, an ISL technical developments in which Europe is the leader. workshop is initiated via a consulting project with an Today approximately 300 employees, mostly graduates IBM business unit, or the contact is established by in information sciences, electronics and physics, as well customers requesting it via the ODIS website. After the as 30 visiting researchers and a great number of trainees two-day workshop has been approved, the specific work at this research lab which has delivered 4 of topics are discussed with all the relevant experts, IBM's 5 Nobel Prize winners. researchers and stakeholders within the customer's The lab contacts the global scientific community company and IBM Rüschlikon. Thereafter the potential through conferences and seminars and through scientific participants (up to 20 managers, industry experts and societies' meetings. The lab employees also participate researchers) are invited. Not only trend and state-of-the- in research programmes with the European Union and art information is exchanged during the workshop, but work on joint projects with European universities and also the ISL researchers and consultants' views of their industrial partners' research institutions. More than company-specific problems. According to external and a quarter of the researchers, engineers and programmers industry-independent perspectives, these opinions are frequently work with important customers and give excellent and greatly appreciated by customers. them the opportunity to get to know technological, Besides the strategic aim of identifying potential market and industry trends. technological lead positions, relationship marketing Making the initial contact with scientific and forms the ISL mission's main focus, thus supporting industrial partners and customers is part the Zurich and IBM's business indirectly. The great success of the ISL New York industry solution labs' (ISL) main workshop, which is evident from Rüschlikon's responsibilities. These two labs have a special role employees' high workload, can be summarised as being within IBM's research labs because of their double due to the following factors: experts and high-ranking function of doing research and building a customer and decision-makers' participation, a workshop design innovation centre. oriented towards individual customers and the open Although there is no contract-triggered pressure to discussions of delicate and company-specific questions integrate customers, IBM Rüschlikon strives towards in a closed community. The openness regarding the external inputs without wishing to lose its leading role demonstration of prototypes and the presentation of in driving innovation. The integration of customers and IBM-specific internal methods and current research partners is supported by 350 workshops per year as well projects create the open and collaborative climate as by the 50-100 on-going research projects, product necessary to exchange knowledge. The knowledge offers, integrated solutions and developing technologies. gained through the ISL workshops in Zurich Rüschlikon IBM's innovativeness is enriched by "innovation days" forms an important basis for IBM research and during which leading scientists, suppliers, customers especially for the site-independent research concepts like and potential partners are invited to provide the first-of-a-kind projects (FOAK), on demand innovation company's research as a whole with external input and services (ODIS) and emerging business opportunities Communication across company boundaries is seen as a Another example of active customer integration into way to obtain strategic alignment in research. Rüschlikon's innovation process is the global The customer workshops at Rüschlikon, called ISL technology outlook (GTO). The GTO aims to identify market trends and to estimate technological collaboration with the Conxion Dotcom incubator during development. Through the GTO process those fields which IBM Global Business Partners joined forces with that are highly important for IBM's R&D are identified. Conxion, an Internet service provider and itself a start- IBM's strategy is to be the first in these innovation up, to incubate start-ups. IBM is well known as a partner fields. Annual expert interviews launched by the GTO in strategic alliances in which the company jointly owners have to answer the question: what are next develops and exploits innovation with strategic partners year's hot topics going to be? in different industries. This give-and-take relationship in In a first step, the gathered information on which IBM gains knowledge from outside as well as technology and market trends that research and providing its own knowledge and technology has development labs' leaders have provided within a 6- to become a major part of IBM's business strategy. 9-month period, is combined with information from Besides contributing to the good relationships with competence centres' R&D experts as well as with the customers and partners, the exchange of knowledge results from surveys of those IBM employees who leads to new product ideas that serve to forecast participated in conferences and workshops. Various technologies and help to maintain IBM's leading market other sources, like industry reports from independent research institutions and universities (e.g., the report IBM's success is based on its research strategy and "Future trend in the pharmaceutical industry 2010"), the openness of the innovation process that allows the reports from joint research projects with partner organisational environment to react flexibly to new companies (e.g., the study on successful ageing with market demands. IBM integrates external knowledge Swiss Re), and marketing reports, complete the through its extended collaboration with customers and information search in this phase. partners in joint research activities. IBM's patent In a second step, the information is analysed and strategy of licensing patents that cannot be used consolidated into approximately 20 fields, which the internally has become part of its business strategy. It is research departments then discuss and further group into the combination of approaches that the organisation has 6-7 fields called GTO chapters. In this process the attempted over the years, which makes IBM successful leaders of the 8 research labs and specifically the heads and worth imitating. of the two industry solutions labs (Zurich Rüschlikon and New York) are of great importance in deciding on IBM's future innovation fields. The GTO chapters have to be linked to the previous year's chapters in order to 4. A Framework for Open Innovation:
guarantee resource allocation consistency and to Three Core Processes in Open Innovation
safeguard the long-term development of research competencies. What differentiates the closed innovation paradigm from The industry solution lab in Rüschlikon has a special the open one is basically that companies that implement role within the GTO procedure as it can integrate the the latter interact with external entities in terms of their customer's perspective through the ISL workshop innovation process's efficiency and effectiveness. results. Since his role at the forefront of research Chesbrough (2002; 2003) describes four erosion factors enables him to actively shape IBM's research, the leader that compel companies to transform their innovation of Rüschlikon's industry solution lab is seen as an strategy into a more flexible open innovation approach. opinion leader within IBM's GTO process. With the Skilled workers' increasing availability and mobility as exception of the largest development site in Böblingen, well as external suppliers' increasing capability have Germany, IBM regards the ISL Zurich Rüschlikon as caused a shift in innovation paradigms. In addition, the the major authority in R&D within Europe, the Middle external options available for unused ideas and the East and Africa (EMEA). venture capital market have created new opportunities Rüschlikon's innovation strategy is strongly focused on joint ventures and common research projects and The IBM case study demonstrates that IBM is mastering reports, therefore there are manifold examples of the new challenges and reacting to them with a flexible successful partnerships. One example is provided by the research strategy. Besides the strong focus on study "Computer on Wheels" in which IBM developed integrating a vision based on the input by BMW's research. IBM's knowledge and ideas into the early stage of its vision of the car in the year 2015 is that of a computer innovation process, IBM has created an excellent patent on wheels with which IBM could create a great added strategy. This strategy allows the commercialisation value as a supplier for the automotive industry. Another through active know-how transfer projects and licensing example of strategic alliances for innovation is IBM's of those patents that cannot be realised efficiently in- strategy in which the de-coupling of innovation sub- house, or do not fit the innovation strategy (exploitation processes is used to increase a company's of knowledge). By tapping into innovation clusters to innovativness? Can this approach be observed in enhance its technological knowledge transfer through companies other than IBM? Is the opening-up of the the research labs around the world and by supporting innovation process a new innovation paradigm? corporate new ventures through organisational Boundaries
of the company
Locus of Innovation inside the company Locus of Innovation inside the company outside the company Joined Innovation and Exploitation Figure 1: De-coupling the locus of innovation process A) Identifying three Open Innovation Process Archetypes structures like incubators or spin-offs, IBM enables the realisation of ideas. This is evidenced by the high The results of our research can be summarised by the number of patents and Nobel Prize winners within the three core open innovation processes: (1) The outside-in organisation. Also co-operations within strategic process: Enriching the company's own knowledge base alliances, such as that with BMW, and an open standard through the integration of suppliers, customers and strategy to increase development support (collaborative external knowledge sourcing can increase a company's knowledge creation) IBM's leading market position. innovativeness. (2) The inside-out process: earning When analysing the case study from a process profits by bringing ideas to market, selling IP and perspective, it is clear that three main processes are multiplying technology by transferring ideas to the responsible for IBM's open innovation strategy. outside environment. (3) The coupled process: coupling Analysing the IBM case it becomes clear that IBM has the outside-in and inside-out processes by working in de-coupled the locus of innovation (in terms of applying alliances with complementary partners in which give the idea and transforming it into an innovation) with the and take is crucial for success. All three the core locus of knowledge creation (invention or research) and processes represent an open innovation strategy, but not the locus of commercialisation (product development or exploitation of the innovation). Companies like IBM all are equally important for every company (see Figure can integrate external knowledge by using the outside-in process in order to increase their innovativeness. Also Based on our revisited data in different areas of open the locus of innovation need not necessarily be the locus innovation, we found that not all companies choose the of exploitation. Companies can use the inside-out same core open innovation process, or have integrated process in order to license knowledge and technology to all three processes to the same degree. Each company exploit them outside the firm. The following figure chooses one primary process, but also integrates some describes this basic principle of the open innovation elements of the others. These process archetypes are approach. Our research questions were: do these summarised in the following figure (Figure 2). approaches provide evidence of a new innovation Bringing ideas to market,selling/licensing IP andmultiplying technology Coupled Process
couple outside-in and
inside-out process,
working in al iances with
complementaries
Figure 2: Three archetypes of open innovation processes repeatedly suggests that firms can significantly benefit if they are able to set up differentiated relationships with suppliers (Dyer et al., 1998; B) Outside-In Process Boutellier, Wagner, 2002). If firms possess the Deciding on the outside-in process as a company's core necessary competence and supplier management open innovation approach means that this company capabilities, they could successfully integrate internal chooses to invest in co-operation with suppliers and company resources with the critical resources of other customers and to integrate the external knowledge supply chain members, such as customers or suppliers, gained. This can be achieved by, e.g., customer and by extending new product development activities across supplier integration, listening posts at innovation organisational boundaries (Fritsch, Lukas, 2001). clusters, applying innovation across industries, buying Suppliers can enhance the buyer's product and project intellectual property and investing in global knowledge success by contributing their capabilities to innovate and creation. As seen in the IBM industry solution lab case, develop new products. The Austrian company Magna IBM invests heavily in contact with customers, Steyr, one of the major suppliers to the automotive suppliers and other external knowledge sources. One of industry, is integrated into parts of the innovation the main functions of the solution lab in Rüschlikon is process of most automotive OEMs in Europe. Whereas to collect and integrate external knowledge in research American automotive companies, like General Motors projects and find co-operation partners for joint or Chrysler, bind their co-developing suppliers with ventures. Access to this valuable knowledge is one of contracts to secure exclusivity, European automotive the main assets that the lab can offer IBM research and companies, like Volkswagen, BMW or Saab, gain value is the reason for Rüschlikon's high status within IBM's from Magna Steyr's increasing competence after each research (see the GTO process for an example). Cisco new project with a competitor. In the meantime, Magna invests in young start-up companies in order to monitor Steyr's competence has increased so significantly that it their attractiveness and innovations. Besides evaluating is able to develop not only parts of the car, but the whole their acquisition potential Cisco also directs the car as proved with the development of the new Saab company development towards Cisco standards and Cisco compatible products. Recent conceptual contributions (Wynstra et al., Opening up the internal innovation process by 2001) and benchmarking research (Ragatz et al., 1997) integrating suppliers and/or customers is not new. The have begun to further explore the success factors and literature on inter-firm collaboration in general and on critical issues of successful supplier involvement in supplier relationship management in particular product development. Supplier involvement can provide buying firms with substantial benefits that range from more "operational" benefits, such as the earlier institute responsible for the early phase of the innovation identification of technical problems, fewer engineering process. Besides systematising the innovation process, change orders, or the availability of prototypes, to more the Creative Centre also searches for and connects with "strategic" benefits, such as better utilisation of internal key customers in order to integrate their knowledge and resources, access to new or supplementary product and demands into future research scenarios. process technologies, reduced technical and financial Innovation methods that involve customers and risks, improved product features, or shorter time- enable companies to deduce their needs before tomarket for new products (Clark, 1989; Birou, Fawcett, customers are even aware of them are therefore widely 1994; Handfield et al., 1999; Dröge et al., 2000; Ragatz discussed. Prahalad and Ramaswamy (2000) developed et al., 2002). Some conceptual and empirical evidence a co-creation model based on dialogue, access, risk hints at the importance of suppliers' innovative reduction, and transparency of information between capabilities as a major determinant for a collaborative customers and company. Von Zedtwitz and Gassmann development (Wasti, Liker, 1997; Wynstra et al., 2001; (2002) provide guidance on how to manage customer- Boutellier, Wagner, 2003; McCutcheon et al., 1997; oriented research and the interface between research Handfield et al., 1999). DaimlerChrysler's "Score" scientists and development teams. Leonard and Rayport initiative offers suppliers incentives to reduce the provide the concept of emphatic design (1997) in which company's R&D costs through innovative ideas and customers are shadowed in their daily behaviour to identify their needs through their actions, while von improvements can gain a position as long-term Hippel developed the lead user method (1986) which DaimlerChrysler partners, but are also rewarded with a argues that some customers are more appropriate to co- percentage of the costs saved. develop new products and services than others. Other Arguments related to early customer integration in authors tried to implement the latter method and analyse product development are equally widely discussed in its success in different industries (e.g. Herstatt, von theory, but not as widely researched (Brockhoff, 2003, Hippel 1992; Lilien et al., 2002; Thomke, von Hippel p. 464). Although researchers tend to be careful in 2002). Hilti AG, manufacturer of building equipment promising radical innovations through customer like drills, is famous for its intensive integration of lead integration, this might be seen as the ultimate aim in users into its innovation process. But also Zumtobel order to gain a competitive advantage (Brockhoff, Staff AG, an innovative lighting manufacturer, 2003). Henkel has established "focus groups" to obtain integrates well-known, independent architects in order to ideas on actual needs directly from customers and to get gain knowledge of design trends and combines this with customers to rank these needs on a strategy problem modern lighting demands for mass-manufacturing. map. DuPont integrates customers and suppliers into In summary, suppliers and customers should be their research and development activities on a project integrated as valuable sources of knowledge and level. The company targets specific partners for specific competence that are needed for product development. projects and describes itself as an early adopter of Other potentially valuable sources of external knowledge in the new product development are IP- Empirical studies show the relevance of an early licensed patents and technological knowledge gained by customer integration within a company's innovation linking the company to regional innovation clusters. BT process (Peplow, 1960; Enos, 1962; Knight, 1963; Exact deploys networks with 40-50 different universities Freeman, 1968; Meadows, 1969; Utterback, 1971; world wide simply to keep up with new developments in Berger, 1975; Boyden, 1976; von Hippel, 1976; different regions of the world. Lionetta, 1977; van der Werf 1982; Shaw, 1985; Voss, The internal knowledge transfer and diffusion within 1985; Biegel, 1987; Gemünden et al., 1992, 1996; R&D have been recognised as a major management Riggs, von Hippel, 1993 and Slaghter, 1994). Prahalad challenge for international companies (e.g., Chiesa, and Ramaswamy (2000) describe how customers moved 1996; Kuemmerle, 1997; Gassmann, 1997). Recent from being passive recipients of product development in research on international R&D reveals strong evidence the 1970s and early 80s towards demanding to play a of technology sourcing as a motive for foreign direct more active role in the 21st century. "Consumers can investments (e.g., von Zedtwitz, Gassmann, 2002; now initiate the dialogue; they have moved out of the Kuemmerle, 1999). BMW's Palo Alto Technology audience and onto the stage" (p. 80). Consumers can Office (PAYTO) in Silicon Valley has the mission to now be co-creators of values because they are seen as a permanently look out for new trends, highly specialised source of competence. Bayer Polymers, one of the main and unique technical knowledge and technologies and to columns in Bayer's new organisational structure, seek and establish contacts with potential external established the Creative Centre as the organisational Kuemmerle (1997, 1999) distinguishes between the Taylor, 1998). The fundamental advantages of using ‘home-base-exploiting' and ‘home-base-augmenting' of external innovation sources are seen in the access to new foreign direct investments. The former is undertaken to and complementary knowledge and in the access to support manufacturing facilities in foreign countries, or unique resources. The German Ministry of Economics to adapt standard products to the demand there, while and Labour, in close collaboration with the German the latter is foreign direct investment undertaken to Chamber of Industry and Commerce (DIHK), the access and tap unique knowledge and resources from Frauenhofer-Gesellschaft (FhG) and the German regional knowledge-intensive centres of excellence. Federation of Industrial Cooperative Research BMW's Technology Office in Tokyo, founded 1981 and Associations (AiF) set up 18 listening posts as match- comprised of 30 employees today, gathers trends and makers with local companies in 18 different world-wide application knowledge. Japanese employees act as door innovation clusters in order to support collaboration and openers to the Japanese scientific community and to to gain German companies access to regional competing as well as non-competing companies with the aim of tapping their tacit and embedded knowledge. Some of the investigations also emphasise external Patel and Vega (1999) push this conceptual model sources' potential to generate radical new knowledge further and suggest a ‘revealed technological advantage' (Coombs, Hull, 1998). Hermes (1993) suggests using index with four categories of international technological external technological sources in three cases: (a) when a activity. Almeida's (1996) investigation of patent company lacks internal resources, (b) when the external citations confirms that foreign firms make more use of technology position is better, or (c) when technological sector-specific knowledge than domestic ones do. He knowledge can be easily transferred and market barriers concludes that Korean and European multinationals are low. ABB integrates the mechatronic knowledge of source knowledge from US firms in order to upgrade spin-offs from the Technical University Zurich (ETH) in their technological abilities in areas in which they are order to enrich its innovation process. weak. BASF, located in Germany and one of the major Integrating external sources of knowledge and companies in the chemical industry, has realised the competence, such as co-operating with suppliers and importance of tapping external knowledge by opening customers and/or integrating external knowledge (gained its company boundaries. Within its department of e.g. through listening posts) in an attempt to open up the research planning and university relationships more than innovation process, can be a company's major 800 external partnerships are maintained to identify and competence. Whereas the literature discusses the evaluate ideas. The company integrates partners like methods and key factors for integrating external universities, start-ups and current as well as potential knowledge sources independently, we summarise them customers in order to combine their different into one archetype of open innovation processes. Our competencies to enrich its own innovation process. research shows which companies gain most value from One way of tapping tacit and embedded knowledge focussing on the outside-in process as a main process in from regional centres of excellence that many their open innovation approach. transnational companies have exploited to reduce the The outside-in process reflects companies' experience need for huge financial investments, is to launch that the locus of knowledge creation does not necessarily technological listening posts (Patel, Vega, 1999; Weil, equal the locus of innovation. Companies that decide on 2000; Gassmann, Gaso, 2004). Hitachi installed the outside-in process as key are mainly from low tech technology outposts in Dublin (Ireland) and Cambridge industries, e.g., companies that expect spillovers from (UK) in 1988 to participate in leading universities' higher tech industries such as companies producing fundamental research. microprocessors in cars or electronic equipment like The relative importance of internal and external switches. Schurter AG, a small company in Lucerne, sources is determined by a company's technological Switzerland, but one of the leaders in this business, position (Hermes, 1993) and varies across different gains external knowledge for innovation through co- industries (Klevorick et al., 1995). Numerous authors operation with universities, lead customers and have analysed the factors that most influence the complementary companies. Also companies in air selection of an optimal external technological sourcing conditioning and automation processes focus strongly on mode (Roberts, Berry, 1985; Pisano, 1990; Audretsch et the outside-in process. Varioprint AG, a small company al., 1996; Chiesa, Manzini, 1998; Croisier, 1998; in scenic Appenzell in Switzerland, is a leading supplier Nagarajan, Mitchell, 1998; Robertson, Gatignon, 1998; of printed circuit boards (PCB) with up to 24 layers that Veuglers, Cassiman, 1999) as well as the ratio between are used in almost every electronic device. With its 128 internal and external technological acquisition employees the company operates in a highly volatile (Colombo, Garone, 1996; Veuglers, 1997; Lowe, market with an estimated value of 30 billion Swiss Francs. The market is characterised by rapid change and To summarise the results, the next table shows the driven by technological development. The company has most important characteristics of companies focussing 10 Swiss, 200 German, 500 European and about 2,000 on the outside-in process as the major process in their Chinese competitors. The strongest threats come from open innovation strategy as well as providing examples the Asian competitors who are able to produce large of such companies. volumes cheaply. A market consolidation is expected in the next few years and it is assumed that only Outside-in process:
approximately 100 companies will be left in 2005. In - low tech industry for - Earlier supplier integration this market, Varioprint generates 90% of the turnover similar technology - Customer co-development through 45 loyal customers, of which the most - External knowledge - act as knowledge sourcing and integration important ones are integrated as lead customers within - In-licensing and buying Varioprint's innovation process. Relations and co- knowledge creators operation with customers and suppliers are very - highly modular important as customers drive the technological development at Varioprint. Without their knowledge of - high knowledge innovation, Varioprint would not be able to stay competitive against their Asian rivals. In the past these outside-in companies were Table 1: Characteristics and company examples of the outside-in characterised by a small or medium company size. They act as knowledge brokers or knowledge creators for bigger companies, or as the next in the value chain. Today, company size is less relevant, e.g., even C) Inside-out Process DaimlerChrysler re-focussed on knowledge brokerage in 2004. Companies that choose the inside-out process as a key The modularity of the products that the company process focus on the externalising of the company's produces is also an important criterion. We found that knowledge and innovation in order to bring ideas to companies with highly modular products, e.g., in the market faster than they can through internal elevator industry like Otis or Schindler, gain advantage development. Deciding to change the locus of by choosing the outside-in process as key. exploitation to outside the company's boundaries means A high knowledge intensity can additionally be generating profits by licensing IP and/or multiplying identified as characteristic of companies specialising in technology by transferring ideas to other companies. As outside-in processes, because their need for knowledge already mentioned in the beginning, commercialising cannot be satisfied by using their internal abilities only, ideas in different industries (cross industry innovation) e.g., 3M, Bosch, Proctor & Gamble and Siemens. and therefore focusing on the inside-out process in open Examples can be found in the Biotech and IT industry, innovation can increase a company's revenue but also in the consumer goods industry. In order to immensely. The pharmaceutical industry (companies scan ideas outside corporation's boundaries, Henkel has like Norvartis Pharma, Pfizer or Roche) is specifically linked itself to the service of the external, web-based well known for substances that were initially aimed at forum "InnoCentive", which in turn connects experts one ailment, but became better known or equally from major companies world wide, and matches top successful when used for other ailments. Three examples scientists to relevant R&D challenges around the globe. are Viagra, initially developed to control blood pressure, It provides an on-line forum that enables major but became a great success as a sexual aid, Botox, companies to reward scientific innovation through developed as a nerve toxin, but used to reduce wrinkles financial incentives. Companies ("seekers") can post in beauty therapy, and Erythropoitin (EPO), developed challenges on the website, offering rewards of up to as a blood diluent, but became known as a doping $200,000, and wait for other companies to offer substance in professional cycling and is currently used in solutions ("solvers"). The problem-solving companies then receive the rewards, whereas the seeking Besides commercialising ideas outside the own companies only have to pay a small fee for posting the industry or market, outsourcing can be used to channel challenges. Proctor & Gamble intensively uses its knowledge or ideas to the external environment. customers' knowledge for innovation. In 2002 Outsourcing comprises the acquisition of knowledge on customers already initiated 10% of the company's a market basis (Grandstrand et al., 1992; Haour, 1992; innovation and it aims to increase this percentage to Ulset, 1996; Mangematin, Mesta, 1999; Veuglers, 50% in five years' time. Cassiman, 1999) and the licensing of technologies from a second party (Atuahene-Gima, 1992; Leonard-Barton, order to multiply technology is Schindler. The No. 2 in 1995). The benefits of outsourcing are many, including the elevator market world wide has developed aramid gaining access to new areas of knowledge cables to replace elevators' steel cables. These cables (complementary knowledge), managing capacity contain carbon fibres to enable remote diagnosis and problems (more flexibility), concentration of core therefore support elevators' service and safety. The competencies, speed (reducing time-to-market), and the patents for non-elevator applications have been sold for sharing of costs (Haour, 1992). DaimlerChrysler has $6 million and thus financed the whole R&D project. outsourced the varnishing of their cars in Rasstadt, The different approaches within the inside-out Germany, to the chemical company BASF. Whereas processes can be summarised as: leveraging a BASF was paid for the tons of varnish used in the past, company's knowledge by opening the company's the new business model is based on payment for the boundaries and gaining advantages by letting ideas flow number of cars varnished. The outsourcing of to the outside. The inside-out process as a major process varnishing does not only offer the advantage of in an open innovation strategy, creates a substantial DaimlerChrysler benefiting from the leading company advantage for companies that fulfil certain criteria. in this sector's latest developments in varnish, but also The open innovation paradigm and especially the the outsourcing to an expert in this field of all inside-out process within this approach, support the idea environmental demands that the German authorities set. that the locus of invention and innovation need not Intellectual property management mainly means necessarily equal the locus of exploitation. Companies patent management, which fits a company's innovation that decide on the inside-out process as key are mainly strategy. As illustrated in the IBM case study, both the basic research-driven companies, like IBM, with wide creation of new ideas and patents as well as an effective applications. These companies aim at decreasing the licensing strategy can be part of this strategy. The fixed costs of R&D and sharing the risks as empirical study by Ernst and Omland (2003) provides pharmaceutical companies like Novartis and Hoffmann evidence of patent management's influence on a LaRoche do when outsourcing parts of their company's success. Literature on the topic of licensing development process. Also branding can be a reason to is especially scarce (e.g. Arora, 1996; Freeman, 1968; focus on the inside-out process when there are core Arora and Gambardella, 1996; Mansfield et al., 1977) competencies for development and commercialisation and often focused on special industries, e.g., Arora but no brand for products in the intended market. (1997) who analyses licensing strategies in the chemical Ascom, an international provider of services for industry. He points out the benefits that can be derived telecommunications systems, integrated voice and data from the financial advantages of making money through communications, wireless and corded security solutions a license, or by providing a small financial stake. and networked revenue collection systems, joined forces Solvay required the licensees of its ammonia-soda with the sports utilities manufacturer Mammut in order process to share any improvements with it, and these to develop the lightest and most modern avalanche improvements were in turn shared with Solvay's other search equipment. Ascom is using Mammut distribution licensees (Arora, 1997, p. 394). "This helped Solvay channels and brand in order to commercialise the retain control, as well as enable its process to remain competitive against rivals" (Haber, 1958, p. 89; Haber, Wanting to set a technological standard can be a 1971; Hounshell, 1992). reason for outsourcing the commercialisation of a Long ago Haber (1958, p. 199) pointed out that technology, or for being a supporting partner in the licensing can be a powerful strategy in remaining a value chain with new technology or knowledge. Cisco market leader and in creating competitive advantage successfully provides partners with its technology in (for the impact of licensing on the market structure, see order to support their technology to set a new standard. Arora, 1997, p. 395ff.). Hounshell and Smith (1988, p. Siemens used their incubators as market-incubators for 177) support this argument with their analysis of Du the same reason. Spillovers as positive side effects of an Pont's sophisticated cellophane licensing strategy innovation that can be commercialise successfully in (guarantees 2% of the royalty on sales up to the quota other industries as well, are a characteristic of the inside- and 30% on sales above the quota), which implied that out process as an innovation strategy. it was profitable to produce more than the agreed upon These cross-industry innovations emerge when amount, as was indeed the case. Taylor and Silberton companies integrate, or license technology which is (1973) report that although most of the licensing already established in their own industry but new to agreements that they analysed had transfer of know-how another industry. Processors which are already old as the major objective, most involved patents as well. A technology in the IT industry can be integrated recent example of licensing patents to other industries in successfully into cars or elevators after some months - all industries in which product lifecycles are longer and universities and research institutes (Bailetti and the demands for speed and processor capacity are less Callahan, 1992; Conway, 1995; Cockburn, Henderson, than in information technology. This becomes relevant 1998; Santoro, Chakrabarti, 2001). Hitachi's Cambridge when a 0,13 Mikron semiconductor factory costs Laboratory (HCL), through its co-operation with approximately $2 billion and needs to be written off Cambridge University, discovered the "Fento-Second over a five-year period. Investment in the next Ultra-Fast Quantum Device". This device will uses the generation processors is more valuable when a company "wave" nature of an electron to achieve ultra-fast like Intel can use cross-industry innovations to switching devices for both high-end telecommunication commercialise its innovation in other markets. and ultra-fast computing in the 21st century. The following table summarises the characteristics Co-operation is usually characterised by a profound and some examples of companies that choose the inside- interaction between parties over a longer period of time out process as a key process in following an open (Pisano, 1990; Hagedoorn, 1993; Tao, Wu, 1997; Littler innovation strategy. et al., 1998; Fritsch, Lukas, 2001. The German MTU Aero Engines and the American engine manufacturer Inside-out process:
Pratt & Whitney mirror the structure of their - (basic) research-driven - Bringing ideas to organisations in order to facilitate co-operation and communication on every organisational layer. This - Objectives like decreasing - Out-licensing and/or the fixed costs of R&D, interaction tends to result in an intensive exchange of branding, setting standards - Multiplying technology knowledge and a process of mutual learning (Hamel, through different 1991; Lane and Lubatkin, 1998) that result in context- specific and implicit knowledge (Birkinshaw and Fey, 2001). The benefits of co-operation are seen in an improvement in the competitive position and in a risk Table 2: Characteristics and company examples of the inside-out minimisation, but not in a reduction of development time (Kirchmann, 1994). DaimlerChrysler's listening post in Moscow aims to establish links between the company's central research centre in Germany, where D) Coupled Process 90% of its researchers are located, and Russian scientists (especially in the field of algorithms and material Companies that decide on the coupled process as a key process, combine the outside-in process (to gain The transfer of research into knowledge through external knowledge) with the inside-out process (to alliances and joint ventures is a relatively recent bring ideas to market). In order to do both, these phenomenon. Kogut (1988) was the first to explicitly companies co-operate with other companies in strategic argue that joint ventures could be motivated by an networks. At BMW's PAYTO, teams of three people organisational learning imperative. He proposed that a have 90 days to identify, explore and develop new joint venture "(.) is used for the transfer of projects. A recent innovative example is the new BMW organisationally embedded knowledge which cannot be car control mechanism –iDrive – in their 7-series which easily blueprinted or packaged through licensing or was developed in close co-operation with different market transactions" (Kogut, 1988, p.319). More or less industries. It combines joystick technology developed simultaneously, Westney (1988) and Hamel (1991) by the local game industry with easy cockpit control of developed related perspectives on the ways in which more than 700 functions. To co-operate successfully, a learning can be achieved through alliances and joint give and take of knowledge is necessary, therefore a ventures. Since that time there has been a proliferation coupling of the outside-in and inside-out processes is of research into the knowledge transfer process across key for success. In industry innovation coupling can be alliance and joint venture boundaries (e.g. Inkpen, a strategic option, e.g., in alliances with shared IP. Crossan, 1996; Doz, 1996; Mowery et al., 1996). The Co-operation refers to the joint development of common thread in the results of these studies is that the knowledge through relationships with specific partners, ability to re-evaluate and learn is key for success. such as consortia of competitors (Hagedoorn, 1993; Biotechnology is seen as a major input for Chiesa, Manzini, 1998; Ingham, Mothe, 1998), pharmaceutical R&D. World wide pharmaceutical and suppliers and customers (von Hippel, 1988; Hakanson, biotechnology firms have formed 400 to 500 new Johanson, 1992), joint ventures and alliances (Kogut, alliances every year since 1996 (Gassmann, Reepmeyer 1988; Hamel, 1991; Mowery et al., 1996) as well as et al., 2004). Eli Lilly started the development of recombinant human insulin in co-operation with Genentech; the resulting product Humulin became the Coupled process:
first biotechnology product when launched in 1983. As - standard setting (pre - combining outside-in a result of intensive co-operation between strategic dominant design) and inside-out processes alliances, it is not unusual for pharmaceutical companies - increasing returns (mobile industrythrough - integrating external to have biotechnology holdings (Novartis owns about multiplying technology 40% of Chiron, Roche owns about 60% of Genentech). competencies and The objectives of most companies that focus on the complementary partners externalising own coupling of the outside-in and the inside-out processes - complementary products are to set standards or a dominant design for their with critical interfaces products. A recent example can be seen in the strategic - relational view of the alliance of suppliers, consumer goods companies and retailers to produce RFID chips. Because the technology is new and will be relevant in future, the members of the Table 3: Characteristics and company examples of the coupled process alliance, such as Metro, Unilever and Henkel, are aiming to participate in standard setting and development. Also companies that can achieve increasing returns 5. The Competence Perspective: Core by multiplying their exploitation choose the coupled Competencies related to Open Innovation process as a core one. An example is the mobile industry in which new technologies like MMS, UMTS or polyphone ring tunes can only set a standard and lead Besides implementing core processes to enable to high revenues when all or most telecom companies integration of external knowledge, to exploit ideas such as Sony, Ericson, Siemens and Nokia implement outside the firm or to co-operate within joined them. The technology provider needs to work with the innovation processes, the company needs certain mobile industry in a strategic alliance in order to ensure capability to apply the open innovation approach that the new technology will be implemented in the new effectively. For each of the core processes a different mobile phone generation. capability is needed. The absorptive capability has to be Alliances with complementary partners can also lead complemented with multiplicative and relational to valuable input in order for a co-operative innovation process to occur. Examples are Canon and HP, which Absorptive Capability related to the Outside-in joined forces to develop printers and EADS, the Process. Technology knowledge generation and European version of NASA, which is forced to jointly application processes are increasingly sophisticated, develop satellites with various European partners. broad and expensive. Furthermore, the "ability of a firm Boeing developed the Boeing 777 with companies in to recognise the value of new, external information, seven different countries, with hundreds of assimilate it, and apply it to commercial ends is critical decentralised teams and managed to reduce the errors in to its innovative capabilities" (Cohen, Levinthal 1990), development by 50%. since many organisations lack the ability to listen to Companies working in strategic alliances or joint their external world and efficiently process the signals ventures know that one major success factor for co- received. The efficiency of both knowledge generation operation is the right balance of give and take. A crucial and application is contingent on the concept of precondition for working in co-operative innovation "absorptive capacity". processes is the capacity to integrate foreign knowledge Multiplicative Capability related to Inside-out into a company's own knowledge and technology and to Process. The exploitation of knowledge outside the externalise it in order to enable the partner to learn. company is related to the company's capability to Success is based on a company's ability to find and multiply and transfer its knowledge to the outside integrate the right partner that can provide the environment. The capability to multiply innovation by competencies and/or knowledge needed to gain a external exploitation is strongly connected to firm's competitive advantage in the own industry. knowledge transfer capability and the selection of appropriate partners. Only if the company is able to codify and share its knowledge with the external entity, will the commercialisation of ideas be successful. But also the strategic selection of partners that are willing and able to multiply the new technology is an important element of the multiplicative capability of the firm. Relational Capacity related to Coupled Process. The important to gain advantage by means of an open notion of "relational capacity" as a source of innovation strategy. Nike, as a sport clothes competitive advantage relates to Singh's idea that a manufacturer, has a low demand for tacit knowledge as company's value is strongly related to its capability to well as a low interface complexity, which enables the build and maintain relationships with partners in order company to outsource its production to China. to enable joint development in strategic alliances (Dyer, Companies like Bühler (grain milling process) or MTU Singh, 1998; Johnson, Sohi, 2003). A company can be and Pratt & Whitney (aerodynamic design of rotors in differentiated by the networks to which it is connected turbines) are characterised by the high degree of tacit and the alliances and joint ventures that it can knowledge required for their innovation, combined with undertake. Therefore, the relationships with other a high complexity of interfaces. They can therefore use companies, complementary companies and competitors the open innovation approach to increase their can be a firm's major assets and a necessary precondition for the linked process within an open Companies that can use positive external effects innovation strategy. (spillovers) by licensing their IP, as the IBM case and Further research needs to investigate the capabilities companies in the chemical industry (e.g., Solvay, needed to conduct open innovation successfully more BASF), illustrate, are predestined to determine the inside-out process as a core process within their open innovation strategy. Table 4 summarises the characteristics identified as core to gain an advantage from an open innovation approach. 6. Determinants of Open Innovation Besides these core characteristics of industries and companies predestined to use an open innovation Besides keeping the processes and capabilities of open approach to increase their innovativeness, it is important innovation in mind, the determinant perspective helps to to take into account whether the open innovation core configure the innovation system. process will take place in a bilateral or multilateral Open innovation can be summarised as an approach relationship with the chosen partner. that enriches companies' innovativeness, but is also limited to companies with special products or industry Open Innovation
Closed Innovation
characteristics. The following discussion of open Approach
Approach
innovation companies' general characteristics can help - high product modularity - low product modularity managers to decide whether this approach can improve - high industry speed - low industry speed their innovativeness and therefore gain them - much explicit and tacit - less tacit knowledge knowledge required competitive advantage. - highly complex interfaces - low complex interfaces A high product modularity is one required - creating positive - no positive external effects characteristic with which to exploit the advantages that through licensing an open innovation approach provides. Companies in modularised types of manufacturing industries such as Table 4: Characteristics to follow an open or closed innovation Kone, Thyssen and Otis can increase their innovativeness by opening up their innovation process. For companies within the chemical industry, like Also the multiplication of innovation in order to reach Novartis, with a low modularity, the advantages of an increasing returns is an important characteristic of open open innovation approach are limited. innovation. Will the value gained through an innovation Industry speed is another characteristic that can be higher by increasing the number of partners using this indicate whether companies can gain an advantage from technology in their products and therefore increasing the open innovation. Industries such as companies number of potential customers for these products? The providing network technology and services, e.g. Cisco, fax machine and the MMS technology used in mobiles can gain a huge advantage by integrating external are only some examples of the number of users defining knowledge, or through co-operative innovation the market success and the company's revenues. processes with partners. On the other side of the Without the multiplication of these technologies through spectrum, companies with a low industry speed, like co-operation with as many partners as possible (e.g., providers of building materials, e.g. YTONG, do not Ericson, Sony, Motorola and Siemens), the design would need to focus on faster innovation processes. never have become dominant. Technologies like Also the tacit knowledge required to innovate and the Bluetooth or RFID are other examples of multiplying complexity of interfaces are characteristics that are technology as a major success factor. In order to develop a dominant design as well as to set standards, it is One of the major contributions of the open innovation crucial to multiply the linkage to partners with an open approach is the perception that the locus of knowledge innovation approach. The security industry (e.g. KABA) and the locus of innovation need not necessarily be the where no single access control is dominant, is therefore same (see Figure 1). highly fragmented and a negative example of where a Although opening up the innovation process seems closed innovation approach hinders success. directly related to innovation success, we argue that On the other hand, exclusivity can also be a major there are significant benefits achieved by a serious advantage and a prerequisite for a company's choice of discussion on when the open innovation approach partner. Only when companies like BMW first include should be implemented and when not. new technologies and innovative features (like the The future of innovation is not about outsourcing all sourcing of the brake-and-steer-by-wire technology internal innovation activities, but about following a from the TU Vienna where it was based on a bus safety flexible innovation strategy to allow companies to create system), can they differentiate themselves from their more and better innovation by combining various competitors and maintain their market position in the strategies, such as outsourcing ventures, reintegrating automotive industry. They therefore need to co-operate new businesses, scanning and integrating new in bilateral partnerships with guaranteed exclusivity. In technologies, commercialising patents, connecting order to increase their innovativeness they are heavily external sources to the internal innovation process and dependent on focussing on including external launching new collaborations during the required period. knowledge in an outside-in process in their research. Obviously, there is a need for future research. The For both kinds of co-operations – bilateral or most important points can be summarised as following: multilateral – open innovation can be a successful x a theory of the firm could be developed based on approach for a company meeting the required our first steps towards a framework for open characteristics. x a quantitative survey on a wider scale is needed to evaluate the empirical significance of the presented findings which are based on qualitative x transfer and relevance of these concepts Our research in different areas related to the opening of (archetypes) to SMEs, which are typically the innovation process reveals the following managed by openness because of their lack of resources, need to be investigated. We identify three archetypes of core processes in companies following an open innovation approach: the outside-in process, inside-out process and coupled process; This article revisits the open innovation approach from a process, capability and Allen, T.J. 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