open innovation and open business model

Posted: October 11, 2010 in coursework

Open innovation

“Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology”. The boundaries between a firm and its environment have become more permeable; innovations can easily transfer inward and outward. The central idea behind open innovation is that in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (i.e. patens) from other companies. In addition, internal inventions not being used in a firm’s business should be taken outside the company

Rather than being held closely within the firm, under the concept of open innovation research results are able to traverse the firm’s boundaries. Other companies that are able to utilize a technology can license it, creating a win-win situation. Similarly, the firm may be able to license the technologies created by other firms. This concept of open innovation is illustrated in the following diagram:

Open Innovation Concept

This diagram uses dashed lines to illustrate that the boundaries of the firm are porous. The lines exiting the firm represent technologies that are licensed to other firms and that otherwise would have gone unutilized (they were the red lines in the closed innovation diagram). The lines entering the firm represent outside technologies that are licensed to the firm. These are technologies that did not originate in the firm’s own research laboratories but nonetheless are useful in the firm’s core business.

 

Open business model

Open Business represents a concept of doing business in a transparent way by intimately integrating an ecosystem of participants, collaborating in public space.

Open Business structures make contributors and non-contributors visible such that the business benefits are distributed accordingly.

They activate personal engagement and productivity by benefitting the contributors and producers that they can live from it and helping the clients to reduce their costs.

The definition is inspired by open movements, open content principles, open tools and standards

It mainly focuses on creating `open´ products and/or services.

This approach claims to be for the benefit of all and not just for one group or stakeholders, whether shareholders, personnel, government etc.

The risk of bankruptcy of such open-movement businesses is reduced due to the fact, that the fruits of their work remain in the commons and therefore remain as a permanent base for recovering the open business, even in their most critical situations.

The open source business model relies on shifting the commercial value away from the actual products and generating revenue from the ‘Product Halo,’ or ancillary services like systems integration, support, tutorials and documentation.)

This focus on the product halo is rooted in the firm understanding that in the real-world, the value of software lies in the value-added services of the product halo and not in the product or any intellectual property that the product represents.

In actuality, the value of software products approaches zero in the fast-paced, highly-customized, ever-changing world of information technology.

But it is not simply an acknowledgement of the revenue streams generated by the product halo that makes open source a compelling business strategy.

Open source also cuts down on essential research and development costs while at the same time speeding up delivery of new products.

This paradoxical situation arises from the fact that within an open source project, the community members themselves provide free research and development by contributing new solutions, features, and ideas back to the community as a whole. The company that sits at the center of any successful open source project may reap the rewards of the work of thousands of highly-skilled developers without paying them a cent.

A final strength of the open source business model lies in its ability to market itself.

Because open source products are typically released for free, open source companies that can produce quality products and generate a good reputation can almost immediately grab huge shares of any market based on the complex and far-reaching global referral networks generated by users.

In fact, in the web technology space, almost every global standard has been based upon open source technology.

By using the open source technology model, we can create a superior product, which immediately has a competitive advantage, and which generates multiple scalable revenue streams while being freely available throughout the community.

 

Open Business represents a concept of doing business in a transparent way by intimately integrating an ecosystem of participants, collaborating in public space.

Open Business structures make contributors and non-contributors visible such that the business benefits are distributed accordingly.

They activate personal engagement and productivity by benefitting the contributors and producers that they can live from it and helping the clients to reduce their costs.

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