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Open versus Closed

According to Henry Chesbrough (Open Innovation: The New Imperative for Creating and Profiting from Technology), the traditional strategy for creating new technology and profiting from it is based on the old AT&T/Bell Labs model:

  • Make sure the best and brightest people work for you.
  • Invent new things and get them to market first, which means you'll win.
  • Control intellectual property so no one else can get a toehold.

The model is a closed engine in which all innovation is company produced within closed walls. In the past, it not only was possible but common for large companies to corner the market on the smartest people in a technology field. But during the 1990s, this changed. As new companies started up, with the possibility of founders and early employees becoming instantly rich, researchers and advanced developers started moving around instead of staying with the same company for their entire careers. Knowledge was spread and an employee's loyalty to a particular company (and vice versa) became much rarer.

The old model has broken down. As Chesbrough points out, although as recently as 1991 70.7% of industrial research and development (R&D) spending was done by companies with 25,000 employees or more, by 1999 this figure had dropped to 41.3%. Moreover, as we see later, the first-mover advantage, wherein the company with the first product in a new space gains and retains a market-share advantage, is a myth. The newer model is to look for innovations wherever they may pop up and use them carefully by layering on unique value. Proprietary research to innovate still makes sense, but not to the exclusion of looking outside a company's own firewalls.

Innovation Happens Elsewhere
Ron Goldman & Richard P. Gabriel
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