Open Innovation and Organizational Boundaries: The Impact of Task Decomposition and Knowledge Distribution on the Locus of Innovation

Executive Summary — Open innovation, enabled by low-cost communication and the decreased costs of memory and computation, has transformed markets and social relations. In contrast to firm-centered innovation, open innovation is radically decentralized, peer based, and includes intrinsic and pro-social motives. In this paper the authors use in-depth examples from Apple, NASA, and Lego to argue that in contexts of increasing modularity and decreased communication costs, open innovation will at least complement, if not increasingly substitute for, more traditional innovation modes. For this reason emerging theories of innovation, organizational design, and leadership for innovation must be informed by these contrasting innovation modes and the implications for governance, incentives, intellectual property, managerial choice, professional and organizational identity, and organizational cultures. Key concepts include:

• Leaders and senior teams can take advantage of contrasting innovation modes, paradoxical organizational requirements, and associated dynamic boundaries.
• Leaders need to execute strategic choices with the systems, structures, incentives, cultures, and boundaries tailored to open and firm-based innovation modes.
• Multiple types of boundaries will increasingly be employed to manage innovation. These boundaries will range from traditional intra firm boundaries to complex intra firm boundaries (such as ambidextrous designs), to webs of interdependence with partners, and to interdependence with potentially anonymous communities.
• Senior teams must build their own personal capabilities to deal with contradictions as well as their firm's ability to deal with contradictions. While building internally contradictory organizational architectures is difficult, building these architectures to attend to contrasting innovation modes will be more challenging.