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.
This paper contrasts traditional, organization-centered models of innovation with more recent work on open innovation. These fundamentally different and inconsistent innovation logics are associated with contrasting organizational boundaries and organizational designs. We suggest that when critical tasks can be modularized and when problem-solving knowledge is widely distributed and available, open innovation complements traditional innovation logics. We induce these ideas from the literature and with extended examples from Apple, NASA, and LEGO. We suggest that task decomposition and problem-solving knowledge distribution are not deterministic but are strategic choices. If dynamic capabilities are associated with innovation streams, and if different innovation types are rooted in contrasting innovation logics, there are important implications for firm boundaries, design, and identity.