Wednesday, March 18, 2009

Open Innovation, Commons based Peering

    Open Innovation is a new business approach which industries, corporate houses and the like are applying in order to commercialize their internal innovations and to obtain a huge plethora of external innovations in order to commercialize them as well. In this approach, firms work and interact with external partners and create newer and better technologies and products and thereby benefitting from this interaction. Commons based Peer Production is the term coined by Harvard Law School Professor Yochai Benkler to portray a new model of economic production, in which the resourceful energy of a large number of people is coordinated with the aid of internet into projects without the usual hierarchical organization.

   The idea behind open innovation is that in the world there are millions of people who have widely distributed knowledge. Industries and companies do not have the man power or the resources to create everything on their own and nor can they rely on the research of their respective R&D departments. Therefore companies open there R&D laboratories and research centers to the people outside their organization in order to tap into this vast distributed knowledge for their own benefit.

    It is rightly said that we are living in a world where a particular idea becomes old within minutes because there is be someone in a different part of the world who would have improvised on that idea and moved on. Open Innovation has gained momentum because of the Internet which has changed fortunes for so many companies the world over.

    Internet sites like,, are providing a platform for many individuals to create, innovate and discuss ideas. In this era of globalization, companies need unique capabilities in order to leverage benefits faster and more effectively than its competitors. This can only be done if they adopt a policy where they welcome people from outside to generate new ideas which would not only benefit the people who are bringing these ideas in terms of remuneration, but also to the companies which would reap in huge benefits and save a lot of money by not spending it in-house.

   In order to adopt this new and fast growing approach, the organizations need to dispel some deeply rooted thoughts from within their organizations. “The conventional wisdom says that sharing IP and other sources creates a public good where everyone shares in the benefits, and there is no way to generate private returns.” (Wikinomics, 2007) On the contrary sharing of knowledge can help drive innovation and create wealth. Here is a list of key benefits of open innovation and peer production:

  • ·         Bind External talent: These days the speed and complexity of change in technology is so immense that no company can create all innovations which are needed to compete with competitors under a single roof. We are witnessing a vast sea change in technology and science which are advancing fast and companies are using and deploying new knowledge in unanticipated ways. Many intelligent firms understand this innovation by using peer production and open innovation to involve more people in developing newer ideas.
  •           Boosting demand for complimentary offerings: Firms that encourage open innovation and peer production can boost demand for complimentary offerings and provide new opportunities to create added value and IP. Just as Wikipedia is gaining popularity, which has convinced its Founder Jimmy Wales that there may be a market for a Wikipedia branded line of books.
  •            Reducing Costs: With open innovation and peer production companies can save a lot of money. In this chapter we would see how IBM and other big companies have saved millions of dollars by adopting this model.
  •           Shifting the locus of competition: “Publishing intellectual property in non core areas that are core to a competitor can undermine your rival’s ability to monopolize a resource that you depend on.  In the software industry, publishing code has enabled IBM and Red Hat to migrate the locus of competition from operating systems to applications, integration and services.” 

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