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Open Innovation: Diffusion of Knowledge

This post is from a series on Open Innovation. For more information, please click the "Open Innovation" Tag. I recommend reading the posts in chronological order.

I previously wrote about how companies with closed innovation paradigms are forced to shift to open innovation models due to certain erosion factors. To illustrate this point, Chesbrough points out that the number of patents held by individuals and small firms rose from about 5 percent in 1970 to more than 20 percent in 1992.

More recently, a 2008 study by the SBA's Office of Advocacy titled "An Analysis of Small Business Patents by Industry and Firm Size," concluded that "small firms are a significant source of innovation and patent activity. Small businesses develop more patents per employee than larger businesses, with the smallest firms, those with fewer than 25 employees, producing the greatest number of patents per employee. Furthermore, small firm patents tend to be more significant than large firm patents, outperforming them in a number of categories including growth, citation impact, and originality. Finally, small firms tend to specialize in high tech, high growth industries, such as biotechnology, pharmaceuticals, information technology, and semiconductors."

Chesbrough terms this phenomenon as the end of knowledge monopolies. No longer can a large corporation be certain that the lion's share of innovation will be generated within their walls. Such a diffusion of knowledge also necessarily requires a pivot in how IP is viewed.

By clutching onto a closed innovation model, large corporate firms suffer. First, by only looking at patents that resulted from internal research, companies may be ignoring breakthroughs that are happening outside of their walls. Second, companies would be better served to use their IP in a collaborative manner, and to get back some value for IP that is unused--IP that does not cover commercial products, or does not relate to their markets of interest. Third, large companies would also be wise to look at IP developed by small firms and individuals. In many cases, a symbiotic relationship is possible where innovation is brought to market through a small firm's research and creativity, and a large firm's business knowledge and capabilities. In the next article, I will discuss some practical tips that large firms can use within their R&D departments to shift toward an open innovation mindset.

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