Software Control

SUMMER **** V O L . * * N O. *

Kevin J. Boudreau and Karim R. Lakhani

How to Manage

Outside Innovation

REPRINT NUMBER 50413

O P E N I N N O VAT I O N

How to Manage THE LEADING

QUESTION

Should compa-

nies organize

Outside Innovation

outside innova-

tion through

collaborative

communities

or competitive

Should external innovators be organized in collaborative

markets?

communities or competitive markets? The answer depends

on three crucial issues. FINDINGS

Communities are

BY KEVIN J. BOUDREAU AND KARIM R. LAKHANI useful when an in-

novation problem

involves cumulative

knowledge, continu-

ally building on past

advances. Markets

TO APPRECIATE THE important role that outside innovators can play, look no further than are effective when

an innovation

Apple Inc. s wildly successful iPhone. Thousands of external software developers have written com-

problem is best

plementary applications for the iPhone that have greatly enhanced its value, transforming the solved by broad

experimentation.

product into a blockbuster that has become the center of a thriving business ecosystem. Of course,

In general, commu-

the fundamental concept of open innovation 1 relying on outsiders both as a source of ideas and nities are more ori-

ented toward

as a means to commercialize them is hardly new, but companies have struggled with precisely how

the intrinsic motiva-

to open up their product development to the external world. For starters, many executives have little tions of external

innovators (the

idea how to motivate and manage outside innovation. Specifically, should external innovators be desire to be a part

of some larger

organized as a collaborative community or as a competitive market?

cause, for instance),

Collaborative communities are perhaps best known through the Linux Foundation s Linux and through whereas markets

tend to reward

other open-source software efforts that are governed loosely by social norms and soft rules to encourage extrinsic motiva-

tions (such as

open access to information, transparency, joint development and the sharing of intellectual property. A

through financial

remarkable aspect of communities is that members are often willing to work for free.2 Competitive mar- compensation).

kets are strikingly different. Rather than

collaborating, external innovators in a market

will develop multiple competing varieties of

complementary goods, components or ser-

vices. Customers then choose from among the

different offerings. The classic example here is

the multibillion-dollar video game industry,

where companies (Nintendo Co., for exam-

ple) develop a hardware console (Wii) and

encourage third-party businesses to write

game software for that platform. In a mar-

ket, external innovators are busy focusing on

their own economic interests, which often

results in fierce competition and little co-

operation among them.

The Linux Foundation and Medtronic Inc., a manu-

facturer of medical devices, rely heavily on outside

communities (of software developers and physi-

cians, respectively) for their product innovations. In

contrast, W.L. Gore & Associates Inc., the developer

of Gore-Tex, a waterproof and breathable fabric, de-

pends on an external market of innovators.

SUMMER 2009 MIT SLOAN MANAGEMENT REVIEW 69

IAN WHITE/CORBIS OUTLINE; COURTESY OF GORE-TEX, MEDTRONIC

O P E N I N N O VAT I O N

Because the dynamics of communities and mar- wealth of their knowledge and ideas. But the basic

kets are so dramatically different (see Markets Versus question remains: What s the better way to tap into

Communities ), companies need to consider carefully that external resource, through collaborative com-

which approach makes the best sense for their objec- munities or competitive markets? The answer in

tives. From our research, we have identified three large part depends on how diverse knowledge should

critical issues that managers should take into account be managed so that it can best be applied to the sort

when making that decision. Specifically, the discus- of innovation problem at hand.

sion must look at: (1) the type of innovation that will If the innovation problem involves cumulative

be shifted to external innovators, (2) the motivations knowledge, continually building on past advances,

of those individuals and (3) the nature of the platform then collaborative communities have inherent ad-

business model. An in-depth analysis of those issues vantages. Communities are naturally oriented toward

reveals that the choice between collaborative commu- solutions that depend on integrating skills, knowl-

nities and competitive markets is not as obvious nor edge and technologies that transcend an individual

as clear-cut as it might first appear. contributor s purview. In fact, successful communi-

ties necessarily have knowledge-sharing and

What Type of Innovation? dissemination mechanisms designed into them.4

When the technology and consumer preferences of a They also tend to converge on common norms with a

product are well understood, then a company can culture of sharing and cooperation, broad agreement

simply conduct internal development or engage in on a technology paradigm and common technical

traditional contracting for that work.3 But when the jargon to support productive collaboration.5

technology, design and innovation approaches have Consider the Semiconductor Research Corp., a

yet to be established or when customer needs are Durham, North Carolina-based nonprofit consor-

highly varied or not yet fully understood, then open- tium established in 1982 to accumulate fundamental

ing up the innovation to the external world can have knowledge in silicon technology and semiconductor

considerable advantages. That is particularly so manufacturing. With members from industry, gov-

when the company can separate a distinct part of the ernment and academia, SRC collectively sets research

innovation process at arm s length for outsiders to priorities and coordinates the collaborative work

work on in order to take advantage of the diverse stemming from those goals, with the resulting knowl-

edge made available to everyone in the consortium.

MARKETS VERSUS COMMUNITIES Operating in this collaborative, community-based

The dynamics of markets and communities are inherently different. Markets, for fashion, SRC has become the driver of research coordi-

instance, tend to be governed by arm s-length, contractually oriented relationships, nation and knowledge dissemination for the U.S. chip

whereas communities typically consist of more informal interactions.

industry, and the organization has been credited with

COMPETITIVE MARKETS COLLABORATIVE COMMUNITIES discovering many of the basic building blocks of semi-

conductor research that have kept the U.S. industry

I External innovators supply variants I Possible contributions of external innovators

of mix-and-match, substitutable range from mix-and-match offerings to competitive. Other examples of community develop-

components. coproduction.

ment include the Linux operating system, the Mozilla

I Governance is formal with orientation I Governance is informal with orientation

Firefox Web browser, the Apache Web server and other

toward arm s-length, rule-based, con- toward highly socially embedded, norm-

open-source technology projects as well as much

tractually oriented and market based interactions.

relationships. older successes such as the creation of cotton spinning,

I External innovators primarily have coopera-

I External innovators primarily have tive relationships among one another with the steam engine and the airplane.6 These disparate ex-

competitive relationships among a substantial amount of technology sharing

amples illustrate how participants can learn from and

one another. and deliberate spillovers.

build upon the discoveries of others by standing on

I Profit motive is central to driving I A range of extrinsic and intrinsic motivations

the shoulders of giants in which the giant is col-

distributed innovation. may drive external innovators activities.

lective knowledge. In such innovation initiatives, the

I Value capture by the platform owner I Value capture by the platform owner

is possible through direct contracting might occur only through enhanced community participants work with technologies or

and licensing with external innovators. demand for the platform that is driven

components that are closely related, thereby creating a

by the external innovation.

foundation for subsequent efforts.

70 MIT SLOAN MANAGEMENT REVIEW SUMMER 2009 SLOANREVIEW.MIT.EDU

WHAT MOTIVATES EXTERNAL INNOVATORS?

If, however, the innovation problem is best

The wide range of motivations that draw outside innovators to partici-

solved by broad experimentation across a set of

pate in a project can be classified into two broad categories: extrinsic

technical approaches or customer groups, then

and intrinsic. As a simple approximation, markets tend to favor the for-

competitive markets have natural advantages.7 In a mer, and communities are more oriented toward the latter.

mature collaborative community, members tend to

Extrinsic Intrinsic

make assumptions about what work has and has

Motivations Motivations

not been done (as exemplified by Wikipedia s

ongoing issues, for instance). But that s much less

Fun and

Status

Signaling

the case with competitive markets, which tend to Enjoyment

and Career

Concerns Reputation

encourage experimentation, foster diversity and Professional

Money

spur regular creative destruction. 8 Because mar- and Personal

Identity

Reciprocity

kets foster competition, pitting participants against

Autonomy

Learning

one another, innovators will take actions to main- Need

and Skills

tain their proprietary interests as they engage in Development Intellectual

Challenge

their own work. When their efforts are successful,

t he benefits will accrue to them as individuals.

Thus, participants have natural incentives to differ- Open Open

Markets Communities

entiate, to search for novel solutions and to protect

rather than share their knowledge and this helps

maintain heterogeneity in the pool of people work- solution for how to separate oil and water once they

ing on a problem. (But this is not to suggest that had frozen together into a viscous mass came from a

scientist whose primary field was nanotechnology.9

communities have a limited capacity for creativity.

Ultimately, the nature of the innovation (that is,

We simply wish to emphasize that the incentive

the definition of the problem) and the approaches

structure and institutional context of competitive

to realizing (solving) it are interrelated. Knowledge

m arkets encourages different approaches and

of InnoCentive s pool of solvers enables the Web

points of view.)

site to shape the different challenges to take advan-

Take, for example, InnoCentive.com, a so-called

tage of the available diversity. In comparison, SRC

broadcast search Web site through which seekers

rightly realized that its challenge was beyond the

(companies) post scientific or technical problems

capability of any one company, university or gov-

for solvers (about 150,000 scientists and other pro-

ernment agency because it was seeking fundamental

fessionals from a range of disciplines and countries)

knowledge that would need to be aggregated by

to tackle. When posting a problem, a seeker stipu-

collaborative efforts. Similarly, open-source devel-

lates a time frame for solving it and a cash prize for

opers start projects knowing that they can integrate

the winning solution. Solvers who are interested in

the knowledge and pre-existing technical solutions

working on the problem then do so in isolation from

of a wide range of community members.

both other solvers and from the seeker. By the end of

2008, some 80 companies had posted more than 700

What s the Motivation?

problems in biology, chemistry, physics, math, engi-

Executives also need to consider why external innova-

neering, computer science, business and more; of

tors would be drawn to participate in the innovation

those, about one-third were solved. Three points are

process in the first place. Past research has shown that

worth noting here. First, a seeker typically comes to

the motivations of outsiders who engage in open in-

InnoCentive because it has not been able to solve a

novation can be surprisingly heterogeneous, but the

problem on its own. Second, InnoCentive works

wide range can be classified into two categories: ex-

carefully with the seeker to define the problem such

trinsic and intrinsic. As a simple approximation,

that a diverse set of solvers can tackle it and so that a

competitive markets tend to favor the former, and col-

solution can be identified. And finally, many winning

laborative communities are more oriented toward the

solutions come from solvers in fields not ostensibly

latter (see What Motivates External Innovators? ).

connected to the problem. For instance, the winning

SLOANREVIEW.MIT.EDU SUMMER 2009 MIT SLOAN MANAGEMENT REVIEW 71

O P E N I N N O VAT I O N

One of the simplest forms of extrinsic motivation and identity that participants can gain through their

is financial a direct return on investment or interactions with others in collaborative efforts.

money generated from sales. Third-party companies Given that diversity of motivations, a company

that develop software for the Nintendo Wii platform, needs to consider carefully when deciding between a

for example, are clearly driven by the potential prof- competitive market and a collaborative community

its of their efforts. But motivation can also come because the choice will affect the types of external in-

novators who participate12 and the level of effort and

from a less direct or obvious means. People might

investment they devote to the innovation process.

want to acquire certain skills by participating in the

Moreover, managers must implement the right or-

innovation process, or they could desire to advance a

technology because they themselves use it.10 In the ganizational mechanisms to tap into the motivations

medical device industry, for example, established of the desired participants; otherwise, their efforts

companies like Medtronic, Stryker and Boston Sci- could be counterproductive. Specifically, communi-

entific rely on individual physicians (that is, users) ties require mechanisms that facilitate and encourage

for working prototypes of new products or for con- knowledge exchange and interactions among mem-

crete suggestions for improvements to existing bers, which will then engender a culture of sharing

products and treatments. Moreover, the benefits of (and learning), a sense of affiliation (as well as iden-

engaging in open innovation might be more long tity and status), a norm of reciprocity (and other

term. Participation in open innovation can help es- types of norms regarding conduct, participation,

tablish one s reputation, build relationships or signal work quality and effort) and perhaps even personal

relationships among the participants.13

one s talents to a wide group of innovators (and po-

Markets, in contrast, require the implementation

tential employers). SAP Aktiengesellschaft, the

of formal and competitive mechanisms that will tend

German software developer, taps into that set of mo-

to discourage most of a community s essential quali-

tivations in its open network through which

ties (for instance, knowledge sharing). In one sense,

volunteers provide solutions to customer inquiries.

The Google Inc. Android

relies on a competitive

markets need to discourage those external innovators

The platform now boasts more than 1 million mem-

market of innovation

for its hardware and a who are willing to work for free; profit-seeking indi-

bers, and a large fraction of the problem solvers are

collaborative community

viduals otherwise might be dissuaded from investing

up-and-coming consultants from emerging markets

for its software.

and participating.14 (On the other hand, communi-

who are keen to establish their reputations and gen-

ties must establish mechanisms to prevent profit

erate goodwill among SAP customers. Thus, value is

seekers from skimming communal knowledge to

generated for the customers and the entrepreneurial

make a buck; otherwise, the community will un-

consultants, as well as for the SAP software.

ravel.) In addition, markets require mechanisms to

But people can also be strongly motivated by

purely intrinsic considerations.11 Sometimes, the ensure the direct flow of income to external innova-

simple enjoyment of the innovation task itself can tors. Such mechanisms do not exist in collaborative

be a powerful factor, particularly when what appears communities, but they are essential in competitive

to be work is not perceived to be work at all. In- markets and should not be taken for granted.

deed, as evidenced by the success of open-source

What s the Business Model?

software projects, Wiki contributions, citizen jour-

Whether a company s product is a computer oper-

nalism services and other similar efforts,

ating system, a social network, a motorcycle, a

self-determined tasks that are inherently interesting

kitchen appliance or even a board game, the deci-

or intellectually challenging can attract tremendous

sion to open it to external innovation means that

participation from outsiders, especially when the

the product will be transformed into a platform.

contributors feel that they are part of some larger

And to generate revenues from that platform, exec-

cause. In fact, a calculation of the direct and indirect

utives need to think about the nature of the

monetary returns of participation reveals that such

accompanying business model. Here, a basic ques-

external innovators will often work for free or for

tion affecting the choice between markets and

a loss for their services. In addition to the work itself,

communities is who sells to whom? This issue is

another type of intrinsic motivation is the status

72 MIT SLOAN MANAGEMENT REVIEW SUMMER 2009 COURTESY OF GOOGLE

THREE PLATFORM BUSINESS MODELS

particularly important to external innovation as it

When a company opens up its product to outside innovation, the product

determines who will typically control the direction

becomes a platform. To generate revenues from that platform, executives

of technology development, the income streams

need to think about what type of business model makes the most sense.

and the end-customer relationship (and, conversely, In the integrator platform model, the company incorporates outside innovations

how much autonomy is enjoyed by the external in- and sells the final products to customers. In the product platform model, external

novators). With the who-sells-to-whom distinction innovators build on top of the platform and sell the resulting products to

customers. Finally, in the two-sided platform model, external innovators and

in mind, platform business models can be divided

customers are free to transact directly with one another as long as they also

into three categories: integrator, product and two-

affiliate with the platform s owner. For examples of each type of business

sided15 (see Three Platform Business Models ). model, see Examples of Alternative Platform Business Models, p. 74.

In the integrator platform model, the platform is

wedged between external innovators and custom- Integrator Product Two-sided

Platform Platform Platform

ers. In other words, the platform s owner sells to

customers, conferring upon the company a rela- External

Platform Platform

Innovators

tively high degree of control. For example, by

inserting itself between iPhone software developers

and consumers, Apple is able to monitor and directly External

Innovators

Platform

control transactions with customers, taking 30% of

revenues. The company is also in a position to shape

External

development, for instance, by vetoing applications Customers Customers Customers

Innovators

that it considers to be off-brand or otherwise unde-

sirable. Moreover, Apple s iTunes Store is itself a

High Control High Autonomy

means of regulating and owning interactions with by Platform of External Parties

iPhone users. Given this position of considerable

power, Apple could, in theory, go even further by as-

suming outright possession of externally developed hundreds of products for a variety of applications, in-

innovations (that is, taking 100% control of the in- cluding outerwear, shoes and medical implants.

come stream) or by dictating technical specifications Similar to Intel Corp. s Intel Inside strategy for its

while directly integrating software into the iPhone, microprocessors, Gore provides the core technology

thus acting as a systems integrator.16 (This was, in (and rules for its use), and the licensees innovate on

fact, Apple s original strategy.) that platform and sell their applications to customers.

Companies have less control with the product plat- In the two-sided (or multisided) platform model,

form model, in which external innovators build on external innovators and customers are free to transact

top of a foundation technology and then sell the re- directly with one another as long as they also affiliate

sulting products to customers. The platform owner with the platform owner. In such cases, the platform

might directly contract with the external innovators facilitates the transactions and interactions between

and have some additional control over them through the two parties, although the external innovators do

the technical design of the core technology, but it is the not need to interact directly with the platform owner

external innovators (and not the platform owner) during the design, development and manufacturing of

who directly transact with the end-users. Thus, the ex- a new product. Nevertheless, the platform owner can

ternal innovators typically have more control than still impose some degree of control over external in-

they would in the integrator business model. They novators by, for instance, issuing to them various rules

and regulations as a condition for their affiliation.17

generally have, for instance, greater freedom to set

Users of Facebook.com, the social networking Web

prices and to retain the residual rights of control over

site, for example, interact directly with third-party ap-

their technical developments, thus providing them

plications (called widgets ) that might reside on a

with more entrepreneurial autonomy. Consider Gore-

separate technical infrastructure even though the in-

Tex, a waterproof and breathable fabric developed by

teractions are enabled by the Facebook platform. Here,

W.L. Gore & Associates Inc. More than 89 companies

external innovators are free to determine the revenue

have licensed the core technology and brand to create

SLOANREVIEW.MIT.EDU SUMMER 2009 MIT SLOAN MANAGEMENT REVIEW 73

O P E N I N N O VAT I O N

model that best supports their investments, whether (for instance, by charging higher licensing fees or com-

missions).18 In a collaborative community, members

it s advertising supported or fee based. Nonetheless,

the widget developers must still abide by certain con- might be concerned that their work could be coopted

tractual and technical rules imposed by Facebook or used in ways that they did not intend.

Inc., such as limiting access to user information. Collaborative communities have the clearest dis-

All three types of platform business models can suc- advantages in working with a high-control platform.

ceed with either a market or community (see Examples Communities often reject the concentration of

of Alternative Platform Business Models ), but execu- power and control per se as part of their norms. Fur-

tives should remember that both of those approaches thermore, they frequently resist the very types of ad

are inherently predisposed to platforms of minimal hoc formal contracting mechanisms that might oth-

erwise serve to protect them from expropriation.19

control. External innovators prefer autonomy, discre-

Instead, they tend to favor self-organization, infor-

tion in design and direct customer access so that their

mal relationships and transactions based on

distributed knowledge, entrepreneurial energy and ini-

reciprocity and fairness. Of course, those attributes

tiative can be applied in ways that they deem best. In a

encourage information sharing and aggregation, but

competitive market, profit-seeking innovators might

they are less effective for offering formal protections.

be particularly wary of getting locked into a platform

The risk is that community members might be more

whose owner could later change the rules of the game

reluctant to participate and share their efforts if they

have to live in the shadow of a large, powerful, profit-

EXAMPLES OF ALTERNATIVE

seeking platform vendor.

PLATFORM BUSINESS MODELS

But there are exceptions. For example, a company

Markets and communities can both be effective with all three types of platform

might be able to get away with imposing tight controls

business models (integrator, product, and two- or multisided).

over external innovators (even a collaborative com-

TWO-SIDED

INTEGRATOR PRODUCT

(OR MULTISIDED) munity of them) when its platform has a monopoly

PLATFORM PLATFORM

PLATFORM

position in the market, leaving people with little choice

I Apple Inc. iPhone I Cloud computing I SAP (third-party

COMPETITIVE

but to comply. And past studies have shown that con-

(application store) initiatives (Amazon. applications)

MARKETS

com Inc. and trol and power can be successfully wielded over

I InnoCentive.com I Facebook Inc.

Google)

outside innovators if credible commitment mecha-

(scientific problem (advertisers and

solving) I Gore-Tex widget developers)

nisms can be put into place to convince them that

I Local Motors Inc. I Personal computer I Most Web portals,

their efforts won t be exploited. A company could, for

(car design) platforms and yellow pages

instance, open its platform by transferring key intel-

hardware OEMs

I Ryz (shoes) I eBay Inc.,

lectual property into the public domain or by making

I Google Android Craigslist Inc.

I TopCoder Inc.

(hardware

the platform compatible with competing systems. Of

(software code) I Big Idea Group

development)

(innovation hunts) course, measures that relinquish control could under-

I Video games

mine a company s ability to wield control

on consoles

constructively in the first place. For that reason, a busi-

I Threadless.com I Video game I Apple Inc. iPhone

COLLABORATIVE

ness might prefer to use other mechanisms (for

(T-shirts) modders (such ( jail breakers )

COMMUNITIES

as Valve Corp. s example, relying on trust, a reputation for fairness,

I Google Android I Big Idea Group

Half-Life platform)

(software develop- (insight clubs) contractual commitments and a variety of organiza-

ment of operating I Linux and open-

tional practices20) to assure external innovators that it

I Communispace

system) source development

Corp. (product

(such as TiVo Inc. will not abuse its power, all while retaining the discre-

feedback and

and Motorola Inc. s

innovation tion to exercise some control for constructively

use of Linux)

communities)

orchestrating the surrounding innovation ecosystem.

I Medical device

I SAP (developer

companies and

network)

physicians (user

The Next Generation

innovators) I Statacorp Lp

In developing an open strategy, executives will often

(statistical software

I Wikipedia

module develop-

have to reconcile tensions that emerge in trying to ad-

ment)

dress each of the three basic issues: What s the

74 MIT SLOAN MANAGEMENT REVIEW SUMMER 2009 SLOANREVIEW.MIT.EDU

innovation, what s the motivation of external innova- small, select group of trusted partners. Company ex-

tors and what s the business model? One advanced ecutives claimed at that time that they had no plans

solution is to apply a market model to certain external to allow others to create new features and applica-

innovators and a community design to others. In such tions. Soon, however, outside innovators had

a mixed approach, the challenge is to determine how self-organized on the Internet to share tips on how to

the principles of open innovation described earlier hack into the iPhone in order to create all of the

might apply to individual groups of external innova- missing applications. In a matter of just a few

tors in different ways and then to construct the months, this community had written more than 100

appropriate business model and open strategy ac- applications that were not originally anticipated by

cordingly. Take, for example, Microsoft Corp., which Apple. Execs of the company wisely decided not to

has traditionally been hostile to the entire open-source squash that external (and unauthorized) innovation

model. But Microsoft now realizes that important but instead to evolve it by implementing a formal

technological innovations can be developed in con- third-party development program. In addition to

junction with the open-source community. So the establishing the tools and interfaces that the outside

company has assigned formal executive responsibili- innovators should use as well as facilitating the tech-

ties for open-source strategy and has established a nology, Apple defined a set of licensing terms and a

staff to assist with outbound and inbound open- revenue-sharing plan. Moreover, the company aug-

source software. A recent effort that illustrates the mented its iTunes Store to act as the exclusive The multibillion-dollar

video game industry

mixed approach is Microsoft s SharePoint, a server distribution channel. The original community of ex- would not exist without

a thriving market of

product that has traditional market-based competi- ternal innovators was thus transformed into a highly third-party businesses

tors working on certain segments while an centralized marketplace under Apple s control. to write game software

for particular hardware

open-source community addresses other segments. The key lesson is that a company should develop platforms.

A company might also choose to implement a a strategy that, at a given time, matches the nature of

nested strategy, in which aspects of markets and its innovation, the motivations of the innovators and

communities are combined to achieve certain trade- the business model of its platform. A late entrant in a

offs. Consider TopCoder.com, a Web site that hosts market might, for example, choose to establish a col-

ongoing competitions to connect talented program- laborative community of external innovators simply

mers with companies that need software modules because most capable profit-seeking individuals

developed. On the one hand, TopCoder s network have already been locked into an incumbent plat-

of more than 180,000 developers competes fiercely form. Or managers at a company in a mature market

to win the prize money associated with particular might decide at some point to collaborate with user

software modules. But after a competition is over, innovators in order to push further the technical

members collaborate actively in teaching one an- frontier of their platform. In other words, a company

other the ins and outs of various successful needs to tailor its particular approach to the context

approaches that can be used to solve tough pro- of its specific business. Opening up the innovation

gramming problems. Given the inherent conflicts process is necessarily about carefully designing a set

that can arise between markets and communities, of mechanisms to govern, shape, direct and even

mixed and nested approaches typically come with constrain external innovators; it is not about blindly

significant costs and considerable risks, and they giving up control and hoping for the best.

should be deployed only with much caution and the

Kevin J. Boudreau is an assistant professor of strategy

appropriate attention to governing mechanisms.

at the London Business School. Karim R. Lakhani is

A crucial thing to remember is that a company s an assistant professor and Richard Hodgson Fellow

at the Harvard Business School. Comment on this

innovation strategy does not have to be cast in stone.

article or contact the authors at ***********@***.***.

That is, managers can evolve the strategy in ways that

make the most sense for their particular business.

REFERENCES

Consider, again, the dramatic success of the iPhone.

At its launch, the iPhone had just a few software ap- 1. Economist Friedrich Hayek s longtime insight of dis-

tributed knowledge in the economy has been

plications that were either designed by Apple or by a

SUMMER 2009 MIT SLOAN MANAGEMENT REVIEW 75

COURTESY OF VALVE CORP.

O P E N I N N O VAT I O N

embraced and developed in modern research on open 12. Belenzon and Schankerman show that altering details

innovation. See, for example, E. von Hippel, Democra- of how an open regime is governed affects the types of

tizing Innovation (Cambridge: MIT Press, 2005); and outsiders who participate in open innovation. See S.

H. Chesbrough, W. Vanhaverbeke and J. West, eds., Belenzon and M.A. Schankerman, Motivation and Sort-

Open Innovation: Researching a New Paradigm ing in Open Source Software Innovation, CEPR

(New York: Oxford University Press, 2006). discussion paper no. DP7012, Centre for Economic Policy

Research, London, October 2008, http://papers.ssrn.com.

2. Lakhani and Wolf have shown that 60% of open-source

software developers volunteer their time and efforts to 13. For an analysis of motivations in open source commu-

the various projects. See K.R. Lakhani and R. Wolf, Why nities, see K.R. Lakhani and E. von Hippel, How Open

Hackers Do What They Do: Understanding Motivation Source Software Works: Free User-to-User Assistance,

and Effort in Free/Open Source Software Projects in Research Policy 32, no. 6 (June 2003): 923-943; and

Perspectives on Free and Open Source Software, ed. Lakhani and Wolf, Hackers.

J. Feller, B. Fitzgerald, S.A. Hissam and K.R. Lakhani

Copyright © Massachusetts Institute of Technology, 2009.

Contact this candidate