MIT Sloan Management Review

Is innovation dead? Actually, innovation is alive and well — as underscored by the recent advances in the life sciences, including revolutionary breakthroughs in genomics and cloning. But the way companies generate ideas and bring them to market has been undergoing a fundamental change.

In the old model of closed innovation, enterprises adhered to the following philosophy: Successful innovation requires control. In other words, companies must generate their own ideas, then develop, manufacture, market, distribute and service those ideas themselves. For most of the 20th century, that model worked well, as evidenced by the spectacular successes of central R&D organizations such as AT&T’s Bell Labs.

Today, though, the internally oriented, centralized approach to R&D is becoming obsolete in many industries. Useful knowledge is widely disseminated, and ideas must be used with alacrity. If not, they will be lost. Such factors create a new logic of open innovation, in which the role of R&D extends far beyond the boundaries of the enterprise. Specifically, companies must now harness outside ideas to advance their own businesses while leveraging their internal ideas outside their current operations. That fundamental change offers novel ways to create value — along with new opportunities to claim portions of that value.

The author’s book, “Open Innovation: The New Imperative for Creating and Profiting from Technology” (Harvard Business School Press, 2003), provides a detailed description of the open innovation model.