Lemons of Open Innovation

#OpenInnovation #OrganizationalChallenges #Frictions

In this article we will focus on lemons or the frictions created by individuals, since they are considered to be the drivers of ideas and they are the ones who are responsible for successfully concluding the transactions through Open Innovation.

Open Innovation, driven by a notion that an organization cannot employee all the smart people by itself. And somewhere out there is a person who has developed an idea which can be very useful.?

Generally, when we use the term ‘Open Innovation’ (OI), we think of a situation where a firm is taking advantage of knowledge that was developed beyond its own boundaries. But often do we forget that the other part of equation is in letting the ideas out of their own walls.

However, it is assumed that all of these transactions create fair exchange of value between buyer and seller, until they ‘Don’t’.

Let’s take the case of Robert Kearns from the early 20th century, whose windshield wiper invention was benefited by various car manufactures without giving him due credit or economic benefit. This misappropriation of intellectual property left him with bad health and a broken relationship with his family.

This fear of intellectual property misappropriation is still prevalent amongst individuals today. This is because they fear they might not receive due credit for their ideas. And sometimes it is because firms are not equipped enough to work on protecting each intellectual idea. In some cases, even if the organization has resources, they would not be willing to invest time and resources. Or sometimes they do this so as not to ruin their relationship with external firms. Ultimately the individuals participating in the OI transaction will often be unwilling or even try to completely avoid disclosing their knowledge with external partners.

Other times individuals begin to associate themselves strongly with the group that they work with. In order to identify themselves as being a ‘member’, individuals begin to take certain actions against outer group for enforcing their membership. Upon digging deeper we can find one explanation to such behavior from the work of Hogg & Terry, who explain this is due to the need of positive self-esteem. Considering this, individuals resist collaborating since they consider work of in-group to be superior than the work of out-group.

Another commonly described reason in literature is lack of trust. Let’s try to understand it from the point of view of ‘Prisoner Dilemma Game’. Each time two individuals collaborate, they both want to benefit and have a balanced contribution. As long as the game begins on this assumption, the outcome is mostly in form of cooperation. However, the outcome of the game is changed when individuals start of thinking that they will be cheated, or taken benefit off (free riding), in this scenario individuals will defect even at high cost. Taking this example and extrapolating it to our collaboration scenario, initial trust between the individuals from partnering firms is necessary to avoid defections.

An important aspect of cooperation is occurrence of conflicts. One way to avoid these conflicts in not to initiate a cooperation, however given the need, firms are obliged to enter such contracts. In these situations, skills of the leader play an important role in setting follower’s perception. If the followers think that their leader is incapable of resolving conflicts, they would try to avoid the cooperation entirely as not to face such situation in future. Some suggest a more balanced approach, where a leader has ability to entirely avoid some conflicts and cope up with others through resolving them.

Asymmetry has an important role in discouraging individuals from cooperating for OI. Cooperation between a small startup and an established firm often have polarity in the resources and knowledge they hold. Individuals from smaller firms are mostly suspicious if the cooperation would be skewed to the advantage of the larger firm. Or sometimes smaller firms have to cope-up with bureaucracy of larger firms and work on their templates since smaller firms lack resources. this also weakens the bargaining power of smaller firms, making individuals more reluctant to jump the OI wagon.

This is not an exhaustive list of frictions that prevent firms in adopting OI or successfully benefiting from it.

References

Chesbrough, H. W. (2006). The era of open innovation.?Managing innovation and change,?127(3), 34-41.

Hoggy, M., & Terry, D. J. (2000). Social identity and self-categorization processes in organizational context.?Academy of Management Review,?25(1).

McLean, D. R., Page, B. J., Tuchman, A., Kispert, A. V., Yen, W. L., & Potter, W. J. (1992). Emphasizing conflict resolution versus conflict avoidance during schedule generation.?Expert Systems with Applications,?5(3-4), 441-446.

Stefan, I., Hurmelinna-Laukkanen, P., Vanhaverbeke, W., & Oikarinen, E. L. (2022). The dark side of open innovation: Individual affective responses as hidden tolls of the paradox of openness.?Journal of Business Research,?138, 360-373.

Wischniewski, J., Windmann, S., Juckel, G., & Brüne, M. (2009). Rules of social exchange: Game theory, individual differences and psychopathology.?Neuroscience & Biobehavioral Reviews,?33(3), 305-313.

Yang, I., & Li, L. M. (2018). ‘It is not fair that you do not know we have problems’: Perceptual distance and the consequences of male leaders' conflict avoidance behaviours.?European Management Journal,?36(1), 105-116.