Open Innovation_state of the Art (1)

A R T I C L E S

Open Innovation:Past Research, Current Debates, and Future Directionsby Ulrich Lichtenthaler

Executive OverviewThe concept of open innovation has recently gained widespread attention. It is particularly relevant nowbecause many firms are required to implement open innovation, despite the difficulties associated withmanaging these activities. After providing a definition of open innovation delimiting it from open source,an overview of prior research is given, which identifies the following important topics of earlier openinnovation research: technology transactions, user innovation, business models, and innovation markets. Inlight of current controversial debates about the value of the open innovation framework, we evaluate theliterature and assess whether open innovation is a sustainable trend rather than a management fashion. Onthis basis, we present a conceptual framework that provides the foundation for discussing critical openinnovation processes and their implications for managing open innovation at the organizational, project,and individual level. Thus, we assess the multilevel determinants of the make-or-buy, integrate-or-relate,and keep-or-sell decisions in opening up the innovation process. Then, we propose a research agenda basedon this conceptual framework with particular emphasis on the organizational antecedents and performanceconsequences of open innovation and on important research design issues. Finally, we discuss implicationsfor management education and practice, and we provide a conclusion and outlook.

Traditionally, industrial firms developed newtechnologies for their own products internally(Ahlstrom, 2010; March, 1991; Wyld, 2010;

Wyld & Maurin, 2009). Thus, most companiespursued relatively “closed” innovation strategies,meaning limited interactions with the outside en-vironment. The only exceptions could be foundmany years ago in industries (e.g., chemicals)where the particular industry structure encouragedactive technology transactions in early periods(Arora & Gambardella, 2010; Lamoreaux &Sokoloff, 1998). In recent decades, these strategieshave begun to change as firms across industries

have increasingly acquired external technologiesto complement their internal knowledge bases(e.g., by means of strategic alliances or in-licens-ing, which involves acquiring the right to useexternal knowledge) (Beamish & Lupton, 2009;Cassiman & Veugelers, 2006; Teece, 1986; vonHippel, 1988). A similar development could re-cently be observed in knowledge exploitation.Firms across industries started to actively commer-cialize their technological knowledge, either ex-clusively or in addition to using it internally fortheir own products by means of out-licensing orstrategic alliances, where firms allow externalpartners to use some of their own technology. Onthis basis, firms may achieve monetary benefits(e.g., licensing revenues) and non-monetary ben-efits (e.g., gaining access to external technology

The author would like to thank Associate Editor Chung Ming Lau andtwo anonymous reviewers for their insightful comments and suggestionsduring the review process. A prior version of this paper was presented at the2010 annual meeting of the Academy of Management in Montreal.

* Ulrich Lichtenthaler ([email protected]) holds the Chair of Organization at University of Mannheim, Germany.

2011 75Lichtenthaler

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by means of cross-licensing) (Gassmann, 2006;Grindley & Teece, 1997).

In light of these developments, in 2003Henry Chesbrough coined the term “open in-novation” (Chesbrough, 2003) to describe in-novation processes in which firms interact ex-tensively with their environment, leading to asignificant amount of external knowledge explo-ration and exploitation (Chesbrough, 2003; vande Vrande, Lemmens, & Vanhaverbeke, 2006). Inaddition, firms increasingly maintain knowledgeoutside their organizational boundaries over time,and this dynamic perspective points to interorga-nizational relationships as an extension of firms’internal knowledge bases (Grant & Baden-Fuller,2004). Despite its growing importance, manyfirms experience severe challenges in activelymanaging the processes of open innovation(Lichtenthaler, 2008; van de Vrande, de Jong,Vanhaverbeke, & de Rochemont, 2009), al-though some pioneering companies, such asProcter & Gamble and Eli Lilly, have achievedgreat benefits from it (Huston & Sakkab, 2006;Schwartz & Huff, 2010). Yet even the successfulfirms had to overcome major challenges at thebeginning of their open innovation initiatives(Chesbrough, 2007; Laursen & Salter, 2006), andthere are major interfirm differences in how openinnovation is successfully managed.

Thus, practitioners and academics alike need abetter understanding of open innovation processesin order to grasp the benefits while avoiding po-tential negative side effects. Accordingly, this pa-per focuses on developing a multilevel conceptualframework for organizing open innovation infirms, specifically focusing on the project and in-dividual level in addition to the firm level, thusextending earlier research (e.g., Lichtenthaler &Lichtenthaler, 2009). We address important cross-level interdependencies and discuss the need forsufficient fit between open innovation processesand a firm’s corporate strategy and culture. Wefurther extend earlier research by linking ourframework to important management mechanismsfor open innovation (e.g., incentive systems) thathave often been neglected in previous research.Moreover, we establish a research agenda to stim-ulate the discussion of successful open innovation

management. Finally, we discuss important impli-cations for management practice and manage-ment education.

DefinitionofOpen Innovation

There is a continuum of multiple innovationapproaches, with very closed approaches onone end and open approaches on the other

(Trott & Hartmann, 2009). These two extremeswere captured by Chesbrough when he assertedthat “[F]irms can and should use external ideas aswell as internal ideas, and internal and externalpaths to market, as the firms look to advance theirtechnology” (Chesbrough, 2003, p. xxiv). Thisoriginal understanding was further clarified in2006, when Chesbrough and colleagues statedthat “open innovation is the use of purposiveinflows and outflows of knowledge to accelerateinternal innovation, and expand the markets forexternal use of innovation, respectively” (Ches-brough, Vanhaverbeke, & West, 2006, p. 1). In-bound open innovation is an outside-in processand involves opening up the innovation processto knowledge exploration. Here, external knowl-edge exploration refers to the acquisition of knowl-edge from external sources. For instance, manylarge pharmaceutical firms (e.g., Eli Lilly) nowacquire a substantial portion of their technologiesfrom external partners such as biotechnology firms(Schwartz & Huff, 2010). In contrast, outboundopen innovation is an inside-out process and in-cludes opening up the innovation process toknowledge exploitation. External knowledge exploi-tation relates to the commercialization of techno-logical knowledge. For instance, Philips Electron-ics has recently generated several hundred milliondollars in licensing revenues annually (Alexy,Criscuolo, & Salter, 2009).

Firms may combine outside-in and inside-outprocesses, integrating inbound and outbound openinnovation (e.g., in alliances; see Gassmann &Enkel, 2010). In addition to external explorationand exploitation, recent work has emphasized thatfirms increasingly maintain knowledge externally.External knowledge retention refers to maintainingknowledge outside a firm’s organizational bound-aries over time (Lichtenthaler & Lichtenthaler,2009) using interorganizational relationships as an

76 FebruaryAcademy of Management Perspectives

extension of the internal knowledge bases (Grant& Baden-Fuller, 2004). For instance, Cisco Sys-tems manages a large alliance portfolio, whichprovides privileged access to the alliance partners’knowledge without the need for immediatelytransferring the external knowledge (Kale & Pura-nam, 2004).

In light of the severe challenges many firmsface in managing open innovation, recent workhas pointed to a process-based understanding ofopen innovation (Lichtenthaler & Lichtenthaler,2009). Based on this perspective and earlier defi-nitions (Chesbrough, 2003; Chesbrough et al.,2006; Gassmann & Enkel, 2010; Laursen &Salter, 2006), we provide the following definition,which links the open innovation framework torelated literatures, such as knowledge manage-ment, organizational learning, and firm bound-aries (Grant & Baden-Fuller, 2004; March, 1991;Santos & Eisenhardt, 2005): Open innovation isdefined as systematically performing knowledge explo-ration, retention, and exploitation inside and outsidean organization’s boundaries throughout the innova-tion process. The concept of open innovation ex-plicitly considers the trend toward interorganiza-tional innovation processes (Vanhaverbeke, Vande Vrande, & Chesbrough, 2008), but internalactivities are also critical to open innovation pro-cesses. For instance, firms need to internally de-velop prior technological knowledge, which is re-quired for absorptive capacity, in order tosuccessfully rely on inbound open innovation pro-cesses (Cohen & Levinthal, 1990).

Open innovation is sometimes conflated withthe related notion of open-source software devel-opment. “While open-source shares the focus onvalue creation throughout an industry valuechain, its proponents usually deny or downplaythe importance of value capture” (Chesbrough etal., 2006, p. 2). The role of the business model incapturing value enables a firm to profit from openinnovation. Because of the primary emphasis ofopen-source software development on value cre-ation, many open-source activities do not seem toconstitute central activities according to the openinnovation framework if a firm-level perspective istaken. Thus, open-source is not necessarily a partof open innovation. However, if firms rely on

open-source approaches to develop products thatare then commercialized internally or externally,they follow an open innovation approach becausethe business model enables them to capture valuefrom open innovation (West & Gallagher, 2006).

PriorResearch IntoOpen Innovation

Academic work on open innovation began toemerge following Chesbrough’s (2003) origi-nal book, Open Innovation: The New Impera-

tive for Creating and Profiting From Technology (e.g.,Almirall & Casadesus-Masanell, 2010; Chris-tensen, Olesen, & Kjaer, 2005; Dahlander &Gann, 2010; Fleming & Waguespack, 2007; Saur-Amaral & Amaral, 2010), with several specialissues of academic journals devoted to the topic(e.g., R&D Management and the International Jour-nal of Technology Management) (Enkel, Gassmann,& Chesbrough, 2009; Gassmann, 2006; van deVrande, Vanhaverbeke, & Gassmann, 2010). Be-yond the studies that use the specific term “openinnovation,” there are many influential studies inthe general field of interorganizational innovation(e.g., absorptive capacity; see Cohen & Levinthal,1990) that enhance our understanding of openinnovation.

Characteristics of theOpen InnovationFramework

The concept of open innovation highlights threeissues that may allow for important contributionsof open innovation research. First, the open inno-vation literature advances prior research by ex-plicitly integrating inward and outward knowl-edge transfer (Chesbrough, 2006). Many firms relyon both inbound and outbound open innovationsimultaneously (van de Vrande et al., 2009). Inaddition, some open innovation activities specif-ically include both processes (Lichtenthaler,2008). Examples are cross-licensing agreements,in which firms transfer some of their own tech-nology to get access to external knowledge(Grindley & Teece, 1997). In addition, the openinnovation literature has addressed the possibilityof maintaining knowledge outside a firm’s bound-aries (Dittrich & Duysters, 2007). This compre-hensive perspective on critical knowledge man-agement processes is essential because of


potential interdependencies. For instance, anactive acquisition of external technology maylimit a firm’s opportunities to commercialize itsown knowledge (Lichtenthaler & Lichtentha-ler, 2009).

Second, open innovation research points to thesimultaneous internal and external organization ofcritical knowledge-management processes (Ches-brough, 2003). Accordingly, it helps overcomeprior research, which often assumed “either-or”decisions about whether to perform specificknowledge management tasks internally or exter-nally. One example in knowledge exploration ismake-or-buy decisions (Geyskens, Steenkamp, &Kumar, 2006): While firms may decide to inter-nally generate or externally source one particulartechnology, a firm-level perspective usually pointsto simultaneous internal and external knowledgeexploration (Cohen & Levinthal, 1990). The factthat it is often hardly possible to generate allrelevant knowledge internally demonstrates thecomplementary character of the internal and ex-ternal organization of knowledge managementprocesses (Cassiman & Veugelers, 2006).

Third, the open innovation framework helpsintegrate technology management research withthe innovation management literature. In partic-ular, open innovation directly links concepts fromtechnology management (e.g., external technol-ogy acquisition) to new product development(Chesbrough et al., 2006; Laursen & Salter, 2006;Tsai & Wang, 2008). In the past, the new productdevelopment literature has often focused on ac-tivities inside the firm (Page & Schirr, 2008). Incontrast, earlier technology management research

often examined specific technology managementprocesses (e.g., R&D) and technological changewithout directly relating the analyses to a firm’sinnovation processes (e.g., Afuah, 2001).

Tentative StreamsofOpen InnovationResearch

A tentative systematization, which is neither mu-tually exclusive nor collectively exhaustive, leadsto the following four lines of open innovationresearch: technology transactions, user innova-tion, business models, and innovation markets.These streams of research illustrate the threecharacteristics of open innovation researchidentified above (see Figure 1). The first line ofresearch addresses technology transactions. In par-ticular, prior works have examined inward tech-nology transfer and R&D alliances, and absorptivecapacity research has highlighted the need fordeveloping an internal organizational capability(Lichtenthaler & Lichtenthaler, 2009). There isalso a growing body of work on outward technol-ogy transfer and external knowledge exploitation(Chesbrough, 2007; Fosfuri, 2006). In addition,some studies have investigated the importance ofretaining knowledge over time outside a firm’sboundaries (Dittrich & Duysters, 2007; Zaheer,Gozubuyuk, & Milanov, 2010). Earlier researchinto the role of interorganizational innovationnetworks may provide important contributions tothe field of open innovation (Ahuja, 2000). Muchof the work on technology transactions focused oninbound open innovation (Zhao & Anand, 2009,p. 963). Thus, outbound open innovation hasbeen relatively neglected (Chesbrough, 2003;Lord, Mandel, & Wager, 2002).

Figure1IllustrativeOverview


The second stream of research studies user in-novation, and it primarily examines how firms maycollaborate with users in the external explorationof new knowledge and ideas (von Hippel, 1988).Recent work has examined how firms can profitfrom user innovation and user communities inopen innovation processes (Bogers, Afuah, & Bas-tian, 2010; West & Lakhani, 2008). For instance,many medical equipment technology firms ac-tively integrate users into their innovation pro-cesses (Lettl, Herstatt, & Gemuenden, 2006). Inaddition, prior open innovation research has ex-amined the role of toolkits for idea competitions(Piller & Walcher, 2006). This stream of openinnovation research strongly builds on earlierwork on the role of communities in supportinginnovation (Franke & Shah, 2002).

The third line of research addresses the role ofbusiness models in the context of open innovation,and it focuses primarily on exploiting knowledgein open innovation processes (Chesbrough, 2006;van der Meer, 2007). More specifically, earlierwork has examined whether appropriability en-ables or retards open innovation activities (West,2006). The issue of appropriability is essentialwhen firms open up their innovation processes(Helfat, 2006). In addition, the role of intellectualproperty in the context of open innovation seemsto be more complex than it may initially appear(Alexy et al., 2009). An additional topic that hasreceived some attention is corporate venturing asa way of innovating, particularly in large, estab-lished firms (Vanhaverbeke et al., 2008).

The fourth stream of research addresses innova-tion markets (Chesbrough, 2007). This line ofthought focuses on ways to facilitate open inno-vation, especially concerning the ease of interfirmtechnology transfer. While most other lines ofresearch concentrate on inbound open innova-tion, this stream of work is relatively balanced inaddressing inbound and outbound processes(Arora & Gambardella, 2010). For instance, priorstudies have examined the role of intermediariesin facilitating technology exchanges (Howells,2006). In this context, Internet marketplaces forintellectual property and technology auctionshave received some attention because they con-stitute potentially promising new types of inter-

mediaries for interfirm technology transfer (Ches-brough, 2006). A growing overall importance ofinnovation markets can be observed in multiplestudies (Arora & Gambardella, 2010).

TentativeAssessmentofOpen InnovationResearch

The three characteristics of the open innovationframework addressed above may provide the basisfor important theoretical contributions by openinnovation research. In addition, the concept ofopen innovation has a clear managerial impactbecause it has further strengthened awareness ofthe importance of innovation in many firms(Chesbrough et al., 2006; Trott & Hartmann,2009). Currently, however, there are some debatesabout the value the open innovation frameworkadds to earlier work (di Benedetto, 2010; Groen &Linton, 2010; Linstone, 2010; von Hippel, 2010).In this regard, the open innovation framework hasalso been criticized. For instance, it was recentlyargued that open innovation is old wine in newbottles (Trott & Hartmann, 2009). Many of theelements of the open innovation approach arevisible in the industrial research system of theUnited States in the late 19th and early 20thcenturies (Mowery, 2009). However, some studiessuggest a recent increase in open innovation prac-tices. While many firms’ innovation processeshave been opened up to at least some degree for arelatively long time, these works illustrate a grow-ing openness of many firms in recent years (Ches-brough, 2007; Davis & Harrison, 2001; van deVrande et al., 2009). This long-term perspectivepoints to the sustainability of open innovationprocesses.

Consistent with these observations, the openinnovation concept does not fulfill several of thecriteria that typically characterize managementfashions (Abrahamson, 1996; Kieser, 1997). Itfurther does not fulfill several of the criteria for anew theory (Sutton & Staw, 1995; Zahra &Newey, 2009). While the open innovation con-cept includes many new conceptual insights andtheoretical arguments, it does not (yet) representa coherent new theory according to accepted stan-dards (Bacharach, 1989; Van de Ven, 1989;Whetten, 1989). In addition, it may be argued


whether the open innovation framework displaysrelevant characteristics for being considered a par-adigm (Kuhn, 1962). Thus, open innovation mayrather be considered a framework (Chesbrough etal., 2006), which characterizes a number of ap-proaches to managing innovation. “A frameworkis less rigorous than a model as it is sometimesagnostic about the particular form of theoreticalrelationships which may exist” (Teece, 2006, p.1138).

Prior open innovation research was often basedon theoretical considerations and single case stud-ies, or it analyzed very specific issues in large-scalestudies. More general work has usually focused oneither external knowledge exploration or exploi-tation without taking an integrative perspective(e.g., Cassiman & Veugelers, 2006; Cohen &Levinthal, 1990; Fosfuri, 2006). To date, the num-ber of quantitative studies into opening up theinnovation process in different directions is rela-tively limited (e.g., Lichtenthaler, 2008; van deVrande et al., 2009). As academic research is onlystarting, it is too early to consider a potentialreification of the open innovation concept (Lane,Koka, & Pathak, 2006), but an overview of theopen innovation literature clearly shows a strongneed for further theoretical and empirical work.This research deficit is emphasized by the discrep-ancies between increasing technology transac-tions on one hand and many firms’ major mana-gerial difficulties on the other. Earlier openinnovation research focused on inbound pro-cesses, whereas outbound processes have receivedless attention. A particularly important limitationseems to be an insufficient theoretical foundationalong with an insufficient consideration of earlierwork into related fields, such as user innovationand absorptive capacity.

Conceptual Framework forOpen Innovation

Our conceptual framework builds on recentwork that distinguished knowledge explora-tion, retention, and exploitation as three crit-

ical processes to arrive at an integrative view ofmanaging knowledge in the context of open in-novation (Lichtenthaler & Lichtenthaler, 2009).As we have discussed above, all three processescan be organized internally or externally—that is,within a firm’s organizational boundaries or to-gether with external partners (see Figure 2). In-ternal knowledge exploration describes the gen-eration of new knowledge inside the firm (e.g.,inventions resulting from research). Externalknowledge exploration describes knowledgesourcing from external partners. Internal knowl-edge retention results from the need to storeknowledge over time. External knowledge reten-tion relates to knowledge that is maintained in afirm’s interorganizational relationships, such as al-liances. Internal knowledge exploitation refers tothe internal application of knowledge in a firm’sown products. External knowledge exploitationrefers to outward knowledge transfer (e.g., tech-nology licensing).

To successfully manage these activities, com-panies need to develop relevant organizationalcapabilities at the firm level. Together, these dif-ferent organizational capabilities or capacitiesform the basis for a dynamic capability of manag-ing open innovation (Lichtenthaler & Licht-enthaler, 2009; Teece, 2007). The firm-level per-spective emphasizes the importance of developingorganizational capabilities, which affect a compa-ny’s strategic decisions at the level of single inno-vation projects. At the project level, companiescan hardly develop organizational capabilities, but

Figure2Conceptual Framework


they may draw on their firm-level capabilities tomanage innovation projects and to make criticalproject-level decisions, such as make-or-buy(Chesbrough, 2003). In turn, these decisions areinfluenced by the underlying attitudes of a firm’semployees at the individual level, and these atti-tudes may constitute important microfoundationsof innovation capabilities (Gavetti, 2005; Teece,2007).

There are further microfoundations of openinnovation capabilities, such as a dedicated alli-ance function with full-time alliance managementemployees (Kale & Singh, 2009), but the role ofemployee attitudes has been recently highlightedin the context of open innovation (Chesbrough,2006). In particular, employee attitudes oftencharacterize large parts of an organization, andthey may constitute important barriers to suc-cessfully implementing open innovation pro-cesses and the corresponding project-level deci-sions (Lichtenthaler, Ernst, & Hoegl, 2010).Our framework therefore focuses on these crit-ical individual-level microfoundations of firm-level organizational capabilities.

Accordingly, the framework acknowledges that“innovation is inherently a multilevel phenome-non” (Gupta, Tesluk, & Taylor, 2007, p. 888).Consequently, the adoption of open innovationprocesses may be determined by drivers at multiplelevels. In particular, management mechanisms atone level (e.g., organizational routines at the firmlevel) may not pay off because of inhibiting factorsat other levels, such as attitudes at the individuallevel. These employee attitudes may constituteeither important microfoundations of or majorbarriers to developing organizational capabilitiesat the firm level. Prior research has thereforepointed to the relevance of multiple levels ofanalysis. For instance, a recent study has shownthat many firms do not succeed in implementingoutbound open innovation processes because ofemployee attitudes that are protective with regardto outward technology transfer (Lichtenthaler etal., 2010). In the following presentation of themultilevel conceptual framework, we use the in-novation activities of Procter & Gamble in recentyears as an illustrative example.

Firm-Level Capabilities

Regarding knowledge exploration, internal pro-cesses are critical in the context of open innova-tion (Lichtenthaler & Lichtenthaler, 2009). Atthe organizational level, firms therefore need tobuild up inventive capacity, which refers to theability to internally explore knowledge— that is,to generate new knowledge inside the organiza-tion. Usually, a firm sets up knowledge explorationprocesses after perceiving unexploited opportunities.Subsequent to generating new knowledge, firmshave to integrate this new knowledge into theirknowledge bases by establishing links to existingknowledge.

While inventive capacity refers to internal ex-ploration, absorptive capacity relates to the abilityto explore external knowledge. This understand-ing of absorptive capacity focuses on knowledgeexploration—that is, potential absorptive capacity(Zahra & George, 2002) and exploratory learning(Lane et al., 2006)—according to recent recon-ceptualizations of Cohen and Levinthal’s (1990)original work. For instance, in 2000, Procter &Gamble formulated a firm-level strategy for ac-tively opening up its innovation process with thegoal of acquiring 50% of all innovations fromexternal sources (Huston & Sakkab, 2006). Atthe same time, Procter & Gamble kept investingin internal research in order to build up the nec-essary prior knowledge for absorptive capacitybased on a strong inventive capacity (Dodgson,Gann, & Salter, 2006).

Concerning knowledge retention, transformativecapacity describes a firm’s ability to internally main-tain knowledge over time (Garud & Nayyar, 1994).Firms need to actively manage their knowledge stor-age by assigning resources to keep the knowledge“alive” and avoid loss over time. After recognizingan opportunity to exploit retained knowledge, itneeds to be reactivated, internalized, and synthesizedwith additional knowledge (Garud & Nayyar, 1994;Smith, Collins, & Clark, 2005).

Beyond the internal knowledge base, a firm’sinterorganizational relationships (e.g., alliances)may be considered as an external mode of knowl-edge retention. Similar to internal knowledge re-tention, external networks have to be maintained


and managed over time by means of connectivecapacity, which focuses on externally maintainingknowledge and which does not assume immediateinward knowledge transfer. Instead, firms ensureprivileged access to external knowledge withoutdirectly acquiring it (Grant & Baden-Fuller,2004). For example, Procter & Gamble formu-lated an open innovation strategy and started tointensify its long-term relationships with otherfirms. This strategic move resulted in increasedexternal knowledge retention in alliances andother types of relationships (Sakkab, 2002).

In knowledge exploitation, innovative capacity isrelated to matching inventions with the context oftheir final market (March, 1991). While a firm maygenerate many innovations from a limited amount ofnew knowledge, a firm may also lack the ability toexploit a large knowledge base that it has generatedand maintained. As knowledge may be exploredinternally or externally, innovative capacity alsorepresents the realized (i.e., exploitative) componentof absorptive capacity (Lane et al., 2006; Zahra &George, 2002).

With regard to external knowledge exploitation,desorptive capacity relates to outward technologytransfer, which is complementary to internal knowl-edge application in a firm’s own products. Afteridentifying external knowledge exploitation oppor-tunities, which is often considered the essentialmanagerial challenge, a firm transfers its knowledgeto the recipient (Lichtenthaler & Lichtenthaler,2009). Concerning knowledge exploitation, Procter& Gamble has encouraged its employees to identifynew application opportunities for its technologies inorder to strengthen its firm-level innovative capacity(Sakkab, 2002). Consequently, Procter & Gamble’snumber of new product introductions has increasedsubstantially in recent years, and its R&D produc-tivity has grown by nearly 60% (Huston & Sakkab,2006). In addition, the firm attempts to increasinglyexploit its technologies externally because it usesonly about 10% of its technology internally (Sakkab,2002).

Project-LevelDecisions

At the level of single innovation projects, a firmoften has the option to perform the critical knowl-edge management processes internally or exter-

nally. Regarding knowledge exploration, this issueis the make-or-buy decision (Cassiman & Veugel-ers, 2006). In knowledge retention, managers areconfronted with the integrate-or-relate decision,which describes the possibility of integratingknowledge into the internal knowledge base orrelying on interfirm relationships as an externalmode of knowledge retention. In knowledge ex-ploitation, a firm faces the keep-or-sell decision,which describes the issue of utilizing knowledgeinternally or transferring it to external partnersexclusively or in addition to its internal applica-tion (Lichtenthaler & Ernst, 2006). In one par-ticular project, the internal and external processesmay constitute substitutes. For example, a firmmay decide on the “make or buy” of one particulartechnology.

However, at the organizational level, the inter-nal and external organization of the processes areoften complementary, and firms usually do notmake either-or decisions (Cassiman & Veugelers,2006; Grant & Baden-Fuller, 2004). Instead, mostmedium-size and large firms simultaneously makeand buy in knowledge exploration, integrate andrelate in knowledge retention, and keep and sellin knowledge exploitation. This complementarityis emphasized in the conceptual open innovationliterature (Chesbrough, 2003; Chesbrough et al.,2006). The interfaces and interactions that derivefrom the assumed complementary relationshipsunderscore the firm-level coordination require-ments, which call for an integrative innovationmanagement (Lichtenthaler & Lichtenthaler,2009). Firms may partly compensate for lowerlevels of an internal process (e.g., internal knowl-edge exploration) by relying on the complemen-tary external process (e.g., external knowledgeexploration), and vice versa (Cohen & Levinthal,1990; Zahra & George, 2002). However, firmsusually cannot fully replace their internal activi-ties by opening up their innovation processes(Cassiman & Veugelers, 2006; Chesbrough,2006).

Concerning knowledge exploration, for in-stance, Procter & Gamble facilitated buy deci-sions in make-or-buy situations in single innova-tion projects based on the strategic principle thatexternal knowledge exploration was a specific ob-


jective of its innovation strategy (Huston &Sakkab, 2006). In a similar vein, relate choiceswere emphasized in integrate-or-relate decisionsby strengthening the portfolio of interfirm rela-tionships. Moreover, external knowledge exploi-tation was encouraged at Procter & Gamble.Based on the new policy for keep-or-sell decisions,basically all technologies of Procter & Gamblemay be licensed at the latest five years after patentgrant and three years after product market intro-duction (Sakkab, 2002).

Individual-LevelAttitudes

Besides firm-level capabilities and project-leveldecisions, a firm’s open innovation processes maybe strongly influenced by the attitudes of individ-ual employees. The role of these employee atti-tudes has been highlighted in the open innova-tion literature (Chesbrough, 2003). While earlierwork has concentrated on “not-invented-here” at-titudes in knowledge exploration (Katz & Allen,1982), Chesbrough (2003) suggested the comple-mentary concept of “not-sold-here” attitudes inknowledge exploitation. Our conceptual frame-work illustrates that further positive or negativeattitudes toward the critical knowledge manage-ment processes may be relevant in the contextof open innovation. These employee attitudesmay constitute important individual-level mi-crofoundations of the organizational capabili-ties. However, inappropriate attitudes may alsoinhibit the development of organizational capa-bilities (Gavetti, 2005).

In knowledge exploration, not-invented-hereattitudes describe a situation in which a firm’semployees have negative attitudes toward exter-nally exploring knowledge (Katz & Allen, 1982).These attitudes may derive from limited or nega-tive experience with inward knowledge transferand from inappropriate incentive systems (Ches-brough, 2003). To build up absorptive capacity atthe organizational level, for instance, Procter &Gamble set up incentive systems to reduce not-invented-here attitudes. In contrast, “buy-in” at-titudes refer to positive attitudes toward externallyexploring knowledge (Menon & Pfeffer, 2003).These positive attitudes may stem from the aimto reduce complexity, an underestimation of the

managerial difficulties of absorbing externalknowledge, and a lack of confidence in the firm’sown expertise. In other words, “The other person’sdessert always looks better” (Laden, 1996, p. 10).

Regarding knowledge retention, “not-connect-ed-here” attitudes refer to settings in which afirm’s employees have negative attitudes towardexternally retaining knowledge. These attitudesmay result from a lack of trust in the potentialpartners in interorganizational relationshipsand from an overemphasis on the managerialchallenges in interfirm collaboration. Evenmore important, however, may be confidential-ity considerations (Lichtenthaler & Ernst,2006). Therefore, Procter & Gamble encouragedindividual employees to consider external knowl-edge retention more actively (Sakkab, 2002). “Re-late-out” attitudes, in contrast, describe positive at-titudes toward externally retaining knowledge.These attitudes may derive from a strong internalfocus on a firm’s core competencies and a strongemphasis on flexibility. They may develop infields of high technological complexity and uncer-tainty (Lichtenthaler & Ernst, 2006).

In knowledge exploitation, “not-sold-here” at-titudes describe situations in which a firm’s em-ployees have negative attitudes toward externallyexploiting knowledge (Chesbrough, 2003). Theseattitudes may derive from the fear of strengthen-ing competitors by selling corporate crown jewels(Rivette & Kline, 2000). In particular, these atti-tudes are strengthened by limited experience withexternal knowledge exploitation and the ineffi-ciencies in the markets for technology (Licht-enthaler & Ernst, 2006). To facilitate the imple-mentation of its strategy by means of a strongdesorptive capacity, Procter & Gamble has takenseveral steps to reduce employees’ not-sold-hereattitudes, including establishing incentive systemsthat value the identification of licensing opportu-nities (Huston & Sakkab, 2006). In contrast,“sell-out” attitudes refer to positive attitudes to-ward externally exploiting knowledge. Althoughthese attitudes are relatively unlikely in light oflimited outward technology transfer in most firmsat present, these attitudes could derive from theaim to follow pioneering firms in active licensingand from financial pressure on the R&D and in-


tellectual property departments in some firms(Lichtenthaler & Ernst, 2006).

IntegratedPerspective

The difficulties of many firms in successfully man-aging open innovation processes underscore theneed to develop organizational capabilities formanaging these processes. The conceptual frame-work suggests that firms may influence their trans-action costs in innovation markets over time bydeveloping absorptive, connective, and desorptivecapacities. These capabilities enhance the man-agement of a firm’s innovation-related collabora-tions with external partners based on learningeffects (Cohen & Levinthal, 1990). Thus, theinternal or external organization of innovationactivities is not exclusively determined by trans-action costs, which are partly endogenous, andfirms may actively try to shape them. Instead,transaction costs and capabilities likely co-evolveover time (Jacobides & Winter, 2005).

Accordingly, firms need to address multipledeterminants at distinct levels, from the individ-ual to the organizational, to enhance their openinnovation management. For instance, Procter &Gamble strengthened its absorptive capacity bysetting up dedicated organizational structures andestablishing incentives for employees who initi-ated inbound open innovation transactions. Onthis basis, the firm reduced not-invented-here at-titudes, which had limited its absorptive capacity.Consequently, Procter & Gamble’s make-or-buydecisions at the innovation project level wereincreasingly made in favor of the buy option toacquire external knowledge (Huston & Sakkab,2006). This transformation of Procter & Gamble’sinnovation processes was successful only after thefirm considered the multilevel determinants ofopening up its innovation processes. An exclusivefocus on organization-level determinants wouldmost likely have been insufficient.

This example underscores the importance ofcross-level interdependencies in open innovation.By establishing specific management mechanismsand designing appropriate tools, processes, andstructures, firms may enhance their organizationalcapabilities for managing the different open inno-vation processes. However, the potential positive

effects of organizational design choices at a par-ticular level may well be limited by interveningfactors at other levels. Accordingly, managers andresearchers need to consider both top-down andbottom-up effects across multiple levels. For in-stance, the top-down effects of a corporate openinnovation strategy at the firm level may be im-peded by conflicting employee attitudes at theindividual level. In a similar vein, the bottom-upeffects of change management mechanisms to en-courage open innovation at the individual levelmay be limited if a firm does not develop criticalfirm-level capabilities because it lacks top man-agement commitment to open innovation.

In addition, firms often do not benefit imme-diately from establishing particular managementmechanisms for strengthening open innovation,such as new incentive systems (Lichtenthaler,2008). For instance, Procter & Gamble experi-enced an initial learning period of several yearsuntil its open innovation initiative provided sub-stantial benefits (Huston & Sakkab, 2006). Theconceptual framework helps illustrate that par-ticular management mechanisms, such as ideaevaluation tools, primarily strengthen a firm’sorganizational capabilities for managing openinnovation, which may in turn enhance perfor-mance. A firm’s performance does not increaseautomatically if particular open innovation mech-anisms are initiated, such as a new hiring policy.Instead, it increases as a result of learning effects,which need some time to materialize. Thus, themanagement mechanisms at multiple levels pri-marily help firms establish proficient processes,which enhance performance by facilitating capa-bility development.

In this regard, the framework helps understandthe distinct capabilities and skills that firms needto develop internally at multiple levels to becomesuccessful in implementing open innovation.Thus, it provides a systematic and integrative viewof the different tasks and processes that companiesneed to address to organize for open innovation.By systematizing the critical open innovation ac-tivities, the framework indicates how firms canbuild on their existing organizational processes tofacilitate the implementation of open innovationpractices. For instance, firms can rely on their


existing processes for managing strategic alliancesor technology licensing in order to ease successfulexternal knowledge exploration or exploitation.Thus, firms do not have to develop entirely newprocesses for managing open innovation. Instead,firms may integrate open innovation activitieswith their existing organizational processes to al-low for an effective and efficient transformationtoward open innovation.

The relative importance of the different openinnovation processes depends on a firm’s corpo-rate strategy and organizational culture. The moreimportant the processes are for innovation suc-cess, the higher the required level of the organi-zational capabilities is. There is not one single bestapproach to managing a firm’s open innovationactivities, which depends on internal and externalfactors (Lichtenthaler & Lichtenthaler, 2009).For instance, a strong intellectual property policymay facilitate or aggravate open innovation activ-ities depending on the particular situation (Alexyet al., 2009). Firms therefore need to develop theorganizational capabilities in alignment with theircorporate strategy (Chesbrough, 2006). If a firm’sstrategy is directed at internally developing radicaltechnological innovations, for example, the firmneeds to build up a strong inventive capacity toarrive at technological breakthroughs. Thus, deci-sions on investing in the capabilities need to beconsidered thoroughly based on a firm’s strategy,because investments independent of the internaland external environment do not necessarily in-crease innovation performance. Instead, a success-ful open innovation program requires fit among afirm’s strategy, organizational capabilities, andtheir determinants at multiple levels.

The conceptual framework further points tothe need to balance the development of the orga-nizational capabilities. For instance, the manage-rial challenges of external knowledge explorationand exploitation differ substantially. In externalknowledge exploration, firms need to identify suit-able technologies, whereas external knowledgeexploitation requires the identification of profit-able applications and potential markets for a firm’sown technologies. Thus, firms have to balance thedevelopment of the knowledge exploration, reten-tion, and exploitation capabilities. The framework

also emphasizes the importance of balancing theinternal and external processes, which may besubstitutes at the project level but are often com-plementary at the organizational level (Cassiman& Veugelers, 2006; Grant & Baden-Fuller, 2004).For example, inventive capacity is critical to de-velop prior technological knowledge, which al-lows a firm to identify suitable external knowledgesources based on its absorptive capacity. Mostfirms will be unable to completely refrain fromopen innovation, but they will usually also beunable to fully replace their internal activitieswith external activities because of the comple-mentary character of the internal and externalprocesses.

Accordingly, firms may well achieve benefitsfrom an organizational integration of open inno-vation processes. First, firms may capture synergiesby aligning the internal and external processes.For instance, the identification of markets for afirm’s technologies is similar in internal and ex-ternal knowledge exploitation. Second, firms maybenefit from aligning knowledge exploration, re-tention, and exploitation because an excessiveemphasis on one of the processes will most likelybe detrimental in the long term (March, 1991).An integrated approach to managing open inno-vation processes is difficult to observe and imitatebecause it is less obvious than the individual pro-cesses. Thus, competitors will profit only if theysucceed in imitating a firm’s entire open innova-tion processes. Consequently, successful open in-novation may be an important foundation forachieving a sustainable competitive advantage.

Agenda for FutureResearch

The previous sections have shown that there is astrong need for further research into open in-novation. Therefore, we establish a research

agenda based on the multilevel conceptual frame-work we developed above. Instead of pointing outa comprehensive list of research topics, we high-light some particularly important issues that de-serve attention in the near future. These issuesrelate to the following six broad fields.

First, we need a clearer understanding of thecharacteristics of open innovation. In this regard,we also need further insights into practices and


tools for managing open innovation processes. Arecent study provides interesting insights (van deVrande et al., 2009), but further work is needed tofully capture open innovation initiatives (Helfat,2006). While the conceptual framework high-lights knowledge exploration, retention, and ex-ploitation as critical processes, a better under-standing of the activities and tools underlyingthese processes is needed. For instance, externalknowledge exploration is often a complex processthat needs to be further systematized. In addition,interactions of these processes deserve particularattention (Lichtenthaler & Lichtenthaler, 2009).An example is the interaction of innovative ca-pacity and desorptive capacity in knowledge ex-ploitation processes. In addition, the internationaldimension of open innovation deserves furtheranalysis because many open innovation processesinvolve foreign partners (Muethel & Hoegl,2010), but cultural issues have been largely ne-glected so far.

Second, future studies may develop typologiesof innovation activities to identify some archetypeapproaches toward opening up the innovationprocess (Gassmann & Enkel, 2010). For instance,it would be interesting to examine relationshipsbetween opening up knowledge exploration andknowledge exploitation, such as cross-licensingtransactions (Grindley & Teece, 1997). In partic-ular, the link between open innovation and afirm’s corporate strategy and organizational cul-ture needs to be highlighted as a particularly fruit-ful avenue for further work. There are many dif-ferent degrees of openness that may be equallysuccessful depending on the internal and externalenvironment. Accordingly, it will often be impos-sible to provide a general answer to the question ofhow open a firm’s innovation process should be.Instead, a firm’s particular situation, especially itscorporate strategy and culture, needs to be con-sidered. As most firms are increasingly unable toconduct all innovation activities in-house, somedegree of openness is often inevitable. At thesame time, the importance of the internal pro-cesses, which are complementary to the externalprocesses, illustrates potential limits to open in-novation.

Third, the performance effects of open innova-

tion at the multiple levels of our framework are acritical field of study (Laursen & Salter, 2006; vande Vrande et al., 2009). The impact of opening upthe innovation process on a firm’s innovation andfinancial performance needs to be addressed forseveral reasons. On one hand, evidence for posi-tive performance effects will further demonstratethe legitimacy of open innovation as an importantresearch field. On the other hand, the analysis ofperformance effects is critical to offer a betterunderstanding to firms that attempt to profit frominnovation by specifically designing their innova-tion processes. For instance, future work couldexamine the performance effects of the six orga-nizational capabilities and employee attitudes de-scribed in our framework. These types of studiesmay also contribute to a better understanding ofthe benefits and risks of open innovation. Earlierwork has primarily examined potential benefits;the risks of open innovation have been largelyneglected. An example of a potential benefit isshorter development times based on externalknowledge exploration; an example of a risk is thedanger of strengthening competitors by sellingcorporate crown jewels in external knowledge ex-ploitation (Chesbrough, 2003; Rivette & Kline,2000). In particular, these studies need to considerpotential internal and external contingency fac-tors in the performance effects of open innova-tion. For instance, the appropriability regime andthe innovation markets, which differ considerablyacross industries, may be critical environmentalcontingency factors (Arora & Gambardella, 2010;Teece, 1986). On this basis, future research mayidentify important boundaries of open innovation.

Fourth, the determinants of successful openinnovation deserve particular attention. There issubstantial interfirm heterogeneity in capturingvalue from open innovation (Lichtenthaler,2008), and a deeper understanding of these inter-firm discrepancies is critical. Based on our con-ceptual framework, future studies may examinethe determinants of open innovation performanceat multiple levels. Analyses of individual-levelvariables may contribute to identifying micro-foundations of managing open innovation (Lau &Ngo, 2004). Project-level studies will deepen ourunderstanding of decision-making processes in in-


novation projects. Firm-level studies may provideimportant insights into the organizational capa-bilities for managing open innovation. In thisregard, future research may link the open innova-tion capabilities to formerly separated mecha-nisms, such as organizational culture, incentivesystems, and intellectual property strategies,which may affect a firm’s organizational capabili-ties for managing open innovation. Moreover, theunderlying drivers of opening up the innovationprocess deserve further analysis. While some po-tential drivers have been mentioned in earlierwork, such as increasing technological complexityand growing environmental turbulence (Ches-brough, 2003), a thorough understanding of thedrivers is essential to evaluate the performance ofopen innovation initiatives.

Fifth, there is a need for further work on allfour streams of open innovation research (i.e.,technology transactions, user innovation, busi-ness models, and innovation markets). In par-ticular, the management of technology transac-tions deserves further attention based on ourconceptual framework. It has to be emphasizedthat most prior open innovation research hasfocused on inbound open innovation (i.e., exter-nal knowledge exploration), whereas externalknowledge retention and external knowledge ex-ploitation have been relatively neglected. For in-stance, there is a clear research deficit concerningdesorptive capacity (Lichtenthaler & Lichtenthaler,2009). Moreover, research into user innovationhas provided important insights. Besides furtherwork on this topic, other external innovationsources, such as universities and suppliers, deservemore attention. In a similar vein, the identifica-tion of profitable business models in the contextof open innovation is an important research ave-nue. It could be particularly interesting to studythe relationship between outbound open innova-tion processes and different types of new products,such as radical product innovations (ColarelliO’Connor, 2006). Finally, research has only startedto examine innovation markets, such as innovationintermediaries. Along with the growing importanceof these markets in practice, further work into mar-ket mechanisms is needed, such as the role ofpatents (Bessen & Meurer, 2008; Ziedonis, 2008).

By integrating insights from these four streams ofprior research with the overall open innovationframework, researchers may achieve cross-fertili-zation effects that provide important new insights.

Sixth and finally, a better theoretical founda-tion of open innovation research is needed. Ourconceptual framework provides a first step in thisdirection. In particular, open innovation studiesneed to be sufficiently grounded in prior researchinto both open innovation and related fields.There is a lot to learn from earlier research intorelated topics, including user innovation and ab-sorptive capacity. A cumulative development ofopen innovation research that integrates earlierfindings is essential to arrive at a coherent body ofknowledge about open innovation.

While a lot of prior work is managerially ori-ented, more rigorous academic studies are needed.Besides a more thorough theoretical grounding,sufficient emphasis has to be paid to the empiricalresearch design. In particular, more longitudinalresearch is necessary to understand changes infirms’ innovation processes over time. For in-stance, longitudinal studies are critical to examinethe performance effects of open innovation be-cause some benefits and risks (e.g., strengtheningcompetitors through external knowledge exploita-tion) materialize only after some time. In addi-tion, longitudinal studies may help examine therole of a dynamic capability in transforming thesix organizational capabilities for managing openinnovation over time (Lichtenthaler & Licht-enthaler, 2009; Teece, 2007). This longitudinalperspective may be taken in both qualitative anal-yses (e.g., case studies) and quantitative analyses(e.g., surveys and secondary data examinations).Moreover, cross-level analyses based on the orga-nizational, project, and individual levels in ourframework are a particularly fruitful avenue forfurther work (Gupta et al., 2007).

Implications forManagementPractice

Besides clear suggestions for further research,this framework has direct managerial implica-tions. Above all, opening up the innovation

process may positively affect a firm’s innovationsuccess and financial performance if the open in-novation activities are managed effectively. Open


innovation is not an entirely new strategy in manyindustries, and prior quantitative research into theperformance effects of open innovation has onlybegun to emerge (Laursen & Salter, 2006; Licht-enthaler, 2008). However, the successful examplesof some firms, such as Procter & Gamble, suggestthat open innovation may be a sustainable trendand that it may provide the basis for achieving acompetitive advantage (Huston & Sakkab, 2006).Accordingly, open innovation may be an impor-tant means to extend a firm’s strategy space, and itmay help managers identify new opportunities andavoid competitive threats by enabling strategicinnovation.

To achieve the potential benefits of opening upinnovation processes, however, managers have toacknowledge the need to develop organizationalcapabilities to successfully manage open innova-tion. It is unrealistic to expect immediate perfor-mance increases as a consequence of opening upthe innovation process. The cross-level nature ofour conceptual framework illustrates the chal-lenges in managing open innovation. Conse-quently, managers need to address multiple deter-minants at distinct levels to facilitate thedevelopment of organizational capabilities. Thistransformation will usually require an initiallearning period, and anecdotal evidence suggeststhat managers should allow at least two to threeyears before the positive effects of open innova-tion practices materialize (Chiaroni, Chiesa, &Frattini, 2010; Huston & Sakkab, 2006; Licht-enthaler & Lichtenthaler, 2009). However, thedevelopment of firm-level capabilities may well beimpeded by opposing factors at the other levels.To avoid excessive initial learning periods, man-agers may try to build on a firm’s existing organi-zational processes and structures rather thanimplementing entirely new open innovation pro-cesses. By adapting a firm’s managerial processesfor alliances and other forms of collaboration,learning requirements may be reduced, and a moreeffective and efficient transformation toward openinnovation may be enabled. In particular, thealignment of open innovation with existing orga-nizational processes may reduce barriers that couldarise from cross-level interdependencies in inno-vation.

To facilitate the successful implementation ofopen innovation processes, managers may proceedalong the following stages. Initially, it will oftenbe beneficial to focus on a firm’s existing net-works, which can be further strengthened to ex-tract their full value for open innovation. Bycollaborating with similar partners in related in-dustries, managers may ensure some quick-winopen innovation deals that facilitate the organi-zational transformation by proving the benefits ofopen innovation. On this basis, managers mayextend and broaden their firm’s open activities toachieve additional opportunities (Chiaroni et al.,2010; Gronlund, Ronnberg Sjodin, & Frisham-mar, 2010). Then managers can address the effec-tiveness and efficiency gains that may be capturedby integrating the internal and external processesas well as the knowledge exploration, retention,and exploitation processes. After establishingthese organizational approaches, managers mayuse their firm’s enhanced organizational capabili-ties to achieve further cross-industry opportunitiesof open innovation. In addition, managers mayextend their own firm’s capabilities by collaborat-ing with innovation intermediaries. However,these external services may usually be used only asa complement rather than a substitute for a firm’sinternal capabilities for managing open innova-tion (Chesbrough, 2006; Lichtenthaler & Ernst,2008).

Implications forManagement Education

The open innovation framework has importantimplications for designing management educa-tion in the field of open innovation. Because of

the cross-functional character of innovation pro-cesses, it is worth considering insights from openinnovation research in various courses, includingtechnology and innovation management, market-ing, strategy, and organizational behavior. In ad-dition, management educators may design specificopen innovation classes and training sessions. Al-though open innovation will not constitute thecore topic of most classes, a broad range of stu-dents should be aware of its associated opportuni-ties and risks. In this regard, our conceptual frame-work may help structure management educationin the field of open innovation. In particular, prior


open innovation research underscores the follow-ing insights for management education.

First, students need to become aware of the factthat innovation is increasingly interorganizationaland that open innovation is a requirement ratherthan an option for many firms. An exclusive focuson internal innovation in management education(e.g., in marketing and innovation classes) wouldbe misleading because many firms now spend asubstantial portion of their overall R&D expendi-tures on open innovation.

Second, students need to understand the op-portunities for gaining and sustaining a competi-tive advantage based on a firm’s interorganiza-tional relationships. Open innovation may be animportant strategic move to profit from a firm’snetworks. For instance, it may help companies tofurther benefit from their particular internalstrengths, such as by generating additional reve-nues from licensing based on a strong technologyportfolio. In addition, open innovation may allowfirms to reduce the negative effects of potentialinternal weaknesses, such as cutting new productdevelopment time by acquiring technology from anetwork partner. These topics may well be inte-grated in existing corporate strategy courses.

Third, the cross-functional character of openinnovation processes, which goes considerably be-yond R&D, needs to be highlighted. This need toexamine open innovation across different organi-zational functions applies to general managementstudents, but it is also critical in targeted manage-ment classes for students in other disciplines, suchas engineering. For instance, awareness of theopen innovation framework may help reduce po-tential not-invented-here tendencies of futureR&D employees.

Fourth, our conceptual framework underscoresthat firms need to develop organizational capabil-ities for successfully managing open innovation.Accordingly, educators may address specific toolsfor increasing firms’ proficiency in managing openinnovation processes, such as tools for easing userintegration. In addition, it is worth addressingpotential barriers to the transformation of inno-vation processes, such as resistance to change.These issues are particularly worth discussing inorganizational behavior classes.

Fifth, students need to understand the differ-ences between value creation and value capture ininterfirm collaborations. For instance, an inter-firm technology alliance that is successful from analliance perspective does not necessarily lead toenhanced financial performance from the perspec-tive of the focal firm. Instead, firms need to ensurethat they profit from open innovation by usingbusiness models that are aligned with their openinnovation practices (Chesbrough, 2006). In thisregard, students may examine not only the role ofopen innovation in large high-technology firms. Itis also worth studying the role of small and medi-um-size firms and the importance of business mod-els for open innovation in service companies.These business model issues can be well integratedin existing entrepreneurship classes.

Finally, management educators need to pointout the important role of intellectual property,especially patents, in facilitating open innovation.In open innovation processes, patents often serveas an enabler of technology transfers and not onlyas a means to exclude competitors (Chesbrough,2003). Accordingly, management education mayplay an important role in helping firms fully ex-ploit the opportunities of opening up their inno-vation processes.

ConclusionandOutlook

Open innovation is a growing trend in manyfirms across industries. While most prior re-search and most management initiatives have

focused on external knowledge exploration, thetwo additional ways to open up the innovationprocesses—external knowledge retention and ex-ternal knowledge exploitation—are gaining in im-portance. Open innovation is not a recent trend.It reflects a longer evolution of many firms’ inno-vation activities. Thus, open innovation seems tobe a sustainable development rather than a man-agement fashion. For many firms, open innova-tion is a requirement and not merely an optionbecause they cannot do everything in-house. Theneed to open up the innovation process at least tosome degree will most likely intensify in the fu-ture. While firms often do not have any choiceother than to open up, firms differ in their abilityto capture value from open innovation. Accord-


ingly, firms need to develop particular organiza-tional capabilities for managing open innovationprocesses. Our conceptual framework has shownthat these capabilities are affected by determi-nants at multiple levels. For example, the devel-opment of absorptive capacity at the firm levelmay be aggravated by the attitudes of individualemployees. If employees display not-invented-here tendencies, the development of organiza-tional routines for enhancing absorptive capacitywill be difficult. In contrast, the successful devel-opment of these capabilities may allow firms tocapture the benefits while avoiding the risks ofopening up the innovation process. However,the development of organizational capabilitiesoften takes several years (Kale & Singh, 2009).It is therefore important to avoid unrealisticexpectations concerning the benefits from openinnovation.

In particular, academics and managers shouldnot oversimplify the implementation of open in-novation strategies. Besides establishing open in-novation strategies, firms need particular manage-rial capabilities, which differ substantially frominternal innovation capabilities. At the sametime, internal activities are critical becauseopen innovation usually does not result in acomplete outsourcing of innovation activities.Instead, a firm’s internal activities are critical todeveloping organizational capabilities for man-aging the collaborations with external partners.Consequently, interdependencies between in-ternal and external processes constitute a majormanagerial challenge. Most companies have be-come aware of the relevance of open innova-tion, although not all of them yet act accordingto these insights. Others, however, have not yetrecognized the importance and are in danger ofmissing substantial benefits.

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