Two dilemmas and one trap with open innovation

Abstract

In closed innovation (CI), each firm does R&D on its own; however, on the other hand, in open innovation (OI), companies use knowledge from external sources when necessary or let other firms use their proprietary technologies. Chesbrough (2003) pointed out the effectiveness of OI. OI is accompanied by (1) outsourcing dilemma that prevents a firm from getting a competitive advantage when rival firms can also gain the knowledge from same external sources, (2) integrator's dilemma, which occur when firms sell parts to assemblers that produce and sell the same product, thus becoming formidable rivals, and (3) modularity trap, whereby when it is necessary to redesign the total product structure due to radical product innovations, the firm which selected open modular architecture and OI cannot respond because knowledge has dispersed among firms. OI is not necessarily the most efficient choice when these dilemmas or traps exist.