Impact of Open Source on Open Innovation

23 Feb 2012 Sandeep Mehta

McKinsey Quarterly talks about the impact of IP (particularly Open Source development) in a somewhat confusingly titled article (Managing the business risks of open innovation):

“… after all, who would give away patents to make more money from innovation? But as open-source innovation, “crowd sourcing,” and engaging with open communities become increasingly prevalent, could IP-free zones appear in the competitive landscape of other industries? “

Open Innovation is not the same thing as Open Source.  As we have discussed in the past, Open Innovation implementation is quite challenging. A key risk involves sharing product development plans in details to identify and incorporate innovation into a delivered product.  This is hard to do while maintaining IP ownership rights.  One approach to overcome these constraints is to work in Open Source or Shared IP environment.  The McKinsey article calls this Open Competition (do we really need another buzzword?).  They have evaluated various industries for the potential of Open Source development by asking three questions:

1.Do specialized firms offer proprietary solutions within certain layers of my industry’s value chain?
2.Do integrated firms seek to cut development costs in my industry by drawing on open technologies to substitute for these proprietary solutions?
3.Are the underlying technologies complex—consisting of so many bits and pieces that a significant number could inadvertently infringe on proprietary IP held by specialized firms?

 Their results are summarized in the following graphic:

The overall message is pretty intuitive.  However, my key message for R&D managers remains that open innovation is hard to implement.  In a few industries (such as software), it may be possible to ease implementation by using open source.

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