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MANAGING KNOWLEDGE FOR INNOVATION 207

of new products to the markets. Chesbrough argues that, in the current era,
a number of factors have undermined the logic of Closed Innovation. These
include the following:

• dispersion of scientifi c and technological knowledge due to the mobility of
highly skilled workers;
• the growing presence of venture capital;
• the increasing role of user groups in the innovation process;
• the shortening of technology lifecycles.

Chesbrough suggests, along with others, that the current context of shorter
product life cycles and rapid advances in technology makes it harder for firms to
justify expending money on innovation. Open innovation can meet the require-
ments for innovation whilst keeping costs down by leveraging external R&D
resources, while at the same time securing revenue through various kinds of
partnering arrangements. Chesbrough defines open innovation as ‘a paradigm
that assumes that firms can and should use external ideas as well as internal ideas,
and internal and external paths to market, as the firms look to advance their
technology’ (Chesbrough, 2006, p. 1). This, he argues, requires a new business
model and redesign of organizational innovation processes. In the open innova-
tion model, then, projects can be launched internally or externally and taken to
market via a variety of different mechanisms, including traditional sales channels,
and also partnerships, spin-off ventures, outlicensing and so forth (Chesbrough,
2003a, b; Fredberg et al., 2008).
In moving towards this open model, firms are placing greater emphasis
on the acquisition of external knowledge, the greater role of users in co-
producing knowledge, and a more collaborative approach to the manage-
ment of intellectual property (von Hippel and von Krogh, 2003, 2006). The
development of partnerships, where partners are treated as peers in the co-
production process, not as ‘suppliers’ or ‘consumers’, is what makes open
innovation different to traditional outsourcing and market arrangements
(Chiaromonte, 2006). The key to managing knowledge for open innovation
hinges, then, on developing or enhancing networks capable of supporting
new forms of collaboration and knowledge flow. It also means exploiting the
different and complementary skills/roles of partner organizations (summa-
rized in Figure 9.5) rather than trying to do it all yourself, whilst securing a
share of the final profits.
An example of open innovation can be seen in Proctor and Gamble’s ‘ Connect
and Develop’ system. The goal of this was to achieve 50 per cent of innovations
being sourced externally by 2008 (from 20 per cent in 2000) using a range of
mechanisms including turning 80 R&D staff into technology ‘scouts’, using
electronic R&D networks (such as yet2.com), generating consumer-driven
innovation (through programmes such as ‘CoCreate’) and using retirees as a
source of innovation. As Sakkab Nabil, the VP of R&D put it: ‘The future of

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