THE CONSTRUCTION OF OPEN INNOVATION PARADIGM
A Perspective from the Knowledge Management
Sun Xin and Wang Qian
School of Humanities and Social Sciences, Dalian University of Technology, No.2 Linggong Road, Dalian City, China
Keywords: Open innovation, Knowledge, Closed innovation, Construction.
Abstract: In a highly competitive time, innovation is the foundation and necessary conditions which keep the ability
of manufacture competition and survival. But innovation is a high failure rate and high-risk activity with
market and technical uncertainties. With the rapid development of science and technology and rapid change
of customers’ demand, the traditional closed innovation paradigm can not maintain the competitive
advantage of company. In this situation, a new innovation paradigm-open innovation comes out and
compensates the disadvantages of closed innovation. In the open innovation paradigm, companies can
obtain external knowledge resources to improve the ability of knowledge management. From the
perspective of knowledge management, this paper analyzes the characteristics of open innovation paradigm
and the relationship between open innovation and knowledge management. According to the analysis result
this paper will put forward some useful suggestions about how to construct of an effective open innovation
paradigm.
1 INTRODUCTION
For years, the logic of closed innovation was tacitly
held to be self-evident as the "right way" to bring
originality to market and successful companies all
played by certain implicit rules
(Chesbrough, 2006).
But With the rapid development of science and
technology and rapid change of customers’ demand,
the traditional closed innovation paradigm can not
maintain the competitive advantage. Only depending
on a company’s own ability to accumulate
knowledge to innovate can be hardly to adapt to the
rapid changed demand of market. Most innovation
resulted from borrowing rather than invention
(Cohen, 1990). The ability to acquisition external
knowledge has been the key factor of successful
operation for companies (James, 1996).The
traditional closed innovation paradigm has been
already difficult to continue functioning in a lot of
industries. In this situation, a new innovation
paradigm-open innovation which can attract external
knowledge and originality flow into a company
comes out and has gradually taken the place of
closed innovation paradigm.
The open innovation paradigm is brought out by
the American scholar Henry Chesbrough and has
received increasingly attention in scientific research.
But so far most of the research basically focuses on
the nature and the influencing factors of open
innovation drawing on in-depth interviews and case
studies (e.g. Chesbrough, 2003; Kirschbaum, 2005).
Few studies have demonstrated that the open
innovation paradigm has its special application
scope. Because of the differences in nature, products
and environment, not all of the companies are
suitable for open innovation paradigm. So it is
meaningful to analyze the scope of application of
open innovation paradigm to instruct the choice of
appropriate innovation paradigm.
Moreover, all of the research focuses on very
specific industries, for example open source
software (Henkel, 2006) or tabletop role-playing
games (Lecocq and Demil, 2006). Whenever large
samples of enterprises are explored, the focus is on
specific issues rather than the full open innovation
paradigm (e.g. Laursen and Salter, 2006;
Chesbrough, 2003). With the increasing role of
knowledge in the innovation process, to realize the
relationship between open innovation and
knowledge management and put forward generally
applicable method to construct open innovation
paradigm for most companies are problems that
needed to be solved at present.
401
Xin S. and Qian W..
THE CONSTRUCTION OF OPEN INNOVATION PARADIGM - A Perspective from the Knowledge Management.
DOI: 10.5220/0003472304010406
In Proceedings of the 13th International Conference on Enterprise Information Systems (ICEIS-2011), pages 401-406
ISBN: 978-989-8425-56-0
Copyright
c
 2011 SCITEPRESS (Science and Technology Publications, Lda.)

So this paper will analyze the application scope
of open innovation and the relationship between
open innovation and knowledge management.
According to the analysis result this paper will put
forward some useful suggestions about how to
construct of an effective open innovation paradigm
to develop knowledge management.
2 OPEN INNOVATION
2.1 The Principle of Open Innovation
Open innovation has been proposed as a new
paradigm for the management of innovation
(Chesbrough, 2003; Gassmann, 2006). It is an
opposite innovation paradigm of the traditional
innovative independent model which now is called
closed innovation paradigm. It is defined as “the use
of purposive inflows and outflows of knowledge to
accelerate internal innovation, and to expand the
markets for external use of innovation,
respectively.” (Chesbrough teal., 2006).
Open innovation means that companies can use
external knowledge and originality as well as
internal knowledge and originality, and internal and
external paths to market as well. Open innovation
emphasize the role of other departments besides
internal R&D department, emphasize R&D
collaboration with outside business units, emphasize
integrating internal and external knowledge, and also
emphasize outside distribution to market(Jin Chen,
2005). Open innovation principles therefore describe
how to deal best with strategic assets in order to
meet market demands and company requirements
(Oliver Gasman, 2004).

Figure 1: The closed innovation paradigm.
Figure 2: The open innovation paradigm.
In order to make further analysis about the nature
and characteristic of open innovation paradigm, we
compared the two paradigms to let the readers
understand the basic meaning of open innovation
paradigm. Figure 1 and Figure 2 display the
structures of two paradigms.
Under the closed innovation paradigm the
originality comes from inside and flow only by the
inbounds of the enterprise. Under the open
innovation paradigm, the originality may come from
inside and outside because the boundary of
companies will no longer be closed. The originality
will not flow unidirectional inside of the enterprise,
but interpenetration between the internal and
external world. This originality may enter the market
through internal channel or may enter other markets
through external channel too. Table1 shows the
difference between two paradigms and it will help us
know open innovation more clearly (Henry
Chesbrough, 2003).With open innovation paradigm,
companies can acquire all kinds of resources they
needed from outside and advance the innovation
capabilities. Enterprise becomes open, cooperative,
dynamic integration more and more to make full use
of resources internally and externally (Jin Chen,
2005). So it is very useful for most enterprise to
understand this new innovation paradigm and
construct open innovation paradigm successfully.
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Table 1: Differences between closed innovation and open
innovation.
Characteristics of closed
innovation
Characteristics of
closed innovation
All of the smart staffs
work for us in this field.
All of the smart staffs
work for us in this field.
To obtain interest from
R&D we must create and
invent by ourselves
To obtain interest from
R&D we must create
and invent by ourselves
If we carry on the
innovation research, we
will be the first to bring
our new products into
market.
If we carry on the
innovation research, we
will be the first to bring
our new products into
market.
The companies that turn
technology into the
products first will be
winning in the
competition.
The companies that turn
technology into the
products first will be
winning in the
competition.
If our originality is the
best in our industry, we
can prevail over
competition
unquestionably.
If our originality is the
best in our industry, we
can prevail over
competition
unquestionably.
If we keep our
intellectual property
firmly, our rivals will be
unable to get profit from
our innovation.
If we keep our
intellectual property
firmly, our rivals will be
unable to get profit from
our innovation.
2.2 Scope of Application of Open
Innovation Paradigm
With the development of economic globalization,
the communication and cooperation among
companies become more and more frequent, so the
open innovation paradigm seems to have advantages
compared with closed innovation paradigm. But not
all industries should abandon the closed innovation
paradigm and not all industries are suitable to
construct open innovation paradigm. Although under
the present economic environment, the applicable
scope of the open innovation paradigm is more
extensive than the closed innovation paradigm, open
innovation is not useful for all industries. Different
industries are suitable for different innovation
paradigm according to their characteristics of R&D
and innovative environments.
The external environment and the research
characteristic of an enterprise determine whether it is
suitable for the open innovation paradigm. The key
factors that influence the selection of innovation
paradigm of companies are showed in figure3
(Darrell K. Rigby, 2002). It includes power of
innovation, capital resources of innovation,
universality of innovation, fluidity of knowledge
workers, competitive pressure of industry and
fluctuation of the market.
Figure 3: Six factors of the selection of open innovation.
From Figure3 we can find out that the scope of
application of open innovation is limited certainly.
The companies or industries that suit for this
paradigm have certain similar characteristics. For
example, if one industry has many capital resources
of innovation and the universality of innovation
among this industry is high, the companies in this
industry are suitable for applying the open
innovation paradigm. Therefore when companies
choose innovation paradigm they must first consider
these six factors from their own industries so that to
sum up their own characteristics and choose the
innovation paradigm that fits best.
3 OPEN INNOVATION AND
KNOWLEDGE MANAGEMENT
3.1 Innovation and Knowledge
Companies rely on their ability to create new
techniques or to improve their business processes in
order to succeed in the market. This ability is based
on the knowledge within the company represented as
the individual knowledge of every employee and the
culture within the organization. The organization
THE CONSTRUCTION OF OPEN INNOVATION PARADIGM - A Perspective from the Knowledge Management
403

structure, the culture and the people determine the
way a company does business and thus the
company’s knowledge. Different approaches deal
with knowledge representation and knowledge
transfer within a company.
A basic result in this field of research is the
unease of spreading or reusing knowledge as a basis
for innovation. This applies not only to diffusion
processes within organizations, but is even more
important on an inter-organizational level. The
concept of “cognitive distance” has been developed
to deal with this problem. Companies which do not
already share any knowledge about markets or
technologies must make great efforts to
communicate and to exchange originality. Spill-over
effects as an unwanted form of sharing knowledge
between different organizations are facilitated by
having the same historical background or a kind of
“cultural” closeness(
Hullmann, 2001). Under the
aspect of an evolving company as part of an
evolutionary economy, bounded rationality and
cognitive distance lead to a determined development
of their knowledge assets. Organizations stay in their
“track” as a result of these constraints and the
development is specified as path-dependent. This
does not warrant successful decisions “while coping
with surprises in the unfolding of history” (
March,
1991
).
3.2 Open Innovation and Knowledge
Management
Open innovation follows along tradition of studying
the processes of innovation and stands on the
shoulders of many previous scholars. Acquisition
external knowledge is a very important component
of knowledge management. To obtain external
knowledge can maintain a competitive position on
the long term radical innovation. To develop new
product or service, companies must to accumulate
enough knowledge and the open innovation is a very
efficient way to acquisition external knowledge.
Nathan Rosenberg asked the question, why do
companies conduct basic research with their own
money (Rosenberg, 1994), and answered that this
research enhanced the firm’s ability to use external
knowledge. There are four main external sources of
useful knowledge in the open innovation paradigm:
(1) suppliers and customers; (2) university,
government and private laboratories; (3) competitors
and (4) other nations. Companies can construct
cooperate network with these organization and
persons as a mean of incorporation external
knowledge into the innovation processes. So we can
say that: the external knowledge plays at least equal
role to internal knowledge in the open innovation
paradigm of companies. The open innovation
paradigm can help companies to acquisition useful
external knowledge effectively.
4 CONSTRUCTION OF OPEN
INNOVATION PARADIGM
At present, the open innovation gets more and more
attention from many countries all over the world.
But at the same time, the malignant competition
among companies and the phenomenon of repeated
R&D input are universal. The traditional closed
innovation occupies the leading position in most
companies. The closed innovation paradigm leads to
waste of innovation input. Much originality is died
inside of organization and do not make any profit for
the organization. Therefore it is urgent for
companies to develop the open innovation paradigm
to obtain external knowledge and to improve the
present situation of knowledge management and
innovation.
With regard to the real conditions of innovation
in China, the open innovation paradigm provides a
good opportunity to improve technological
innovation capabilities and competitiveness.
However, open innovation does not just happen. It
requires changes in corporation culture and must be
driven from the top (Henry Chesbrough, 2004). This
article will put forward some suggestions of how to
construct the open innovation paradigm in the
Chinese companies.
4.1 Establish Open Psychology among
Organization Members
Once companies decide to develop the open
innovation paradigm, they must first make the
internal members of organization understand and
approve this new paradigm. Only when the
organizational members realize the real essence and
advantage of this paradigm can the open innovation
paradigm be construct and develop successfully. The
barriers that handicap the fluxion of originality will
be clear up when the organization members’ open
psychology established.
In order to establish open psychology among
organization members, companies should first
realize the essential organizational diversification at
first, for instance the diversification of organization
structure and the scope of R&D. The essential
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diversification will help the enterprise cope with the
flexibility and complexity of the competition
environment by integrating the information rapidly
and insure that the innovation of organization can
reach the requirement of the levity environment. The
originality will flow freely inside and outside the
organization and the enterprise will not falling into
the self-close state.
Secondly, the top manages should impel staff to
study external knowledge constantly by all useful
methods. Because only by studying, can the staff
understand the complexity and levity of the external
environment? With the new knowledge and
information the staff can make correct forecasting of
the environment and can develop more innovations
correspondingly. In order to create superior study
and R&D environment for staff, companies should
not only offer material conditions and learning
opportunities for them, such as meeting room,
laboratory, relevant materials database, but also need
encourage them constantly to promote the initiative
of study and research.
4.2 Set up the Special Innovation
Group
The companies that choose constructing open
innovation paradigm must set up one powerful
central organization which can be used to train some
experts engaged in innovation trade. This central
organization is call special innovation group. The
experts that are elaborately trained by innovation
group need the skills and knowledge about laws,
contract, patent authorization, making investment
and strategic alliance. All of the knowledge is
necessary for open innovation construction and
development. Innovation group takes charge of the
collection of originality whether they come from
inside or outside. Another responsibility of the
special innovation organization is to evaluate
technicality and commerciality of this originality. If
the originality have good market prospect the
organization should serve relevant resources such as
manpower, fund, technology, and apparatus for the
further development of these originality. In addition,
special innovation group is also responsible for
transferring the inside intellectual properties that are
not adopted temporarily to whom need the
originality, so these intellectual properties can also
bring profit for enterprise.
The special innovation group should use rational
and proper method to evaluate this originality. The
effective method is that the group should first carries
on the assessment carefully to each originality and
has a long talk with the originality initiator to master
the basic idea of the originality, then refers the
originality and essential implementation to relevant
top managers. By this way the possibility that the
originality is accepted by top managers will be
greater.
4.3 Set up Open Innovation Operating
Mechanism
The companies which implement the open
innovation strategy should define their own key
ability and developing direction consistently.
According to the developing direction, companies
can make one's own long-term Innovation Road
Map. Secondly, the implementation of Innovation
Road Map must adopt open originality which
absorbs strength to accelerate the realization of
Innovation Road Map without considering the
strength comes from inside or outside. This open
originality will help the enterprise invent the open
innovation paradigm quickly. Third, open innovation
operating mechanism must have the relative
organization mode to support this operating
mechanism. The main organization modes that
companies can apply are showed in Figure4.
Organization
mode
Buy the patent and
technological
ownership
invest in the
project of the
research institution
establish the
research alliance
establish the joint
venture
Figure 4: The main organization modes of open innovation
operation mechanism.
4.4 Implement the Control Measures of
the Risks
Because the open innovation paradigm is a loose,
flexible innovative paradigm and is implemented
under the relatively open environment, it possesses
the risks that the closed innovation paradigm doesn’t
have. Therefore it is necessary for the companies
which choose constructing the open innovation
paradigm to take essential measures of risk
avoidance to prevent this kind of risks from taking
place. We can avoid the emergence of this kind of
risks from several following respects. The first
THE CONSTRUCTION OF OPEN INNOVATION PARADIGM - A Perspective from the Knowledge Management
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measure is to improve the management of internal
human resources and standardize the personnel rules
and regulations. This measure will be helpful to the
stability of organization structure and will prevent
the loss of core research staff. Secondly, the
companies should strengthen their early assessment
ability of originality’ commercial potentiality and
evaluate all potential commercial potentiality of
“flows out” and “flows into” originality, so that they
can avoid the commercial losses. Third, enterprise
should establish Venture Capital Company engaged
in the investment management of new “flow out”
and “flows into” originality. Finally, in the
environment of knowledge diffusing quickly, the
companies should improve their management ability
of intellectual property to promote the control ability
of leakage risk about enterprise's knowledge and
technology and obtain certain profit through
technological transfer and protection of intellectual
property right.
5 CONCLUSIONS
Open innovation paradigm can improve the ability
of knowledge management and construct
competitive advantages of a company. Open
innovation brings many benefits to promote external
knowledge acquisition capability and innovation
capability of most companies. Compared with the
traditional closed innovation paradigm, it has much
wider application scope in present economic
environment. But we must remember that not all
industries and companies are suitable for the open
innovation paradigm, this paradigm has its special
application scope which is influenced by many
factors. Therefore when companies choose
innovation paradigm they must first consider these
factors from their own perspective.
Once companies choose the open innovation
paradigm they should take a series of measurements
to construct and develop the innovation paradigm.
These measurements include: establish open
psychology among organization members, set up the
special innovation group and open innovation
operating mechanism and implement the control
measures of the risks. Besides these measures that
the companies need take by themselves, the
government should improve the legal environment
to benefit the construction of open innovation and
provide a proper environment for the development
of open innovation paradigm.
This paper analyzes the application scope of
open innovation and the relationship between open
innovation and knowledge management. According
to the analysis result this paper forwards some
generally applicable suggestions about how to
construct of an effective open innovation paradigm
to develop knowledge management. So this paper
made up the research deficiency currently in
technological innovation.
Because of limitations of space and time, we
have not analyzed the repetitive R&D in
technological innovation process, so how to apply
the open innovation paradigm to resolve the problem
of repetitive R&D will be an important direction for
our future studies.
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