Antti Hautamäki: Open innovation networks challenge the supplier-centred innovation system

The Finnish national innovation system evolved at a time when innovations were usually produced in individual companies as a result of their own R&D activity. Other companies as well as clients and end-users were excluded from this process. The producers of an innovation were usually granted exclusive rights to it.

This closed innovation model has in recent years been challenged by many, for example, by Professor Henry Chesbrough, who has developed an open innovation paradigm. In his paradigm, the innovation process is shared by various knowledge producers. A company makes use of both external and internal knowledge. It is also prepared to sell or disclose its inventions at different stages of the development process. Although many companies have in fact for years employed this paradigm, it is not uncommon that they still lack the ability to manage an open innovation process.  

Another trend challenging the traditional model is the growing significance of innovations created by end-users. As Professor Eric von Hippel from MIT shows in his book Democratizing Innovation, a growing number of innovations are created when users themselves begin to upgrade and develop products or use them in new ways. Particularly crucial in this sense are the ‘lead users’, or the trendsetters. Tools developed by surgeons, for example, have turned into great hits. However, the ability of a company to exploit user innovations is still poor, according to von Hippel.  

The way in which user insights spread does not follow the conventional logic of commodity production. In many cases, users openly tell about their inventions to their colleagues and contacts.  A case in point is the Linux operating system, one of the many open-source products readily available. Anyone has free access to the source code and is welcome to develop it further. A community-based process such as this, which is not based on proprietary rights, will spread rapidly.  

Towards a networked knowledge economy  

We seem to be heading towards a networked knowledge economy, where innovation processes are distributed. This trend is accelerated by the use of ICT. Innovations are increasingly being created within various networks involving experts, users, communities and companies from all over the world.

The shift towards open innovation networks challenges the traditional innovation system, in which there is one company, the owner of the innovation, in charge of the process. This is reflected in property rights issues.  The strong property rights of the innovator are justified based on their being an efficient incentive for R&D investments. The point of property rights is to prevent anyone else from utilising the innovation and in this way secure the innovator’s profits. While the success of companies increases national wealth, as a downside, strong property rights may undermine the overall benefits of knowledge capital created through public funding. 

The open innovation paradigm emphasises the nature of knowledge as a public commodity, a common good, which should serve all of society. A significant portion of future innovation activities is likely to take place within networks in which companies play just one part. Innovation activity is essentially co-operative, and people should be prepared to share the benefits. Competencies, property rights and innovation funding should be developed to meet the requirements of new operative models so that the innovation system would continue to support a country’s competitiveness in the future.  

Antti Hautamäki