Research Paper on Open Innovation: Unlocking Value from Collaborative Innovation

Introduction

For the past decade, open innovation has been gaining unprecedented attention in both academic and business practice. Chesbrough introduced the concept of open innovation when he wrote the book "Open Innovation: The New Imperative for Creating and Profiting from Technology" in 2003 (West, Salter, Vanhaverbeke and Chesbrough, 2014). According to Chesbrough, open innovation is the use of purposive inflows and outflows of knowledge to accelerate innovation and expand the markets for external use of innovation, respectively (Chesbrough, 2003). He means that open innovation is the process by which organisations can make use of internal processes together with external ideas to grow. Chesbrough came up with this idea because there was a lack of useful ideas and advice in academia to assist businesses to improve their innovative strategies. Therefore, open innovation was developed to help organisations reinforce the creation and commercialisation of their innovations (West et al., 2014). The concept is not only used in literature research today but also in business practice to reinforce innovation strategies.

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Open innovation helped to shift from the traditional logic of Research and Development (R&D), whereby innovation was believed to take place within the boundaries of an organisation. However, this does not mean open innovation deviates from traditional R&D practices completely. On the contrary, firms operating under open innovation integrate traditional R&D with current technologies (West et al., 2014). The integration gives firms an advantage on ideas because, unlike the past, the current business environment has an influx of highly educated individuals. The presence of experts in the field creates a vast amount of knowledge outside a company's research laboratory and its knowledge. Undoubtedly, several researchers recognise R&D labs as open systems where innovation relies on the external environment to borrow ideas and intelligence (West et al., 2014). Hence, open innovation is currently understood as a practice that helps dispel the reasoning that innovation only takes place within the firm.

Open innovation is also currently understood as a practice that helps to integrate innovation with technology. In his book, Chesbrough says, due to the emergence of the internet in the 1990s, there was a growing interest in technology to boost an organisation's productivity (West et al., 2014). Today, open innovation is taken as a serious business practice, especially in supply chain management, where integration requires the input of new technology to replace obsolete ones (Linton, 2018). Furthermore, with the development of new technologies, including artificial intelligence (AI), biotechnology, and autonomous vehicles, there is a need to allow external ideas in innovation research (Linton, 2018). Therefore, open innovation has gained tremendous popularity, because it has led to the realisation that active research of new technologies outside a firm boosts innovation better than solely relying on internal ideas.

In addition to reinforcing traditional R&D practices and integrating innovation with technology, open innovation has promoted economic growth in local governments. Open innovation has allowed the exploitation of current and new knowledge, and this has made information accessible to the public (Dezi, Pisano, Pironti, and Papa, 2018). The accessibility of information by both individuals and organisations has created a smart city, to mean an environment where knowledge is on an open platform. However, the term smart city has only been limited to urban cities because they are considered more innovative due to their development of sophisticated amenities (Dezi et al., 2018). Urban cities boost certain advanced innovations that can be considered as smart. The tenets of open innovation recognise smart cities as places where knowledge flows with ease. It also describes smart cities as places where governments are constantly aiming at promoting technological advancement, developing better facilities, and supporting local businesses (Dezi et al., 2018). Therefore, smart cities do not necessarily have to refer to urban cities, but places where innovation is constantly fostered outside organisational boundaries. In this regard, this paper aims to understand open innovation as it relates to local governments or municipalities and its economic impact.

Open innovation has been a focus in almost every sector of the economy, including industrial, technological, and management sectors. Despite vast research on open innovation in these sectors, there has been a limited focus of innovation in the public sector. However, improvements have been noted because of recent efforts governments in different countries have been making to modernise public services (Gonzalez, Llopis, and Gasco, 2013). Governments all over the world have recognised the need to apply open innovation strategies to keep up with the demand for better services. In the public sector, open innovation can include the practice of transparent governance like the case of Australia, Canada, Belgium, and Brazil (Leitao, Alves and Pereira, 2016). Open innovation can also refer to the sharing of information technologies to allow citizens' participation in certain decision-making processes. When a government promotes open initiatives, it can easily reach out to citizens and other stakeholders to foster the development of the economy (Leitao et al., 2016). Innovation approaches being adopted by most governments, encompass the acquisition of both internal and external knowledge used differently across levels of government (Gonzalez et al., 2013). It means that, while the national government deals with graver matters such as foreign policy, the local government is charged with the role of reinforcing development.

At the local government level, innovation is considered a vital tool for development. This is because citizens depend on municipalities for all basic services. Innovation has also been necessitated in municipalities because of the ever-growing population and demand for improved service delivery (SALGA, 2015). Innovation has been lagging in some municipalities, especially those in rural areas. South Africa faces poor innovation development due to poverty and inequality challenges. These challenges arise from the country's apartheid history in combination with a growing middle-class community (SALGA, 2015). However, these challenges can easily be overcome using open innovation to create smart cities. It would mean creating places where knowledge is shared publicly and inviting innovation ideas from abroad. For instance, the City of Tshwane (SA's administrative capital) has been borrowing from Amsterdam's innovation strategy of integrating intellectual and research capacities in universities. In 2009, the city launched the e-Health Project that aimed at providing better healthcare services by integrating Information Communication Technology (ICT) to the sector, to help gather knowledge from outside organisations (SALGA, 2015). Given this, it is the purpose of this study to explore open innovation in the context of local government (municipality) and its economic impact using the city of Tshwane, South Africa as the case study.

Literature Review

The Origin and Development of Open Innovation

Open innovation is the most used concept in innovation management today. It is estimated that a search of the term 'open innovation' on Google Scholar yields over two million entries, with Chesbroguh's book being cited over eighteen thousand times (Huizingh, 2011). Hence, open innovation has attracted much interest in research since its inception by Chesbrough in 2003. Open innovation is the transition of focus from working within R&D labs to extending boundaries by outsourcing knowledge and technology (Chesbrough, 2003). It means that open innovation advocates the use of internal and external ideas to promote growth (Bogers, Chesbrough, and Moedas, 2018). The integrative approach promotes diversity in development.

It must be noted that, while open innovation advocates for the outsourcing of information, it relies on is predecessor, closed innovation. Closed innovation is the situation where companies rely on internal ideas to develop and launch new products or services (Huizingh, 2011). The closed innovation method is not entirely bad for a firm, but as Chesbrough (2003) suggests, the process is difficult to implement because of changing trends in social and economic sectors. These trends include technological advancements such as the Internet, increased labour expertise, and availability of platforms to share trading ideas fueled by globalisation (Huizingh, 2011). Other factors including the rise of social media, the development of start-up enterprises, access to venture capital (VC), and the progress of ICT (Bogers et al., 2018) add. Due to these factors, it has become paramount to combine traditional R&D practices with open innovation to capture more value form innovation.

Open innovation is categorised into two, namely, inbound (outside), and outbound (inside) innovation (Bogers et al., 2018). Inbound open innovation is the utilisation of other individuals' ideas and collaborating with other firms to access knowledge and use it to enhance innovation and performance (Naqshbandi, Tabche and Choudhary, 2019). Inbound innovation describes a situation where a firm benefits from using outside ideas to improve its innovative capacity. On the other hand, outbound innovation describes the process where companies go beyond their boundaries to search and exploit external knowledge and technology (Naqshbandi et al., 2019). The process involves activities like selling of intellectual property rights and duplicating external technology into the internal environment to acquire feedback or reviews. Such activities can be risky since they can reduce a firm's competitive position in the market (Naqshbandi et al., 2019). As a result, outbound open innovation requires the development of skills that empower companies with ideal ways to diffuse and use knowledge.

Benefits of Open Innovation

The development of open innovation has advanced and led to the establishment of companies seeking to outsource and share knowledge with others (Yun and Cho, 2014). The famous InnoCentive is an example of a company that uses open in the United Kingdom. InnoCentive is open on their use of open innovation and refers to people who propose problems as 'seekers' and those who provide solutions as 'solvers' (Yun and Cho, 2014). The company has obtained exponential growth as a crowdsourcing platform. Crowdsourcing is the process of inviting the public to participate in the production process, to boost the quality of products or services. Therefore, InnoCentive works as an open innovation company by gathering knowledge from consumers and integrating it into its current projects (Yun and Cho, 2014). Another exemplary company is ESRI, which is located in the US and provides geographic information systems to well-known companies such as Nike, Intel, Cisco, Nokia, and Microsoft (Sisodiya, Johnson and Gregoire, 2013). Other companies around the world have adopted the use of open innovation to enhance the quality of production and delivery of goods/services. Additionally, some companies have been started to offer open innovation inputs such as ideas, knowledge, and technologies (Sisodiya et al., 2013). Therefore, open innovation has not only boosted the performance of exist...