The right knowledge management strategy is essential to open innovation
Firstly, I want to start with a statement:
“Open innovation is about knowledge exchange. Everything else is secondary.”
In light of this, an open innovation strategy, indeed any innovation strategy is predicated on having an appropriate knowledge management strategy. So my question is what does knowledge management have to say about promoting open (or other forms of external) innovation?
Michael H. Zack, a professor at Northeastern University in the USA is a prolific researcher and writer on the topic of knowledge management. His paper “Developing a Knowledge Strategy” (California Management Review, 1999, vol. 41, No. 3 (Spring)) is heavily cited (1255 citations according to Google Scholar – on 26 April 2011) discusses the importance of knowledge management strategy as part of the overall business strategy. The following is a review of the paper and a discussion of its applicability to open innovation.
In proposing a knowledge management strategy framework, he discusses two axes:
- the need to explore new knowledge vs. the opportunity to exploit existing knowledge
- internal vs. external knowledge sources
Explore vs Exploit
Adopting an explorative knowledge strategy is about creating or acquiring new knowledge. This position can be adopted when there is a gap between the knowledge you need to compete and the knowledge you presently have.
Adopting an exploitative knowledge strategy is possible when your needs exceed what is required to maintain your competitive position.
Zack states that these positions are not mutually exclusive and it is likely that a company will adopt both positions in order to exploit its advantage in one area and to bridge a knowledge gap in another. He says that exploration without exploitation is not economically sustainable, while exploitation without exploration is results in as he says, pumping a dry well.
Internal vs. External
Zack describes internal knowledge as being particularly valuable as it “… tends to be unique, specific and tacitly held.” Its strategic benefit is that it is difficult for competitors to imitate.
External knowledge is more abstract, expensive to acquire and is generally also available to competitors. When combined with unique internal knowledge, new insights can emerge. A benefit of joint ventures, he writes, is that the external knowledge obtained is tacit and not widely distributed.
Aggressive and Conservative knowledge strategies
Zack proposes a model (Figure 4 in the article) that places a company’s knowledge strategy on a graph that describes how conservative or aggressive a company’s knowledge strategy is. Of interest to open innovation is that he describes those companies that “closely integrate knowledge exploration and exploitation without regard to organisational boundaries” – what he calls unbounded innovators – tend to perform better than their competitors over time.
Applicability to open innovation
I think that what Zack is describing with aggressive, unbounded innovators are in fact companies that adopt open innovation practices. The term “open innovation” didn’t exist in 1999 when the article was written – Henry Chesbrough coined the term in 2003.
Zack describes early in the paper how knowledge that was once leading edge in an industry, over time becomes commonplace. Companies adopting a conservative approach to knowledge management view knowledge as a proprietary asset to be protected. They will try to prevent its diffusion into the industry at large. Companies like this are not going to adopt open innovation without significant cultural change. In contrast, companies adopting an aggressive, “unbounded innovator” knowledge strategy view knowledge as something that is fluid and cannot be contained by the boundaries of the company. They will actively seek to replace their knowledge. They possess a culture of learning and collaboration. These companies are open to open innovation, if they don’t already practice it.
Open models of innovation – it’s about the flow of knowledge
So open models of innovation (inclusive of crowd-sourcing, open innovation, and similar ideas) is about knowledge strategy and knowledge flows and despite what they are called, I think a primary distinction between the various models is in how knowledge flows in the exchange.
This topic deserves a post of its own but briefly, Chesbrough describes open innovation as “purposive inflows and outflows of knowledge to accelerate internal innovation…” (emphasis mine) This sounds different from the rhetoric surrounding crowd-sourcing, for example, in which the emphasis is on producing an open call for a discrete unit of work. In the case of crowd-sourcing, knowledge flows are into the business that puts out the call while that business’s knowledge remains largely private. Data and information may flow out of the business to the crowd-sourced partner/s (as in the case of Canadian miner Goldcorp’s Challenge who made available secret company exploration data of its goldfield for analysis with the aim of determining where to look for gold) but data and information aren’t the same things as knowledge. In comparison, Toyota partnered with TNT to create Transfreight. Transfreight is responsible for operating the cross-docks that Toyota uses to optimise parts delivery. (Liker 2004, 206 – 208) TNT used its knowledge of freight and its infrastructure and Toyota imbued this with the Toyota Production System to create a new company responsible for managing the supply of parts to Toyota.
Liker, J. K. (2004). The Toyota Way. New York, USA: McGraw-Hill.
Zack, M. H. (1999). Developing a Knowledge Strategy. California Management Review, 41(3), 125-145.