Open innovation is a term promoted by Henry Chesbrough, adjunct professor, and faculty director of the Center for Open Innovation at the Haas School of Business at the University of California, in a book of the same name, though the idea and discussion about some consequences (especially the interfirm cooperation in R&D) date as far back as the 1960s.

The concept is also related to user innovation, cumulative innovation, know-how trading, mass innovation, and distributed innovation. “Open innovation is 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”.

Alternatively, it is “innovating with partners by sharing risk and sharing reward.” The boundaries between a firm and its environment have become more permeable; innovations can easily transfer inward and outward.

The central idea behind open innovation is that, in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (i.e. patents) from other companies.

In addition, internal inventions not being used in a firm’s business should be taken outside the company (e.g. through licensing, joint ventures, or spin-offs). The open innovation paradigm can be interpreted to go beyond just using external sources of innovation such as customers, rival companies, and academic institutions, and can be as much a change in the use, management, and employment of intellectual property as it is in the technical and research driven generation of intellectual property. In this sense, it is understood as the systematic encouragement and exploration of a wide range of internal and external sources for innovative opportunities, the integration of this exploration with firm capabilities and resources, and the exploitation of these opportunities through multiple channels.