How open innovation affects the drivers of competitive advantage

Abstract

Purpose This paper aims to explore how community‐controlled open innovation affects cost‐ and differentiation‐based competitive advantage, and to explain how it allows some sources of economic rent to remain while others are taken away. Although models of competitive‐advantage remain relevant, open innovation means that the main drivers of performance are changed. Open innovation means that there are implications for firms' ability to profit from intellectual property that they do not own. The paper seeks to address those issues. Design/methodology/approach The work is conceptual. Findings Economic rents from property rights disappear, those from economies of scale and capital requirements are reduced, but those from experience‐curve effects, differentiation, distribution, and switching costs remain. Similarly, rents from the difficult‐to‐imitate resources of networks and reputation remain intact, and while those from employee knowhow and culture remain, they are likely to be in reduced amounts. Research limitations/implications Propositions are provided for empirical testing. There also is a need to identify breakpoints between open‐innovation benefits and the costs associated with lost innovation skills, and a need to extend this work to firm‐controlled and third‐party controlled open innovation. Practical implications For some firms open innovation will not adversely affect competitive advantage but those whose advantage is driven by barriers to entry, skills in innovation and anticipating customer needs, or that rely on proprietary product designs, can lose in the longer term. Originality/value Where the majority of work examining open innovation addresses property rights, economic rationales, governance, and processes, this work focuses on the effects of open innovation on strategy content and consequent firm performance.

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