Open Business Models

Definition

Building on Henry Chesbrough's concept of open innovation, an open business model systematically collaborates with outside parties along one of two directions: "outside-in," bringing external ideas, technology, or intellectual property into the firm's own development and commercialization process, or "inside-out," licensing, spinning off, or selling a firm's unused ideas, technology, or IP to outside parties who can monetize it better than the originating firm can internally.

In the Book

The chapter contrasts closed and open innovation principles point by point — closed innovation assumes "the smart people in our field work for us" and that a firm must discover, develop, and ship its own R&D to profit from it; open innovation assumes a firm doesn't have to originate research to benefit from it, and should profit from others' use of its own innovations as readily as it buys in outside IP. The central case is Procter & Gamble's "Connect & Develop" program, launched after A.G. Lafley became CEO in 2000 amid a declining share price: P&G deployed internal "technology entrepreneurs" to scout external innovation from entrepreneurs, internet platforms, and other companies' idle R&D rather than relying solely on P&G's own labs. GlaxoSmithKline and Innocentive are cited as further examples of firms built around this outside-in/inside-out exchange.

Why It Matters

Treating a firm's boundary as porous — rather than a wall to defend — reframes idle internal knowledge as an asset to be sold and external knowledge as an asset to be bought, both scored against the same value-creation logic. It's a specific, tractable version of a much larger idea: that innovation increasingly happens in networks rather than inside single institutions, and organizations that treat their boundary as fixed will underuse both what they already have and what already exists outside.