The Payoffs to Open Strategy

Pervasive experimentation is occurring with open innovation initiatives in which cross-organizational knowledge pooling produces new products and services. But what measures convincingly capture the payoffs directly... [ view full abstract ]

Pervasive experimentation is occurring with open innovation initiatives in which cross-organizational knowledge pooling produces new products and services. But what measures convincingly capture the payoffs directly attributable to such cooperation? We address this question by developing a framework for examining the payoffs to “Open Strategy,” defined as the competitive decisions derived from the interplay between open innovation and traditional business strategy. The framework is informed by a model of inter-firm cooperation that considers a firm’s decision to contribute to an open project. This decision hinges on the influence of knowledge accumulation due to participation, as well as the influence of market expansion, which, if many firms participate, entices a supporting ecosystem to emerge. While the model establishes the basis for collaboration, the question becomes whether empirical evidence exists that is consistent with net positive payoffs. As a start, we analyze abnormal stock market returns associated with an open source software (OSS) project led by Cisco, OpenDaylight, and we find preliminary evidence that participating firms are rewarded for their engagement in open innovation.