Open Innovation and the Networked Firm

The resource based view of Wernerfelt (1984), Barney (1986, 1991) and Deirickx and Cool (1989) suggests that firms can achieve sustainable competitive advantage through the accumulation of strategic assets that are hard to imitate, substitute or trade (Amit and Schoemaker 1993). It is also acknowledged however that start-ups often lack complementary assets (Teece 1986) and will seek them from alliance partners. Equally there is scope within transactions cost economics (Williamson 1971, 1981, 1986, 1989) to consider the appropriateness of contracting across the boundary of the firm for products and services. While alliances have a different governance structure to the firm, the same tests of appropriateness may be applied to an alliance to explain its formation. This paper considers the theoretical reasons for technology firms to be networked in order to be successful innovators. These theories suggest that it is not sufficient to consider the requirements for sustainable competitive advantage for a single firm but also necessary to take into account the conditions for sustainable competitive advantage in cooperation with other firms. Cooperation may involve jointly created product and even strategic assets. This raises the problem of the distribution of the value created and how small firms in particular may defend themselves against loss. In this paper the unit of analysis moves from a focus on the individual firm to examining the behaviour of the firm in an alliance or network. In doing so, a set of related but independent theoretical concepts are employed. The open innovation paradigm provides something of a unifying framework by integrating these concepts within a networked view of innovation.