Innovation: the Conditions for Making an Open Relationship Work
Under which conditions do firms engage in an open relationship? Alfonso Gambardella and Claudio Panico have answered this question by proposing a stylized model of governance of open innovation systems. Their paper On the management of open innovation, featured in a special issue of Research Policy (2014), focuses on a research collaboration between a big firm and a smaller outfit. This is the typical relationship between a large pharmaceutical firm that controls manufacturing and commercialization assets and a small biotech company with technological capabilities.
One of the innovative features of the paper is the distinction between property and decision rights. "We have introduced the idea that the allocation of decision rights is as much if not more important than the allocation of property rights", Panico says. The paper takes account of another important distinction between ex-ante contracting power and ex-post bargaining power: one thing is the power to allocate decision rights when stipulating the contract, another thing is the power to capture innovation value. "There is no magic formula. It's a matter of balance. When the firm with the contracting power retains property rights it discourages the weaker party from investing in the collaboration. The allocation of decision rights is a good incentive for the smaller company, which can enjoy spillovers during the research process. In some cases, the stronger partner may choose not to allocate decision rights, thus preventing the creation of the highest innovation value. The difference in goals between the two parties is the sand in the gears of innovation". The paper focuses on a bilateral relationship. A follow up research may design an open innovation system in a multilateral setting.
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