Understanding the advantages of open innovation practices in corporate venturing in terms of real options

Abstract

Part of the advantages of using open innovation (compared to closed innovation) in corporate venturing can be explained by applying the real options approach. Open innovation in risk-laden activities such as corporate venturing has the following advantages: (i) benefits from early involvement in new technologies or business opportunities; (ii) delayed financial commitment; (iii) early exits reducing the downward losses; and (iv) delayed exit in case it spins off a venture. We furthermore argue that these benefits do not automatically materialize. Innovative firms have to learn new skills and routines to develop the full ‘real option’ potential of open innovation practices.

Part of the advantages of using open innovation (compared to closed innovation) in corporate venturing can be explained by applying the real options approach. Open innovation in risk-laden activities such as corporate venturing has the following advantages: (i) benefits from early involvement in new technologies or business opportunities; (ii) delayed financial commitment; (iii) early exits reducing the downward losses; and (iv) delayed exit in case it spins off a venture. We furthermore argue that these benefits do not automatically materialize. Innovative firms have to learn new skills and routines to develop the full ‘real option’ potential of open innovation practices.