The traditional manufacturing or service organization is characterized by well-defined boundaries at which it contractually exchanges goods and services with other organizations and whose activities are coordinated by hierarchies (Williamson, Reference Williamson1985). Increasingly, organizations are “opening up” the way many of their activities are performed. Openness means that organizational actors and resources are mobilized for the performance of activities irrespective of formal organizational boundaries. In part, this growing phenomenon is enabled by the Internet, which connects employees, independent workers, suppliers, and customers, allowing them to collaborate widely across organizational boundaries and geographies. The organization designs that are emerging to support actors in the performance of their activities are called “actor-oriented” because they allow actors to control and coordinate activities themselves, with only minimal reliance on hierarchical mechanisms (Fjeldstad et al., Reference Fjeldstad, Snow, Miles and Lettl2012).

Some observers have argued that open organizations are ushering in a new organizational paradigm (Greer, Lusch, & Vargo, Reference Greer, Lusch and Vargo2016; Lusch & Vargo, Reference Lusch and Vargo2014). The emerging paradigm is characterized by the cocreation and coproduction of goods and services (Normann & Ramirez, Reference Normann and Ramirez1993), collaborative knowledge development and sharing, worker autonomy and mobility, relational leadership (Uhl-Bien, Reference Uhl-Bien2006), and relational competitive advantages (Dyer & Singh, Reference Dyer and Singh1998). The new paradigm also embodies a new mindset regarding the nature of organizations. In contrast to the traditional view that organizations are atomistic entities engaged in transactions with other organizations, the new mindset views organizations as dynamic resource configurations in which joint value creation occurs as collaborating actors cocreate and coproduce products and services (Greer et al., Reference Greer, Lusch and Vargo2016).

In this chapter, we discuss the open organization, devoting particular attention to how the concept is being used and the capabilities required to make it work. We seek to answer three main questions: (1) Why and how are organizations opening up? (2) What are the capabilities needed to collaborate with actors beyond a firm’s formal organizational boundaries? (3) What are the organizing processes and mechanisms that support goal-directed openness? In the first section, we discuss the three main ways organizations open up: an outside-in process, an inside-out process, and processes where firms collaborate with external actors. Next, we discuss the capabilities that enable open organizations to collaborate with external actors in a dynamic manner. Such capabilities are relational in the sense that they enable internal and external actors to combine and leverage their resources. Lastly, we discuss the organizing processes and mechanisms used by firms to transform a closed organization into an open organization.

How Organizations Open Up

There is increasing consensus among academics and practitioners alike that we are in the midst of a shift from producer-centered organizational processes toward user-driven, open, and coproducing processes (Chesbrough, Reference Chesbrough2003; Keinz, Heinerth, & Lettl, Reference Keinz, Heinerth and Lettl2012; von Hippel, Reference von Hippel2005). In the industrial era, firms achieved competitive advantages by configuring and controlling activities and resources, which they guarded closely (Barney, Reference Barney1991; Caves & Porter, Reference Caves and Porter1977). There was a clear boundary between the firm and its customers – the firm created value and customers consumed it. Companies offered their customers affordable products and services that met essential needs for food, clothing, housing, heating, refrigeration, and transportation. Efficiency in the production of such standard goods was key to value creation.

Over the past few decades, value has come to be seen as being coproduced by a variety of actors such as customers, suppliers, and complementors (Fuchs, Reference Fuchs1968; Lusch & Vargo, Reference Lusch and Vargo2014; Norman & Ramirez, Reference Normann and Ramirez1993; Ramirez, Reference Ramirez1999). To take advantage of the benefits of coproduction, a traditional or closed organization must open up. According to Gassmann and Enkel (Reference Gassmann and Enkel2004), this can occur in three ways: (1) an outside-in process whereby firms enrich their knowledge base by integrating the resources of customers, suppliers, and other organizations; (2) an inside-out process that exploits internal ideas and knowledge by channeling those resources to new markets through licensing, selling intellectual property, and so on; and (3) a “coupled” process in which firms collaborate with complementary companies to coproduce products and services. Such open processes make more resources available for value creation by engaging a broad set of actors in the development and production of products and services. An early example of coproduction is found in the Swedish furniture company IKEA, which in 1956 started flat packaging furniture in order to have it fit into a car and avoid damage during transit. This practice led to customer assembly of products becoming part of IKEA’s highly successful business model. Customer involvement is taken further in kitchen design. Using IKEA’s 3D Kitchen Planner, customers design custom kitchens and, if they wish, consult with an IKEA designer. Today, coproduction of products and services is the norm across a wide variety of sectors, and firms have many sources of coproduction opportunities: the crowd; customers; universities and research laboratories; technology-based start-ups; suppliers; and regionally based clusters of competitive firms (Vanhaverbeke, Reference Vanhaverbeke, Chesbrough, Vanhaverbeke and West2006).

Open innovation is a particular form of coproduction directed at innovation. It entails managing knowledge flows across organizational boundaries (Chesbrough & Bogers, Reference Chesbrough, Bogers, Chesbrough, Vanhaverbeke and West2014). Historically, many product and service innovations have originated from or with users and customers (von Hippel, Reference von Hippel1988, Reference von Hippel2005, Reference von Hippel2016). As managers and entrepreneurs recognized the importance of users and other stakeholders in the innovation process, they developed practices, tools, and platforms that facilitate open innovation. Additional factors that affected the growth of open innovation include: (1) the increasing availability and mobility of skilled workers, (2) growth of the venture capital market, (3) external options for ideas and technologies sitting on the shelf, and (4) expanding capabilities of external suppliers (Chesbrough, Reference Chesbrough2003). Essentially, such factors allowed organizations to tap into resources not previously available as they pursued innovation opportunities and projects.

Organizational boundaries become permeable with the implementation of open approaches (Santos & Eisenhardt, Reference Santos and Eisenhardt2005; Zobel & Hagedoorn, Reference Zobel and Hagedoorn2020). The challenge for executives is to determine the extent to which an organization should be open. There is no generic answer to this question. The optimal degree of openness depends on external conditions, such as the pace of technological change and the institutional environment, as well as internal conditions, such as a firm’s strategies and capabilities. Inevitably, tensions arise when organizations attempt to open their processes (Wadhwa, Bodas Freitas, & Sarkar, Reference Wadhwa, Bodas Freitas and Sarkar2017). A desirable degree of openness can be found by considering the sources of those tensions and by actively discussing and regularly reconsidering them in order to triangulate on an optimal open-organization design. One important tension related to openness is complexity. Drawing on modern social systems theory and cognitive psychology, Schreyögg and Sydow (Reference Schreyögg and Sydow2010) argue that organizations come into existence as complexity-reducing devices. In order to cope with the complexity of the environment and to differentiate themselves from it, organizations constantly adopt complexity-reducing mechanisms, such as developing and maintaining interpretative action patterns, templates, referencing systems, and cognitive frameworks. Such mechanisms allow organizations to exist by establishing boundaries and, thereby, identities (Luhmann, Reference Luhmann1995). As opening the innovation process requires making organizational boundaries more permeable, organizations can never completely open up – doing so would make them equal to the environment and they would vanish (Schreyögg & Sydow, Reference Schreyögg and Sydow2010). Consequently, an organization can only open itself to a certain extent. The argument also suggests that the more organizations adopt open processes, the more they blur their identities.

Another tension induced by open innovation is loss of control. Organizations strive for control in order to gain predictability as well as high reliability and efficiency (Farjoun, Reference Farjoun2010). The more external actors are involved in innovation processes, the more difficult it becomes to maintain control of developmental efforts, as each actor may have different ideas and worldviews and therefore different beliefs about what constitutes good and legitimate solutions. It also becomes increasingly difficult to maintain control over the organization’s intellectual property because knowledge spillovers can seldom be completely avoided. One way to control tension over intellectual property is to engage in “selective revealing,” which Alexy, George, and Salter (Reference Alexy, George and Salter2013: 272) define as “the voluntary, purposeful, and irrevocable disclosure of specifically selected resources, usually knowledge based, which the firm could have otherwise kept proprietary, so that they become available to a large share or even all of the general public, including competitors.” The sharing of knowledge with the public may yield significant benefits to the organization such as reductions in the costs associated with searching for attractive collaboration partners or the creation of momentum for one’s own topics and activities (Henkel, Reference Henkel2006). At the same time, it may reveal weaknesses in the development process and divulge the firm’s areas of current interest. Consequently, organizations that engage in selective revealing need to be careful about which knowledge to keep and which knowledge to reveal.

A third tension is fairness. “The paradox of openness” (Laursen & Salter, Reference Laursen and Salter2014) refers to the fact that organizations need to both share knowledge to maximize value creation and protect knowledge to appropriate value for themselves. The paradox of openness implies tensions between value creation and value capture in open-innovation contexts (Chesbrough, Lettl, & Ritter, Reference Chesbrough, Lettl and Ritter2018). The introduction of open-innovation processes always carries the risk that external contributors may perceive exchanges and processes with the focal organization as unfair. Thus, fairness is a fundamental source of problems in open innovation (Chesbrough et al., Reference Chesbrough, Lettl and Ritter2018; Franke, Keinz, & Klausberger, Reference Franke, Keinz and Klausberger2013; Nambisan & Baron, Reference Nambisan and Baron2010). Colquitt, Greenberg, and Zapata-Phelan (Reference Colquitt, Greenberg, Zapata-Phelan, Greenberg and Colquitt2005) identify three distinct types of fairness in interorganizational relations. Distributional fairness refers to the fairness of outcomes relative to contributions. In open innovation, an actor who contributes a great deal to value creation but captures only a small fraction of that value will most likely perceive the outcome as unfair (even though the value for this actor may be positive in a strict value-based analysis). Procedural fairness is the fairness of the procedures used to derive certain outcomes. In open innovation, this points to the importance of transparency with respect to selection criteria as well as development and commercialization processes (Franke et al., Reference Franke, Keinz and Klausberger2013). It also relates to the provision of appropriate feedback to contributors and the management of disappointments (Piezunka & Dahlander, Reference Piezunka and Dahlander2019). Interactional fairness refers to the fairness of interpersonal and interorganizational treatment. It is defined as the degree to which actors affected by decisions are treated with dignity and respect (Schermerhorn, Hunt, & Osborn, Reference Schermerhorn, Hunt and Osborn1995).

Executives need to proactively deal with the tensions associated with opening up an organization and make the necessary adjustments to the organizational design, especially in critical areas such as strategy, structure, process, and culture. Key openness initiatives may include:

• Strategy – Develop an openness strategy for the entire organization (not just for individual business units). Systematically search for and involve value-enhancing external partners (e.g., lead users, entrepreneurs, complementors, the crowd).

• Structure – Increase the density of linkages with external actors by forming alliances and building open platforms and collaborative communities. Develop synergies among open-innovation activities.

• Process – Search the internal and external environment for resources that can be used in the coproduction of products and services. Train employees to recognize knowledge that can be shared and knowledge that needs to be kept within the organization. Decentralize decision-making rights regarding collaboration with external actors.

• Culture – Create transparency around open-innovation projects. Reward learning from open-innovation experiments. Encourage sharing of open-innovation approaches and best practices.

Collaborative Capabilities: A Relational View

To successfully create and operate an open organization requires a unique set of capabilities. Open organizing assumes that “a firm’s critical resources may span firm boundaries and may be embedded in interfirm resources and routines” (Dyer & Singh, Reference Dyer and Singh1998: 660, italics in original). The relational view of organizing assumes that resources are widely distributed and of generally high quality (Chesbrough, Reference Chesbrough2006), and a firm should not feel constrained as it searches for resources beyond its formal boundaries.

Over the past couple of decades, proactive, unconstrained search across organizational boundaries had led to a virtual explosion in the means by which organizations began to open up. In East Asia, firms that were latecomers to their industries used their capabilities to pursue “link-and-leverage” strategies, forming alliances with established firms that possessed complementary resources and accelerating innovation (Mathews, Reference Mathews, Yu and Yan2014). Intel has a history of identifying small, promising technology firms relevant to its core businesses and supporting them in various ways until they can stand on their own and then acquiring or partnering with those firms (Miles & Snow, Reference Miles and Snow1994). Lego, the Danish toy production company, designed and operates a sustainable producer–user ecosystem that provides it with a constant flow of external ideas and suggestions to expand its businesses (Heinerth, Lettl, & Keinz, Reference Heinerth, Lettl and Keinz2013). Furthermore, there are organizations whose capabilities facilitate open innovation in other organizations. For example, Innocentive is an open innovation and crowdsourcing platform that allows firms with unsolved problems or idle technologies to submit them as “challenges” to be put out to the crowd for solutions.

For many organizations, the space where potentially valuable external resources reside is global, dynamic ecosystems. Learning how to create and capture value in ecosystems is challenging, as no individual firm, or set of firms, can control all the resources. The overall capability that firms need is a means to effectively navigate ecosystems (Ritter, Reference Ritter1999; Ritter & Gemünden, Reference Ritter and Gemünden2003; Ritter, Wilkinson, & Johnston, Reference Ritter, Wilkinson and Johnston2004; Walter, Auer, & Ritter, Reference Walter, Auer and Ritter2006). One important set of capabilities relates to searching the environment for potential resources while making the firm’s own resources visible for others to search. The key is developing a mindset in which organizations feel confident in opening their resources and activity systems to others. An equally important set of capabilities relates to organizing coproduction among diverse actors – for example, building and operating collaborative platforms. Examples range from open-source software projects to large-scale collaboration among competing pharmaceutical companies in the quest for effective COVID-19 vaccines (World Economic Forum, 2020).

Construction and movie industries have for a long time organized production using temporary networks of independent workers (Eccles, Reference Eccles1981; Jones, Hesterly, & Borgatti, Reference Jones, Hesterly and Borgatti1997). In those industries, autonomous actors constitute resources that can move across locations and projects. The Internet has dramatically increased the ability of integrating various actors into organizational activities irrespective of time and location. This has given rise to a global class of “digital nomads” (Makimoto & Manners, Reference Makimoto and Manners1997), autonomous actors who move across innovation projects hosted on digital platforms (Richter & Richter, Reference Richter and Richter2020). Firms operating in “nomadic” environments must be able to attract talented workers on an ongoing basis. In Silicon Valley, tech giants such as Google and Facebook rely on a variety of factors to attract and retain talented people, including (1) offering a wide variety of interesting projects, (2) having an attractive digital and physical work environment, (3) providing opportunities to self-develop and implement innovative projects, and (4) fostering an open and transparent culture that values knowledge dissemination and external collaboration (The Economist, 2017).

Designing Open Organizations

What are the organizing processes and mechanisms that transform a closed organization into an open one? Although there have been only a few empirical studies of the transformation process (e.g., Chiaroni, Chiesa, & Frattini, Reference Chiaroni, Chiesa and Frattini2010), we do have a broad understanding of how the process works. Following the dynamic capabilities (Teece, Pisano, & Shuen, Reference Teece, Pisano and Shuen1997) and open innovation (Zobel & Hagedoorn, Reference Zobel and Hagedoorn2020) frameworks, a successful transformation from closed to open involves developing the capacity to perform a set of related activities on a continuous basis: sensing, seizing, and aligning.

Conclusion

In this chapter, we have discussed the challenges that designers face in opening up an organization – how open it should be, the capabilities required to make it work, and how to collaborate with coproducing actors. A move toward openness cannot occur easily or quickly, but research on leading firms shows that opening up is both viable and beneficial.