Working Paper | HBS Working Paper Series | 2013

Innovating Without Information Constraints: Organizations, Communities, and Innovation When Information Costs Approach Zero

by Elizabeth J. Altman, Frank Nagle and Michael L. Tushman

Abstract

Innovation has traditionally taken place within an organization's boundaries and/or with selected partners. This Chandlerian approach to innovation has been rooted in transaction costs, organizational boundaries, and information processing challenges associated with distant search. Information processing, storage, and communication costs have long been an important constraint on innovation and a reason for innovative activities to take place inside the boundaries of an organization. However, exponential technological progress has led to a dramatic decrease in information constraints. In a range of contexts, information costs approach zero. In this chapter, we discuss how sharply reduced information costs enable organizations to engage with communities of developers, professionals, and users for core innovative activities, frequently through platform-based businesses and ecosystems and by incorporating user innovation. We then examine how this ease of external engagement impacts the organization and its strategic activities. Specifically, we consider how this shift in information processing costs affects organization boundaries, business models, interdependence, leadership, identity, search, and intellectual property. We suggest that much of the received wisdom in these areas of organization theory requires revisiting. We then discuss the implications for an organization's management of innovation and conclude with research opportunities.

Keywords: managing innovation; Information Costs; Information Constraints; communities; Organization Boundaries; Technological Progress; Platforms and Ecosystems; User Innovation; Innovation and Management; Boundaries; Collaborative Innovation and Invention;

Citation:

Altman, Elizabeth J., Frank Nagle, and Michael L. Tushman. "Innovating Without Information Constraints: Organizations, Communities, and Innovation When Information Costs Approach Zero." Harvard Business School Working Paper, No. 14-043, December 2013.