Working Paper | HBS Working Paper Series | 2014

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 traditionally takes place within an organization's boundaries and with selected partners. This Chandlerian approach is rooted in transaction costs, organizational boundaries, and information challenges. Information processing, storage, and communication costs have been an important constraint on innovation and a reason why innovation takes place inside the organization. However, exponential technological progress is dramatically decreasing information constraints, and in many contexts, information costs are approaching zero. We discuss how reduced information costs enable organizations to engage communities of developers, professionals, and users for core innovative activities, frequently through platforms, ecosystems, and incorporating user innovation. We suggest that when information constraints drop dramatically, and the locus of innovation shifts to the larger community, there are profound challenges to the received theory of the firm and to theories of organization and innovation. Specifically, we consider how shifts in information costs affect organizational boundaries, business models, interdependence, leadership, identity, search, and intellectual property.

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. (Revised September 2014.)