innovation and informationAs organizations leverage more free and open assets (e.g., open source software, user reviews and ideas), it becomes less clear what assets an organization needs to own and how it differentiates itself from competitors.

When information constraints were high, these assets were expensive to produce and user inputs were essentially impossible to capture.

Now, these goods are widely available, and organizations can leverage them to accomplish their goals.

However, organizations also need to re-think their basis of competitive differentiation. Perhaps the knowledge and strategies for utilizing such free and open assets become the most important assets of, and perhaps the only assets truly owned by, an organization.

This paper argues that when information constraints drop dramatically and the space of innovation shifts from residing solely within the hierarchical firm to also encompassing the larger community, there are profound challenges to the received theory of the firm and to theories of organizations and innovation. Key concepts include:

  • The decrease in information processing costs is having a decentralizing impact on the locus of innovation and, in turn, on how organizations manage their innovation processes.
  • Entrepreneurial organizations are emerging with entirely new approaches to managing innovation in response to information costs approaching zero.