Innovating without information constraints

de Elizabeth J. Altman

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.