One key assumption underlying the open innovation model is that combining the best of
internal and external R&D will more likely lead to a competitive advantage. This requires
that the company must continuously upgrade its internal R&D capabilities to enhance its
absorptive capacity —its ability to understand external technology developments, evaluate
them, and integrate them into current products or create new ones. 75 Exhibit 7.14
compares and contrasts open-innovation and closed-innovation principles.