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2011
UB:10017501
Bradford University School of
Management
Open Innovation Approaches An Exploratory Study
Open Innovation Approaches UB:10017501
2 Bradford University School of Management
Abstract
This report attempts to address some unanswered questions in the research on open
innovation (OI): how do companies implement open innovation? To answer this
question, 7 cross-sector firms were reviewed for their OI implementation approaches.
The focus was on understanding their rationales behind the approaches adopted and the
extent of their success or failure. The study analyzed why firms adopted open
innovation, classifying the adoption path according to the motivation for the adoption of
the OI paradigm and the OI implementation. The way firms implemented OI was found
to vary according to (1) their maturity with respect to OI, (2) the industry characteristics
(3) technology characteristics.
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TABLE OF CONTENTS
Table of Figures ............................................................................................................................ 7
List of Tables ................................................................................................................................ 8
1 INTRODUCTION ................................................................................................................ 9
1.1 Background to the research ........................................................................................... 9
1.2 Specific Research Question & Aims ........................................................................... 10
1.3 outline of report ........................................................................................................... 11
2 LITERATURE REVIEW ................................................................................................... 13
2.1 Defining innovation .................................................................................................... 13
2.2 The Innovation Process ............................................................................................... 14
2.3 The Concept of Open Innovation ................................................................................ 15
2.4 Antecedent to open innovation ................................................................................... 16
2.4.1 The Closed Model of Innovation ........................................................................ 16
2.4.2 Erosion factors .................................................................................................... 17
2.5 The Context of Open Innovation ................................................................................ 17
2.5.1 Internal Environment .......................................................................................... 17
2.5.2 External Environment ......................................................................................... 19
2.6 The Process of Open Innovation ................................................................................. 19
2.6.1 The outside-in process ........................................................................................ 21
2.6.2 The Inside-Out process ....................................................................................... 27
2.7 summary ...................................................................................................................... 28
3 METHODOLOGY ............................................................................................................. 29
3.1 STRATEGY ................................................................................................................ 29
3.2 DESIGN ...................................................................................................................... 30
3.2.1 Data sources ........................................................................................................ 30
3.2.2 selection of participants ...................................................................................... 32
3.2.3 Data collection .................................................................................................... 33
3.2.4 Designing a questionnaire ................................................................................... 35
3.2.5 Data Analysis ...................................................................................................... 35
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4 FINDINGS .......................................................................................................................... 37
4.1 Findings from organisations........................................................................................ 37
4.1.1 case 1: BIOTECH ............................................................................................... 37
4.1.2 case 2: DAIRY .................................................................................................... 39
4.1.3 case 3: STEEL ..................................................................................................... 41
4.1.4 case 4: DEFENCE ............................................................................................... 43
4.1.5 case 5: ICT .......................................................................................................... 45
4.2 Findings from third parties .......................................................................................... 47
4.2.1 Interview with University ................................................................................... 47
4.2.2 Interview with CONSULTANT .......................................................................... 48
5 Discussion and analysis ...................................................................................................... 50
5.1 The concept of open innovation .................................................................................. 50
5.2 The Process of Open Innovation ................................................................................. 52
5.2.1 The OUTSIDE-IN Process .................................................................................. 53
5.2.2 The inside-out process ........................................................................................ 60
5.3 summary ...................................................................................................................... 62
6 conclusion ........................................................................................................................... 63
6.1 Conclusions ................................................................................................................. 63
6.2 LIMITATIONS OF THE STUDY .............................................................................. 64
6.3 OPPORTUNITIES FOR FURTHER RESEARCH .................................................... 64
7 Appendix I .......................................................................................................................... 65
7.1 Introduction ................................................................................................................. 65
7.2 Scope/Rationale of the Project .................................................................................... 65
7.3 Methodology ............................................................................................................... 66
7.4 Aspects of MBA syllabus used ................................................................................... 67
7.5 Proposed Table of Contents ........................................................................................ 67
7.6 Project Timeline .......................................................................................................... 68
8 Appendix II ......................................................................................................................... 70
8.1 Questionnaire for Universities .................................................................................... 70
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8.2 Interview Questionnaire for companies ...................................................................... 72
8.3 Interview Questionnaire (Consultancies – BIC & Pera) ............................................. 74
9 Appendix III ........................................................................................................................ 77
9.1 Interview with STEEL ................................................................................................ 77
9.2 Interview with BIOTECH ........................................................................................... 80
9.3 Interview with DAIRY................................................................................................ 84
9.4 Interview with DEFENCE .......................................................................................... 89
9.5 Interview with ICT ...................................................................................................... 92
10 References ....................................................................................................................... 98
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TABLE OF FIGURES
Figure 1-1: Structure of report .................................................................................................... 11
Figure 2-1: Definition of innovation ........................................................................................... 14
Figure 2-2: The innovation process Source: (Herzog 2008) .................................................. 15
Figure 2-3: The Five-Stage Open Innovation Model .................................................................. 21
Figure 2-4: Conceptual model for analysis ................................................................................. 28
Figure 3-1: Research strategies ................................................................................................... 29
Figure 3-2: Merits/demerits of secondary data ........................................................................... 31
Figure 3-3: Qualitative and Quantitative methods and techniques ............................................. 34
Figure 3-4: Qualitative Data Collection techniques .................................................................... 34
Figure 3-5: Structure of interviews ............................................................................................. 35
Figure 5-1: OI adoption timeline of participants......................................................................... 50
Figure 5-2: Themes identified for the concept of innovation ..................................................... 51
Figure 5-3: Most commonly used sources .................................................................................. 53
Figure 5-4: Factors affecting approaches toward target companies ............................................ 60
Figure 5-5: Common outbound activies ...................................................................................... 60
Figure 5-6: factors affecting outbound open innovation ............................................................. 62
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LIST OF TABLES
Table 3-1: List of interviewees ................................................................................................... 32
Table 5-1: Inbound OI approaches and their frequency .............................................................. 55
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1 INTRODUCTION
Globalisation has increasingly affected how companies operate, compete and innovate.
At present, companies face an environment characterised by global competition,
widespread knowledge, rising R&D costs and shortened product life-cycles. Moreover,
the integration of large emerging economies such as China and India has more than
doubled the world’s supply of labour (OECD 2008). To meet these new challenges,
companies have had to change the way they approach innovation processes.
The adoption of the ‘Open Innovation’ (OI) paradigm – in which organizations make
use of both internal and external resources to drive their innovation processes – is
considered by many contemporary firms as a way to enhance their innovation
capabilities. Open innovation can help firms by reducing the cost of R&D and process
improvement, reducing time to market for new products, improving product quality and
accessing customer and supplier knowledge outside the organization. One recent much-
publicized example is Nokia, which cooperated with a community of more than 450
volunteer open source software (OSS) developers who created many applications, such
as mapping software, games, and GPS, for the company’s N800 Internet Tablet device.
1.1 BACKGROUND TO THE RESEARCH
In spite of the growing interest in OI, there still exist unexplored aspects. One of the
most pressing for both academics and practitioners alike relates to how OI can be
implemented (Gassman 2006). The literature concerning the adoption of the OI
paradigm by companies is burgeoning fast and there have been many special issues of
journals containing useful reviews of literature pertaining to open innovation in the
innovation management domain (eg. van de Vrande et al. 2010; Huizingh 2011;
Lichtenthaler 2011; Enkel et al. 2009; Giannopoulou et al. 2010). In spite of the
attention it is attracting, there are still some unanswered questions regarding the open
innovation paradigm and in particular on how companies have organised to adopt it.
The studies looking into the ‘‘process that leads to open innovation’’ (Huizingh 2011)
are still relatively scarce, a point which was noted by Lichtenthaler (2011), according to
whom further investigation into OI adopter archetypes is needed.
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1.2 SPECIFIC RESEARCH QUESTION & AIMS
The research objective is to review the theory and practice of the open innovation
approaches of large corporations. Reviewing the theory will help lay the foundation for
the understanding of the open innovation paradigm and analyse the practices identified
from the collected data.
The aims of the study include profiling the implementations of open innovations in
different organisations in order to compare and contrast with each other. It is also
important to understand the rationale behind the adoption of OI and the various
approaches employed. Furthermore, analysing the impacts of open innovation will help
to find out the successes and failures in the implementation.
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1.3 OUTLINE OF REPORT
The structure of the report is shown in Figure 1-1.
FIGURE 1-1: STRUCTURE OF REPORT
Chapter One provides the reader with an introduction to the context and the problem,
followed by an outline of the current state of research in the problem area. These
sections are followed by the research question and the focus of analysis.
Chapter Two contains the literature review. The major sections in the literature review
include innovation process and strategy, concept of open innovation, context of open
innovation and the process of open innovation. This chapter concludes with an analysis
of the key concepts distilled from the literature review.
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Chapter Three discusses the methodology to be used to complete the research. It
discusses the data collection approaches, the design of the questionnaire and the data
analysis approach.
Chapter Four contains the results from the interviews in a case format. It contains
findings from the companies as well as from third parties i.e. university and consultants.
Chapter Five contains a discussion and analysis of the findings in the previous chapter.
Finally Chapter Six contains the conclusions drawn from the analysis in the previous
chapter. It also includes the limitations of this research and opportunities for future
research.
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2 LITERATURE REVIEW
This section will review the existing literature on open innovation. The section starts with the
concept of innovation to see the relation of open innovation to the traditional view of
innovation. The latter sections will consider the “content, context and process” (Pettigrew 1990)
of open innovation.
2.1 DEFINING INNOVATION
The literature on innovation management lacks a clear and commonly accepted
definition of the term ‘innovation’. Different criteria have been used to define
innovation depending upon the context (Hauschildt and Salomo 2007). So, the academic
literature is far from reaching a consensus. Furthermore, corporate practice reveals a
similar trend. Notwithstanding inter-firm differences in defining innovation, even
employees working within the same department of a firm do not necessarily share the
same understanding of the term innovation (Leker 2005).
Hauschildt and Salomo (2007) identify some common themes in various definitions of
innovation which say that Innovations are:
“new product or service”
“markedly differ … from the preceding status”
Hauschildt and Salomo (2007) further argue that an invention is not an innovation
unless it is commercially exploited. Chesbrough (2003a) presents a similar perspective
when he says that innovation is an invention which is implemented and introduced in
the market. Rogers (1998) has also concurred with this aspect of innovation. He further
says that the new product/technology/service resulting from innovation has to add
benefit to the organisation in some way.
Emphasising the commercial aspect of innovation, this paper follows Roberts (2007)
who uses a slightly broader definition:
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FIGURE 2-1: DEFINITION OF INNOVATION
2.2 THE INNOVATION PROCESS
The process of innovation can be defined as “the temporal sequence of events that occur
as people interact with others to develop and implement their innovation ideas within an
institutional context” (van de Ven and Poole 1989). Hansen and Birkinshaw (2007)
recommend viewing innovation as a value chain with three phases viz. idea generation,
idea conversion and idea diffusion. Herzog (2008) proposes a process with three steps
viz. front-end of innovation, idea realization and development and commercialisation.
Although diffusion of innovation is an integral aspect of innovation management, this
paper will only consider the commercial exploitation part. So, it will follow the process
proposed by Herzog (2008) which is depicted in the figure below.
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FIGURE 2-2: THE INNOVATION PROCESS SOURCE:
(HERZOG 2008)
The first stage –referred to as the front end of innovation – aims at generating and
selecting new ideas, as well as the evaluation of their feasibility. In the second stage,
selected ideas are realized and developed. The third phase includes planning and
execution of the broad-based utilization and market diffusion of the development
output.
2.3 THE CONCEPT OF OPEN INNOVATION
In his pioneering book on Open Innovation, Chesbrough (2003a) defines Open
Innovation as:
‘Open Innovation is a paradigm that firms can and should use
external ideas as well as internal ideas, and internal and external
paths to market, as the firms look to advance their technology.’
Another definition by Chesbrough (2006) is:
‘Open innovation is the purposive inflows and outflows of
knowledge to accelerate internal innovation, and expand the
markets for external use of innovation, respectively.’
These two definitions highlight the following salient points about Open Innovation:
Open Innovation entails opening up the innovation process to facilitate a two-
way flow of knowledge. Thus, Open Innovation involves inbound and outbound
activities.
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It not only involves technological advancement but also exploitation of these
developments for the benefit of the firm, thus reducing spillover which, in the
earlier model, was considered an unnecessary cost of R&D (West et al. 2006).
For the exploitation of ideas, it places equal emphasis on both internal and
external paths to market.
It is important to note that Open Innovation does not imply that internal R&D is
dispensable (Chesbrough 2003a). It merely suggests that it should leverage the wealth
of knowledge available outside the firm. A majority of the literature also emphasizes on
the importance of internal R&D and views it as a complement to external ideas and
resources (Dahlander and Gann 2010).
Thus, Open Innovation is about balancing internal and external sources of innovation.
The skew in this balance reflects the degree of openness of a firm. Empirical studies
also indicate that the degree to which firms use external ideas varies considerably
(Laursen and Salter 2006). Chesbrough (2006) also argues that businesses are located
on a continuum with entirely closed innovation at one end and completely open models
at the other.
2.4 ANTECEDENT TO OPEN INNOVATION
To gain a better understanding of the reasons for open innovation, it is first necessary to
understand the limitations of the closed approach to innovation.
2.4.1 THE CLOSED MODEL OF INNOVATION
Chesbrough (2003a) argues that the underlying assumption of the closed approach to
innovation was that “successful innovation requires control”. It is a model which is
predominantly focussed inward. It primary principle is that “a firm has to do everything
by itself, beginning with idea generation, development and production to marketing,
distribution, service, and financing” (Herzog 2008). In this model, Intellectual Property
(IP) was used as a means of knowledge protection to “create and maintain control over
its ideas and to exclude others from using them” (Chesbrough 2003a).
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However, Huizingh (2011) argues that Open Innovation is not a new phenomenon and
has been practised since as early as the 19th
century. But, Dahlander and Gann (2010)
suggest that although not many firms followed a fully closed approach to innovation,
some developments in the wider innovation landscape necessitated opening up the
innovation process, thus rendering the “do-it-yourself” mentality in innovation
management obsolete (Gassman 2006).
2.4.2 EROSION FACTORS
Chesbrough (2003a) mentions some factors which eroded the underpinnings of the
closed innovation model. He mentions global competition, shortened product life
cycles, increased complexity of new technologies and knowledge and increasing costs
and risks of innovation, increased mobility of labour, and availability of venture capital
specifically for innovation and enhanced capabilities of actors in the value chain as the
driving forces behind a more open approach to innovation.
The development of the capabilities and resources in emerging economies which
created a global supply for knowledge is also an important factor. Other factors include
greater complexity of products and services, better educated and more demanding
customers and convergence of technologies (OECD 2008).
2.5 THE CONTEXT OF OPEN INNOVATION
Gassman (2006) points out that Open Innovation is context dependent and requires a
contingency approach. The context is characterised by the internal and external
environment in which the firm operates.
2.5.1 INTERNAL ENVIRONMENT
Huizingh (2011) points out that size is one of the most frequently studied firm
characteristic in Open Innovation. Empirical studies have revealed that size affects the
adoption of Open Innovation and both inbound and outbound activities (Lichtenthaler
and Ernst 2009).
Organisational design is also an important internal characteristic of a firm. Innovation is
fostered with an organization structure which is adaptable to change (Tidd et al. 2005).
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Organisational structure has also been shown to affect the absorptive capacity of the
firm (Frans et al. 1999).
It has been argued that organizational culture impacts the success of innovation
significantly. However, there is scarce empirical evidence to support this. The concept
of Open Innovation requires a paradigm shift in the corporate culture and mindset
(Sloane 2011). Research also suggests that there is a significant difference between
cultures in Open and Closed Innovation (Herzog 2008).
Organisational culture is also important because it is closely related to the concept of
dominant logic (Hosking and Anderson 1992; Jarrett 2008). The dominant logic has
been defined by Prahlad (2004) as:
"The dominant logic of the company is, in essence, the DNA of the organisation. It
reflects how managers are socialised. It manifests itself often, in an implicit theory of
competition and value creation. It is embedded in standard operating procedures,
shaping not only how the members of the organisation act but also how they think.
Because it is the source of the company’s past success, it becomes the lens through
which managers see all emerging opportunities. This makes it hard for incumbent
companies to embrace a broader logic for competition and value creation.”
Chesbrough (2003a) also suggests that this dominant logic can prove to be a stumbling
block for organizations moving toward the open innovation paradigm. He points out
that the dominant logic influences the way managers deal with new information
preventing them from considering other alternative forms of logic. This effect is
especially evident when trying to commercialize an innovation using a business model.
Chesbrough (2003a) argues that a technology, by itself, has no inherent value unless it
is commercialized and that the same technology commercialized in two different ways
will yield different revenues. He defines a business model as the framework which links
the technical inputs to economic outputs. In a later work, Chesbrough (2007) identifies
two functions of a business model viz. create value and capture a portion of that value
for the firm.
Huizingh (2011) points out that the strategic orientation of a company influence the
strength and direction of Open Innovation. While considering strategy, in the context of
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Open Innovation, it is essential to view it from two angles viz. innovation strategy and
knowledge strategy.
Scholars suggest that it is imperative to define an innovation strategy for a firm (Herzog
2008). The generally accepted view of an innovation strategy is that it has two
dimensions viz. technological and market (Clark and Wheelwright 1993).
2.5.2 EXTERNAL ENVIRONMENT
The most obvious element of the external environment is the industry. Studies have
revealed that there are differences between the rate of adoption of Open Innovation
between industries (Keupp and Gassman 2009). Firms in some industries still follow a
relatively closed model of Open Innovation (Chesbrough 2003a) while other industries
(such as food, bio-technology, and financial services) follow a more open approach
(Huizingh 2011).
A study by Lichtenthaler (2008), however, reveals that the industry is not a significant
determinant of Open Innovation adoption. He concludes that the adoption of Open
Innovation is predominantly a strategic choice of the company rather than being
influenced by industry characteristics. It was observed by Poot et al. (2009) that the
trend towards open innovation in industries is not continuous but composed of shocks
and the timing between shocks differs across industries.
Gassmann (2006) goes beyond the industry and gives certain contexts wherein open
innovation is appropriate viz. globalization, technology intensity, technology fusion,
new business models and knowledge leveraging. However, there has been no further
research to specifically determine the impact of these external characteristics.
2.6 THE PROCESS OF OPEN INNOVATION
Gassman and Enkel (2004) identify three core process activities which are as follows:
1) The outside-in process: The firm seeks to enhance its own knowledge base
through the integration of suppliers, customers and accessing external
knowledge. This process is inbound OI.
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2) The inside-out process: earning profits by bringing ideas to market, selling IP
and multiplying technology by transferring ideas to the outside environment.
This process is outbound OI.
3) The coupled process: coupling the outside-in and inside-out processes by
working in alliances with complementary partners in which give and take is
crucial for success.
Van de Vrande et al. (2009) identify the following key activities:
Technology Exploration: comprises activities to access external sources of
knowledge to enhance internal technology.
Technology Exploitation: comprises activities to capture value from existing
technology outside the boundaries of the organization.
However, he further states that in a fully open setting, firms combine both the
approaches. This is analogous to the coupled process suggested by Gassman and Enkel
(2004).
Some scholars also propose stage-based models of Open Innovation. A model by Wallin
and von Krogh (Wallin and von Krogh 2010) propose a five-stage model as illustrated
in the figure below.
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FIGURE 2-3: THE FIVE-STAGE OPEN INNOVATION MODEL
However, by the very nature of the Open Innovation model, projects can be launched by
internal or external technology and it is possible for new technology to enter the process
at any stage (Chesbrough 2006). So, the taxonomy of inbound and outbound open
innovation is being used here as most studies of open innovation focus on these two
core processes (Bianchi et al. 2011; Huizingh 2011).
2.6.1 THE OUTSIDE-IN PROCESS
This section will focus on the outside-in process by identifying the predominant
approaches and sources of information.
2.6.1.1 EXTERNAL SOURCES OF KNOWLEDGE
Von Hippel (1988) identified the following external sources of useful information viz.
suppliers, customers, universities, government and private laboratories, competitors and
other nations.
According to Gassman (2006), innovation methods that involve customers enable
companies to deduce their needs before customers are even aware of them. They also
say that involving suppliers in the innovation process can enable buying firms to derive
certain operational and strategic benefits. Bughin et al. (2008) argue that companies are
increasingly beginning to view suppliers and independent specialists as co-creators and
delegating more of the management of innovation to such networks.
The role of users in creating functionally novel innovations was established by von
Hippel (1988). The advent of open source software communities has further highlighted
the important role of user innovation in the innovation process. This idea is referred to
as community sourcing in open innovation literature (Linder et al. 2003). It is widely
underestimated that users might be highly innovative themselves, especially users at the
leading edge in a certain area. Empirical studies on the sources of innovation have
revealed that in the fields of both industrial and consumer goods, users are often the
initial developers of products, prototypes and processes which later gain commercial
significance (e.g. von Hippel, 2005). Moreover, empirical studies have demonstrated
that up to 30% of respondents reported that they had developed a new product for
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personal or in-house use. This supports the idea that user innovation is not a rare
occurrence (von Hippel, 2002).
It is important to see how firms choose to interact with communities. Firms may create
their own communities or may instead interact with existing communities. In some
cases, firms could be merely one of the constituent members in a community that
contains multiple types of actors. A well-known example of this approach is the Linux
kernel community, with individuals, firms and one non-profit foundation. More
commonly, however, firms adopt the strategy of creating and organizing innovation
communities, which allows them to play a central role in the community. Through this
central role, it seeks to leverage the community for achieving firm-level objectives.
(West and Lakhani 2008)
When considering community innovation, an important point to consider is the
emergence of knowledge-broker communities. These are companies who bring together
solution seekers and solution providers and seek compensation from the solution seeker.
Popular examples include NineSigma and Innocentive. Such communities also help to
find solutions across industries/sectors. For instance, when P&G was searching for a
solution to a problem in its laundry washing liquid product, it found a solution through
NineSigma and the solution came from a company that made agricultural concentrates.
(STRATEGIC DIRECTION 2009)
Literature on supplier relationship management suggests that firms can significantly
benefit if they can set up differentiated relationships with suppliers. Supplier
involvement can provide buying firms with substantial benefits that range from more
“operational” benefits, such as the earlier identification of technical problems, fewer
engineering change orders, or the availability of prototypes, to more “strategic” benefits,
such as better utilisation of internal resources, access to new or supplementary product
and process technologies, reduced technical and financial risks, improved product
features, or shorter time-to-market for new products. However, some conceptual and
empirical evidence indicates that the innovative capabilities of the supplier are
important for collaborative development.
(Gassman 2006)
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Universities represent an important source of knowledge for companies. The
partnerships between universities and industry can be seen as “vehicles for accelerating
the creation of more sustainable models of knowledge transfer and exchange” (Johnston
et al. 2010). In U.S., this interaction has been encouraged government funding as this
prompted universities to seek industry support for research (Chesbrough 2003a).
Chesbrough (2003a) also points out the example of Intel who funds university research
and, in turn, receives a royalty-free access to any useful technology that might emerge
from the Intel-funded research.
Chesbrough (2003a) suggests that a firm should look toward building a relationship
with faculty members and students who specialise in its areas of interest. He further
says that the approach should be to build personal relationships and share knowledge.
However, there are various channels under consideration such as publications, patents,
consulting, informal meetings, recruiting, licensing, joint ventures, research contracts,
and personal exchange (Agarwal 2001). A study by Cohen et al. (1998) found out that
some channels such as publications, conferences, informal conversations, and
consulting are considered more important overall for knowledge transfer and also that
different industries value different channel differently. However, it has been argued that
this differences in importance is not explained by industrial activities of firms but “e
disciplinary origin, the characteristics of the underlying knowledge, the characteristics
of researchers involved in producing and using this knowledge (individual
characteristics), and the environment in which knowledge is produced and used
(institutional characteristics)” (Bekkers and Bodas Freitas 2008).
There have been studies to explore the importance of social processes in the interaction
between universities and industry. Network intermediaries were found to play an
important role in university-industry partnerships particularly in increasing network
participation. More often than not, these intermediaries were found to have extensive
industry experience. The flexibility and openness of network structures was found to be
important as well as universities have to make an effort to understand the commercial
issues in collaboration. To facilitate sharing of knowledge of a sensitive nature, trust
and mutual understanding play an important role. Mutual understanding can be built
through developing new skills and promoting and sharing good practice. It has been
argued that universities need to change their mindset to foster a culture wherein the
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private sector and academic activity can co-exist in harmony. They need to be more
creative and responsive to the community.
(Johnston et al. 2010)
Chesbrough (2003c) points out that although university research is more comprehensive
and of better quality than in the past, there are certain difficulties in the diffusion of
those innovations in the commercial sector. In particular, cross-discipline breakthroughs
are found difficult to come by. Furthermore, as universities are allowed to patent their
discoveries, companies, especially small firms, find it difficult to benefit from the
research.
2.6.1.2 APPROACHES TO INBOUND OPEN INNOVATION
Following are the common approaches for the outside-in process:-
2.6.1.2.1 INTERNAL R&D
Firms can generally conduct R&D in-house and develop their own knowledge and
technology. Internal technology outsourcing therefore depends on R&D capabilities of
the firm and it also requires the firm to allocate resources to a specific course of
action.For example, investments have to be made in R&D employees, facilities,
equipment, and materials. These investments are usually costly to reverse (Montoya et
al. 2007). Internal R&D can further be a time consuming and complex process
compared with external sourcing alternatives (Brockhoff 1999). One major advantage of
performing in-house technology development is it can be a source of sustainable
competitive advantage due to the accumulation of scarce resources.
2.6.1.2.2 NON-EQUITY ALLIANCES
Non-equity alliances are controlled by negotiation rather than by hierarchy (Lawrence et
al. 2002). These alliances are generally based on contracts between the participating
organizations. The two types of non-equity alliances are Licensing and Joint R&D
agreements.
2.6.1.2.2.1 LICENSING
Licensing refers to the exploitation of other firms’ intellectual property within a certain
time frame (Tidd and Trewhalla 1997). In return for the grant of a license, the licensee
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has to pay a fee plus a royalty based on sales. The typical license contract specifies the
applications and markets in which the technology may be used. The contract may also
include subsequent improvements in the technology i.e. it may give the licensor (seller)
access to those improvements.
2.6.1.2.2.2 JOINT R&D AGREEMENTS
In general, these arrangements are formed between firms or organizations to collaborate
on the development of specific technologies, products or processes (Contractor et al.
2003). Joint R&D agreements involve the sharing of resources, such as groups of
engineers and scientist from each partner organization. Laboratories and investment
costs are also shared in some fashion (Hagedoom and Osborn 2003). The scope of joint
R&D agreements can range from dyadic relationships for limited projects to networks
for industry-wide or inter-industry collaboration. Process-oriented collaborations
typically involve supplier (Ruhmer and Leker 2005). But collaboration does not imply a
lack of competition between organizations.
Hence, competing organizations may also decide to engage in joint R&D agreements if
they find that it is mutually beneficial. Joint R&D agreements involve the sharing of
resources, such as groups of engineers and scientist from each partner organization.
2.6.1.2.3 EQUITY ALLIANCES
Equity alliances are based on equity ownership. Three common types of equity alliances
are minority investments, corporate venture capital investments, and joint ventures.
2.6.1.2.3.1 MINORITY INVESTMENTS AND CORPORATE VENTURE
CAPITAL INVESTMENTS
According to DUSHNITSKY AND LENOX, corporate venture capital (CVC)
investments are commonly referred to as consisting of “minority equity stakes in
relatively new, not publicly traded companies that are seeking capital to continue
operation” (Dushnitsky and Lenox 2005). In other words, established firms invest in
entrepreneurial and innovative start-up firms. CVC investments enable the firm to
closely monitor technological developments, particularly in the early stages. It creates
the opportunity to learn about emerging technologies while simultaneously involving a
relatively low level of commitment. Moreover, the investing firm does not only have the
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opportunity to learn, but also the privilege to later enter the emerging technological
field. Hence, CVC provides the option to defer commitment of significant resources. A
major advantage of CVC investments over joint ventures is while joint ventures allow
firms to access only those technologies and technological capabilities brought to the
venture by the partnering firms, minority investments as well as corporate venture
capital investments expose the full portfolio of technologies.
2.6.1.2.3.2 JOINT VENTURES
Joint ventures involve the creation of an independent organization in which two or more
firms own equity. This implies a relatively high commitment for the participating firms.
In general, each firm brings specific capabilities to the joint venture that the other firm
does not have. Roberts and Berry (1985) offers a framework – the familiarity matrix –
that accounts for the degree of familiarity with the underlying technology and also for
the degree of familiarity with the market (Roberts and Berry 1985). Joint ventures are
advantageous when innovation projects increase in size and scope and capital stakes
involved are large. Pursuing a joint venture is further advised when exclusivity of
technology ownership is critical to achieve competitive advantage. Since knowledge
flows and coordination between firms may be critical in technology sourcing
endeavours, joint ventures also enable smoother information flows and enhance
coordination and control.
2.6.1.2.4 ACQUISITIONS
In the context of external technology sourcing, acquisition refers to the full integration
of the target firm’s complete portfolio of technological capabilities (Arora and
Gambradella 1990). The decision to use acquisitions as a means for technology sourcing
can be generally based on two different motives: (1) acquiring a (specialized)
knowledge or technology base or (2) short cutting the R&D process when the firm is a
relatively late entrant in a particular technology area. In high-technology industries,
however, firms prefer other types of equity based collaborations, i.e. joint ventures or
minority investments, instead of acquisitions.
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2.6.2 THE INSIDE-OUT PROCESS
Commercialisation of existing technology within a firm is a major constituent of a
firm’s or business unit’s Open Innovation strategy. The underlying assumption is that
firms often do not fully exploit their technologies. This means that technologies which
are not being used within the firm could be licensed or sold to another firm, while
simultaneously generating additional sales (Chesbrough 2003a). West and Gallagher
(2006) point to another reason which is of major importance in an Open Innovation
environment. They argue that research discoveries sooner or later spill out into the
external environment when the firm decides not to commercialize them. In order to
create value from those R&D discoveries, firms have several options, such as licensing
those technologies to other organizations or to spin-off separate firms.
2.6.2.1 OUT-LICENSING
According to Ford (1985), licensing out technology or out-licensing can be divided into
three groups namely reactive licensing, proactive and strategic licensing. Reactive
listening refers to situations where firm decides to license its technology to another
organization based on that firm’s request for the technology. Proactive listening is
where a firm which possesses the respective technology takes the initiative to find a
potential licensee. The most deliberate and purposive use of licensing technology is
strategic licensing. Besides the need for considering the effect of technology licensing
on product sales, any licensing decision should refer to a long-term strategy for
exploiting the underlying technology.
2.6.2.2 SPIN-OFFS
A firm can also divest an entire firm unit other than licensing or selling technologies. In
contrast to the sale of technology that only involves the transfer of technology
ownership, divestment of firm units also includes the transfer of physical assets
(Lichtenthaler 2006). In this regard, spin-offs provide an adequate means of external
technology commercialization. Spin-offs are typically used as a vehicle to
commercialize these research results when they do not fit into the firm’s business.
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2.7 SUMMARY
Based on the review of the literature, a conceptual model for analysing the primary data
has been developed. The conceptual model is as shown in the Figure 2-4.
FIGURE 2-4: CONCEPTUAL MODEL FOR ANALYSIS
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3 METHODOLOGY
3.1 STRATEGY
Before the research design stage, it is necessary to decide a strategy for the research
methodology. According to Ghauri and Gronhaug (2005), there are three classes of
research design as shown in the figure below:-
FIGURE 3-1: RESEARCH STRATEGIES
An exploratory research is a valuable way of finding what is happening or to seek new
insights; and to ask questions and to access the phenomenon in new light. This purpose
of research is very useful if a researcher wants to clarify his understanding of a problem
if the precise nature of problem is not clear. The common ways of conducting an
exploratory research are case studies, literature search, expert opinion and focus group
interviews (Saunders et al. 2007).
Descriptive research portrays an accurate profile of persons, events or situations. This
may provide an extension of a part of exploratory research or an explanatory research.
In descriptive research it is mandatory to already have a clear idea of the phenomena on
which the researcher wish to collect data prior to starting the data collection process. It
is generally said that descriptive study has a very clear place in management and
business research and is “thought of as a means to a rather than end in itself” (Saunders
et al. 2007).
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The explanatory study provides a causal relationship between variables and the focus is
on studying a situation or problem to establish the relationship. Normally, quantitative
data is used to find the relationship between variables and then a further statistical test
such as correlation are produced to get a clear view of the relationship (Saunders et al.
2007).
No research strategy is considered the best. The best research strategy is the one which
helps the researcher solve the given problem in the best possible way – within the given
constraints. The choice of research strategy is also dependent on extent of existing
knowledge, amount of time and resources a researcher have as well as the researcher
own philosophical underpinnings. These research strategies should not be thought of as
mutually exclusive and it is possible to use more than one (Saunders et al. 2007).
In this paper, the intent is to identify best practices in the implementation of Open
Innovation. As the implementation of OI depends on a variety of factors, there is no
fixed procedure to do this. However, it is not merely an exploratory study because it
entails finding out why certain approaches work and others do not. Also, it involves
identify the internal characteristics of an organisation that make certain approaches
work. So, the research strategy used in this paper will be a combination of all the
approaches.
3.2 DESIGN
This section deals with an outline and justification of the approach to data collection
and the means used to collect the data.
3.2.1 DATA SOURCES
Secondary data
To solve the research problems secondary data are useful not only to find information
but also to better understand and explain the research problem. In most research it starts
with a literature review that includes earlier studies on and around the topic. It is
recommended to locate and evaluate the usefulness of secondary data first as some
research questions can be answered only through them and no further data collection is
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needed. Secondary data can also help to provide benchmarking measures to compare
results (Ghauri and Gronhaug 2005).
FIGURE 3-2: MERITS/DEMERITS OF SECONDARY DATA
Advantages of Secondary data
The primary advantage of using secondary data would have been enormous savings in
time and money.
Disadvantages of Secondary data
If secondary data had been used, it would have been to get the real picture of the process
of OI as it has been implemented in the company. Also, if it has impacted the company
negatively, it would not have been publicly disclosed. Furthermore, the data that is
available could have been collected for some other reason and would have been
inappropriate for the purpose of this study.
Primary data
Researchers collect the data relevant to their particular study or research problem when
the secondary data are not available or are not able to help answer the research
questions. This primary data can be collected by various ways like observations,
experiments, surveys, and interviews (Ghauri and Gronhaug 2005).
Advantages of primary data
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The major advantage of using primary data is the appropriateness of the data for the
purpose of the project. Furthermore, it is possible to learn about the opinions and
behaviour of the people directly involved which is important for studying the OI
approach.
Disadvantages of primary data
The main disadvantage of primary data is that it took a long time to collect. Moreover,
getting access to suitable participants was difficult due to time constraints. Another
major weakness of gathering primary data is that the researcher is fully dependent on
the willingness and the ability of respondents (Ghauri and Gronhaug 2005).
3.2.2 SELECTION OF PARTICIPANTS
The participants were selected with care to maintain a mix of all the major industries.
The participating organisations are at different stages as far as the maturity of OI
adoption is concerned. All the participating organisations are multinational
corporations.
All the participants from the companies were working in a senior capacity in the R&D
or innovation functions. In addition, a university was also interviewed to get an idea of
their perspective in university-industry collaborations. Also, the participants contained
an innovation consultants whose extensive experience in this field and his
comprehensive view on the topic of innovation represents an external source for
validating and comparing the obtained results.
The list of interviewees is shown in Table 3-1. The names have been kept anonymous
for reasons of confidentiality.
TABLE 3-1: LIST OF INTERVIEWEES
Organisation Job Title
Consultant Senior Associate
Global Academy Programme in UNIVERSITY Innovation Fellow
DEFENCE Senior Partnership Manager
BIOTECH Director
IBM Associate Partner, Strategy & Transformation
DAIRY Sales Director
STEEL Manager of New Technology and Innovation
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3.2.3 DATA COLLECTION
There are two approaches to research viz. quantitative and qualitative. Quantitative
Research is generally conducted when there are a large number of respondents involved
and the options are already predetermined.
Quantitative research is objective. Qualitative research is basically subjective in nature
and aims at in-depth description as compared to quantitative which aims at explanatory
laws. In qualitative research the research is aware roughly in advance what he is looking
for whereas in quantitative researcher know clearly in advance what he is looking for.
Qualitative research is recommended during earlier phases of research as compared to
quantitative research which is recommended during the latter phases of research (James
2011).
As per Yin (2003), Qualitative research is the approach which is used to explore,
interpret and understand the fact for some specific field or area. Generally, the data for
qualitative research is gathered from literature review in the specific field whereas
quantitative research make use of the numeric data and analysis is done on basis of
statistical data or diagrams (Saunders et al. 2007).
This paper focuses on the organisational implementation of open innovation. It is quite
difficult to quantify certain internal factors such as culture, structure etc. and external
factors such as industry environment. The objective of the study is to explore the
approaches of various organisations in detail. So, a qualitative method of data collection
has been used because it is the most suitable approach to uncover a person’s experience
and provide intricate details and understanding about of a given context and underlying
motivations, values and attitudes (Ghauri 2004; Patton 1990).
The figure below depicts some qualitative data collection techniques available:-
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FIGURE 3-3: QUALITATIVE AND QUANTITATIVE METHODS AND
TECHNIQUES
Following are the qualitative techniques that were considered:
FIGURE 3-4: QUALITATIVE DATA COLLECTION TECHNIQUES
Focus groups involve getting together several respondents and conducting a discussion
on a topic (Gibbs 1997). For the purpose of this paper, however, such an approach was
not feasible because of the geographical distances involved. Also, the time constraints
would not have allowed getting so many people together at the same time.
Interviews and case studies were both suitable approaches. A case study helps to obtain
the descriptions and interpretations of people (Stake 1995). It helps to answer ‘how’ or
‘why’ questions (Yin 2003).
The disadvantages of procuring a case study from a secondary source were outlined
earlier. However, a case study could be constructed from primary data sources such as
interviews as well. The advantage of interviews is that it is possible to ask for further
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elaboration on complex matters (Ghauri and Gronhaug 2005). So, a combination of both
the methods was deemed to be suitable.
3.2.4 DESIGNING A QUESTIONNAIRE
A qualitative interview is generally semi-structured in that it is neither a totally open
conversation nor is it highly structured. It is focussed on certain themes (Kvale 1996).
Interviews with participants were conducted in a semi-structured fashion to ensure
sufficient replication among the different interviews, but still allowing enough freedom
and flexibility during the interview to account for new insights that had not been
thought of when preparing the interview questions (Yin, 2003).
The dimensions identified in the literature review were used to structure the interview as
shown below:-
FIGURE 3-5: STRUCTURE OF INTERVIEWS
The interviewees were asked about the innovation strategy of their organisation and the
way the OI activities are organised (see Appendix I). Also, the interview concluded with
a discussion on how the interviewees felt the OI process could evolve in the
organisation.
3.2.5 DATA ANALYSIS
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For the purpose of the analysis, the variables defined in the literature review were used
to structure the findings. The gathered interview data was compared among the different
respondents following a cross-case synthesis to identify common patterns (Yin 2003).
The analysis will consist of identifying best practices from previous scientific literature
on OI and theoretical considerations stemming from relevant streams of the innovation
studies field. The statements of interviewees will then be analysed in the light of the
theoretical foundation.
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4 FINDINGS
This section will follow the stage-based process outlined in the previous section to
explore the findings from the interviews.
4.1 FINDINGS FROM ORGANISATIONS
This section will outline the findings from the interviews which were conducted with
organizations which have implemented the open innovation paradigm. As seen earlier in
the literature review section, the type of industry and
4.1.1 CASE 1: BIOTECH
BIOTECH is a US-based firm and is global leader in the development, manufacture and
marketing of molecular diagnostics products.
4.1.1.1 INNOVATION STRATEGY
The respondent from BIOTECH considered innovation as extremely important to the
success of the firm as it helped them to gain a competitive edge. Innovation is currently
one of the highest priorities of their business. The respondent went on to say:
“…We are not the only person in the market and that’s the way we can differentiate
ourselves is by providing the best and the most up-to-date and by being abreast of what
is happening…”
When asked to highlight an innovation success for the company, the respondent
mentioned a technology which “[…] generated several million in licenses and also,
probably, significantly more in products for the company”. As per the respondent, an
innovative company in the biotechnology sector has to have the ability of coming up
with new ideas and methods and taking them to market in the form of products which
enhance customer satisfaction.
4.1.1.2 THE CONCEPT OF OPEN INNOVATION
According to the respondent, open innovation has two aspects. Open Innovation, on one
hand, means working with people outside the company to share ideas. From an inward
perspective, it is about generating new ideas within the company and sharing them
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across functional units. Also, it involves creating and maintaining a culture that fosters
such an atmosphere. The respondent also mentioned that although R&D is the driving
force behind innovation, it has to be complemented by other functions. Also, most
companies in this sector tend to be very protective about their intellectual property.
4.1.1.3 THE PROCESS OF OPEN INNOVATION
BIOTECH tends to focus predominantly on inbound OI. The focus is not only on
technologies which they could use to develop new products but also ideas/technologies
which might be useful to improve the efficiency of existing organizational processes.
BIOTECH seeks external knowledge to find solutions to problems in the innovation
process or to develop an idea. However, this is done only when it is not possible or
feasible to do it within the company.
It was also revealed that BIOTECH has a dedicated technology scouting department
which is constantly on the lookout for new technologies which the organisation could
exploit. It is a small team of four people. The main responsibilities of the team are to
find and evaluate new technologies and figure ways to interact with the company to
access that technology.
To source technology from other companies, BIOTECH either employs the mode of
licensing or co-development. The respondent, however, said that a co-development
model is preferred because it fosters sharing of knowledge. BIOTECH also uses
knowledge brokers to explore areas where the organisation is lacking. In the context of
outbound OI, more often than not, it chooses to out-license technology only if it does
not find any use for it inside the company.
The ways to measure the effectiveness of OI was found to be, to a considerable extent,
matured. There are processes to track how the various technologies sourced have
benefitted the company. Also, the team also tracks the extent to which
commercialisation of existing intellectual property has benefitted the company.
4.1.1.4 IMPACT OF OPEN INNOVATION
The adoption of the OI paradigm has had a significant impact on BIOTECH. It is
mainly concerned with access to next-generation technologies and the way in which it is
done. Although there has been a minor resistance from employees to external
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technology, the respondent said that people are keen to explore and work with new
technologies. Also, the culture has begun to change although the change is quite slow.
Over the last two years, BIOTECH has followed a policy of reviewing their IP portfolio
and license technology which they are not using. However, this activity has been
primarily financially-driven. Before, BIOTECH had been very concerned about the
protection of their intellectual property.
4.1.1.5 FUTURE DIRECTIONS
The respondent is satisfied with the current IP strategy of BIOTECH. However,
BIOTECH could interact more with communities and academic groups.
4.1.2 CASE 2: DIARY
DAIRY is the largest dairy farmer-owned business in the UK.
4.1.2.1 INNOVATION STRATEGY
DAIRY considers Innovation to be so important that they have set a strategic goal that a
fixed percentage of their time and investment should be on innovation. Innovation at
DAIRY could mean anything that can be improved. So, it could mean new products or
enhancement to existing products with respect to efficiency and quality. Innovation is
also considered a key driver of organic growth.
A recent innovation success at DAIRY was the launch of a brand which was developed
by taking the best ideas from competitors and combining them into a single proposition.
DAIRY got 5 of the top 6 retailers in the UK to list it from the launch. The respondent
further said:
“…that shows (that) the combined proposition was very strong to get that level of
support from retailers at launch…”
According to the respondent, in the dairy sector or food industry as a whole, it is
necessary to frequently come up with new ideas.
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4.1.2.2 THE CONCEPT OF OPEN INNOVATION
DAIRY perceives OI as forming strategic partnerships which add value. As stated by
the respondent:
“…one of our strategic drivers is success through partnerships because we acknowledge
that we cannot be the best at everything […] clear plan to go and work with people who
can add value and it is a joint partnership rather than just going and asking someone to
be just a supplier…”
It is evident that DAIRY treats the actors in the value chain as co-creators.
4.1.2.3 THE PROCESS OF OPEN INNOVATION
Apart from the approaches of collaborating with suppliers and consumers, DAIRY has
also tied up with a company which specializes in the production of whey (by-product of
cheese) products. Initially, DAIRY used to run its own whey-product business which it
stopped and partnered with VOLAC because they have an expertise in that area. So,
DAIRY became a supplier of raw material rather than the manufacturer. The respondent
went further to say:
“…we have a complete supply chain and transparent partnership…so we give them the
raw material and they have the expertise…and that has benefitted both the companies
[…] a complete collaborative process all the way through the supply chain…”
DAIRY also uses acquisitions as a means of enhancing innovative capability. DAIRY
also tends to seek external help on key projects especially in areas like branding. The
respondent also said that DAIRY is looking to set up a dedicated innovation team in the
near future. Previously, these responsibilities were an add-on to people’s roles.
As DAIRY is a relatively young company, the respondent said that they have not yet
felt the need for formalized processes to measure the effectiveness of OI. However, it is
generally evaluated using certain business KPI’s and some other criteria such as a
diverse product base, growth and so on.
4.1.2.4 IMPACT OF OPEN INNOVATION
The adoption of OI has had a significant impact on DAIRY. The main impact has been
on the culture. According to the respondent, this change has been at all the
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organisational levels and has caused a shift in the focus and pace of the teams. The
management has been very clear in the emphasising the importance of innovation to the
business. The business has also undergone a structural change which impacted the roles
of employees
During this process of change, the company did face some resistance. However, the
issues were addressed by proper communication and convincing the people of the need
for the change.
4.1.2.5 FUTURE DIRECTIONS
From a forward looking perspective, DAIRY will look to build a dedicated innovation
team. Also, the challenge according to the respondent was to keep new ideas flowing.
4.1.3 CASE 3: STEEL
STEEL is among the top ten global steel companies. It is now one of the world's most
geographically-diversified steel producers, with operations in 26 countries and a
commercial presence in over 50 countries.
4.1.3.1 INNOVATION STRATEGY
The main motivation behind innovation at STEEL is to help the company produce
differentiated products at a low cost. As the respondent stated:
“…increasingly go forward with […] differentiated products […] in order that we have
something which is different and unique which we can charge a premium on and not
rely just on volume…”
In the last year or so, there has been an increased focus on innovation right from the top
management. Although, in the current environment, the primary focus of the
management is on increasing the sales, innovation still forms a very part of the agenda.
4.1.3.2 THE CONCEPT OF OPEN INNOVATION
The respondent’s view of OI was acknowledging the existence of external ideas which
can be exploited by the organisation and utilising external ideas where appropriate. As
stated by the respondent:
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“…you do not have to develop or have a culture trying to develop everything in-
house...”
There is awareness of the fact that, given the wide range of technologies to cover in the
steel industry, it is not possible to cover all the technologies adequately. The respondent
went further to say:
“…we do something like half a percent of the research that is done in the whole
world…ninety-nine and a half is done somewhere else…”
4.1.3.3 THE PROCESS OF OPEN INNOVATION
STEEL has recently adopted the OI paradigm and hence the processes are not currently
organised. In fact, some approaches that are followed can be deemed traditional (e.g.
contracts with companies, recruitment of PhD’s etc.). However, they have implemented
a technology-radar concept which is a process to scout for technologies in universities
or other institutions and evaluate their effectiveness. Recently, STEEL had been
involved in a consortium, which also comprised a number of universities and companies
from other sectors, formed for a specific project. Apart from this, STEEL also
collaborates with companies from other industries and across its supply chain.
According to the respondent, the steel industry has had a history of collaborative efforts.
However, most of them have focussed on process rather than product information. The
reason for this is the sensitivity and complexity of the information. An interesting
insight was that companies are ready to collaborate with companies who are not,
geographically, in their direct competition. Also, it is possible that companies are forced
to collaborate with competitors in cases where they both have a common client. This
could mean collaborative development or licensing a technology.
Currently, there is no way that the effectiveness of OI is measured in STEEL. The main
reason for this is that, in the steel industry, it takes some time before the product is
commercialised. However, the respondent said that, in the initial phases they could
measure it on a quantitative basis such as the number of projects, number of exploitable
products etc. but they need to have a financial benchmark for the long run.
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4.1.3.4 IMPACT OF OPEN INNOVATION
The impact of OI has been huge in specific areas/projects where collaborations have
increased access to technologies and saved money. However, this impact is not
observed in all areas.
4.1.3.5 FUTURE DIRECTIONS
It is believed that forming consortiums such as the one described above for all the
market segments will be beneficial to the company.
As far as the process is concerned, STEEL looks to be more systematic in technology
scouting and partner identification. Also, they would look to be more active in
identifying and approaching partners.
4.1.4 CASE 4: DEFENSE
DEFENCE is a leading prime contractor and complex systems integrator working in
partnership with government, military and civil forces and private companies around the
world.
4.1.4.1 INNOVATION STRATEGY
Innovation is currently regarded as the highest priority after generating revenue. It is a
two-pronged activity at DEFENCE. One aspect is how the internal teams innovate and
collaborate between themselves. The other aspect involves scouting for technologies
outside the company. In terms of the technologies, importance is placed on technologies
which would help develop customer-friendly products.
4.1.4.2 THE CONCEPT OF OPEN INNOVATION
DEFENCE is primarily a systems integrator. So, the focus is on integrating products
sourced from a variety of sources and building a system. The respondent states:
“…very much based on using the most innovative solutions that are out there to create
an overall package which is innovative for our customer community…”
4.1.4.3 THE PROCESS OF OPEN INNOVATION
DEFENCE uses an online portal called the Edge which the respondent defined as:
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“…Edge is a concept, program, facility, process by which they try to engage with new
and emerging technologies from non-traditional defence companies to work with our
normal defence supply chain…”
Although DEFENCE has collaborations with universities and other companies, the
Edge is the primary means of new technologies.
The ideas coming in through the Edge system are assessed for their feasibility by the
team. This process is very much informal. Since DEFENCE works at the product level
and not the component level, the technology has to conform to these guidelines. If the
team thinks the product is feasible, the company is called for a technical discussion with
the engineering team. Once they become members of Edge, they are treated as partners.
In the respondent’s own words:
“…so that even if they need help on something that is not of benefit to us, we do
provide it…”
DEFENCE has no process in place to measure the effectiveness of OI.
4.1.4.4 IMPACT OF OPEN INNOVATION
The Edge system has proved to be a great means of public relations. It has showed that
DEFENCE is looking for new technologies and that has prompted many innovative
SME’s to come forward with ideas. Also, it has changed the way the company builds its
systems. As the respondent states:
“…previously we have been just bundling up things that we believed were available
whereas now we are actually seeking out new…”
4.1.4.5 FUTURE DIRECTIONS
Currently, the OI paradigm is being implemented in specific areas of the business
primarily in the systems integration aspect. In the future, DEFENCE looks to implement
the principle throughout the organisation, notably, in its internal R&D function as well.
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4.1.5 CASE 5: ICT
ICT is a globally integrated enterprise operating in over 170 countries. Today ICT has
around 20,000 employees, bringing innovative solutions to a diverse client base to help
solve some of their toughest business challenges.
4.1.5.1 INNOVATION STRATEGY
Innovation has always been the highest priority for ICT as it is considered important for
continued growth. The innovation agenda at ICT is “innovation that matters for the
world and the company”. ICT invests heavily in research and development. A recent
innovation success is an artificial intelligence system which would be applied to
information management.
4.1.5.2 THE CONCEPT OF OPEN INNOVATION
According to the respondent:
“…open innovation is much more collaborative insofar as…rather than trying to protect
your ideas, you put your ideas out in the community, whatever the community might
be…social network etc…in order for people build on it…”
ICT believes that OI is tapping into the ideas of the vast community of developers out
there rather than the traditional model of internal R&D.
4.1.5.3 THE PROCESS OF OPEN INNOVATION
In ICT, OI is not currently organised by stringent rules. However, for the last few years,
ICT has been increasingly involving partners in the innovation process. As stated by the
respondent:
“…if we had gone back ten years ago and ICT had decided to take that on as a research
challenge, they would have recruited the talent in to try to address it…whereas now […]
brought together a consortium to work on the project…”
ICT is aware that it is difficult to address all the challenges in a project on their own and
they are ready to form partnership for this purpose. These partners involve universities,
specialist research organisations and companies. Also, ICT have begun to release their
IP in the open source domain.
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ICT also has a concept known as Jams, which started as a way involve employees in the
decision making process. But, occasionally, they do conduct public jams which involve
their customers and other third parties who they believe could add value. Although there
is no systematic process to select these third parties, it mostly done by a snowballing
method. In fact, mostly, it is open to whoever wishes to join.
ICT also has a technology scouting program which runs throughout the year and an
internal report is published at the end of the year which contains information on
emerging technologies.
ICT measures traditional innovation by the number of patents or the commercial benefit
derived from those patents. However, there is no system in place currently which could
help to measure the effectiveness of open innovation.
ICT also follows an approach called innovation discovery. In this, they take the
challenges faced by some of their clients and look at who they could partner with to
solve that problem.
4.1.5.4 IMPACT OF OPEN INNOVATION
Adoption of OI has made the culture of ICT more collaborative. As stated by the
respondent:
“…ICT research used to be relatively insular but now it is very much […] outward-
focussed, partnering, working together…”
In a way, this approach has made ICT smaller as it does not need to hire researchers for
every project but can work in partnership with them. However, it was revealed that,
even with a collaborative model, it is necessary to possess the core capabilities to make
sure that ICT can add value as well.
ICT’s approach to user innovation has also been good for its image from a CSR
perspective as well.
4.1.5.5 FUTURE DIRECTIONS
ICT would look to have more online portal-based initiatives with partners with whom
they share their IP. This would help them facilitate this approach for particular industry
verticals as well.
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4.2 FINDINGS FROM THIRD PARTIES
As outlined in the methodology section, some third party participants were interviewed
to obtain neutral insights about OI approaches. This section will summarise the findings
from interviews with these third-party experts.
4.2.1 INTERVIEW WITH UNIVERSITY
The Innovation Centre at UNIVERSITY manages and sponsors a number of projects
which aim to assist enterprises to increase their innovation potential. The
respondent acts as the Project Co-ordinator to a Scholarship programme and is
responsible for the team of Innovation Fellows that work with companies and scholars
to deliver innovative research projects.
4.2.1.1 THE CONCEPT OF OPEN INNOVATION
In the respondent’s view, open innovation implies innovating in a way that allows
others to participate and results in some kind of benefit to the organisation. The
respondent further elaborated that the benefit does not necessarily have to be financial
but can also be a benefit in terms of reputation.
According to the respondent, the main motivation behind the adoption of open
innovation for large companies is the realisation that they cannot maintain their R&D
capacities and need to source ideas from other companies either by means of
acquisitions or a two-way flow of ideas. The respondent went further to state:
“…some of them do better than the others…some of them say they are doing it…but
really they are failing on the basic principles…”
The respondent mentioned that large companies are more inclined towards sourcing
technology from other companies and building on it. However, they are not keen on
sharing everything that might be of value to them.
The respondent opined that the SME’s are better at implementing open innovation
because they are more flexible. Also, they have less number of stakeholders than larger
companies. The respondent mentioned the role of leadership in implementing open
innovation when she stated:
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“…and generally there is just one personality…it only takes one personality to be open
to the idea for it to be adopted…whereas the larger companies…they have to deal with
shareholders…they have to deal with the larger board…they have to deal with
investors…”
4.2.1.2 THE PROCESS OF OPEN INNOVATION
UNIVERSITY works with companies to encourage them to build networks. It helps
coordinate the flow of ideas between companies and universities i.e. it basically acts as
an intermediary between businesses and universities. Although there is no innovation
done at the university itself, they join with other universities to generate new methods of
teaching similar to business to business partnerships.
4.2.1.3 IMPACT OF OPEN INNOVATION
The impact of open innovation is measured by firms based on individual targets like
generating ideas or IP licensing or commercialisation. The respondent said that they
should also assess how far it is contributing to the overall aim of the company.
4.2.1.4 FUTURE DIRECTIONS
The respondent mentioned that people should understand the real meaning of open
innovation because there is no consensus among practitioners about the real meaning of
the concept.
4.2.2 INTERVIEW WITH CONSULTANT
The respondent acts as the Innovation Consultant and is responsible for the
development and delivery of innovation programs to the clients and helping them to
become more innovative by looking at their models and people skills.
4.2.2.1 INNOVATION BACKGROUND
The respondent held innovation to be extremely important as it helps in maintaining the
competitive advantage is a fast changing environment.
4.2.2.2 THE CONCEPT OF OPEN INNOVATION
In the respondent’s view, open innovation is almost a mindset on how to use the
resources to achieve a predefined goal. The respondent further elaborated that the open
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innovation is not just working within your capabilities but also working with other
organizations/Competitors and managing the process such as your customers and
suppliers. The respondent also stated that issues that could arise when working with
competitors to develop open innovation can be avoided by setting up target goals,
removing barriers and also in the selection of competitors.
According to the respondent, the Open innovation model can be applied across all the
industries and in any organization and the difference in this process could occur because
of time scales or legislation procedures like in the Aircraft Industry.
The respondent feels that the effectiveness of Open innovation can be measured by
determining the number of successful Open innovation projects a firm rolls out and also
from the returns the firm gets from the investment.
The respondents states that role of consultants in the future will mostly involve bringing
out the best practices on how to use the resources for OI and helping to find appropriate
partners.
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5 DISCUSSION AND ANALYSIS
This chapter discusses the results from the interview and analyses them in the light of
the extant theory about open innovation. To put the discussion in perspective, it is
necessary to have an overview of the participants with respect to the maturity of their
implementation of open innovation.
STEEL and DAIRY have adopted the open innovation within the last five years
whereas all the other organisations have been practising it for a considerable time. ICT
has been practising it the longest i.e. for more than 10 years. Based on the number of
years that the participants have adopted it, they have been assigned to three stages as
depicted in
FIGURE 5-1: OI ADOPTION TIMELINE OF PARTICIPANTS
5.1 THE CONCEPT OF OPEN INNOVATION
di Benedetto (2010) has argued that there is currently no generally accepted definition
of the term open innovation. The opinion of the university also highlighted the lack of a
clear definition among practitioners. The findings from the interviews corroborated this
argument. However, a cross-case analysis of the various interviews identified certain
themes as shown in Figure 5-1. The themes identified were classified into internal and
external aspects.
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FIGURE 5-2: THEMES IDENTIFIED FOR THE CONCEPT OF INNOVATION
The external aspects gave an insight into the motivations of the participants to adopt the
OI paradigm. Accessing external ideas or knowledge exploration (Lichtenthaler and
Lichtenthaler 2009) was found to be the primary motivation behind the adoption of OI.
This could point to the reason that the implementation of OI is skewed towards inbound
activities as revealed by some studies (Chesbrough and Crowther 2006; Enkel et al.
2009; Lichtenthaler 2009a; Lichtenthaler 2009b). However, this view of open
innovation as a knowledge exploration activity has subtle differences. Some participants
preferred to collaborate with partners to invite their contributions whereas some firms
relied on outsourcing aspects of R&D.
The firms which relied on outsourcing R&D were found to be in the initial stages of OI
adoption. This lends credence to the findings of Gassmann et al. (2010) who suggested
that the first step towards OI is outsourcing R&D to reduce costs and risks. The
motivation behind R&D outsourcing was found to be a response to the innovation
impediments suggested by Keupp and Gassman (2009) viz. lack of capability or access
to information and risk management. Also, reducing the time and cost of development
was found to be another motivation (Howells et al. 2008).
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The primary motivation behind a mindset of collaboration in some firms was that it is
very difficult to cover all of the technologies required to deliver complex projects. This
corroborates the suggestion of Gassmann (2006) that technology convergence in certain
industries is the driving force behind the adoption of OI. It also highlights the effect of
turbulent industry environments on the predominant inbound activities of firms
(Tushman and O'Reilly III 2002).
The collaboration perspective on open innovation also evinced several differences
among the participants’ views. One participant viewed it as collaboration along the
supply chain. However, Chesbrough (2011) suggests that open innovation involves
more partners than just the traditional actors in the supply chain.
Among the internal aspects mentioned, generation of ideas within the company was
given relatively less importance. This suggests that the reliance on internal R&D, which
was the defining factor in the traditional vertically-integrated model of innovation, is
declining. However, respondents from BIOTECH and ICT noted that it is still very
important but it needs to be complemented by external ideas and other functions within
the firm. Also from an external perspective, building of internal knowledge capabilities
to enhance the viability of the organisation as a partner in collaborative ventures was
emphasised by ICT.
The other internal aspects that came up were interdepartmental communication and
building a culture which supports innovation. The interview with DEFENSE
highlighted the importance of team-building activities and office environment to foster
an atmosphere of innovation in the firm.
5.2 THE PROCESS OF OPEN INNOVATION
It was observed in the literature review that firms place more emphasis on inbound OI
than outbound OI. This was also found during the interviews as is evident in the earlier
section.
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5.2.1 THE OUTSIDE-IN PROCESS
In order to understand the approaches taken, it is necessary to identify the sources most
commonly used by the participants. The most common sources used by the firms are
depicted in the figure shown below:-
FIGURE 5-3: MOST COMMONLY USED SOURCES
Most firms have shown a propensity to seek knowledge from universities as depicted in
Figure 5-3. This is in contrast to the findings of Laursen and Salter (2004) who revealed
that universities only hold a modest importance in the innovation activities of firms in
Europe. However, BIOTECH shows less linkage to universities. This is in line with the
study conducted by Chiaroni et al. (2009), which highlights the marginal role played by
universities in the bio-technology industry.
Customers and suppliers were found to be major sources of external information as
depicted in the Figure and as suggested by a majority of the literature (Bughin et al.
2008; Gassman 2006). The use of independent specialists (Bughin et al. 2008) was
found to be rare and was only done by firms in an advanced stage OI adoption.
Customers and suppliers were observed to be treated as partners in the innovation
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process. This demonstrates the evolution of business models as suggested by
Chesbrough (2007).
Most firms used other companies as a source of technologies or ideas. This echoes the
findings of a survey conducted by ICT (2006) which revealed that 75% of about 750
CEO’s, who were interviewed, consider employees and other companies as the primary
sources of information. However, the motivations of the participants behind interacting
with companies differed slightly.
BIOTECH highlighted access to next-generation technologies for new products as a key
driver to interact with other companies. This could be due to the rise in the level of
innovation output in companies with small patent portfolios (Kleyn and Kitney 2007).
STEEL and ICT used external companies to address deficiencies in internal capabilities
or resources or to access technologies to reduce time and costs. This echoes the view of
Howells et al. (2008) who argued that reducing R&D costs and information access
could be the driving forces for OI adoption.
The consideration of collaborations with companies was also found to have differences
when the target firm was a competitor of the incumbent firm. STEEL collaborated more
on the process side to share benchmarking information etc. The motivation behind
collaborating on the process side was that collaborating on product technologies is more
sensitive, especially when firms compete in the same geographic region. This
reluctance to share sensitive information could be due to the threat of opportunistic
behaviour (Gulati and Singh 1998). Also, the respondent highlighted cases where
collaboration was by necessity rather than by intent. A situation where both companies
are acting as suppliers to a single organisation is one such example.
DEFENSE interacted with companies to obtain technologies to build products. The
reason for this could be the difficulties associated with developing products with long
timelines, which is a characteristic of the defence sector, and which makes updating
technology through technology insertion necessary (Kerr et al. 2008).
It is interesting to see the stage of the innovation process in which participants involve
other companies. All the participants except DAIRY involved other companies in the
initial stage of the innovation i.e. front-end of innovation when the ideas new ideas are
sourced. DAIRY involved other companies in the commercialisation stage in areas such
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as branding etc. This highlights the role of inter-organisational networks in the
commercialisation of products resulting from innovation. Such networks have received
less attention than R&D networks in the academic literature. However, as argued by
Vanhaverbeke and Cloodt (2006), these networks are equally important for market
success and profitability of new technologies or products.
The stage of OI adoption (Figure 5-1) was also found to play a role in the scope of the
firms’ knowledge exploration activities. It could be inferred from this that the search
breadth (Laursen and Salter 2006) of firms broadens with the maturity of OI adoption.
5.2.1.1 APPROACHES FOR INBOUND OI
In the table given below, the frequency of the approaches used has been assigned a
weight. Using this approach it is simple to see which approaches are frequently used.
TABLE 5-1: INBOUND OI APPROACHES AND THEIR FREQUENCY
BIOTECH DAIRY STEEL ICT DEFENSE Total
Strategic Alliances 3 3 2 3 3 14
Tie-ups with Higher Education Institutions 1 3 3 3 3 13
Co-development 1 1 2 2 3 9
Online portals 1 1 1 3 3 9
Intermediaries (Knowledge brokers) 2 1 1 1 2 7
Industry Consortiums 2 1 2 3 2 10
Acquisitions 2 2 1 3 1 9
Focussed Scouting 3 3 2 3 3 14
Contributions from community 1 2 1 3 1 8
In-licensing 2 2 2 2 3 11
Total 18 19 17 26 24
It is important to note the distribution of the various organisational modes. Not all the
participants use all the organisational modes with the same frequency. The Figure 5-6
below shows the total frequency of inbound approaches by each individual firm:-
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FIGURE 5-5: INBOUND OI APPROACHES BY FIRM
It is evident from the above figure that ICT and DEFENCE are ahead of the other
participants in terms of inbound activities. Thus, the maturity of a firm with regard to
open innovation implementation may play a part in its use of the various approaches.
The organisational modes and their frequency are compared in Figure 5-5.
FIGURE 5-6: INBOUND OI APPROACHES AND THEIR FREQUENCY
It is evident from the above figure that the most commonly used approaches are tie-ups
with universities, focussed scouting and strategic alliances.
5.2.1.1.1 FOCUSSED SCOUTING
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A major finding from the data collection was the awareness of environmental scanning
processes in the participating firms. Almost all the participants had some sort of
environmental scanning process. However, the maturity of this process differed
according to the maturity of the firm in OI activities as shown in Figure 5-6.
FIGURE 5-7: EVOLUTION OF FOCUSSED SCOUTING IN FIRMS
As shown in Figure 5-7, the firms who had begun adopting the open innovation
paradigm recently like STEEL showed sporadic technology-scouting activities whereas
all other firms evinced mature and developed processes for technology-scouting.
In the initial stages, it was observed that firms tend to treat environmental scanning as
an add-on to the existing responsibilities of employees and the frequency is also
sporadic. However, after making the transition to an intermediate stage, there is a
restructuring to set up a dedicated team to handle innovation tasks which also include
technology-scouting.
Companies in the advanced stage had proper process to ensure the diffusion of the
information collected through environmental scanning. ICT, for instance, publishes an
annual report which contains information on the emerging technologies with projections
as far ahead as five to ten years.
In the literature review, the absorptive capacity of the firm was found to rely on
organisational structure as well internal capabilities. However, the findings of this study
suggest that the determinants of absorptive capacity depend on the nature of business of
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the firm. In case of ICT, internal capabilities were found to be very important whereas
in case of DEFENSE they were found to be beneficial but not indispensable.
5.2.1.1.2 TIE-UPS WITH UNIVERSITIES
The linkage with universities among the participants was found to be of varying depth.
The approaches ranged from hiring PhD’s (STEEL) to forming consortiums comprising
universities (ICT). DAIRY seemed to be having an ongoing tie-up with universities in
the areas of farming best practices and innovation. This could possibly be because of its
emphasis on process innovation.
BIOTECH was found to be making the least use of universities in its inbound activities.
According to Kleyn and Kitney (2007), possible reasons could be one of the following:-
lack of funding for university research
pricing pressures from industry partners
disagreements on IP ownership
asymmetry of industry and university capabilities in partnering
lack of administrative support with excessive bureaucracy from universities
The hindrance in university-industry partnerships arising from the asymmetry of
industry and university capabilities in partnering has also been identified by Johnston et
al. (2010).
5.2.1.1.3 CONSORTIUMS
ICT and STEEL are heavily involved in consortiums comprising companies,
universities and specialist research organisations. ICT and STEEL also pointed out the
inability to cover a wide range of technologies as the driving force behind inbound open
innovation. So, consortiums could possibly help in projects that require the application
of a wide array of technologies.
A recent project in which STEEL was involved also included funding by the
Government. According to Levy and Samuels (1992), government funding is an
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important motivation for firms to join consortia. As the steel industry is characterised by
high capital costs, forming such consortiums is also beneficial to the company from a
monetary perspective.
However, the consortiums which emerged during this study are all project-based i.e.
formed for a specific project. These projects were complex undertakings which required
application of a wide range of technologies. For instance, the project that ICT was
involved in required the use of technologies ranging from information management to
linguistics.
5.2.1.1.4 ACQUISITIONS
Acquisitions with innovation as a key driver emerged as a frequent approach. ICT was
the firm which most commonly employed acquisition. However, the percentage of
acquisitions wherein innovation was a key driver is not clear. However, this reliance on
acquisitions is in line with the sentiment which was expressed by the respondent - of
owning rights to technologies that are used within the company. This opinion was also
expressed in the interviews with consultants about attitudes of large firms.
5.2.1.1.5 CO-DEVELOPMENT
Co-development was found to be less common in BIOTECH and DAIRY than the other
companies. BIOTECH showed an interest in co-development only if the technology is
something special. Also, an intention of investing in the company was shown only if the
company is smaller in size.
From the above discussion, the following factors were found to be important in co-
development decisions:-
Importance of target technology
Size of target company
Necessitating Circumstances
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Figure 5-4: Factors affecting approaches toward target companies
On the whole, some factors that affected the approaches employed by the participants
were identified which are shown in Figure 5-4. The approaches seem to have been
influenced by the size of the companies with whom they are interacting and the nature
of their business. The nature of their business is critical in terms of the threat of
competition. The importance of the target technology to the incumbent firm was also
observed to play a part as in the case of BIOTECH.
5.2.2 THE INSIDE-OUT PROCESS
The outbound activity of open innovation was used less frequently by all the
organisations. This is in line with the imbalance between inbound and outbound
activities revealed in the literature. The interviews with the consultants and the
university also revealed similar patterns. The main outbound activities identified among
the participants are shown in the Figure 5-7.
FIGURE 5-5: COMMON OUTBOUND ACTIVIES
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Licensing, as expected, was found to be more common with firms and industries
characterised by high technology intensity. This corroborates the findings of Ferrary
(2011). However, the motivation behind this activity differed among the participants.
BIOTECH mainly indulged in licensing-out to commercialise its patents. However, this
decision was commercially driven and it only licensed those technologies which are not
being used within the organisation. So, importance of the technology to the incumbent
firm can be understood to be an important factor in decisions on the IP portfolio.
STEEL showed reluctance to license technologies to companies with whom it competed
in the same geographic region. In some situations though, such as when two firms are
acting as suppliers to a third company, licensing to competitors becomes necessary.
STEEL, however, showed a propensity to collaborate with companies with whom it
does not directly compete in the same geographic market. The main outgoing
knowledge in such cases was information about processes.
ICT was the only firm in the sample which shared its ideas or technologies with the
community. However, this could well be due to the emergence of open source software
as a powerful tool for collaboration. The main motivation behind the licensing-out and
community sharing for ICT was found to be to invite contributions from community.
This kind of model, however, could prove to be infeasible in other industries where
R&D involves more expenditure and is beyond the means of an individual or small
firm.
The last outbound activity was found in the case of DAIRY who supplied the by-
product of their manufacturing process as a raw material for another product.
Although, they made use of that by-product within the company, initially, they
stopped and supplied it to another company who possessed the expertise to manufacture
the second product. This kind of outbound activity is not uncommon in manufacturing
industries. There are some by-products of the iron and steel industry viz. foundry sand,
mill scale and slag which can be used in the cement industry. Following the approach of
DAIRY, who partnered with another organisation to utilize a by-product more
efficiently, is something which could be done in other industries.
Based on this discussion, the following factors were found to be important for outbound
activities of open innovation:-
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Importance of technology to the incumbent firm
Perceived threat of competition
Expectation of reciprocation
Commercial Interest
FIGURE 5-6: FACTORS AFFECTING OUTBOUND OPEN INNOVATION
5.3 SUMMARY
This section compared and contrasted the motivations of participants to adopt open
innovation and their approaches. It also attempted to identify the factors affecting
collaboration between firms in both outbound and inbound open innovation.
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6 CONCLUSION
This chapter discusses the conclusions and implications of the research. The
conclusions give an overview of the results of this exploratory study and the trends
identified in the open innovation activities of firms in the sample. The implications are
discussed from the point of view of innovation managers and innovation intermediaries.
Subsequently, limitations to this research and opportunities for future research are
discussed.
6.1 CONCLUSIONS
The aim of this study was to review the theory and practice of the approaches and
strategies of the firms which practise open innovation. In order to put the practices in
perspective, it was necessary to identify the influence of internal and external factors
and the innovation background of firms.
An extensive review of the extant literature about innovation was undertaken to
understand the innovation process. This helped to lay the foundations for understanding
the open innovation paradigm. This was followed by research on the motivating factors
for open innovation. To understand the open innovation paradigm, it was explored from
the perspectives of “content, context and process”. The context helped identify the
internal and external factors affecting the implementation of open innovation. The
process section dealt with the different OI activities of firms.
As a primary source of information, in all 7 interviews were conducted. Out of these,
five interviews were conducted with firms who are practitioners of open innovation.
The other interviews were conducted with other actors in the open innovation eco-
system viz. universities and consulting firms. This helped to understand the
implementation of open innovation from a neutral perspective and, thus, eliminate any
prejudice which might creep in the interviews with firms.
An attempt to explore the motivations of the firms behind the adoption of OI did not
reveal any factors which have not been discussed in the existing literature on the topic.
The firms in technology-intensive industries pointed to reducing R&D costs and access
to information as the primary motivating factor. Another factor, which was highlighted,
was access to next-generation technologies.
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The motivations behind OI adoption were observed to be influenced more by the
industry characteristics than the internal attributes of the firm. Thus, OI adoption was
found to be more a response to the environment in the initial stages than a strategic
intent of the firm. However, it later evolved into a core strategy as can be seen in the
case of ICT.
The results regarding process pointed to an imbalance between the inbound and
outbound activities of firms. There were few common patterns in the approaches of the
firms which again could be because of the impact of the firm’s internal environment and
the industry environment in which it operates. Also, an important observation is that the
scope and depth of the participants’ open innovation activities varied with their maturity
with regard to the implementation of open innovation.
6.2 LIMITATIONS OF THE STUDY
The research work underlying this report is based on an exploratory, data-rich research
design employing a multiple case study methodology (Yin, 2003). One inherent
limitation when choosing this approach is that due to the limited number of cases
analysed, generalizations regarding the industry as a whole or even on company-type
level are difficult to make. The results only reflect the individual and subjective
perception of the chosen interviewee on the position of his company towards open
innovation.
6.3 OPPORTUNITIES FOR FURTHER RESEARCH
The findings of this study suggest that the approaches of companies vary according to
how long they have been practising the open innovation paradigm. It will be interesting
to conduct a quantitative study to test this hypothesis. Also, there has been relatively
less research done on outbound open innovation. The factors identified above which
were observed to affect decisions regarding outbound activity could be substantiated
with further research.
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7 APPENDIX I
7.1 INTRODUCTION
In high-technology firms, to maintain a competitive edge, it is the responsibility of the
management to churn out new products and services based on continuous process of
technological innovation (Martin 1994). However, in today’s competitive marketplace and the
increasing use of the Internet, it is important for even companies not operating in high-
technology industries to continuously innovate (Clay 2011). Thus, innovation does not
necessarily mean changing the operating technology but also operational processes in some
industries. However, the fear of change is one of the primary hurdles in the process of
continuous innovation (STRATEGIC DIRECTION 2006). This project is going to explore the
various issues in management of change caused by innovation of various types in high-
technology firms. It will also suggest ways to implement and sustain that change.
7.2 SCOPE/RATIONALE OF THE PROJECT
Martin (1994) describes a simplified process of innovation with the help of the innovation chain
equation which depicted in the figure below:
FIGURE 7
Adapted from (Martin 1994)
The project will classify the different classes of innovation that are commonly observed in
technology-based industries. These could be Business Model innovation, Process Innovation,
adoption of new technology etc. The project will analyse the most common classes in the light
of the above model and various other models available in the literature. The degree of
integration of business/corporate strategy and technology strategy will be evaluated.
The project will describe how the final product in each innovation class may affect the
organisation i.e. what changes may have to be made. . In this section, the impact of the
innovation on the human aspect of the organisation will also be explored. Recommendations
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will also be given about the manner in which the changes should be made. While making
recommendations, the innovation process will be viewed from a sustainable and long-term
perspective
These recommendations will differ based on the organisation as well as the industry
characteristics. So, a description of the various organisational factors that affect the innovation
chain along with a description of the industry-specific factors will be given. Also, an analysis
about how far these factors affect the innovation process and the management of change will be
done. This will help in drawing out industry-specific best practices and more generic best
practices.
To innovate successfully, an organisation will have to be equally competent at each stage of the
innovation chain. Achieving this competence requires change in various aspects of the
organisation. The project will describe the organisational changes required at each stage of the
innovation chain equation. Recommendations will be made for the best practices to be followed
by an organisation to be an effective innovator.
The focus of the project will be more on the organisational dimension of the innovation process
rather than the technical part. The importance of the role of various stakeholders will be
explored.
7.3 METHODOLOGY
For the first section, a questionnaire will be sent out to various companies about which classes
of innovation are most common. A collection of the most commonly observed will be used for
further study.
The second section will attempt to gather case studies for each class and analyse the case to
determine the manner in which the change was managed. The case studies will be live from the
industry or ones available through literature. Requests will be sent out to employees of
companies to describe the innovation process followed in their organisation. And analyses of
these live case studies will be done using a literature review. Recommendations will be given
according to the findings.
The third section will analyse all the cases and determine some generic best practices which
could be applied in any industry. The analysis will be done using solid empirical evidence and a
literature review.
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67 Bradford University School of Management
This section will concentrate more on the changes required for an organisation to be an effective
innovator. This will be done using survey and then analysing the results of the surveys in the
light of available literature. Recommendations will be given on the basis of the analysis.
7.4 ASPECTS OF MBA SYLLABUS USED
Management Consulting
Management of Change
Strategic Management
Project Management
7.5 PROPOSED TABLE OF CONTENTS
1. Introduction
1.1. Background
1.2. Research Aims
1.3. Overview of methodology
2. Innovation in technology-based firms
2.1. Overview
2.2. Analysis of survey
2.3. Interaction of strategic goals
3. Management of resulting change
3.1. Analysis of case studies
3.2. Recommendations
4. Factors affecting Innovation
4.1. Industry factors
4.2. Organisational factors
4.3. Best Practices
5. Innovative Organisations
5.1. R&D Practices
5.2. Organisational Cultures
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5.3. Organisational Structures
5.4. Impact on Employee Satisfaction
5.5. Recommendations
6. Conclusion
7. Appendices
8. References
9. Bibliography
7.6 PROJECT TIMELINE
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8 APPENDIX II
8.1 QUESTIONNAIRE FOR UNIVERSITIES
I am conducting this interview on behalf of BIC Innovation. It is part of a study to
explore the approaches and best practices to Open Innovation. I assure you that the
contents of this interview will be treated as confidential. Although quotes might be
used, they will be anonymous and will not be attributed to you or your organisation.
Interviewee details
Name
Designation
Company
Interview date
Q1 Ask them their role in their organisation and their responsibilities.
.... so before I ask you specifically about Open Innovation I would like to ask you about
innovation more generally.
1) How important is innovation at X? So why do you say that,
2) How important vs. other priorities within the business? Why
3) Are there any specific innovation successes that you would highlight? Why
4) In your opinion, which companies in your industry do you regard as being
especially good at innovation? Why do you think they are good?
Now, I’d like to turn to Open Innovation
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5) In your opinion, what exactly is open innovation? How would YOU define it?
Probe fully
6) Which businesses and organisations do you see as leading practitioners in Open
Innovation and why? (Consider – who are the top 5?)
7) How is OI currently used in X? Describe how it is organised (diagram), and the
approaches taken. (Probes: Solutions to problems, NPD, enhancements to
existing products etc.)
8) How frequently does X employ the following approaches?
Frequently Sometimes Never
Strategic Alliances 1
Tie-ups with Higher
Education
Institutions
1
Collaboration with
other companies
1
Online portals 1
Intermediaries
(Knowledge
brokers)
1
Industry
Consortiums
1
Acquisitions
Focussed Scouting 1
Contributions from
community
In-licensing
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Out-licensing
9) How is the effectiveness of OI measured within the business?
10) How, in your opinion, has OI impacted your organisation? (Probe for each of
impact on turnover, profit, amount of new products/services launched,
employees, innovation culture, IP etc.)
11) So, has the way you use Open Innovation changed significantly from today
compared to, say, 3-5 years ago? What are the major differences? Why?
12) Thinking ahead say over the next 3-5 years, ideally, in what ways would you
like to fully utilise open innovation to ensure it impacts significantly on your
organisation?
13) How do you see X’s approach to OI evolving in the future? What sort of
approaches would you propose, (we understand this is not policy or strategy but
more a desire the needs developing)
8.2 INTERVIEW QUESTIONNAIRE FOR COMPANIES
I am conducting this interview on behalf of BIC Innovation. It is part of a study to
explore the approaches and best practices to Open Innovation. I assure you that the
contents of this interview will be treated as confidential. Although quotes might be
used, they will be anonymous and will not be attributed to you or your organisation.
Interviewee details
Name
Designation
Company
Interview date
Open Innovation Approaches UB:10017501
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1) Ask them their role in their organisation and their responsibilities.
.... so before I ask you specifically about Open Innovation I would like to ask you about
innovation more generally.
2) How important is innovation at X? So why do you say that,
3) How important vs. other priorities within the business? Why
4) Are there any specific innovation successes that you would highlight? Why
5) In your opinion, which companies in your industry do you regard as being
especially good at innovation? Why do you think they are good?
Now, I’d like to turn to Open Innovation
6) In your opinion, what exactly is open innovation? How would YOU define it?
Probe fully
7) Which businesses and organisations do you see as leading practitioners in Open
Innovation and why? (Consider – who are the top 5?)
8) How is OI currently used in X? Describe how it is organised (diagram), and the
approaches taken. (Probes: Solutions to problems, NPD, enhancements to
existing products etc.)
9) How frequently does X employ the following approaches?
Frequently Sometimes Never
Strategic Alliances 1
Tie-ups with Higher
Education
Institutions
1
Collaboration with
other companies
1
Online portals 1
Intermediaries
(Knowledge
1
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brokers)
Industry
Consortiums
1
Acquisitions 1
Focussed Scouting 1
Contributions from
community
In-licensing 1
Out-licensing 1
10) How is the effectiveness of OI measured within the business?
11) How, in your opinion, has OI impacted your organisation? (Probe for each of
impact on turnover, profit, amount of new products/services launched,
employees, innovation culture, IP etc.)
12) So, has the way you use Open Innovation changed significantly from today
compared to, say, 3-5 years ago? What are the major differences? Why?
13) Thinking ahead say over the next 3-5 years, ideally, in what ways would you
like to fully utilise open innovation to ensure it impacts significantly on your
organisation?
14) How do you see X’s approach to OI evolving in the future? What sort of
approaches would you propose, (we understand this is not policy or strategy but
more a desire the needs developing)
8.3 INTERVIEW QUESTIONNAIRE (CONSULTANCIES)
I am conducting this interview on behalf of BIC Innovation. It is part of a study to
explore the approaches and best practices to Open Innovation. I assure you that the
contents of this interview will be treated as confidential. Although quotes might be
used, they will be anonymous and will not be attributed to you or your organisation.
Interviewee details
Open Innovation Approaches UB:10017501
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Name
Designation
Company
Interview date
1) Could you provide me an overview about your roles and responsibilities in your
organisation?
2) In your opinion, how important do you think innovation is in today’s fast paced
world?
3) In your opinion, which companies in your industry do you regard as being
especially good at innovation? Why do you think they are good?
Now, I would like to turn to Open Innovation.
4) What exactly is Open Innovation, in your opinion? How would you define it?
5) Which companies do you regard as being leading practitioners of Open
Innovation? Why do say that? (Probes: Do companies inadvertently place more
emphasis on inbound OI than on outbound OI? Is it the idea-generation or the
idea-exploitation capability of these firms that makes them good? Is it because
of the culture? Organisation Structure? )
6) Would you say that the Open Innovation model can be applied across all
industries and in any organisation?
Probes:
If No, What aspects govern this decision?
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If Yes, How do the approaches employed differ based on industry and
organisational attributes?
7) In your view, how should the effectiveness of OI be measured in an
organisation?
8) How do you envision the role of consultants evolve as OI matures over the
years?
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9 APPENDIX III
9.1 INTERVIEW WITH STEEL
Roles and Responsibilities
My role is a new role and it has been in existence only for 6 months. Job title is Manager of new
technology and innovation. Role has 2 parts: Look for new technologies generated outside of
Tata steel and we can utilise for developing our products. Generating technology radar for the
number of people inside Tata steel mainly from universities and have a place to evaluate on
what to do with these technologies. Second part is to stimulate innovation across the company
and placing a more systematic way of putting innovation.
How important is innovation at X? So why do you say that,
Very important mainly because there would be ever only be one low cost steel producer and it
will be Tata. We would like to go forward with differential products and things like that. We
have something unique and different where you can invest your premium on and not rely on
volume. Over the last year, there has been a real increase in stress on that we need to be more
innovative from the top of the company.
How important vs. other priorities within the business? Why
Given the market conditions, the senior management attention is more on survival like
generating more revenues through increased sales. Having said that, just to give an example two
months ago , we had an innovative session where we presented some new ideas to chief
commercial and chief technology officers and they have committed that the these ideas should
be coming in. So, even in the current climate, there is lot of stress on innovation.
Are there any specific innovation successes that you would highlight? Why
The ‘SPECIFIC’ project at Tata steel and is a good example of OI. Tata steel with 30 different
companies like BASF and a wide range of universities have built a consortium to develop an
envelope which is basically an energy source using a large source of funds (£30 million over 5
years) coming from the UK government to get that centre off the ground.
In your opinion, which companies in your industry do you regard as being
especially good at innovation? Why do you think they are good?
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TKS, Arcelo and Mittal are very good in releasing new products quickly and constantly
and I think they are not that innovative in producing products but may be they have an
innovative marketing strategy. The third company that is not that innovative at this
moment but are putting place the right culture and infrastructure is Plasco.
In your opinion, what exactly is open innovation? How would YOU define it?
It’s a willingness to share ideas and not struck in holding all the IP, and acknowledging
people out have ideas which you can make use of and not always have to innovate
everything on your own.
Which businesses and organisations do you see as leading practitioners in Open
Innovation and why?
How is OI currently used in X? Describe how it is organised.
It is used in an Ad hoc and infrequent manner at the moment. Most of the collaborations
we have are not OI’s as they are more traditional contracts with companies, sponsored
PHD’s from the universities. You would struggle to see OI concepts inside Tata steel at
the moment as we have just started.
What was the reason for Tata steel to adopt OI
Tata R and D has a large population of 600 researchers and if you look at the number of
technologies that these people need to look for, it is just 0.75 percent per person looking
on these technologies areas. In other words, with the wide range of technologies we
need to look for, we can’t do everything in house and this is a big driver from the
technology radar point of view for us to use.
What are the various collaborations inside Tata steel other than universities and
PhDs??
Yes, there has been a wide range of collaborations. The steel industry is always open to
collaboration in developing lots of projects through the European coal and steel funds.
These collaborations are basically on processes and not on products as this becomes
more sensitive.
What is the reason to collaborate only on process and not on products?
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In terms of products, we cannot collaborate with companies inside the same geography.
Other thing is that the auto industry has always insisted on two suppliers on every
product and you are sometimes forced to license technologies to competitors. To give
you one more example, we are collaborating with a new company called Dizol which is
an Australian company and they are done with help from the Welsh government.
How frequently does your organisation employ the following approaches?
Frequentl
y
Sometimes Rarely Never
Strategic Alliances 1
Tie-ups with higher education
institutions
1
Co-development 1
Online Portals 1
Intermediaries 1
Industry Consortiums 1
Acquisitions 1
Focussed Scouting 1
Community Sourcing
In-licensing 1
Out-licensing 1
How is the effectiveness of OI measured within the business?
No, not right now.
In your opinion, can you let me know how effectiveness of OI should be measure
inside Tata steel?
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Initially, it needs to be measured on the number of projects termed as ‘OI’ and also by
the number of products that are developed through OI and reach the market.
How, in your opinion, has OI impacted your organisation? (Probe for each of
impact on turnover, profit, amount of new products/services launched, employees,
innovation culture, IP etc.)
In one area of the company where I described about this specific project, the impact is
huge. In terms of availability of people and money, OI has increased these resources
almost by 50%.
Thinking ahead say over the next 3-5 years, ideally, in what ways would you like to
fully utilise open innovation to ensure it impacts significantly on your
organisation?
Currently we have 7 sectors; I would expect the same in most of these market sectors.
How do you see X’s approach to OI evolving in the future? What sort of
approaches would you propose, (we understand this is not policy or strategy but
more a desire the needs developing)
We have to become more systematic in identifying opportunities i.e. funding from the
government and also in identifying partners to collaborate rather than react to other
people initiatives.
9.2 INTERVIEW WITH BIOTECH
Roles and Responsibilities
Managing Director. Has overall responsibility for the site at Cardiff including Operations, Tech
Support, Finance, Insurance and regulatory affairs Reports to HQ at San Diego
Importance of Innovation
Extremely important...It is what gives us the competitive edge...
Importance versus other priorities
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I would say it is one of our highest priorities because we are not the only person in the
market...And that is the way we can differentiate ourselves...is by providing the best and the
most up-to-date and being abreast of what is happening.
Specific Innovation Successes
Luminescent technology developed at Cardiff
It has generated several million in licenses and also, probably, significantly more in products for
the company.
Innovative companies
Kayagen
Roche Diagnostics
They seem to be good at generating new ideas and methods and getting them to market quickly
in a customer-friendly format.
About generation of ideas; most of the time the ideas that are developed are those which are
generated inside the company.
Definition of Open Innovation
You can look at it from two ways...It is either open outside of the company in which you share
and work with other people in those areas which is something I think we do not do. For me,
open innovation within the company is being very good at generating new ideas, very good at
discussing them, having the culture that generates that within the company.
Would you say that inter-departmental relations or proper integration of all the functions in
an organisation is also very important for innovation?
Yes, definitely; because although the R&D group is the main driver for things like that, it is not
only the R&D organisation that is involved in these things.
Leading practitioners of Open Innovation
That is a tough one. All the areas that I have worked in, in life science and bio-medical science
just tend to keep their ideas very much to themselves.
Organisation of Open Innovation
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Yes it is used in our organisation because we are always looking not just for the big idea that is
going to make the multimillions but also for the small ideas that will work and will save a lot of
time, effort and money...new ways of doing things within the company as a whole. So, I think
people are very good at getting together, working together and thinking about those kind of
things...and we try very hard not draw lines between what is small which might not be important
and what we think they are going to like or make judgements on how good something is going
to be very early in its life.
Have you ever been in a situation where you had to go outside to find a solution to a
problem?
Yes
And new product development?
It is kind of the next generation of technologies, I think it is....you know we look at
companies..smaller companies who may have the sort of things that we would want to exploit.
If a smaller company has a technology that you would want to exploit, what approaches
would you generally employ?
Well...either to try and get access to that technology via license or, if it is a small company, to
try and invest in the company so that we can also have some use of that technology by that
route.
Which route do think is better?
I think the co-development is better. Because it is almost like you are working on something
together rather than taking something to use it the way you want to use it.
Approaches to Open Innovation
Frequently Sometime
s
Rarely Never
Strategic Alliances 1
Tie-ups with higher education
institutions
1
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Co-development 1
Online Portals 1
Intermediaries 1
Industry Consortiums 1
Acquisitions 1
Focussed Scouting 1
Community Sourcing
In-licensing 1
Out-licensing 1
Co-development: It has to be something really special in case of co-development
Licensing-out: Out-licensing if it is not used by the company
Innovation Intermediaries: If we have a specific area that we want to look at and the guys in our
team have not made any progress in trying to find, then we use knowledge brokers.
Focussed Scouting: The focussed scouting team is a small team of about 4 people. They look at
other technologies and companies that are out there and try to see whether those would have
value to the company and then how they could link to that company to have that technology.
Effectiveness of Open Innovation
The only way I can think of that is done is through keeping a tally on the number of new
products and processes that are generated in a year.
Is there any measure that considers the benefit of the new products and processes to the
company?
Yes they track that. They will also track how much money is made from particular pieces of
intellectual property.
Impact of Open Innovation
It has a very big impact on us.
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I think the biggest impact on us is getting the next-generation technologies and how we set
about doing that.
What about the impact of employees? Is there any resistance?
Sometimes there is a small resistance because, I think, everybody prefers if everything is
invented in-house. But, I think people are always keen to exploit a new technology and enjoy
working with new things.
How has open innovation impacted the usage of patents which are not used internally by the
company?
Well, what we have done in the last two years is review our IP portfolio and make a conscious
decision to offer out to other people the ones that we are not using. But, I have to say that is
pretty financially driven. But it has benefited the company.
Change in usage of Open Innovation
Yes, I think it has. Because, I think, we have been very concerned about keeping all of our IP to
ourselves and not giving anybody else a chance to get associated with it in any way and I think
we have become more willing to share if it does not have a high value to us. If it has a high
value to us then we are still not interested in sharing.
Are there any major differences from a cultural perspective?
I don’t think....it is beginning to change but that is quite slow.
Future usage of Open Innovation
Continue what we are doing with our own intellectual property. And I think we would be better
if we were more open and talk to other groups and academic groups more than we do now. I
think probably because we have a US parent, we are probably quite concerned about protecting
our IP and I have to say, having worked for two US companies, they are much more concerned
about that than British companies are.
9.3 INTERVIEW WITH DAIRY
Roles and Responsibilities
I will give a quick background of myself just so that you know that. I am a graduate in
Economics. I started working career with Sainsbury's in one of their management schemes
many years ago. And then I have worked for companies such as Kellogg’s, United Biscuits,
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Dairy Quest and now Dairy. My role in Dairy...now I am the Commercial Director with primary
responsibility for the Cheese Business. Dairy as business is farmer-owned dairy co-operative.
Our turnover is approximately 550 million. The turnover of the cheese business is
approximately 225 million. We are mainly producers of Cheddar and we supply both retailed,
own label and branded ranges. And I head the commercial side so that is both the sales side and
the marketing side. And also linked into that is business development whether that is business in
terms of new business from customer base or innovation whether that is new products, new
markets or new routes to market etc.
Importance of Innovation
Very important. We have a set ourselves a strategic goal that a fixed percentage of our time and
investment should be on innovation. Now, whether that innovation means an actual new
finished product or innovation in process to improve existing products or whether that is pure
efficiency or quality. We have got guidelines in our strategic numbers to do that. Clearly, if we
want to grow both organically and through acquisition innovation is the key part within that as
well.
Importance versus other priorities
For us innovation covers anything that can be changed. It is not just product innovation so it
could be management process...it could be the structure of the business...how we structure the
teams...innovation for us is anything that can be changed. So, for us it is massively important
because we are a relatively new business from a cheese business point of view...we are only
created in 2006. But also from the world we operate in, the environment whether it is innovation
in how you communicate with consumers, social media etc. that changes your marketing plan
etc. So, for us innovation is very high in the agenda of the business.
Why do you think managing intellectual property is that important?
Because of the nature of the market that I am in it is not necessarily new...it does not have to be
new...it is just about better...it is being better and up-to-date rather than new so that is why I
would scale that one down. If I was in IT, that would be 5 for me. I am a food manufacturer in
dairy where dairy is in 99.5% of homes; it is not necessarily the new intellectual property for us.
Specific Innovation Successes
I mean the latest project or brand that we just launched is a brand called dairy maniacs that is a
convenient child-facing proposition. And what we did was we took the best bits from a number
of our competitors and combined that into one proposition linked it with a brand license
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working with Dreamworks, and we got 5 of the top 6 UK retailers to list it from launch. So, that
showed the combined proposition was very strong to get that level of support from the retailers
at launch.
Innovative companies
I think we are in dairy..I think most people would hold Arla as the best large scale
company...and then underneath that there are numerous very small fleet of food businesses that
have one or two ideas and work it that way but the biggest one dairy that most people would
hold is Arla. In food, total, I would include companies such as Noble foods, the owners of
Happy Eggs,...so there is a completely innovative product category there...they would come to
mind. Companies such as Heinz are, again, well established..constantly trying things...somehow
seem to deliver something new every couple of years...there is always something they have
done...so cannot hold them up....
Definition of Open Innovation
I do not know...I was going to ask you that...Your definition could be different from mine...
We are very clear...One of our strategic drivers is success through partnership because we
acknowledge that we cannot be the best at everything...so in our mind we have a clear plan to go
and work with people who can add value...and it is a joint partnership rather than just going and
asking someone just to be a supplier.
So a collaborative approach is generally followed in Dairy?
Yes very much...Yes very much so...We are very clear...We have changed our supplier base
over the last three years and the people we are now working with are seen as partners rather than
suppliers..so we have actively changed that base...people we work with.
You mentioned that Dairy concentrates equally on product and process innovation. So is there
any other situation in which you used open innovation?
An example of that would be our partnership with a company called VOLAC. They are
specialists in whey products, which is obviously a by-product of making cheese. We used to run
our own ingredient x whey business. We actually stopped that and partnered with VOLAC who
have the expertise to do that. So, we have a complete supply chain and a transparent partnership.
So, we provide them the raw material and they have the expertise. And that has benefitted both
companies.
And must have reduced the time-to-market of the product as well?
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Yes. It is a transparent supply chain. It guarantees products all the way through and it works for
both the partners. So, it is a completely collaborative process all the way through the supply
chain which brings us a whole series of benefits.
Approaches to Open Innovation
Frequentl
y
Sometimes Rarely Never
Strategic Alliances 1
Tie-ups with higher education
institutions
1
Co-development 1
Online Portals 1
Intermediaries 1
Industry Consortiums 1
Acquisitions 1
Focussed Scouting 1
Community Sourcing 1
In-licensing 1
Out-licensing 1
Tie-ups with HEI's: We do have a thing called the 'FirstMilk Academy' which is a membership
of farmers and we do have tie-ups with a couple of agricultural colleges..so that is an ongoing
tie-up on the farm side of best practice and innovation.
Innovation Intermediaries: We have used innovation intermediaries on the last two major
brandings...we have brought people from outside to facilitate so the frequency is variable but we
do use them on key projects.
Acquisition: Acquisition is one of the strategic drivers...our most recent acquisition happened on
the 1st of June...and innovation was one of the key factors in the choice of acquisition.
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Focussed Scouting: In the past, we have had that as an add-on to people's roles...so we created
an innovation team but that has been an add-on too. We are currently restructuring and we
would look to create a permanent innovation team. And their sole purpose is research and
development, whatever that is, product or process...so that will become a permanent role. But,
that will happen within the next three months.
Effectiveness of Open Innovation
Outside the standards of business KPI's, in terms of growth, a diverse product base etc. we have
not measured it. Because we are still a young company, there is a lot of growth coming through.
I am sure if I was Heinz or Unilever, I would be measuring it differently but at this stage there is
no need for us to do that.
Impact of Open Innovation
It has had a massive impact in the last eighteen months, particularly that innovation culture. We
have clearly had to change the culture of the business. The focus and the pace of the teams
which is from the top to the bottom. So, from a pure culture and structure point of view we have
changed most of our business. And we have been very clear of the business share of what the
core drivers are and innovation would be one of those key drivers.
So, while making this change, did you face any people issues?
Yes. Because there will always be a percentage of people who want to just carry on doing what
they are doing. They can be addressed mainly by communication, in terms of making people
understand what you are doing and why you are doing it. But clearly it also impacts people's
roles because to create innovation you need to restructure to get the right capabilities in. so,
there's clearly going to be some structural changes that not everyone is always going to buy into.
Change in usage of Open Innovation
We have been only doing it for 18 months. So, we are still on that wave of energy and growth.
So, at the moment there is more opportunity than there is ...
Future usage of Open Innovation
I think as we carry on growing there will be more resources put on as a permanent role rather
than as a part-time role. That will be the most obvious change. And then the challenge for us is
to keep a full roadmap of ideas coming. That would be the two biggest changes that we need to
be seeing.
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9.4 INTERVIEW WITH DEFENCE
Roles and Responsibilities
I am the senior program manager at General dynamics responsible for EDGE innovation centre.
EDGE is a concept facility and process by with which we try to engage with new and emerging
technologies from non traditional defence companies to work with our normal defence supply
chain.
Can you please elaborate on non traditional defence companies?
General Dynamics is a very large company and has established route into the market into the
defence ministry. We know who our customers are and also on how to work with them. Lots of
innovators are small and medium companies don’t know have that expertise and also on how to
put forth these new technologies to a customer. We actually target these companies and we
work with these companies and help them in bringing their products to the customers.
How important is innovation at X?
Very important. We have more than one current activity coming on innovation. Edge I manage
is about how to access the technologies present outside and we also have our own
Activity on how we innovate and collaborate among teams and working groups, looking at
replenishing our meeting rooms.
What exactly while designing space for the conference rooms?
More shared media, electronic white boarding, networked areas and taking people outside of
their cubicles to actually share ideas and innovate in an actual innovation space.
How important vs. other priorities within the business? Why
Totally, apart from the Highest priority of generate incomes. We have got innovation more
internally in our team behaviours; we have active learning team debates and offsite workshops
to asses our own behaviours on how we work in a team.
Are there any specific innovation successes that you would highlight? Why
Numerous, all sorts of things. For example, we have working with a company called Rolatube
and they have a nylon material which rolls up a like a cotton reel into something that weighs
less than 3 Kg. This replaces an antenna system that weighs 30Kg.
Also, we are working with a company that produces waterproof papers used for laser printers..
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They might not be technological advancements but they make our end-user's life so much
easier.
In your opinion, which companies in your industry do you regard as being especially good
at innovation? Why do you think they are good?
The companies mentioned above are good in innovation because they are different, they are not
necessarily technology advanced but make our end users life very effective i.e. military. By the
way, neither of these products can be bought directly from the company but only from suppliers.
Also, Kletik is good at exploiting innovation and even Boeing and BBN.
Do these organizations follow an OI process?
No, basically they follow a closed innovation process.
In your opinion, what exactly is open innovation? How would YOU define it?
General Dynamics is a slice system integrator. We have very few products that on our own, but
we put SPLC products together and sell our own. We take somebody else’s radio or antenna and
then make a product and sell it. This is almost like using somebody’s idea out there to
manufacture our own products.
Which businesses and organisations do you see as leading practitioners in Open Innovation and
why?
That is a tough one. All the areas that I have worked in, in life science and bio-medical science
just tend to keep their ideas very much to themselves.
How is OI currently used in X? Describe how it is organised.
In the EDGE, the team speaks to lots of SME’s. We have a website out there that we point out.
We speak to the Welsh assembly government and lots of innovation specialists so that they also
tell the innovators that they know regarding EDGE’s existence. To be honest, the way in which
we are doing are 2 to 3 per week and this keeps us busy. We work at the product level and not at
the component level.
Do you have any process to filter out ideas?
Yes, the process is informal and people contact us and we reply back on explaining on how we
look onto new technologies, novel solutions for our current problems. There problems have
always been the same like reduce the reliance of power and to improve the bandwidth of
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receiving information. If we think that they have something to say, then we invite them for a
more technical discussion.
How important is to know General Dynamics products while proposing ideas?
I think it would be good but really not essential.
How frequently does your organisation employ the following approaches?
Frequentl
y
Sometimes Rarely Never
Strategic Alliances 1
Tie-ups with higher education
institutions
1
Co-development 1
Online Portals 1
Intermediaries 1
Industry Consortiums 1
Acquisitions 1
Focussed Scouting 1
Community Sourcing
In-licensing 1
Out-licensing 1
How is the effectiveness of OI measured within the business?
No. I don’t think there is one.
How, in your opinion, has OI impacted your organisation? (Probe for each of impact on
turnover, profit, amount of new products/services launched, employees, innovation culture, IP
etc.)
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The EDGE innovation network is considered to be very important by the TOP Management at
General Dynamics as it is not only a revenue generator but also incredible good PR as you can
demonstrate that you are seeking new and best technologies which you will supply to the
customer
Thinking ahead say over the next 3-5 years, ideally, in what ways would you like to fully
utilise open innovation to ensure it impacts significantly on your organisation?
I would like OI to spread across all parts of the business. At the moment, it is done with specific
regions but the other departments can also be benefited from OI.
How do you see X’s approach to OI evolving in the future? What sort of approaches
would you propose, (we understand this is not policy or strategy but more a desire the
needs developing)
It will become more expanded. I think we would use these ideas for our IRAD programs like
collaborative IR’s and not everything internally.
9.5 INTERVIEW WITH ICT
Roles and Responsibilities
Right now, I am a program manager. So I run an efficiency program for public sector clients.
Over the years, I have had a variety of responsibilities including running a couple of innovation
centres and doing some what we called pre-ebo work which is sort of very early pipeline
innovation pipeline work. Testing out new ideas.
So, testing you mean screening and evaluation of new ideas which come in as well?
No, we are like a mini-incubator. So, it is taking an idea that has already been selected and
beginning to do market testing of it. So, is there a real market for this new sort of services?
Importance of Innovation
Innovation is pretty much number one priority I think. It always has been in IBM. There is
recognition that there cannot be any growth without innovation. That is why we invest so
heavily in research and development.
Is it a good thing or a bad one?
I would not say it is necessarily good or bad. It is about the over- bureaucratic in IBM as far as
almost anything we do. We invest a lot in IP, patent lawyers etc. to make sure that everything is
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now down. And sometimes I think it holds us back, we are trying to embrace open innovation
and that is jarring against the culture that says we want to own the patents & IP for everything
that we think of.
Specific Innovation Successes
I just feel that the most recent one is Watson. I think it is special for a number of reasons. It is a
mode of innovation that only a company like IBM could come up with and I think it has such
far-reaching effects for the future of information management and business innovation in
general.
I don’t know if you remember a few years IBM developed a computer to beat Gary Kasparov at
chess called Deep Blue. Well, recently we developed a supercomputer and a whole bunch of
text analytics and artificial intelligence style tools and put them together in a computer called
WATSON. And it played two world champions in America in a game called Jeopardy which is
a kind of general knowledge quiz but where you have to say what the answer is to a question
and as you say what the question is I give you the answer. So, it involves an awful lot of kind of
nuances of language that, typically, computers have not been great at. So, Jeopardy, we spent
more than two years in putting it together and Jeopardy beats the world champions unaided. So,
there was no human involvement. And that is now being turned into practical applications for
things like medical diagnostics.
Innovative companies
I think Apple are...they do stand out...I think it is a particular type of innovation for me...I think
they are very much sort of design innovation,...they are clearly superior to anyone else pretty
much in the industry...understanding usability and customer needs and making things
easy...make people use IT which is generally barrier to entry for most people because they
cannot get to grips with the usability...pretty much Apple has ever done has been intuitive.
Definition of Open Innovation
For me, open innovation is much more collaborative, in so far as rather than trying to protect
your ideas you put your ideas out in the community, whatever the community might be...social
networks...in order for people to build on it and accepting the notion that we are more likely to
drive great ideas forward the more people will have a chance to contribute to those ideas. So,
you do the crowd sort of stuff rather than the metaphor of one hardworking scientist locked in
his laboratory.
Organisation of Open Innovation
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94 Bradford University School of Management
I don’t think it is organised under any kind of strict ways...I think what has happened is that
over the last 5 to 10 years we have begun to involve more and more partners in our innovation
and IBM research. So, when we look at something like eradicating ... flu. If we had gone back
10 years ago and IBM had decided to take that on as a research challenge, they would have
recruited the talent in to try to address it whereas now what we said is "well we understand
computational biology...we understand the other aspects of what we think might be necessary in
understanding the disease and eradicating it" and pulled together a consortium to work on the
project. At IBM, it is very much about the recognition that we cannot address the grand
challenges on our own and we need to bring in usually several partners to do so. We are
beginning to put more and more of our IP, certainly the software IP, into open source.
IBM has released some of their patents in the public domain. But have you used community
sourcing for projects in IBM? The consortium that we just talked about, whom did it comprises?
They are usually comprised of universities and companies and some specialist research
organisations.
Has IBM ever used community sourcing through open source?
Well, we do it. The way we address it is through something called Jams. Jams started inside
IBM and effectively it is a platform for mass collaboration for more than 60,000 IBM'ers. We
used the Jam platform to address a number of business issues internally. But, then in the last 4-5
years, we have had public Jam's to generate ideas around a very wide range of topics from IT
security threats to, very recently, saving the planet. There has been an innovation Jam for the
automotive sector and probably others I am not aware of.
So, this Idea Jam concept was expanded to include people outside IBM as well?
Yes. Basically, our customers and then any other third party who we believe would have a
valuable input in whatever the topic was. So, the IT security one was chaired by NATO and
then involved countries around the world and security specialists.
As an interesting point, I would like to know how useful this third-party involvement was?
Incredibly useful, yes. They bring a very different perspective and set of expertise so it stops us
being insular in our thinking.
How are the participants selected?
I don’t think we are very systematic about it. I think it is more a case of talking to this kind of
obvious candidates initially and the it kind of grows organically...it is kind of "who else do you
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who you think could make a valuable contribution to this"...Once you have has a few meetings
and everybody has come up with their sort of 10 favourite organisations or individuals that are
subject matter experts...the ...kind of picks themselves.
We did do some broad advertising to our clients saying "we are doing this...would you like to
join"...But it is not closed in any way although we would target the people who we believe to be
leaders and can make big contributions, we will also have general awareness and say anyone
who wanted to register and participate in the Jam is welcome to.
Approaches to Open Innovation
Frequentl
y
Sometimes Rarely Never
Strategic Alliances 1
Tie-ups with higher education
institutions
1
Co-development 1
Online Portals 1
Intermediaries 1
Industry Consortiums 1
Acquisitions 1
Focussed Scouting 1
Community Sourcing 1
In-licensing 1
Out-licensing 1
Technology outlook is a program that runs on a twelve month cycle. It basically looks at weak
signals as to what emerging technologies there might be and what their impact is likely to be on
different business models. Every year we publish an internal only report...technology
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outlook...which says what things are going to happen in the next 5-15 years and therefore where
should we be placing our bets in terms of focussing our research and looking for acquisitions?
We tend to own the things that we use. However, we do license technology
We have acquired nearly 200 companies in the last few years
Effectiveness of Open Innovation
I don’t know, to be honest. I know how we measured traditional innovation which based on
patent registration and the amount of revenue that we derive from those patents but obviously
that would not apply to open innovation. So, I do not know whether we have developed
anything to do it.
Impact of Open Innovation
I think it has made our culture more collaborative by necessity. IBM research used to be more
insular but now it is very much outward-focussed, partnering, working together. In some ways,
it has made it a bit smaller I guess...we changed the mindset from "if we want to do something
we want to hire all of our researchers ourselves" to "we just work with research partners".
Obviously, we still need a core people that have some capabilities and make sure we are adding
value to the equation.
In terms of the benefits to the organisation?
I think it has been very positive for the brand. It shows that we can play nice with others, if you
know what I mean. It means we are not this big dominant giant that wants to stomp on people
and we can actually collaborate, share...and also I think some of the grand challenges that have
been chosen as topics actually help the company's image as a much more socially responsible
organisation...because there tend to be things that do not necessarily have a direct, straight-line
benefit to our bottom-line or to any kind of products and services that we sell...one of our values
is "innovation that matters for the world"...and a lot of what we have been doing with open
innovation has been true to that value.
Change in usage of Open Innovation
Yes. It is in the last 5 years that it has changed dramatically. Because it is a focussed program
now...because it is a stated intent and a core strategy of IBM to drive open innovation to address
some of the world's 'Grand Challenges' through collaborative partnerships.
So, it has become a core activity now than 5 years ago?
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Yes. And We have a formal methodology as well for some of our clients...its called innovation
discovery...it basically takes whatever their greatest challenges, identifies which partners around
the world we think could bring the best value to looking at how to solve that, pull them all
together...runs through fairly traditional collaborative innovation activities and hopefully come
up with solutions. That has been in place for about three years, I think.
Future usage of Open Innovation
The main way we use it is to drive our innovation agenda. Our innovation agenda is very
clear...it is about innovation that matters for the world and our company...so it is hopefully
driving our CSR agenda at the same time... and driving shareholder value.
Evolution of Open Innovation
I think we are relatively sophisticated already...with the things we do around in the jams...I think
there is probably likely to be more, kind of, portal-based initiatives...we have a kind of
software-based initiative now where with several other companies we have agreed to share IP...I
think that might evolve into us helping to facilitate particular industry verticals to do
likewise...like the pharmaceutical industry would be an obvious candidate.
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