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OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 1
OpenInnovationinBusinessEcosystem–FromtheanalysisoftheAppleITCPlatformthroughitsbusinessecosystem
Author(s):SylvainMilon
Leadership&ManagementinInternationalContext
Tutor:
Examiner:
Dr.Pr.PhilippeDaudi
Dr.Pr.BjörnBjerke
Subject:
BusinessAdministration
Levelandsemester: Master’sthesis,Spring2012
2 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
ACKNOWLEDGEMENTS
This project would not have succeeded without the intervention of several people I
wouldliketothankanddedicatemythesis.
Firstofall,IwanttothankProf.Dr.PhilippeDAUDIbecauseofhisexcellentcooperation
and the motivation given to realize this research project. I am very grateful for his
advicesandsupportthroughoutmyresearches.
Secondly, this thesiswould not have emergedwithout the support and trust ofmany
people.
Fortheircomprehension,Ithank“OuestManutention”,myhostcompany,andespecially
my two apprenticeship mentors, CEO Henry MATTE and Business Administration
ManagerCecileDROUADAINE,whogavemetheirconfidence,pushedmetosucceedin
thisdifficultworkandwithoutwhomIwouldeverhaveaccessed to thisMBA.Then I
wanttothankMr.PONTET,ESCBretagneBrestProgramDirectortograntmetheaccess
tothedoubleMBADegree.AsanapprenticeintheESCBrest,thisprogramshouldnot
havebeenproposedtome.
I alsowant to gratitude twoexcellentProfessors in theESCBretagneBrestwhohave
alwaysbeenattentiveandfullyavailablethroughouttherealizationofthisthesis.Iam
also grateful for their inspiration, support and time theywaswilling todevote. If this
thesishasbeenachieved,witheffortandenthusiasmitneeds,itispartlythankstothe
seriousness and the remarkable skills of greats Prof. Dr. Sébastien CHANTELOT and
Prof.Dr.DavidMERIEAU
Forhertime,herhelpandadvicesinEnglishwritingskills,Iwanttosincerelythankmy
aunt,CatherineMILON.
Fortheirstrongsupportandencouragementsallalongmystudies,Idedicatethisthesis
tomyparents,mybigbrotherandsister,allmyfriendsandespecially,forherpatience,
NadègeLEZIART.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 3
ABSTRACT
Firmsoperateinanincreasinglycomplex,unpredictableandfast‐movingenvironment.
Understandthebusinessecosysteminwhichaninnovativecompanyoperatesisamajor
leadershipstake.Indeed,knowhowthevariouspossibilitiestointeractwiththeactors
presentinthebusinessecosystemofanorganizationarepartoftheleadershiprole.
In order to survive facing competitive organizations, and to get a sustainable
competitiveadvantage,aninnovativeorganizationmustbeabletocombinewithvarious
partnersonitsbusinessecosysteminordertoshareknowledgeandcompetencies,and
thereforeimplementopeninnovationprocessesmaybeakeysuccessfactorthatshould
notbesidelined.Todoso,anorganizationmustunderstand innovationtoadoptopen
innovation processes, must also take into account various elements of its business
ecosystemtosettlecompetitivedynamicswithstakeholdersandbeabletointeractwith
thesedifferentactors,andtofinishaninnovativeorganizationmustbeabletosetopen
innovationprocessestofindakeysuccessfactorandperformasustainablecompetitive
advantage.
Keywords:innovativeorganization,businessecosystem,openinnovation,ITCplatform.
4 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
TABLEOFCONTENT
CHAPTER1.INTRODUCTION:BACKGROUNDOFTHESTUDY......................................................... 9
CHAPTER2.RESEARCHPURPOSE ..........................................................................................................10
2.1.RESEARCHQUESTIONS ........................................................................................................................................... 10
2.1.1.Mainresearchquestion.................................................................................................................................102.1.2.Relatedquestions.............................................................................................................................................10
2.2.RESEARCHOBJECTIVES........................................................................................................................................... 112.3RESEARCHPERSPECTIVES....................................................................................................................................... 122.4RESEARCHSCOPE ..................................................................................................................................................... 14
2.4.1Conceptualframeworkmap ........................................................................................................................142.4.2Innovativebusinessorganization..............................................................................................................152.4.3BusinessEcosystem..........................................................................................................................................162.4.4.OpenInnovation...............................................................................................................................................16
CHAPTER3.RESEARCHMETHODOLOGY .............................................................................................18
3.1.THECHOICEOFAQUALITATIVEAPPROACH ....................................................................................................... 183.2.SAMPLINGMETHOD................................................................................................................................................. 203.3.COLLECTIONANDDATAANALYSIS ....................................................................................................................... 203.4.RELIABILITY,VALIDITYANDLIMITATIONSOFTHESTUDY .............................................................................. 223.5.CONCLUSION............................................................................................................................................................. 23
CHAPTER4.ANOPENINNOVATIVEBUSINESSORGANIZATION...................................................24
4.1.ANEWVIEWOFORGANIZATIONS......................................................................................................................... 24
4.1.1.Thecomplexity..................................................................................................................................................244.1.2.Theplatformofthecomplexity .................................................................................................................264.1.3.Thecomplexorganization ...........................................................................................................................27
4.2ANEWVISIONOFINNOVATIONFORACOMPLEXORGANIZATION.................................................................... 30
4.2.1Understandingtheinnovation....................................................................................................................314.2.2Adoptopeninnovation ...................................................................................................................................364.2.3Anorganizationbasedontheprinciplesofopeninnovation........................................................40
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 5
CHAPTER5.THEGENESISOFTHEBUSINESSECOSYSTEMCONCEPT.........................................44
5.1.UNDERSTANDINGELEMENTSOFBUSINESSECOSYSTEMS ................................................................................ 445.2.THECOMPETITIVEDYNAMICSWITHINBUSINESSECOSYSTEMS...................................................................... 51
5.2.1.Thecoevolutionprinciple ...........................................................................................................................515.2.2.Coopetition .........................................................................................................................................................545.2.3.Electronicplatforms:sharedvaluesandleadershipwithinthebusinessecosystem.........55
5.3.BUSINESSECOSYSTEMANDOPENINNOVATION ............................................................................................... 58
CHAPTER6.THELINK,OPENINNOVATION ........................................................................................62
6.1.DETERMINANTSOFOPENINNOVATION ............................................................................................................. 646.2.THEADVENTOFNEWBUSINESSMODELSFORINNOVATION ........................................................................... 666.3.THEOPENINNOVATIONPRACTICES ..................................................................................................................... 696.4.ADVANTAGESANDLIMITATIONSOFOPENINNOVATION.................................................................................. 71
6.4.1Advantages ..........................................................................................................................................................716.4.2Limitations ..........................................................................................................................................................72
6.5.CONCLUSION............................................................................................................................................................. 73
CHAPTER7.EMPIRICALSTUDY:TOWHATEXTENTTHEBUSINESSECOSYSTEMCANBEEFFECTIVEINSTEVEJOBSOPENINNOVATIONSTRATEGYFORAPPLE? ..................................75
7.1.CONTEXT................................................................................................................................................................... 75
7.1.1.AppleCompany.................................................................................................................................................767.1.2.SteveJobs,a“visionary” ................................................................................................................................77
7.2.APPLE,ANINNOVATIVEORGANIZATION ............................................................................................................. 787.3.APPLEBUSINESSECOSYSTEM............................................................................................................................... 79
7.3.1.Theecosystemadvent....................................................................................................................................797.3.2.AnElectronicBusinessEcosystem:TheiTunesStore ......................................................................807.3.3.MainactorsinteractingintheiTunesStore ........................................................................................807.3.4.TheAppStore ....................................................................................................................................................827.3.5.Thedevelopers:Awidecommunity .........................................................................................................827.3.6.MobileApplicationDevelopment:Thecoevolutionconcept.........................................................837.3.7.Theremunerationmodels............................................................................................................................847.3.8.Conclusion...........................................................................................................................................................85
7.4.APPLEITCPLATFORM:LEADERSHIPWITHINTHEBUSINESSECOSYSTEM .................................................. 87
7.4.1.Overviewoftheplatform: ............................................................................................................................877.4.2.Aplatformfacilitatinginteractions ........................................................................................................87
6 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
7.4.3.TheAppleiPhoneandtheAppStore:Saleofanecosysteminsteadofaproduct ...............887.4.4.Conclusion...........................................................................................................................................................89
7.5.OPENINNOVATIONINACLOSEDBUSINESSECOSYSTEM:APARADOX ........................................................... 90
7.5.1.OpeninnovationpracticesthoughtheAppStoreecosystem .......................................................907.5.2.Aneweffectivebusinessmodel..................................................................................................................927.5.3.Theparadox:Aclosed&perfectlycontrolledecosystem ...............................................................937.5.4.Abusinessecosystemtargetingtoopenitself .....................................................................................96
7.6.EMPIRICALSTUDYCONCLUSION .......................................................................................................................... 96
CHAPTER8.CONCLUSION&RECOMMANDATIONS ..........................................................................99
8.1.GENERALSUMMARYOFTHESTUDY ..................................................................................................................... 998.2.RESEARCHCONTRIBUTIONS ................................................................................................................................1028.3.RESEARCHLIMITATIONS ......................................................................................................................................1028.4.FUTURERESEARCHOPPORTUNITIES..................................................................................................................103
REFERENCES ............................................................................................................................................... 105
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 7
LISTOFFIGURES
FIGURE2.1.CONCEPTUALFRAMEWORKMAP................................................................................................................. 14
FIGURE4.1REPRESENTATIONOFTHEPHENOMENONOFCOMPLEXITY .................................................................... 26
FIGURE4.2.ORGANIZATIONADAPTATIONWITHCOMPLEXITY ................................................................................... 30
FIGURE4.3.THEKEYCOMPONENTOFTHEINNOVATIVEORGANIZATION ................................................................. 35
FIGURE4.4.OPENSYSTEM:CONVERSIONOFINVENTIONINTOINNOVATION .......................................................... 39
FIGURE4.5.CLOSEDSYSTEMMODELVS.OPENSYSTEMMODEL ................................................................................. 42
FIGURE5.1.THEBUSINESSECOSYSTEMVIRTUOUSCIRCLE(MOORE,1996,P.28)................................................ 45
FIGURE5.2.BUSINESSECOSYSTEMCHARACTERISTICS(PELTONIEMI,2005,P.64) .............................................. 49
FIGURE5.3.THECO‐EVOLUTIONINTHEBUSINESSECOSYSTEM(PELTONIEMI,2005,P.35) .............................. 53
FIGURE6.1.CLOSEDINNOVATIONVS.OPENINNOVATION(CHESBROUGH,2006,P.47) ..................................... 63
FIGURE6.2.CLOSEDBUSINESSMODELVS.OPENBUSINESSMODEL(CHESBROUGH,2007,P.27)...................... 68
FIGURE6.3.THEITCPLATFORM:RELATIONALLINKBETWEENOPENINNOVATIONANDORGANIZATIONALSTRATEGYONTHEBUSINESSECOSYSTEM.............................................................................................................. 74
FIGURE7.1.DIFFERENTINDUSTRIESINTERACTINGONTHEAPPLEBUSINESSECOSYSTEM .................................. 81
FIGURE7.2.FLUXESBETWEENAPPLEANDSTAKEHOLDERSONTHENUMERICALBUSINESSECOSYSTEM .......... 86
FIGURE7.3.ITCPLATFORMATTHEHEARTOFTHEAPPLEOPENINNOVATIVEORGANIZATIONALSTRATEGY .. 98
8 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
LISTOFTABLES
TABLE6.1.THEMAINDETERMINANTSOFOPENINNOVATION(CHESBROUGH,2003A,PP.45‐57)................... 65
TABLE6.2.OPENINNOVATIONMODES:TECHNOLOGY&MARKETS(EIRMA,2004,P.24) ............................... 69
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 9
CHAPTER1. INTRODUCTION:BACKGROUNDOFTHESTUDY
The intensification of global competition, market globalization and advances in
information technology are in the process of transforming the economies of
industrializedcountries(RabeauandPernée,2000,p.2).
In suchanenvironment,particularlynoticeable inareasofhigh technology (software,
banking,biotechnology, information technology (IT)and telecommunications,etc), the
boundariesofindustriesaremoreandmoreopeningasaresultoftheaccessiontomore
knowledge and the increasing off shoring activities, which resulted in a convergence
effectpoweredbyIT.Moreover,companiesoperatinginrelatedareasnowexperiencing
fewer difficulties to collaborate and distribute their operations with other partners.
Thus, structures of industries take the form of a networkwhere a simple product or
serviceistheresultofcollaborationbetweenseveralpartnerslocatedinvariouspartsof
theworld(IansitiandLevien,2004,p.19).Thesedifferentcooperationdynamicswithin
this vast network of partners are made more fluid and less complicated to manage
thanks to the remarkable development of IT. Thus, innovation development for a
company is made through an integrated electronic chain of worldwide partners,
facilitatedbyremarkably fluid informationfluxes,byeasyexchangewithpartnersand
customers of the company and, above all, a quick innovation initiatives launching
(Rabeau,2007,p.9).
Beforesuchacontext,anurgentquestionmustbeaddressed:inordertocreatevaluefor
customersandshareholders,howa companyneeds todevelop its innovationstrategy
withinsuchanetwork?
Tofurtherrefinemyquestioning,therelationbetweenecologyandbusinessworlds,as
put forward by many authors like Moore (1993, 1996), allowed me to develop the
business ecosystem concept in order to better elucidate the appearance network
advancedtoabove.Second,theparadigmofopeninnovation(Chesbrough2003,2007,
2011) allows to clearly describing the new innovative environment in which the
businessislocated.
10 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
CHAPTER2. RESEARCHPURPOSE
This chapter will be dedicated first to the main research question that will lead my
study, and then will introduce the related questions. The three last subchapters will
bringsomedetailsabouttheobjectives,perspectivesandscopeoftheresearch.
2.1.RESEARCHQUESTIONS
The research questions will be distinguished in one part by defining the principal
question,andthentherelatedquestionsonthisstudy.
2.1.1.Mainresearchquestion
Themainpurposeof thisstudy is tounderstandall theessentialelementsof “Howan
ecosystemcancontributetoopeninnovationstrategiesof innovativefirmsinorderto
strengthen their competitive position on themarket?” by including the importance of
each factordefininganopen innovationstrategysettledbya leaderaccordingto their
businessecosystem.
2.1.2.Relatedquestions
To give a better definition of what is the open innovation and to get a broader
understandingofitanditsuseinabusinessecosystem,Ineedtofocusonthreerelated
questionsthatwillnurturethemainquestion.Thosequestionsare:
‐“Evaluatethemainfactorsdeterminingthepossibleadoptionofopeninnovationforan
innovativebusinessorganization”
‐“Considerabusinessecosystemandlearntointeractinit”
‐“Understandanduseopeninnovationprocesses”
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 11
2.2.RESEARCHOBJECTIVES
Innovation is a key mean to gain a competitive advantage by responding to market
needs.Innovationisaboutcreatingnewproductsanddevelopingexistingproducts,but
also optimize its production system, adopting the latest technologies from basic
researchasitsresearchanddevelopmentdepartment.Therearebasicallytwolevelsof
applicationofinnovationintheenterprise.
An organization can innovate punctually; it is called “innovation project” or “product
innovation”. This is essentially a project to improve existing products, creation or
adoptionofnewtechnologytoaproduct.
An organization can also innovate permanently, in the long term. Here comes the
innovationmanagement.Thisisnolongertogainacompetitiveadvantagebuttosustain
this competitiveness. At this level, innovation must become a pillar of corporate
strategy.
The successof an innovationdependsnot onlyon the technological performanceof a
company. All of its resources (human, technical, financial, etc.) are indeed the key
successfactorsofaninnovativeproject.Thisishowacompanywillmanageitscapacity
for innovation that will make it innovative. By definition, innovation is based on an
originalidea:Wecannotinnovatewithoutnewideas.Buttheinnovationliesmainlyin
the ability to turn those ideas into commercial successes. For this, there aremethods
andwork techniques that help companies in all stages of innovation processes. Open
innovationprocessesareoneofthem.
I focusedontheopen innovationsubjectbecauseopen innovation is thesixthandthe
lastmodelappearedininnovation.ItisaveryinterestingsubjectformebecauseIwant
settlemyownmobileapplicationbusinessbymakesitevolvethroughanincubator.My
studentpartnersandmearecurrentlyworkingonthisproject.
The research objective is therefore to provide new insights to business leaders,
particularlythoseworkinginthefieldof innovation.Therefore,AppleCompanyseems
anappropriateground to considerboth thevarious competitivedynamics inherent in
12 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
thebusinessecosystemsandtheopen innovationmanagementchallengeswithinsuch
environment.Thus,Ideliberatelychosethecaseofthewell‐knowninnovativecompany
Apple,where the innovationmanagement strategywithin the NTIC sector, answer to
someextentatleast,tomymainresearchobjective.
2.3RESEARCHPERSPECTIVES
The"openinnovation"termwasusedforthefirst timein2003byHenryChesbrough,
professorandcenterdirectorwantedforOpenInnovationattheUniversityofCalifornia,
Berkeley,inhisbook‘OpenInnovation:TheNewImperativeforCreatingandProfiting
from Technology’. In a later version of his book published in 2006, Professor
Chesbroughdefinesitasfollows:"Openinnovationistheuseofpurposiveinflowsand
outflows of knowledge to accelerate internal innovation, and expand themarkets for
externaluseofinnovation,respectively"(Chesbrough,2006,p.1)
Inotherwords,openinnovationisupstream:theincreaseduseofinformationsources
and external knowledge to the company and downstream: the commercialization
channelsmultiplicationofthoseintangibleassetsinorderaccelerateinnovation.
This current is an alternative to the traditional mode of "closed development" that
business innovations are only those that emanate exclusively from its department of
R&Dandevolvinginsecrecy.
Contrarytothebeliefofsomepeople,openinnovationdoesnotmeanthatknowledgeor
technologywillbefree,inthesensethatthistermcanhaveinthefieldoffreesoftware
(opensource)whichletcirculatesthesoftwaresourcecodeforuseandimprovementby
thepublicwithoutroyalties. Indeed, the term"open innovation"refers toamethodof
open collaboration between various partners in a business ecosystem to develop a
commonproject,which does not exclude the protection through intellectual property
rightsandlicensesgrantingwithroyaltiesonresearchresults.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 13
In an open innovation model, companies use various information and knowledge
sources in their innovative activities such as R&D, new technologies acquiring,
specialized human capital hiring, etc. To improve productivity and competitive
capabilities of companies in the market, they increasingly tend to externalize these
informationsourcesthroughinteractionswithvariouspartners.
There are of course crowdsourcing, a practice for an organization to outsource an
activity, throughawebsite,drawingon thecreativity, intelligenceandexpertiseof the
Internetcommunityuserstocreatecontent,developanidea,solveaproblemorachieve
aninnovativeprojectatalowercost.However,suchapracticebasedonconsumersdoes
notdirectlytargetapartnerwithspecificskillsorknowledgetocarryoutalargejoint
project.
Forsuchalargeprojectwheresomespecificexpertiseisrequired,thepartnershipwill
oftenbetargetedbetweenvariousstakeholdersintheprivateand/orpublicdomain,or
the academic field. These partnerships can take many forms such as partnerships
between a company and its suppliers, alliances or joint ventures between private
stakeholders in the same sector, consortia between universities and companies, spin‐
offs,etc.
14 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
2.4RESEARCHSCOPE
2.4.1Conceptualframeworkmap
Inordertodetermineascopeformystudy,Imadeaframeworkmappresentingtheall
theaspectpresentinthisthesis.
Figure2.1.Conceptualframeworkmap
I develop my conceptual framework based on the business ecosystem and open
innovation concepts. It is thereby considered to what extent does the business
ecosystemcanbeamanagementstrategyofopeninnovation.
Basedontheliteraturereview,Iadmitthatacompanywishingtoexcelbyadoptingthe
paradigmofopeninnovationisimperativetodeveloplinkswithcustomers,institutions
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 15
(universities, research laboratories, government, etc) and other partners
(manufacturers, competitors, etc) in order to access ideas and technologies to ensure
their sustainablevalue creation.Obtainassurancebymaintaining these linksbetween
thedifferentactorsmaynotonlybeachievedthroughacoevolutionprocessthatwould
strengthen the interdependence between the actors within the same business
ecosystem. In addition to this coevolution, relationships involving competition and
cooperation illustrate special situations of coopetition. Moreover, electronic trading
platformsplayafundamentalrolenotonlyinthesharingofvaluebyallmembersofthe
ecosystem, but also and especially in the management of contributions from various
stakeholdersaroundcompany.Thisallows,therefore,introducetheconceptofopenness
in the operations of business innovation. Similarly, the nature of the firms’ business
models ishighlydependenton theenvironment inwhich theyare located. Implement
businessmodelsthatmayaffecttheinnovationprocessandcreatingnewopportunities
forgeneratingvaluecanactuallybedone,butonlyinasupportiveenvironmentwherea
multitudeofinterdependentactorssharetheirideasandtechnologieswiththoseofthe
company. Therefore, this knowledge sharing is established on the basis of a rich
portfoliointermsofinnovationpracticesbytechnologyandenterprisemarkets.
2.4.2Innovativebusinessorganization
An innovative business organization evolves in the complexity, a complexity coming
from its environment. A complex organization needs to know how to understand
complex phenomena, how to manage its resource based, so its knowledge and
competencies.Moreover, a complex organization has tomanage internal and external
exchanges. By choosing external exchanges management and so dealing with the
complexitysurrounding,acomplexorganizationopensitsystem.
Open systems allow organizations to interact with their environment. Thus, an
innovativecompanydealingwithitsenvironmentandsharingknowledgecreatesmore
value by partnering with stakeholders from its industry or another, an offer the
opportunity to its stakeholders to create more value too. This idea is the basis of a
business ecosystem. Furthermore, by externalizing Research & Development (R&D)
projects, an innovative organization begins its ascension into an open innovation
process.
16 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
2.4.3BusinessEcosystem
The business ecosystem is presented as a business strategy to copewith new issues
market,where innovationhasbecomeessential to create thevalue for customersand
shareholders. Duringmy literature review, Iwill detect not only the various features
related to this concept, but the main challenges facing companies operating in this
environment.
Furthermore, analysis of the principle of co‐evolution as well as the dynamics of
coopetition, mention the study of electronic platforms will enable me to explain as
clearly as possible the competitive dynamics within this environment and reticular,
especially, to put forward the issues associatedwith the interdependenceof actors in
relationship management (Gueguen and Boucher, 2004, p.4), shared values and
leadershipwithinthiscomplexstructure.
2.4.4.OpenInnovation
AsIwillmentioninChapter6,theopeninnovationprocessistoconsiderthatthesocial
networkisthesourceofinnovation,notonlyaparticularcompany(Rabeau,2007,p.17).
Thus,ashasbeeninferredfromtheworkofChesbrough(2003a,pp.45‐57),numbersof
factorsencouragecompaniestoopt forthiskindofprocess.Asasummary,remember
thenatureofeachdeterminantofopeninnovation:
‐Usefulknowledgehasbecomewidelyavailable;
‐Ideasthatarenotusedmaybelost;
‐Ideaortechnologyvaluedependsonitsbusinessmodel;
‐Presenceofventurecapitalmodifiestheinnovationprocessforeach;
‐Companiesmustbesellersandbuyersofintellectualpropertyassets.
Achievebenefitfromtheideasandtechnologiesavailableoutside,however,requireson
thepartofcompanies,areconfigurationoftheirbusinessmodelstoensurecontinuous
efforts in innovation. As a result, companies are being forced to combine various
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 17
approaches to innovation (spin‐in/spin‐off, internal development, acquisitions, etc) to
ensureproperpositioninginthisnewinnovation.
Finally, they must be aware of the benefits and limitations are associated with this
paradigm.
18 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
CHAPTER3. RESEARCHMETHODOLOGY
Thispartwillfocusonthemethodologicalaspectoftheresearch.SoIwilldescribethe
methodology Iused inorder todo thisstudyby firstsupporting theapproach for this
purpose. We will then describe the various phases involved in the research process,
whichare:Sampling,datacollectionandanalysis,andstudythereliability,validityand
limitationsofthestudy.
3.1.THECHOICEOFAQUALITATIVEAPPROACH
The study of the Apple business ecosystem as a management strategy for open
innovationrequiresadetailedanalysisonmultipledimensions: thediversityofactors
withintheecosystem,thedegreeofinterdependencebetweenthese,thebusinessmodel
implementedbyApple, innovationapproachesdeployedbythisfirm,etc.Theresearch
purposealsorequirestheadoptionofaparticularperspectivetounderstandhowdoesa
company working in the high technology field is able to adapt to these dimensions.
Giventhecomplexityoftheresearchobject,aquantitativeapproachwasalsodifficultto
envisage.
Indeed, tounderstandphenomenarelated to theresearchsubject,wemustnowusea
holistic vision. This vision will enable us not only to achieve detailed situations and
eventsdescriptions,butalsotogainathoroughunderstandingofthebehaviorofactors
evolvinginthisecosystem,andtheinteractionsamongthem(Gagnon,2005,p.23).
Qualitative research methods are the only ones to make available such a holistic
approach. According to Yin (2003, pp.9‐11), choosing a research strategy depends on
theshapeoftheresearchquestion,thelevelofcontrolthattheresearchermaytakeon
theeventsbeingstudiedandonthecontemporarynature(ornot)ofthephenomenon
linkedtothestudy.Yinaddsthatthecasestudyisthebestresearchwhentheresearch
question focuses on the ‘how’ and ‘why’ of a phenomenon, even if the researcher has
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 19
little or no control over events and if the phenomenon study is contemporary,which
correspondswelltothesituationofthisresearch.
The case study is defined as "an empirical inquiry that investigates a contemporary
phenomenonwithin its real‐life context, especiallywhen the boundaries between the
phenomenonandcontextarenot clearlyevident" (Yin,2003,p.13). Indeed,Woodside
and Wilson (2003, pp.497) state that this research method is appropriate for the
description, explanation, prediction and control of processes involved in various
phenomena,nomatterthattheyareindividual,ingrouporinanorganization.
Thedevelopmentof theories fromcase studyhas someadvantages, including the fact
that there are good probabilities to generate a new theory, this theory can often be
testedusingstructures,whichcanbeeasilymeasured(Eisenhardt,1989,p.540).
Toaccounttheimpactofsomethingascomplexasthemanagementofopeninnovation
withinabusinessecosystem,itisusefultoconductalongitudinalstudythatisinsuringa
periodoftimeaslongaspossible.Thatiswhythisresearchcoveredaperiodfromthe
returnof Steve Jobs inAppleCompany (1997)until theendof is exercise in the firm.
Indeed,thehistoricalreconstructionoftheevolutionofaleaderisinstructivebecauseit
allows a better understanding of changing innovation activities since its arrival and,
more importantly, observing changes in its business ecosystem as well as the whole
relationswithallstakeholders.
Theapproachofthispaperisthereforeintended,at leastinpart,descriptive.Indeed,I
will begin by conceptualizing an innovative firm (Chapter 4), followed by a detailed
analysisofthebusinessecosystem(Chapter5)andopeninnovation(Chapter6)before
finallycompileathoroughanalysisoftheinteractionsbetweentheAppleCompanyand
theactorspresentinitsbusinessecosystem,thankstodatacollected(Chapter7).
ThiswholestudywillconcludeinChapter8bytakingthefindingsduringtheempirical
study(Chapter7)andlinkingthemwiththeliteraturereviewedinChapter4,5&6.
20 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
3.2.SELECTIONOFTHECASESTUDY
IhavedeliberatelychosenthecaseofAppleactingwith itsbusinessecosystem,which
respondstosomeextenttomymainresearchobjective.Asthefirmdevelopsitsactivity
withsupport fromvariousstakeholders,whichhelp itpromote itsoffer: this is indeed
one of the basis of the business ecosystem concept. In addition, partnerships and
alliancesundertakenbythecompanyinitsR&Dencouragemetoseemorecloselythe
placeofopeninnovationinthevariousoperationsoftheAppleCompany.
Thus, given the above observations, the choice of the company was not neutral.
Moreover, I checked, as far as possible, cases, articles and research papers that have
beenpublishedsincetheearlyactivitiesastheAppleCEOofoneofthemostvisionary
leader:SteveJobs.
3.3.COLLECTIONANDDATAANALYSIS
Thisresearchisbasedonsecondarydata.Whiletakingcaretogatherinformationthat
wasintendedasexhaustiveaspossible,Ioptedforthemostreliablesourcesandknown
fortheircredibility,at leastwhenthatchoicewasofferedtome.Whenpossible, Ialso
performed a triangulation of data to verify the veracity of information available. The
secondarydatawerecollectedfromfivemainsources:
‐Annualreportsofthecompany;
‐Pressreleases;
‐Magazinesandnewspaperarticlesonbusiness;
‐Casestudies;
‐Researchreports.
The choice to base an analysis on secondary data derived from the impossibilities to
obtain an understanding of the internal reality of Apple through primary data from
AppleInc,asthecompanyisknowntonurtureinternalsecrecy.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 21
However, the secondary data as Steve Jobs Keynotes, Annual Apple Reports, but also
testimony frompartners or competitors found on the internet, even case studies and
research made by professional consultant companies have deeply helped me to
elaboratemyempirical study.Secondarydataadvantages lies in theiravailability, and
alsobecauseoftheirgreaterobjectivityinevaluation.
Finally,whenanalyzingthisdatabase,Ifollowedtotheextentpossible,theapproachof
MilesandHuberman(1994)andDeWeerd‐Nederdho(2001),whichconsistsofaback
andforthofthreecompetingactivities:
1 ‐ thedatapurifying:Select, simplifyand transformrawdata inorder to identify the
essentialcomponents;
2‐codingandanalyzingdata:Meetingtheinformationunitsdirectlyassociatedwiththe
studied phenomenon (Catterall and Maclaran, 1996; Huberman and Miles, 1994).
AccordingtoHubermanandMiles(1994,p.108),thiscouldbedonebyusingmatrixes,
tables, charts and graphs as presentation formats, or by grouping information into
paragraphs,and,aftermakingseveralcompletereadingstofamiliarizewiththecontent
and,aboveall,bybeingawareoftheglobalsensegivenoff;
3‐codifieddataanalysis:concludingbylettingthedataexpressingthemselvesandby
checking if any trends emerge, i.e. if some evidence of different sources converge on
similarfacts(Yin,1981,p.64).
Moreover, I based my research methodology on the grounded theory. Indeed, this
methodprovidedanapproachthatwouldencourageinnovationbyamethodofrooting
intheanalysisoffielddata(StraussanCorbin,1994,pp.1‐18).Thecentralprinciplein
the data analysis is the constant return to the comparison between the theoretical
analysis and empirical data. Not only the analysis takes as its starting point the first
episodesofdatacollection,butalsoitcontinuesinavalidationprocessthatisconstantly
coming back, or the already collected, or new data. So instead of force theories on
empirical data interpretation, I opened the emergence of theoretical elements or
conceptsthatwassuggestedbyfielddataandtheoreticalanalysis.Thisconstantreturn
22 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
totherootsandtheconstantvalidationtoexaminewhethertheproductsofanalysisare
well adjusted to the empirical data are the basis of the claim to innovation. Indeed,
attentiontowhatemergesfromthefieldcandiscoveroriginalpointsofview,especially
since this implies that careful analysisdevelops according toquestions from the land,
notexistingtheoreticalframeworks.
Validation discussed above involves more than an audit. This is, indeed, a constant
adjustment to what is happening on the ground. This adjustment directs the entire
processfromtheformulationofthemes,throughtheprocessofcollectingandanalyzing
data, until thevery endof theprocessof theorizing. In sum, theprimacygiven to the
emergence usually results in analyzes of ways of theorizing that have not yet been
explored.Thereforeitispossibletotalkintermsofinnovation.
3.4.RELIABILITY,VALIDITYANDLIMITATIONSOFTHESTUDY
Amongthegreatstrengthsofthecasestudywefounditsabilitytoprovideathorough
analysisofphenomenaintheircontext,anditsabilitytooffertheopportunitytodevelop
historical parameters (Gagnon, 2005, p.32). Specifically, the strength of this research
methodisitsabilitytoprovidestronginternalvalidity.AccordingtoEisenhardt(1989,
p.546), theprobability that thetheorydevelopedusingacasestudybevalid is indeed
high;thedevelopmentprocessofthistheoryisintimatelyrelatedtoempiricalreality.
The generalization of the results (resulting theories) beyond the case(s) studied,
however,isoneoftheinherentdifficultiesinthisresearchmethod.Unlikeaquantitative
approach where “statistical generalizations” are well accepted, case studies lead to
“analyticgeneralizations”(Yin,2003,pp.31‐33).Yinalsostatesthatthefindingsofacase
studycansometimesnotbeappliedgenerally.Consequently, these findings shouldbe
tested on other samples in order to develop a true generalization. This is one of
limitationstothisresearch.
Ultimately, it is important to remember that using the case study must comply with
certain scientific standards. In addition, its realizationmust be characterized by rigor
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 23
equivalent to that of quantitative researchmethods (Yin, 2003, p.34). Its usemust be
groundedinasystematicapproachwherethevalidityandreliabilityofdataandresults
aredemonstrated.AsEisenhardt(1989,p.543)highlight,itislargelybasedontherigor
shownbytheresearcherincarryingouteachstageoftheresearchprocess.
3.5.CONCLUSION
Inthischapter,Ipresentedthemethodologythatbothseemedmoreappropriatetothe
themeofthisresearchandwhichcorrespondedmosttoourinterests.Ithereforeopted
for a case study based on secondary data. Conduct an analysis of the business
ecosystemsandopeninnovation,however, isessentialelementsforunderstandingthe
innovationcontextwithinwhichInnovativeAppleCompanyis.Thatwillbethesubject
ofthenextchapters(4,5&6).
24 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
CHAPTER4. ANOPENINNOVATIVEBUSINESSORGANIZATION
4.1.ANEWVIEWOFORGANIZATIONS
Before give a mode of understanding of innovation and processes derived from
innovation, it is important to observe inwhat kind of environment organizations are
evolving now. Therefore, we are interested in phenomena related to the growth of
organizationsandhopetogiveanewvisionofthoseprocesses.
4.1.1.Thecomplexity
First, let’sexploreon theconceptof complexity.Thisuniversal conceptapplies toany
environment.Itisthereforenecessarytodealwiththiscomplexity.Byunderstandingits
principles,wewillbeabletoapplythem–inthefollowingsections‐toorganizations.
First,wemakethedifferencebetweenwhatissimple,complicatedandcomplex.Whatis
simpleandwhat is complicated canbe controlled inanordereduniverse,notwhat is
complex. Indeed, what is complicated can be simplified and understood, as the
mechanismofawatchbasedonrelationsof"causality".Whatiscomplex,however,takes
into account amultitude of interactionswith retroactive effect (disordered universe),
such as weather phenomena. This multitude of cross‐feedback is simpler and is the
resultofchance.(Morin,2005;SnowdenandBoone,2007).
“Iscomplexwhatcannotbesummarized inakeyword,whichcannotbereduced toa
law that cannot be reduced to a simple idea [...] this is a network of heterogeneous
inseparablyassociatedconstituents.”(Morin,2005,p.10)
“Complexityisaprocesswheredifferentfieldsinterferewitheachother[...]”.(Oliveira
Martins,2005,p.2)
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 25
Thus, the complexity cannot be controlled with a simple way of thinking. Only the
acceptanceofthecomplexityitself(orcomplexthought)offerspathwaystounderstand
theemergenceofpatterns(SnowdenandBoone,2007,p.6).
Edgar Morin proposes a definition of complexity: “The simple thought solves simple
problemswithoutthinking.Complexthoughtdoesnotresolveonitsownproblems,but
itisanaidstrategythatcansolvethem”.(Morin,2005,p.86)
In his book ‘Introduction à la pensée complexe’ (2005, pp.93‐112), Edgar Morin
proposesthreeprinciplestosuggestthecomplexity:
1.Thedialogicprinciple.
2.Theprincipleoforganizationalrecursion.
3.Thehologramaticprinciple.
The dialogic principle corresponds to the group of inverse processes or inseparable
contradictory ideas and even necessary for the understanding of some phenomena.
Thus,tocontrol,forexample,acomplexprincipleasslashandburn(whichcorresponds
totheactionofburningthelandtomakethemmorefertile),itwillbenecessarytojoin
twooppositetoeachother:destructionandcreation.
Theprincipleoforganizationalrecursioncomes fromtheproductionof theproduct:a
virtuouscycleofcreation.Takethecaseofreproduction; thiscomplexphenomenonis
conceivable ifweapplyon it thisprinciple.Thus,aman,byreproducingcreatesother
menandsoon.Inthecaseofvortices,itisthespiralmovementthatisself‐producer.
Finally,Morindiscussesthehologramaticprinciple.Thisprincipleimpliesthepresence
of“partsinthewhole"and"wholeintheparts”.Itcanbeillustratedbytheexampleof
the individual insociety thatconstitutesa “part in thewhole"and“whole in thepart”
26 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
becauseofthelearningbysocietyofalanguage,culture,standardssincehisbirth.Every
individuals(theparts)livinginasocietyhavethissociety(thewhole)anchoredinthem.
Inconclusion,wecansaythattheconceptofcomplexityimpliestheneedtodealwithit
by applying three principles (the dialogic principle, the principle of organizational
recursion and the hologramatic principle). I propose below a very refined
representationofthephenomenonofcomplexitybyemphasizingthepresenceofinter‐
retroactive loops onwhichwe can apply the principles developed above. The arrows
representtheinteractionsandareofdifferentcolors(greenandwhite)toreflecttheir
distinct nature. Thus, acceptance of complexity and its principles is similar to the
understandingandthecopewithourenvironment.
Figure4.1Representationofthephenomenonofcomplexity
4.1.2.Theplatformofthecomplexity
Amodeofunderstandingoftheconceptofcomplexitygiven,itisinterestingtoseethe
impactitcanhaveonknowledge.Thus,theknowledgewillbecomeaplatformbetween
the principles of complexity in complex organizations and more specifically for
innovativecompanies.
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SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 27
Indeed, given the complexity, several questions emerge. How we are capable of
understandingcomplexphenomena?Wherearethe limitsofourknowledge?Howcan
weovercomethem?
IninterviewswithSamuelThomas(2007),EdgarMorinsays:“wedonotknowwhatis
goingon,butthisiswhathappens”.Suchistheincapacitytomasterthecomplexity.
“Thereisaninsurmountablebarriertotheachievementofknowledge.Butitcanalsobe
seenasanincentivetotheexceedingofknowledge.”(Morin,2005,p.18)
WhatMorinsayshereisthatinterestinthehumanmindisnottorejectortosimplify
complexphenomena,butonthecontrarytopushitslimitstothemaximumbyaccepting
thatthereisamultitudeofnon‐controllablevariables.Thus,itisadvisabletodealwith
complexityinordertogrowintellectually.
Morin(2005)alsoexplainsthatthereisreciprocityofknowledgeontheknowledgeto
make it grow. This phenomenon of reciprocity is presented in the context of
contemporary complexity. It is also present in thework of Tocqueville (1831) in the
formofasocialphenomenonthatenablesthefreedomofAmericandemocracy.
“Feelingsandideasarerenewed,theheartenlarged,andtheunderstandingdeveloped
onlybythereciprocalactionofmenoneupontheother.”(Tocqueville,1831,p.515)
Thus,wecanconcludebysayingthattheartofdealingwithcomplexityisreachedbythe
acceptanceofcertainprinciplesandbythewillofmentosharetheirknowledge.
4.1.3.Thecomplexorganization
As we saw in the previous sections, complexity affects the entire environment and
should dealwith accepting its principles and the phenomenon of reciprocity.Wewill
nowstudytheimpactofcomplexityinaspecificarea.Indeed,itisinterestingtoexamine
thestateofknowledgeinorganizationsoperatinginacomplexenvironment.Forthis,I
will give a mode of understanding of the complex organization and its related
phenomena.
28 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
EdgarMorinexplainsthattheorganization(the"whole")ismoreandlessthanthesum
of its parts: More because such molecules combine to form a new entity and
consolidation leads to another point. Less because the combination may have a
retroactive action of the parties, as in the case of social organizations that reprimand
morethantheygivefreedom(Morin&Thomas,2007).
You canalso take the example inhisbook ‘Introductionà lapensée complexe’ (2005,
p.113)oftapestry.Tapestrymayindeedhavemorevirtuesthanthethreadthatmakesit
upandviceversa.Thisprinciple,thatthewholeisgreaterthanthesumof itsparts, is
calledHolism(Smuts,1926,p.24).Thus,weunderstandthattheorganizationbecomesa
new"part"initself.Soitfollowsthehologramaticprinciplediscussedabove.
Followingthehologramaticprincipleofcomplexityandapplyingittotheorganization,
thisorganization canbe seenas aminiature society,madeupwith three components
interacting among themselves andwith their environment in complexways. The first
component is the structure that corresponds to the physical, strategic and political
organization (e.g., goals, assets, rules, etc.). The second is the culture, which includes
normative and affective behaviors that influence both internally and externally (e.g.,
ideologies,symbols,customs,etc.).Thethirdcomponentcorrespondstotheindividuals
of theorganization.These threeseparatecomponentsof theorganizationarecomplex
because they interact and are both products and producers of their environment.
(AllaireandFirsirotu,2004,pp.92‐104)
Moreover, a complex organization, as a living organism, fights against disorder and
destruction inregenerating.Todoso, itmustmakeexchangesbetweenthe insideand
outside.Tosurvivethiscomplexorganizationmustalsofeedonotherorganizationsto
supportit.(Morgan,1999,p.34)
To survive, the organization enters into a complex interaction processes with its
environment.Thereareexchangesbetweeninternalandexternalelements inorderto
grow.Thisphenomenonofself‐organizationissimilarfromonehandtothereciprocity
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 29
of human knowledge (in its bidirectionality) and to the other hand to the law of
"requisite variety" (by its complexity). This law states that to deal with a varied
environment and therefore complex, the organization must show at least as much
variety and complexity (Ashby, 1958, p.89). Finally, this complex process of
bidirectionalexchangesbetweentheorganizationanditsenvironmentiswhatiscalled
anopensystem,amodeloracoherentsetofelementsandprocessesthatinteractwith
their environment out. In fact, it is by adopting this system that the organization
survivesandgrows.(Genelot,2001,p.124)
Inconclusion,wecansaythatcomplexorganizationsoperateinanenvironmentwhere
interactionsaremultipleandoutcomesofchance.Inordertosurviveanddevelopthere,
they should consistwith the principles of complexity and the lawof requisite variety
and they do show reciprocity as in the case of knowledge. To do this, complex
organizations should adopt an open system to promote bidirectional exchanges with
their environment. In the following figure, I seek to represent how the organization
adapts to the complexity. I present on the one hand, a closed organization whose
operationisself‐sustaining(1);ontheotherhand,wecanobserveanorganizationthat
opensitselftoacomplexenvironment,integratesinitandprospers(2).
30 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
Figure4.2.Organizationadaptationwithcomplexity
4.2ANEWVISIONOFINNOVATIONFORACOMPLEXORGANIZATION
Wehaveseenthatorganizationsevolveinacomplexenvironmenttowhichtheymust
open in order to survive. Thus, after defining the complex organization and its
principles,let’sseetheprocessesthatcomposethiscomplexorganization.Amongthese
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SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 31
processes,asexplainedintheResearchPurpose,Ichosetofocusoninnovation,asitis
since the end of the twentieth century a new aspect in line with the principles of a
complexorganization.Indeed,understandingtheconceptofinnovationandconsiderthe
currentcontextinwhichbusinessesoperate,permittohighlightthecomplexprocessof
thecontemporaryinnovation.
InnovationistheresultofaglobalprocessinwhichR&Disonlyoneingredientamong
many, to be integrated into a complex organizational process. [...] Innovation is the
result of multiple processes involving many functional and organizational factors
(MorandandManceau,2009,pp.34‐36).
Iwillthereforeinthefollowingsectionsgiveamodeofunderstandingoftheinnovation
concept then I will show the principles in line with complex organizations and open
system. Finally, I will make a summary of the implications of this new business
innovationbycomparingclosedandopensystems.
4.2.1Understandingtheinnovation
At first,wemustunderstand that innovation is a concept toooften reduced to thatof
invention. Indeed, the distinction between these two concepts is very important,
innovation concerns inventions, but only if they are born in destination to markets
(Baumol,2002,p.56).Iwillthereforeunderstandwhatmaybeaninventionandhowit
canbemarketedandthusconvertedintoinnovation.
So let's lookonthe inventionconcept.Oftenwronglyreducedtoanewtechnology,an
invention is amuch broader concept that is how to identify new links between some
elements that seemed so separated (Bronowski, 1958, pp.58‐59). Therefore, this
conceptincludesalltheideastoaccomplishataskunexpectedly.
Wecandistinguishtwotypesof innovationresultingfromthenatureoftheinvention:
technological innovationandinnovationbyusage.Thefirst involvestheappearanceof
aninventionwithinthemeaningofnewtechnologywhilethesecondisredefininghow
32 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
touseanofferbytheemergenceofnewunexpectedconnections.Toillustrate,wecan
take the example of the compotes to drink, or how to redefine the consumption of a
product by linking amethod of consumption of a product previously unthought‐of or
rather"unthinkable."Notethatthesetwotypesofinnovationarenotmutuallyexclusive
and canbe combined as in the case of theNintendoWii‐Fit,mixingnew technologies
withanewapplicationoftheoffer(MorandandManceau,2009,pp.66‐68).
Returningtotheconceptofinnovationthatcorrespondstothecommercialexploitation
of an invention. Take for example India and China. Both countries now have well‐
developedscienceparksbut lackoftheresourcesandinfrastructurenecessaryforthe
commercialization of new technologies. In contrast, the United States, they lose their
supremacycertainlyintermsofresearch,buthaveabilitytomarketinventions,allowing
themtomaintaintheirleadingpositioninthemarket(Bhidé,2009,pp.2‐5).
Thisillustratesthefactthateconomicgrowthlinkedtoinnovationisattainable,notby
theexcessiveacquisitionofknowledgebutbytheacquisitionofassetsdedicatedtoits
use(Bhidé,2009,p.6).
Thus,we understand the importance not only of the invention but also itsmarketing
process. Indeed, to convert an invention into innovation, organizationsmust make it
availableandforthattheyshouldfocusontheirabilitytocombinealatentorexpressed
practicalneedandanaestheticneedforitsadoption.Innovationcanthuscorrespondto
newprocesses,servicesorotherwaystocommunicatewiththemarket(Brown,2008,
p.3).What can be learned here is that the conversion of invention into innovation is
possiblethroughtheidentificationofopportunitiesintermsofmarketneedsandbythe
developmentorredesignofabusinessmodel thatpromotes themarketingofanoffer
meetingtheneed.
Beforewe look at businessmodels, let's lookonhow tomake an inventionusableby
connecting it to a need: the detection of business opportunities. The opportunity
perceivedcanbeunderstandasameantogenerateeconomicvaluethatisnotandhas
neverbeenexploited.Similarly,thedetectionofopportunitiescanbeunderstoodasone
or more cognitive processes that enable individuals to identify an opportunity. The
cognitive process is part of an algorithm type scheme according to patterns (Baron,
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 33
2006;Vaghely and Julien, 2010). Thus, thepattern creation in the contextual changes
that lead to the detection of opportunities (or not) ismade possible by three factors
specifictotheleadersoforganizations:Search,AlertnessandKnowledge.
First, the active research for information on the environment of the organization is
essentialandspontaneousfactorinthedetectionprocess.
Second, the leaders "on alert" can distinguish patterns less actively for an almost
unconsciousmean.
The final factor necessary to explore links between the surrounding elements comes
fromknowledgeandexperienceofthoseleaders(Baron,2006,pp.104‐119).
Finally, this method allows managers to determine relationships unnoticed in their
environmentandthereforeaneedappropriatetotheinvention,andviceversa,through
patternscreation.
Itisnownecessarytounderstandhowthemarketingofaninventionismadepossible.
Chesbrough (2003b, pp.76‐81) uses the example of FedExwho used the Internet and
offered to its customers an online tracking service for packages. This offer, until here
absent,allowedFedExtocreateacompetitiveadvantagebecauseitfilledaneed.Thus,
the success of their innovation comes from the company's ability to integrate an
invention (Internet)by connecting it to amarketneedby altering its businessmodel.
Indeed, the invention commercialization and thus the innovation concept are made
possiblebythebusinessmodeladoptedbythecompany.
“Weconsiderinnovationastheexploitationofnewideasintonewproductsorservices,
newbusinessmodelsandnewwaysofworking”.(MorandandManceau,2009,p.42)
In conclusion, we have seen here that innovation is a concept much broader than it
appears(not justa technologicalnovelty),butanorganizationalprocess incorporating
boththeinventionandtheneedforthesearchofopportunitiesandthedevelopmentof
a business model. In addition, knowing that the organization is a combination of a
34 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
structure,acultureandindividuals,weunderstandthatinnovationasanorganizational
process has a direct impact on these three components (Allaire and Firsirotu, 2004,
p.102).Thus,Iproposethefollowingdiagramwherethestructure,thecultureandthe
individualsoftheinnovativeorganizationaretheresultofacomplexcombinationofkey
componentsoftheResearch(green)andDevelopment(violet)i.e.theinventionrelated
to the need and the opportunity’s research related to the development of a business
model.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 35
Figure4.3.Thekeycomponentoftheinnovativeorganization
36 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
4.2.2Adoptopeninnovation
Wenowhaveanunderstandingofwhatisinnovation.However,aswehaveseeninthe
firstpartofthischapter,thecontextinwhichtheorganizationevolveshasanimpacton
its own nature. Thus, in order to apply the principles of complexity and openness to
innovation,wefocushereonacontemporaryvisionthatChesbrough(2003a,p.34)calls
OpenInnovation.
Since the 80s, the business has changed: the competences are more mobile, capital
marketsarefreerandproductlifeisshorter(Chesbrough,2003a,p.12).It isalsowhat
mentionsthebook‘Stratégiesetmoteursdeperformances’(AllaireandFirsirotu,2004,
pp.12‐14),whichintroducesthecontextcalled"MutualLoyalty"andthecontemporary
context of the “ThreeMarkets” (competencesmarket, capital market and products &
servicesmarket).
We are interested in a first step to the mutual loyalty concept where enterprises
operated before the 80s. Indeed, firms formed stable employees in order to create a
competitiveadvantagethatallowedthemtoensurethesupremacyofauniqueproduct
or service, whose incomes were re‐injected into the company (Allaire and Firsirotu,
2004, p.68). Capital and competences were very static, making the business
environment(competitors,suppliers,etc.)verysmall.Companiessearchingthecontrol
of novelty and promote vertical integration and the protection of their knowledge by
working in self‐sufficiency in a very small systemdevelop a closed innovation system
(Chesbrough,2003a,p.30).
Thus,ifinthecontextofmutualloyalty,theclosedinnovationmodelisadequate.Wecan
then in a second step note that changes involved in terms ofmovement of the three
markets make firms adopting a closed innovation, which is vulnerable: intellectual
property can not be retained internally because it travels in a cross‐border business
(Genelot,2001,p.53).
TheadventofInformationTechnology(IT)isnostrangertothiscontextchange.Indeed,
the progresses made by the current IT now allow everyone to have access to
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 37
confidential information. The licenses and patents reach very quickly their limits and
newtechnologiescanbequicklycopiedorimproved(Manyika,2007;Thackara,2009).
In summary, we are able to argue that the movement of skills and so knowledge
complicatethecurrentenvironmentoforganizations.Aswehaveseen intheprevious
section,inacomplexenvironment,theorganizationfollowsthelawofrequisitevariety,
adoptsa complex systemanddemonstrates reciprocity.Furthermore, as innovation is
part of the organization as the hologramatic principle of complexity (Morin, 2005;
Ashby,1958), it follows thesamerules: innovation is complexandadopts reciprocity.
Thisiscalledopeninnovation(Chesbrough,2003,p.4).
Wecanalsosaythatsinceinnovationisaninventionrelatedtoaneedandalsolooking
foropportunities related to thedevelopmentof abusinessmodel, itsopennesswould
affect its components in terms of complexity and reciprocity. Thus, I insist on the
following: inventions,detectionofopportunitiesandbusinessmodelsoforganizations
adoptingopeninnovation.
Concerninginventions,knowingthatcompetencesandintellectualpropertycannotbe
retainedinternallybutareatthecontrarybroughttotravelbetweenbusinessesandthe
market,theabilityofanorganizationtocreatevaluefromthiseconomicphenomenonis
nolongerinpossessionofaninvention,butinmarketingofanyinventionregardlessof
thelocationfromwhichitemerges(Brown,2008;Bhidé,2009;Estrin,2009andVarian,
2009). Thus, the invention can equally emerge internally and externally and can be
subsequentlydevelopedwithin theorganizationormove toa thirdpartyoraspinoff
(ChesbroughandGarman,2009,p.73).Thisdynamic isassociatedwith thepracticeof
reciprocityexplainedabove.
Italsocorrespondstothebidirectionalityofknowledge:"Thisdoubleinformationflow,
fromthecentertotheperipheryandtheperipherytothecenter,isabsolutelyessential
forthefunctioningofthecompany."(Genelot,2001,p.172)
Withregardtotheopportunitiesdetection,wesawbeforethatthismethodwasbased
onacognitiveapproachandsooutcomesfromthedevelopmentofspecificpatternsto
38 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
the leaders. However, movements in the three markets involve a broader, more
complex,whereamultitudeofindividualsinteract.Leadersarenolongeralonetoactin
theneedsrecognitionprocesslinkedtoinventions.Infact,leadersshouldnowdealwith
aconstructivistapproachtothismethod,namelyanapproachbasedontheinformation
sharing,trialsanderrors(VaghelyandJulien,2010,pp.73‐78).Thus,upondetectionof
opportunities, Iwill combine the three factors (Search,AlertnessandKnowledge)and
addafourth:thebreadthofleaders’socialnetworks(Baron,2006,p.111).Inthisway,
detectionofneedsthatapplytoaninventionleadstoitsconversionandbecameajoint
effortofindividualsinordertocreateeconomicvalueandinnovationsattheserviceof
thisgroup.Bymixingtheinformationsharingandresearchapplicationofaninvention
in a collectivemanner, we arrive at the concept of co‐creation, corresponding to the
creation and marketing of ideas by a vast network of competences and individuals
possessingcomplementaryexpertise(Bughin,2008,p.7).
Finally, regarding thebusinessmodelofopen innovation,wemustunderstand thatas
everything else in the organization, it will be complex and will facilitate exchanges
betweeninternalandexternaltobeopened.
“Generally speaking, companies should involve external perspectives deeply in the
innovation process. They should have well‐defined ways to interact routinely and
repeatedly”.(Anthonyetal.,2008,p.143)
Take the caseof Intel, amanufacturerofmicroprocessors.Thesegoodsare inavalue
chaingoingbeyondtheboundariesofthefirm.Also,themanufacturerchoosesanopen
innovation model because information needed for the development of its inventions
dependsonthepartnersthatwilluseitsmicroprocessors.Byfocusingitsbusinessand
being responsive to the market, Intel has created a business model for interaction
(informationandprocesses)andco‐creation.Itthenbecomesavitallinkinitssectorby
participating intherapiddevelopmentofthecomputer industry(Anthonyelal.,2008,
pp.144‐145).
Inconclusion,wecansaythattoinnovateintoday'senvironmentandthuscreatevalue,
surviveandgrow,itispreferabletoadoptanorganizationpromotingopeninnovation.
Todothis,leadersmustadoptabusinessmodelbasedonanopensystemsupportingco‐
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 39
creation.Suchquantumphysics, thebusinessmodel integrating theprocessesofopen
innovation is attached and makes permanently interact the infinitely small (the
individuals)andtheinfinitelylarge(globalizationofcompetencesandprocesses)acting
inapositivewayforallstakeholders.
Onthefollowingdiagram,wecanobservethemovementandespeciallythesharingof
inventions (external in green and internal in violet), and the opportunities detection
method that lead (or not) business to the development of a businessmodel for open
innovation.
Figure4.4.Opensystem:Conversionofinventionintoinnovation
40 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
4.2.3Anorganizationbasedontheprinciplesofopeninnovation
Tosummarize theprinciplesofopen innovation,beforeenteringwidely in it (Chapter
6), and their implications at the business model level, I propose to group but also
comparetheprinciplesderivedfromtheliteratureonopenandclosedsystems.
Also,inthefirstsectionwehaveseenthattheorganizationoperatesinthecomplexand
tosurvivetheyhadtoadoptanopensystempromotingexchangesbetweentheinternal
and external. In the previous section, we went in more detail by studying an
organization process: innovation. Knowing that innovation has an impact on the
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 41
structure, culture and individuals of the organization, we understand that open
innovation requires an open system specific to complex organizations in the current
context of the three markets. So we understand that contemporary innovation is an
opensystemprocess.
The transition from the closed to open organizational system has two implications: a
newrelationshipwiththeenvironmentandaneworganizationalstrategy.Thus,inthe
following figure, in order to compare the two systems, we show both aspects. The
relationshiptotheenvironmentcomesfromtheprinciplesofopenandclosedsystems.
Organizational strategy is derived from the principles of open and closed innovation.
Theconfrontationoftheseprinciples(columnleftandright)canidentifythetrackstobe
followedbytheleadersintermsofbuildingorganizationalsystem.
Finally, toexplain theobservationscollected in the literature, Icomplete the figureby
twodiagrams,onerepresentingtheclosedsystemandtheothertheopensystem.The
first is a red dot representing the organization (O) in its environment (E). In this
representation, theorganization isclosed, intangiblewitharestrictedenvironment. In
addition,weemphasizesontheideaofclosingbyshowingthateachorganizationhasits
own environment and does not "blend" itwith other organizations and environment:
thereisnosharing.
The second diagram depicts the organizations in red (O) as mass‐like variables and
permeable boundaries operating in a common and extensive environment (E). This
allowsshowingthatorganizationsareadaptable,opentosharingwitheachotherandan
environmentbeyondtheirmarket.
42 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
Figure4.5.Closedsystemmodelvs.Opensystemmodel
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 43
Open System
Closed System
System Environment
Punctual interactions of the organization with its environment (Morgan, 1999, p.28)
Restrained, closed and intangible system (Genelot, 2001, p.54)
Environment reduced at the organization and its market (Genelot, 2001, p.54)
Environmental complexity rejected (Genelot, 2001)
Organizational Strategy
“The smart people in our field work for us.” (Chesbrough, 2003a, p.26)
“To profit from R&D, we must discover it, develop it and ship it ourselves.” (Chesbrough, 2003a, p.26)
“If we create the most and the best ideas in the industy, we will win.” (Chesbrough, 2003a, p.26)
In line with the model of “Mutual Loyalty” (Allaire & Firsirotu, 2004,
p.12)
E E
E
O O
O
System Environment
Permanent interactions of the organization within its environment (Morgan, 1999, p.65)
Large system, adjustable quickly and unexpectedly (Genelot, 2001, p.89)
Extended environment (political, social, economic etc.) (Genelot, 2001, p.90)
Comprehension and adaptation to the environmental complexity (Genelot, 2001)
Organizational Strategy
“Not all of the smart people in our field work for us.” (Chesbrough, 2003a, p.26)
“ External R&D can create significant value, internal R&D is needed to claim some portion of value.” (Chesbrough, 2003a, p.26)
“If we make the best use of internal and external ideas, we will win.” (Chesbrough, 2003a, p.26)
In line with the model of the “Three Markets” (Allaire & Firsirotu, 2004,
p.14)
E
O
O
O
44 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
CHAPTER5. THE GENESIS OF THE BUSINESS ECOSYSTEM
CONCEPT
InthischapterIdiscussthegenesisofthebusinessecosystemconcept.Todothis,Ifirst
analyzethemainunderstandingelements,itstheoreticalroots,aswellascharacterizing
thecompetitivedynamics.Finally, Iwilladdress the limitations thatmayemergeafter
the analogical relationship built between the business ecosystem and its biological
counterpart.Inadditiontotheabove,Iwilldescribetheevolutionofinnovationsystems
by emphasizing the industrial centers effects on the business innovation practices, as
wellastheemergenceofnewinnovationcontextfollowingtheadventofseveralfactors
including the markets globalization, access to knowledge worldwide, the ease of
electronicexchangesandmore.
Thebusinessecosystemconcept isstillrelativelynewandnotwidelymobilizedinthe
academic literature. However the managers, themselves, have rapidly adopted this
concept but with a rather reductionist confined to the wider environment of the
company,itscustomersandpartners,withoutnecessarilyunderstandingtheunderlying
logicandimplicationspolicyassociatedwiththedynamicinnovation.Inthispart,Iwill
highlightthemainfeaturesofabusinessecosystem.
5.1.UNDERSTANDINGELEMENTSOFBUSINESSECOSYSTEMS
TheAmericanauthor JamesMoore inhisbookentitledTheDeathofCompetitionwas
thefirsttoimplementtheecosystemconcepttobusiness:"Acompanybeviewednotas
amemberofasingleindustrybutaspartofabusinessecosystemthatcrossesavariety
ofindustries".(Moore,1993,p.179)
Although mentioned by some authors, a precise definition is still lacking. In what
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 45
follows, I discuss a number of definitions proposed by several authors to extract far
morefundamentaltheories,whicharebasedonthestudyofthisconcept.
InTheDeathofCompetition,Moore(1993,p.26)describesabusinessecosystemas"An
economic community supported by a foundation of interacting organizations and
individuals—theorganismsof thebusinessworld.Theeconomiccommunityproduces
goods and services of value to customers who are members of the ecosystem. The
member organisms also include suppliers, lead producers, competitors, and other
stakeholders.Over time, they coevolved their capabilities and roles, and tend to align
themselveswiththedirectionssetbyoneormorecentralcompanies.Thosecompanies
holdingleadershiprolesmaychangeovertime,butthefunctionofecosystemleaderis
valuedbythecommunitybecauseitenablesmemberstomovetowardsharedvisionsto
aligntheirinvestments,andtofindmutuallysupportiveroles”.
Figure5.1clearlyillustratesthevariousactorsdescribedearlierbyMoore(1996,p.28):
Figure5.1.Thebusinessecosystemvirtuouscircle(Moore,1996,p.28)
Source:Moore, J.1996.«TheDeathofCompetition:Leadership&Strategy InTheAgeOf
BusinessEcosystems»,HarperBusiness.
46 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
Thus, the author highlights the importance of the notion of community to the extent
that,inabusinessecosystem,thiscommunitywilllinkheterogeneousfirmsonthebasis
of one ormore core capabilities. Such heterogeneity implies, among other things, the
convergenceof a varietyof industries.Thesmartphone is aperfect example since the
device performs functions previously reserved to a computer, camera, TV or audio
device(Rabeau,2008,p.64).
Itthusappearsthattheconceptofindustryislosingitseffectivenessagainsttheconcept
of ecosystem. According to Moore (1996, p.42): "We are witnessing the end of the
industry,notasaneconomicphenomenonbutratherasaneffectiveconcepttoobserve
majorchangesinthebusinessworld."
Addtothisideatheimportanceoftheprincipleofcoevolutionmentionedbytheauthor,
amajorimportanceprincipleexplainingthedynamicsinherentinabusinessecosystem
and meaning that we can not understand the evolution phenomenon of a business
without incorporating changes of other companies in its environment (Torres‐Blay,
2003, p.13). In the following sections, I will try to deepen my analysis vis‐à‐vis this
principle.
Inspired by Moore, Torres‐Blay (2000, p.5) defines a business ecosystem as “a
heterogeneous coalitionof companieswithindifferent sectors and forming a strategic
communityof interestsorvaluesinnetworkstructuredarounda leaderwhomanages
toimposeortoshareitsdesignoritscommercialtechnologystandard”.
From this definition, the author substitutes the word "Coalition" to the notion of
community proposed by Moore to highlight the partnership nature that dominates
relations between firms in a same ecosystem.Thesepartnerships have their origin in
another concept characterizing the business ecosystem, i.e. the interconnectedness
betweenstakeholders.Suchanotioniscrucialtohighlightissuesrelatedtoinnovation
policywithinabusinessecosystem,insofaras,beinginsuchacontext,theleadersofa
company are required to coordinate an innovation flow from a large number of
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 47
contributorsfromseveralmarketsandhierarchies(Moore,2005,p.2).Specifically,itis
not enough to penetrate the market with innovations from only the internal
environment of the company and it is more important to share information with
partnersandbuildonthemintheinnovationprocess.
Indeed,IansitiandLevien(2004,p.3)arguethatindividualstrategiesofacompanyhave
no effect if the success depends on the collective performance of organizations that
influence creation and marketing of its products. In such cases, the strategies to be
adoptedbythecompanymustbequalifiedascollectivestrategies.
Instead of proposing a concrete definition of a business ecosystem, both authors are
basedontheanalogyeffectlinkingthebusinessecosystemtoitsbiologicalcounterpart.
As a result, several common features between the two ecosystems deserve to be
highlighted:
‐ Inbothcontexts,wefinda largenumberofparticipantsnotonly interconnectedbut
alsointerdependentandthoseparticipantsshareboththeireffectivenessandsurvival;
‐Membersoftheecosystem,regardlessoftheirpower,cannotescapetheimpactsthat
mayaccompanyrelentlessrelationshipslinkingwithothermembers;
‐Withineachecosystemare"keystones"(keyparticipants)thatmanagetomaintainthe
goodperformanceoftheentireecosystem.
Besides the features mentioned above, Iansiti and Levien (2004, p.9) believe that a
businessecosystemcouldinclude,forexample,firmsinwhichthecompanyoutsources
business processes, institutions providing company finance, and other technologies
needed to guarantee a good continuity in its activities, as well as manufacturers of
complementary products. The ecosystemmay even include company's competitors as
wellascustomerswhosebehaviorislikelytoinfluencethebusinessperformance.
Finally,PeltoniemiandVuori(2005,p.13)definethebusinessecosystemasadynamic
structure consisting of interconnected organizations populations, which are small
48 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
businesses, largecompanies,universities,researchcenters,publicsectororganizations
orotherpartiesthatinfluencethesystem.
Characteristicsandissuesofabusinessecosystem
At the end of this section, I will try firstly to summarize as clearly as possible the
characteristicsassociatedwithabusinessecosystem,while Iwill findoutother issues
likelytosupportcompaniesoperatingatthewithinsuchastructure.
Thecharacteristicsofabusinessecosystem
GueguenandBoucher(2007,pp.6‐18)identifythefollowingcharacteristicsasdominant
inbusinessecosystems:
‐Severalcompaniesuseastandard,normorknow‐how.Thiswillhelptodeveloponeor
morecorecompetencies.
‐ Companiesusing these skillswill be a common strategicdestinyon theprincipleof
coevolution.
‐One(ormore)companywillplaytheleadingrole.Thiscompanywilldevelopavision
shared by other members of the business ecosystem. Founded on the basis of
contributions and critical embedded (Moore, 1996, p.54), the leaderpowerwill guide
theevolutionofcorecompetencies.Theleadingpositionisevolutionaryanditsbehavior
isimportantinthebusinessecosystem.
‐ Stakeholders composing business ecosystems are heterogeneous (companies,
institutions,tradeunions,pressuregroups,etc).
‐ The business ecosystem stakeholders come from different industries. We are thus
witnessingaconvergenceofindustries.
‐ There is not necessarily an exclusive membership to one business ecosystem.
‐Significantcompetitiveprocessesdrivebusinessecosystems,bothintra‐ecosystem(to
acquiretheleadingposition)thanatinter‐ecosystems(competitioninseveralbusiness
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 49
ecosystems). A business ecosystem involves both cooperation and competition,which
correspondstothelogicof"Coopetition."
The figure 5.2. proposed by Peltoniemi (2005, p.64) schematizes clearly all relevant
featureslistedabove:
Figure5.2.Businessecosystemcharacteristics(Peltoniemi,2005,p.64)
Source:Peltoniemi,M.2005, ‘BusinessEcosystem:Aconceptualmodelofanorganization
populationfromtheperspectivesofcomplexityandevolution’.EBusinessResearchCenter,
ResearchReports18.
Issuesrelatedtotheconceptofbusinessecosystem
Through the literature review consulted above, we have identified a multitude of
featuresandconceptswhoseimpactontheinnovationmanagementbythecompanyis
decisive.Werecognizehoweverthatitfacesmanychallenges,challengesthatIpresent
below.
50 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
Challenge1.Thecoevolutionprinciple
Thefirstchallengeconcernsthenatureofthestrategiesthatmustadoptacompanyin
its ecosystem. Indeed, in such a lattice environment, individual decisionswill be less
important than collective decisions (Torres‐Blay and Gueguen, 2003, p.9), implying a
decline in individual strategies to face the pressure of collective strategies. Thus, the
company, as well as other parts of its ecosystem, is led to "co‐evolutes" collegially,
knowing that suchaprocess couldalso lead to closer collaborative relationships than
conflicts(Moore,1996,p.33).
Challenge2.Newavenuesofinnovation
Thesecondchallenge,meanwhile,issomehowaconsequenceofthefirstchallenge.This
effect relates to the innovation policy of the company in its ecosystem. In terms of
innovation,successofthecompanyinthiscontextnowdependsonitsabilitytoclosely
monitoritsnetworkofpartnersandpotentialcustomers(Adner,2006,p.1).Thisleads
ustointroducetheconceptofopeninnovationthatreflectsthisnewreality.
Challenge3.Leadershipwithinthebusinessecosystem
Wealsonotethepreponderanceoftheleadershipnotioninabusinessecosystem,since
the stability of this ecosystemdepends critically on the performance of one leader in
particular.Asanexample,considerthecaseofIBMinthemid80s.AccordingtoMoore
(1993,p.60),thiscompanyhasmanagedtocreateanentirelynewcommunityofwork‐
basedpersonalcomputers,whichhad theeffectofbringingall theplayerscircling the
companytopayitstechnicalstandardsandmanufacturingprocesses.
It shouldherebementioned thatbeing a leaderof abusiness ecosystemrequires the
existence of an electronic platform likely to attract many participants around the
company,andthis,tostrengthenthepotentialforcreatingvaluewithintheecosystem.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 51
Challenge4.Therisksassociatedwithbusinessecosystemcontext
Althoughthefactofsucceedinginmanagingtheassetsoutofreachallowsthecompany
tomonopolizeanycompetitiveadvantageoveritsrivals(IansitiandLevien,2004,p.22),
it appears that its successnow rests on its ability tomanage risks associatedwith its
operationswithinthebusinessecosystem(Adner,2006,p.2).Indeed,theroleofleaders
isno longer limited todetermining themarketand targetsperformance,butrather to
identify the risks inherent in their actions. According to Adner (2006, p.3), the co‐
innovation risk (related to coordination with co‐innovators), the execution risks
(associatedwithprojectexecution)andtheadoptionchainrisks(relatedtooperations
management within the value chain) are all variables that must have a careful
examination by the leaders. This exercise is a major importance since it could lead
managers to review the actions taken since their beginning, or even change their
innovationstrategy.
Finally, the presentation of all features related to the strategy of business ecosystem,
andthekeychallengesassociatedwithit,allowedustodeepentheconceptanalysis.
5.2.THECOMPETITIVEDYNAMICSWITHINBUSINESSECOSYSTEMS
5.2.1.Thecoevolutionprinciple
Theco‐evolutionprincipleiscrucial inexplainingthecompetitivedynamicswithinthe
business ecosystem. At the beginning of this section, I briefly explain the theoretical
rootsofthisprinciple.Ithenwilllookmorecloselytherelevanceofthisprocessinthe
businessecosystem.Tobetterclarifythisconcept,tworelevantexamplesofcoevolution
arefinallyprocessed.
5.2.1.1.Co‐evolutioninthebusinessecosystem
Many researchers, includingKauffman,Nelson, andZimanbelieve that developing co‐
52 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
evolution models is a necessary exercise to successfully understand the dynamics
associatedwithindustrialchange(Murmann,2003,p.21).
According to Moore (1993, p.76), the co‐evolution process helps to strengthen the
innovation efforts of firms in the same business ecosystem. These must indeed "co‐
evolve" their efforts to promote a new innovation: they therefore act in both
cooperation and competition to promote new products, satisfy customers and adopt
newinnovationstomarket.
Furthermore,thisprocessisplayingtheroleofcontributorbetweenanorganizationand
itsenvironmentcomposedofotherorganizationsanditsbroadercontext.Accordingto
Peltoniemi(2005,pp.3‐4),severalconditionsmustbemetsothatthereiscoevolution.
Theyaresummarizedasfollows:
1‐Alimitednumberofcustomersencouragingenterprisestochangeandevolve.
2‐Aconsciouschoicefocusingbusinesstochange.
3‐Interconnectivitybetweenorganizationsallowingthemtohaveareciprocaleffecton
eachother.
4‐Afeedbackprocessreinforcingtheco‐evolutioneffects.
TheFigurebelowneatlysummarizesthecommentsmadebytheauthor:
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SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 53
Figure5.3.Thecoevolutioninthebusinessecosystem(Peltoniemi,2005,p.35)
Source:Peltoniemi,M.2005, ‘BusinessEcosystem:Aconceptualmodelofanorganization
populationfromtheperspectivesofcomplexityandevolution’.EBusinessResearchCenter,
ResearchReports18.
Intheirbook“TheKeystoneAdvantage”,IansitiandLevien(2004,p.26)usetheconcept
of"SharedFate"toillustratetherelevanceofco‐evolutionprocessdescribedabove.The
authors, however, use this notion under a critical eye insofar the interconnections
between communities forming the ecosystem could induce the whole system into a
spiraloferrorsandmiscalculations,which is likely tospreadall thesemalfunctionsto
otheractors.
5.2.1.2.Examplesofcoevolution
Example.ApplicationdevelopmentintheMobileOperatingSystem
In the field of Mobile Operating System, developers need access to Application
Programming Interfaces (APIs) and other characteristics of the platform to create
applications, which will be valued by users of smartphones. Beyond this, demand‐
coordinatorsmayalsoberelatedtocost‐minimizes(Evans&Schmalensee,2007,p.34)
54 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
since‐inadditiontofacilitatingaccesstotheplatform‐theymakeavailabletoagroup
of actors the tools to increase their productivity. Thus, the SoftwareDevelopmentKit
(SDK),otherssoftwarelibrariesandotherresourcesaremadeavailabletodevelopersin
ordertofacilitatetheirworksandencouragethemtoinvestinthedevelopmentofthe
platform.Themoretherewillbetojointheplatform,themorethepotentialvaluethat
canbedeliveredtocustomerswillbeimportant,andwithitthebusinessecosystem.
Eisenmannetal(2007,pp.92‐93)distinguish"proprietaryplatforms”whereoneplayer
controls the technologydeveloped(e.g.Apple iOS4 that the iPhoneuses)and“shared
platforms” where several companies collaborate and develop technology while
competingtoofferconsumersdifferentbutcompatibleversionsoftheplatform(e.g.the
differentdistributionsofLinux,orGoogleAndroidthroughtheOpenHandsetAlliance).
5.2.2.Coopetition
Although co‐evolve means that players in the business ecosystem must act in
cooperation and competition (Moore, 1993, p.61), we must also recognize that this
process is based more on a partnership approach (Torres‐Blay and Gueguen, 2003,
p.11).
The coopetition concept, unanimously defined as "a situation of cooperation and
competition"(Baumard,2007;BranderburgerandNalebuff,1996),allowscoopetitionto
combinethesetwoantagonisms(cooperationandcompetition)withinasingleprocess
(BoucherandGueguen,2004,p.3).Accordingtothem,thedevelopmentofthebusiness
ecosystemismadefirstandmostlyonthestrengthofcooperation,beforeexperiencinga
newdynamicthroughcoopetition.Inathirdstep,thesetwoapproachessimultaneously
fuelingthedevelopmentofthebusinessecosystem.
ForHamel,Doz andPrahald (1989, p.134), the interest of coopetition lies in learning
andknowledgecreation,whichwillbeembodiedinnewproductsorservicesofafirm.
Irecognizethatconsiderationofthisconceptgotaconsiderableimportanceinstudying
thesubjectofmyresearch,sinceitstemsfromtheopeninnovationprocess.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 55
Indeed,firmsforcedto"coopete"mustnotonlyadapttoahyper‐competitiveworldby
adopting competitive postures, but they must also carry out collective strategies to
counterothercompetitorsor topoolresourcesandshareknowledge(Lado,Boydand
Hanlon,1997,pp.23‐25).
Some observers believe, however this concept as rather paradoxical (Schmiele and
Sofka, 2007, p.7), especially when firms operate in an international context where
multiple barriers including cultural, regulatory or trust would increase the risk
associatedwiththesharingofIntellectualProperty(IP)rights.Theinternationalcontext
is in fact likely to adduncertainty to the coopetitionprocess,whichwould encourage
firmstoprotectthemselvesthroughseveralpracticesthatwewilldiscoverlater.
5.2.3. Electronic platforms: shared values and leadership within the
businessecosystem
Iproposeinthissection,toscrutinizetheroleofelectronicplatformsinordertoexplain
as clearly as possible the competitive dynamics within the business ecosystem and,
aboveall, to foreground thevarious challengesassociated to thevalueand leadership
sharingidentifiedabove.
It is important first to identify themain factors that contributed to the emergence of
electronicplatforms,andtheirusebyafewdominantfirmsinabusinessecosystem.
5.2.3.1.Whatisanelectronicplatform?
Attempt here to explain what is an electronic platform. According Iansiti and Levien
(2004, p.148), electronicplatforms represent an indispensable structure for the value
sharingbyallmemberswithinthebusinessecosystem.
Bothauthorsalsoarguethataplatformofferstheabilitytoembedsharedsolutionsin
ordertosolvecommonproblemsfoundinthebusinessecosystem.
56 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
Eisenmannetal(2006,p.93)defineaplatformasfollows:
“Aplatformembodiesanarchitecture–adesignforproducts,services,andinfrastructure
facilitatingnetworkusers’interactions–plusasetofrules;thatis,theprotocols,rights,
andpricingtermsthatgoverntransactions”.
Thus, from this definition, it seems clear that network effects give to the notion of
platformitsentireglow.Themajorityofcompetitivestrugglesoccurredinseveralareas
includingoperatingsystems,onlinerecruitmentservices,searchenginesorvideogames
are clearlybasedon theseeffects,withas result a limitednumberof actors thathave
succeeded in establishing itself, which are among many competitors in a given field
(Rabeau,2006,p.55).
GawerandCusumano(2008,p.13)indicate,however,thattobuildaplatformarounda
productoraroundanytechnologyrequirestwospecificconditionsthatarepresentedas
follows:
1‐Theplatformmustperformatleastoneessentialfunctionaccordingtothefactthatit
canbedescribedasa"Systemofuse",orsolveacriticaltechnologyinanindustry.
2‐It must also allow members to connect easily, offer the possibility to expand the
“system of use” by the construction of new features, just as it must accept new
contributionsfromitsmembers.
5.2.3.2.ICTplatformsandthechallengeofleadership
In his book entitled ‘The Death of Competition’, Moore (1993; 1996) states that the
business ecosystem is experiencing a life cycle through four major stages of
developmentmarkedbyphasesofstabilityandinstability:birthstage,expansionstage,
leadershipstageandself‐renewal(ordeath)stage.
At the third stage, the notion of leadership is here all its light. At this level, a leader
emerged in the business ecosystem and provides the function to add value to the
communityofplayersaroundhim.Todothis,heencouragesthemtoact inacommon
visiontoadapttheirinvestmentsandfindmutualsupportroles.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 57
Protocols,standardsandcommunicationstandardsmustthennecessarilybecompatible
and the most universal possible. Indeed, leadership is often based on technology
standardizationprocess(Torres‐BlayandGueguen,2003,p.11).
However,Moore'sapproach,althoughitwasappropriatetoputforwardtheleadership
challenge in the business ecosystem, does not result in an extensive and rigorous
analysis of the relationship between the leader power and the build of a platform
capableofmanagingthecontributionsofdifferentactors.
CitingclearexamplesofWal‐Mart(withitselectronicplatformnamedRetail‐Link)and
Microsoft(withitsWindowsoperatingsystem),IansitiandLevien(2004,p.114)indeed
showthatthestabilityofthebusinessecosystemiscloselyrelatedtotheroleplayedby
somekeyparticipants,called"Keystones".Theyareabletoenjoyaremarkablepower,
powerdeliveredthroughanelectronicplatformonwhichthewholesystem.
In the same vein, (Gawer and Cusumano, 2002, p.32), in their book “Leadership
Platform”, specify that being leader of an electronic platform can exert considerable
influenceonthetrajectoryofinnovationintheindustryand,ultimately,ontheformed
networkofbusinessecosystemsandcustomersproducingandusing“complements”.
To clarify my explanations and to make them more concrete, I propose to consider
brieflythecaseofGooglebusiness.AccordingtoIyerandDavenport(2008,p.61), two
attributesmakethesuccessofthiscompany:itshighperformancesearchengineandits
technological infrastructure, which acts as a platform capable to increase, for the
company,networkeffects.
Throughthisplatform,thecompanyhasindeeda"Keystone"initsbusinessecosystem
comprisedofvariousstakeholders,namely:
•Advertisers(companiesandindividuals):
‐ConstituteaveryimportantsourceofrevenueforGoogle;
‐Providecontentthatattractsmorecustomers.
•Customers:
‐Seekinformationandfeeltheirinterests;
58 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
‐Usetargets‐Ads;
‐Testtheinnovationsperformanceandqualityavailableonthenetwork;
‐Helpbycontributingideasandsuggestingimprovements.
•Contentproviders(mediacompaniesandindividuals):
‐Createtheinformation;
‐ Stimulate customers’ interests and encourage the formation of user communities
aroundtheiroffers.
• Innovators (independent software sellers, Google engineers, "Open Source"
communities):
‐Formtogetheradiversenetworkofproductdevelopment;
‐Developnewoffers fostering, on theonehand, customer engagement and, secondly,
encouragingGoogletoremain"attached"totheiroffering;
‐GenerateincomebothforthemandforGoogle;
‐ExtendthetoolsandtechnologiesvalueofGoogle.
Followingtheexampleabove,itseemsclearthatGoogle'stechnologyinfrastructure,in
this reticular environment, canmanage all the contributions from several players, to
consolidate its leadership in several areas (including online advertising and the
developmentofInternetapplications)and,moreimportantly,tosharethevaluewithall
theactorspresentedabove.
5.3.BUSINESSECOSYSTEMANDOPENINNOVATION
Asitwasdemonstratedabove,thebusinessecosystemdevelopmentischaracterizedby
collectiveinnovationand"open"logicsinvolvingseveralcompanieswithdifferentskills
and complementary. The analysis of different stages of the life cycle of an ecosystem
clearlyshowsthattheKeystoneattheoriginofaninnovationwillsoonneedalliesthat
couldcontributetothedevelopmentanddiffusionofitsnewproductorservice(Moore,
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 59
1996, p.84). As we have seen, platforms allow the exploitation of indirect network
externalitiesthatcontributetothesupplypincarriedbythefirmanditspartners.
Moore'sanalysis(1996,pp.24‐58)ofvariousphasesofdevelopmentofanecosystemis
actually an open innovation strategy to Chesbrough (2011, p.33), innovation strategy
supportedby ICT, includingplatforms.ToChesbrough (2003a, p.12), companiesmust
move from a closed innovation model in which they drive their own R&D and
commercializationofnewproducts/services,toanopenmodelusingavailablesources
of innovation intheirenvironment(outside‐in)andvaluingthebestoutput fromtheir
ownR&D(inside‐out).Theopeninnovationconceptthereforehighlightstheincreasing
role of external sources of innovation as opposed to only internal resources, and the
particularcapabilitiesofcompaniesR&D.Chesbroughmakefrom"openness"awayfor
companiestooptimizetheirinnovationprocessandexploitnewbusinessopportunities.
In his latest book, Chesbrough (2011, pp.61‐65) also clearly recognizes the role of
platforms in open innovation. By opening its platform, the Keystone can integrate
contributions of different partners and thus support the business ecosystem
development. It is through the platform that the Keystone will integrate its business
model – i.e. resources – to its partners: "One important device that enables this
integration of business models throughout an ecosystem of suppliers, customers,
partnersandcollaboratorsistheabilityofthecompanytoestablishitstechnologiesas
thebasisforaplatformofinnovationforthatecosystem"(Chesbrough,2011,p.64).
Theimplementationofanopeninnovationstrategydoesnotmeanthatweshoulderase
internalR&D,butthisinternalprocesswillgenerallybereservedforthecorebusiness,
theoneonwhich thecompanyhasa significantmarketpowerandwhich isgenerally
usedasa lever todeveloponanother sideof themarket throughaplatformstrategy.
This platform strategy may be a part of an inside out logic, which will allow to the
platformowner:
‐Tocapturepartofthevaluewithinthebusinessecosystemthroughtheexploitationof
intellectual property rights (including licensing), thus ensuring a certain degree of
control.
60 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
‐ To contribute to the development of an “ecosystemical” competency (the other
membersoftheecosystemcanusethe leadertechnologyandthusensureitsdiffusion
whilecreatingvalueforthemselves).
‐ To reduce uncertainty by introducing switching costs thatwill sustain the business
ecosystem,especiallyinviewofinter‐ecosystemcompetition.
Thebusinessecosystemdevelopment is clearlybasedon logicof collective innovation
andopeninwhichdifferenttypesofresourcesorideasaresharedamongmembersof
this business ecosystem. This innovation logic is in many cases brought by the
Keystone/platform owner and usually results in the platform implementation, which
aimstoshareresourcesandcoordinatetheactors(Chesbrough,2011,p.62).Manyare
companiesthatusesuchplatformstosupporttheirinnovationandexplore/exploittheir
businessecosystem.Iftheseplatformsofteninvolvephaseofideationintheinnovation
process (Dell's IdeaStormor IBMwith IBM IdeaJam) theyalsomay involve the stages
furtherdowntheprocesseswhichare thenmarkedby thesealof "co": co‐conception,
co‐design, co‐production, co‐branding ... In any case, the Keystone must increase the
innovationprocessefficiencythat thisKeystonedriveswhilegiving to itspartners the
meanstoconsolidatetheirpositioninthebusinessecosystemandensureitscontinuity.
There isnowa largenumberofpracticesusingopen innovationandaremanipulated
through platforms. Following Phillips (2011, p.43) we can consider two important
dimensionsoftheopeninnovationprocess(particularlyintheideationphase):
‐Who is responsible foror submitting the idea? Some companies areopeningat this
stagealargenumberofparticipants(crowdsourcing);othersonthecontrary,limitthe
numberofparticipantsinasmallgroupofexpertsworkingonaspecificissue.
‐Howisdonetheselectionoftopicsorthemesofinnovation?Insomecasesbusinesses
openwidelythethemesofreflectioninothers,thethemesaresetandlinkedtoaspecific
problemorissue.
Thus, in many cases, the platforms are mobilized to drain, collect, analyze and filter
ideasthatrepresentpotentialsourcesofvalueforcompanies(IBM,Dell,etc).Sothisis
good for these companies to exploit their business ecosystem. The choicewhether to
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 61
initiate the ideation process depends on the objective of the company. It may be
exploringanewareaor conversely concentrateonanarrower scope in enhancing its
knowledgebasandpatentbase.Theapproachcanbe completelyopenandapply toa
wideaudienceorrathertorelatetoamorelimitedaudienceofspecialists.Whilesome
companies develop their own platform to support their open innovation, others in
contrast, rely on "innommediaries" (Sawhney et al, 2003, pp.126‐128),whichprovide
themwiththeentirecollaborationinfrastructurenecessary.Thedevelopmentandrole
of these intermediates are not neutral and requires from companies to proactively
manage their intellectual property, have a greater attention to external technological
developments and requires significant organizational changes to support the process.
This lastpoint confirms thepositionofLichtenthaler andHolger (2008,pp.14‐25) for
whichthelimitationsassociatedwiththeuseofthesecollaborationplatformsarenotso
muchrelated to the technology itself, asgovernancestructuressupposed todriveand
institutionalizethedeviceestablished.
The business ecosystem concept emphasizes the need for companies to build an
extensive network of partners thatwill enable them to innovate faster, at lower cost
whileenhancingtheirtangibleandintangibleassets.Thebusinessecosystemapproach
provides a framework for analyzing the innovation process particularly interesting
group which takes into account the variety of inter‐firm relations (cooperation,
competition, coopetition), business models, skills mobilized, built and reconstructed
through the innovation process, including the role of platforms. In this sense, the
approach allows the business ecosystem to put into perspective the open innovation
phenomenon.
62 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
CHAPTER6. THELINK,OPENINNOVATION
The open innovation concept was promoted by Henry Chesbrough, professor and
director of the Center for Open Innovation at Berkeley, California, and popularized
through his book “Open Innovation ‐ The New Imperative for Creating and Profiting
fromTechnology",publishedinOctober2003.
Theopeninnovationparadigmhassetinmotiononcetheinnovationstrategiesadopted
bycompanies in the20thcentury.At that time,according toChesbrough(2003a,p.8),
companieswerespendingmostoftheirR&Dbudgetininternalactivities,recruitingthe
bestcandidatestoattendtheseactivitiesandaccountedforalargeparttothestepsfor
creatingvalueinordertopromotetheirownideas.Thus,followingthisapproachorthe
closed innovation model, they seek firstly to erect barriers to entry facing potential
competitors and, secondly, to achieve independence or "Self Reliance" vis‐à‐vis their
networksofpartnersandsuppliers(Chesbrough,2003a,p.35).
Underthisnewinnovationlogic,firmsarenowabletomarketnotonlytheirownideas,
butalsoideasandtechnologiesfromoutside.Chesbrough(2003a,p.14)definestheopen
innovationprocessasfollows:
"The use of purposive inflows and outflows of knowledge to accelerate internal
innovation, andexpand themarkets for externaluseof innovation, respectively.Open
Innovationisaparadigmthatassumesthatfirmscanandshoulduseexternal ideasas
well as internal ideas, and internal and external paths tomarket, as the firms look to
advancetheirtechnology".
Thus,fromthisdefinition,itseemsclearthattheopeninnovationprocessistoconsider
that it is thenetworkor chainof employees,which is the sourceof innovation rather
thanaparticularcompany(Rabeau,2007,p.9).
Figure6.1summarizesclearlytheexplanationsabove:
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 63
Figure6.1.Closedinnovationvs.Openinnovation(Chesbrough,2006,p.47)
Source:Chesbrough,H.,West,JandVanhaverbeke,W.2006.‘OpenInnovation:Researching
anewparadigm’,OxfordUniversityPress.
ForWestandCallgher(2006,p.2),openinnovationinfact,encouragestheexplorationof
a wide range of internal and external sources that may constitute innovation
opportunities for the company. Furthermore, this paradigm allows the integration of
theseexplorationswith internalresourcesandcapabilitiesof thecompany, justas the
paradigmusesthisopportunityaswidelyaspossible,and,throughseveralchannels.
According to Henkel (2006, pp.133‐139), the concept of openness in the innovation
process of firms goes beyond the traditional relations of exchange taking place in
marketswherethetechnologiesareconsideredassimplegoodstobepurchasedorsold
onthemarketunderfavorableconditions.Toinstillthenotionofopenness,theauthor
quotes theexampleof thedevelopmentof theLinuxsoftwaresourcecode.Under this
new logic,Henkelasserts that companiesarenowable to share their technologywith
thepublictoencouragethedevelopmentofpossiblecollaborations.
Leadbeater (2007) proposes a distinction between two open innovation modes: he
meanswellby the term"OpenInnovation IN is thebasicmodelwhere ideas flow into
companies from different sources (Crowdsourcing)”. This mode "IN" provides
64 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
organizationswithawidenetworkoftalentandideasonwhichtheycouldrelyfortheir
innovations.Severalcompaniescitedbytheauthor,likeGoldcorpandProcter&Gamble,
arestrikingexamplesofthisinnovationmodel.
Ontheotherhand,usingtheterm"OpenInnovationOUT",theauthor impliesamodel
“where a group of people, a movement, sometimes a company, create a kernel or a
platform, with some tools, onto which people can add their ideas and contributions
(Open Source Software)”. Several companies, like Wikipedia and Linux (mentioned
above) practice this innovation model. This brings us also put into perspective the
relevanceoftheroleofelectronicplatformsintheinnovationstrategyofacompany.
Onthisside,Chesbrough(2009,pp.68‐76)definestwoopeninnovationmodes.Thefirst
istomaximizetheuseofsolutionsdevelopedexternally("outside‐in"),soanopenness
toexternalcompetenciesandthesecondtomonetizetechnologydevelopedinternally,
which cannot findapplications for the company corebusiness ("inside‐out ") or tobe
moreprecise,anintellectualpropertyoptimization.
To summarize, West et al (2006 p.283) state that open innovation is "both a set of
practicesforprofitingfrominnovationandacognitivemodelforcreating, interpreting
and researching those practices". In such an environment, the boundaries of the firm
tendtofade,toeasethepenetrationofnewideasandtechnologies.
Finally, to get a more concise open innovation concept, I propose below to further
explore the main determinants contributing to the building of this new innovation
context.
6.1.DETERMINANTSOFOPENINNOVATION
As mentioned previously, the literature identifies several factors that have helped
change the innovation concept inwhich companiesoperate. In a report,OECD (2008)
attests thatglobalization isamajordeterminantof themoreopen innovationprocess,
not only because it means greater and more global competition, but also because it
createsamorecomprehensivelandscapeforinnovation.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 65
Inhisbookentitled"TheNewImperativeforCreatingandProfitingfromTechnology",
Chesbrough(2003a,pp.45‐57)identifiesseveralfactorsthatwouldencouragefirmsto
committoanopeninnovationprocess.Thetablebelowsummarizesthesedeterminants
clearly:
Table6.1.Themaindeterminantsofopeninnovation(Chesbrough,2003a,pp.4557)
DETERMINANTS MAIN ASPECTS
• A relevant change towards an
economy based on knowledge 1. Useful knowledge has
become widely
distributed • Broadening the knowledge scope of
business
2. Not used ideas may be
lost
• Research ideas are placed "on the
shelf" until development teams are
ready to work on it
3. Idea value or
technology depends on
the business model
• Economic value of a technology
remains latent until it is marketed
in an open business model
4. Presence of venture
capital modifies the
innovation process
• Corporate venture capital and
startups funds are considered as an
integral part of the field of
innovation
5. Firms should be
buyers and sellers of IP
assets
• IP is an integral part of the
technology strategy, and its
management must be done at a
strategic level of society
Source:Chesbrough,H.2003.‘OpenInnovationNewImperativeforCreatingandProfiting
fromTechnology’,HBP,Boston2003
66 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
All the above factors thus create the new open innovation logic, which embraces
externalideasandknowledgeinaccordancewiththeinternalprocessesofinternalR&D
(Chesbrough,2003a,p.45).
6.2.THEADVENTOFNEWBUSINESSMODELSFORINNOVATION
Following what has been mentioned, it seems clear that the major benefit of open
innovationforcompaniesistoprovideabroaderbaseforideasandtechnologies(OECD,
2008,p.2).
Achieve benefit from these resources, however, requires the establishment of a rich
portfoliointermsofpracticesandmodesofinnovationthatcanensureboththetransfer
ofthisknowledgetocompaniesandtheirdevelopmentintheoutside.Inotherwords,in
this context, companiesmust constantly reconfigure their businessmodels to ensure
continuouseffortsininnovation.
According Rabeau and Ben Letaifa (2004, p.55), technological changes that occurred
during the last decade are the source of a deep transformation of business models.
CompanieswithoutlegacyasDellComputer,hasindeedimmediatelyadoptednewways
ofdoing,which, invaryingdegreesdependingonsectorsandcountries, arebecoming
dominant business model (Rabeau, 2007, p.9). The added value chain, electronically
integrated,matches(inapartnershipinformation)allelementsoftheaddedvaluechain,
sincethecustomertothelatestprovider(Rabeau,2000,p.12).
For the author, these new ways of changing the innovation process and allow the
emergence of new opportunities that can generate value. Consequently, many value
creationenginesassociatedwithinnovationareemerging.Wetranscribethefollowing:
‐Afirstconvergenceoftechnologiesandindustriesaroundthesenewbusinessmodels;
‐ A second convergence touches key customers worldwide who demand products
comparableandinterchangeable;
‐Afinalconvergencethatreferstotherolesofbusinessesworldwide.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 67
These three convergences are transforming the innovation process and, by extension,
howtoproceedinR&D.
Rabeau(2008,p.76)assertsthattheinnovativecapacityoffirmstendstomovefroman
area of traditional innovation ‐that describes a context inwhich innovation is usually
technological in nature‐ to a new universe, as the author refers to as "the universe
comingfromtheexperienceofinnovation."
Inmovingtowardsthisnewworldaswell,themarkettendstobecomemoreglobaland
interdependent. This new environment constituted of "co‐creation" experiences
thereforerequiresthatfirmsexpandtheirvaluecreationspacebyinvolvingmoreorless
all stakeholders of the value chain (customers, suppliers, partners networks and
academicunitsforresearchanddevelopment).
Thechoiceofanappropriatebusinessmodelplaysakeyroleinpositioningthefirmin
this newworld, and by accelerating the generation of an innovation portfolio that is
profitable for the firm. IBM, for example, has successfully transformed its business
modelby creating thebusinessunit "IBMGlobal Services,"whichassembles solutions
from itsproductsand thoseof itscompetitors in thegoal toprovide thebestpossible
valueforthecustomerthroughouttheworld.
To Chesbrough (2007, p.27), IBM offers a compelling example of a firm that has
managed to reconfigure its businessmodel bymaking itmore "open". This notion of
openingcoincidesindeedwithanenvironmentwhereR&Dcostsarehigh,andwhilethe
productlifecycleisshortened.Chesbrough,thatdistinguishesthebusinessmodelwith
two basic functions create and capture value, also states that companies should
experimentwithcreativewaystoopentheirbusinessmodels.Todothis,theymustsee
touseexternalideasandtechnologiesintheinternaldevelopmentoftheirproducts,and
they should allow the internal IP to be marketed externally. Figure 6.2 schematizes
clearlythisnewparadigm.
68 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
Source: Chesbrough, H. 2007. ‘Why companies should have open business models’, MIT
SloanManagement,vol.48,no2.
Finally,justtotakeadvantageofexternalknowledgeintheirnetwork,itseemsessential
forcompaniestocombinedifferentapproachestoinnovation.InthenextsectionIwill
try to explain as clearly as possible the different methods used by companies in the
contextofopeninnovation.
Figure6.2.Closedbusinessmodelvs.Openbusinessmodel(Chesbrough,2007,p.27)
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 69
6.3.THEOPENINNOVATIONPRACTICES
Inits2004report,theEuropeanIndustrialResearchManagementAssociationidentifies
severalopeninnovationmodesastheyapplytotechnologyandenterprisemarkets.The
matrixbelowdescribesthevariousmodesadoptedbycompaniesinthecontextofopen
innovation.
Table6.2.Openinnovationmodes:Technology&Markets(EIRMA,2004,p.24)
Jointventure Venturecapital Spinoff
UnfamiliarR&DContact
Internalventure
fundSale
Jointdevelopment Licensing Venturecapital
NonstrategicAcquisition
Internalventure
fund
AcquisitionInternal
developmentJointventure
Licensing Strategic
Spinin Acquisition R&Dcontract
Markets
Strategic NonStrategic Unfamiliar
Technology
According to the EIRMA (2004, p.28), internal development and acquisition practices
aretypicallyimplementedintechnologiesandmarketsthatarestrategicnatureforthe
company.Insuchacase,openinnovationandcollaborationwithexternalpartnerscan
indeedberiskyforthelong‐termsuccessofthecompany.
When it is about non‐strategic technology and markets, licensing or equity practices
remainthepreferredmeansbycompanies.
To summarize, the OECD (2008, p.52) identifies two models used in business:
partnershipswith thirdparties throughalliances, jointventuresandco‐developments,
70 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
aswellastheknowledgeacquisitionorsalebytheR&Dthroughcontract,or licensing
purchases/sales.
Other approaches, such venture capital operations, equity investments in "young
shoots”fromuniversitiesorininvestmentfundsfromventurecapitalhavebecomenew
pathways taken by companies. The nature of objectives set by those companies –
strategic or financial‐ and the link nature ‐narrow or remote‐ existing between the
activitiesofthosecompaniesandthosestart‐upsthereforegenerateseveralinvestment
options(Chesbrough2002,p.55).
Somecompanies “addict” toopenapproachcouldeffectively, forexample, support the
creationofstart‐upsbyinvestingduringtheirlaunchinginsomeexperimentsor, later,
bypartneringandengaging inalliances (Chesbrough,2003b,p.35).Thesepracticesof
“Spinning in” can allow companies to grow, in the future, theirmarket penetration to
access to new markets, or respond to competitive threats related to their existing
businessesandtechnologiesportfolio.
Note, however, that this practice also concerns universities, which research activities
mayberelevantwithinnovativecompanies.Rabeau(2008,p.78)supportstheideathat
the support for universities (e.g. to enable them to offer various programs for the
innovationmanagementforhigh‐levelexecutives)isonewayamongotherstostimulate
innovation.Wright(2008,p.80)forhispartdefendsthe ideathatuniversitiesarewell
suited to fulfill the external need of companies in terms of new skills, new ways of
thinking,ornewplatformstodealwithcomplexissuesforfirms.
InadditiontotheSpinIn,somecompanieschoosetopracticeexternalspinning(“Spin
Off”),which is to invest in start‐upswhose activity is closely linked to the one of the
company but offers little in terms of strategic perspectives (Chesbrough, 2002, p.55).
According toRabeau(2008,p.83), sometimes thecompany invests ina research team
and finances it initially in order to develop new research. In the case of a research
progression, the technology development thus reaches a more advanced stage. To
financiallysupporttheprojectanddevelopabusinessplan,thecompanywillthenuse
variouspartners,oreventoventurecapitalcompanies.Theprototypeinplace,itisthen
tested by an expert panel to assess the validity of the researches. If necessary, the
company may decide to refinance research to facilitate the transition to
commercialization.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 71
Finally,tocombinedifferentinnovationpracticesisanecessaryexerciseforcompanies
wishingtoexcelintheopeninnovationcontextdescribedabove.Thefollowingsection
providesanoverviewofthemainadvantagesandlimitationsassociatedwiththemode
ofopeninnovation.
6.4.ADVANTAGESANDLIMITATIONSOFOPENINNOVATION
6.4.1Advantages
At the end of this section, we will make an overview of the main advantages and
limitationsofopeninnovation,asidentifiedfromtheliteratureconsulted.
AccordingtoOECD(2008,p.40),oneofthemostobviousbenefitsofopeninnovationis
thelargestbaseofideasandtechnologiesavailablefromwhichacompanycouldextract
andstrengtheningbothinnovationinternalandgrowth.
ForDocherty(2006),openinnovationensuresaleverageofR&Dconductedoutsidethe
company.Italsoofferstheopportunitytofocalizeagainsomeinternalresourcesonthe
discovery, the selection (“screening") and the implantation management. This new
paradigm can also provide internal groupswith a greater sense of urgency to act on
ideasortechnology.Accordingtotheauthor,thereareotherbenefitssuchasimproving
thereturnoninternalR&DactivitiesthroughlicensessalesortransfersforunusedIP,or
theabilitytoconductstrategicexperimentswithlessriskandfewerresourcesinorder
toprotectandextendthecorebusinessofthecompany.
Ina study,Vanhaverbekeetal (2008,pp.253‐254)attempted toassess thebenefitsof
emission practices of companies (i.e. do “Corporate Venturing") as a particular
mechanismofopeninnovationaccordingtoarealoptionsperspective.Accordingtothe
authors,theopeninnovationapproachallowsinnovativecompaniestotakeadvantage
of the first participation in new technologies or business opportunities. Secondly,
innovativecompaniesareabletodelaytheirfinancialcommitmentbytakingadvantage
of a greater flexibility regarding the timingwhere the internal part of the innovation
72 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
process must be initiated. Thirdly, open innovation provides to companies the
advantageofleavingthemarketquickly,toavoidadditionallossesaswellastheability
torealizesomevaluefromprojectsnotbeingfedinternally.Finally,asmentionedabove,
spinsoffpracticesallowcompaniestocontrolthedevelopmentofunitscreatedoutside
thecompanywhiledelayingthedecisiontoexit.
Otherbenefits(includingreducingtheriskofaresearchproject)arefundamentaltothe
follower companies of this new business paradigm. In choosing among the open
innovationapproachespresentedabove,companiesareableineffecttoreduceexpenses
to be allocated to the research project, but they also manage to reduce the labor
necessaryforitsimplementation(Rae,2008).
6.4.2Limitations
Despite these advantages, several limitations may arise in the context of open
innovation.According toRabeau(2007,p.9), themajorproblemwith thisparadigm is
the protection of the company IP. The OECD (2008, p.60) asserts that the increased
leakage risk of corporate knowledge means that knowledge can only be revealed to
external partners, who can possibly compete with or worse, use wisely the results
obtainedbythebusinessoritsknow‐how.
Company’followersofopeninnovationalsofacechallengesmainlyassociatedwiththe
management of their international activities. According to Schmiele and Sofka (2007,
p.14),workingwith internationalpartnersnotonly exposes companies to a culturally
complexknowledge,but italso increasesuncertainty.ForNewmanandStanley(1996,
pp.753‐779), choosemanagement practices based on local culture of the country is a
major factor to strengthen themanagement practices of leaders working in different
contexts.
Ghemawat(2001,pp.137‐146)assertsthatthedistancebetweenbusinessesfromtheir
international partners take a cultural dimension that adds to other dimensions of an
administrative, political or economic nature, which can make foreign markets
considerablylessattractive.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 73
Other aspects of complexity accompany the firms operations in the context of open
innovation, including confidence in international trading relationships. In the eyes of
Zaheer and Zaheer (2006, p.28), this dimension is particularly important, especially
when collaboration between international partners comes from asymmetric trust
contexts. According to the authors, these international partners bring with them
differentbehaviorsandmotivations.Itthereforeseemsinevitablethatlegalissuesarise
in these business models. Firms can also estimate that it’s well worth the trouble,
instead of being downgraded by major innovations affecting their market (Rabeau,
2008,p.54).Theseproblemsarealsowithcompaniesseekingtoprotecttheircreations
in several jurisdictions because the IP rights are specific to a particular country, or
geographically plotted in a limited territory, the European Community, for example
(GreenhalghandRogers,2007,p.542).
To sum up, the literature on cooperation, collaboration and alliances shows various
disadvantages such as additional costs associated with managing cooperative
relationships with external partners, the lack of control, the negative impact on
flexibility, the over‐dependence to external parties, or the potentially opportunistic
behaviorofpartners(OECD,2008,p.73).
6.5.CONCLUSION
Basedon the literature review,we identified the special characteristicof thebusiness
ecosystemconcept,sinceit isanorganizationalstrategywherebyacompanyisableto
improvethemanagementofmultiplestakeholdersfromvariousindustriesbydifferent
means(coevolutionorcoopetition).MoreoverIhavebeenablediscovertherelevanceof
therelationshipbetweenabusinessecosystemandopeninnovation.
Theopen innovationrequiresan infrastructure ‐dedicatedornot ‐able tohandle the
different partners contributions (material or immaterial) inside, but also outside the
bordersofthecompanies.ICTplatformsareessentiallydevicesthatpermittoconnect,
bringtogether,exchangeandshare.Thus,theirroleisfundamentalinthedevelopment
of the open innovation. The fact that the open innovation concept has appeared in a
period characterized by a strong interest (both among managers than among
74 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
researchers)forcollaborationsofallkindsandtheInternet(Huizingh,2010,pp.2‐9)is
notneutral.DevelopmentoftechnologiesfromtheInternetandICTplatformsincluding
greatly facilitated the development of practices and the opening of the innovation
process of companies. There is therefore every reason to believe that with the
developmentofICT,otherpracticesandnewformsofopeninnovationwillemerge.
Inordertoschematizetheapparentlinkbetweenbusinessecosystem,openinnovation
andInnovativeorganizationstrategy, Iproposethisscheme(figure6.3),adaptedfrom
thebusinessecosystem’scharacteristicsofPeltoniemi(2005,p.64):
Figure6.3.TheITCplatform:relationallinkbetweenopeninnovationandorganizationalstrategyonthebusinessecosystem
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 75
CHAPTER7. EMPIRICAL STUDY: TO WHAT EXTENT THE APP STORE
NUMERICALBUSINESSECOSYSTEMCANBEEFFECTIVEINSTEVEJOBSOPEN
INNOVATIONSTRATEGYFORAPPLE?
Iwant to redevelopmymethodology section (Chapter 3) by recalling the points that
haveguidedmycasestudy.Thisstudyisnotbasedonasearchestablishedbymyown
way,thisisareconstructionbasedonseveralcasestudiesofthecompanyAppleIncthat
allowsselecteddatatoanswermyresearchproblem.Then,thisstudyisbasedonSteve
JobsleadershipintheAppleCompany,particularlyfromthelate90swhenthecompany
has grown popular because of him. The aim is to highlight the points raised in the
theoreticalstudyandoverlayingthedatacollectedontheAppleCompanytomakethe
linkbetweentheoryandpracticeinordertodrawthebestconclusionsontheissueof
search: “Howanecosystemcancontribute toopen innovationstrategiesof innovative
firmsinordertostrengthentheircompetitivepositiononthemarket?”
In order to follow the same pattern as my theoretical study, I will start first by
explaininghowthecompanyAppleisdefinedasinnovativeorganization,includingthe
strategysetupbySteveJobscreatingitspopularization.Inasecondstep,Iwillputupa
"map" identifyingkeyplayers in the ecosystemofApple's business, particularly those
involved in the proof of the act of open innovation at Apple, so that in a third time I
speakofopeninnovationpractices inthebusiness,theiradvantagesandlimitationsin
AppleInc.
7.1.CONTEXT
To have a better understanding of the case study, and in order to settle it, a quick
historicoftheAppleCompanylife,andonitsSteveJobswillhelptobetterunderstand
thesituationandtheenvironmentinwhichthisfirmevolves.
76 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
7.1.1.AppleCompany
Apple Inc, originally Apple Computer Inc. is an American multinational computer,
createdonApril3,1976inCupertino,thenincorporatedasacompanyJanuary3,1977.
Fromitsinceptionthecompanyasitexiststoday,Applehasexperiencedvariousstages
of evolution of the computing world, from a world without personal computers in a
networked society of the next century through fixed andmobile devices. His story is
particularlylinkedtothatofoneofitsco‐founders,SteveJobs,forcedtoleavethefirmin
1985 and rehired in December 1996, before becoming CEO of the company in 1997.
AmongtheleadingproductsApplehasknownsinceitsinception,aretheAppleIandII,
theMacintosh,iPod,iPhoneandtheiPad.
Applehasknownmanysuccessesatitinception,buttheentryofMicrosoftinthemarket
hasalmostsunkthecompany.SincethereturnofSteveJobsastheCEOinaugust1997,
Apple has known many successes. Actually, Apple reached the rank 35 in 2011
accordingtothefortune500,arankingofAmerica’slargestcorporations(Fortune500,
2011),andup21slotsbetween2010and2011.Itisimportanttohighlightthatin1997,
ApplerankedtheslotNo.150andlosses$816millions(Fortune500,1997).
Today, Apple is considered as the most innovative company since the seventh
consecutive year (50most innovative companies, 2012). These awards are thanks to
Steve Jobs, itsCEOwhohas shaped theApple culture throughout theyear. Indeed, as
explained very well by Olivier Clodong and Georges Chetochine in their book “Le
Storytellingenaction”,SteveJobsandApple'sscriptwriterswereabletosellan"Apple
wayof life",withtheiPhone,theMacBook,theiPod,etc.Thereisan“Appleculture”,a
communityoffanswhothinkApple,workApple,playandcommunicateApple.
ForthisreasonIwillfocusontheperiodwhenSteveJobsranAppleratherthanwhen
thefirmwasledbyprofessionalCEOs(i.e.Sculley,Spindler,Amelio).
Some question emerged:What happened to this firm at the edge of the end? How it
becamethemostinnovativeUSCompany?Thosequestionswillfindanswerinpart7.2.
First,let’shaveabrieflookonwhoisSteveJobs,andwhyhewastheherowhosavedhis
owncompany.
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7.1.2.SteveJobs,a“visionary”
The Steve Jobs case, since its coming back as the Apple CEO will deeply help us to
understand how this legendary leader has straightened a firm yet at the edge of
bankruptcy. This brief history wasmade thanks to theWalter Isaacson’s Steve Jobs
biography,publishedin2011
Steven Paul Jobs, or Steve Jobs, was an American inventor and entrepreneur, widely
recognizedasavisionaryleaderandapioneerofthepersonalcomputerrevolution.Co‐
founder,CEOandchairmanoftheboardofAppleInc,healsodirectedthePixarstudios
andbecameamemberof theboardofDisney in2006duringthetakeoverofPixarby
Disney.
Steve Jobs, Steve Wozniak and Ronald Wayne established Apple on 1 April 1976 in
Cupertino.Inearly1980,SteveJobsconvincesthePARCmanagerstoletAppleusethe
Graphical User Interface (GUI)/mouse technology. According to Steve Wozniak, co‐
founder of Apple: "He told them directly that they had a great technology, but Apple
couldmakeitaffordableenoughtochangetheworld(Xeroxtechnologycosttwicethe
priceApplecouldproposeit".ItisoftensaidthatJobshad"stolen"theideasofthePARC
byappropriatingtheconceptofgraphicalinterface.AccordingtoIsaacson,Jobshasjust
convinced the leaders of Xerox,who seemedunconcerned about the future of PARC's
interestto letApple"share"thisknowledge.Anagreementwasalsosigned,andXerox
invested one million dollars in Apple shares. To resume, Steve Jobs bought the
commercial potential of the Xerox PARC work on an innovative technology; this is a
goodOutside‐Inexample,becausethisopeninnovationprocessledtothedesignofthe
famous “Macintosh” in 1984, the first computer to take advantage of these graphical
userinterfaceinnovations.
AfterlosingapowerstrugglewithAppleCEOJohnSculleyyethehadrecruited,heleft
thecompanyinSeptember1985tofoundNeXTanddosomeotherbusinesses.
Inearly1997,AppleboughtNeXT.ThistransactionallowsSteveJobstoreturnashead
of the firmheco‐founded,andprovides thesourcecodeofNeXTSTEPfromwhichhas
developed the operating system Mac OS X (i.e. Outside‐In innovation process). He
oversawduring fourteen years the creation, development and launch of the iMac, the
iPod,iTunesandAppleStoreretailchain(2001),theiTunesStore(2003),iPhone(2007)
and the iPad (2010), showing the various products in a multi‐year pace during his
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famouskeynotesandmakinghiscompanyoneoftherichestintheworldatthetimeof
hisdeath,theOctober5,2011.
“Goodartistscopy,greatartistssteal”–SteveJobsparaphrasingPabloPicasso
Thissentencemeanshissearchforinspirationelsewherethaninthecomputerfield.It
thusexpressesitsabilitytolinkseeminglyunrelatedthingstogether.Infact,SteveJobs
delivered the followingwords: "This is to get in touchwithwhathumanshavebetter
done, then try to integrate it intowhat you do. Picasso said: Good artists copy, great
artistssteal.Wehaveneverbeenashamedtostealgreatideas.IftheMacintoshhasbeen
so successful is because it is the work of artists and zoologists and musicians and
historianswhoalsohaveproventobethebestcomputerscientists intheworld".This
quote shows that Jobs is less talk of looting as the importance of the notion of
association,whosecreativeprocessfeedsonavarietyofexperiences.
SteveJobsissogoodatassociations(e.g.AppleIIinspiredbykitchenrobots)thatApple
continues to innovate today in all aspectsof computing includingpower cords. Called
MagSafe,theadapterwithwhichyouconnectanAppleMacBookonthesectorendswith
amagnetonthesideofthecomputer.Mostusershavethebadexperiencetotakeonthe
cordandseehelplesslytheirlaptopcrashingtotheground.Bydisconnectingeasilythe
computeranditscord,theMagSafeavoidthisterriblescenario.Apple"stole"thisideato
the Japanese rice cookers equipped since a long time with this magnet. Specifically,
Applehasestablishedalinkbetweentwoobjectsapparentlyforeigners,thericecooker
andthecomputer.
7.2.APPLE,ANINNOVATIVEORGANIZATION
Differentiation is now the watchword of leaders and strategists addressed to the
directions of innovation. Differentiation that is precise margin creative, safe,
differentiationdrivenbyacontinuousflowofinnovations,innumber,tocostcontrol.
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To give an example, in 2001, Steve Jobs has diversified Apple activities by moving
partially toward themusic industrywith the iPod and the iTunes Store twoproducts
designedfordigitalmusic,thentothemobilephonewiththeiPhone.Appleisknownfor
user interfacedesign andvery elegant and careful of its products, particularly for the
introductionofconsumer technologiesoftenconsidered innovative: thegraphicaluser
interface, computer mouse, and multi‐touch screen. These elements are, in part, the
cause of the prices slightly higher than the market average, and make Apple brand
perceived as high‐end public opinion. These few words permit to describe this
differentiationstrategyasvitalforthecompanythanforitsleader,SteveJobs.
TheAppleCompany(asitisalsothecaseforGoogleorProcter&Gamble)hasalower
R&Dthankeyindustryplayersandlivesa2‐digitgrowthoverthelast5yearswherefor
others in the same sector is sluggish. These actors are icons of a newkindof a value
creationmodelcombiningbusinessecosystemandopeninnovation.
7.3.APPLEBUSINESSECOSYSTEM
7.3.1.Theecosystemadvent
ThereturnofSteve Jobs in1997marksthebeginningof theAppleecosystem. Indeed,
after many failures, the company bought NeXT, a company founded by Steve Jobs
himselftobenefitfromtechnologiesestablishedbyNeXT(e.g.theNeXTSTEPOperating
System(OS)thatservedtocreatetheoperatingsystemcalled"MacOSX"),andsecondly
topropelSteveJobsattheheadofApple.
In his first keynote after his return as the Apple CEO (MacWorld Boston, 1997), Jobs
stated: "Apple is living in an ecosystem, and to survive it must get help from its
partners".JobsdecidedtocreateapartnershipwithMicrosoftsothatthetwocompanies
work together on several patent cross licenses, and on the parallel development of
MicrosoftOfficeforMac,andcollaborationforthedevelopmentof"Java"onMac.
As I said above, Jobs decided to partneringwith his rival, Microsoft, on the personal
computermarket in 1997 in order to beginning the Apple rebirth. This example is a
typical case that can illustrate a coopetition strategy between two companies. By
80 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
contracting this partnership, Apple cooperated with its nearest competitor to pool
knowledge,technologiesandcompetenciesandbycooperatingwithacompetitorApple
andMicrosoftdefinedacoopetitionstrategyontheirecosystem.
7.3.2.AnElectronicBusinessEcosystem:TheiTunesStore
TheiTunesStore(formerlyiTunesMusicStoreoriTMS)istheonlinemusicstorefrom
Apple,availablefromiTunes,whichprovidesmusic,TVshows,movies,videoclips,audio
books,podcasts,gamesandapplicationsforiPodandIPhone.
ITunes handles transfers of music, photos and videos on variousmultimedia devices
fromAppleiPod,iPhone,iPadandAppleTV.Itisalsostreamingsoftware,whichletsyou
listen to radio stationsworldwide streamedover the Internet. It integrates thedigital
hubstrategydefinedbySteveJobsin2001(Macworld,January,the9th2001).
7.3.3.MainactorsinteractingintheiTunesStore
The iTunes Store gathermany actors from different industries. In this part I will list
thembyindustry:
‐Musicindustry:theiTunesStoresellsmusicthankstocontractswithfourmajorlabels,
and also independent labels and distributors of self‐producing artists. Moreover, the
Appledigitalecosystemnowalsodistributesmusicvideos,audiobooks,andincludesa
podcastsdirectory.
‐Filmindustry:TheU.S.iTunesStoreoffersforsalesince2006televisionseriessoldin
the episode or season, the motion picture production houses Disney, Paramount
PicturesandLionsGateFilms,andshortPixarfilms.
‐ VideoGame industry: Since2006, the iTunes Store sells downloadable video games
designedforfifthgenerationiPods,mostlydevelopedbyElectronicArts.
‐Book&Newspaperindustry:Soldelectronically,thisindustryisrecentandgrowson
theiTunesStorethankstothedevelopmentoftheiPadtablet.
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Since July 11, 2008, the iTunes Store added a section called App Store, which allows
users to download applications on iPhone, iPod touch and iPad. Apple ecosystem
partnersmainly develop those applications, this innovation permit to growup a new
industry: the mobile application industry. Indeed, thousands of external software
developerswritecomplementaryapplicationsfortheiPhone/iPad.Iwilldeeplydiscuss
on the App Store and external developers in the subchapter below about the Apple
electronicplatform.
Main industry enunciated I want to integrate the iTunes Store users because it is
possibleforthemtopublishtheirowniTunesplaylistontheiTunesStore.Userscanalso
uploadpodcasts,as,forUniversities,academiccoursesinvariousformats(audio,video,
books,etc.)thankstoiTunesU,anappdedicatedtothesharingofacademicknowledge.
In order to have a better view on industries interacting with the Apple iTunes
ecosystem,Iproposethefollowingfiguregroupingthemaroundthe iTunesStore.The
industriesareevolvingaroundtheApple iTunes&AppStore. Idrewthe iTunesStore
usersbiggerbecausetheyaremorenumerous.
Figure7.1.DifferentindustriesinteractingontheApplebusinessecosystem
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7.3.4.TheAppStore
The Apple “App Store”, which stands for Application Store, is the service that allows
AppleiPad,iTouchandiPhoneownerstodownloadapplicationsdirectlyontheirdevice.
Anapplicationisnothingbutacomputerprogramthatrunswhenitslaunched,itcanbe
video games, web application, message application, social network app, eBooks etc.
Applicationscanbefreeornotfrom$0.99upto$999.
TheAppStorewaslaunchedbyJuly11,2008andoperatesontheprincipleofamarket
place: developers offer their applications to the user community who choose to
downloadthemaccordingtoitsneedsandtastes.
Beforedownloadingtheseapplications,usersmustfirstopenaniTunesaccount(which
includearequestofuserbankdetails),anditiswiththisaccountthatausercandirectly
connects on the App Store to download applications. Access to the downloading of
applicationsandpaymentcanbedoneeitherviatheiTunessoftware,eitherdirectlyvia
thedevice(iPhone,iTouchoriPad).
7.3.5.Thedevelopers:Awidecommunity
AnyonecandevelopanddeliveranapplicationdedicatedtotheAppStore.Application
developerscanthereforebeindividualorprofessionaldevelopers,companies,brands...
firstconditiontobemet,adevelopermustpayanannuallicensetoApplefortherightto
propose its applications; it remains modest at $99 per year for individuals and
industries. This license entitles the publisher tomake available its application on the
App Store. For companies wishing to develop "internal" applications and there is a
secondlicensecosts$299/year.(AppleDeveloperProgram).
Oncelicensebought,andafterhavingaddressedapplication,adeveloperwilldecideits
price. The application price is set by the developer (or publisher, or the company, in
short the one creating the app), finally, the price is not "100% free" since itmust be
chosen from levels determined by Apple. Indeed, for readability in the applications
pricing,Appleexpressesamountsofwhichthedeveloperwillchoose,ifitisnotfreethe
minimumpriceanapplicationis0.79€andthenthereisdifferentlevels(0.79€,1.59€,
2.39€,€2.99,€3.99,€4.99,€5.49,€5.99etc).
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Finallyafterthepricechoice,thedeveloperfinallysubmitsitsapplicationtoApplethat
will(ornotwill)validateitsapplicationandmakeitavailablefordownloadontheApp
Store.
As it has been demonstrated, the App store is very closed and tightly controlled by
Apple.Thisconstantmonitoringisthesourceofmuchdiscontentamongthecommunity
of developers and publishers, which are subject to the whim of Apple who refuses,
sometimes arbitrarily, to validate certain applications. Their policy is to prohibit
broader applications proposing sexual content, but also applications with too few
features,inordertomaintainahighqualitylevel.
7.3.6.MobileApplicationDevelopment:Thecoevolutionconcept
March 6, 2008, Steve Jobs introduced in a Keynote in San Francisco a Software
DevelopmentKit(SDK)foriPhonetobothbusinessesandconsumers.Thiskitisfreely
downloadableon theApple'swebsiteandallowsdevelopers tocreateapplications for
iPhone,iPadandiPodTouch.
Since June 2008, developers distribute their applications through the App Store.
Developers have the choice of the price since Apple takes a 30% commission. The
successofthekitisimmediate,thedevelopercommunityhasdone100,000downloads
thefirstweekend.
InJuly2009,oneyearaftertheAppStoreopening,thenumberofavailableapplications
exceeds 85,000. Every day, hundreds of new applications are available. November 4,
2009,PhilipSchiller,seniorvicepresidentofApple,announcedthattheAppStorehas
reachedthesymbolicfigureof100,000applications(ApplePressInfo,2009).
On6 January2010,Apple announced that it surpassed3billiondownloads of iPhone
applications.InearlyMarch2010,morethan150,000applications,developedbymore
than28,000developers(Bemobee.com,October9th,2011),areavailable fordownload
ontheappstore.
On 7 June 2010, Apple announced that 225,000 applications are available on the app
store. Eachweek, 15,000 applicationswere submitted and95%are accepted (WWDC
84 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
2010 June7th,2010).Since launchingtheappstoreonebilliondollarswasdonatedto
developers(WWDC2010June7th,2010).
In March 2012, Apple made a contest, the person who downloads the 25 billionth
application win an iTunes card for $ 10,000. This winner will have the choice to
downloadamong550000apps.Thegameisover;the25billionthappwasdownloaded
on03/03/12(OfficialAppleWebsite).
Withallthesefigures,IwanttorepresenttheextraordinarydevelopmenttheAppStore
rising. Indeed,asIsaidearlier,morethan25billionapplicationsweredownloadedon
the App Store since 2007, a very impressive growth. But why the Apple App Store
becamearealsuccess?Whythisdeveloper’scommunitycontinuesworkingwithApple
despitethestrongApplepresenceandcontrolontheirproducts?HowApplecansurvive
thanks to this innovative businessmodel? These questionswill find answers into the
partbelow.
7.3.7.Theremunerationmodels
7.3.7.1.Appleremunerationmodel
ThegoalofAppleisnotfreetoliveitsdevelopercommunity;thegentlemenofthefirm
attheappleareremuneratedprincipallybytwomeans:
Afixedremuneration:annualdevelopers’licenses.
Acommission:apercentagetakenfromeachapplicationsale.
Like any marketplace, charging each developer with a percentage of every sale, that
percentage is 30%, compensates Apple. For example if a publisher has sold 100
applicationsto$0.99,ithasaccountedfor$99ofturnover,hewillreceive$69,3(70%)
andApplewilltake$29,7asacommission(30%).Thisdealisnotinherentlybadinthe
sense thatAppleoffersadistributionchannelanda fantasticshowcase fordevelopers
andpublisherscanconcentrateonthemanufactureandpromotionoftheirapp.
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7.3.7.2.Developersremunerationmodel
The developers’ objectives with their apps can be many: promotional tool, generate
income,increasebrandimage,forspecialevents,etc.Themonetizationofanapplication
is not necessarily a goal that iswhy Apple established a free application distribution
mode.However,ifadeveloperwantstoearnmoneydirectlyviaanapplication,revenue
modelsareoffourtypes:
‐Incomeondownloading:Ifyourapplicationisnotfree,itwillearnyoumoney(70%of
yourbusinessvolume)ateachdownload.
‐Advertising revenues:mostofwhat is traditionallydoneon thenet, it ispossible to
advertise in its application and take incomedepending on the display number, clicks,
affiliate,etc.
‐Theinapppurchase:usershavetopayextratoacquirecontent.Example,the“TapTap
Revenge”musicapplication,freelydownloadableandtogetnewsongsusersmustpay
individualsongs.
‐Subscription:theapplicationcontentisavailableasasubscription(e.g.theAmerican
WashingtonPostnewspaperapplication,whichcosts$1.99peryear).
Also,toclosethispart,IwanttoinsistonthefactthatApple"finances"thedevelopers.
Thefirmhasdonatedfourbilliondollars,including$700millionthelastquarterof2011
inordertohelpthemevolveandinnovate.
7.3.8.Conclusion
Before entering in the explanations of the iPhone platform, I want to regroup
information collected for this part and make a conclusion on the Apple App Store
ecosystem in order to link the coevolution model implemented by the firm with a
theoreticalaspect.
Aswehaveseenduringthissubchapter,theApplebusinessecosystemisininteraction
with many different external industries capable of creating and providing mobile
applications for the App Store since Apple freely offers a Software Development Kit.
86 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
However, by exercising a total control ofwhat can (or cannot) be on itsmarketplace,
Appleshowsacertainclosureonitsecosystem.
CoevolutionseenintheAppleorganizationalstrategybetweenthefirmandapplication
developers, is on the fact that Apple rent (with a license) a store for developers that
permitcommunicateandreceiveremuneration(againstacommissiontakenbyApple).
Moreover the Cupertino Company finances developers in order to encourage them
continuing creating and innovating on the application development. AsMoore (1993)
said,acoevolutionprocessstrengthensinnovationeffortsoffirmsinthesamebusiness
ecosystem.Furthermore,toillustratethiscoevolutionprocessandbyquotingIansity&
Levien (2004)Apple anddevelopershave a “SharedFate” tobe successful, theymust
cooperate to attract more customers and so make their businesses and business
ecosystemgrowing.
TheAppStoresuccessdependsonthewidevarietyofapplicationsold,themorethere
willbeappsencounteringusers’needs,themoretherewillhavedownloads.Moreover,
byfinelyselectingapplicationsdevelopedfortheAppStore,Appleproposesonthestore
onlyfunctionalandgoodqualityproducts.
ImadeafigureinordertorepresentfluxesbetweenAppdevelopers,Applethoughthe
AppStoreandiPhoneuser:
Figure7.2.FluxesbetweenAppleandstakeholdersonthenumericalbusinessecosystem
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AsIputforwardonthefigureabove,usersneedanAppledevicetoaccessapplications.I
took the iPhonebecause it is themost famousAppleplatformon thisecosystem.This
iPhoneistheplatformlinkingApple,developersandusers.Let’sfocusonitinthepart
below.
7.4.APPLEITCPLATFORM:LEADERSHIPWITHINTHEBUSINESSECOSYSTEM
WhenIquotetheAppleITCplatform,IquoteoneofthebestApplesuccessesthathave
revolutionizedthemobilewebsurfing:TheiPhone/iPad.Let’s focusontheiPhoneITC
platformcase.
7.4.1.Overviewoftheplatform:
IPhone is a line of smartphones designed and marketed by Apple Inc since 2007.
Products,whoseuserinterfacewasdesignedaroundthemulti‐touchhaveacamera,an
integrated iPod, an Internet client (for browsing theWeb or check e‐mail), and basic
functionssuchastextmessagesandmultimediamessages,butalsohavetheAppStore,
which permit to download applications, from games to social networks, via the GPS,
television,electronicmedia,etc.
7.4.2.Aplatformfacilitatinginteractions
TheApplesmartphone,asIsaidabove,providestheAppStoreandpermittofacilitate
interactionsbetweenApple,developersandusers.Toexplaininmoredetails,Iwillgive
yousomepreciseexamples.
First of all, I will repeat my comments saying that Apple evolutes in a vertical
integration:Thecompanycontrolseverythingintheecosystem,fromthedevelopment
of itsmarketplace, to themanufacture of its platform and by choosingwhat external
applicationsarevalidated(ornot)ontheAppStoremarketplace.HereIwanttofocus
deeplyonthefactthat,unliketheGooglecompetitoranditsAndroidmarketplaceusing
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manyplatforms(HTC,Samsung,Motorola,etc), there isonlyoneITCplatformexisting
on theAppStore, at leastonebrand:Apple.Appleproducts aredesigned in the same
way:Toguaranteeagreatuserexperience. IfAppledecided toclose itsecosystemto
competition, it is naturally on onehand to be the Leader of its ecosystem, but on the
other hand to offer only one kind of product, the best. By this, users have the same
deviceandthesamefunctionality.Thisspecificationcreatedaverymarkedcommunity
effectthatpromotesinteractions,exchanges,popularityandsuccessoftheApplebrand
ITCplatform.
Secondly, thanks to its “openness” by permitting external partners to develop new
applications, theApple ITC platform can see its essential function (so, a Smartphone)
expanded by the download of new applications on the App Store, made by external
Applepartners.Thispartleadsustoseefurtheronitsecosystem:TheAppStore.
7.4.3.TheAppleiPhoneandtheAppStore:Saleofanecosysteminsteadofa
product
An iPhonewithout the App Store is just an animated pad.Without the App Store, no
applications,noupdates,onlythebasisofacommonsmartphone.
Interdependenceisheremainlybilateral:theiPhoneis"dependent"ofsoftware.Itisthe
same for the iPod and the iPad. This evokes a strong interdependency link between
Appledevices.However,asIexplainedabove,theAppStoreisdependantofiPhoneor
any Apple devices. Concretely, the App Store without iPhone will be a ghost
marketplace.
AnimportantpointtofocusonisthatwhatmakestodaythestrengthoftheiPhone,this
isnotsomuchtheproduct(othersmartphoneshavesimilartechnicalcapabilities,eye‐
catching design and a lower price), but the ecosystem created around it: Clearly, the
applicationsavailablethroughtheAppStore.
Once the product in hand, 90% of the consumer purchases does not come from the
supplieroftheproduct,butfromwhathasdevelopeditsecosystem(i.e.MobileApps).
UsingtheexampleoftheAppStoreecosystem,werealizethatwhatmakestheproduct
value that is not somuch thedevice (e.g. the iPhone)butwhat it permits through its
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ecosystem.Wecanconcludeherethattheecosystemistheelementthatbringsvalueto
theproduct.
7.4.4.Conclusion
This part, dedicated on the Apple ITC platform, allowed us to understand its power
through the App Store business ecosystem. To link the theoretical aspects with this
empiricalstudy,somepointsarevisible.
Firstly, inorder tobuild an ITCplatform, theGawer&Cusumano (2008) two specific
conditionsaretrue:
Theplatformmustperformatleastoneessentialfunction,heretheAppleITCplatform
performasmartphonerole.
Theplatformmustallowmemberstoconnecteasily(bytheAppStore),andoffersthe
possibilitytoexpandtheessentialfunctionbynewfeaturescreatedbyitsmembers(in
theApple iPhonecase, it ismobileapplicationdevelopedbypartnersanddownloaded
byusers).
Secondly, Gawer & Cusumano (2002) explained that being leader of an electronic
platformexert considerable influence on the innovation trajectory andon the formed
network of customers producing and using “complements”. Apple has a considerable
influenceonitsecosystemanditsplatform.Indeed,byselectingdevelopedapps,Apple
offersonlyhigh‐qualityfeaturesonitsecosystem.ThisfactpermittheAppStoretohave
a lot of downloads everyday. This point constitutes an important income source for
Apple(asIdemonstrateearlier,Applesalesitsecosystem).Toconcludethispart,andby
paraphrasingIansiti&Levien(2004),wecanassertthatmobileappsdevelopersonthe
Apple App Store ecosystem are “Keystones” because they have a remarkable power
throughtheAppleITCplatformandalsothebusinessecosystem:WithoutexternalApps,
Apple,theLeaderofitsecosystemwouldneverbeensosuccessful.
90 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
7.5.OPENINNOVATIONINACLOSEDBUSINESSECOSYSTEM:APARADOX
7.5.1.OpeninnovationpracticesthoughtheAppStoreecosystem
On this part we will focus on open innovation cases existing though the App Store
business ecosystem. As I presented in my empirical study, the App Store radically
changedconsumptionmodewiththeonlinedistributionofsoftwaremadebypartners.
BeforetheAppStore,softwaredevelopershadtoevolveinafiercecompetitioninorder
to have the opportunity to distribute their products. The Apple ITC platform and
ecosystem broke down this barrier, by allowing any software developer to distribute
andpromoteitsproductsontheAppStore,andbymakethoseappsvisibleandavailable
toanyAppledeviceusers.Thislastsectionwillenunciateandexplainopeninnovation
modelscommonlyusedbyAppleInc.
7.5.1.1.SteveJobsInside‐Outspirit:theCrowdsourcingcase
Thanks to its ecosystem, Apple makes available to the public a true technological
environment that encourages creativity and gives its users a "digital experience" to
which they adhere and encourages others to do the same. Indeed, Apple has brought
togetheracommunityofincreasinglybroadwillingtobepartoftheAppleadventure.
Apple had the idea to create a revolutionary new business model based on
crowdsourcing,allowinganyone(professionaldeveloperand/oruser)tocreateitsown
application in aprocedure and strict criteria, in a controlled, secure environment and
providingbettervisibilitythroughtheAppStore.
Indeed,theAppStoreisakindofcrowdsourcingconcept(e.g.theSDKtoolspermitsfor
developersandusers tobenefit fromApplecompetencies inapplicationdevelopment)
coupledwithanetworkeffect(Rohlfs,1974),sinceusersbringarealaddedvaluetothis
ecosystem.
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7.5.1.2.TheSteveJobsOutside‐Inspirit
Let’s begin this part with one of the most famous open innovation example: The
Apple/XeroxPARCcase.Xeroxcreatedin1970aresearchcenterinPaloAltocomputer,
named PARC. These included Xerox to capitalize on the acquisition of computer
companyScientificDataSystems.Anumberofinnovationshaveemerged:theGraphical
UserInterface(GUI)thatisstillusedtoday,iconscontrolledfromamouse,thescreens
in several colors, theEthernetprotocol, fonts, etc. In1979, Steve Jobs,Apple founder,
visitedthisresearchcenter.
WhilethePARCheadmanagementbecameawareofitsinabilitytoexploittheGUIthat
wasdevelopedbyitsresearchers,SteveJobssawthepotentialofthisinnovationthatthe
companyhasnot carriedout internally.ApartnershipwasestablishedbetweenXerox
andAppletoallowAppletousethisGUIonitsfamousMacintosh.
This is concrete case showing open innovation, simply because a firm exploits R&D
results of another company. Moreover it is an outside‐in innovation process because
SteveJobs“took”thisideafromthePARCinordertocreateaninnovativeproduct:The
Macintosh.
SteveJobswasnotaleaderusinginside‐outprocesses.AsIexplainedabove,thereisa
realsecrecyatApple,andmorepreciselyaboutinternalR&D.Butconcerningtheinside‐
outprocess,SteveJobswasagreatthinker,andavisionary,hehad(mostofthetime)
the particularity to find ideas at embryonic level and turn them into commercial
successes.Toillustratemywords,IwillpresenttheiPodconceptioncasebelow.
Ichoosethiscasebecausefirstly,theAppleiPodisatoolpresentonitsITCplatformand
secondlybecausearecentcourtcaseagainstApplerevealedtheoriginofthisproduct.
Tobeclear:iPodisnottheoriginalfruitofSteveJobsorAppleteam.
TheoriginalconceptwasactuallybornintheheadofaBritishinventor,KaneKramer.
Thelatterfiled,in1981inthePatentOffice,theiPodconcept(namedIXIatitorigin)and
decided to launch the company itself, which was to produce themusic player of the
future.Butin1988,whenhewasreadytotakeaction,itsadministrationboardrefused
torenewthisexpensivepatent(about60,000Eurosfor120countries).Sotheideaof
KramerfellintothepublicdomainandAppleacquiredit.
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So here come from the original concept. It remained to industrialize the concept.
This is on this part that Apple has managed to implement the outside‐in approach.
TheiPodprojectisbornbytheencounterofSteveJobswithTonyFadell,ex‐employeeof
GEandPhillips,whowantedtoinventabetterMP3player.Afterdisappointmentswith
PhillipsandRealnetworks,Fadell receivedsupport fromAppleandsucceeded ineight
weeks to develop an iPod prototype. He was hired in 2001 as Chief of independent
projecttoleadamultidisciplinaryteamof35people.Again,theopeningtotheoutside
for research skills was appropriate. The partners in this team were integrated
companies like IDEO(design),GeneralElectric,ConnectixandWebTV.At thesoftware
level,companiessuchasPortalPlayerandPixowereresponsiblefordevelopingtheGUI
underthedirectionofSteveJobs.Thus,withthisteam,ApplecouldlaunchtheiPodon
themarketinonlysixmonths.
Using thisexample, it is interesting tonote thatoneof theApplekeysuccess factor is
thereforeitsabilitytogetoutsidefromthecompanyideas,technologiesandskillsApple
needandintegratethemintoitsinnovationstrategy.Thisallowstocompanytogoeven
beyonditsstronginternalinnovationcapabilities.
7.5.2.Aneweffectivebusinessmodel
Appledoesnot innovateonlytechnologicallybuthassetuparealbusiness innovative
model.
At the iTunes launching, thepresswas very critical.However, themusic industryhas
had to use it, the Apple digital marketplace is even now perhaps the only bulwark
against illegal music downloading. Apple does not sell music but offers a secure and
pleasanttouseonlineserviceofmusicproviding.
Howtosellsomethingthathasbecomefree?Doingitbetterthanfree.Sameprincipleto
theAppStore,howtofightagainstthegratuitousnessofOpenSource?Revenuesfrom
distributionofthirdpartysoftwarearebecomingmoreimportantassellingthedevices.
Applehasfocuseditsbusinessmodelontheestablishmentofatruemulti‐faceplatform.
Suchaplatformconnectsactorsfromthecontent,telecomsandinformationtechnology
industries: music and movie producers, software developers, game publishers, and
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 93
telecomoperators.Apple thusbecomesan intermediary foraccess toamarketdriven
andcontrolledbyitstechnologicalecosystem.
7.5.3.Theparadox:Aclosed&perfectlycontrolledecosystem
In this part Iwant to insist on something really interesting, and proper to the Apple
strategy: Everything is extremely controlled by Apple. Indeed, Apple introduced a
complete systemwith software & hardware platform, and an online distribution tool
thatbelongstoit.
7.5.3.1.Onthedeveloperside
According to Mohssen Toumi from Booz & Company, the firm is very strict and
methodical in the developers and apps selection. Developers’ apps are key products
because the user have varied and specific needs. Indeed, one actor cannot provide
everything.
However,inordertokeepitsStore“clean”,Appledoesnothesitatetomakelawonits
numericalecosystem.Indeed,thefirmcontrolseverythingthatpassesthroughit.
Let’s focus on the Molinker developer case and its 1011 Apps. A user noticed that
severaloftheseprogramshadacommonpoint:acommentarypoorlywrittenbutgiving
fivestars,whichisthemaximumratingonApple'sonlinestore.
Suspecting something, this user sent a letter to the iPhonegraphy blog, which covers
topicsrelatedtophotographyandvideo.TheletterwasthentransferreddirectlytoPhil
Schiller,thevicepresidentofmarketingatApple,oneofthemainleadersofthefirm.
Finally,thedeveloperMolinkerhadadoptedthefollowingtechnique:hedistributedfree
copies of its applications and in exchange users gave to its programs the maximum
scores, even bad writing criticism. When the maneuver was discovered, Apple
immediatelytookactions:the1011applicationswereallremovedfromtheAppStore,
andthedeveloperhasbeenbanned.
94 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
ThemessagetotheAppledevelopercommunityisclear:iftheywanttheirapplications
known,theymustdoitbymeanspermitted.ThisexampleshowsthatAppleistheonly
judgeon theAppStore, anddoes thepolice inorder tokeepsecurityandorder in its
numericalstore.
Let’s take the example of theNonDisclosureAgreement (orNDA is a close that each
developerhastosignbeforetheycanaccesstheSDK,whichisinaprivateaccess.This
NDAprohibits toreportanythingor talkabout thenew “Enyo” language: thebasisof
theAppleapplications)ontheSDK,checksrequiredbeforevalidationfortheapplication
tobebroadcastedontheuniqueinstallationarea(theAppStore)givetoApplerightto
lifeanddeathonanyiPhoneapplicationproject.
ThisisoneofthereasonshowingthattheAppStorecannotaccommodateopensource
project, becausediffuse software sourcesviolates theSDKNDA.Andadevelopermay
finditselfpushedbackafterseveraldays/monthsonthedevelopmentofanapplication
andpaidthe$99rightofaccesstotheAppStore.Appledoessoinordertomaintaina
stable,cleanandconsistentecosystem.
Moreover, inordertoavoidallcompetition(everonApple‐madeApps), theCupertino
firmdonothesitatetoeraseexternalAppsthatmakessimilartasksasAppleApps.To
giveapreciseexample,let’staketheEviCase.
EviisanapplicationavailableontheAppStore.DevelopedbyTrueKnowledge,itcould
have a narrow relationship with Siri, the vocal assistant present on the iPhone 4S.
Indeed, itperformssimilar tasks,andcanevenbemoreextensive forsome.However,
Apple through representative Richard Chipman reported that Evi would be removed
fromtheAppStorebecauseitistoosimilartoSiri.AccordingtoChipman,theybreaka
rule in the charter developers, "Applications that are confusing to a product or an
advertisement similar to an existing fromApplewill be rejected".Apple employsApp
administrator to control and test any new developed and proposed App for the App
Store, this permit to offer the best quality Apps by avoiding any incompatible
applications.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 95
Toconcludeonthispart,SteveJobs'companyhasbuiltitsecosystemonatotalcontrol
overthevaluechain,frombeginningtoend:itimaginestheterminals(e.g.theiPhone),
the control platform distribution (e.g. the App Store) and operates on the cloud
computing.Appleprefers a closedandproprietary ecosystemwith auniqueaccess to
contentforusersbasedontheappsdownloadontheAppStore.Wewilldeeplyfocuson
thispartinthesubchapterbelow.
7.5.3.2.Ontheuserside
AllAppleproductscanworktogether,however,whenyoubuyAppleproductandsoits
ecosystem,itisimpossibletogetaccesstocompetitorservices.AsImentionedearlier,
an iPhonedeviceworkswith iTunesand theAppStore, andonlywith those tools.To
giveapreciseexample,theAppStore(comparedwithitscompetitors)onlyworkswith
Appleproducts,userscanconnectontheAppStorewithcompatibleiOSdevices,devices
createdbyApple.
Moreover,whenusersbuymusic/AppsontheAppStore, theseproductsaresavedon
their personal iTunes account and are impossible to transfer on competitors ITC
platforms(e.g.RIMBlackberryorGoogleAndroid).
By controlling and closing barriers on its ecosystem, Apple can easily keep its users,
avoidingthemtotestcompetitionproducts.So,itisdifficultforuserstoseparatefrom
theAppleecosystem.
Tocompletethispart,theApplestrategyisto“trap”usersinitsecosystem.Indeed,by
providingexclusiveAppleproducts, fromtheITCplatformtothenumericalecosystem
workingwith thisplatform,andsince theapparitionof thecloudcomputingandwith
theAppleiCloud,forallusersbuyingproductsonthisecosystem,andstoringtheirdata
on this "cloud", it becomes more and more difficult to move from one ecosystem to
another.“This is the lock‐ineffect”,highlightLouisNaugès,ortheuserdetentionfrom
theinterior.
96 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
7.5.4.Abusinessecosystemtargetingtoopenitself
SincethecreationoftheiOS5(OSespeciallypresentintheAppleiPhone4s,lastbornof
the firm), Apple targets to deeply integrate the Twitter services. Thus, application
developers for mobile devices directly from Apple can add features to their social
sharingsolutions.This integrationallowstheCupertinoCompanytoopen itsproducts
totheweb2.0andcatchupitsdelay,giventhelimitedsuccessofpreviousattemptsona
socialnetworkcreation(Pingon iTunes).Moreover, this is the first time thecompany
includesautomaticallyanexternalserviceinsideitsplatform(allbaseservicespresent
intheiPhonewereAppledevelopedapplications.
ButwhychoosingTwitter,ratherthanFacebook,giventhepopularityofthelatter?This
isbecauseasimpledifferenceseparatingbothsocialnetworks.Thus,Facebookistrulya
socialnetwork,andaclosednetwork,justliketheAppleecosystemisclosed.Itfunctions
asa shareddatabase. Instead,Twitter isa freeopendiffusionwitha lowersociability
(followersandfriends).Functioningasamessagingbus(W.Vambenepe),itconnectsthe
"closed garden" Apple outward, instead of redirecting it to another "closed garden",
differencesthatmayhavecountedforAppleinthechoiceofthefirm.
7.6.EMPIRICALSTUDYCONCLUSION
More recently, several studies have attempted to take stock of the open innovation
phenomenon and appreciate the future lines of development (Gassman et al, 2010;
Giannopoulouetal,2010).ICTplatformsareanimportantelementcitedinmyresearch
and investigations in this area should provide a better understanding of the open
innovation practices. Beyond that, the "platformization" (Evans et al, 2006) of the
innovationprocessisnotneutralasoutlinedEvans&Schmalensee(2007).Theraceto
openinnovationis increasingthroughplatformsandit isthroughtheseplatformsthat
companies will compete to ensure their adherence to their business ecosystem and
maintain leadership.Workon theplatforms indicates thatnetworkeffects can lead to
the supremacy of one platform to another (Evans et al, 2006 speak of "platform
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 97
Imperialism").Inthiscontext,aplatformcouldeasilydrainandtakeonboardinfluential
playerswiththeriskoffallingintoaformof“NotInventedHere”syndrome.Membersof
this "club" would innovate together what would not be without problems for
ecosystemscompetitors.
Thebusinessecosystemstudyopensupavenuesofinvestigationthatseemveryfertile
becausetheymaketheconnectionwithmanyworksandtheoriesasplatformstrategies
and open innovation. But the main difficulty at this level is the wide variety of
observable configurations: there are indeed different platforms strategies and several
possible variations into collective innovation logics (outside‐in, inside out, the
combinationofboth).
Nevertheless, inorderto linkmytheoreticalresearchestomyempiricalstudy, Imade
this figure, adapted from the synthetic scheme implemented in my conceptual
framework (i.e. figure6.6).This figure7.3 shows thedifferent linksprovided through
theempiricalstudyoftheAppleCompany.Hereit ispossibletounderstandhowopen
innovation,ITCplatformandorganizationalstrategyofApplearelinkedtoitsbusiness
ecosystem.
As Imentioned above, Applemade the conscious choice to create value and innovate
withexternalAppdevelopersthankstotheSDK.Thisopeninnovationprocessislinked
to theApple ITCplatform. Indeed,without this platform, users cannot access toApps
developedbyApplepartners through theAppStore, and therearenopossibilities for
Appleanditsthirdpartiestocreatevalue.SotheITCplatformisthecentraltechnology
permittingtheCupertinoCompanytolinkitsorganizationalinnovativestrategytoopen
innovationprocessesthroughitsecosystem.
98 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
Figure7.3.ITCplatformattheheartoftheAppleopeninnovativeorganizationalstrategy
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 99
CHAPTER8. CONCLUSION&RECOMMANDATIONS
8.1.GENERALSUMMARYOFTHESTUDY
Themain objective of this researchwas to address the open innovationmanagement
withinthebusinessecosystem,andthat,byadoptingadifferentangleofapproachfrom
theoneadoptedbytraditionalmethods.Throughoutthisstudy,Ihaveactuallyadopted
an approach to combine various searches, including those of Moore, Iansiti & Levien
Peltoniemi in thebusiness ecosystem concepts, and thoseof Chesbrough,Rabeau and
Leadbeater in the open innovation framework, which have been indispensable to
provide various answers tomy research question: “Towhat extent does the business
ecosystem can be effective in a leadership strategy of innovation open for innovative
firms?”
Todothis,Iproposedaconceptualframeworkrespectingtheseinterestsofintegration
and thecharacterbothcomplexandsystemicassociatedwith theorganizationand its
businessecosystem.Usingacasestudy,Ihavebeenabletoverifytherelevanceofsucha
framework(inthiscasethecompanyAppleInc.).Suchachoiceisexplainedbythefact
that the company gave an iconic vision of the business ecosystem concept, and this,
throughthecompetitivedynamicscharacterizingitstechnologicalenvironment.
It is important however to precise that the choice of a case study methodology is
explained by the flexibility of this kind of approach. A quantitative studywould have
limitedmyanalyticalframework,andIwouldnothavebeenabletoadequatelyrespond
to the various research questions. These are too static methods for such analysis.
ItseemedevenmoreevidentinmydescriptionoftheApplebusinessecosystem,which
featurednotonlyarealdiversityintheplayers(musicindustry,movieindustry,video
game industry, mobile application developers, users, etc..), but mostly illustrate
100 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
competitive dynamics , which intensity contributed greatly to shaping the open
innovationpracticesmaintainedbytheCupertinoGiant.
I studied the evolution of the business ecosystem of Apple here based on three sub‐
chapters,whichIsummarizeasfollows:
•Sub‐Chapter1:TheBusinessofAppleecosystem(7.3)
Aswe have seen during the first part, the Apple business ecosystem is in interaction
with many different external industries capable of creating and providing mobile
applications for the App Store since Apple freely offers a Software Development Kit.
However, by exercising a total control ofwhat can (or cannot) be on itsmarketplace,
Appleshowsacertainclosureonitsecosystem.
CoevolutionseenintheAppleorganizationalstrategybetweenthefirmandapplication
developers, is on the fact that Apple rent (with a license) a store for developers that
permitcommunicateandreceiveremuneration(againstacommissiontakenbyApple).
Moreover the Cupertino Company finances developers in order to encourage them
continuing creating and innovating on the application development. AsMoore (1993)
said,acoevolutionprocessstrengthensinnovationeffortsoffirmsinthesamebusiness
ecosystem.Furthermore,toillustratethiscoevolutionprocessandbyquotingIansiti&
Levien (2004)Apple anddevelopershave a “SharedFate” tobe successful, theymust
cooperate to attract more customers and so make their businesses and business
ecosystemgrowing.
TheAppStoresuccessdependsonthewidevarietyofapplicationsold,themorethere
willbeappsencounteringusers’needs,themoretherewillhavedownloads.Moreover,
byfinelyselectingapplicationsdevelopedfortheAppStore,Appleproposesonthestore
onlyfunctionalandgoodqualityproducts.
•Sub‐Chapter2:TheAppleplatform:Atoolforco‐evolution(7.4)
Regarding the second part of my case study on the Apple platform, I provided an
overview of interdependencies established by Apple with its partners within the
businessecosystem,whichhelpedtoconsolidateitsinnovationefforts(Moore,2003),or
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 101
choose the co‐evolution with its ecosystem partners. In addition to its internal R&D
operations,Appleincreasedtheshareofspendingoutsourcedinthisareabyleveraging
the contributions of severalmembers of the value chain. The presence of the iPhone
platformhasalsohelpedtoincreasethevaluegeneratedwithinthebusinessecosystem,
and by encouraging the contribution of various actors. This seems to corroborate the
idea thatelectronicplatformsareanessential structure for thesharingofvaluebyall
memberswithinthebusinessecosystem(IansitiandLevien,2004,p.114).
Secondly, Gawer & Cusumano (2002, pp.28‐35) explained that being leader of an
electronicplatformexertconsiderableinfluenceontheinnovationtrajectoryandonthe
formed network of customers producing and using “complements”. Apple has a
considerableinfluenceonitsecosystemanditsplatform.Indeed,byselectingdeveloped
apps, Apple offers only high‐quality features on its numerical ecosystem. This fact
permit the App Store to have a lot of downloads everyday. This point constitutes an
important income source forApple. By paraphrasing Iansiti& Levien (2004, p.114), I
can assert that mobile apps developers on the Apple App Store ecosystem are
“Keystones”becausetheyhavearemarkablepowerthroughtheAppleITCplatformand
alsothebusinessecosystem:WithoutexternalApps,Apple,theLeaderofitsecosystem
wouldneverbeensosuccessful.
•Sub‐Chapter3:Openinnovationinaclosedecosystem:TheParadox(7.5)
Examination of the third party has revealed that open innovation requires an
infrastructure ‐ dedicated or not ‐ able to handle the different partners contributions
(materialor immaterial) inside,but alsooutside thebordersof the company.The ICT
platform is essentially an intermediary device that connects, to bring together, to
exchange and share. As such, its role is fundamental in the development of open
innovation. The fact that the open innovation phenomenon has emerged in a period
characterized by a strong interest in collaborations of all kinds and the Internet
(Huizingh,2010;pp.2‐9)isnotneutral.DevelopmentoftechnologiesfromtheInternet
and especially ICT platforms greatly facilitated the development of practices and the
openingoftheinnovationprocessofcompanies.Therearethereforealotofreasonsto
believe that with the development of ICT, other practices and new forms of open
innovationwillemerge.
102 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
8.2.RESEARCHCONTRIBUTIONS
The most important contribution of this research is the design of an analytical
framework that enabled to decipher, at least in part, the complexity associated with
managingtheopeninnovationoperationofafirmwithinabroad,diffuseandcomplex
environmentthatisthebusinessecosystem.
Sucharesulthasitsoriginfrompersonalreflectionsdevelopedusingnumerousbooks,
articles, essays, and of course personal perspectives. It was thus easier, from this
synthesisofideas,puttingtogetherafreespiritandmyownjudgment.
Inaddition,mystudy ispartofaperspective targeting towatchasclearlyaspossible
innovation operations, by observing them at Apple, a company operating in the ICT
sector.However,thisstudycouldbearelevantbasisforfurtherresearchbyobservinga
largernumberofcases,andcomparingApplewithsomeofitsmaincompetitors.
Finally, I consider that my synthesis diagram could be presented as an original
observation model, which would be able to guide business leaders toward a better
understanding of the inherent key dimensions in business ecosystems of their
businesses.
8.3.RESEARCHLIMITATIONS
The methodological approach I have advocated obviously has some weaknesses.
Mention first, as the first limit, the transparency and credibility degree of the
informationcontainedinthedocumentsandarticlesthatIhaveexamined.Asthestudy
wasmainlybasedonqualitativedata,generalizableonlyinspecificcontexts,itappears
thatmystudycouldbeflawedbysomeinherentsubjectivity.Toaddressthesecriticisms
andtomakesureofthevalidityofthisstudy,however,Iappliedascarefullyaspossible
thepreceptssetoutbelow.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 103
First, information has been sparingly selected, so that the data have a link with the
conceptual frameworkandwithmy researchquestion.The analysishas thereforenot
divertedtoissuesofsecondaryresearchquestionsduetoanyexcessinformationfroma
wealthofsecondarydata,whichallowedmetoavoidsuffocationduetoahighnumber
ofdata.
Second,dataanalysiswasperformedwithaconcernfortriangulationofinformation.To
dothis,datawerecollectedfrommultiplesources(officialdocumentsofthecompany,
press releases, case studies, video conferencing, etc.) known for their seriousness and
credibility (Official Website Apple, Apple Press Info, Steve Jobs Keynotes, etc.)
Thesecondlimitationofmystudyconcernsthemethodofcontentanalysis.Thismethod
limited me because the Apple Company has a very important cult of secrecy. This
informationgaphassomewhataffectedthequalityofmyanalysis,while forcingmeto
work twice as hard to provide for a clear analysis and particularly rigorous. Some
informationwas also difficult to access,whichwould have been useful for this study.
While enriching, my attempt to create a conceptual framework integrating several
dimensionshavenumberofdangers,thegreatestriskisalackofdepthintheconcepts
discussed.Moreover,realizingatthesametimeaMasterDegreeinManagementatthe
ESCBretagneBrest,aswellbeinganapprenticeinaFrenchcompany,timemanagement
forthisstudy,myMasterexamsandmyapprenticeworkhavebeencomplex.
8.4.FUTURERESEARCHOPPORTUNITIES
I must finally admit that the limitations of this study are all interesting avenues of
research. Indeed, it could be interesting (for example) to use in conjunctionwith the
case study, aquantitativemethodology thatwould confirmsome ideas.Moreover, the
complexity associated with my research always opens the door to many questions
raising various reflectionsof all industryplayers from the Smartphone industry.Here
arealsoafew:Isthereathresholdbeyondwhichtechnologycompaniescannolonger
opt for an open innovation approachwithin their ecosystems? Shouldwe seek other
104 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012
analysismeanstoelucidateasbestaspossiblethefuturedevelopmentsthatmayaffect
thesmartphoneindustry?
In conclusion, although some limitations remain, we must admit that this research
project was conducted on the basis of deep reflection to bring some actuality and
originality (a fewresearcheshasexaminedthe integrationof the twoconcepts).Many
precautionswerealsotakentomakethisstudythemostrigorousever(triangulationof
data,verificationoftheauthenticityofdata,etc.).Withsuchavision,itwaspossiblefor
me to enrich the research on the management issue of open innovation within the
businessecosystemofafirm.
OpenInnovationinBusinessEcosystem
SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 105
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