Innovation and technology management

Turku university of applied sciences

Open innovation

Innovation and technology management

Sova Kristina

3/20/2012

 

 

 

 

 

Contents

Introduction 1

What is open innovation? 2

How to create open innovation 4

Why open innovation is good for business? 6

References 7

 

 

 

 

 

Introduction

Management innovation has particular importance in modern life, exerting considerable influence on the strategy, objectives and methods of company management. Innovation activity not only creates the future of the company, determining its technology, manufactured products, potential customers, but also the basis of its competitive position and, therefore, a strategic position in the market. 
 
In the twentieth century the concept of innovation based on traditional model has been dominated on the market - competitive advantage is achieved through the operation of major research laboratories developing technologies that are subsequently used to create new products. However, in the late 20th century, there have been structural changes: increase access to venture capital. There is also an increase of economic integration, internationalization of economic activity, the development of globalization and the emergence of new information and communication capabilities. These factors significantly influenced the reduction in the effectiveness of innovation, based on the use of closed innovation processes. (Henry Chesbrough, Wim Vanhaverbeke and Joel West, eds., “Open Innovation: Researching a New Paradigm”, Antecedents to open innovation)

 

There are reasons that influenced the shift of the companies from close to open innovation: 
 
• Intensive dissemination of useful knowledge among the subjects of innovation. 
• Companies are not fully able to take advantage of an abundance of information available. 
• Many of the patented design cannot be used in production, due to lack of necessary resources, equipment, etc. 
• The ideas that the company cannot use at the moment could be lost. 
• The value of an idea or technology is directly dependent on the type of business model. 
• Companies should actively disseminate and acquire intellectual property that will create an open market of intellectual property. 
 
These conditions led to the creation of an open innovation model. (Henry William Chesbrough “Open Innovation: The New Imperative for Creating and Profiting from Technology”, From Closed to Open Innovation, Closed Innovation Paradigm)

 

 

 

 

 

 

 

What is open innovation? 
 
The term "open innovation" was introduced into scientific circulation by Henry Chesbrough in his book “Open Innovation: The New Imperative for Creating and Profiting from Technology”. 
 
Open innovation involves the use of targeted flow of knowledge to accelerate internal innovation processes, as well as expanding markets for more efficient use of innovation. 
 
The theory defines a process of open innovation research and development as an open system. The company may attract new ideas and go to market with a new product not only for its own internal development, but also in collaboration with other organizations or just people.

Open innovation is based on the following principles: 
 
• The transition from the exclusive use of closed internal knowledge to the use of external knowledge. 
• In the market there are many ideas that can generate profits for the company. 
• Creating a sustainable business model of organization is a priority in comparison with the primacy of the market. No need to be a pioneer to make profit from the discoveries. 
• It is necessary to use both internal and external ideas and developments.

( Henry Chesbrough, Wim Vanhaverbeke and Joel West, eds., “Open Innovation: Researching a New Paradigm”, Defining Open innovation, p.2)

 
 
Currently the business enters a new phase of innovation, when the sources of innovation of the company are located abroad. Despite the fact that there are sectors that are closed (the nuclear industry, the military-industrial complex, etc.), many industries are in the process of transition to open innovation. Center for the formation of innovation in these sectors of the economy has shifted from the central R & D laboratories to universities and other organizations - innovation intermediaries.   
 
J. West and S. Gallagher – open innovation researchers, saw three main challenges of open innovation systems: motivation, integration and effective use of innovations. Also, the authors have identified four main strategies of open innovation:  
 
1. Organization of research and development process by combining the general fund.

2. The development of the individual components of product innovation by individual companies.

3. The free sale of a wide application development that can be used to create a variety of innovative products

4. A significant reduction in the bureaucracy of decision-making in the field of innovation in large firms.

(. Joel West, Scott Gallagher “Challenges of open innovation: the paradox of firm

Investment in open-source software”, p.3)

 
 
According to Mr. Schwartz, the effective functioning of the open innovation model requires the creation of partnerships for joint research and development. The use of partnerships can create an optimal business model to reduce the costs of R & D, to increase production volumes, as well as create entirely new markets of innovative products. To do this, companies need to: 
 
• Identify goals for the business process as a whole, as well as business objectives for each partner individually. 
• Classify the research capabilities of firms. 
• Agree on the business model of companies - members of partnership.

(Article from magazine “Intitut Biznesa I Prava”, St Petersburg, 2008, “Open Innovation”) 
 
Open innovation as a management model is now used in many industries. Due to the high cost of maintaining separate research laboratories, companies increasingly focus on joint development, creation of open innovation centers. Organizations, closed in the internal environment, make a big mistake - this leads to the fact that companies are wasting their resources by duplicating innovation. Hiding the results of the research, the organization loses a significant share of the profits.

 

 

How to create open innovation

 

The model of open innovation within a large company involves the creation of a two-way traffic - inside go technologies from external developers, and the outcome are results of corporate R & D. But the start of such activity requires a comprehensive approach and skilful "controllers." Fortunately, the new model can be easily integrated into a comprehensive tool that has been already used by European and western businesses.  
 
One of such tools is the use of corporate venture funds, which began to appear about thirty years ago. According to the European Venture Capital Association (EVCA), in Western Europe today there are over 8.2 thousand active corporate venture programs and 7-10% of the total venture capital investments in Europe are corporate.

There are three strategies for the corporate venture, and sometimes all three are implemented within the same fund at one time. First, it is an investment in the ecosystem of a product or service. Secondly, it is possible to gain access to technology by investing in start-ups - to enhance internal research and development. And thirdly, it is a regular venture for profit. The first two strategies are entirely fit into the logic of open innovation.

(Daniel Fasnacht “Open Innovation in the Financial Services: Growing Through Openness, Flexibility and Customer Integration”, The Challenges of Growth)

Creating a model of open innovation is a question of communication within the corporate environment. Western high-tech giants use technological roadmaps (roadmaps). It is kind of technological interpretation of marketing plan of the company at a very distant future - twenty years and beyond. With the map you can see what trends are able to kill the company maybe in five years, how to avoid them and where the hidden strategies of growth are. This document is open to everybody, using it the company shows what kind of product it will make, when and which type of technology is needed for this. 

We have the example of company Intel – using their road map we can see when there will be a need for them to create a new technology. It's like a discreet invitation for outside developers to join the process and help with the decision of any particular "subtask" and for venture capitalists - to invest in a start-up.

Similarly did IBM. A couple of decades ago IBM proposed a fundamentally new development plan, which envisaged the transformation of corporation from the hardware manufacturer into a supplier of integrated intelligent IT services, which at that time it seemed almost a fantasy.  Now they are using new “cloud” technologies and the perspectives are quite good.  
(Henry William Chesbrough “Open Innovation: The New Imperative for Creating and Profiting from Technology”, p.82-etc) 
In the past ten years many Western corporations have tested many proactive ways to "power up" innovative ideas. Ideas may lay very close and not be reached – with the lack of sources and motivation. 
 
Every company has contractors, distributors and partners, who may have many useful thoughts on how to improve the product or service. We shouldn’t forget final consumers, users and independent developers, who always have their opinion on concrete products or services.

A classic example of Open Innovation in IT is a platform open-source, when the code base is opened to third-party application developers.

Most external innovators do not even need a serious financial incentive. Companies are required only to establish the correct "management ideas" that make it easy to collect, discuss and analyze the flow of proposals, and to set its own interest. Managers of Daimler Company, for example, did not expect any phenomenal activity from fans of the brand when they announced last year an online contest of design solutions for Smart Fortwo. During six weeks they received more than 50 thousand ideas and formed site community to continue generating them, even after the end of the contest.

A competent search of fresh ideas "in crowd" can save a lot of corporate resources and time, because anyone interested may have a ready solution to the problem. When Procter & Gamble generated marketing idea to put pictures and jokes on Pringles potato chips, the corporation asked for help the manufacturer of inkjet printers, to develop an industrial printer that is able to print on food. He requested at least two years of R & D and a huge amount of expenses for the development. Then P & G went to "the people" by staging the contest. After a while they found in Bologna an Italian professor, who as a hobby has developed and even built a working model of confectionery printer. A year later pictured chips have already gone on sale, and soon the P & G has achieved double-digit percentage sales growth.

 

 

 

 

 

 

Why open innovation is good for business?

 

Open innovation has benefits for everyone. Companies can use them as a basic strategy, which promotes rapid emergence of new knowledge and technology diffusion, and universities are able to effectively conduct research and to strengthen the innovation process by supporting students in new areas and identifying the necessary skills and abilities, updating the curriculum in the undergraduate degree. In governmental and nongovernmental organizations the culture of open innovation promotes entrepreneurship, playing a catalytic role in the dissemination of technologies and the creation of new companies to support and expand the knowledge-based economy. 
 
Open innovation also applies to the four foundations of knowledge-based economy, defined by the World Bank: education and training in science and technology, infrastructure, information and communication, economic incentives and policies, innovative systems research and development. In addition they work to meet the needs of engineering specialties in the field of new technologies, which have demand all over the world.  
 
 
Thinking about engineering, social and economic challenges facing the world today, obviously there is an urgent need for advances in science and technology to transform the global economy. Engineers and scientists must find areas where they can make new discoveries, create new jobs associated with the development of advanced technologies, and to support investment in intelligence to help companies achieve success. The best way to effective use of opportunities to meet the diverse needs of economies - is an investment in an open partnership that promotes the emergence of the next generation of discoveries in the field of technology.

 

 

 

 

 

 

References

1. Henry William Chesbrough “Open Innovation: The New Imperative for Creating and Profiting from Technology”

2. Henry Chesbrough, Wim Vanhaverbeke and Joel West, eds., “Open Innovation: Researching a New Paradigm”

3. Daniel Fasnacht “Open Innovation in the Financial Services: Growing Through Openness, Flexibility and Customer Integration”

4. Joel West, Scott Gallagher “Challenges of open innovation: the paradox of firm

Investment in open-source software”

5. Article from magazine “Intitut Biznesa I Prava”, St Petersburg, 2008 http://www.ibl.ru/konf/041208/index.shtml