Managing knowledge creation through open innovation not worth

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Managing knowledge creation through open innovation – not worth the cost for most firms!

Managing knowledge creation through open innovation – not worth the cost for most firms! Prof Göran Roos ICS Ltd & Warwick Business School & Centre for Business Performance, Cranfield School of Management, Cranfield University & Technical Research Centre of Finland [VTT] & Helsinki School of Economics

Open Innovation – What is it n It is basically crowd sourcing ideas or

Open Innovation – What is it n It is basically crowd sourcing ideas or solutions for or to problems of business interest ©Göran Roos 2010

Three Open Innovation Process Archetypes Source: Oliver Gassmann, Ellen Enkel, Towards a Theory of

Three Open Innovation Process Archetypes Source: Oliver Gassmann, Ellen Enkel, Towards a Theory of Open Innovation: Three Core Process Archetypes ©Göran Roos 2010

Application of the Three Open Innovation Process Archetypes Source: Oliver Gassmann, Ellen Enkel, Towards

Application of the Three Open Innovation Process Archetypes Source: Oliver Gassmann, Ellen Enkel, Towards a Theory of Open Innovation: Three Core Process Archetypes ©Göran Roos 2010

Characteristics and company examples of the outside-in process n Characteristics: n n low tech

Characteristics and company examples of the outside-in process n Characteristics: n n low tech industry for similar technology acquisition act as knowledge brokers and/or knowledge creators highly modular products high knowledge intensity n Outside-in process: n n Earlier supplier integration Customer codevelopment External knowledge sourcing and integration In-licensing and buying patents Source: Oliver Gassmann, Ellen Enkel, Towards a Theory of Open Innovation: Three Core Process Archetypes ©Göran Roos 2010

Characteristics and company examples of the inside-out Process n Characteristics: n n (basic) researchdriven

Characteristics and company examples of the inside-out Process n Characteristics: n n (basic) researchdriven company Objectives like decreasing the fixed costs of R&D, branding, setting standards via spillovers n Inside-out process: n n n Bringing ideas to market Out-licensing and/or selling IP Multiplying technology through different applications Source: Oliver Gassmann, Ellen Enkel, Towards a Theory of Open Innovation: Three Core Process Archetypes ©Göran Roos 2010

Characteristics and company examples of the coupled process n Characteristics: n n n standard

Characteristics and company examples of the coupled process n Characteristics: n n n standard setting (pre dominant design) increasing returns through multiplying technology alliance with complementary partners complementary products with critical interfaces relational view of the firm n Coupled process: n n combining outside-in and inside-out processes integrating external knowledge and competencies and externalising own knowledge and competencies Source: Oliver Gassmann, Ellen Enkel, Towards a Theory of Open Innovation: Three Core Process Archetypes ©Göran Roos 2010

When should you follow an open or closed innovation model? n Open Innovation Approach

When should you follow an open or closed innovation model? n Open Innovation Approach n n n high product modularity high industry speed much explicit and tacit knowledge required highly complex interfaces creating positive externalities n Closed Innovation Approach n n n low product modularity low industry speed less tacit knowledge required low complex interfaces no positive external effects Source: Oliver Gassmann, Ellen Enkel, Towards a Theory of Open Innovation: Three Core Process Archetypes ©Göran Roos 2010

Sources of external knowledge acquisition Source Suppliers Customers Consultants Sales/distribution agents Government agencies Market

Sources of external knowledge acquisition Source Suppliers Customers Consultants Sales/distribution agents Government agencies Market research organisations Competitors Advertising agencies Research institutions Universities Mean 4. 15 3. 94 3. 81 3. 72 3. 23 3. 10 3. 09 3. 07 2. 94 2. 81 Source: Christine W. Soo, Timothy M. Devinney & David F. Midgley, 2005, “External Knowledge Acquisition, Innovation and Learning” ©Göran Roos 2010

Insights to the R&D processes of 4, 500 firms from 13 European countries n

Insights to the R&D processes of 4, 500 firms from 13 European countries n n Low-technology firms investing in R&D can achieve the highest returns if they direct their search behaviour towards customers. In high-technology industries supporting supplier centric search patterns is rewarding but appears to be a niche strategy. Instead, university knowledge is the major leverage point for a firm’s search pattern. Results indicate that knowledge from universities play an important role for generating knowledge stocks inside high-technology firms. Source: Christoph Grimpe and Wolfgang Sofka, 2007, Search Patterns and Absorptive Capacity: A Comparison of Low- and High-Technology Firms from Thirteen European Countries, Centre for European Economic Research, Discussion Paper No. 07 -062 ©Göran Roos 2010

Results from a survey of more than 800 firms in Germany n n n

Results from a survey of more than 800 firms in Germany n n n Firms that are able and willing to engage in various types of interactions (breadth) and highly developed interactions (depth) with Universities perform better with regard to research success. Broadening a firm’s interaction approach with universities has stronger performance effects on research success (breadth) than strengthening the intensity of existing ones (depth). Firms may increase the returns from interactions with universities by engaging in a more diverse (or broader) spectrum of interactions. Source: Birgit Aschhoff and Wolfgang Sofka, 2008, Successful Patterns of Scientific Knowledge Sourcing – Mix and Match, Centre for European Economic Research, Discussion Paper No. 08 -033 ©Göran Roos 2010

Key critisisms n Some reports have focused on the negative effects of open innovation

Key critisisms n Some reports have focused on the negative effects of open innovation on business owners, particularly in regard to how a open innovation project can sometimes end up costing a business more than a traditionally outsourced project. ©Göran Roos 2010

Some possible pitfalls of open innovation include : n n n Added costs to

Some possible pitfalls of open innovation include : n n n Added costs to bring a project to an acceptable conclusion. Increased likelihood that a open innovation project will fail due to lack of monetary motivation, too few participants, lower quality of work, lack of personal interest in the project, global language barriers, or difficulty managing a large-scale, open innovation project. Below-market wages. , or no wages at all. Barter agreements are often associated with open innovation. Source: http: //paylancers. blogspot. com/2006/10/beer-money-mechanical-turk-on-campus. html ©Göran Roos 2010

Pitfalls cont. n n n No written contracts, nondisclosure agreements, or employee agreements or

Pitfalls cont. n n n No written contracts, nondisclosure agreements, or employee agreements or agreeable terms with open innovation employees. Difficulties maintaining a working relationship with open innovation workers throughout the duration of a project. Susceptibility to faulty results caused by targeted, malicious work efforts. ©Göran Roos 2010

Pitfalls cont. n n Though some critics believe open innovation exploits or abuses individuals

Pitfalls cont. n n Though some critics believe open innovation exploits or abuses individuals for their labour, studies into the motivations of crowds have not yet shown that crowds feel exploited. On the contrary, many individuals in the crowd experience significant benefits from their participation in open innovation applications. Source: Daren C. Brabham. (2008). "Moving the Crowd at i. Stockphoto: The Composition of the Crowd and Motivations for Participation in a Crowdsourcing Application", First Monday, 13(6), Daren C. Brabham. (2009, August). "Moving the Crowd at Threadless: Motivations for Participation in a Crowdsourcing Application", Paper presented at the annual meeting of the Association for Education in Journalism and Mass Communication, Boston, MA. Katri Lietsala & Atte Joutsen. (2007). "Hang-a-rounds and True Believers: A Case Analysis of the Roles and Motivational Factors of the Star Wreck Fans", In A. Lugmayr, K. Lietsala, & J. Kallenbach (Eds. ), Mind. Trek 2007 Conference Proceedings (pp. 25 -30). Tampere, Finland: Tampere University of Technology. Karim R. Lakhani, Lars Bo Jeppesen, Peter A. Lohse & Jill A. Panetta. (2007). The value of openness in scientific problem solving (Harvard Business School Working Paper No. 07 -050). ©Göran Roos 2010

Pitfalls cont. n n Further authors discuss both risks and rewards of using open

Pitfalls cont. n n Further authors discuss both risks and rewards of using open innovation as a means of balancing global inequalities In Leah De. Vun's interview of Andrea Grover the question, "Do you think that open innovation removes an economic barrier that might prevent people from participating in art? " Grover's reply was yes. Grover went on to explain that open innovation was originally based on economics. It was designed for businesses to be cost-efficient and lower their expenditures. Source: Roth, S. (2008): Open Innovation Across. The Prosperity Gap: An Essay On Getting The Caucasus Back Into The European Innovation Society. In: International Black Sea University Scientific Journal, Vol 2. , No. 2, pp. 5 -20, De. Vun, Leah. "Looking at how crowds produce and present art. " Wired News. Web. 19 Nov. 2009. ©Göran Roos 2010

The reason why Open innovation does not pay for most firms! n n n

The reason why Open innovation does not pay for most firms! n n n Today’s innovation processes require firms to master highly specific knowledge about different users, technologies, and markets. Searching widely and deeply across a variety of search channels can provide ideas and resources that help firms gain and exploit innovative opportunities. Innovation search can be time consuming, expensive, and laborious. There are moments or tipping points after which openness—in terms of breadth and depth—can negatively affect innovative performance. The enthusiasm for openness needs to be tempered by an understanding of the costs of such search efforts. External sources need to be managed carefully so that search efforts are not dissipated across too many search channels. Source: LAURSEN, K. and A. SALTER, Open For Innovation: The Role Of Openness In Explaining Innovation Performance Among U. K. Manufacturing Firms, Strategic Management Journal, 27: 131– 150 (2006) ©Göran Roos 2010

So what to do? • • In early stages of the product life cycle

So what to do? • • In early stages of the product life cycle when the state of technology is in flux, innovative firms need to draw deeply from a small number of key sources of innovation, such as lead users, component suppliers, or universities. In these early stages, only a few actors may have knowledge of the key technologies underlying the evolution of the product. Innovators need to cling to these sources, drawing deeply from their knowledge and experience. As the technology and market mature and the network supporting innovation expands, more and more actors inside the innovation system retain specialist knowledge. In order to access the variety of knowledge sources in these networks, innovative firms need to scan across a wide number of search channels. In doing so, they seek to find new combinations of existing technologies to enable them to make significant improvements in their existing products. Source: LAURSEN, K. and A. SALTER, Open For Innovation: The Role Of Openness In Explaining Innovation Performance Among U. K. Manufacturing Firms, Strategic Management Journal, 27: 131– 150 (2006) ©Göran Roos 2010

Testing the hypothesis n n During several meeting with innovating SME’s and also larger

Testing the hypothesis n n During several meeting with innovating SME’s and also larger firms the statement: “Open innovation is not worth its cost for most firms” Was proclaimed and the audience was asked to agree or disagree with it. At no time was the agreement number less than 60% and at one time it passed 90% ©Göran Roos 2010

There are very few silver bullets out there! ©Göran Roos 2010

There are very few silver bullets out there! ©Göran Roos 2010