Week 8 Open Innovation Innovation Systems Managing Innovation

Week 8 Open Innovation & Innovation Systems Managing Innovation

Outline 1. Open Innovation 2. An innovation system approach 3. National Systems of Innovation

Know the Sources of Innovation Global U. S. only Economist Intelligence Unit and Grant Thornton survey of Business Exec, June 3 2010 "Innovation: The Key to Future Success? " Global results shown here.

Open Innovation l l Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology”. The boundaries between a firm and its environment have become more permeable ; ﻗﺎﺑﻠﺔ ﻟﻠﻨﻔﺎﺫ ﻣﻨﻬﺎ innovations can easily transfer inward and outward.

Open Innovation l l The central idea behind open innovation is that in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (e. g. patents) from other companies. In addition, internal inventions not being used in a firm's business should be taken outside the company (e. g. , through licensing, joint ventures, spin-offs)

Approaches to Innovation l Open Innovation Open innovation implies that the firm is not solely reliant upon its own resources for new technology, product, or business development purposes. Rather, the firm acquires critical inputs to innovation from outside sources. © 2012 Pearson Education, Inc. publishing as Prentice Hall 4 -6

Approaches to Innovation l Closed Innovation The closed approach to innovation is an attempt to generate new business breakthroughs through the utilization of the people, knowledge, and technology within the company’s boundaries. © 2012 Pearson Education, Inc. publishing as Prentice Hall 4 -7

Approaches to Innovation �Closed Innovation Principles 1. Hire the best and brightest people, so that they work for you and not your competitors. 2. Make discoveries and developments yourself, so that your company brings new products and services to market. 3. Discover something first so that you’re the first to market it. 4. Invest great amounts in R&D, in order to insure that your company generates the best ideas and stays ahead of the competition. 5. Control intellectual property, in order to ensure that your company profits from it and not your competitors. © 2012 Pearson Education, Inc. publishing as Prentice Hall 4 -8

Open Innovation Idea Generation Selection Execution Commercialization

Open Innovation Idea Generation Selection Execution Commercialization

Open Innovation Idea Generation Selection Execution Commercialization

Open Innovation Idea Generation Develop New ideas Selection Execution Commercialization

Open Innovation Idea Generation Ideas and innovations from inside the organisation Develop New ideas patents and innovations from outside the organisation Selection Execution Commercialization

Open Innovation Idea Generation Ideas and innovations from inside the organisation Develop New ideas patents and innovations from outside the organisation Selection Execution Commercialization

Open Innovation Idea Generation Selection Develop New ideas Select Successful Ideas and innovations from inside the organisation patents and innovations from outside the organisation Execution Commercialization

Open Innovation Idea Generation Selection Develop New ideas Select Successful Ideas patents and innovations from outside the organisation Technology Licensing IN Ideas and innovations from inside the organisation Execution Commercialization

Open Innovation Idea Generation Selection Develop New ideas Select Successful Ideas patents and innovations from outside the organisation Technology Licensing IN Ideas and innovations from inside the organisation Execution Commercialization

Open Innovation Idea Generation Selection Execution Develop New ideas Select Successful Ideas Prototypes and Production patents and innovations from outside the organisation Technology Licensing IN Ideas and innovations from inside the organisation Commercialization

Open Innovation Idea Generation Selection Execution Develop New ideas Select Successful Ideas Prototypes and Production IP Licensing OUT IP Licensing IN patents and innovations from outside the organisation Technology Licensing IN Ideas and innovations from inside the organisation Commercialization

Open Innovation Idea Generation Selection Execution Develop New ideas Select Successful Ideas Prototypes and Production IP Licensing OUT IP Licensing IN patents and innovations from outside the organisation Technology Licensing IN Ideas and innovations from inside the organisation Commercialization

Open Innovation Idea Generation Selection Execution Commercialization Develop New ideas Select Successful Ideas Prototypes and Production Product brought to market IP Licensing OUT IP Licensing IN patents and innovations from outside the organisation Technology Licensing IN Ideas and innovations from inside the organisation

Open Innovation Idea Generation Selection Execution Commercialization Develop New ideas Select Successful Ideas Prototypes and Production Product brought to market Technology Spin-offs IP Licensing OUT IP Licensing IN patents and innovations from outside the organisation Technology Licensing IN Ideas and innovations from inside the organisation

Open innovation Other firm´s market Licence, spin out, divest Our new market Internal technology base Internal/external venture handling Our current market External technology insourcing External technology base Henry Chesbrough, 2004

Open Innovation Defined by Cultural Shift The Blind Spot of Open Innovation … The Sweet Spot of Open Innovation … Innovation is being first Innovation is ideas that are new to us Competitors will discover our ideas Our competitive advantage is design and execution, not just ideas We don't know how to manage open innovation We should start now and experiment to build competence We know what customers want and need Our customers (and prospects) have great ideas If it's "not invented here", it probably won't work for us We can multiply our innovation capabilities through open innovation 24

Slide 10. 25 Table 10. 1 Contrasting ‘closed innovation’ principles and ‘open innovation’ principles Source: Chesbrough, H. (2003) Open Innovation: The new imperative for creating and profiting from technology , HBS Press, Boston, MA. Trott, Innovation Management and New Product Development , 5 th Edition, © Pearson Education Limited 2013

An innovation system approach v An innovation system: § can be defined as a group of private firms, public research institutes, and several of the facilitators of innovation, § who in interaction promote the creation of one or a number of technological innovations [within a framework of] institutions… § which promote or facilitate the diffusion or application of these technological innovations

An innovation system approach The different SI approaches can be characterized and compared by investigating how they deal with the following six dimensions System boundaries Knowledge Actors and networks Institutions Dynamics Policy implications

An innovation system approach v SI approaches share certain characteristics: § Focus on innovation and they all place great emphasis on the learning process in which all actors involved, experience a 'learning‐by‐doing' process or learn from each other by exchanging knowledge. § Systems of innovation are always defined as complex systems, stressing their non‐linear, systemic, interactive and evolutionary character § The performance of all SI approaches is analyzed in a similar way, namely through historical analyses of economic or innovative activity and knowledge diffusion.

An innovation system approach v 4 elements of the Japanese NSI: § the role of policy (in particular the role of the Ministry of International Trade and Industry) § the role of corporate research and development (R&D) in accumulating knowledge and developing advantages from it § the role of human capital, the organization of work and the development of related capabilities § the role of industrial conglomerates in being able to profit from innovations emerging from developments along the entire industrial value chain

An innovation system approach National Systems of Innovation building blocks according to Lundvall (1992)

An innovation system approach National Systems of Innovation Source of innovation Institutions Interactive Learning Interaction Social capital National Systems of Innovation according to Soete (2012)

An innovation system approach Source of innovation Classical economics approaches to innovation had relied mostly on an analysis of R&D. However, it is not only R&D that is crucial in innovation. Producer‐consumer relations provide a source of innovation, as do the purchase and availability of equipment and the training of workers. Thus innovation occurs in production, distribution, and consumption

An innovation system approach Institutions Market and non‐market institutions constitute the national innovation system, providing the framework for governments to implement policies in order to influence the process of innovation. In a country without reliable governance structures, somebody with the same talent who works just as diligently might still end up extremely poor. The importance of institutions must therefore not be underestimated.

An innovation system approach Interactive Learning It emphasizes the importance of continuous learning in order to adapt to changes. This also demonstrates the connection of the NSI (National System of Innovation) to concepts such as human resource management, labour market institutions and learning capacities of firms as well as to absorptive capacities of firms and the economy as a whole.

An innovation system approach Interaction Since innovation is considered to take place almost exclusively within interaction, successful systems of innovations are capable of producing an environment of continuous knowledge production, knowledge use and innovation. However, the interaction is mostly coordinated by institutions and thus an institutional environment which leads to inefficient coordination of interactions may cause failure of the whole innovation system.

An innovation system approach Social capital It is argued that, the greater the degree to which institutions in a system are advanced, the more social capital in the form of trust they show. Trust in turn has a positive influence on the rate of innovation since trust reduces the risk that accompanies innovation and especially the risk of financing innovation

: The National Systems of Innovation Concept

National Systems of Innovation Patterns of national demands Strong local ‘demand pull’ for certain types of product generates innovation opportunities for local firms, especially when the demand depends on face -to-face interactions with customers.

National Systems of Innovation Factors in Examples Local buyers’ tastes • Quality food and clothing in France and Italy • Reliable machinery in Germany Private investment activities • Automobile and other downstream investments stimulating innovation in computer-aided design and robots in Japan, Italy, Sweden and Germany Public investment activities • Railways in France • Medical instruments in Sweden • Coal-mining machinery in the UK (<1979) Input prices • Labour-saving innovations in the USA • Europe–USA differences in automobile technology • Environmental technology in Scandinavia Local natural resources • Innovations in oil and gas, mineral ores, and food and agriculture in North America, Scandinavia and Australia

National Systems of Innovation Competitive rivalry Case studies and statistical analysis show that competitive rivalry stimulates firms to invest in innovation and change, since their very existence will be threatened if they do not. Lack of competitive rivalry makes firms less fit to compete on global markets through innovation.

National Systems of Innovation Competencies in Production and Research In many countries, national advantages in natural resources and traditional industries have been fused with related competencies in broad technological fields that then become the basis for technological advantage in new product fields.

National Systems of Innovation