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Managing open innovation in SMEs

Prof. dr. Wim Vanhaverbeke

Hasselt University ESADE Business School

National University of Singapore

May 7, 2014

How did we define open innovation for large companies? “Open innovation is the use of purposive

inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.”

Chesbrough, Vanhaverbeke, West Open Innovation: Researching a New Paradigm

(OUP, 2006)

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Current Market

Internal Technology

Base

R D

Outside in OI: Filling the gaps with external technology

Technology Insourcing

New Market

External Technology

Base External research projects

Venture investing

Technology in-licensing Technology acquisition

Source: H. Chesbrough, Sloan Management Review, Spring 2003

Current Market

Internal Technology

Base

R D

Inside out OI: Profiting from others’ use of your technology

Technology Insourcing

New Market

Technology Spin-offs

External Technology

Base

Other Firm’s Market

Licensing

Source: H. Chesbrough, Sloan Management Review, Spring 2003

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Some observations n  Main focus on:

•  High-tech industries •  Large manufacturing (and now also services) companies

n  What do we know about open innovation in SMEs? •  Few articles published so far (e.g. Van de Vrande et al. 2009,

Technovation) •  A few case studies or some survey based evidence •  No systematic analysis yet of OI in low-tech SMEs

n  OI in high high SMEs by CVC n  “OI in SME”- project: conclusions of an in depth study of OI

successes in 10 European SMEs in different industries

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OI: the Dutch situation Share of innovating companies cooperating for innovation

Based on quantitative analysis of Dutch CIS data Source: Batterink, 2009

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1994-1996 1996-1998 1998-2000 2000-2002 2002-2004

Shar

e of

inno

vati

ng fi

rms

adop

ting

ope

n in

nova

tion

Small (10-49 empl.)Medium (50-249 empl.)Large (>250 empl.)Total

But number of collaborations per employee is many times higher for SMEs than for large companies

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Open innovation in “low tech” SMEs

Main take-aways: don’t copy OI lessons for large companies 1.  Start with the growth strategy or broader

strategic objectives of small firms t BMI (VC2)

2.  The entrepreneur is crucial in driving the realization of that growth / change

3.  OI : key resources to be sourced from external partners to relaize the growth

4.  OI-network management = key process

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Curana

JAGA

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DEVAN CHEMICALS

DNA INTERACTIVE FASHION

Quilts of Denmark: quilts & duvets with active temperature and humidity control

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++ Patient Room of the Future ++ ++ Personalized Residence of the Future ++ ++ Private-care Room of the Future ++

A consortium of architects, manufacturers, user groups, professional organizations, and educational knowledge institutes

Agentschap Ondernemen - - - Alho

(pending) - - - Anamorf - - - Avantgarden - - - Artesis Hogeschool Antwerpen | Intgrale Productontwikkeling - - - Boeckx Architecture & Engineering - - - Boone International | Boone Projects - - - BSC | Aquaware - - - Buro II & Archi+I - - - BVZD Belgische Vereniging van Ziekenhuisdirecteurs - - - Cubist Creations - - - Devan - - - Elasta - - - Extremis - - - Fedustria - - - Frames & Fields - - - Francovera - - - Haelvoet - - - Hogeschool Gent TO2C - - - IBBT - - - In-Ham Gits - - - InoxLine - - - ISS - - - Modular Lighting Instruments - - - Mondoor - - - Philips (lighting, healthcare, consumer) - - - Groep Sanakor - - - Tele-Signal Electronics - - - Televic Healthcare - - - Van Maele - - - VDB Productions - - - Vink - - - VitraPoint Gent - ARTerior bvba - - - Vlaamse Verpleegunie | Urobel - - - VTDV Vereniging voor technische diensthoofden in de verzorgingsinstellingen - - - Westelec

Dingens Innovacelli Barometers

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Curana

MagIQ

02/11/12 16:05Curana magIQ - Fidlock GmbH

Page 1 of 2http://www.fidlock.com/en/applications/curana-magiq.html

Fastener: SNAPApplication: Bike luggage systemManufacturer: CuranaProduct name: magIQ

With the magIQ system, Curana hasdeveloped a solution for attaching items ofluggage and accessories to bicycles at theplace they are actually needed. Theinnovative bike luggage system thereby offerscyclists completely new possibilities for easyattachment and detachment of panniers,lights, air pumps, locks and flasks.

Secure attachment with a simple "snap"

The magIQ system from Curana allows you to secureluggage and biking accessories to the bicycle with a quick"snap" – and to detach them again with ease. The clever"luggage concept" is based on the Fidlock SNAP male fixand SNAP male retractable fastener as well as the FidlockSNAP female pull and SNAP female push, which are highlysecure and easy to use. Thanks to the proven FidlockPrinciple that combines a magnetic fastener with amechanical snap fastener, items of luggage practically

Application areas

Fitting

Material/colour

Other features

Innovation based on Fidlock technology

With product characteristics such as fast, secure attachmentand detachment in addition to simple one-hand operation,the Fidlock SNAP fastener forms the core of the magIQsystem. It has allowed Curana to develop a completely newand highly flexible "luggage concept" for bicycles that makesfor an improved biking experience – in keeping with Fidlock's"Fun + Function" Principle.

Find more information at: www.curana.com

Products

Stadthelm / ABUS

Curana magIQ

Sammies by Samsonite

Salomon SAS

Porsche Design Sport /Bag

Porsche Design Sport /Boot

HOME NEWS PRODUCTS APPLICATIONS COMPANY CONTACT

Deutsch

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Application: bags

Some JAGA products

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Jaga n  Differentiation vs. competition through:

u Eco-radiators u Design-radiators

n  The company is not selling products but experiences, ideas, values, etc….

n  Differences: u  radiators as heating machines u  radiators to reduce carbon-footprint u  radiator as a creative part of the house, heating

the "soul"

Jaga Oxygen : controlling temperature,

moisture and oxygen in the house

Wearable heating?

Some JAGA products

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Jaga Experience Lab : JEL - Product: test-facility

- Experience: test and develop your own products

- Jaga invites professors & engineers worldwide

- Low cost form of publicity: new projects as Federation Tower / Telefonica

Open innovation # 1

JAGA products days

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•  Total number of projects: 119

•  Total number of products created by non professionals: 49

•  Number of Jaga Product days ideas taken into production within 6 months: 6

Open innovation # 2

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Example: Play radiator

25/05/14 Wim Vanhaverbeke 62

Example: The play radiator

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•  Burning man festival in the Black Rock Desert in Nevada

•  40.000 people

•  a cross-pollination of art, music, theatre, sensation

•  wonderful creations: go up in flames at the end of the 3 weeks

Open innovation #3 Uchronians and the Burning Man

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www.uchronians.org

Start of the creative (internet) community

QOD:Vamdrup - Denmark Founded 2000 Founders

•  Søren Løgstrup (Sales and marketing) •  Hans Erik Schmidt (Business development)

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THE STRATEGIC DIMENSION

A framework for OI in SMEs: Strategy/Business model as starting point

BM as starting point for SMEs analysis n  Studying open innovation in SMEs makes only

sense within the broader framework of a business model (innovation)

n  How to analyze a BMs? •  Renewed attention among management

scholars for BMs and BM-innovation •  Critical remark: BM(I) models do not pay

enough attention to network partners/ OI …

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BM as starting point for your analysis (after Johnson. 2010)

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The start: vision of the entrepreneur THE ENTREPRENEURIAL DIMENSION

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How value creation starts? n  Vision / basic insight of the entrepreneur:

•  Diverse: From the obvious to hard to articulate: •  Curana: developing bike accessories with sleek modern design •  QOD: A provider of a healthy sleep •  I styling : virtual shopping for fashion goods

•  BM conception: from days to years •  QOD:

•  Who can define “what is a healthy sleep?” •  How to translate these insights into technical specs for a functional

quilt? •  Istyling : piecewise development of the BM (body scanner)

•  Articulating a BM may take time: A process view on BM formation

•  There is no grand design – discovery driven growth strategy + experimentation (Rita McGrath)

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Creating and sharing value with partners: How open innovation fits into the picture? THE RELATIONAL DIMENSION

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Curana: open innovation essentials n  Combination of internal and external knowledge (external

design company and polymer extrusion manufacturer) KEY RESOURCES/ COMPETENCIES

n  Collaboration with lead-customers (bicycle manufacturers) in exchange of an exclusive deal limited in time

n  Protecting your invention : IPR

n  Progressively increasing the ecosystem of partners: u  Locus of innovation is in the network u  External network management at Curana u  Growth economic strength ≠ growth firm size

n  Innovation as a tool to shape your company’s destiny and that of the industry (more control points and higher profitability)

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Managing your external network (partners) as a key process

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Managing your innovation network (key process)

n  Connecting partners (SMEs and other knowledge partners) is based on strong personal ties between the main partners

n  Trust + transparency about the objectives of the partners n  Time and money have to be invested

•  Does everybody want to take risk? •  Important that the different firms are prepared to grow

together n  Cooperation is easier between companies of the same size

•  But cooperation with large ones is possible too (different logic)

n  Over time assimilate the knowledge of different partners. Become smarter by knowing more partners (knowing who) and knowing more than your partners

•  … 93

Managing your innovation network (key process)

n  Project management (central partner) with partners is quite different from internal project management

u  Each one is busy with a part of the project : costs easily raise excessively

n  Diplomacy and mutual respect n  Same corporate culture n  Tensions will pop up after a while

u  Good relationship may become under pressure u  Open innovation? Open communication! u  Organize (mutual) evaluation session with partner(s) u  Open bookkeeping with main partners (their problems will be

yours) u  Set out rules for disloyal behavior

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Managing your innovation network (key process)

n  IP? •  Make proper arrangements with your partners •  Who is the owner? •  How partners can make use of the technology? •  Who is going to court (and who pays) in case of patent

infringement? n  Make sure that all partners are better off than

when they would not join / stay in the network n  Open innovation: benefits should be a multiple

of when companies work on their own. 95

Some conclusions 1.  Open innovation only makes sense when integrated in broader

strategic objectives of small firms 2.  Therefore, start with the business models and business model

innovation (CVP, profit formula, key resources (external and internal) and key processes (external network management))

3.  BM: Customer Value Proposition is crucial and comes first 4.  Value is created in different ways : no one fits all “open

innovation strategy” 5.  Value capturing by creating a unique strategic position through

OI (unique differentiation ; blue ocean strategy; offering valuable / authentic experiences; unique positioning)

6.  OI can be a valuable strategy for many SMEs: it is not the result of a long term grand vision – discovery driven strategy

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Some conclusions 6.  Open innovation enters into the picture through “key resources” that a

firm needs to create value. 7.  OI requires network management by a central firm – the network

itself is source of competitive advantage (relational view) 8.  Network management in SMEs is still embryonic. Most SME

managers fail in managing their partners – required skills are different from internal management

9.  OI in SMEs is about: •  Increasing VC through cooperation •  Capturing part of that share (building control points) •  Managing partners: Fair share of the pie for each partner (his problem

is your problem) •  Network management as a critical^process to create sustainable

competative advantage 10. OI management is different for low-tech SMEs (don’t copy solutions

for large fims) 11. Need to integrate SME strategy – entrepreneurship - OI 97

Speeding up the learning of good OI-practices in low-tech SMEs?

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How do SMEs learn? What does not work? n  Explanations of academia and consultants n  Most government led initiatives to stimulate entrepreneurship

u  FP7 programs (Horizon 2020; Cosme?) are too slow and too bureaucratic for most SMEs

What does work? n  Stories of entrepreneurs that have been successful n  Talking to other entrepreneurs with similar ambitions

u  Share experiences and learn from them

n  Low profile innovation networks with managers in the lead Some local innovation networks do nice work 103

Problems and finding a way out

•  Local innovation network initiatives •  60 km action radius •  Non- or semi professional coaches •  Few good local cases, few managers as speakers (time consuming) •  Reinventing the wheel problem! •  High set up costs!

•  How to drastically improve the situation? •  There are many excellent cases in Europe / world •  Make a YouTube like movies (10-15 min) about these companies with

subtitles in English •  Put these movies on the web together with a syllabus and some (open)

innovation management tools – feedback Web 2.0! Strong impact on the number of companies that learn OI practices and strong improvement in the quality of learning

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Open innovation: New frontiers and applications OUP

2003

2006

2006 2011

2014 2011

Exnovate as a network of excellence for OI-practitioners and scholars? n  www.exnovate.org

u  An international network for excellence in managing Open and Collaborative Innovation

n  Projects u  CE and OI Masterclass (10 times Philips / ESADE) – May 2014,

Barcelona u  PhD course open innovation at ESADE (5th time in January 2014) u  Open innovation metrics u  Using best practices to improve OI in SMEs

n  Open Innovation Community on Facebook and Linkedin

n  MOOI-project

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http://www.innovationmanagement.se/welcome-to-the-the-mooi-project/

wim.vanhaverbeke@uhasselt.be