Open innovation

Silvia Rita Sedita

silvia.sedita@unipd.it

Chapter 15

Introducing New

Market Offerings

Learning Objectives

1. Where do new products come from? Overview of the innovation process.

2. What challenges does a company face in developing new products and services? The uncertainty of the innovation investments.

3. What are the main stages in developing new products and services – from creativity to innovation?

4. What organizational structures and processes do managers use to oversee new-product development? An inquiry on appropriate business models.

5. What is the best way to manage the generation of new ideas and innovations?

Innovation

• Innovation has been studied in a variety of contexts

– in relation to technology, commerce, social systems, economic development, and policy building.

• There is a wide range of approaches used to conceptualize innovation in the literature.

What is Innovation?

• “the process of making improvements by introducing something new” • “the act of introducing something new: something newly introduced”.

– The American Heritage Dictionary of the English Language

• “the introduction of something new”. – Merriam-Webster Online

• “a new idea, method or device”. – Merriam-Webster Online

• “the successful exploitation of new ideas”. – Department of Trade and Industry,UK

• “change that creates a new dimension of performance”. – Peter Drucker, Hesselbein, 2002

• “a creative idea that is realized”. – Frans Johansson, Harvard Business School Press, 2004

It is something new!

Source: Pisano (2015), Presentation to R&D Management Conference, Pisa.

Source: Pisano (2015), Presentation to R&D Management Conference, Pisa.

Source: Pisano (2015), Presentation to R&D Management Conference, Pisa.

Invention vs. Innovation

• Invention - the creation of new tools or a novel combination of existing tools - is often confused with innovation.

• An invention is not an innovation until someone successfully implements and carry it into the market, and makes money from it.

• Note that innovation occurs when someone uses an invention - or uses existing tools in a new way – to change how people work and/or how organize themselves, and how they conduct their lives.

Innovations and patents

Inventions

Inventions not in use

Patents

Not all inventions become innovations!

Innovation: key issues

• Innovation processes involve the exploration and exploitation of opportunities for a new or improved product, process or service, based either on an advance in technical practice (“know-how” – technology push innovation process), or a change in market demand (demand pull innovation process), or a combination of the two. It is therefore essentially a matching process. – The classic paper on this subject is Mowery and

Rosenberg (1979).

Demand pull or technology push innovation?

Demand pull or technology push innovation?

Innovation: key issues

• Innovation is inherently uncertain, given the impossibility of predicting accurately the cost and performance of a new artifact, and the reaction of users to it. It therefore inevitably involves processes of learning through either experimentation (trial and error) or improved understanding (theory). – Technological uncertainty

– Market uncertainty

Technology or market uncertainty?

Understanding the market needs is fundamental!

Source: Zaccai (2015), Presentation to R&D Management Conference, Pisa.

Source: Zaccai (2015), Presentation to R&D Management Conference, Pisa.

• Some (but not all) of this learning is firm specific. In these circumstances, the processes of competition in capitalist markets can be seen as one of purposive experimentation through competition for user acceptance between alternative products, systems, processes and services, and the technical and organizational processes that deliver them.

Innovation: key issues

…competition for user acceptance

Innovation is related to: 1/2

1. The production of scientific and technological knowledge: since the industrial revolution, the production of scientific and technological knowledge has been increasingly specialised, by discipline, by function and by institution.

2. The transformation of knowledge into working artefacts (theory remains an insufficient guide to technological practice, given the growing complexity of technological artefacts, and of their links to various fields of knowledge). Technological and business history has made major contributions here and, more recently, the cognitive sciences.

Innovation is related to: 2/2

3. Responding to and creating market demand: this involves a continual process of matching working artefacts with users’ requirements. The nature and extent of the opportunities to transform technological knowledge into useful artefacts vary amongst fields and over time, and determine in part the nature of products, users and methods of production.

4. In the competitive capitalist system, corporate technological and organisational practices co-evolve with markets (creation of new sectors). These processes are central concerns of scholars in management, economics and marketing studies.

Source: Zaccai (2015), Presentation to R&D Management Conference, Pisa.

Source: Zaccai (2015), Presentation to R&D Management Conference, Pisa.

Source: Zaccai (2015), Presentation to R&D Management Conference, Pisa.

From creativity to innovation

Organizational creativity

•Organizational settings that enhance the creative capacity of employees, at the individual and team level

Individual and team

creativity

•Creativity is stimulated by human interaction, networks, communities and places

Invention •Creativity translates in new technologies

Innovation •The invention finds a market

Is this a linear process???

Chain-linked Model

Needs/Necessities of persons/society New

Needs

Idea

Generation

development production marketing/comm. Markets

New

Ideas Scientific and technological state of the art

Source: Kline e Rosemberg, 1986 Towards innovation ecosystems

The rise of "amateur innovation"

• http://www.ted.com/talks/charles_leadbeater_on_innovation

– First 4.47 minutes

Charles Leadbeater

“We like to think that invention is a sort

of moment of creation: there is a

moment of birth when someone comes

up with an idea. The truth is that most

creativity is cumulative and

collaborative; like Wikipedia, it

develops over a long period of time.

This is why users have become more

and more important – they are the

source of big, disruptive innovations. If

you want to find the big new ideas, it’s

often difficult to find them in

mainstream markets, in big

organizations.” – Charles Leadbeater

Open innovation

from closed innovation… …to open innovation

Source: Chesbrough (2015), Presentation to R&D Management Conference, Pisa.

What’s going on?

• In the old model of closed innovation, firms adhered to the following philosophy: – Successful innovation requires control.

• For most of the 20th century, the model worked — and it worked well.

• In this new model of open innovation, firms commercialize external (as well as internal) ideas by deploying outside (as well as in-house) pathways to the market. – The boundary between a firm and its surrounding

environment is more porous, enabling innovation to move easily between the two

• The «Not-invented-here» (NIH) syndrome is overcome

Closed vs. Open

Chesbrough H. (2003), “The era of Open Innovation”, MIT Sloan Management Review,

44(3): 35-41.

http://www.youtube.com/w

atch?v=LbiJ_9W7UHM

See more here: http://www.openinnovationblog.co.uk/

Professor Henry Chesbrough coined

the term back in 2003. Chesbrough,

founder and executive director of the

Center of Open Innovation at

University of California Berkeley’s

Haas School of Business, is known as

the ‘father of open innovation’.

Source: Chesbrough (2015), Presentation to R&D Management Conference, Pisa.

Open innovation is defined as: “… the purposive use of inflows and outflows of

knowledge to accelerate innovation in one’s own market, and expand the use of

internal knowledge in external markets, respectively.”

Results from a survey

Source: Chesbrough and Brunswicker (2013)

Source: Chesbrough and Brunswicker (2013)

Source: Chesbrough and Brunswicker (2013)

In search of a good idea…

The market The social network

The community

The organization

The social media

In search of fundings

Venture

incubator

Venture capital

Business angels

Crowdfunding

KIBS

In search of selling

Venture

incubator

TTO

CONTESTS

Large

corporations The social media

Inbound and outbound OI

• In the existing discussion of open innovation, we usually differentiate between

– inbound open innovation

• where external knowledge flows inside the firm

– and outbound open innovation

• where knowledge flows outside the firm

Source: Chesbrough (2015), Presentation to R&D Management Conference, Pisa.

Sourc

e: O

pen

Inn

ovation E

xecutive

Surv

ey F

rau

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r

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C B

erk

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y; n =

67

Ho

w la

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firm

s h

ave

bee

n e

nga

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o

pen

inn

ova

tio

n f

rom

20

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to

20

11

?

Source: Chesbrough (2015), Presentation to R&D Management Conference, Pisa.

Source: Open Innovation Executive Survey Fraunhofer & UC Berkeley; n = 82

Open innovation partners –

importance in 2011

Strategic objectives for engaging in

open innovation

References

• Chesbrough, H. W. (2003). Open innovation: The new imperative for creating and profiting from technology. Harvard Business Press.

• Chesbrough, H. W. (2003). The era of open innovation. MIT Sloan Management Review, 44 (3): 35-41.

• Chesbrough, H. W. And Brunswicker S. (2013) Managing open innovation in large firms. Open innovation Executive Survey, Fraunhofer Verlag.

• Kline, S. J., & Rosenberg, N. (1986). An overview of innovation. The positive sum strategy: Harnessing technology for economic growth, 275, 305.

• Mowery, D., & Rosenberg, N. (1979). The influence of market demand upon innovation: a critical review of some recent empirical studies. Research policy, 8(2), 102-153.