open innovation approaches · 2016-05-31 · open innovation approaches ub:10017501 9 bradford...

2011

UB:10017501

Bradford University School of

Management

Open Innovation Approaches An Exploratory Study

Open Innovation Approaches UB:10017501

2 Bradford University School of Management

Abstract

This report attempts to address some unanswered questions in the research on open

innovation (OI): how do companies implement open innovation? To answer this

question, 7 cross-sector firms were reviewed for their OI implementation approaches.

The focus was on understanding their rationales behind the approaches adopted and the

extent of their success or failure. The study analyzed why firms adopted open

innovation, classifying the adoption path according to the motivation for the adoption of

the OI paradigm and the OI implementation. The way firms implemented OI was found

to vary according to (1) their maturity with respect to OI, (2) the industry characteristics

(3) technology characteristics.



TABLE OF CONTENTS

Table of Figures ............................................................................................................................ 7

List of Tables ................................................................................................................................ 8

1 INTRODUCTION ................................................................................................................ 9

1.1 Background to the research ........................................................................................... 9

1.2 Specific Research Question & Aims ........................................................................... 10

1.3 outline of report ........................................................................................................... 11

2 LITERATURE REVIEW ................................................................................................... 13

2.1 Defining innovation .................................................................................................... 13

2.2 The Innovation Process ............................................................................................... 14

2.3 The Concept of Open Innovation ................................................................................ 15

2.4 Antecedent to open innovation ................................................................................... 16

2.4.1 The Closed Model of Innovation ........................................................................ 16

2.4.2 Erosion factors .................................................................................................... 17

2.5 The Context of Open Innovation ................................................................................ 17

2.5.1 Internal Environment .......................................................................................... 17

2.5.2 External Environment ......................................................................................... 19

2.6 The Process of Open Innovation ................................................................................. 19

2.6.1 The outside-in process ........................................................................................ 21

2.6.2 The Inside-Out process ....................................................................................... 27

2.7 summary ...................................................................................................................... 28

3 METHODOLOGY ............................................................................................................. 29

3.1 STRATEGY ................................................................................................................ 29

3.2 DESIGN ...................................................................................................................... 30

3.2.1 Data sources ........................................................................................................ 30

3.2.2 selection of participants ...................................................................................... 32

3.2.3 Data collection .................................................................................................... 33

3.2.4 Designing a questionnaire ................................................................................... 35

3.2.5 Data Analysis ...................................................................................................... 35



4 FINDINGS .......................................................................................................................... 37

4.1 Findings from organisations........................................................................................ 37

4.1.1 case 1: BIOTECH ............................................................................................... 37

4.1.2 case 2: DAIRY .................................................................................................... 39

4.1.3 case 3: STEEL ..................................................................................................... 41

4.1.4 case 4: DEFENCE ............................................................................................... 43

4.1.5 case 5: ICT .......................................................................................................... 45

4.2 Findings from third parties .......................................................................................... 47

4.2.1 Interview with University ................................................................................... 47

4.2.2 Interview with CONSULTANT .......................................................................... 48

5 Discussion and analysis ...................................................................................................... 50

5.1 The concept of open innovation .................................................................................. 50

5.2 The Process of Open Innovation ................................................................................. 52

5.2.1 The OUTSIDE-IN Process .................................................................................. 53

5.2.2 The inside-out process ........................................................................................ 60

5.3 summary ...................................................................................................................... 62

6 conclusion ........................................................................................................................... 63

6.1 Conclusions ................................................................................................................. 63

6.2 LIMITATIONS OF THE STUDY .............................................................................. 64

6.3 OPPORTUNITIES FOR FURTHER RESEARCH .................................................... 64

7 Appendix I .......................................................................................................................... 65

7.1 Introduction ................................................................................................................. 65

7.2 Scope/Rationale of the Project .................................................................................... 65

7.3 Methodology ............................................................................................................... 66

7.4 Aspects of MBA syllabus used ................................................................................... 67

7.5 Proposed Table of Contents ........................................................................................ 67

7.6 Project Timeline .......................................................................................................... 68

8 Appendix II ......................................................................................................................... 70

8.1 Questionnaire for Universities .................................................................................... 70



8.2 Interview Questionnaire for companies ...................................................................... 72

8.3 Interview Questionnaire (Consultancies – BIC & Pera) ............................................. 74

9 Appendix III ........................................................................................................................ 77

9.1 Interview with STEEL ................................................................................................ 77

9.2 Interview with BIOTECH ........................................................................................... 80

9.3 Interview with DAIRY................................................................................................ 84

9.4 Interview with DEFENCE .......................................................................................... 89

9.5 Interview with ICT ...................................................................................................... 92

10 References ....................................................................................................................... 98



TABLE OF FIGURES

Figure 1-1: Structure of report .................................................................................................... 11

Figure 2-1: Definition of innovation ........................................................................................... 14

Figure 2-2: The innovation process Source: (Herzog 2008) .................................................. 15

Figure 2-3: The Five-Stage Open Innovation Model .................................................................. 21

Figure 2-4: Conceptual model for analysis ................................................................................. 28

Figure 3-1: Research strategies ................................................................................................... 29

Figure 3-2: Merits/demerits of secondary data ........................................................................... 31

Figure 3-3: Qualitative and Quantitative methods and techniques ............................................. 34

Figure 3-4: Qualitative Data Collection techniques .................................................................... 34

Figure 3-5: Structure of interviews ............................................................................................. 35

Figure 5-1: OI adoption timeline of participants......................................................................... 50

Figure 5-2: Themes identified for the concept of innovation ..................................................... 51

Figure 5-3: Most commonly used sources .................................................................................. 53

Figure 5-4: Factors affecting approaches toward target companies ............................................ 60

Figure 5-5: Common outbound activies ...................................................................................... 60

Figure 5-6: factors affecting outbound open innovation ............................................................. 62



LIST OF TABLES

Table 3-1: List of interviewees ................................................................................................... 32

Table 5-1: Inbound OI approaches and their frequency .............................................................. 55



1 INTRODUCTION

Globalisation has increasingly affected how companies operate, compete and innovate.

At present, companies face an environment characterised by global competition,

widespread knowledge, rising R&D costs and shortened product life-cycles. Moreover,

the integration of large emerging economies such as China and India has more than

doubled the world’s supply of labour (OECD 2008). To meet these new challenges,

companies have had to change the way they approach innovation processes.

The adoption of the ‘Open Innovation’ (OI) paradigm – in which organizations make

use of both internal and external resources to drive their innovation processes – is

considered by many contemporary firms as a way to enhance their innovation

capabilities. Open innovation can help firms by reducing the cost of R&D and process

improvement, reducing time to market for new products, improving product quality and

accessing customer and supplier knowledge outside the organization. One recent much-

publicized example is Nokia, which cooperated with a community of more than 450

volunteer open source software (OSS) developers who created many applications, such

as mapping software, games, and GPS, for the company’s N800 Internet Tablet device.

1.1 BACKGROUND TO THE RESEARCH

In spite of the growing interest in OI, there still exist unexplored aspects. One of the

most pressing for both academics and practitioners alike relates to how OI can be

implemented (Gassman 2006). The literature concerning the adoption of the OI

paradigm by companies is burgeoning fast and there have been many special issues of

journals containing useful reviews of literature pertaining to open innovation in the

innovation management domain (eg. van de Vrande et al. 2010; Huizingh 2011;

Lichtenthaler 2011; Enkel et al. 2009; Giannopoulou et al. 2010). In spite of the

attention it is attracting, there are still some unanswered questions regarding the open

innovation paradigm and in particular on how companies have organised to adopt it.

The studies looking into the ‘‘process that leads to open innovation’’ (Huizingh 2011)

are still relatively scarce, a point which was noted by Lichtenthaler (2011), according to

whom further investigation into OI adopter archetypes is needed.



1.2 SPECIFIC RESEARCH QUESTION & AIMS

The research objective is to review the theory and practice of the open innovation

approaches of large corporations. Reviewing the theory will help lay the foundation for

the understanding of the open innovation paradigm and analyse the practices identified

from the collected data.

The aims of the study include profiling the implementations of open innovations in

different organisations in order to compare and contrast with each other. It is also

important to understand the rationale behind the adoption of OI and the various

approaches employed. Furthermore, analysing the impacts of open innovation will help

to find out the successes and failures in the implementation.



1.3 OUTLINE OF REPORT

The structure of the report is shown in Figure 1-1.

FIGURE 1-1: STRUCTURE OF REPORT

Chapter One provides the reader with an introduction to the context and the problem,

followed by an outline of the current state of research in the problem area. These

sections are followed by the research question and the focus of analysis.

Chapter Two contains the literature review. The major sections in the literature review

include innovation process and strategy, concept of open innovation, context of open

innovation and the process of open innovation. This chapter concludes with an analysis

of the key concepts distilled from the literature review.



Chapter Three discusses the methodology to be used to complete the research. It

discusses the data collection approaches, the design of the questionnaire and the data

analysis approach.

Chapter Four contains the results from the interviews in a case format. It contains

findings from the companies as well as from third parties i.e. university and consultants.

Chapter Five contains a discussion and analysis of the findings in the previous chapter.

Finally Chapter Six contains the conclusions drawn from the analysis in the previous

chapter. It also includes the limitations of this research and opportunities for future

research.



2 LITERATURE REVIEW

This section will review the existing literature on open innovation. The section starts with the

concept of innovation to see the relation of open innovation to the traditional view of

innovation. The latter sections will consider the “content, context and process” (Pettigrew 1990)

of open innovation.

2.1 DEFINING INNOVATION

The literature on innovation management lacks a clear and commonly accepted

definition of the term ‘innovation’. Different criteria have been used to define

innovation depending upon the context (Hauschildt and Salomo 2007). So, the academic

literature is far from reaching a consensus. Furthermore, corporate practice reveals a

similar trend. Notwithstanding inter-firm differences in defining innovation, even

employees working within the same department of a firm do not necessarily share the

same understanding of the term innovation (Leker 2005).

Hauschildt and Salomo (2007) identify some common themes in various definitions of

innovation which say that Innovations are:

“new product or service”

“markedly differ … from the preceding status”

Hauschildt and Salomo (2007) further argue that an invention is not an innovation

unless it is commercially exploited. Chesbrough (2003a) presents a similar perspective

when he says that innovation is an invention which is implemented and introduced in

the market. Rogers (1998) has also concurred with this aspect of innovation. He further

says that the new product/technology/service resulting from innovation has to add

benefit to the organisation in some way.

Emphasising the commercial aspect of innovation, this paper follows Roberts (2007)

who uses a slightly broader definition:



FIGURE 2-1: DEFINITION OF INNOVATION

2.2 THE INNOVATION PROCESS

The process of innovation can be defined as “the temporal sequence of events that occur

as people interact with others to develop and implement their innovation ideas within an

institutional context” (van de Ven and Poole 1989). Hansen and Birkinshaw (2007)

recommend viewing innovation as a value chain with three phases viz. idea generation,

idea conversion and idea diffusion. Herzog (2008) proposes a process with three steps

viz. front-end of innovation, idea realization and development and commercialisation.

Although diffusion of innovation is an integral aspect of innovation management, this

paper will only consider the commercial exploitation part. So, it will follow the process

proposed by Herzog (2008) which is depicted in the figure below.



FIGURE 2-2: THE INNOVATION PROCESS SOURCE:

(HERZOG 2008)

The first stage –referred to as the front end of innovation – aims at generating and

selecting new ideas, as well as the evaluation of their feasibility. In the second stage,

selected ideas are realized and developed. The third phase includes planning and

execution of the broad-based utilization and market diffusion of the development

output.

2.3 THE CONCEPT OF OPEN INNOVATION

In his pioneering book on Open Innovation, Chesbrough (2003a) defines Open

Innovation as:

‘Open Innovation is a paradigm 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.’

Another definition by Chesbrough (2006) is:

‘Open innovation is the purposive inflows and outflows of

knowledge to accelerate internal innovation, and expand the

markets for external use of innovation, respectively.’

These two definitions highlight the following salient points about Open Innovation:

Open Innovation entails opening up the innovation process to facilitate a two-

way flow of knowledge. Thus, Open Innovation involves inbound and outbound

activities.



It not only involves technological advancement but also exploitation of these

developments for the benefit of the firm, thus reducing spillover which, in the

earlier model, was considered an unnecessary cost of R&D (West et al. 2006).

For the exploitation of ideas, it places equal emphasis on both internal and

external paths to market.

It is important to note that Open Innovation does not imply that internal R&D is

dispensable (Chesbrough 2003a). It merely suggests that it should leverage the wealth

of knowledge available outside the firm. A majority of the literature also emphasizes on

the importance of internal R&D and views it as a complement to external ideas and

resources (Dahlander and Gann 2010).

Thus, Open Innovation is about balancing internal and external sources of innovation.

The skew in this balance reflects the degree of openness of a firm. Empirical studies

also indicate that the degree to which firms use external ideas varies considerably

(Laursen and Salter 2006). Chesbrough (2006) also argues that businesses are located

on a continuum with entirely closed innovation at one end and completely open models

at the other.

2.4 ANTECEDENT TO OPEN INNOVATION

To gain a better understanding of the reasons for open innovation, it is first necessary to

understand the limitations of the closed approach to innovation.

2.4.1 THE CLOSED MODEL OF INNOVATION

Chesbrough (2003a) argues that the underlying assumption of the closed approach to

innovation was that “successful innovation requires control”. It is a model which is

predominantly focussed inward. It primary principle is that “a firm has to do everything

by itself, beginning with idea generation, development and production to marketing,

distribution, service, and financing” (Herzog 2008). In this model, Intellectual Property

(IP) was used as a means of knowledge protection to “create and maintain control over

its ideas and to exclude others from using them” (Chesbrough 2003a).



However, Huizingh (2011) argues that Open Innovation is not a new phenomenon and

has been practised since as early as the 19th

century. But, Dahlander and Gann (2010)

suggest that although not many firms followed a fully closed approach to innovation,

some developments in the wider innovation landscape necessitated opening up the

innovation process, thus rendering the “do-it-yourself” mentality in innovation

management obsolete (Gassman 2006).

2.4.2 EROSION FACTORS

Chesbrough (2003a) mentions some factors which eroded the underpinnings of the

closed innovation model. He mentions global competition, shortened product life

cycles, increased complexity of new technologies and knowledge and increasing costs

and risks of innovation, increased mobility of labour, and availability of venture capital

specifically for innovation and enhanced capabilities of actors in the value chain as the

driving forces behind a more open approach to innovation.

The development of the capabilities and resources in emerging economies which

created a global supply for knowledge is also an important factor. Other factors include

greater complexity of products and services, better educated and more demanding

customers and convergence of technologies (OECD 2008).

2.5 THE CONTEXT OF OPEN INNOVATION

Gassman (2006) points out that Open Innovation is context dependent and requires a

contingency approach. The context is characterised by the internal and external

environment in which the firm operates.

2.5.1 INTERNAL ENVIRONMENT

Huizingh (2011) points out that size is one of the most frequently studied firm

characteristic in Open Innovation. Empirical studies have revealed that size affects the

adoption of Open Innovation and both inbound and outbound activities (Lichtenthaler

and Ernst 2009).

Organisational design is also an important internal characteristic of a firm. Innovation is

fostered with an organization structure which is adaptable to change (Tidd et al. 2005).



Organisational structure has also been shown to affect the absorptive capacity of the

firm (Frans et al. 1999).

It has been argued that organizational culture impacts the success of innovation

significantly. However, there is scarce empirical evidence to support this. The concept

of Open Innovation requires a paradigm shift in the corporate culture and mindset

(Sloane 2011). Research also suggests that there is a significant difference between

cultures in Open and Closed Innovation (Herzog 2008).

Organisational culture is also important because it is closely related to the concept of

dominant logic (Hosking and Anderson 1992; Jarrett 2008). The dominant logic has

been defined by Prahlad (2004) as:

"The dominant logic of the company is, in essence, the DNA of the organisation. It

reflects how managers are socialised. It manifests itself often, in an implicit theory of

competition and value creation. It is embedded in standard operating procedures,

shaping not only how the members of the organisation act but also how they think.

Because it is the source of the company’s past success, it becomes the lens through

which managers see all emerging opportunities. This makes it hard for incumbent

companies to embrace a broader logic for competition and value creation.”

Chesbrough (2003a) also suggests that this dominant logic can prove to be a stumbling

block for organizations moving toward the open innovation paradigm. He points out

that the dominant logic influences the way managers deal with new information

preventing them from considering other alternative forms of logic. This effect is

especially evident when trying to commercialize an innovation using a business model.

Chesbrough (2003a) argues that a technology, by itself, has no inherent value unless it

is commercialized and that the same technology commercialized in two different ways

will yield different revenues. He defines a business model as the framework which links

the technical inputs to economic outputs. In a later work, Chesbrough (2007) identifies

two functions of a business model viz. create value and capture a portion of that value

for the firm.

Huizingh (2011) points out that the strategic orientation of a company influence the

strength and direction of Open Innovation. While considering strategy, in the context of



Open Innovation, it is essential to view it from two angles viz. innovation strategy and

knowledge strategy.

Scholars suggest that it is imperative to define an innovation strategy for a firm (Herzog

2008). The generally accepted view of an innovation strategy is that it has two

dimensions viz. technological and market (Clark and Wheelwright 1993).

2.5.2 EXTERNAL ENVIRONMENT

The most obvious element of the external environment is the industry. Studies have

revealed that there are differences between the rate of adoption of Open Innovation

between industries (Keupp and Gassman 2009). Firms in some industries still follow a

relatively closed model of Open Innovation (Chesbrough 2003a) while other industries

(such as food, bio-technology, and financial services) follow a more open approach

(Huizingh 2011).

A study by Lichtenthaler (2008), however, reveals that the industry is not a significant

determinant of Open Innovation adoption. He concludes that the adoption of Open

Innovation is predominantly a strategic choice of the company rather than being

influenced by industry characteristics. It was observed by Poot et al. (2009) that the

trend towards open innovation in industries is not continuous but composed of shocks

and the timing between shocks differs across industries.

Gassmann (2006) goes beyond the industry and gives certain contexts wherein open

innovation is appropriate viz. globalization, technology intensity, technology fusion,

new business models and knowledge leveraging. However, there has been no further

research to specifically determine the impact of these external characteristics.

2.6 THE PROCESS OF OPEN INNOVATION

Gassman and Enkel (2004) identify three core process activities which are as follows:

1) The outside-in process: The firm seeks to enhance its own knowledge base

through the integration of suppliers, customers and accessing external

knowledge. This process is inbound OI.



2) The inside-out process: earning profits by bringing ideas to market, selling IP

and multiplying technology by transferring ideas to the outside environment.

This process is outbound OI.

3) The coupled process: coupling the outside-in and inside-out processes by

working in alliances with complementary partners in which give and take is

crucial for success.

Van de Vrande et al. (2009) identify the following key activities:

Technology Exploration: comprises activities to access external sources of

knowledge to enhance internal technology.

Technology Exploitation: comprises activities to capture value from existing

technology outside the boundaries of the organization.

However, he further states that in a fully open setting, firms combine both the

approaches. This is analogous to the coupled process suggested by Gassman and Enkel

(2004).

Some scholars also propose stage-based models of Open Innovation. A model by Wallin

and von Krogh (Wallin and von Krogh 2010) propose a five-stage model as illustrated

in the figure below.



FIGURE 2-3: THE FIVE-STAGE OPEN INNOVATION MODEL

However, by the very nature of the Open Innovation model, projects can be launched by

internal or external technology and it is possible for new technology to enter the process

at any stage (Chesbrough 2006). So, the taxonomy of inbound and outbound open

innovation is being used here as most studies of open innovation focus on these two

core processes (Bianchi et al. 2011; Huizingh 2011).

2.6.1 THE OUTSIDE-IN PROCESS

This section will focus on the outside-in process by identifying the predominant

approaches and sources of information.

2.6.1.1 EXTERNAL SOURCES OF KNOWLEDGE

Von Hippel (1988) identified the following external sources of useful information viz.

suppliers, customers, universities, government and private laboratories, competitors and

other nations.

According to Gassman (2006), innovation methods that involve customers enable

companies to deduce their needs before customers are even aware of them. They also

say that involving suppliers in the innovation process can enable buying firms to derive

certain operational and strategic benefits. Bughin et al. (2008) argue that companies are

increasingly beginning to view suppliers and independent specialists as co-creators and

delegating more of the management of innovation to such networks.

The role of users in creating functionally novel innovations was established by von

Hippel (1988). The advent of open source software communities has further highlighted

the important role of user innovation in the innovation process. This idea is referred to

as community sourcing in open innovation literature (Linder et al. 2003). It is widely

underestimated that users might be highly innovative themselves, especially users at the

leading edge in a certain area. Empirical studies on the sources of innovation have

revealed that in the fields of both industrial and consumer goods, users are often the

initial developers of products, prototypes and processes which later gain commercial

significance (e.g. von Hippel, 2005). Moreover, empirical studies have demonstrated

that up to 30% of respondents reported that they had developed a new product for



personal or in-house use. This supports the idea that user innovation is not a rare

occurrence (von Hippel, 2002).

It is important to see how firms choose to interact with communities. Firms may create

their own communities or may instead interact with existing communities. In some

cases, firms could be merely one of the constituent members in a community that

contains multiple types of actors. A well-known example of this approach is the Linux

kernel community, with individuals, firms and one non-profit foundation. More

commonly, however, firms adopt the strategy of creating and organizing innovation

communities, which allows them to play a central role in the community. Through this

central role, it seeks to leverage the community for achieving firm-level objectives.

(West and Lakhani 2008)

When considering community innovation, an important point to consider is the

emergence of knowledge-broker communities. These are companies who bring together

solution seekers and solution providers and seek compensation from the solution seeker.

Popular examples include NineSigma and Innocentive. Such communities also help to

find solutions across industries/sectors. For instance, when P&G was searching for a

solution to a problem in its laundry washing liquid product, it found a solution through

NineSigma and the solution came from a company that made agricultural concentrates.

(STRATEGIC DIRECTION 2009)

Literature on supplier relationship management suggests that firms can significantly

benefit if they can set up differentiated relationships with suppliers. Supplier

involvement can provide buying firms with substantial benefits that range from more

“operational” benefits, such as the earlier identification of technical problems, fewer

engineering change orders, or the availability of prototypes, to more “strategic” benefits,

such as better utilisation of internal resources, access to new or supplementary product

and process technologies, reduced technical and financial risks, improved product

features, or shorter time-to-market for new products. However, some conceptual and

empirical evidence indicates that the innovative capabilities of the supplier are

important for collaborative development.

(Gassman 2006)



Universities represent an important source of knowledge for companies. The

partnerships between universities and industry can be seen as “vehicles for accelerating

the creation of more sustainable models of knowledge transfer and exchange” (Johnston

et al. 2010). In U.S., this interaction has been encouraged government funding as this

prompted universities to seek industry support for research (Chesbrough 2003a).

Chesbrough (2003a) also points out the example of Intel who funds university research

and, in turn, receives a royalty-free access to any useful technology that might emerge

from the Intel-funded research.

Chesbrough (2003a) suggests that a firm should look toward building a relationship

with faculty members and students who specialise in its areas of interest. He further

says that the approach should be to build personal relationships and share knowledge.

However, there are various channels under consideration such as publications, patents,

consulting, informal meetings, recruiting, licensing, joint ventures, research contracts,

and personal exchange (Agarwal 2001). A study by Cohen et al. (1998) found out that

some channels such as publications, conferences, informal conversations, and

consulting are considered more important overall for knowledge transfer and also that

different industries value different channel differently. However, it has been argued that

this differences in importance is not explained by industrial activities of firms but “e

disciplinary origin, the characteristics of the underlying knowledge, the characteristics

of researchers involved in producing and using this knowledge (individual

characteristics), and the environment in which knowledge is produced and used

(institutional characteristics)” (Bekkers and Bodas Freitas 2008).

There have been studies to explore the importance of social processes in the interaction

between universities and industry. Network intermediaries were found to play an

important role in university-industry partnerships particularly in increasing network

participation. More often than not, these intermediaries were found to have extensive

industry experience. The flexibility and openness of network structures was found to be

important as well as universities have to make an effort to understand the commercial

issues in collaboration. To facilitate sharing of knowledge of a sensitive nature, trust

and mutual understanding play an important role. Mutual understanding can be built

through developing new skills and promoting and sharing good practice. It has been

argued that universities need to change their mindset to foster a culture wherein the



private sector and academic activity can co-exist in harmony. They need to be more

creative and responsive to the community.

(Johnston et al. 2010)

Chesbrough (2003c) points out that although university research is more comprehensive

and of better quality than in the past, there are certain difficulties in the diffusion of

those innovations in the commercial sector. In particular, cross-discipline breakthroughs

are found difficult to come by. Furthermore, as universities are allowed to patent their

discoveries, companies, especially small firms, find it difficult to benefit from the

research.

2.6.1.2 APPROACHES TO INBOUND OPEN INNOVATION

Following are the common approaches for the outside-in process:-

2.6.1.2.1 INTERNAL R&D

Firms can generally conduct R&D in-house and develop their own knowledge and

technology. Internal technology outsourcing therefore depends on R&D capabilities of

the firm and it also requires the firm to allocate resources to a specific course of

action.For example, investments have to be made in R&D employees, facilities,

equipment, and materials. These investments are usually costly to reverse (Montoya et

al. 2007). Internal R&D can further be a time consuming and complex process

compared with external sourcing alternatives (Brockhoff 1999). One major advantage of

performing in-house technology development is it can be a source of sustainable

competitive advantage due to the accumulation of scarce resources.

2.6.1.2.2 NON-EQUITY ALLIANCES

Non-equity alliances are controlled by negotiation rather than by hierarchy (Lawrence et

al. 2002). These alliances are generally based on contracts between the participating

organizations. The two types of non-equity alliances are Licensing and Joint R&D

agreements.

2.6.1.2.2.1 LICENSING

Licensing refers to the exploitation of other firms’ intellectual property within a certain

time frame (Tidd and Trewhalla 1997). In return for the grant of a license, the licensee



has to pay a fee plus a royalty based on sales. The typical license contract specifies the

applications and markets in which the technology may be used. The contract may also

include subsequent improvements in the technology i.e. it may give the licensor (seller)

access to those improvements.

2.6.1.2.2.2 JOINT R&D AGREEMENTS

In general, these arrangements are formed between firms or organizations to collaborate

on the development of specific technologies, products or processes (Contractor et al.

2003). Joint R&D agreements involve the sharing of resources, such as groups of

engineers and scientist from each partner organization. Laboratories and investment

costs are also shared in some fashion (Hagedoom and Osborn 2003). The scope of joint

R&D agreements can range from dyadic relationships for limited projects to networks

for industry-wide or inter-industry collaboration. Process-oriented collaborations

typically involve supplier (Ruhmer and Leker 2005). But collaboration does not imply a

lack of competition between organizations.

Hence, competing organizations may also decide to engage in joint R&D agreements if

they find that it is mutually beneficial. Joint R&D agreements involve the sharing of

resources, such as groups of engineers and scientist from each partner organization.

2.6.1.2.3 EQUITY ALLIANCES

Equity alliances are based on equity ownership. Three common types of equity alliances

are minority investments, corporate venture capital investments, and joint ventures.

2.6.1.2.3.1 MINORITY INVESTMENTS AND CORPORATE VENTURE

CAPITAL INVESTMENTS

According to DUSHNITSKY AND LENOX, corporate venture capital (CVC)

investments are commonly referred to as consisting of “minority equity stakes in

relatively new, not publicly traded companies that are seeking capital to continue

operation” (Dushnitsky and Lenox 2005). In other words, established firms invest in

entrepreneurial and innovative start-up firms. CVC investments enable the firm to

closely monitor technological developments, particularly in the early stages. It creates

the opportunity to learn about emerging technologies while simultaneously involving a

relatively low level of commitment. Moreover, the investing firm does not only have the



opportunity to learn, but also the privilege to later enter the emerging technological

field. Hence, CVC provides the option to defer commitment of significant resources. A

major advantage of CVC investments over joint ventures is while joint ventures allow

firms to access only those technologies and technological capabilities brought to the

venture by the partnering firms, minority investments as well as corporate venture

capital investments expose the full portfolio of technologies.

2.6.1.2.3.2 JOINT VENTURES

Joint ventures involve the creation of an independent organization in which two or more

firms own equity. This implies a relatively high commitment for the participating firms.

In general, each firm brings specific capabilities to the joint venture that the other firm

does not have. Roberts and Berry (1985) offers a framework – the familiarity matrix –

that accounts for the degree of familiarity with the underlying technology and also for

the degree of familiarity with the market (Roberts and Berry 1985). Joint ventures are

advantageous when innovation projects increase in size and scope and capital stakes

involved are large. Pursuing a joint venture is further advised when exclusivity of

technology ownership is critical to achieve competitive advantage. Since knowledge

flows and coordination between firms may be critical in technology sourcing

endeavours, joint ventures also enable smoother information flows and enhance

coordination and control.

2.6.1.2.4 ACQUISITIONS

In the context of external technology sourcing, acquisition refers to the full integration

of the target firm’s complete portfolio of technological capabilities (Arora and

Gambradella 1990). The decision to use acquisitions as a means for technology sourcing

can be generally based on two different motives: (1) acquiring a (specialized)

knowledge or technology base or (2) short cutting the R&D process when the firm is a

relatively late entrant in a particular technology area. In high-technology industries,

however, firms prefer other types of equity based collaborations, i.e. joint ventures or

minority investments, instead of acquisitions.



2.6.2 THE INSIDE-OUT PROCESS

Commercialisation of existing technology within a firm is a major constituent of a

firm’s or business unit’s Open Innovation strategy. The underlying assumption is that

firms often do not fully exploit their technologies. This means that technologies which

are not being used within the firm could be licensed or sold to another firm, while

simultaneously generating additional sales (Chesbrough 2003a). West and Gallagher

(2006) point to another reason which is of major importance in an Open Innovation

environment. They argue that research discoveries sooner or later spill out into the

external environment when the firm decides not to commercialize them. In order to

create value from those R&D discoveries, firms have several options, such as licensing

those technologies to other organizations or to spin-off separate firms.

2.6.2.1 OUT-LICENSING

According to Ford (1985), licensing out technology or out-licensing can be divided into

three groups namely reactive licensing, proactive and strategic licensing. Reactive

listening refers to situations where firm decides to license its technology to another

organization based on that firm’s request for the technology. Proactive listening is

where a firm which possesses the respective technology takes the initiative to find a

potential licensee. The most deliberate and purposive use of licensing technology is

strategic licensing. Besides the need for considering the effect of technology licensing

on product sales, any licensing decision should refer to a long-term strategy for

exploiting the underlying technology.

2.6.2.2 SPIN-OFFS

A firm can also divest an entire firm unit other than licensing or selling technologies. In

contrast to the sale of technology that only involves the transfer of technology

ownership, divestment of firm units also includes the transfer of physical assets

(Lichtenthaler 2006). In this regard, spin-offs provide an adequate means of external

technology commercialization. Spin-offs are typically used as a vehicle to

commercialize these research results when they do not fit into the firm’s business.



2.7 SUMMARY

Based on the review of the literature, a conceptual model for analysing the primary data

has been developed. The conceptual model is as shown in the Figure 2-4.

FIGURE 2-4: CONCEPTUAL MODEL FOR ANALYSIS



3 METHODOLOGY

3.1 STRATEGY

Before the research design stage, it is necessary to decide a strategy for the research

methodology. According to Ghauri and Gronhaug (2005), there are three classes of

research design as shown in the figure below:-

FIGURE 3-1: RESEARCH STRATEGIES

An exploratory research is a valuable way of finding what is happening or to seek new

insights; and to ask questions and to access the phenomenon in new light. This purpose

of research is very useful if a researcher wants to clarify his understanding of a problem

if the precise nature of problem is not clear. The common ways of conducting an

exploratory research are case studies, literature search, expert opinion and focus group

interviews (Saunders et al. 2007).

Descriptive research portrays an accurate profile of persons, events or situations. This

may provide an extension of a part of exploratory research or an explanatory research.

In descriptive research it is mandatory to already have a clear idea of the phenomena on

which the researcher wish to collect data prior to starting the data collection process. It

is generally said that descriptive study has a very clear place in management and

business research and is “thought of as a means to a rather than end in itself” (Saunders

et al. 2007).



The explanatory study provides a causal relationship between variables and the focus is

on studying a situation or problem to establish the relationship. Normally, quantitative

data is used to find the relationship between variables and then a further statistical test

such as correlation are produced to get a clear view of the relationship (Saunders et al.

2007).

No research strategy is considered the best. The best research strategy is the one which

helps the researcher solve the given problem in the best possible way – within the given

constraints. The choice of research strategy is also dependent on extent of existing

knowledge, amount of time and resources a researcher have as well as the researcher

own philosophical underpinnings. These research strategies should not be thought of as

mutually exclusive and it is possible to use more than one (Saunders et al. 2007).

In this paper, the intent is to identify best practices in the implementation of Open

Innovation. As the implementation of OI depends on a variety of factors, there is no

fixed procedure to do this. However, it is not merely an exploratory study because it

entails finding out why certain approaches work and others do not. Also, it involves

identify the internal characteristics of an organisation that make certain approaches

work. So, the research strategy used in this paper will be a combination of all the

approaches.

3.2 DESIGN

This section deals with an outline and justification of the approach to data collection

and the means used to collect the data.

3.2.1 DATA SOURCES

Secondary data

To solve the research problems secondary data are useful not only to find information

but also to better understand and explain the research problem. In most research it starts

with a literature review that includes earlier studies on and around the topic. It is

recommended to locate and evaluate the usefulness of secondary data first as some

research questions can be answered only through them and no further data collection is



needed. Secondary data can also help to provide benchmarking measures to compare

results (Ghauri and Gronhaug 2005).

FIGURE 3-2: MERITS/DEMERITS OF SECONDARY DATA

Advantages of Secondary data

The primary advantage of using secondary data would have been enormous savings in

time and money.

Disadvantages of Secondary data

If secondary data had been used, it would have been to get the real picture of the process

of OI as it has been implemented in the company. Also, if it has impacted the company

negatively, it would not have been publicly disclosed. Furthermore, the data that is

available could have been collected for some other reason and would have been

inappropriate for the purpose of this study.

Primary data

Researchers collect the data relevant to their particular study or research problem when

the secondary data are not available or are not able to help answer the research

questions. This primary data can be collected by various ways like observations,

experiments, surveys, and interviews (Ghauri and Gronhaug 2005).

Advantages of primary data



The major advantage of using primary data is the appropriateness of the data for the

purpose of the project. Furthermore, it is possible to learn about the opinions and

behaviour of the people directly involved which is important for studying the OI

approach.

Disadvantages of primary data

The main disadvantage of primary data is that it took a long time to collect. Moreover,

getting access to suitable participants was difficult due to time constraints. Another

major weakness of gathering primary data is that the researcher is fully dependent on

the willingness and the ability of respondents (Ghauri and Gronhaug 2005).

3.2.2 SELECTION OF PARTICIPANTS

The participants were selected with care to maintain a mix of all the major industries.

The participating organisations are at different stages as far as the maturity of OI

adoption is concerned. All the participating organisations are multinational

corporations.

All the participants from the companies were working in a senior capacity in the R&D

or innovation functions. In addition, a university was also interviewed to get an idea of

their perspective in university-industry collaborations. Also, the participants contained

an innovation consultants whose extensive experience in this field and his

comprehensive view on the topic of innovation represents an external source for

validating and comparing the obtained results.

The list of interviewees is shown in Table 3-1. The names have been kept anonymous

for reasons of confidentiality.

TABLE 3-1: LIST OF INTERVIEWEES

Organisation Job Title

Consultant Senior Associate

Global Academy Programme in UNIVERSITY Innovation Fellow

DEFENCE Senior Partnership Manager

BIOTECH Director

IBM Associate Partner, Strategy & Transformation

DAIRY Sales Director

STEEL Manager of New Technology and Innovation



3.2.3 DATA COLLECTION

There are two approaches to research viz. quantitative and qualitative. Quantitative

Research is generally conducted when there are a large number of respondents involved

and the options are already predetermined.

Quantitative research is objective. Qualitative research is basically subjective in nature

and aims at in-depth description as compared to quantitative which aims at explanatory

laws. In qualitative research the research is aware roughly in advance what he is looking

for whereas in quantitative researcher know clearly in advance what he is looking for.

Qualitative research is recommended during earlier phases of research as compared to

quantitative research which is recommended during the latter phases of research (James

2011).

As per Yin (2003), Qualitative research is the approach which is used to explore,

interpret and understand the fact for some specific field or area. Generally, the data for

qualitative research is gathered from literature review in the specific field whereas

quantitative research make use of the numeric data and analysis is done on basis of

statistical data or diagrams (Saunders et al. 2007).

This paper focuses on the organisational implementation of open innovation. It is quite

difficult to quantify certain internal factors such as culture, structure etc. and external

factors such as industry environment. The objective of the study is to explore the

approaches of various organisations in detail. So, a qualitative method of data collection

has been used because it is the most suitable approach to uncover a person’s experience

and provide intricate details and understanding about of a given context and underlying

motivations, values and attitudes (Ghauri 2004; Patton 1990).

The figure below depicts some qualitative data collection techniques available:-



FIGURE 3-3: QUALITATIVE AND QUANTITATIVE METHODS AND

TECHNIQUES

Following are the qualitative techniques that were considered:

FIGURE 3-4: QUALITATIVE DATA COLLECTION TECHNIQUES

Focus groups involve getting together several respondents and conducting a discussion

on a topic (Gibbs 1997). For the purpose of this paper, however, such an approach was

not feasible because of the geographical distances involved. Also, the time constraints

would not have allowed getting so many people together at the same time.

Interviews and case studies were both suitable approaches. A case study helps to obtain

the descriptions and interpretations of people (Stake 1995). It helps to answer ‘how’ or

‘why’ questions (Yin 2003).

The disadvantages of procuring a case study from a secondary source were outlined

earlier. However, a case study could be constructed from primary data sources such as

interviews as well. The advantage of interviews is that it is possible to ask for further



elaboration on complex matters (Ghauri and Gronhaug 2005). So, a combination of both

the methods was deemed to be suitable.

3.2.4 DESIGNING A QUESTIONNAIRE

A qualitative interview is generally semi-structured in that it is neither a totally open

conversation nor is it highly structured. It is focussed on certain themes (Kvale 1996).

Interviews with participants were conducted in a semi-structured fashion to ensure

sufficient replication among the different interviews, but still allowing enough freedom

and flexibility during the interview to account for new insights that had not been

thought of when preparing the interview questions (Yin, 2003).

The dimensions identified in the literature review were used to structure the interview as

shown below:-

FIGURE 3-5: STRUCTURE OF INTERVIEWS

The interviewees were asked about the innovation strategy of their organisation and the

way the OI activities are organised (see Appendix I). Also, the interview concluded with

a discussion on how the interviewees felt the OI process could evolve in the

organisation.

3.2.5 DATA ANALYSIS



For the purpose of the analysis, the variables defined in the literature review were used

to structure the findings. The gathered interview data was compared among the different

respondents following a cross-case synthesis to identify common patterns (Yin 2003).

The analysis will consist of identifying best practices from previous scientific literature

on OI and theoretical considerations stemming from relevant streams of the innovation

studies field. The statements of interviewees will then be analysed in the light of the

theoretical foundation.



4 FINDINGS

This section will follow the stage-based process outlined in the previous section to

explore the findings from the interviews.

4.1 FINDINGS FROM ORGANISATIONS

This section will outline the findings from the interviews which were conducted with

organizations which have implemented the open innovation paradigm. As seen earlier in

the literature review section, the type of industry and

4.1.1 CASE 1: BIOTECH

BIOTECH is a US-based firm and is global leader in the development, manufacture and

marketing of molecular diagnostics products.

4.1.1.1 INNOVATION STRATEGY

The respondent from BIOTECH considered innovation as extremely important to the

success of the firm as it helped them to gain a competitive edge. Innovation is currently

one of the highest priorities of their business. The respondent went on to say:

“…We are not the only person in the market and that’s the way we can differentiate

ourselves is by providing the best and the most up-to-date and by being abreast of what

is happening…”

When asked to highlight an innovation success for the company, the respondent

mentioned a technology which “[…] generated several million in licenses and also,

probably, significantly more in products for the company”. As per the respondent, an

innovative company in the biotechnology sector has to have the ability of coming up

with new ideas and methods and taking them to market in the form of products which

enhance customer satisfaction.

4.1.1.2 THE CONCEPT OF OPEN INNOVATION

According to the respondent, open innovation has two aspects. Open Innovation, on one

hand, means working with people outside the company to share ideas. From an inward

perspective, it is about generating new ideas within the company and sharing them



across functional units. Also, it involves creating and maintaining a culture that fosters

such an atmosphere. The respondent also mentioned that although R&D is the driving

force behind innovation, it has to be complemented by other functions. Also, most

companies in this sector tend to be very protective about their intellectual property.

4.1.1.3 THE PROCESS OF OPEN INNOVATION

BIOTECH tends to focus predominantly on inbound OI. The focus is not only on

technologies which they could use to develop new products but also ideas/technologies

which might be useful to improve the efficiency of existing organizational processes.

BIOTECH seeks external knowledge to find solutions to problems in the innovation

process or to develop an idea. However, this is done only when it is not possible or

feasible to do it within the company.

It was also revealed that BIOTECH has a dedicated technology scouting department

which is constantly on the lookout for new technologies which the organisation could

exploit. It is a small team of four people. The main responsibilities of the team are to

find and evaluate new technologies and figure ways to interact with the company to

access that technology.

To source technology from other companies, BIOTECH either employs the mode of

licensing or co-development. The respondent, however, said that a co-development

model is preferred because it fosters sharing of knowledge. BIOTECH also uses

knowledge brokers to explore areas where the organisation is lacking. In the context of

outbound OI, more often than not, it chooses to out-license technology only if it does

not find any use for it inside the company.

The ways to measure the effectiveness of OI was found to be, to a considerable extent,

matured. There are processes to track how the various technologies sourced have

benefitted the company. Also, the team also tracks the extent to which

commercialisation of existing intellectual property has benefitted the company.

4.1.1.4 IMPACT OF OPEN INNOVATION

The adoption of the OI paradigm has had a significant impact on BIOTECH. It is

mainly concerned with access to next-generation technologies and the way in which it is

done. Although there has been a minor resistance from employees to external



technology, the respondent said that people are keen to explore and work with new

technologies. Also, the culture has begun to change although the change is quite slow.

Over the last two years, BIOTECH has followed a policy of reviewing their IP portfolio

and license technology which they are not using. However, this activity has been

primarily financially-driven. Before, BIOTECH had been very concerned about the

protection of their intellectual property.

4.1.1.5 FUTURE DIRECTIONS

The respondent is satisfied with the current IP strategy of BIOTECH. However,

BIOTECH could interact more with communities and academic groups.

4.1.2 CASE 2: DIARY

DAIRY is the largest dairy farmer-owned business in the UK.


DAIRY considers Innovation to be so important that they have set a strategic goal that a

fixed percentage of their time and investment should be on innovation. Innovation at

DAIRY could mean anything that can be improved. So, it could mean new products or

enhancement to existing products with respect to efficiency and quality. Innovation is

also considered a key driver of organic growth.

A recent innovation success at DAIRY was the launch of a brand which was developed

by taking the best ideas from competitors and combining them into a single proposition.

DAIRY got 5 of the top 6 retailers in the UK to list it from the launch. The respondent

further said:

“…that shows (that) the combined proposition was very strong to get that level of

support from retailers at launch…”

According to the respondent, in the dairy sector or food industry as a whole, it is

necessary to frequently come up with new ideas.




DAIRY perceives OI as forming strategic partnerships which add value. As stated by

the respondent:

“…one of our strategic drivers is success through partnerships because we acknowledge

that we cannot be the best at everything […] clear plan to go and work with people who

can add value and it is a joint partnership rather than just going and asking someone to

be just a supplier…”

It is evident that DAIRY treats the actors in the value chain as co-creators.


Apart from the approaches of collaborating with suppliers and consumers, DAIRY has

also tied up with a company which specializes in the production of whey (by-product of

cheese) products. Initially, DAIRY used to run its own whey-product business which it

stopped and partnered with VOLAC because they have an expertise in that area. So,

DAIRY became a supplier of raw material rather than the manufacturer. The respondent

went further to say:

“…we have a complete supply chain and transparent partnership…so we give them the

raw material and they have the expertise…and that has benefitted both the companies

[…] a complete collaborative process all the way through the supply chain…”

DAIRY also uses acquisitions as a means of enhancing innovative capability. DAIRY

also tends to seek external help on key projects especially in areas like branding. The

respondent also said that DAIRY is looking to set up a dedicated innovation team in the

near future. Previously, these responsibilities were an add-on to people’s roles.

As DAIRY is a relatively young company, the respondent said that they have not yet

felt the need for formalized processes to measure the effectiveness of OI. However, it is

generally evaluated using certain business KPI’s and some other criteria such as a

diverse product base, growth and so on.


The adoption of OI has had a significant impact on DAIRY. The main impact has been

on the culture. According to the respondent, this change has been at all the



organisational levels and has caused a shift in the focus and pace of the teams. The

management has been very clear in the emphasising the importance of innovation to the

business. The business has also undergone a structural change which impacted the roles

of employees

During this process of change, the company did face some resistance. However, the

issues were addressed by proper communication and convincing the people of the need

for the change.


From a forward looking perspective, DAIRY will look to build a dedicated innovation

team. Also, the challenge according to the respondent was to keep new ideas flowing.

4.1.3 CASE 3: STEEL

STEEL is among the top ten global steel companies. It is now one of the world's most

geographically-diversified steel producers, with operations in 26 countries and a

commercial presence in over 50 countries.


The main motivation behind innovation at STEEL is to help the company produce

differentiated products at a low cost. As the respondent stated:

“…increasingly go forward with […] differentiated products […] in order that we have

something which is different and unique which we can charge a premium on and not

rely just on volume…”

In the last year or so, there has been an increased focus on innovation right from the top

management. Although, in the current environment, the primary focus of the

management is on increasing the sales, innovation still forms a very part of the agenda.


The respondent’s view of OI was acknowledging the existence of external ideas which

can be exploited by the organisation and utilising external ideas where appropriate. As

stated by the respondent:



“…you do not have to develop or have a culture trying to develop everything in-

house...”

There is awareness of the fact that, given the wide range of technologies to cover in the

steel industry, it is not possible to cover all the technologies adequately. The respondent

went further to say:

“…we do something like half a percent of the research that is done in the whole

world…ninety-nine and a half is done somewhere else…”


STEEL has recently adopted the OI paradigm and hence the processes are not currently

organised. In fact, some approaches that are followed can be deemed traditional (e.g.

contracts with companies, recruitment of PhD’s etc.). However, they have implemented

a technology-radar concept which is a process to scout for technologies in universities

or other institutions and evaluate their effectiveness. Recently, STEEL had been

involved in a consortium, which also comprised a number of universities and companies

from other sectors, formed for a specific project. Apart from this, STEEL also

collaborates with companies from other industries and across its supply chain.

According to the respondent, the steel industry has had a history of collaborative efforts.

However, most of them have focussed on process rather than product information. The

reason for this is the sensitivity and complexity of the information. An interesting

insight was that companies are ready to collaborate with companies who are not,

geographically, in their direct competition. Also, it is possible that companies are forced

to collaborate with competitors in cases where they both have a common client. This

could mean collaborative development or licensing a technology.

Currently, there is no way that the effectiveness of OI is measured in STEEL. The main

reason for this is that, in the steel industry, it takes some time before the product is

commercialised. However, the respondent said that, in the initial phases they could

measure it on a quantitative basis such as the number of projects, number of exploitable

products etc. but they need to have a financial benchmark for the long run.




The impact of OI has been huge in specific areas/projects where collaborations have

increased access to technologies and saved money. However, this impact is not

observed in all areas.


It is believed that forming consortiums such as the one described above for all the

market segments will be beneficial to the company.

As far as the process is concerned, STEEL looks to be more systematic in technology

scouting and partner identification. Also, they would look to be more active in

identifying and approaching partners.

4.1.4 CASE 4: DEFENSE

DEFENCE is a leading prime contractor and complex systems integrator working in

partnership with government, military and civil forces and private companies around the

world.


Innovation is currently regarded as the highest priority after generating revenue. It is a

two-pronged activity at DEFENCE. One aspect is how the internal teams innovate and

collaborate between themselves. The other aspect involves scouting for technologies

outside the company. In terms of the technologies, importance is placed on technologies

which would help develop customer-friendly products.


DEFENCE is primarily a systems integrator. So, the focus is on integrating products

sourced from a variety of sources and building a system. The respondent states:

“…very much based on using the most innovative solutions that are out there to create

an overall package which is innovative for our customer community…”


DEFENCE uses an online portal called the Edge which the respondent defined as:



“…Edge is a concept, program, facility, process by which they try to engage with new

and emerging technologies from non-traditional defence companies to work with our

normal defence supply chain…”

Although DEFENCE has collaborations with universities and other companies, the

Edge is the primary means of new technologies.

The ideas coming in through the Edge system are assessed for their feasibility by the

team. This process is very much informal. Since DEFENCE works at the product level

and not the component level, the technology has to conform to these guidelines. If the

team thinks the product is feasible, the company is called for a technical discussion with

the engineering team. Once they become members of Edge, they are treated as partners.

In the respondent’s own words:

“…so that even if they need help on something that is not of benefit to us, we do

provide it…”

DEFENCE has no process in place to measure the effectiveness of OI.


The Edge system has proved to be a great means of public relations. It has showed that

DEFENCE is looking for new technologies and that has prompted many innovative

SME’s to come forward with ideas. Also, it has changed the way the company builds its

systems. As the respondent states:

“…previously we have been just bundling up things that we believed were available

whereas now we are actually seeking out new…”


Currently, the OI paradigm is being implemented in specific areas of the business

primarily in the systems integration aspect. In the future, DEFENCE looks to implement

the principle throughout the organisation, notably, in its internal R&D function as well.



4.1.5 CASE 5: ICT

ICT is a globally integrated enterprise operating in over 170 countries. Today ICT has

around 20,000 employees, bringing innovative solutions to a diverse client base to help

solve some of their toughest business challenges.


Innovation has always been the highest priority for ICT as it is considered important for

continued growth. The innovation agenda at ICT is “innovation that matters for the

world and the company”. ICT invests heavily in research and development. A recent

innovation success is an artificial intelligence system which would be applied to

information management.


According to the respondent:

“…open innovation is much more collaborative insofar as…rather than trying to protect

your ideas, you put your ideas out in the community, whatever the community might

be…social network etc…in order for people build on it…”

ICT believes that OI is tapping into the ideas of the vast community of developers out

there rather than the traditional model of internal R&D.


In ICT, OI is not currently organised by stringent rules. However, for the last few years,

ICT has been increasingly involving partners in the innovation process. As stated by the

respondent:

“…if we had gone back ten years ago and ICT had decided to take that on as a research

challenge, they would have recruited the talent in to try to address it…whereas now […]

brought together a consortium to work on the project…”

ICT is aware that it is difficult to address all the challenges in a project on their own and

they are ready to form partnership for this purpose. These partners involve universities,

specialist research organisations and companies. Also, ICT have begun to release their

IP in the open source domain.



ICT also has a concept known as Jams, which started as a way involve employees in the

decision making process. But, occasionally, they do conduct public jams which involve

their customers and other third parties who they believe could add value. Although there

is no systematic process to select these third parties, it mostly done by a snowballing

method. In fact, mostly, it is open to whoever wishes to join.

ICT also has a technology scouting program which runs throughout the year and an

internal report is published at the end of the year which contains information on

emerging technologies.

ICT measures traditional innovation by the number of patents or the commercial benefit

derived from those patents. However, there is no system in place currently which could

help to measure the effectiveness of open innovation.

ICT also follows an approach called innovation discovery. In this, they take the

challenges faced by some of their clients and look at who they could partner with to

solve that problem.


Adoption of OI has made the culture of ICT more collaborative. As stated by the

respondent:

“…ICT research used to be relatively insular but now it is very much […] outward-

focussed, partnering, working together…”

In a way, this approach has made ICT smaller as it does not need to hire researchers for

every project but can work in partnership with them. However, it was revealed that,

even with a collaborative model, it is necessary to possess the core capabilities to make

sure that ICT can add value as well.

ICT’s approach to user innovation has also been good for its image from a CSR

perspective as well.


ICT would look to have more online portal-based initiatives with partners with whom

they share their IP. This would help them facilitate this approach for particular industry

verticals as well.



4.2 FINDINGS FROM THIRD PARTIES

As outlined in the methodology section, some third party participants were interviewed

to obtain neutral insights about OI approaches. This section will summarise the findings

from interviews with these third-party experts.

4.2.1 INTERVIEW WITH UNIVERSITY

The Innovation Centre at UNIVERSITY manages and sponsors a number of projects

which aim to assist enterprises to increase their innovation potential. The

respondent acts as the Project Co-ordinator to a Scholarship programme and is

responsible for the team of Innovation Fellows that work with companies and scholars

to deliver innovative research projects.


In the respondent’s view, open innovation implies innovating in a way that allows

others to participate and results in some kind of benefit to the organisation. The

respondent further elaborated that the benefit does not necessarily have to be financial

but can also be a benefit in terms of reputation.

According to the respondent, the main motivation behind the adoption of open

innovation for large companies is the realisation that they cannot maintain their R&D

capacities and need to source ideas from other companies either by means of

acquisitions or a two-way flow of ideas. The respondent went further to state:

“…some of them do better than the others…some of them say they are doing it…but

really they are failing on the basic principles…”

The respondent mentioned that large companies are more inclined towards sourcing

technology from other companies and building on it. However, they are not keen on

sharing everything that might be of value to them.

The respondent opined that the SME’s are better at implementing open innovation

because they are more flexible. Also, they have less number of stakeholders than larger

companies. The respondent mentioned the role of leadership in implementing open

innovation when she stated:



“…and generally there is just one personality…it only takes one personality to be open

to the idea for it to be adopted…whereas the larger companies…they have to deal with

shareholders…they have to deal with the larger board…they have to deal with

investors…”


UNIVERSITY works with companies to encourage them to build networks. It helps

coordinate the flow of ideas between companies and universities i.e. it basically acts as

an intermediary between businesses and universities. Although there is no innovation

done at the university itself, they join with other universities to generate new methods of

teaching similar to business to business partnerships.


The impact of open innovation is measured by firms based on individual targets like

generating ideas or IP licensing or commercialisation. The respondent said that they

should also assess how far it is contributing to the overall aim of the company.


The respondent mentioned that people should understand the real meaning of open

innovation because there is no consensus among practitioners about the real meaning of

the concept.

4.2.2 INTERVIEW WITH CONSULTANT

The respondent acts as the Innovation Consultant and is responsible for the

development and delivery of innovation programs to the clients and helping them to

become more innovative by looking at their models and people skills.

4.2.2.1 INNOVATION BACKGROUND

The respondent held innovation to be extremely important as it helps in maintaining the

competitive advantage is a fast changing environment.


In the respondent’s view, open innovation is almost a mindset on how to use the

resources to achieve a predefined goal. The respondent further elaborated that the open



innovation is not just working within your capabilities but also working with other

organizations/Competitors and managing the process such as your customers and

suppliers. The respondent also stated that issues that could arise when working with

competitors to develop open innovation can be avoided by setting up target goals,

removing barriers and also in the selection of competitors.

According to the respondent, the Open innovation model can be applied across all the

industries and in any organization and the difference in this process could occur because

of time scales or legislation procedures like in the Aircraft Industry.

The respondent feels that the effectiveness of Open innovation can be measured by

determining the number of successful Open innovation projects a firm rolls out and also

from the returns the firm gets from the investment.

The respondents states that role of consultants in the future will mostly involve bringing

out the best practices on how to use the resources for OI and helping to find appropriate

partners.



5 DISCUSSION AND ANALYSIS

This chapter discusses the results from the interview and analyses them in the light of

the extant theory about open innovation. To put the discussion in perspective, it is

necessary to have an overview of the participants with respect to the maturity of their

implementation of open innovation.

STEEL and DAIRY have adopted the open innovation within the last five years

whereas all the other organisations have been practising it for a considerable time. ICT

has been practising it the longest i.e. for more than 10 years. Based on the number of

years that the participants have adopted it, they have been assigned to three stages as

depicted in

FIGURE 5-1: OI ADOPTION TIMELINE OF PARTICIPANTS

5.1 THE CONCEPT OF OPEN INNOVATION

di Benedetto (2010) has argued that there is currently no generally accepted definition

of the term open innovation. The opinion of the university also highlighted the lack of a

clear definition among practitioners. The findings from the interviews corroborated this

argument. However, a cross-case analysis of the various interviews identified certain

themes as shown in Figure 5-1. The themes identified were classified into internal and

external aspects.



FIGURE 5-2: THEMES IDENTIFIED FOR THE CONCEPT OF INNOVATION

The external aspects gave an insight into the motivations of the participants to adopt the

OI paradigm. Accessing external ideas or knowledge exploration (Lichtenthaler and

Lichtenthaler 2009) was found to be the primary motivation behind the adoption of OI.

This could point to the reason that the implementation of OI is skewed towards inbound

activities as revealed by some studies (Chesbrough and Crowther 2006; Enkel et al.

2009; Lichtenthaler 2009a; Lichtenthaler 2009b). However, this view of open

innovation as a knowledge exploration activity has subtle differences. Some participants

preferred to collaborate with partners to invite their contributions whereas some firms

relied on outsourcing aspects of R&D.

The firms which relied on outsourcing R&D were found to be in the initial stages of OI

adoption. This lends credence to the findings of Gassmann et al. (2010) who suggested

that the first step towards OI is outsourcing R&D to reduce costs and risks. The

motivation behind R&D outsourcing was found to be a response to the innovation

impediments suggested by Keupp and Gassman (2009) viz. lack of capability or access

to information and risk management. Also, reducing the time and cost of development

was found to be another motivation (Howells et al. 2008).



The primary motivation behind a mindset of collaboration in some firms was that it is

very difficult to cover all of the technologies required to deliver complex projects. This

corroborates the suggestion of Gassmann (2006) that technology convergence in certain

industries is the driving force behind the adoption of OI. It also highlights the effect of

turbulent industry environments on the predominant inbound activities of firms

(Tushman and O'Reilly III 2002).

The collaboration perspective on open innovation also evinced several differences

among the participants’ views. One participant viewed it as collaboration along the

supply chain. However, Chesbrough (2011) suggests that open innovation involves

more partners than just the traditional actors in the supply chain.

Among the internal aspects mentioned, generation of ideas within the company was

given relatively less importance. This suggests that the reliance on internal R&D, which

was the defining factor in the traditional vertically-integrated model of innovation, is

declining. However, respondents from BIOTECH and ICT noted that it is still very

important but it needs to be complemented by external ideas and other functions within

the firm. Also from an external perspective, building of internal knowledge capabilities

to enhance the viability of the organisation as a partner in collaborative ventures was

emphasised by ICT.

The other internal aspects that came up were interdepartmental communication and

building a culture which supports innovation. The interview with DEFENSE

highlighted the importance of team-building activities and office environment to foster

an atmosphere of innovation in the firm.

5.2 THE PROCESS OF OPEN INNOVATION

It was observed in the literature review that firms place more emphasis on inbound OI

than outbound OI. This was also found during the interviews as is evident in the earlier

section.



5.2.1 THE OUTSIDE-IN PROCESS

In order to understand the approaches taken, it is necessary to identify the sources most

commonly used by the participants. The most common sources used by the firms are

depicted in the figure shown below:-

FIGURE 5-3: MOST COMMONLY USED SOURCES

Most firms have shown a propensity to seek knowledge from universities as depicted in

Figure 5-3. This is in contrast to the findings of Laursen and Salter (2004) who revealed

that universities only hold a modest importance in the innovation activities of firms in

Europe. However, BIOTECH shows less linkage to universities. This is in line with the

study conducted by Chiaroni et al. (2009), which highlights the marginal role played by

universities in the bio-technology industry.

Customers and suppliers were found to be major sources of external information as

depicted in the Figure and as suggested by a majority of the literature (Bughin et al.

2008; Gassman 2006). The use of independent specialists (Bughin et al. 2008) was

found to be rare and was only done by firms in an advanced stage OI adoption.

Customers and suppliers were observed to be treated as partners in the innovation



process. This demonstrates the evolution of business models as suggested by

Chesbrough (2007).

Most firms used other companies as a source of technologies or ideas. This echoes the

findings of a survey conducted by ICT (2006) which revealed that 75% of about 750

CEO’s, who were interviewed, consider employees and other companies as the primary

sources of information. However, the motivations of the participants behind interacting

with companies differed slightly.

BIOTECH highlighted access to next-generation technologies for new products as a key

driver to interact with other companies. This could be due to the rise in the level of

innovation output in companies with small patent portfolios (Kleyn and Kitney 2007).

STEEL and ICT used external companies to address deficiencies in internal capabilities

or resources or to access technologies to reduce time and costs. This echoes the view of

Howells et al. (2008) who argued that reducing R&D costs and information access

could be the driving forces for OI adoption.

The consideration of collaborations with companies was also found to have differences

when the target firm was a competitor of the incumbent firm. STEEL collaborated more

on the process side to share benchmarking information etc. The motivation behind

collaborating on the process side was that collaborating on product technologies is more

sensitive, especially when firms compete in the same geographic region. This

reluctance to share sensitive information could be due to the threat of opportunistic

behaviour (Gulati and Singh 1998). Also, the respondent highlighted cases where

collaboration was by necessity rather than by intent. A situation where both companies

are acting as suppliers to a single organisation is one such example.

DEFENSE interacted with companies to obtain technologies to build products. The

reason for this could be the difficulties associated with developing products with long

timelines, which is a characteristic of the defence sector, and which makes updating

technology through technology insertion necessary (Kerr et al. 2008).

It is interesting to see the stage of the innovation process in which participants involve

other companies. All the participants except DAIRY involved other companies in the

initial stage of the innovation i.e. front-end of innovation when the ideas new ideas are

sourced. DAIRY involved other companies in the commercialisation stage in areas such



as branding etc. This highlights the role of inter-organisational networks in the

commercialisation of products resulting from innovation. Such networks have received

less attention than R&D networks in the academic literature. However, as argued by

Vanhaverbeke and Cloodt (2006), these networks are equally important for market

success and profitability of new technologies or products.

The stage of OI adoption (Figure 5-1) was also found to play a role in the scope of the

firms’ knowledge exploration activities. It could be inferred from this that the search

breadth (Laursen and Salter 2006) of firms broadens with the maturity of OI adoption.

5.2.1.1 APPROACHES FOR INBOUND OI

In the table given below, the frequency of the approaches used has been assigned a

weight. Using this approach it is simple to see which approaches are frequently used.

TABLE 5-1: INBOUND OI APPROACHES AND THEIR FREQUENCY

BIOTECH DAIRY STEEL ICT DEFENSE Total

Strategic Alliances 3 3 2 3 3 14

Tie-ups with Higher Education Institutions 1 3 3 3 3 13

Co-development 1 1 2 2 3 9

Online portals 1 1 1 3 3 9

Intermediaries (Knowledge brokers) 2 1 1 1 2 7

Industry Consortiums 2 1 2 3 2 10

Acquisitions 2 2 1 3 1 9

Focussed Scouting 3 3 2 3 3 14

Contributions from community 1 2 1 3 1 8

In-licensing 2 2 2 2 3 11

Total 18 19 17 26 24

It is important to note the distribution of the various organisational modes. Not all the

participants use all the organisational modes with the same frequency. The Figure 5-6

below shows the total frequency of inbound approaches by each individual firm:-



FIGURE 5-5: INBOUND OI APPROACHES BY FIRM

It is evident from the above figure that ICT and DEFENCE are ahead of the other

participants in terms of inbound activities. Thus, the maturity of a firm with regard to

open innovation implementation may play a part in its use of the various approaches.

The organisational modes and their frequency are compared in Figure 5-5.

FIGURE 5-6: INBOUND OI APPROACHES AND THEIR FREQUENCY

It is evident from the above figure that the most commonly used approaches are tie-ups

with universities, focussed scouting and strategic alliances.

5.2.1.1.1 FOCUSSED SCOUTING



A major finding from the data collection was the awareness of environmental scanning

processes in the participating firms. Almost all the participants had some sort of

environmental scanning process. However, the maturity of this process differed

according to the maturity of the firm in OI activities as shown in Figure 5-6.

FIGURE 5-7: EVOLUTION OF FOCUSSED SCOUTING IN FIRMS

As shown in Figure 5-7, the firms who had begun adopting the open innovation

paradigm recently like STEEL showed sporadic technology-scouting activities whereas

all other firms evinced mature and developed processes for technology-scouting.

In the initial stages, it was observed that firms tend to treat environmental scanning as

an add-on to the existing responsibilities of employees and the frequency is also

sporadic. However, after making the transition to an intermediate stage, there is a

restructuring to set up a dedicated team to handle innovation tasks which also include

technology-scouting.

Companies in the advanced stage had proper process to ensure the diffusion of the

information collected through environmental scanning. ICT, for instance, publishes an

annual report which contains information on the emerging technologies with projections

as far ahead as five to ten years.

In the literature review, the absorptive capacity of the firm was found to rely on

organisational structure as well internal capabilities. However, the findings of this study

suggest that the determinants of absorptive capacity depend on the nature of business of



the firm. In case of ICT, internal capabilities were found to be very important whereas

in case of DEFENSE they were found to be beneficial but not indispensable.

5.2.1.1.2 TIE-UPS WITH UNIVERSITIES

The linkage with universities among the participants was found to be of varying depth.

The approaches ranged from hiring PhD’s (STEEL) to forming consortiums comprising

universities (ICT). DAIRY seemed to be having an ongoing tie-up with universities in

the areas of farming best practices and innovation. This could possibly be because of its

emphasis on process innovation.

BIOTECH was found to be making the least use of universities in its inbound activities.

According to Kleyn and Kitney (2007), possible reasons could be one of the following:-

lack of funding for university research

pricing pressures from industry partners

disagreements on IP ownership

asymmetry of industry and university capabilities in partnering

lack of administrative support with excessive bureaucracy from universities

The hindrance in university-industry partnerships arising from the asymmetry of

industry and university capabilities in partnering has also been identified by Johnston et

al. (2010).

5.2.1.1.3 CONSORTIUMS

ICT and STEEL are heavily involved in consortiums comprising companies,

universities and specialist research organisations. ICT and STEEL also pointed out the

inability to cover a wide range of technologies as the driving force behind inbound open

innovation. So, consortiums could possibly help in projects that require the application

of a wide array of technologies.

A recent project in which STEEL was involved also included funding by the

Government. According to Levy and Samuels (1992), government funding is an



important motivation for firms to join consortia. As the steel industry is characterised by

high capital costs, forming such consortiums is also beneficial to the company from a

monetary perspective.

However, the consortiums which emerged during this study are all project-based i.e.

formed for a specific project. These projects were complex undertakings which required

application of a wide range of technologies. For instance, the project that ICT was

involved in required the use of technologies ranging from information management to

linguistics.

5.2.1.1.4 ACQUISITIONS

Acquisitions with innovation as a key driver emerged as a frequent approach. ICT was

the firm which most commonly employed acquisition. However, the percentage of

acquisitions wherein innovation was a key driver is not clear. However, this reliance on

acquisitions is in line with the sentiment which was expressed by the respondent - of

owning rights to technologies that are used within the company. This opinion was also

expressed in the interviews with consultants about attitudes of large firms.

5.2.1.1.5 CO-DEVELOPMENT

Co-development was found to be less common in BIOTECH and DAIRY than the other

companies. BIOTECH showed an interest in co-development only if the technology is

something special. Also, an intention of investing in the company was shown only if the

company is smaller in size.

From the above discussion, the following factors were found to be important in co-

development decisions:-

Importance of target technology

Size of target company

Necessitating Circumstances



Figure 5-4: Factors affecting approaches toward target companies

On the whole, some factors that affected the approaches employed by the participants

were identified which are shown in Figure 5-4. The approaches seem to have been

influenced by the size of the companies with whom they are interacting and the nature

of their business. The nature of their business is critical in terms of the threat of

competition. The importance of the target technology to the incumbent firm was also

observed to play a part as in the case of BIOTECH.

5.2.2 THE INSIDE-OUT PROCESS

The outbound activity of open innovation was used less frequently by all the

organisations. This is in line with the imbalance between inbound and outbound

activities revealed in the literature. The interviews with the consultants and the

university also revealed similar patterns. The main outbound activities identified among

the participants are shown in the Figure 5-7.

FIGURE 5-5: COMMON OUTBOUND ACTIVIES



Licensing, as expected, was found to be more common with firms and industries

characterised by high technology intensity. This corroborates the findings of Ferrary

(2011). However, the motivation behind this activity differed among the participants.

BIOTECH mainly indulged in licensing-out to commercialise its patents. However, this

decision was commercially driven and it only licensed those technologies which are not

being used within the organisation. So, importance of the technology to the incumbent

firm can be understood to be an important factor in decisions on the IP portfolio.

STEEL showed reluctance to license technologies to companies with whom it competed

in the same geographic region. In some situations though, such as when two firms are

acting as suppliers to a third company, licensing to competitors becomes necessary.

STEEL, however, showed a propensity to collaborate with companies with whom it

does not directly compete in the same geographic market. The main outgoing

knowledge in such cases was information about processes.

ICT was the only firm in the sample which shared its ideas or technologies with the

community. However, this could well be due to the emergence of open source software

as a powerful tool for collaboration. The main motivation behind the licensing-out and

community sharing for ICT was found to be to invite contributions from community.

This kind of model, however, could prove to be infeasible in other industries where

R&D involves more expenditure and is beyond the means of an individual or small

firm.

The last outbound activity was found in the case of DAIRY who supplied the by-

product of their manufacturing process as a raw material for another product.

Although, they made use of that by-product within the company, initially, they

stopped and supplied it to another company who possessed the expertise to manufacture

the second product. This kind of outbound activity is not uncommon in manufacturing

industries. There are some by-products of the iron and steel industry viz. foundry sand,

mill scale and slag which can be used in the cement industry. Following the approach of

DAIRY, who partnered with another organisation to utilize a by-product more

efficiently, is something which could be done in other industries.

Based on this discussion, the following factors were found to be important for outbound

activities of open innovation:-



Importance of technology to the incumbent firm

Perceived threat of competition

Expectation of reciprocation

Commercial Interest

FIGURE 5-6: FACTORS AFFECTING OUTBOUND OPEN INNOVATION

5.3 SUMMARY

This section compared and contrasted the motivations of participants to adopt open

innovation and their approaches. It also attempted to identify the factors affecting

collaboration between firms in both outbound and inbound open innovation.



6 CONCLUSION

This chapter discusses the conclusions and implications of the research. The

conclusions give an overview of the results of this exploratory study and the trends

identified in the open innovation activities of firms in the sample. The implications are

discussed from the point of view of innovation managers and innovation intermediaries.

Subsequently, limitations to this research and opportunities for future research are

discussed.

6.1 CONCLUSIONS

The aim of this study was to review the theory and practice of the approaches and

strategies of the firms which practise open innovation. In order to put the practices in

perspective, it was necessary to identify the influence of internal and external factors

and the innovation background of firms.

An extensive review of the extant literature about innovation was undertaken to

understand the innovation process. This helped to lay the foundations for understanding

the open innovation paradigm. This was followed by research on the motivating factors

for open innovation. To understand the open innovation paradigm, it was explored from

the perspectives of “content, context and process”. The context helped identify the

internal and external factors affecting the implementation of open innovation. The

process section dealt with the different OI activities of firms.

As a primary source of information, in all 7 interviews were conducted. Out of these,

five interviews were conducted with firms who are practitioners of open innovation.

The other interviews were conducted with other actors in the open innovation eco-

system viz. universities and consulting firms. This helped to understand the

implementation of open innovation from a neutral perspective and, thus, eliminate any

prejudice which might creep in the interviews with firms.

An attempt to explore the motivations of the firms behind the adoption of OI did not

reveal any factors which have not been discussed in the existing literature on the topic.

The firms in technology-intensive industries pointed to reducing R&D costs and access

to information as the primary motivating factor. Another factor, which was highlighted,

was access to next-generation technologies.



The motivations behind OI adoption were observed to be influenced more by the

industry characteristics than the internal attributes of the firm. Thus, OI adoption was

found to be more a response to the environment in the initial stages than a strategic

intent of the firm. However, it later evolved into a core strategy as can be seen in the

case of ICT.

The results regarding process pointed to an imbalance between the inbound and

outbound activities of firms. There were few common patterns in the approaches of the

firms which again could be because of the impact of the firm’s internal environment and

the industry environment in which it operates. Also, an important observation is that the

scope and depth of the participants’ open innovation activities varied with their maturity

with regard to the implementation of open innovation.

6.2 LIMITATIONS OF THE STUDY

The research work underlying this report is based on an exploratory, data-rich research

design employing a multiple case study methodology (Yin, 2003). One inherent

limitation when choosing this approach is that due to the limited number of cases

analysed, generalizations regarding the industry as a whole or even on company-type

level are difficult to make. The results only reflect the individual and subjective

perception of the chosen interviewee on the position of his company towards open

innovation.

6.3 OPPORTUNITIES FOR FURTHER RESEARCH

The findings of this study suggest that the approaches of companies vary according to

how long they have been practising the open innovation paradigm. It will be interesting

to conduct a quantitative study to test this hypothesis. Also, there has been relatively

less research done on outbound open innovation. The factors identified above which

were observed to affect decisions regarding outbound activity could be substantiated

with further research.



7 APPENDIX I

7.1 INTRODUCTION

In high-technology firms, to maintain a competitive edge, it is the responsibility of the

management to churn out new products and services based on continuous process of

technological innovation (Martin 1994). However, in today’s competitive marketplace and the

increasing use of the Internet, it is important for even companies not operating in high-

technology industries to continuously innovate (Clay 2011). Thus, innovation does not

necessarily mean changing the operating technology but also operational processes in some

industries. However, the fear of change is one of the primary hurdles in the process of

continuous innovation (STRATEGIC DIRECTION 2006). This project is going to explore the

various issues in management of change caused by innovation of various types in high-

technology firms. It will also suggest ways to implement and sustain that change.

7.2 SCOPE/RATIONALE OF THE PROJECT

Martin (1994) describes a simplified process of innovation with the help of the innovation chain

equation which depicted in the figure below:

FIGURE 7

Adapted from (Martin 1994)

The project will classify the different classes of innovation that are commonly observed in

technology-based industries. These could be Business Model innovation, Process Innovation,

adoption of new technology etc. The project will analyse the most common classes in the light

of the above model and various other models available in the literature. The degree of

integration of business/corporate strategy and technology strategy will be evaluated.

The project will describe how the final product in each innovation class may affect the

organisation i.e. what changes may have to be made. . In this section, the impact of the

innovation on the human aspect of the organisation will also be explored. Recommendations



will also be given about the manner in which the changes should be made. While making

recommendations, the innovation process will be viewed from a sustainable and long-term

perspective

These recommendations will differ based on the organisation as well as the industry

characteristics. So, a description of the various organisational factors that affect the innovation

chain along with a description of the industry-specific factors will be given. Also, an analysis

about how far these factors affect the innovation process and the management of change will be

done. This will help in drawing out industry-specific best practices and more generic best

practices.

To innovate successfully, an organisation will have to be equally competent at each stage of the

innovation chain. Achieving this competence requires change in various aspects of the

organisation. The project will describe the organisational changes required at each stage of the

innovation chain equation. Recommendations will be made for the best practices to be followed

by an organisation to be an effective innovator.

The focus of the project will be more on the organisational dimension of the innovation process

rather than the technical part. The importance of the role of various stakeholders will be

explored.

7.3 METHODOLOGY

For the first section, a questionnaire will be sent out to various companies about which classes

of innovation are most common. A collection of the most commonly observed will be used for

further study.

The second section will attempt to gather case studies for each class and analyse the case to

determine the manner in which the change was managed. The case studies will be live from the

industry or ones available through literature. Requests will be sent out to employees of

companies to describe the innovation process followed in their organisation. And analyses of

these live case studies will be done using a literature review. Recommendations will be given

according to the findings.

The third section will analyse all the cases and determine some generic best practices which

could be applied in any industry. The analysis will be done using solid empirical evidence and a

literature review.



This section will concentrate more on the changes required for an organisation to be an effective

innovator. This will be done using survey and then analysing the results of the surveys in the

light of available literature. Recommendations will be given on the basis of the analysis.

7.4 ASPECTS OF MBA SYLLABUS USED

Management Consulting

Management of Change

Strategic Management

Project Management

7.5 PROPOSED TABLE OF CONTENTS

1. Introduction

1.1. Background

1.2. Research Aims

1.3. Overview of methodology

2. Innovation in technology-based firms

2.1. Overview

2.2. Analysis of survey

2.3. Interaction of strategic goals

3. Management of resulting change

3.1. Analysis of case studies

3.2. Recommendations

4. Factors affecting Innovation

4.1. Industry factors

4.2. Organisational factors

4.3. Best Practices

5. Innovative Organisations

5.1. R&D Practices

5.2. Organisational Cultures



5.3. Organisational Structures

5.4. Impact on Employee Satisfaction

5.5. Recommendations

6. Conclusion

7. Appendices

8. References

9. Bibliography

7.6 PROJECT TIMELINE



8 APPENDIX II

8.1 QUESTIONNAIRE FOR UNIVERSITIES

I am conducting this interview on behalf of BIC Innovation. It is part of a study to

explore the approaches and best practices to Open Innovation. I assure you that the

contents of this interview will be treated as confidential. Although quotes might be

used, they will be anonymous and will not be attributed to you or your organisation.

Interviewee details

Name

Designation

Company

Interview date

Q1 Ask them their role in their organisation and their responsibilities.

.... so before I ask you specifically about Open Innovation I would like to ask you about

innovation more generally.

1) How important is innovation at X? So why do you say that,

2) How important vs. other priorities within the business? Why

3) Are there any specific innovation successes that you would highlight? Why

4) In your opinion, which companies in your industry do you regard as being

especially good at innovation? Why do you think they are good?

Now, I’d like to turn to Open Innovation



5) In your opinion, what exactly is open innovation? How would YOU define it?

Probe fully

6) Which businesses and organisations do you see as leading practitioners in Open

Innovation and why? (Consider – who are the top 5?)

7) How is OI currently used in X? Describe how it is organised (diagram), and the

approaches taken. (Probes: Solutions to problems, NPD, enhancements to

existing products etc.)

8) How frequently does X employ the following approaches?

Frequently Sometimes Never

Strategic Alliances 1

Tie-ups with Higher

Education

Institutions

1

Collaboration with

other companies

1

Online portals 1

Intermediaries

(Knowledge

brokers)

1

Industry

Consortiums

1

Acquisitions

Focussed Scouting 1

Contributions from

community

In-licensing



Out-licensing

9) How is the effectiveness of OI measured within the business?

10) How, in your opinion, has OI impacted your organisation? (Probe for each of

impact on turnover, profit, amount of new products/services launched,

employees, innovation culture, IP etc.)

11) So, has the way you use Open Innovation changed significantly from today

compared to, say, 3-5 years ago? What are the major differences? Why?

12) Thinking ahead say over the next 3-5 years, ideally, in what ways would you

like to fully utilise open innovation to ensure it impacts significantly on your

organisation?

13) How do you see X’s approach to OI evolving in the future? What sort of

approaches would you propose, (we understand this is not policy or strategy but

more a desire the needs developing)

8.2 INTERVIEW QUESTIONNAIRE FOR COMPANIES





Interviewee details

Name

Designation

Company

Interview date



1) Ask them their role in their organisation and their responsibilities.

.... so before I ask you specifically about Open Innovation I would like to ask you about

innovation more generally.

2) How important is innovation at X? So why do you say that,

3) How important vs. other priorities within the business? Why

4) Are there any specific innovation successes that you would highlight? Why



Now, I’d like to turn to Open Innovation

6) In your opinion, what exactly is open innovation? How would YOU define it?

Probe fully

7) Which businesses and organisations do you see as leading practitioners in Open

Innovation and why? (Consider – who are the top 5?)

8) How is OI currently used in X? Describe how it is organised (diagram), and the

approaches taken. (Probes: Solutions to problems, NPD, enhancements to

existing products etc.)

9) How frequently does X employ the following approaches?

Frequently Sometimes Never


Tie-ups with Higher

Education

Institutions

1

Collaboration with

other companies

1

Online portals 1

Intermediaries

(Knowledge

1



brokers)

Industry

Consortiums

1

Acquisitions 1

Focussed Scouting 1

Contributions from

community

In-licensing 1

Out-licensing 1

10) How is the effectiveness of OI measured within the business?

11) How, in your opinion, has OI impacted your organisation? (Probe for each of

impact on turnover, profit, amount of new products/services launched,

employees, innovation culture, IP etc.)

12) So, has the way you use Open Innovation changed significantly from today

compared to, say, 3-5 years ago? What are the major differences? Why?

13) Thinking ahead say over the next 3-5 years, ideally, in what ways would you

like to fully utilise open innovation to ensure it impacts significantly on your

organisation?

14) How do you see X’s approach to OI evolving in the future? What sort of



8.3 INTERVIEW QUESTIONNAIRE (CONSULTANCIES)





Interviewee details



Name

Designation

Company

Interview date

1) Could you provide me an overview about your roles and responsibilities in your

organisation?

2) In your opinion, how important do you think innovation is in today’s fast paced

world?



Now, I would like to turn to Open Innovation.

4) What exactly is Open Innovation, in your opinion? How would you define it?

5) Which companies do you regard as being leading practitioners of Open

Innovation? Why do say that? (Probes: Do companies inadvertently place more

emphasis on inbound OI than on outbound OI? Is it the idea-generation or the

idea-exploitation capability of these firms that makes them good? Is it because

of the culture? Organisation Structure? )

6) Would you say that the Open Innovation model can be applied across all

industries and in any organisation?

Probes:

If No, What aspects govern this decision?



If Yes, How do the approaches employed differ based on industry and

organisational attributes?

7) In your view, how should the effectiveness of OI be measured in an

organisation?

8) How do you envision the role of consultants evolve as OI matures over the

years?



9 APPENDIX III

9.1 INTERVIEW WITH STEEL

Roles and Responsibilities

My role is a new role and it has been in existence only for 6 months. Job title is Manager of new

technology and innovation. Role has 2 parts: Look for new technologies generated outside of

Tata steel and we can utilise for developing our products. Generating technology radar for the

number of people inside Tata steel mainly from universities and have a place to evaluate on

what to do with these technologies. Second part is to stimulate innovation across the company

and placing a more systematic way of putting innovation.

How important is innovation at X? So why do you say that,

Very important mainly because there would be ever only be one low cost steel producer and it

will be Tata. We would like to go forward with differential products and things like that. We

have something unique and different where you can invest your premium on and not rely on

volume. Over the last year, there has been a real increase in stress on that we need to be more

innovative from the top of the company.

How important vs. other priorities within the business? Why

Given the market conditions, the senior management attention is more on survival like

generating more revenues through increased sales. Having said that, just to give an example two

months ago , we had an innovative session where we presented some new ideas to chief

commercial and chief technology officers and they have committed that the these ideas should

be coming in. So, even in the current climate, there is lot of stress on innovation.

Are there any specific innovation successes that you would highlight? Why

The ‘SPECIFIC’ project at Tata steel and is a good example of OI. Tata steel with 30 different

companies like BASF and a wide range of universities have built a consortium to develop an

envelope which is basically an energy source using a large source of funds (£30 million over 5

years) coming from the UK government to get that centre off the ground.

In your opinion, which companies in your industry do you regard as being




TKS, Arcelo and Mittal are very good in releasing new products quickly and constantly

and I think they are not that innovative in producing products but may be they have an

innovative marketing strategy. The third company that is not that innovative at this

moment but are putting place the right culture and infrastructure is Plasco.

In your opinion, what exactly is open innovation? How would YOU define it?

It’s a willingness to share ideas and not struck in holding all the IP, and acknowledging

people out have ideas which you can make use of and not always have to innovate

everything on your own.

Which businesses and organisations do you see as leading practitioners in Open

Innovation and why?

How is OI currently used in X? Describe how it is organised.

It is used in an Ad hoc and infrequent manner at the moment. Most of the collaborations

we have are not OI’s as they are more traditional contracts with companies, sponsored

PHD’s from the universities. You would struggle to see OI concepts inside Tata steel at

the moment as we have just started.

What was the reason for Tata steel to adopt OI

Tata R and D has a large population of 600 researchers and if you look at the number of

technologies that these people need to look for, it is just 0.75 percent per person looking

on these technologies areas. In other words, with the wide range of technologies we

need to look for, we can’t do everything in house and this is a big driver from the

technology radar point of view for us to use.

What are the various collaborations inside Tata steel other than universities and

PhDs??

Yes, there has been a wide range of collaborations. The steel industry is always open to

collaboration in developing lots of projects through the European coal and steel funds.

These collaborations are basically on processes and not on products as this becomes

more sensitive.

What is the reason to collaborate only on process and not on products?



In terms of products, we cannot collaborate with companies inside the same geography.

Other thing is that the auto industry has always insisted on two suppliers on every

product and you are sometimes forced to license technologies to competitors. To give

you one more example, we are collaborating with a new company called Dizol which is

an Australian company and they are done with help from the Welsh government.

How frequently does your organisation employ the following approaches?

Frequentl

y

Sometimes Rarely Never


Tie-ups with higher education

institutions

1

Co-development 1

Online Portals 1

Intermediaries 1

Industry Consortiums 1

Acquisitions 1

Focussed Scouting 1

Community Sourcing

In-licensing 1

Out-licensing 1

How is the effectiveness of OI measured within the business?

No, not right now.

In your opinion, can you let me know how effectiveness of OI should be measure

inside Tata steel?



Initially, it needs to be measured on the number of projects termed as ‘OI’ and also by

the number of products that are developed through OI and reach the market.

How, in your opinion, has OI impacted your organisation? (Probe for each of

impact on turnover, profit, amount of new products/services launched, employees,

innovation culture, IP etc.)

In one area of the company where I described about this specific project, the impact is

huge. In terms of availability of people and money, OI has increased these resources

almost by 50%.

Thinking ahead say over the next 3-5 years, ideally, in what ways would you like to

fully utilise open innovation to ensure it impacts significantly on your

organisation?

Currently we have 7 sectors; I would expect the same in most of these market sectors.

How do you see X’s approach to OI evolving in the future? What sort of



We have to become more systematic in identifying opportunities i.e. funding from the

government and also in identifying partners to collaborate rather than react to other

people initiatives.

9.2 INTERVIEW WITH BIOTECH


Managing Director. Has overall responsibility for the site at Cardiff including Operations, Tech

Support, Finance, Insurance and regulatory affairs Reports to HQ at San Diego

Importance of Innovation

Extremely important...It is what gives us the competitive edge...

Importance versus other priorities



I would say it is one of our highest priorities because we are not the only person in the

market...And that is the way we can differentiate ourselves...is by providing the best and the

most up-to-date and being abreast of what is happening.

Specific Innovation Successes

Luminescent technology developed at Cardiff

It has generated several million in licenses and also, probably, significantly more in products for

the company.

Innovative companies

Kayagen

Roche Diagnostics

They seem to be good at generating new ideas and methods and getting them to market quickly

in a customer-friendly format.

About generation of ideas; most of the time the ideas that are developed are those which are

generated inside the company.

Definition of Open Innovation

You can look at it from two ways...It is either open outside of the company in which you share

and work with other people in those areas which is something I think we do not do. For me,

open innovation within the company is being very good at generating new ideas, very good at

discussing them, having the culture that generates that within the company.

Would you say that inter-departmental relations or proper integration of all the functions in

an organisation is also very important for innovation?

Yes, definitely; because although the R&D group is the main driver for things like that, it is not

only the R&D organisation that is involved in these things.

Leading practitioners of Open Innovation

That is a tough one. All the areas that I have worked in, in life science and bio-medical science

just tend to keep their ideas very much to themselves.

Organisation of Open Innovation



Yes it is used in our organisation because we are always looking not just for the big idea that is

going to make the multimillions but also for the small ideas that will work and will save a lot of

time, effort and money...new ways of doing things within the company as a whole. So, I think

people are very good at getting together, working together and thinking about those kind of

things...and we try very hard not draw lines between what is small which might not be important

and what we think they are going to like or make judgements on how good something is going

to be very early in its life.

Have you ever been in a situation where you had to go outside to find a solution to a

problem?

Yes

And new product development?

It is kind of the next generation of technologies, I think it is....you know we look at

companies..smaller companies who may have the sort of things that we would want to exploit.

If a smaller company has a technology that you would want to exploit, what approaches

would you generally employ?

Well...either to try and get access to that technology via license or, if it is a small company, to

try and invest in the company so that we can also have some use of that technology by that

route.

Which route do think is better?

I think the co-development is better. Because it is almost like you are working on something

together rather than taking something to use it the way you want to use it.

Approaches to Open Innovation

Frequently Sometime

s

Rarely Never



institutions

1



Co-development 1

Online Portals 1

Intermediaries 1


Acquisitions 1

Focussed Scouting 1

Community Sourcing

In-licensing 1

Out-licensing 1

Co-development: It has to be something really special in case of co-development

Licensing-out: Out-licensing if it is not used by the company

Innovation Intermediaries: If we have a specific area that we want to look at and the guys in our

team have not made any progress in trying to find, then we use knowledge brokers.

Focussed Scouting: The focussed scouting team is a small team of about 4 people. They look at

other technologies and companies that are out there and try to see whether those would have

value to the company and then how they could link to that company to have that technology.

Effectiveness of Open Innovation

The only way I can think of that is done is through keeping a tally on the number of new

products and processes that are generated in a year.

Is there any measure that considers the benefit of the new products and processes to the

company?

Yes they track that. They will also track how much money is made from particular pieces of

intellectual property.

Impact of Open Innovation

It has a very big impact on us.



I think the biggest impact on us is getting the next-generation technologies and how we set

about doing that.

What about the impact of employees? Is there any resistance?

Sometimes there is a small resistance because, I think, everybody prefers if everything is

invented in-house. But, I think people are always keen to exploit a new technology and enjoy

working with new things.

How has open innovation impacted the usage of patents which are not used internally by the

company?

Well, what we have done in the last two years is review our IP portfolio and make a conscious

decision to offer out to other people the ones that we are not using. But, I have to say that is

pretty financially driven. But it has benefited the company.

Change in usage of Open Innovation

Yes, I think it has. Because, I think, we have been very concerned about keeping all of our IP to

ourselves and not giving anybody else a chance to get associated with it in any way and I think

we have become more willing to share if it does not have a high value to us. If it has a high

value to us then we are still not interested in sharing.

Are there any major differences from a cultural perspective?

I don’t think....it is beginning to change but that is quite slow.

Future usage of Open Innovation

Continue what we are doing with our own intellectual property. And I think we would be better

if we were more open and talk to other groups and academic groups more than we do now. I

think probably because we have a US parent, we are probably quite concerned about protecting

our IP and I have to say, having worked for two US companies, they are much more concerned

about that than British companies are.

9.3 INTERVIEW WITH DAIRY


I will give a quick background of myself just so that you know that. I am a graduate in

Economics. I started working career with Sainsbury's in one of their management schemes

many years ago. And then I have worked for companies such as Kellogg’s, United Biscuits,



Dairy Quest and now Dairy. My role in Dairy...now I am the Commercial Director with primary

responsibility for the Cheese Business. Dairy as business is farmer-owned dairy co-operative.

Our turnover is approximately 550 million. The turnover of the cheese business is

approximately 225 million. We are mainly producers of Cheddar and we supply both retailed,

own label and branded ranges. And I head the commercial side so that is both the sales side and

the marketing side. And also linked into that is business development whether that is business in

terms of new business from customer base or innovation whether that is new products, new

markets or new routes to market etc.


Very important. We have a set ourselves a strategic goal that a fixed percentage of our time and

investment should be on innovation. Now, whether that innovation means an actual new

finished product or innovation in process to improve existing products or whether that is pure

efficiency or quality. We have got guidelines in our strategic numbers to do that. Clearly, if we

want to grow both organically and through acquisition innovation is the key part within that as

well.

Importance versus other priorities

For us innovation covers anything that can be changed. It is not just product innovation so it

could be management process...it could be the structure of the business...how we structure the

teams...innovation for us is anything that can be changed. So, for us it is massively important

because we are a relatively new business from a cheese business point of view...we are only

created in 2006. But also from the world we operate in, the environment whether it is innovation

in how you communicate with consumers, social media etc. that changes your marketing plan

etc. So, for us innovation is very high in the agenda of the business.

Why do you think managing intellectual property is that important?

Because of the nature of the market that I am in it is not necessarily new...it does not have to be

new...it is just about better...it is being better and up-to-date rather than new so that is why I

would scale that one down. If I was in IT, that would be 5 for me. I am a food manufacturer in

dairy where dairy is in 99.5% of homes; it is not necessarily the new intellectual property for us.


I mean the latest project or brand that we just launched is a brand called dairy maniacs that is a

convenient child-facing proposition. And what we did was we took the best bits from a number

of our competitors and combined that into one proposition linked it with a brand license



working with Dreamworks, and we got 5 of the top 6 UK retailers to list it from launch. So, that

showed the combined proposition was very strong to get that level of support from the retailers

at launch.


I think we are in dairy..I think most people would hold Arla as the best large scale

company...and then underneath that there are numerous very small fleet of food businesses that

have one or two ideas and work it that way but the biggest one dairy that most people would

hold is Arla. In food, total, I would include companies such as Noble foods, the owners of

Happy Eggs,...so there is a completely innovative product category there...they would come to

mind. Companies such as Heinz are, again, well established..constantly trying things...somehow

seem to deliver something new every couple of years...there is always something they have

done...so cannot hold them up....


I do not know...I was going to ask you that...Your definition could be different from mine...

We are very clear...One of our strategic drivers is success through partnership because we

acknowledge that we cannot be the best at everything...so in our mind we have a clear plan to go

and work with people who can add value...and it is a joint partnership rather than just going and

asking someone just to be a supplier.

So a collaborative approach is generally followed in Dairy?

Yes very much...Yes very much so...We are very clear...We have changed our supplier base

over the last three years and the people we are now working with are seen as partners rather than

suppliers..so we have actively changed that base...people we work with.

You mentioned that Dairy concentrates equally on product and process innovation. So is there

any other situation in which you used open innovation?

An example of that would be our partnership with a company called VOLAC. They are

specialists in whey products, which is obviously a by-product of making cheese. We used to run

our own ingredient x whey business. We actually stopped that and partnered with VOLAC who

have the expertise to do that. So, we have a complete supply chain and a transparent partnership.

So, we provide them the raw material and they have the expertise. And that has benefitted both

companies.

And must have reduced the time-to-market of the product as well?



Yes. It is a transparent supply chain. It guarantees products all the way through and it works for

both the partners. So, it is a completely collaborative process all the way through the supply

chain which brings us a whole series of benefits.


Frequentl

y




institutions

1

Co-development 1

Online Portals 1

Intermediaries 1


Acquisitions 1

Focussed Scouting 1

Community Sourcing 1

In-licensing 1

Out-licensing 1

Tie-ups with HEI's: We do have a thing called the 'FirstMilk Academy' which is a membership

of farmers and we do have tie-ups with a couple of agricultural colleges..so that is an ongoing

tie-up on the farm side of best practice and innovation.

Innovation Intermediaries: We have used innovation intermediaries on the last two major

brandings...we have brought people from outside to facilitate so the frequency is variable but we

do use them on key projects.

Acquisition: Acquisition is one of the strategic drivers...our most recent acquisition happened on

the 1st of June...and innovation was one of the key factors in the choice of acquisition.



Focussed Scouting: In the past, we have had that as an add-on to people's roles...so we created

an innovation team but that has been an add-on too. We are currently restructuring and we

would look to create a permanent innovation team. And their sole purpose is research and

development, whatever that is, product or process...so that will become a permanent role. But,

that will happen within the next three months.


Outside the standards of business KPI's, in terms of growth, a diverse product base etc. we have

not measured it. Because we are still a young company, there is a lot of growth coming through.

I am sure if I was Heinz or Unilever, I would be measuring it differently but at this stage there is

no need for us to do that.


It has had a massive impact in the last eighteen months, particularly that innovation culture. We

have clearly had to change the culture of the business. The focus and the pace of the teams

which is from the top to the bottom. So, from a pure culture and structure point of view we have

changed most of our business. And we have been very clear of the business share of what the

core drivers are and innovation would be one of those key drivers.

So, while making this change, did you face any people issues?

Yes. Because there will always be a percentage of people who want to just carry on doing what

they are doing. They can be addressed mainly by communication, in terms of making people

understand what you are doing and why you are doing it. But clearly it also impacts people's

roles because to create innovation you need to restructure to get the right capabilities in. so,

there's clearly going to be some structural changes that not everyone is always going to buy into.


We have been only doing it for 18 months. So, we are still on that wave of energy and growth.

So, at the moment there is more opportunity than there is ...


I think as we carry on growing there will be more resources put on as a permanent role rather

than as a part-time role. That will be the most obvious change. And then the challenge for us is

to keep a full roadmap of ideas coming. That would be the two biggest changes that we need to

be seeing.



9.4 INTERVIEW WITH DEFENCE


I am the senior program manager at General dynamics responsible for EDGE innovation centre.

EDGE is a concept facility and process by with which we try to engage with new and emerging

technologies from non traditional defence companies to work with our normal defence supply

chain.

Can you please elaborate on non traditional defence companies?

General Dynamics is a very large company and has established route into the market into the

defence ministry. We know who our customers are and also on how to work with them. Lots of

innovators are small and medium companies don’t know have that expertise and also on how to

put forth these new technologies to a customer. We actually target these companies and we

work with these companies and help them in bringing their products to the customers.

How important is innovation at X?

Very important. We have more than one current activity coming on innovation. Edge I manage

is about how to access the technologies present outside and we also have our own

Activity on how we innovate and collaborate among teams and working groups, looking at

replenishing our meeting rooms.

What exactly while designing space for the conference rooms?

More shared media, electronic white boarding, networked areas and taking people outside of

their cubicles to actually share ideas and innovate in an actual innovation space.

How important vs. other priorities within the business? Why

Totally, apart from the Highest priority of generate incomes. We have got innovation more

internally in our team behaviours; we have active learning team debates and offsite workshops

to asses our own behaviours on how we work in a team.

Are there any specific innovation successes that you would highlight? Why

Numerous, all sorts of things. For example, we have working with a company called Rolatube

and they have a nylon material which rolls up a like a cotton reel into something that weighs

less than 3 Kg. This replaces an antenna system that weighs 30Kg.

Also, we are working with a company that produces waterproof papers used for laser printers..



They might not be technological advancements but they make our end-user's life so much

easier.

In your opinion, which companies in your industry do you regard as being especially good

at innovation? Why do you think they are good?

The companies mentioned above are good in innovation because they are different, they are not

necessarily technology advanced but make our end users life very effective i.e. military. By the

way, neither of these products can be bought directly from the company but only from suppliers.

Also, Kletik is good at exploiting innovation and even Boeing and BBN.

Do these organizations follow an OI process?

No, basically they follow a closed innovation process.

In your opinion, what exactly is open innovation? How would YOU define it?

General Dynamics is a slice system integrator. We have very few products that on our own, but

we put SPLC products together and sell our own. We take somebody else’s radio or antenna and

then make a product and sell it. This is almost like using somebody’s idea out there to

manufacture our own products.

Which businesses and organisations do you see as leading practitioners in Open Innovation and

why?

That is a tough one. All the areas that I have worked in, in life science and bio-medical science

just tend to keep their ideas very much to themselves.

How is OI currently used in X? Describe how it is organised.

In the EDGE, the team speaks to lots of SME’s. We have a website out there that we point out.

We speak to the Welsh assembly government and lots of innovation specialists so that they also

tell the innovators that they know regarding EDGE’s existence. To be honest, the way in which

we are doing are 2 to 3 per week and this keeps us busy. We work at the product level and not at

the component level.

Do you have any process to filter out ideas?

Yes, the process is informal and people contact us and we reply back on explaining on how we

look onto new technologies, novel solutions for our current problems. There problems have

always been the same like reduce the reliance of power and to improve the bandwidth of



receiving information. If we think that they have something to say, then we invite them for a

more technical discussion.

How important is to know General Dynamics products while proposing ideas?

I think it would be good but really not essential.

How frequently does your organisation employ the following approaches?

Frequentl

y




institutions

1

Co-development 1

Online Portals 1

Intermediaries 1


Acquisitions 1

Focussed Scouting 1

Community Sourcing

In-licensing 1

Out-licensing 1

How is the effectiveness of OI measured within the business?

No. I don’t think there is one.

How, in your opinion, has OI impacted your organisation? (Probe for each of impact on

turnover, profit, amount of new products/services launched, employees, innovation culture, IP

etc.)



The EDGE innovation network is considered to be very important by the TOP Management at

General Dynamics as it is not only a revenue generator but also incredible good PR as you can

demonstrate that you are seeking new and best technologies which you will supply to the

customer

Thinking ahead say over the next 3-5 years, ideally, in what ways would you like to fully

utilise open innovation to ensure it impacts significantly on your organisation?

I would like OI to spread across all parts of the business. At the moment, it is done with specific

regions but the other departments can also be benefited from OI.

How do you see X’s approach to OI evolving in the future? What sort of approaches

would you propose, (we understand this is not policy or strategy but more a desire the

needs developing)

It will become more expanded. I think we would use these ideas for our IRAD programs like

collaborative IR’s and not everything internally.

9.5 INTERVIEW WITH ICT


Right now, I am a program manager. So I run an efficiency program for public sector clients.

Over the years, I have had a variety of responsibilities including running a couple of innovation

centres and doing some what we called pre-ebo work which is sort of very early pipeline

innovation pipeline work. Testing out new ideas.

So, testing you mean screening and evaluation of new ideas which come in as well?

No, we are like a mini-incubator. So, it is taking an idea that has already been selected and

beginning to do market testing of it. So, is there a real market for this new sort of services?


Innovation is pretty much number one priority I think. It always has been in IBM. There is

recognition that there cannot be any growth without innovation. That is why we invest so

heavily in research and development.

Is it a good thing or a bad one?

I would not say it is necessarily good or bad. It is about the over- bureaucratic in IBM as far as

almost anything we do. We invest a lot in IP, patent lawyers etc. to make sure that everything is



now down. And sometimes I think it holds us back, we are trying to embrace open innovation

and that is jarring against the culture that says we want to own the patents & IP for everything

that we think of.


I just feel that the most recent one is Watson. I think it is special for a number of reasons. It is a

mode of innovation that only a company like IBM could come up with and I think it has such

far-reaching effects for the future of information management and business innovation in

general.

I don’t know if you remember a few years IBM developed a computer to beat Gary Kasparov at

chess called Deep Blue. Well, recently we developed a supercomputer and a whole bunch of

text analytics and artificial intelligence style tools and put them together in a computer called

WATSON. And it played two world champions in America in a game called Jeopardy which is

a kind of general knowledge quiz but where you have to say what the answer is to a question

and as you say what the question is I give you the answer. So, it involves an awful lot of kind of

nuances of language that, typically, computers have not been great at. So, Jeopardy, we spent

more than two years in putting it together and Jeopardy beats the world champions unaided. So,

there was no human involvement. And that is now being turned into practical applications for

things like medical diagnostics.


I think Apple are...they do stand out...I think it is a particular type of innovation for me...I think

they are very much sort of design innovation,...they are clearly superior to anyone else pretty

much in the industry...understanding usability and customer needs and making things

easy...make people use IT which is generally barrier to entry for most people because they

cannot get to grips with the usability...pretty much Apple has ever done has been intuitive.


For me, open innovation is much more collaborative, in so far as rather than trying to protect

your ideas you put your ideas out in the community, whatever the community might be...social

networks...in order for people to build on it and accepting the notion that we are more likely to

drive great ideas forward the more people will have a chance to contribute to those ideas. So,

you do the crowd sort of stuff rather than the metaphor of one hardworking scientist locked in

his laboratory.

Organisation of Open Innovation



I don’t think it is organised under any kind of strict ways...I think what has happened is that

over the last 5 to 10 years we have begun to involve more and more partners in our innovation

and IBM research. So, when we look at something like eradicating ... flu. If we had gone back

10 years ago and IBM had decided to take that on as a research challenge, they would have

recruited the talent in to try to address it whereas now what we said is "well we understand

computational biology...we understand the other aspects of what we think might be necessary in

understanding the disease and eradicating it" and pulled together a consortium to work on the

project. At IBM, it is very much about the recognition that we cannot address the grand

challenges on our own and we need to bring in usually several partners to do so. We are

beginning to put more and more of our IP, certainly the software IP, into open source.

IBM has released some of their patents in the public domain. But have you used community

sourcing for projects in IBM? The consortium that we just talked about, whom did it comprises?

They are usually comprised of universities and companies and some specialist research

organisations.

Has IBM ever used community sourcing through open source?

Well, we do it. The way we address it is through something called Jams. Jams started inside

IBM and effectively it is a platform for mass collaboration for more than 60,000 IBM'ers. We

used the Jam platform to address a number of business issues internally. But, then in the last 4-5

years, we have had public Jam's to generate ideas around a very wide range of topics from IT

security threats to, very recently, saving the planet. There has been an innovation Jam for the

automotive sector and probably others I am not aware of.

So, this Idea Jam concept was expanded to include people outside IBM as well?

Yes. Basically, our customers and then any other third party who we believe would have a

valuable input in whatever the topic was. So, the IT security one was chaired by NATO and

then involved countries around the world and security specialists.

As an interesting point, I would like to know how useful this third-party involvement was?

Incredibly useful, yes. They bring a very different perspective and set of expertise so it stops us

being insular in our thinking.

How are the participants selected?

I don’t think we are very systematic about it. I think it is more a case of talking to this kind of

obvious candidates initially and the it kind of grows organically...it is kind of "who else do you



who you think could make a valuable contribution to this"...Once you have has a few meetings

and everybody has come up with their sort of 10 favourite organisations or individuals that are

subject matter experts...the ...kind of picks themselves.

We did do some broad advertising to our clients saying "we are doing this...would you like to

join"...But it is not closed in any way although we would target the people who we believe to be

leaders and can make big contributions, we will also have general awareness and say anyone

who wanted to register and participate in the Jam is welcome to.


Frequentl

y




institutions

1

Co-development 1

Online Portals 1

Intermediaries 1


Acquisitions 1

Focussed Scouting 1

Community Sourcing 1

In-licensing 1

Out-licensing 1

Technology outlook is a program that runs on a twelve month cycle. It basically looks at weak

signals as to what emerging technologies there might be and what their impact is likely to be on

different business models. Every year we publish an internal only report...technology



outlook...which says what things are going to happen in the next 5-15 years and therefore where

should we be placing our bets in terms of focussing our research and looking for acquisitions?

We tend to own the things that we use. However, we do license technology

We have acquired nearly 200 companies in the last few years


I don’t know, to be honest. I know how we measured traditional innovation which based on

patent registration and the amount of revenue that we derive from those patents but obviously

that would not apply to open innovation. So, I do not know whether we have developed

anything to do it.


I think it has made our culture more collaborative by necessity. IBM research used to be more

insular but now it is very much outward-focussed, partnering, working together. In some ways,

it has made it a bit smaller I guess...we changed the mindset from "if we want to do something

we want to hire all of our researchers ourselves" to "we just work with research partners".

Obviously, we still need a core people that have some capabilities and make sure we are adding

value to the equation.

In terms of the benefits to the organisation?

I think it has been very positive for the brand. It shows that we can play nice with others, if you

know what I mean. It means we are not this big dominant giant that wants to stomp on people

and we can actually collaborate, share...and also I think some of the grand challenges that have

been chosen as topics actually help the company's image as a much more socially responsible

organisation...because there tend to be things that do not necessarily have a direct, straight-line

benefit to our bottom-line or to any kind of products and services that we sell...one of our values

is "innovation that matters for the world"...and a lot of what we have been doing with open

innovation has been true to that value.


Yes. It is in the last 5 years that it has changed dramatically. Because it is a focussed program

now...because it is a stated intent and a core strategy of IBM to drive open innovation to address

some of the world's 'Grand Challenges' through collaborative partnerships.

So, it has become a core activity now than 5 years ago?



Yes. And We have a formal methodology as well for some of our clients...its called innovation

discovery...it basically takes whatever their greatest challenges, identifies which partners around

the world we think could bring the best value to looking at how to solve that, pull them all

together...runs through fairly traditional collaborative innovation activities and hopefully come

up with solutions. That has been in place for about three years, I think.


The main way we use it is to drive our innovation agenda. Our innovation agenda is very

clear...it is about innovation that matters for the world and our company...so it is hopefully

driving our CSR agenda at the same time... and driving shareholder value.

Evolution of Open Innovation

I think we are relatively sophisticated already...with the things we do around in the jams...I think

there is probably likely to be more, kind of, portal-based initiatives...we have a kind of

software-based initiative now where with several other companies we have agreed to share IP...I

think that might evolve into us helping to facilitate particular industry verticals to do

likewise...like the pharmaceutical industry would be an obvious candidate.



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