Networks For Innovation Principal Attributes For Their Formation And Optimization

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The importance of Open inovation Network management. Study amongst Brazilian companies.

The importance of Open inovation Network management. Study amongst Brazilian companies.

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  • 1. Gestão da Inovação biblioteca Networks for innovation: Principal attributes for their formation and optimization This paper offers a framework for optimizing a companies’ innovation network architecture and the composition of individual networks, so to maximize value creation for its stakeholders. It is the result of a research project conducted by and for Companhia Paulista de Força e Luz in Brazil in 2009. Caspar Bart van Rijnbach, Suzana Leonardi, Gustavo de Boer e Marcelo Corsini . INTRoduCTIoN characteristics of the network’s participants. We will show in this article how Brazilian companies With open innovation concept becoming more in general have not yet implemented ample common, Brazilian companies, encouraged by innovation network management and argue for the governmental laws and tax benefits, are focusing implementation of such framework to be applied increasingly on the creation and maintenance of not only in Brazil, but also in other countries. external networks for innovation [1]. Much has been written about innovation networks and their management. Most of these studies though focus 2. INNovaTIoN NeTwoRkS on managing and measuring the performance of either internal knowledge networks, social Traditionally, Research and Development at large networks and formal alliances [2],[3],[4],[5]. organizations have been handled internally. Large Some look at how management of external R&D organizations were seen as important assets networks differs from the more traditional way to their companies and focused on discovering, of managing strategic alliances, where others developing and commercializing technologies search to measure the effectiveness of specific and products internally. This type of R&D is called networks. Little has been written, however, “closed innovation”[6]. about the organization of innovation networks and partnerships in an integrated and strategic However, the complexity of current Research, perspective. A need exists to link the different Development and Innovation activities, ever types of networks to organizational strategic goals increasing cost of these activities, more and define methodologies to optimize network sophisticated customer demands, shorter product composition and architecture. It requires a portfolio life cycles, have raised the gap between the need view of networks and its compositions. for innovation and what companies can deliver internally [7],[8],[9]. The goal of this research is to define the principal attributes that impact the formation and This situation has stimulated companies to create optimization of innovation networks, based on the innovation models based on collaboration with networks objectives and the combination of the external sources, such as universities, clients, © TerraForum Consultores 
  • 2. Gestão da Inovação Networks for innovation: Principal attributes for their formation and optimization biblioteca www.terraforum.com.br " This situation has stimulated companies to create innovation models based on collaboration with external sources. companies from other sectors, or even competitors, searching to improve their innovative capacity and performance. This new framework is being referred to as “Open Innovation” [7]. External collaboration can be used in different parts of the innovative process, from the generation of ideas through the development of solutions and commercialization of products and technologies, as shown in the following model. Figure 1 Framework for Open Innovation Source: adapted from CHESBROUGH, 2003 [10]. The definition of the type of relationship and its focus should be determined by strategic innovation objectives. Five main business objectives are common in the development of partner networks for technological collaboration, as shown in the table 1 [11]. © TerraForum Consultores 2
  • 3. Gestão da Inovação Networks for innovation: Principal attributes for their formation and optimization biblioteca www.terraforum.com.br Table 1 Objectives for external collaboration in Research, Development and Innovation Objectives Business Requirement Increase profitability Lower cost Shorten time to market Incorporate already-developed component Enhance innovation capability Increase the number and variety of front-end technologies Create greater flexibility in R&D Share risks with partners Expand market access Broaden the pathways to market for products and services Source: adapted from Chesbrough e Schwartz (2007) [11]. Combining the objectives for external collaboration and the type of competence the company is searching for, helps determine which type of partner should be searched for, [11],[12],[13], such as shown in table 2. Table 2 R&D stages and type of partners Stage of research Description of activity and output Entities and skill requirements Research for the pursuit of Universities (scientific expertise Pure science knowledge. needed) Outputs usually in scientific journals and possibly patents. Basic research Similar outputs as pure science Corporate laboratory (scientific approach, but conducted with expertise needed) specific long-term corporate objectives in mind Applied research Medium-term research on known Corporate laboratory (less technologies; involves transforming scientific, more engineering or localizing existing product expertise needed) knowledge, or reapplying known research results to other areas Exploratory development Development and prototyping of Corporate product development design and other systems departments (product development expertise) Advanced development Addressing of manufacturing Manufacturers (manufacturing and considerations for products product development expertise) Source: adapted from Koh, Koh e Tshang (2005) [13]. © TerraForum Consultores 
  • 4. Gestão da Inovação Networks for innovation: Principal attributes for their formation and optimization biblioteca www.terraforum.com.br " There is a positive relationship between high innovative companies and the existence of a partnership portfolio which contains different types of partners. Although companies depend more and more on There is also a need to look at the interactions and partnerships for collaboration to achieve their relationships between the members of the network, objectives, management of partners is very each of them offering distinct and complementary challenging, demonstrated by the fact that around capabilities that work together to create value and 50% of alliances have failed to meet expectations synergies [5]. [5]. There is a positive relationship between high The success of a collaborative alliance starts with innovative companies and the existence of a its formation [4]. According to this view, some partnership portfolio which contains different types critical factors and strategies need to be present to of partners. The portfolio complexity can allow a form a successful partnership, as shown: firm to broaden their technological opportunities and information advantages [14]. • Compatible partners • Clear terms for collaboration The list below shows the main challenges to • Appropriate incentives for all parts to behave manage a collaboration network with a partner accordingly to expectations portfolio vision [5]. • Adequate governance procedures • Favourable economic conditions • Understand the collaborative and competitive dynamics between partners Although valid, this approach aims at the • Monitor and understand changes in the business attainment of specific objectives and the allocation environment that might change those dynamics of resources and structures based on the strategic • Establish different strategies for each type of importance of dyadic relationship between collaboration within the network partners. • Understand in which manner the selection of each partner and its position within the network However, typically, a company will be involved might effect both the individual relationship in various partnerships and this requires another as well as the performance as a whole of the approach, more focused on the composition of network the network and the interrelationship between its members. The company should be searching for Hence, the portfolio vision allows minimizing and the optimized combination of partners with respect diversification of risks and leverages the synergies to its overall objectives. This requires a portfolio between partners and measuring its performance view of partnerships. and results as a whole, reflecting the potential future needs for partners [15]. © TerraForum Consultores 
  • 5. Gestão da Inovação Networks for innovation: Principal attributes for their formation and optimization biblioteca www.terraforum.com.br . a ModeL FoR INNovaTIoN NeTwoRk MaNaGeMeNT The knowledge of methods used for the effective management of specific inter-organizational networks is still scarce [12],[15],[16]. In this study, we search to integrate the various views of partnership management into one more integrated methodology. As demonstrated, the management of networks involves different processes, related between them, that happen in different moments and require different measures. • Partnership portfolio management, looking at the ideal composition of the network and the interrelationship between partners [14],[15]. • Individual partner management with the objective of building the ideal partnership portfolio through the decision of improve the capabilities of actual partners, search and attraction of new partners or even partnership termination [17]. • The choice and evaluation of individual partners in specific projects [2],[3]. The following figure shows how the relationship between these different processes composes our view of innovation network management. Figure 2 Innovation network management model Source: Authors © TerraForum Consultores 
  • 6. Gestão da Inovação Networks for innovation: Principal attributes for their formation and optimization biblioteca www.terraforum.com.br We argue here that the external collaboration Partner engagement and selection focuses on model in P, D &I should be primarily lead by the finding the adequate partner for specific projects strategic objectives for the network, derived from or activities, which demand different type of organizational strategic objectives and the specific innovative capacities. The aspects that need to be objectives for external collaboration (see table taken into consideration when choosing partners 1). This should determine the preferred portfolio for specific projects are related to complementary of partners, through the definition of the following capacities the partner can offer, such as technical aspects: know-how, financial resources and experienced management. During and at the end of project • For which part of the innovation process to find execution and activities, partners should be partners evaluated on all the aspects discussed within the • Which type of partners would be ideal to obtain model. The compilation of evaluations is then the companies objectives within the specific part again an input to the portfolio, so that the company of the innovation process can take actions to improve its overall innovation • Which combination of partners and commercial network management. type of relationships will optimize knowledge exchange and results The innovation network management framework Based on the evaluation of the ideal portfolio of discussed above, served as the basis for a partners versus the actual portfolio in place at the case study amongst Brazilian based companies organization, the organization should generate an from various sectors with innovation partnership action plan for the individual partners as well as networks. Research was conducted through in the network as a whole (network management of depth interviews with managers responsible for the partners in innovation). innovation networks studied. Individual management of partners should lead to improving the partners’ capabilities to deliver results and optimize its position within the network. . ReSuLTS oF BRazILIaN Its focus is on actions with individual partners, BeNChMaRk STudy to improve specific aspects of their innovative capabilities, related to knowledge, resources, Sample profile management, culture, team composition and infra- structure. It can include the request for corrective Our study involved 12 companies, of which 3 actions as well as offering of support by the were Brazilian companies and 9 Brazilian based organization through investments or delivering of foreign multinationals. All of them where large services and infra-structure. It also includes actions companies and they invested between 1,5 % and to improve portfolio performance through attraction 6,5% of their revenue in R, D & I. Various sectors and selection of new partners and revision or were represented in the research, such as the termination of relationships with existing partners. energy, automotive, computer, chemical, electronic consumer goods and telecommunications These choices should be made, not only based on sectors. Although our selection process focused technical competencies, but also on managerial on companies with research facilities and large capabilities, cultural aspects, values and networks, very few companies in Brazil have a contribution to the innovation network, which are long history of extensive and intensive external just as important as technological capabilities. collaboration. All companies showed a tendency towards more investment in research and more intensive external collaboration along the various © TerraForum Consultores 
  • 7. Gestão da Inovação Networks for innovation: Principal attributes for their formation and optimization biblioteca www.terraforum.com.br phases of the innovation process, even outside Partnership Portfolio Management Brazil within the near future. Our findings about the use of the diverse methods of partnership management showed us that Network objectives and focus partnerships management, as expected, is mainly In relationship with the objectives for open focused on the dyadic approach. innovation, one can clearly differentiate between Brazilian companies and multinationals. While Only one of the companies showed a more Brazilian companies objectives are bolder, structured approach for network management, using orientated to the expansion of innovative capacity, a portfolio view to improve the overall composition of the objectives of foreign multinationals are the network and the knowledge exchange between often related to improvement of profitability and partners. Although some were located in technology reduction of cost, with limitation to the use of parks, the focus for learning and knowledge resources for more radical innovation. exchange was mainly between the leader and the individual partners. Related to this, the study clearly identified that the focus of multinationals is more towards applied As the firms in this study do not use the partnership research and development, while Brazilian parties portfolio approach, they miss the opportunity to also search for partnerships for Basic Research. take advantage of possible synergies among their partners and to draw on knowledge and capabilities created through these interactions. Network partnership types Amongst the companies researched, the more Individual Partner Management frequently used partnership is that with universities. A few companies used standard procedures to According to the interviewees, this focus on search their partners but most based their search university partnerships is for a large part the result and selection on recommendations of specialists of governmental tax incentives which stimulate the or partner interaction before the selection (visits, use of universities for research activities. However, presentations, events). the use of universities as a partner in P&D&I has not always resulted in the expected results. Issues The mechanisms for the attraction of partners are that where mentioned by interviewees hampering incipient. The main mechanisms used are sharing results where market timing, bureaucracy, of laboratories and equipment, the investment in negotiation of intellectual property and relationship physical structures and partner equipment. Sharing problems. Also, using universities for development, of patent titles is only used in a few cases. Some instead of purely for research can be seen as companies use awards for partners with the best somehow problematic. projects. We also observed that the more comprehensive We only encountered one case of a company that the innovation collaboration objectives, the larger consistently utilised structured mechanisms to the diversity in partners found in the companies develop its partners, not only technically, but also in network. Companies focused on advanced management. development and commercialization search various types of partners, such as, suppliers, producers No formal mechanisms where stated to terminate and clients. Companies with collaboration partner relationship. across the whole innovation value chain, search for a variety of partners, from companies with specific knowledge to partners for licensing and commercialization of technology and products. © TerraForum Consultores 
  • 8. Gestão da Inovação Networks for innovation: Principal attributes for their formation and optimization biblioteca www.terraforum.com.br Partners Engagement and Evaluation ReFeReNCeS aNd NoTeS The major part of the interviewees utilized the technical capability as the criteria for choice of 1. ARAUJO, A. L. L.(2008) How do Institutions partners in specific projects. This choice is made shape the formation of technological mainly by specialist recommendations. cooperation? Evidence from Brazil. CORE Centre for Organizational Renewal and Evolution Only one of the companies interviewed showed Working Paper Series. University of Ärhus. the utilization of an elaborated methodology Denmark. to choose partners for specific projects based on a wider range of criteria , such as adequate 2. GULATI, R.(1998) Alliances and networks. intellectual property policies, execution capacity, Strategic Management Journal, v.. 19, p. 293– technical reputation, collaboration culture, activities 317. developed with other partners, project history and 3. PARKHE, A.(1993) Strategic alliance the construction of long term partnerships. structuring: a game theoretic and transaction cost examination of interfirm cooperation. The In relation to the evaluation of partners the major Academy of Management Journal, v. 36, n. 4, p. part of the companies does not have mechanisms 794-829. for such ends. The principal criteria mentioned for the evaluation of partners were: percentage 4. ARINO, A.; DE LA TORRE, J. RING, P. S.(2001) of income from new products, contribution to Relational quality: managing trust in corporate EBITDA, project delivery, compliance with cost and alliances., v. 44, n. 11, p. 109-131. scope and the generation of knowledge (theses, 5. PARISE, S.; CASHER, A. (2003) Alliance articles, technical and scientific reports, etc.). portfolios: designing and managing your network of business-partner relationships. The Academy . CoNCLuSIoN of Management Executive, v. 17, n.4, p. 25-39. We argued in this paper for an integrated approach 6. CHESBROUGH, H.; VANHAVERBEKE, W.; to innovation network management, including WEST, J. (2006) Open innovation: researching individual, portfolio and partner engagement a new paradigm. New York: Oxford University and evaluation management. We show that this Press. type of integrated methodology has not been 7. CHESBROUGH, H. (2007) Why companies used consistently by large companies in Brazil, should have open business models. MIT Sloan where the focus has mainly been on relationships with individual partners. We argue that, with a Management Review, v. 48, n. 2, p. 22-28. favourable environment for investing in partnership 8. VAN DE VRANDE, V et al. (2007) Open in Brazil, companies should soon adopt this more innovation in SMEs: trends, motives and integrated view which can lead to large benefits management challenges.. Department in the medium and long term, especially for of Strategic Management and Business companies with larger networks and intensive Environment Working Paper Series, RSM outsourcing of R&D&I activities. The methodology Erasmus University, Rotterdam, Holanda. portrayed in this study can also be applied to other, non-Brazilian companies and can be beneficial for 9. SLOWINSKI, G. et al. (2009) Effective practices many corporations. We propose further research for sourcing innovation. Research -Technology in the development of an integrated method for Management, v. 52, n.1, p. 27-34. innovation network management. 10. CHESBROUGH, H. (2003) Open Innovation: the new imperative for creating and profiting from © TerraForum Consultores 
  • 9. Gestão da Inovação Networks for innovation: Principal attributes for their formation and optimization biblioteca www.terraforum.com.br technology. Boston: Harvard Business School *** Press. 11. CHESBROUGH, H.; SCHWARTZ, K. (2007) Innovating business models with co-development partnerships. Research Caspar Bart van Rijnbach é sócio da TerraForum Technology Management, v. 50, n. 1, p. 55-59. Consultores. E-mail: caspar@terraforum.com.br 12. VANHAVERBEKE, W. et al. (2009) The role Suzana Leonardi é consultora da TerraForum. of alliance network redundancy in the creation E-mail: suzana@terraforum.com.br of core and non-core technologies. Journal of Management Studies, v. 46, n. 2, p. 215-243. Gustavo de Boer é consultor da TerraForum. E-mail: gustavo.boer@terraforum.com.br 13. KOH, F. C. C.; KOH, W. T. H.; TSCHANG, F. T. (2005) An analytical framework for Marcelo Corsini é o Diretor de Inovação da CPFL science parks and technology districts with an Energia. E-mail: mcorsini@cpfl.com.br application to Singapore. Journal of Business Venturing, v. 20, p. 217–239. 14. DUYSTERS, B.; LOKSHIN, B. (2007) Determinants of alliance portfolio complexity and its effect on innovative performance of companies. Maastricht Economic and Social Research and Training Centre on Innovation and Technology Working Paper Series. United Nations University, Netherlands. 15. NIELSEN, L. E.; MAHNKE, V. (2003) Managing R&D alliance portfolios: the case of mobile service providers. Department of Informatics Working Paper. Copenhagen Business School, Copenhagen, Denmark. 15 16. OJASALO, J. (2008) Management of innovation networks: a case study of different approaches. European Journal of Innovation Management, v. 11, n. 1, p. 51-86. 16 17. KRATZER, J. et al. (2007) InnovationNet: the art of creating and benefiting from innovation. Assen: Royal Van Gorcum. © TerraForum Consultores 
  • 10. Gestão da Inovação Networks for innovation: Principal attributes for their formation and optimization biblioteca www.terraforum.com.br a eMPReSa aRTIGoS ReLaCIoNadoS A TerraForum Consultores é uma empresa de consultoria e treinamento em Gestão do Conhecimento (GC) e Tecnologia da Informação. Parcerias para inovação Os clientes da empresa são, em sua maioria, Inovação aberta grandes e médias organizações dos setores público, privado e terceiro setor. A empresa atua em todo o Brasil e também no exterior, tendo escritórios em São Paulo, Curitiba, Rio de Janeiro, Porto Alegre e Toronto no Canadá. É dirigida pelo Dr. José Cláudio Terra, pioneiro e maior referência em Gestão do Conhecimento no país. Além disso, conta com uma equipe especializada e internacional de consultores. PuBLICaÇÕeS TeRRaFoRuM Winning at Collaboration Commerce Gestão do Conhecimento e E-learning na Prática Portais Corporativos, a Revolução na Gestão do Conhecimento Gestão do Conhecimento - O Grande Desafio Empresarial Gestão do Conhecimento em Pequenas e Médias Empresas Realizing the Promise of Corporate Portals: Leveraging Knowledge for Business Success Gestão de Empresas na Era do Conhecimento © TerraForum Consultores 0