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Sse open innovation_group7a_2011

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  • 1. Topic 5: Recent Developments in Strategy Article Presentation: “Open Innovation and Strategy” (Chesbrough, H.C. & Appleyard, M.M.) Group 7a Erik Bengtson [email_address] Richard Gullberg [email_address] Gustaf Sundlöf [email_address] 2304 Media Management Bibliography: When nothing else is noted the presentation is based on: Chesbrough & Appleyard , Carlifornia Management Review, ”Open Innovation and Strategy”, 2007, vol. 50.
  • 2. Open Innovation: A new phenomenon
    • Companies are experimenting with new business models based on open innovation
      • Access to expanded, collective, value creation and innovation
      • Capital light – developers do it of their own free will
    •  ” Open Strategy”
    • However, an issue:
      • Sustainable Open strategy must balance value creation and value capture
  • 3. Emerging Anomalies
    • Traditional business strategy theories/models not sufficient for explaining the new phenomenon.
    • A new shift: ownership & control  Openness
    • Openness = “the pooling of knowledge for innovative purposes where the contributors have access to the inputs of others and cannot exert exclusive rights over the resultant innovation” (p.60)
    • Value enhanced in two ways:
      • Contribution of ideas/content
      • network effect: value increases with the no. of users – attract more companies and users
  • 4. 3 challenges that traditional business strategy faces when applied to open innovation
    • ” the need to have ownership over the resources that are creating value” (p.61)
    • ” the ability to exclude others from copying the product” (p.61)
    • Companies can gain high profitability and advantageous competitive positions irrespective of (very) low entry barriers and switching costs (cf. Google and Porter’s 5-forces) (p.61-62)
  • 5. Implications for Strategy: Understanding value creation and value capture
    • Two dimensions/manifestations of openness:
      • Open innovation
        • Pooled knowledge > knowledge of individuals on stand alone basis
        • A way of reducing the cost of knowledge generation
      • Open coordination
        • Consensus building – standards emerge
        • Business ecosystem creation – interplay between multiple industries
    • Note: open innovation is not limited to IT
  • 6. Source: Adapted and edited/changed picture, from Chesbrough & Appleyard, Carlifornia Management Review, ”Open Innovation and Strategy”, 2007, vol. 50. Open and closed innovation
  • 7. Strategic issue: how to sustainably capture created value in harmony with its developers
    • Example in article:
    • Open Business Models in Open Source Software
    Category Business Model Deployment Support Subscription Professional Services /Consulting Hybridization Proprietary Extensions Dual License Complements Device Self-Service Community Source
  • 8. 4 issues regarding the business sustainability for open strategy firms
    • ” how to attract the participation of a broad community of contributors, and how to sustain their participation over time” (p.68)
    • ” open-oriented projects must compete for contributors – and most do not succeed”(p.69)
    • ” how the open innovation or coordination project is led, and how its agenda evolves” (p.69)
    • ” How can a company engage in an open source community […] and still profit from technology, which, […] cannot be owned by the company?” (p.69)
  • 9.
    • Still, return to traditional business strategy in pursuit of sustainability (ex: compete for contributors).
    • Also: consider cost vs. benefit of openness
    • Open strategy: balance traditional business strategy with open innovation
  • 10. Example: Linden Lab/Second Life
    • Users participate in development
      • Users can create more or less whatever they want
      • Value created is captured by users as well as the company
    • Users can sell their creations in-game
    • To facilitate this: Users retain intellectual property rights
    • Linden Lab earns money on each transaction made (also sale of ”property” in game and subscription etc)
    • Supply and demand in-game (?)
    Source: http://lindenlab.com/pressroom/general/factsheets/economics Category: Deployment