Sse open innovation_group7a_2011

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Sse open innovation_group7a_2011

  1. 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. 2. Open Innovation: A new phenomenon <ul><li>Companies are experimenting with new business models based on open innovation </li></ul><ul><ul><li>Access to expanded, collective, value creation and innovation </li></ul></ul><ul><ul><li>Capital light – developers do it of their own free will </li></ul></ul><ul><li> ” Open Strategy” </li></ul><ul><li>However, an issue: </li></ul><ul><ul><li>Sustainable Open strategy must balance value creation and value capture </li></ul></ul>
  3. 3. Emerging Anomalies <ul><li>Traditional business strategy theories/models not sufficient for explaining the new phenomenon. </li></ul><ul><li>A new shift: ownership & control  Openness </li></ul><ul><li>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) </li></ul><ul><li>Value enhanced in two ways: </li></ul><ul><ul><li>Contribution of ideas/content </li></ul></ul><ul><ul><li>network effect: value increases with the no. of users – attract more companies and users </li></ul></ul>
  4. 4. 3 challenges that traditional business strategy faces when applied to open innovation <ul><li>” the need to have ownership over the resources that are creating value” (p.61) </li></ul><ul><li>” the ability to exclude others from copying the product” (p.61) </li></ul><ul><li>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) </li></ul>
  5. 5. Implications for Strategy: Understanding value creation and value capture <ul><li>Two dimensions/manifestations of openness: </li></ul><ul><ul><li>Open innovation </li></ul></ul><ul><ul><ul><li>Pooled knowledge > knowledge of individuals on stand alone basis </li></ul></ul></ul><ul><ul><ul><li>A way of reducing the cost of knowledge generation </li></ul></ul></ul><ul><ul><li>Open coordination </li></ul></ul><ul><ul><ul><li>Consensus building – standards emerge </li></ul></ul></ul><ul><ul><ul><li>Business ecosystem creation – interplay between multiple industries </li></ul></ul></ul><ul><li>Note: open innovation is not limited to IT </li></ul>
  6. 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. 7. Strategic issue: how to sustainably capture created value in harmony with its developers <ul><li>Example in article: </li></ul><ul><li>Open Business Models in Open Source Software </li></ul>Category Business Model Deployment Support Subscription Professional Services /Consulting Hybridization Proprietary Extensions Dual License Complements Device Self-Service Community Source
  8. 8. 4 issues regarding the business sustainability for open strategy firms <ul><li>” how to attract the participation of a broad community of contributors, and how to sustain their participation over time” (p.68) </li></ul><ul><li>” open-oriented projects must compete for contributors – and most do not succeed”(p.69) </li></ul><ul><li>” how the open innovation or coordination project is led, and how its agenda evolves” (p.69) </li></ul><ul><li>” How can a company engage in an open source community […] and still profit from technology, which, […] cannot be owned by the company?” (p.69) </li></ul>
  9. 9. <ul><li>Still, return to traditional business strategy in pursuit of sustainability (ex: compete for contributors). </li></ul><ul><li>Also: consider cost vs. benefit of openness </li></ul><ul><li>Open strategy: balance traditional business strategy with open innovation </li></ul>
  10. 10. Example: Linden Lab/Second Life <ul><li>Users participate in development </li></ul><ul><ul><li>Users can create more or less whatever they want </li></ul></ul><ul><ul><li>Value created is captured by users as well as the company </li></ul></ul><ul><li>Users can sell their creations in-game </li></ul><ul><li>To facilitate this: Users retain intellectual property rights </li></ul><ul><li>Linden Lab earns money on each transaction made (also sale of ”property” in game and subscription etc) </li></ul><ul><li>Supply and demand in-game (?) </li></ul>Source: http://lindenlab.com/pressroom/general/factsheets/economics Category: Deployment

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