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Distributed Perspectives on Innovation

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“Distributed Perspectives on Innovation: Open Innovation, User Innovation and Beyond.” Keynote talk given 5 May 2010 at the Georg-August-Universität Göttingen, for workshop entitled “New Forms of …

“Distributed Perspectives on Innovation: Open Innovation, User Innovation and Beyond.” Keynote talk given 5 May 2010 at the Georg-August-Universität Göttingen, for workshop entitled “New Forms of Collaborative Production and Innovation: Economic, Social, Legal and Technical Characteristics and Conditions”

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  • Franke’s term
  • Also, the other counterpoint is the vertically integrated model, where in order to do anything, you have to do everything.
  • Franke’s term
  • This is the sources of innovation diagram shown as a value network/ecosystem diagram
  • Franke’s term
  • This is the sources of innovation diagram shown as a value network/ecosystem diagram
  • Overlapping commercialization modes, notably OI-inbound and UI-input New commercialization modes not previously studied For specific phenomena, an opportunity to differentiate overlapping but distinct innovation modes
  • Transcript

    • 1. Distributed Perspectives on Innovation: Open Innovation, User Innovation and Beyond Joel West blog.OpenInnovation.net San José State University New Forms of Collaborative Production and Innovation Georg-August-Universit ä t G öttingen May 5, 2010
    • 2. Today’s Story
      • Traditional and distributed innovation
      • Similarities and differences
      • Emerging areas of research and practice
      • Conclusions
    • 3. What is “Innovation”?
    • 4. Defining “Innovation”
      • Some disagreement over “innovation”:
      • Technical vs. economic (or both)
      • Radical vs. incremental
        • Is cost reduction radical? (Leifer et al)
      • Adopter vs. producer perspective
      • New to the firm vs. new to the world
      Source: Bogers & West (2010)
    • 5. Latent value of an innovation
      • “ The inherent value of a technology remains latent until it is commercialized in some way.”
      • A business model unlocks that latent value, mediating between technical and economic domains.
      • – Chesbrough & Rosenbloom (2002)
    • 6. Invention vs. Innovation
      • “Inventions … do not necessarily lead to technical innovations . In fact the majority do not. An innovation in the economic sense is accomplished only with the first commercial transaction.”
      • —Freeman (1982: 7)
    • 7. Non-commercial Application
      • “Innovation is composed of two parts: (1) the generation of an idea or invention, and (2) the conversion of that invention into a business or other useful application.”
      • — Roberts (1988: 12)
    • 8. Vertically Integrated R&D Research Investigations Development New Products & Services The Market Science & Technology Base Source: Chesbrough (2006)
    • 9.
      • Research of Alfred D Chandler (1918-2007)
      • Studied large US firms 1840-1940
      • Firms vertically integrate to supply own inputs and control their outputs
        • R&D is an essential part of integration
        • Technology industries require large R&D labs
        • Markets don’t exists to buy/sell innovation
      • Integration widely adopted in practice
        • Pattern of large 20th C US and MNC firms
      Vertical Integration
    • 10. Distributed * Perspectives on Innovation * i.e. O/U/CI
    • 11. Value Network Suppliers Focal Firm Comple- mentors Users Rivals
    • 12. Sources of Innovation X = Sources of Innovation; † limited emphasis Source: West (2009) Focal Firm Suppliers Customers Rivals Vertical integration X User innovation X † X Cumulative innovation X X Open innovation X X X X
    • 13. User Innovation
      • From von Hippel (1988, 2005)
      • Users know their needs best
      • Goal: engage users in innovation
        • Use empowerment, other motivations
        • Direct (toolkits) & indirect (feedback)
        • Requires processes, tools, design
      • Found in ever-wider domains
    • 14. Free vs. Paid Revealing
      • What do users do with their innovations?
      • Use them and keep quiet
      • Free revealing (Harhoff et al 2003)
        • Share them with other users
        • Give them back to companies
      • Make money
        • Sell them back to companies
        • User-entrepreneur (Shah & Tripsas 2007)
    • 15. Cumulative Innovation
      • Promoted by Scotchmer (1991, 2004)
      • Focus: developing radical innovations
        • Initial innovation is rarely complete
        • Subsequent shared technological progress
      • Competitors build on each other
        • Need rights to each others’ work
        • Some IP regimes hinder C.I.
      • Jungle vs. commune view of rivalry
    • 16. Three Cumulative Patterns
      • Core technology, many derivatives
        • E.g., Cohen-Boyer patent
      • Derivative of many building blocks
        • E.g., GSM/W-CDMA MP3 cameraphone
      • Incremental quality improvements
        • E.g., higher resolution inkjet print heads
      Source: Scotchmer (2004)
    • 17. Open Innovation
      • By Chesbrough (2003, 2006, 2007)
      • Key points:
        • Find alternate sources of innovation
          • Either markets or spillovers
        • Find alternate markets for innovation
        • Central role of the business model
      • Cognitive managerial paradigm
      • Framework consonant with UI, CI
    • 18. R&D under Open Innovation Source: Chesbrough (2006) Current Market Internal Technology Base Technology Insourcing New Market Technology Spin-offs External Technology Base Other Firm’s Market Licensing “ Open” innovation strategies
    • 19. Key Issues for Open Innovation
      • Maximizing returns to internal innovation
      • Identifying/incorporating external innovations
      • Motivating an ongoing stream of external innovations (with or without money)
      R&D Firm Ideas Products Licensees Licensors Motivating Incorporating Maximizing 2 3 1 Source: West & Gallagher (2006)
    • 20. Related Innovation Models
      • Cooperative innovation without monetization:
      • Open Science
        • Cumulative knowledge production
      • Free Software
        • Shared production of shared good
    • 21. Creative Industries
      • Copyright industries involve creativity, not technical innovation
      • Some models consider creativity
        • Open source software
        • Creative commons
      • Parallels to O/U/CI
        • Dispersal, cumulative nature are similar
        • Value creation, capture are different
    • 22. Similarities Across O/U/CI
    • 23. Dispersal of Knowledge
      • “ In Open Innovation, useful knowledge is generally believed to be widely distributed, and of generally high quality.” (Chesbrough, 2006: 9)
      • “ Different users and manufacturers will have different stocks of information … each innovator will tend to develop innovations that draw on the sticky information it already has” (von Hippel 2005: 70)
    • 24. Other Similarities
      • Orientation outside the firm
      • Innovation activities take place across organizational boundaries †
      • Overall, rejecting Vertical Integration
      • † Some U.I. ignores the firm entirely
      Source: Bogers & West (2010)
    • 25. Contrasting Modes of Commercialization
    • 26. Innovation Flows Suppliers Focal Firm Comple- mentors Users Rivals Open Innovation User Innovation Cumulative Innovation all forms
    • 27. O/U/CI innovation modes #1-5 Source: West & Bogers (2010) Knowledge leaks between competitors CI-rival Rivalrous Innovators share knowledge CI-share Cooperative Cumulative innovation Others commercialize the firm’s innovations OI-outbound Inside-out Firm commercializes others’ innovations OI-inbound Outside-in Open innovation Firm commercializes own innovations VII Vertically inte-grated innovation Vertical integration Commercialization Path Abbrev. Innovation Mode Research Stream
    • 28. O/U/CI innovation modes #6-9 Self commercialization UI-startup User entrepreneurship Non-commercial diffusion UI-share User sharing Enhances own utility, but not diffused UI-self User self-help By producers UI-input Lead users User innovation Commercialization Path Abbrev. Innovation Mode Research Stream
    • 29. Antecedents for Selecting Modes
      • Supply conditions
        • Scale economies
        • Cost of production and distribution
      • Demand conditions
        • Heterogeneity of demand
      • Institutional conditions
        • Strength of IP regime
        • Markets for innovation
    • 30. Distinct Commercialization Paths Source: West & Bogers (2010) inside focal firm outside focal firm inside focal firm outside focal firm creation commercialization VII OI-outbound OI-inbound UI-input UI-startup user-generated content crowd sourcing UI-share open science innovation communities free software business ecosystems CI-rival CI-share co-creation
    • 31. Communities
    • 32. Importance of Communities
      • Best known from open source software
      • Implicit in CI research
        • E.g. Meyer (2006) on 19th century airplane
      • Increasingly important in UI
        • E.g. Franke & Shah (2003), von Hippel (2005), Jeppesen & Frederiksen (2006)
      • Finally being recognized in OI
    • 33. Communities in OI
      • Two pre-requisites:
        • Voluntary association of independent actors
        • Enabling innovation commercialization
      • Open questions
        • Who are the members? Individuals (cf. UI communities) or firms (cf. ecosystem, networks …)
        • What are the boundaries?
        • Upstream vs. downstream communities
        • Interactions within vs. with communities
      Source: West & Lakhani (2008)
    • 34. Communities as Third Mode
      • Open innovation has three modes
      • Outside-in: using external innovations
      • Inside-out: commercializing internal innovations
      • Coupled: communities, ecosystems, alliances, consortia etc.
      Source: Enkel, Gassmann, Chesbrough (2009)
    • 35. Communities in OI (3)
      • Study of three innovation communities:
      • Participants from multiple organizations
      • Anchored to specific innovation
      • Shared goals, objectives, identity
      • Leverage distributed competencies
      • Tied to Witte’s Organisation f ü r Innovationsentscheidungen – Das Promotorenmodell
      Source: Fichter (2009)
    • 36. Are Fir ms Only “Open Enough”?
      • Firms, OI communities share interests
      • Firms chronically unwilling to give up control
        • E.g. OSS communities: Apple, Google, Nokia, …
      • Is it possible for firms to be open?
        • Optimistic view: firms gain more by openness
        • Pessimistic view: Firms are only as open as they need to be (West, 2003; West & O’Mahony, 2008)
    • 37. Academic Controversies
    • 38. Why So Many Germans*?
      • They’re everywhere in UI/OI research:
        • OUI (n ée UI) workshop 2003, 2004, …
        • R&D Management Sept 2009 (8-1)
        • Heute
      • Is it Eric’s dad? His co-authors?
        • If so, why the interest in “open” innovation?
      * Plus of course German-speaking Swiss and Austrians
    • 39. Ambiguous Classifications Some phenomena might be UI, OI or VI Phenomenon It’s UI Not UI User entrepreneurs Users have knowledge VI: integrated firm User generated content Users have knowledge OI: Not solving own problem; often paid Open source “ scratching an itch” OI: “pooled R&D”
    • 40. What About Acquisitions?
      • Firms buying innovation by buying firms
        • Cisco growth strategy (Mayer & Kenney 2004)
        • Now Google: Android, Grand Central, etc.
      • Is it OI-Inbound?
        • Externally developed, internally commercialized?
      • Is it VII?
        • Ongoing innovation, commercialization controlled by one firm
    • 41. Why does classification matter?
      • Different assumptions about
        • Sources of innovation
        • Motivations for innovating and diffusing
      • Different managerial advice
      • Different policy prescriptions
        • E.g. IP policy, economic growth
      • Can they all be right?
        • Or is this the blind men and the elephant?
    • 42. Emerging Patterns of Practice
    • 43. Learning from Observation
      • ” The field of innovation studies arguably operates in Pasteur ’s Quadrant, in that the processes and practices of industry actors often extend beyond the bounds predicted by academic theory.”
      • – Chesbrough (2006)
    • 44. Is ICT Vertical Integration Dead?
      • Silicon Valley: distributed innovation
        • Ecosystems
        • Component-based business models
        • User innovation via beta sites, toolkits
        • 1990s, even IBM became distributed
        • Grove (1996) pronounced VI dead
      • Today: increasing integration
        • Apple, Google, HP, Microsoft, Nokia
    • 45. Is OI a Substitute or Complement
      • Open innovation offered as a complement to traditional corporate innovation
        • Increasingly, OI used as a substitute
      • OI-Inbound: OI vs. internal R&D
        • Instead of correcting atrophied internal R&D
        • Firing internal R&D workers (e.g. HP)
        • What about absorptive capacity?
      • OI-Outbound: OI vs. actual business model
        • IP licensing -> Patent trolls
        • Where is the value creation?
    • 46. Monetizing Knowledge Flows
      • Contrasting views of charging for knowledge
        • UI, CI celebrate free spillovers
          • Open source software
          • Other collaborative communities
        • OI emphasizes monetization
          • Universities chasing patent royalties
          • Impact on open science?
        • Which is socially optimal?
      • Tied to IPR policy
        • Ongoing debates over patent trolls, patent reform
    • 47. Conclusions
    • 48. Summary
      • Rapidly growing research on distributed innovation
        • Distinct but overlapping O/U/CI domains
      • Need for
        • Increasing conceptual clarity
        • Understanding of emergent phenomena
    • 49. Future Research
      • Competing hypothesis O/U/CI study
        • Which one predicts better?
      • Joint maximization problem
        • … for all stakeholders in value network
      • Scope of knowledge and innovation
        • Knowledge vs. innovation boundaries?
        • Is there a value to knowledge for innovations other than those that we sell? (cf. Brusoni et al 2001)
    • 50. Danke sehr!
      • Joel West
      • blog.OpenInnovation.net

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