Distributed Perspectives on Innovation

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

Today’s Story
Traditional and distributed innovation
Similarities and differences
Emerging areas of research and practice
Conclusions

What is “Innovation”?

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)

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)

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)

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)

Vertically Integrated R&D Research Investigations Development New Products & Services The Market Science & Technology Base Source: Chesbrough (2006)

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

Distributed * Perspectives on Innovation * i.e. O/U/CI

Value Network Suppliers Focal Firm Comple- mentors Users Rivals

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

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

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)

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

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)

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

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

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)

Related Innovation Models
Cooperative innovation without monetization:
Open Science
Cumulative knowledge production
Free Software
Shared production of shared good

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

Similarities Across O/U/CI

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)

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)

Contrasting Modes of Commercialization

Innovation Flows Suppliers Focal Firm Comple- mentors Users Rivals Open Innovation User Innovation Cumulative Innovation all forms

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

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

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

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

Communities

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

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)

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)

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)

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)

Academic Controversies

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

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”

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

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?

Emerging Patterns of Practice

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)

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

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?

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

Conclusions

Summary
Rapidly growing research on distributed innovation
Distinct but overlapping O/U/CI domains
Need for
Increasing conceptual clarity
Understanding of emergent phenomena

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)

Danke sehr!
Joel West
blog.OpenInnovation.net

http://www.slideshare.net	70
https://324925580-wave-opensocial.googleusercontent.com	1
http://kathylah82.blogspot.com	1

Distributed Perspectives on Innovation

by Joel West on May 05, 2010

Accessibility

Categories

Tags

Upload Details

Usage Rights

3 Embeds 72

Statistics

Distributed Perspectives on Innovation — Presentation Transcript