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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 Collaborative Production and Innovation: Economic, Social, Legal and Technical Characteristics and Conditions”

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Distributed Perspectives on Innovation

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