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Open Innovation: Incorporating Suppliers

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Talk by Joel West at a Academy of Management PDW (Professional Development Workshop) in Montréal, August 7, 2010. See http://www.openinnovation.net/Conference/AOM2010/ for full program

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Open Innovation: Incorporating Suppliers

  1. 1. Open Innovation: Incorporating Suppliers Joel West blog.OpenInnovation.net San José State University “ Open Innovation With Suppliers” Academy of Management Professional Development Workshop August 7, 2010
  2. 2. Today’s Story <ul><li>Distributed perspectives on innovation </li></ul><ul><ul><li>Some explicitly incorporate suppliers </li></ul></ul><ul><li>Innovation takes different forms </li></ul><ul><ul><li>Some of which only apply to suppliers </li></ul></ul><ul><li>Interesting unresolved questions </li></ul><ul><ul><li>Some specific to supplier integration </li></ul></ul>
  3. 3. Distributed Perspectives on Innovation
  4. 4. 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
  5. 5. Vertically Integrated R&D Research Investigations Development New Products & Services The Market Science & Technology Base Source: Chesbrough (2006)
  6. 6. <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
  7. 7. 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>
  8. 8. 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
  9. 9. 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)
  10. 10. User Innovation <ul><li>From von Hippel (1988, 2005) </li></ul><ul><ul><li>1988 talks about supplier contributions </li></ul></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>
  11. 11. 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>
  12. 12. Innovation Flows Suppliers Focal Firm Comple- mentors Users Rivals Open Innovation User Innovation Cumulative Innovation all forms
  13. 13. Distinct Commercialization Paths Source: West & Bogers (2010) Tuesday 1:15pm! 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
  14. 14. Open Issues in Open Innovation Research
  15. 15. 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)
  16. 16. Form of “Innovation” <ul><li>External innovation may take many forms: </li></ul><ul><li>Knowledge (or “sticky information”) </li></ul><ul><ul><li>Must it be codified/codifiable? </li></ul></ul><ul><li>Formal IP (i.e. patent) </li></ul><ul><li>Component (e.g. chip) </li></ul><ul><li>Tool (e.g. machine tool) </li></ul>Source: Bogers & West (2010)
  17. 17. Ongoing OI Research Topics <ul><li>Open innovation motivation/willingness </li></ul><ul><ul><li>E.g. Pecuniary vs. non-pecuniary (West & Gallagher, 2006; Dahlander & Gann, 2010) </li></ul></ul><ul><li>Processes for open innovation </li></ul><ul><ul><li>Search </li></ul></ul><ul><ul><li>Use/incorporation vs. “not invented here” </li></ul></ul><ul><li>Integration with communities </li></ul>
  18. 18. Possible OI/Supplier Topics <ul><li>Is captive outsourced production OI? </li></ul><ul><ul><li>or a different form of VII? (Toyota) </li></ul></ul><ul><li>What are the best incentives? </li></ul><ul><ul><li>Direct or indirect (i.e. purchase) </li></ul></ul><ul><li>Does supplier OI help/hurt profits? </li></ul><ul><ul><li>Can improve scale efficiencies, TTM </li></ul></ul><ul><ul><li>Could decrease differentiation </li></ul></ul><ul><li>How is supplier search like OI search? </li></ul>
  19. 19. Thank You! <ul><li>Joel West </li></ul><ul><li>blog.OpenInnovation.net </li></ul>

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