Profiting from External Innovation: A Review of the Research

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Nov 18, 2011 keynote presentation given by Prof. Joel West of KGI, at the 2011 Conference on Mass Customization, Personalization and Co-Creation (MCPC2011.com).

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  • The open innovation model emphasizes flexibility in a firm’s innovation strategy: The best source of innovation may be outside the firm (arrows going in) The best market for an innovation may be outside the firm (arrows going out) The importance of flexibility. Span firm boundaries. Can bring in technology at any point in the product development process. Major goal: if firm is fighting false positives (extra cautious), you will get lots of false negatives (Chesbrough 2006). Make sure you find a way to monetize or otherwise find a path to market for these false negatives.
  • 2/13/2011
  • 1. Searching (where): Sourcing, Brokerage , Limits, University research, User innovation 2. Enabling process/mechanisms (how): Contests, Intermediaries , Toolkits, PlatformsCrowdsourcing 3. Filtering (which): Gatekeepers , Technology scouts, Technology brokering 4. Acquiring: Incentives to share, Contracting, Nature of the innovation
  • Absorptive capacity: 80/280 articles
  • This is all the stuff that’s of interest to the MCPC community, but it’s not often found in OI. Some say it’s a level of analysis thing: that consumers or individuals are not part of OI. I don’t agree — I just think they haven’t been studied much
  • The inherent value of a technology remains latent until it is commercialized in some way. (Chesbrough & Rosenbloom, 2002: 529-530).
  • Profiting from External Innovation: A Review of the Research

    1. 1. Profiting from ExternalInnovation: A Review of the Research Joel West KGI - The Keck Graduate Institute www.oiblog.net Marcel Bogers SDU - Southern Denmark University MCPC 2011 San Francisco 18 November 2011
    2. 2. Where is KGI?
    3. 3. What is KGI?• Keck Graduate Institute of Applied Life Sciences - Mission: “dedicated to education and research aimed at translating into practice, for the benefit of society, the power and potential of the life sciences.”• Founded in 1997• Funded by grant from Keck Foundation• About 150 graduate students• Youngest of 7 Claremont Colleges• Mixture of science and business faculty
    4. 4. Profiting from External Innovation• 1986: Teece created a model of small firms profiting from their own innovation - “Profiting from Innovation” model - Partner if they can’t commercialize on own vRely on established firms for manufacturing, distribution, support• Today: firms commercialize external sources - Inbound perspective of open innovation
    5. 5. What we didFor research on inbound OI:• Developed a 4-phase process model• Reviewed OI research (2003-2010)• Looked for gaps and opportunitiesRecent draft is on SSRN
    6. 6. Open Innovation
    7. 7. Open Innovation: then and now4,561 960 664 publishedcites cites cites 2011
    8. 8. What is “open innovation”? “Open innovation is the use of purposiveinflows and outflows of knowledge to accelerateinternal innovation, and expand the markets forexternal use of innovation, respectively.” Henry Chesbrough, Open Innovation: Researching a New Paradigm, p. 1
    9. 9. Chesbrough funnel Other Firm’s Market Licensing Technology New Internal Spin-offs MarketTechnology Base Current Market ExternalTechnology Base Technology Insourcing “Open” innovation strategies Source: Chesbrough (2006)
    10. 10. Research Design
    11. 11. Our process modelWe developed a model of profiting from external sources of innovation:• Based on current innovation process models (e.g. Freeman, 1982)• 3-step linear model of innovation creation and commercialization - Add reverse paths (upstream)
    12. 12. Our process model Innova&on Focal  Firm Source 1 2 Sales  / 3 R&D Customers Marke.ng Innova&on SourceProfiting from external sources of innovation1. Obtaining Innova&on Innova&on2. Integrating Source Source3. Commercializing Reverse paths Suppliers Rivals Customers
    13. 13. Research Design• SSCI - Selected 18 “A” & “B” bus, tech journals - Published 2003-2010 - Mentioned OI or cite Chesbrough• Add Google scholar 100+ cites - Yielded 15 pubs: 11 are duplicates - 3 Chesbrough books, plus 1 chapter• 280 papers/chapters• Manually reviewed the 280
    14. 14. Articles by JournalJournal Papers Journal PapersAcademy of Management Journal 4 Management Science 18Academy of Management Review 1 MIT Sloan Management Review 6Administrative Science Quarterly 1 Organization Science 6California Management Review 11 R&D Management 52Harvard Business Review 1 Research Policy 52IEEE Transactions on 3 Research-Technology 39Engineering Management ManagementIndustrial and Corporate Change 3 Strategic Management Journal 4International Journal of 34 Technological Forecasting and 4Technology Management Social ChangeJournal of Product Innovation 21 Technovation 30Management Total 276
    15. 15. Related ResearchIn addition to Open Innovation:• Exploration/acquisition strategies - R&D joint ventures, alliances & outsourcing• External sources of innovation - User innovation & co-creation
    16. 16. Analysis
    17. 17. Categories of Papers (1) Phase Category Open Innovation Topic • Sourcing Searching • Brokerage • Limits • Contests • Intermediaries Enabling • Toolkits 1. Obtaining • Platforms • Gatekeepers Filtering • Technology scouts • Incentives to share Acquiring • Contracting • Nature of the innovation
    18. 18. Categories of Papers (2) Phase Category Open Innovation Topic • Absorptive capacity • Culture and “Not Invented 2. Integrating Here” • Incentives to cooperate • Competencies • Commercialization process 3. Commercializing • Value creation • Value capture • R&D feedback Feedback • Customer/market feedback Nonrecursive paths • Co-creation Reciprocal • Communities • Value networks
    19. 19. 1. Obtaining Innovations• Best covered of the phases - Searching, enabling, filtering - Sourcing particularly well covered• Most popular area: sources of innovation• Often about external knowledge and not external innovations• Not much about asset specificity of potential innovations
    20. 20. 2. Integrating Innovations• Considers org capabilities and culture - Absorptive capacity over-researched is mentioned, not well measured - Implicit assumptions• Integration seems to be a black box - Are new competencies needed?
    21. 21. 3. Commercializing Innovations• Lots of value creation - Sometimes measured using NPD metrics - Less research on value capture• Assumes external innovations commercialized same as internal ones - How do firms differ in external innovation commercialization capabilities?
    22. 22. 4. Reverse PathsBeyond the linear model, this includes• Feedback mechanisms - Information flow upstream• Reciprocal measures - Ongoing interactions - Includes co-creation, communitiesResearch here is scarce
    23. 23. Discussion
    24. 24. Unanswered questions (1)• Search: Largest body of research - Is this what’s new? - Or is it the most fun to study?• Integration: - What competencies are necessary? - When do external sources substitute for (or complement) internal innovation?
    25. 25. Unanswered questions (2)• Commercialization - Is commercialization path the same? - Where are success metrics? vDecades of NPD research offer examples• Non-linear approaches - Open innovation tends to have linear focus vOpen Services Innovation is notable exception - How is this changed by feedback, co-creation, other cooperative mechanisms?
    26. 26. Unanswered questions (3)• Where is the business model? - Includes value capture• Is everything an “innovation”? - Patent, copyright, knowledge
    27. 27. Invention vs. innovation We owe to Schumpeter the extremelyimportant distinction between inventionsand innovations … An invention is anidea, a sketch or model for a new orimproved device or system. … Aninnovation in the economic sense isaccomplished only with the firstcommercial transaction (Freeman, 1982)
    28. 28. ContributionProfiting from External Sources of Innovation:• Process model - Obtaining - Integrating - Commercializing - Reverse (nonrecursive) paths• Summary of 200+ articles: - Existing conclusions - Blind spots and research opportunities
    29. 29. For more information• http://ssrn.com/abstract=1949520• blog.OpenInnovation.net• Twitter: @openITstrat

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