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Open Innovation Process and Open Closed Innovation


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Research project by Sandra Cecet & Sanya Khanna. We are interested in the Open Innovation process, when, why and how is happens. As well, is it indeed such an open paradigm as a literature suggests.
Key Words: Open Innovation, Closed Innovation, Open-Closed Innovation, Multinational Companies, New Product Development, Radical Innovation, Mindset, Collaboration.

Published in: Business, Technology
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Open Innovation Process and Open Closed Innovation

  1. 1. Innovation researchThe real stories OTHERS UNIVERSITIES OPEN INNOVATION IS IT REALLY OPEN? SMALL BIG COMPANIES COMPANIES Open-minded partnerships HOW? Exchange between domain experts Suitable for radical innovation WHEN? Not all competencies exist in-house More intellectual contribution WHY? Often a cheaper way to innovate A faster way to innovate More emotions involved Shared responsibility innovation Open Innovation Process; Open-Closed Innovation’ OPEN OR CLOSED? Sanya Khanna and Sandra Cecet
  2. 2. The Open Innovation Process and Open-Closed InnovationSPD Research Methodology ID4355 Sandra Cecet (4118782) Sanya Khanna (4122844) INVESTIGATING THE EXCITING STORIES BEHIND THE SUCCESSES AND FAILURES OF INNOVATION PROJECT JUNE 2011ABSTRACTOpen Innovation – what does it mean in the real world? The paper tries to find out an answer to thequestion by exploring the process of Open Innovation through interviews with experts of this fieldand focusing on bigger companies and their innovation strategies. An intriguing insight was thatcompanies tended to prefer Open Innovation, as a strategy, for radical projects, especially when theydid not have all competencies in-house. The reasons for adopting such a strategy were faster andcheaper development, shared responsibility and additional intellectual contribution to the projects.The projects usually produced better results and higher customer satisfaction since emotion and trustare given precedence in an open innovation environment.Our research touched upon the question, whether Open Innovation is indeed such an open paradigmas suggested by Henry Chesbrough. During the research, it came across that there are differentworking agreements between collaborators that limit the flow of information. Hence, we termed thepractical implementation of the ‘Open Innovation’ process as ‘Open-Closed Innovation’ implyingthat the openness of the process depended upon various conditionsKEYWORDSOpen Innovation, Closed Innovation, Open-Closed Innovation, Multinational Companies, NewProduct Development, Radical Innovation, Mindset, Collaboration.
  3. 3. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet !"#$%&#$()*+,-)$./)0#11$+2$%&#345)1#2$()*+,-)! Investigating the exciting stories behind the successes and failures of innovation project!1! INTRODUCTION66666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666 7!2! LITERATURE REVIEW 66666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666 8!2.1! What is Closed Innovation? """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" #!2.2! What is Open Innovation? """"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" #!2.3! What is Open-Closed Innovation? """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" $!3! LITERATURE REVIEW- THE INNOVATION PROCESS 66666666666666666666666666666666666666666666666 9!3.1! Current Strategy """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" %!3.2! Fitting the Current Managerial Fabric """"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" &!3.3! Managing Interaction between Partners"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" &!3.4! Choosing Open Innovation"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" !3.5! Open-Closed Innovation """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" (!4! RESEARCH METHOD 6666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666:;!4.1! Selection of Participants"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" )*!4.2! Participants Sample""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" )*!4.3! Data collection procedure """"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" )+! 4.3.1! Question and Answer Session!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! "#! 4.3.2! Creative Session!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! "#!4.4! Data Analysis """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" ),!5! RESULTS66666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666:<!5.1! What is Open Innovation? """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" )%!5.2! Why do companies use Open Innovation?"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" )%!5.3! Partnerships and Collaborations """"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" )&!5.4! The Process as Captured """"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" )&! 5.4.1! Rights Management !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! "$! 5.4.2! Company Culture!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! "%! 5.4.3! Scope Definition!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! "&!6! DISCUSSION 66666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666=;!6.1! Open Innovation for NPD""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" +*!6.2! Open Innovation; a Strategy for Radical Innovation """"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" +*!6.3! Fitting the Current Managerial Fabric """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" +)!6.4! Choosing the Correct Partners""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" +,!6.5! Managing Interaction between Open Innovation Teams"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" +,!6.6! Collaboration versus Open Innovation""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" +#!6.7! Closing Open Innovation; Open-Closed innovation"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" +#!7! CONCLUSIONS 666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666=9!8! LIMITATIONS 66666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666=>!9! FUTURE SCOPE FOR RESEARCH 6666666666666666666666666666666666666666666666666666666666666666666666666666666666=?!ACKNOWLEDGEMENT 666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666=@!REFERENCES 666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666667;!APPENDIX 666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666666667:! 2
  4. 4. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet!1 INTRODUCTIONOpen Innovation has caught some spark after Henry Chesbrough coined this term in his book, ‘OpenInnovation: The New Imperative’ (2003). Prof. Chesbrough’s more recent and preferred definition ofthe term is, “Open innovation is the use of purposive inflows and outflows of knowledge toaccelerate internal innovation, and expand the markets for external use of innovation, respectively.[This paradigm] assumes that firms can and should use external ideas as well as internal ideas, andinternal and external paths to market, as they look to advance their technology.” [Open Innovation:Researching a New Paradigm (2006)]Although this new paradigm has caught the industry’s fancy, at the moment there is limited literatureavailable on it. In practice, ‘Open Innovation’ has become a dynamic term that has variedapplications and interpretations. It is therefore interesting to investigate when, how, and why acompany approaches ‘Open Innovation’ as a strategy. In this report we focus on the process asimplemented in the real world. We also tried to answer if ‘Open Innovation’ is indeed such an openparadigm as existing literature suggests.The concept of open innovation is more effective in today’s world where availability of privateventure capital along with a huge pool of mobile talent has made it possible to innovate beyond thesecluded fortresses of dedicated labs. Companies on the other hand can gain through successfulpartnerships that utilize its investments in research making the proposition a win-win situation forboth. One of the classic cases, often cited, is the failed opportunity of Xerox and its Palo AltoResearch Center (PARC) to convert research into commercially viable products. Technologies suchas Ethernet and the graphical user interface (GUI) developed by them were considered not promisingenough for the company. Apple and Microsoft used both technologies to reap enormous gains.To understand how ‘Open Innovation’ is viewed in the industry and to comprehend the way it ispracticed, we conducted a literature survey followed by interviews with industry leaders, experts andprofessionals who are associated with this new paradigm in their respective fields. We added acreative element, which was shot in the form of a movie, to the simple Q&A of the interview patternto understand the mental process behind the implementation of the paradigm.The paper is divided into sections containing (a) important suggestions from literature, which justifyour research questions (b) findings from interviews (c) discussion on the comparisons of theory asproposed in literature and practical as practised in the real world (d) conclusion, limitations and thescope for future research. 3
  5. 5. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet2 LITERATURE REVIEWFirst, we would like to elaborate on the terms Closed Innovation, Open Innovation, and subsequentlythe term Open-Closed Innovation. Understanding these processes will give the reader a betterunderstanding of the detailed explanation and exploration of these innovation strategies.2.1 What is Closed Innovation?Henry Chesbrough describes Closed Innovation as the traditional internal Research andDevelopment approach, which was the mainstay of innovation for most the 20th century. In thisapproach, a company researched and developed its product internally without any aid from externalparties.Basic characteristics of the Closed Innovation paradigm according to Chesbrough are: i. A company should hire the best people in the industry, ii. In order to bring new products and services to the market a company must discover and develop them internally, iii. If a company makes an invention, they get it to a market first, iv. A company that gets an innovation to a market first will usually win, v. If a company leads the industry in R&D investments, it will discover the best and the most ideas and hence will lead a market as well, vi. A Company needs to control Intellectual Property (IP)1 to prevent competitors to profit from it.Chesbrough points several constrain of this innovation model, the most important one being, slowerspeed of the process due to a rigid and inflexible business model used. As well, author comparescompanies working in this setting to medieval fortresses, which rigorously keep control and areinaccessible to outsiders. However, lots of companies still work under the same Closed Innovationmodel.2.2 What is Open Innovation?Open Innovation asks a company to look outside its boundaries to gain access to more knowledge,better technology and more creative ideas. This model of innovation described by Chesbrough showsthe necessity of letting ideas flow out of the corporation, in order to find better sites for theirmonetization. Parallely, ideas also flow into the company, as new offerings and new businessmodels. The basic Open Innovation tenets are: i. Not all best people work for within a company. A Company should work with smart people both inside and outside it, 1 Intellectual Property (IP) is a term referring to a number of distinct types of creation of the mind. Under intellectual property law owners are granted certain exclusive rights to a variety of intangible assets, among them discoveries and inventions and design. Common types of intellectual property include copyrights, trademarks, patents, industrial design rights and trade secrets. 4
  6. 6. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet ii. External R&D can create great value while internal R&D is needed to claim some portion of that value, iii. A Company does not have to be the origin for a research to profit from it, iv. Building a good business model is essential, because an inferior technology with a good business model will often trump a superior technology commercialized through a bad business model, v. A Company should profit from external use of their Intellectual Property (IP), and a company should buy IP in order to innovate faster.Figure 1. Henry Chesbrough’s Model of Innovation2The Open Innovation model exploits diffusion of knowledge rather than ignoring it. There are a lotof debates going on about this new strategy for innovation, which probably has a competitiveadvantage. According to literature, Open Innovation is a more efficient way of working in a rapidlydeveloping world than a traditional slower internal Research and Development approach, calledClosed Innovation.2.3 What is Open-Closed Innovation?Open-Closed Innovation is a term introduced here to describe the way companies are innovating inthe present scenario within an open innovation environment. The term indicates that the innovationis not an open process in its entirety. It emphasizes that openness of the process depends on multipleconditions such as different working agreements, which control information flow betweencollaborating parties.There has been a considerable change in the industry after the ‘Open Innovation’ book wasintroduced by Henry Chesbrough in 2003. Open Innovation is an umbrella concept covering specificideas such as consumer-led innovation (e.g., Lego’s development of robot building sets) to popularand distinct ones such as the open source movement (e.g., Linux development). However, processes2 The famous Funnel model as put together by Henry Chesbrough is a reflection of the innovation process adapted byinnovation firms. 5
  7. 7. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecetthat are very open in their core are not in the scope of our research These include processes such asconsumer-led innovation, open source movement, collaboration between individuals, and innovationcarried in foundations and associations.Our research focuses on innovation processes followed in larger companies, such as MNCs, that arenormally capable of leading innovation from an idea generation stage, to its introduction in themarket. Nevertheless, such companies may decide to partner with another company as and whenthey see a need for that. The answers to why is the Open-Closed Innovation strategy more suitablefor innovation happening in such a setting are a part of our research focus and we will discuss thesein detail through our findings.3 LITERATURE REVIEW - THE INNOVATION PROCESS3.1 Current StrategyOne of the first questions that is posed is when should Open Innovation be chosen as a strategy andin which stage of New Product Development (NPD). The literature does not provide a definiteanswer about any particular situation or stage in the NPD. A broader perspective regarding theenvironment, where the process will be implemented, is required. In the present case, thisenvironment is called ‘diffused knowledge environment’, which exists as the outcome of processessuch as globalization, spread of higher education, the Internet, on line accessible knowledge, onlinecommunities, rapid rise in venture capital and technology development.Not long ago, the internal R&D was viewed as a strategic asset and even a barrier to competitiveentry in many industries. According to H. Chesbrough, internal industrial research is less effectivenowadays. While innovation is critical, the usual process of managing innovation does not seem towork anymore. Although ideas and external capital are plentiful, companies struggle to find andfinance internal growth opportunities. This is the primary reason for changing innovation strategy.As examples, the author lists companies such as DuPont, Merck, IBM, GE, and AT&T, which didthe most research in their respective industries and earned most of profits as well. However, thesedays, the former industry leaders are finding remarkably strong competitors from many newercompanies: Intel, Microsoft, Sun, Oracle, Cisco, Genentech, Amgen, and Genzyme, who conductlittle or no basic research of their own. Although these newer crop of companies have been veryinnovative, they have also gained from the research discoveries outside their companies. The authorsuggests that companies should realign innovation strategy in order to answer the demand of arapidly changing environment.Richard Wilding in ‘Connect and Develop’ article for ‘The Innovation Handbook’ says, ‘OpenInnovation approach was taken to realign company’s business to face the demands of the newmillennium’. The author describes Procter & Gamble’s Open Innovation Program, where theapproach was chosen to realign the company’s business to face the demands of the new millennium.P&G moved from research and development towards an initiative called ‘Connect & Develop’(C&D). One important reason for this change was to provide means for others outside P&G toinnovate as well, perhaps better, by doing it faster and cheaper. This would save time ondevelopment as compared to the Closed Innovation strategy, which was previously followed by thecompany. This initiative emphasized the need for P&G to reach out to external parties for innovativeideas. The company’s rationale was simple: P&G had more than 8,600 scientists working on futuretechnologies but outside P&G there were 1.5 million scientists. The question was why should thecompany then try to invent everything internally?’ In addition, the ideas that P&G generates in itslabs and that are not picked up by its internal business are available to other firms; even directcompetitors, after three years. (Wilding, 2008). 6
  8. 8. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra CecetIn the literature, Open Innovation is presented as a strategy for innovation to compete in a quicklychanging and ‘diffused knowledge environment’. So, the question of ‘when’ is covered with a verybroad perspective with a simple answer: ‘now’. In our research we would like to empiricallyinvestigate this question and provide more concrete answers.3.2 Fitting the Current Managerial FabricClosed Innovation paradigm worked for most of the twentieth century and worked quite well. Howdo companies make the transition between different strategies for innovation? How does OpenInnovation fit into the current managerial fabric of a company?Open Innovation needs a different company culture and mindset than the conventional ClosedInnovation strategy. It does not fit into the traditional managerial fabric of a company. The movetowards open innovation model should be supported by a change in the nature and structure oforganization, with vertical disintegration of the business value chain, concentration on corecompetencies and increased outsourcing. There is an ongoing trend that businesses are increasinglycollaborating to offer complex and combined solutions to the customers. They often make allianceswith companies that they are competing with in other markets. This leads to blurring oforganizational boundaries and the development of competences, which are focused on ability towork collaboratively. This behavior needs a shift in people mindset, from a corporate behaviortowards a collaborative culture.European research has shown that there are three significant barriers for companies to innovate,namely a company culture, resources posed and a time available. In order to change a companyculture there should be management and leadership trainings organized.For almost all the companies, the shift towards an open approach to innovation required the directinvolvement of top management. This often translated into a shift of culture, whereby working withother companies became accepted and endorsed throughout the organization. There is no ‘right’blend of skills that is considered a definite enabler of OI. However, the lack of an appropriate skillsblend is seen as an obstacle to its implementation. This suggests that training is essential, rather thanmerely desirable, when preparing the company for OI. Appropriate changes in the incentive structureare essential to implement Open Innovation successfully (Mortara et al, 2009).Literature suggests that Open innovation is an entirely new strategy, which is not compatible withthe old one. The new paradigm should change the Closed Innovation approach in most of industriesin order to respond to new age market requirements.3.3 Managing Interaction between PartnersPartners in many collaborative ventures end up with disagreements on who exactly owns theIntellectual Property Rights (Elsworth, 2008).. If the Open Innovation strategy is considered as amethod which allows faster time to market at a lower cost, then collaboration between companieshave to work smoothly. So, there are some issues that should be thought about before consideringhow to operate such a venture.The first question is why partners should collaborate. Although collaboration is often considered asthe goal, companies look for more tangible reasons – each party needs something what the other has.Every party should understand the motivation of its fellow partner. Such an understanding has to begained through open discussions before collaboration begins. To avoid the possibility ofdisagreements, it is important for the partners to identify what each brings to the venture or project. 7
  9. 9. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra CecetThis will include identifying what Intellectual Property each party owns so that there can be nodisagreements at a later date about any new technology that resulted from the collaboration ratherthan from the effort of one of the partners alone.The last highly important aspect of this innovation strategy is agreement between the parties on therights of each party both during and after the venture. Will each party have equal rights and access tooutputs, or will there be restrictions? Even though unequal access may appear fundamentallyopposite to the Open Innovation idea, there may be a way to solve it, namely for partners to haverights in different territories or technical fields.The presented description of the process is focused on rights management aspect. However, weassume that there are other aspects, such as trust and motivation to contribute. We could not findinformation in literature about those intangible elements and their relation to the process.Nevertheless we assume that they are paramount in the process of Open Innovation. It would beinteresting to empirically investigate how the actual Open Innovation process is managed.3.4 Choosing Open InnovationThe literature suggests that Open Innovation cannot be supplemented within the existing ClosedInnovation strategy as the new strategy is complementary to the old one. The literature also mentionsincorporating Open Innovation is a difficult change for any company and requires a lot ofinvestment. For instance, IBM Corporation moved from traditional innovation methods towards anopen paradigm and experienced a lot of difficulties in its way. The question is why Open Innovationshould be chosen as a preferred method.H. Chesbrough mentions ‘erosion factors’ which force companies to entirely change their strategyfrom Closed Innovation to Open Innovation in order make profit. Those factors are: i. Knowledge became accessible through the Internet (public scientific debates, online journals, articles), ii. Nowadays universities are full of professors with vast experience and there is a possibility to collaborate with universities in order to innovate, iii. Dozens of universities around the world, centres of knowledge spread all over the world provide the industry with highly qualified alumni, iv. R&D department size is decreasing in large companies, v. VC (Venture Capitalists), are available to fund the investment of an idea which could be the base for a new start-up, vi. Capable suppliers are easily approachable and there is no need to question the quality of the components from external parties.In order to maintain competitive advantage a company should adapt to a new situation and align theirstrategy towards collaborative thinking. This means opening company boundaries and trusting thecompetences of external partners. However, there are a few more aspects mentioned in other sources,which explain why Open Innovation is the right method to be practiced.The growth of the Internet and opening of global markets have caused the diffusion of informationnot only by facilitating desirable information flows into a company, but also increased the difficultyof preventing information from spreading. This trend encourages the Open Innovation paradigm andcompanies have to learn to take an advantage of a process they cannot stop. 8
  10. 10. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra CecetRecently there has been a real shift in the nature of the knowledge-based assets that create value forbusiness. Brands have become more important than patents (Hunt, 2008). The rate of innovation hasaccelerated, due to the fact that getting to a market first can be more important than protectingknowledge. This challenges traditional models of closed, R&D based innovation. Companies need tolook into new and different ways to create value. This forces companies to search for new knowledgeand fresh ideas wherever they are located.An important factor, among others mentioned, is competition between rivals such as the one betweenemerging economies China and India (Farmery, 2008). Companies have to learn to work smarter.Working together under the Open Innovation strategy and bringing new products to a market, is theonly way to keep ahead of the game and survive in global market.3.5 Open-Closed InnovationFrom literature, we found that there are a lot of people working in the innovation field, who aresceptical about the whole concept of Open Innovation. They point out that even companies like IBMand Procter & Gamble, which are seen as leaders in the new innovation strategy, are still keepingcertain activities ‘closed’. Open source innovation is commonly applied to software, which isavailable to anyone who wants to use it, contribute to upgrades and improvements. However there isan issue about such products being accessible beyond a narrow, technically proficient communityand are not indeed open models. There is very limited information available about the openness ofthis innovation strategy.Another purpose of our research is to investigate whether Open Innovation is indeed such an openprocess in a Multinational Corporation setting as literature suggests. We want to question H.Chesbrough description of the practical implementation of the process. Does Open Innovationbecome ‘closed’ in some stages of the NPD project? Why does it happen? If so, can we name theprocess as Open-Closed Innovation? 9
  11. 11. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet4 RESEARCH METHODIn order to find an answer to these explorative research questions a case study was executed as aresearch method. The case study research method as an empirical inquiry investigates acontemporary phenomenon within its real-life context; when the boundaries between phenomenonand context are not clearly evident; and in which multiple sources of evidence are used (Yin, 1984).Motivation for choosing this methodology was the complex nature of the chosen research topic. Itinvolves many intangible factors such as different people and their personal experiences’ in real-lifesituations.For the main data gathering, guided interview approach was used. Questions in this session soughtdetails on corporate pursuits on innovation; what was their definition of Open Innovation and itsbenefits; how, when and why they considered this strategy; and what were the barriers faced alongthe way.In addition to the interviews, there was a creative session with the interviewees. Researchers watchedrespondents’ draw flowcharts of how they define the process, to learn how they individually interpretthe definition and scope of its application.For data analysis, the affinity or cluster approach (Bayer, H. and K. Holtzblatt, 1998) was followed.Raw data was grouped together to generate a hierarchy of themes similar to Ryan and Bernard’stheory on theme identification.4.1 Selection of ParticipantsThe study was conducted with 5 respondents. A combination of purposive random sampling wasundertaken for choosing participants. Purposive random sampling aided selection of primaryrespondents, who named close members of their corporate circle. Snowballing facilitated access tothis core group. Researchers met them only after primary respondents were interviewed, so that trustwas built.The main criterion for short-listing participants was their real involvement in projects where OpenInnovation was practiced. However, being a qualitative study with a small sample, interviewees werechosen who represented different involvements in a NPD project team. The nature of NPD projectsemphasized in this case study is of ‘as initiated by a MNC’, with external partners involved.4.2 Participants SampleTheoretical sample (not a random one) was created that included firms in the Netherlands with areputation for being innovative and dealing with Open Innovation. Experts from the field ofinnovation were then chosen from those companies through purposive random sampling.Information was gathered from key informants who were both knowledgeable about the issue beingresearched and had a role of a decision maker in Open Innovation projects. Chosen interviewees arepresented in Table 1. 10
  12. 12. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra CecetTable 1 Participants Sample Industry Responsibility Country Product (P) Consumer Small-Medium Service (S) (C) Company (SM) Business (B) Large (L) 1 Consumer Ex Vice-President of The Netherlands P C,B L Electronics, and Design, Creative Independent Consultant Consultancy 2 Technology Business Development The Netherlands S B L Company and Customer Manager 3 Creative Founder The Netherlands S B SM Consultancy 4 Consumer Innovation Officer The Netherlands P C,B L Electronics 5 Consumer General Manager of an The Netherlands P C,B L Electronics Internal Business UnitThe first interviewee is an ex Vice-President of Design for a large-scale consumer electronicscompany, apart from that an independent practitioner and academician. As a practicing expert, hedeals with large-scale design projects on organizational change, quality management and designstrategy. The consumer electronics company, a multinational company, is a global leader toppingthe list of number of patents owned.We interviewed two more employees from the same company; an Innovation Officer dealing withOpen Innovation projects at an exclusive RnD campus (set apart from the main corporate body) anda General Manager of one of the internal business units. They are our fourth and fifth intervieweesrespectively.The General Manager is responsible for a business unit dealing in design and service solutions forthe company. He has previously led strategy and customer driven innovation programs for thelighting department of the company.The second Multinational Company was a technology company, a highly innovative companyemploying 39,000 people worldwide. The company, which connects people with business andtechnology, is innovating with partners, suppliers, academics and researchers. The interviewee,second in the list, is a Business Development and Customer Manager. He has considerableexperience working with Open Innovation on past and current projects.The third company we approached was a creative consultancy, a small-scale company. Despite itssize, this company was chosen because it helps clients to innovate and is highly competent in allinnovation methods. The third interviewee in the list is a founder of the company; he has personalexperiences in collaborating with various independent practitioners and provides coaching in theinnovation field for big companies. 11
  13. 13. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet4.3 Data collection procedureParticipants were contacted through email. An introduction about the topic of our research was givento acquire their interest. Each interview took about 2 hours and consisted of two parts: a 90 minutesquestion and answer session, and a 30 minutes creative session.4.3.1 Question and Answer SessionTo gather information for explorative research questions, interview guide approach was used toconduct interviews. Themes were specified in advance as key or primary questions, in an outlineformat. The ordering and wording of the sub-questions was formulated through the course of theinterview (Patton, 2002). The interviews with all the 5 respondents had a nature of a detaileddiscussion rather than a one-sided question and answer session. Here in, the respondents shared keyinformation about their experiences with various project successes and failures, includingconfidential data.We covered nine themes in the interviews: (1) What is Open Innovation (examples, advantages anddisadvantages), (2) Why do companies choose this strategy (3) When does Open Innovation happen,(4) Partners in Open Innovation, (5) Open Innovation vs Collaboration, (6) Legal procedures, (7)Interaction between teams, (8) Open-Closed Innovation, and (9) the outcome. In our case, it wasnecessary to have all nine themes in order to cover gaps in the literature and to have a broaderunderstanding of this complex topic.There are several strengths of the interview guide approach. First, the outline increased thecomprehensiveness of data and made data collection systematic for each respondent. Second, logicalgaps in data were anticipated and filled with new information. Third, interviews remained fairlyconversational and situational. Additional questions, which appeared during the conversation, wereasked. That provided deeper insights and concrete examples from the practice. All interviews wererecorded (Patton, 2002).4.3.2 Creative SessionAlong with the guided interview session, there was also a second part of the interview called acreative session. The creative session took approximately 30 minutes. Colorful ‘LEGO’ blocks,white background paper and marker pens were used as helping tools to capture a process. Thisexercise was documented in a video.Interviewees were asked to demonstrate the process of Open Innovation. There were no restrictionsor requirements for the scenario they had to present. Some of the interviewees presented a broaderview about the reasons why Open Innovation is preferred. In other cases, to make task easier forparticipants with non-design background, they were prompted to demonstrate an example of aproject in practice. In most of the cases, a role play was chosen to demonstrate interaction betweenparties. Interviewers acted only as helpers in capturing the Open Innovation process. The storyboardof each video was guided by interviewees.The aim of the creative session was to sum up the discussion of the guided interview session andpresent it in a concrete and schematic way. The overall purpose of the research project was toinvestigate the true stories behind the successes and failures of innovation projects. Creative sessiontools helped participants to relate process directly to a practice and concentrate on the sequence ofactions in innovation. The outcome of the creative session was a direct and schematic illustration ofOpen Innovation process in the setting of Multinational Companies. 12
  14. 14. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra CecetThe other purpose of the creative session was to understand which points are the key aspects in theprocess of Open Innovation. Participants emphasized paramount moments of the process whilesummarizing guided interview session or describing concrete examples. This allowed researchers tocompare first part of the interview with the second and look for repetitions. Repetitions weconsidered to be key aspects. They were used for the analysis and constitute a part of the mainfindings of the research.4.4 Data AnalysisThe next step in the process was Data Analysis. We chose the affinity or cluster approach (Bayer, H.and K. Holtzblatt, 1998) since we were interested in grouping relevant information from the contentof the interviews. The affinity method allowed us to compare user statements and identify commonthemes in usage and communication across the target cohort. The points of focus were theexperiences and the views on the innovation process of the interviewees. The attached transcriptsprovide a readable version of the interviews conducted.Raw data was grouped together to generate a hierarchy of themes similar to Ryan and Bernard’stheory on theme identification. We followed the following interconnected, stages: (1)Familiarization, (2) Identifying and Indexing, (3) Charting, (4) Mapping and interpretation. Eachstage is explained along with the way that it was applied in the studyFamiliarization: Familiarization of the data involved studying the raw data and noting downrelevant information that would need to be segregated. The themes and issues were jotted down andthe ones that were considered important were marked.Identifying and Indexing: After the initial study of the raw data, we referred the study material toidentify key issues, concepts and themes according to which the data could be examined andreferenced. We had a total of nine themes and we collated all the data under these themes andindexed them according the expectation and importance level appropriated to them by theinterviewees.Charting: After we indexed all data, we captured the whole data set visually by considering theexperiences of the users and their views towards the topic. We also tagged small description notes tofurther give insight to the indexed data.Mapping and interpretation: After all the data was indexed and charted, we went through eachtheme and sub theme to identify similarities and differences and the relationship with each other. Wethen classified and labelled the interactions between each of them and constructed a model that willbe presented in the discussion below. While constructing the model, we used our previousexperiences and background as students of strategic product design to come up with a simpledefinitive and explanatory model.A similar process was undertaken for the video footage, which captured the innovation process asconceptualized and understood by the participants. The video footage also helped synchronize theraw data according to a timeline as envisaged by each participant. Each video from the individualinterviews was carefully studied to draw out key points explaining the process as applied in the realworld. The maps created by the interviewee were keys to deriving definitions of the process asexplained. This was then used to further enhance the model constructed previously to give it moremeaning. Important parts of these video clips were then compiled into a self-explanatory movie,providing an overall broader view on the Open Innovation practice, as it surfaced through ourresearch. 13
  15. 15. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet 14
  16. 16. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet5 RESULTSOpen Innovation, when asked upon for its meaning as defined by the respondents themselves, neitherof them had a concrete definition of this strategy. Rather they defined it based on the approach theirorganization applied towards innovation resulted from collaboration of internal and externalresources. Another question, which left the respondents to think, was the difference between theterms collaboration and Open Innovation. According to interviewees they didn’t see much differencein the way either of these terms were put to practice within their industries. The only distinctive wayto define a project for its respective strategy was based on its predictive outcome. The clearer the endcommodity, the lesser it scores on an open innovation scale. As also quoted by an innovationmanager, “if the outcome is already clear for a project, then it is no longer an open innovation”.Irrespective of the division of shares, an open innovation project when taken into consideration inboth larger and smaller firms must hold true to its meaning. This importance was however stressedmore during the initial phases of the project, as told by the general manager consumer electronicsbusiness. Towards approaching end of the project, when much is at stake this open attitude is turnedinto a cautious approach led by the management. This is where safeguarding value becomes a crucialstep for all partners.The aspects of a project based on which they categorized various innovation projects included; i. Internal versus External resources (human resource, financial, production facility, and etc.) ii. Super-speciality involved (acquired or developed) iii. Level of outsourcing iv. Clarity of end-outcome v. Return of value (tangible and intangible)In addition to the above aspects of a project, legal agreements acted as facilitators, whichsafeguarded interests of individual investors. As interviewees suggested if an agreement was not totake place on set terms put forward by investors, the project doesn’t go forth. “Many projects startwith a coffee and only after a mutual consent are they formally taken to the boardroom for paperwork”, ex Vice President Design (MNC). “Many collaborations die before coming out ofboardrooms”, General Manager (GM) consumer electronics business (MNC). These gave us an idea,how matching of interests and a clearer segregation of value is the first step to open innovation. As inthis case the outcome is least defined, it therefore is easier to understand why the legal process foropen innovation becomes more complex. “As soon as the proposition is made clear, interests aredivided among stake holders”, GM consumer electronics business (MNC). “This is the most fragilestage of a collaboration”, business development and customer manager for a technology companystated.In case of individuals who have a setup outside a large operating firm, open innovation is a methodadopted to pull together many others that are alike for beneficial temporary collaborations. Theseindependent entities as they state from experience work as creative vagabonds that partner for moresocially respectable initiatives. Most of which are efforts of social activism within the innovation anddesign community. One of our interviewees has led a design driven open innovation process thatstarted without any concrete assignment. People were brought together to think about ideas for thefuture and were oriented to change current paradigms. They tried to create an image of the futurewhere possible solutions could take place. Four teams of 5-8 people collaborated to come up withnew themes that later presented potential business value, and the best idea was chosen. The idea thatwon was a platform where creative people can contact companies easily or organizations that requiresuch talent. In the end, it was productized as a web based application. 15
  17. 17. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra CecetThe following sections give a more in-depth overview of themes that emerged from affinity analysisof the data from interview transcripts. Put together to give a clearer idea of themes from literature asexpressed in practice by our respondents.5.1 What is Open Innovation?From our findings, we can state that ‘Open Innovation’ is a mindset, a rationale, and outlook awayfrom the traditional innovation processes. It is beyond a contractual agreement between two or morecontributors. It is rather an attitude with an open-minded approach to create something new. It is anovel method of innovation where all the stakeholders collaborate during the process. Thecontributors and partners try to stretch outside their current scope of business using respectiveinternal domain expertise. The partners involved share a relationship, which is beyond just a buyer-supplier attitude. To summarize; open innovation as a strategy is used in order to develop somethingoutside one’s current domain, seeking support from experts in the field, in the end coming up with asolution to expand current boundaries and extract value in any form, and provides both long term andshort term incentives.The most popular example would be the Philips Senseo, with its new product dimension offered hasbeen the most talked about project within and outside Philips. Where in two experts in theirrespective fields came together, to offer each other the best of their knowledge, in order to deliver thebest product experience to the consumer.An example that ex Vice President Design of a product company also accepted as true OpenInnovation was that of Ikea. Ikea, although the least discussed example is one of the earliest andsimplest examples of Open innovation strategy. Popular Scandinavian designers were pooled tocreate their signature products, which are sold across Ikea outlets. This was a very simple strategy,with simple budget, and definitely worked to the exclusivity of vibrant designs offered at the stores.5.2 Why do companies use Open Innovation?Innovation often requires involvement of experts who would give their inputs to expand projectscope and thereby create more business value. This would mean seeking fresh ideas and conceptsapart from the in-house knowledge and competencies. It is cheaper to outsource a part of the processor in some cases the whole process itself since expertise and specialists are easily available outsideand it is more efficient to make use of their knowledge and setup. Open Innovation also occurs whenthere is an entrepreneurial push into a market. It also takes s place when something radical needs tobe achieved to disrupt the existing market. Expansion of patent portfolio can also be achieved via‘Open Innovation’ methods and processes.An interesting example as stated by our interviewees involved a regular material vendor to a productcompany, was approached for its speciality in another domain, to develop further for the productcompany’s interest. This co-development where both companies invested resources resulted in a newmaterial, which was a customization for scaled use by the product company only. This not onlyhelped develop a new competency for the stagnant business of the vendor, expanded his portfolio,and brought value beyond the old business. Similarly to the product company, it provided ainnovative material, and value above core competitors, and put the companies new materialapplication much ahead making the company as a market leader. In the end, a win-win situation. 16
  18. 18. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet5.3 Partnerships and Collaborations“Open Innovation involves all interested parties to collaborate during the innovation process. Allinvolved parties are partners, with probably unequal stakes but equal share to contribute andparticipate.”The partners or collaborators are chosen for the process depending on their competencies and therequired domain of expertise required. The partnerships usually extend beyond the mere agreementon paper and extend to the individual mindsets of the contributors. The scope of the partnership isusually marked out based on the individual aspirations and objectives. In the case of individualpractitioners or smaller firms such as SME’s, the more contributors in the partnership, the better isthe outcome. However, in the case of larger firms or MNC’s this would be a classic recipe of failureon the lines of ‘too many cooks spoil the broth’. “Partnerships are like marriage, they are only oncontract unless there is a desire to make it work from all partners.” It may also have an element ofcompromise balanced with the expected returns. If either falls short, the partnership may fail. OpenInnovation facilitates a social cohesion to create a platform to aid disruptive and creative attitudes.This results in communities and organizations being aware of each other as well as the individualparticipants. Companies coming together to work on a common goal, via the Open Innovationparadigm, make it more commercially viable and could gain long-term value as a result ofinvestment. This value is however not measured financially in terms of returns but it must justify thefinancial investment that has gone into it.A very important aspect as underlined by interviewees is the trust factor. A successful partnershipexists beyond contractual agreement and should have within itself trust, for every partner to share anidea without any hesitation. Partnership as stated by respondents defined the contribution ofinvestment and profit as well as loss incurred. Where as the use of the term collaboration, was todefine conjoint thinking and productive contribution to the task at hand. Collaboration as referred toas by a respondent, is a mindset of accepting new.This trust towards a partner also exists in the case where in the partner is an indirect competitor. Aninteresting trusts story around choosing competitor companies to innovate with would be that ofApple and Samsung. Apple and Samsung might be giants in making smart phones, and equally giantcompetitors. But Apple seeks Samsung’s chip division for the internal components of its smart phoneproduce. Here exists collaboration, for any technology upgrade that Apple seeks for its mobiledevices; it must trust Samsung to make it work without any theft of original ideas put across to thesmart phone business division.5.4 The Process as CapturedThe process of Open Innovation can be categorized based on three important influencing factors;legal procedures including Rights Management, Company Culture as the given environment forinnovation to happen, and the Scope Definition for the expected outcome for clearer resourceinvestment. These are explained below.5.4.1 Rights ManagementIn any collaboration or partnership, legalities exist to safeguard interests but the pure basis of astarting partnership is simply based on mutual trust. Initial talks to seed a partnership are alwaysbased on goodwill and trust. Only when such a mutual understanding has been established, thelegalities come into play to secure this understanding. Without a firm basis of mutual understanding,mere interests in a common goal will not get converted into results. Non-Disclosure Agreement 17
  19. 19. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet(NDA) is a beginning and not a barrier if everyone involved treats it as an integral part of theprocess. Intellectual Property Rights (IPRs) are discussed on paper; however this is only to safeguard interest and ideally should not create any conflict within the existing partnership or affect theinputs towards the desired outcome. IP sharing and distribution occurs at different stages of theprocess as soon as there is an emerging point of value that must be safe guarded. This is done jointlyunder the partnership leading to a win-win situation. During the agreement process, if the definitionof interest of each party is clear on the value of the proposition, then the stake definition is alsoclarified. Legalities also define the contribution that must be made and will be received by theindividual partners.5.4.2 Company Culture‘Open Innovation’ is more of a mindset, an attitude towards the process of innovating. Hence,company culture is a major maker or breaker of the whole innovation process within an organizationor within a partnership. The innovation team is usually segregated from the rest of the companybecause of the mindset required for the job. Whereas, the other business units think of everythingviable within the current business scope of the company, the innovation team needs to break throughthis barrier. Incubation space is required and provided to allow innovation free of any influence. Arecent phenomenon as stated by interviewees, company culture supportive of innovation encouragesteaming up with other individuals and to work openly with others. Innovation companies arebecoming flexible to accept and test newer outcomes before short listing based on face value.Company culture is economy driven in the corporate, which is contrasting from innovation cells. Asa common practice within MNCs such RnD setups are put outside the influence of such roadmaps.The innovation projects and personnel report to lesser hierarchy but higher in the rank officers thathave budget and experience to steer such game changing projects. The projects once have clearedtest beds are then put across to managers that are experience in the ‘go to market’ phase. Here theycan fine-tune the innovation to achieve best results in the real commercial space. Provided theinnovativeness is not cut down. The High Tech campus by Philips, and work cultures as improvisedby Google are to provide employees for happier environments that allow freedom of thoughttranslating into innovations and patents.The down side, as marked by an interviewee, is when there is an organizational change at the higherlevel it directly effects the innovation projects in incubation. The budget and importance arefluctuated depending on the personal vision as aspired by the individual.Company culture is also reflected in the respect one organization holds for the other irrespective ofthe size. As per the Creative consultant we interviewed, many a times bigger companies dictateresults of an innovation project when partnering with a smaller firm. This according to theinterviewees from the MNC is not appreciated as Open innovation. Within the frame work of openinnovation as described by the respondents, the differences are dissolved leaving only the intellectualcapita as the key attribute. “The idea is to have a win-win situation at the end for both”, and “not tosqueeze all juice out of the smaller or less powerful company”. In a partnership, a bigger companyshould not overshadow a smaller company, as it is against an open-minded framework. Since theidea is to work together and not for each other.Symbian a software development company and main supplier of the operating system for Nokiaphones, was bought over by Nokia. But the two continue to work together as a parent and daughtercompany without the barrier of big and small. The two entities still separate, work together ondeveloping the best solutions for the mobile phone business without overriding each others expertise. 18
  20. 20. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet5.4.3 Scope DefinitionThe scope definition is sometimes important, especially in a commercial setup, so that all involvedparties know their role, their involvement and the expectations from each other. The clearer thescope of work area, the better the result will be. But the scope should remain only in the meaning ofthe word rather than enforce it during the practical process, which would make the outcome controltoo strict. The scope should be open and agreed upon rather than conflicting and restrictive. Thescope should also have within it the possibility to change and modify as the project progresses so thateach partner can justify its contribution effectively. 19
  21. 21. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet6 DISCUSSION6.1 Open Innovation for NPDTechnology has been advancing at a very high rate, leaving organizations to struggle to find theirbest fit in order to sustain in the competitive market. As quoted by one of our interviewee’s,“technology push market scenarios have changed into a more ‘Entrepreneurial Go to’ market”. Thereason as to why it is regarded as an entrepreneurial approach, are the characteristics of venturinginto unknown territories, with an ability to take the risk of doing so.Open Innovation boils down to the meaning of a ‘mindset’ of organizations or individuals who gettogether for the purpose of creating something radically new. It is not a one set recipe, rather anopen-minded approach to problem solving or changing the current. It can be called as ‘Open-MindedInnovation’. The term as coined by Chesbrough is fairly new to the field of innovation, and is facingmultiple twisted applications.6.2 Open Innovation; a Strategy for Radical InnovationCompanies do not find difficulties when innovating in an existing market and with existing products,i.e. dealing with an incremental innovation. Those innovations are seen in the market as small yetinnovative. On the other hand, open innovation should be approached as a strategy, if we deal withradical innovations, i.e. bringing new products or services into new markets. As mentioned by one ofour interviewee, this type of innovation can be regarded as ‘future telling’. Roberto Verganti’sdefinition of design driven innovation, is much in line with how radical innovation is applied. Asexplained in fig. 1 (Verganti, R. 2009), radical innovation results bring about a change in theperceived meaning along side technological innovativeness that a product or service must offer,where the focus is more on the meaning. Open innovation, also deals with this societal and culturalchange that can be brought about with its introduction, typically when undertaking use and/ordevelopment of newer technologies. Thus, the position of Open Innovation in this matrix is limitedto the overlap of changing means through design driven innovation with radical change brought bytechnology. It can therefore be tagged as the most ‘disruptive’ type of innovation.A valid reason for approaching Open Innovation, only when it has to end up in something disruptive(or so it is sought to be), can be explained by the fact, that a company in such a case would betypically stepping outside its set boundaries. These boundaries are the ones defined by existing in-house competence to develop incremental solutions. These incremental solutions are rather easilyachievable as they still pertain to the current domain or area of expertise of the company, the corebusiness. However something more disruptive in nature needs extra outside attention.In a regular setting, to develop projects that usually end up as open innovation initiatives it would bevery costly for a company to develop the required competence in house. It is however cheaper tohave access to super-specialty as mastered by another firm in parallel with the project demands. Thispractice not only saves up resources that would be spent for infrastructural development, but alsoassures top quality input. It is therefore a comparatively less costly process than the formallypracticed closed-innovation. The involvement of multiple partners or stakeholders reduces financialrisk or loss as incurred by one. The associated risks for a disruptive new innovation are very high,the company is not sure about its outcome. On the contrary the benefit of open innovation is that“you bring your idea as far as possible and with as little money as possible, before theimplementation investment should be done”. As several partners take a risk of losing their peoples’ 20
  22. 22. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecettime, there is less risk of losing money that otherwise would be spent in a ‘buyer-supplier’relationship.Apart from the financial benefits, other advantages of more vibrant input and fresher outlook add tothis list. Coming back to the mindset and culture that Open Innovation inculcates, an environmenthighly conducive for innovation is created. The involvement of individuals’ or/of firms withdifferent ideologies bring newer perspectives and knowledge. This can be regarded as the optimumacceptance of design discourse (Verganti, R. 2009). Here, all contributors can be from outside theproject circle and their involvement controlled by their scope of contribution to the purpose (as pertheir individual expertise). This indirectly makes use of investments of others for the benefit of self,especially during research. Researches with overlaps with the target user and/or the context of studycan aid each other for better end solutions. E.g. Companies tapping into better understanding of adomestic space to develop better experiences would range from furniture, to textiles, to lighting, toappliances, etc. But the area and depth of investigation remains the same, i.e. to study the domesticenvironment at a given time and context. Joint research can therefore reduce the invested resources(time, money, and man power) and make use of more expertise. Figure 2. Roberto Verganti’s Matrix of Design Driven InnovationAlthough the design discourse is not applied in the true meaning of opening sharing information andknowledge from the field, in the current scenario it is treated as a buyer-supplier relationship. In sucha scenario, a bigger company would hire a smaller company oo firm to carry out certain tasks withall deliverables covered under a contract.6.3 Fitting the Current Managerial FabricIf a company chooses Open Innovation as a strategy, it assuredly brings a change within thecompany’s structure and thinking. “It does not fit, it makes a change!” 21
  23. 23. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra CecetIn terms of goal, open innovation is not very different from closed innovation; the second one is arather common strategy for most of companies. Both these approaches aim at coming up withsomething new. It could be a new application of a technology, or its application to find a solution toan existing problem, answer a demand. Apart from these Open Innovation gives way to somethingwhich is nonexistent and only takes form through the entirety of this project process.“However, open innovation is not different to closed innovation, in terms that it works only if thereis a direct hard commercial interest.” It is logical for a company to expect return of their investmentin any venture be it an NPD project. However, it is important to understand two things:1. The expected return of a firm’s investment. The end expectation is value derivation from theproject, as much as possible. The value is not necessarily monetary; it could be both tangible andintangible. Value acquired in terms of Brand Equity is equally important, as in the end it can bemeasured to have converted into a financial gain. If initiating an Open Innovation project can gainincrease in the value of the Brand it is equally valuable as a financial profit gain. The money investedcan be compared to a budget allocation for various advertising media. Here the outcome can be suchthat there is a radical innovation that leads to free media coverage and expansion.2. The expected time of return. A long-term interest would include brand development; whereasshort term could be looked at as profitable sales. The irony of the current situation in companies isthat the later is more sought after. If there is no short-term benefit visible to the management, it isdifficult to get a ‘go’ for a project. Many companies do not seek long-term benefits, and lackforesight into how an innovation might develop and add to the business in future. An interestingexample here would be to mention the Xerox Parc who developed innovations pertaining to thedevelopment of ‘Personal Computing’ (PC). However, it failed to productize these innovations sincethey did not contribute to the parent company’s core business. These innovations have beensuccessfully exploited by technology giants Microsoft and Apple. Personal computers revolutionizednot only the way users performed basic work but also changed the paradigm of media consumption,bringing about massive changes in the supporting industries like entertainment and leisure. This iswhat a disruptive innovation can do.With changing outlooks and paradigms starting in the 70’s by Xerox and in the 80’s by Sony andPhilips, companies came up with innovation strategies to combat organizational restrictions posedupon internal workforce. Companies did not see much value in investing in research, at that momentbusiness managers only wanted improvement to happen, in order to make existing products andservices better or faster. The idea was to sell as much, with as less investment as possible. Thisslowly translated into a company culture, which gave the opportunity to employees and also peoplefrom outside to work on smaller innovation projects. These projects were experimental and did nothold true for the real product portfolio. However, capital was kept aside for the same and was called‘incubation money’. These projects transformed into a strategy that posed only one restriction thatinnovation should fit in current, developing or future markets. The idea was now to let it happenoutside the regular streams, regular paths, or regular ways of working. The incubation board, whichwere more like board of investors, conducted the stage gate process together. “They looked at themerits of an idea, is this a Seed, can we help it grow, should we give it water?”Even today, the management poses a control over the outcomes of any innovation project, as a lot offuture interest and investment benefit lies in such radical projects. We discuss more about the controlpossessed by these managements teams in the section ‘Closing Open innovation; Open-ClosedInnovation.’ 22
  24. 24. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet6.4 Choosing the Correct PartnersChoosing the right partners is the most critical part of the Open Innovation process. It is important toknow what their competences are, to what extent will they be able with those skills to create ananswer. Equally important is the existence of similarity of interest and motivation from the project. Ifboth partners expect different returns, it will not be a very well steered project, and would encouragemore conflict of thought than any progress. In order to be productive, partners must comply with andrespect each other’s wishes from the outcome.Good partners should have come together with an open mindset to accept what is new on offer. Theflexibility to move outside their current domain is a must if something radical is expected at the end.Stagnating approaches, such as not deviating from the current ideas and practice, are against thewhole concept of such an enriching partnership. Here the fear of losing IP is predominant, wherepartners fear losing ‘great’ ideas. Therefore partners do not bring ideas to the table and therebyunknowingly losing out on further development potential of these safeguarded ideas. This brings usto the next important element needed in such a partnership - ‘trust’. It is all about sharing ideas andcompetences to collaborate with an open mind in order to bring a socio-cultural change in themeaning of products and services, from what they currently exist. Therefore trusting the other sidewill only aid into a synergetic collaboration and a result in a fruitful outcome.There is another quality of Open Innovation over the other forms of Innovation, that is, it facilitateswithout discrimination a partnership between large and small sized firms. Here the stock exchangerates do not play a role during collaboration; it is limited to the ideas and the quality of knowledgeexchange that can occur. It is no longer about a bigger fish swallowing a smaller one; instead it isabout equal co-operation and respect to result in a win-win situation for all contributors.If Google hadn’t teamed up with Samsung and vice versa, to provide Android for the smart phonemarket, it would have not been able to capture the mobile OS market as much alone with its phoneGoogle Nexus. This partnership is remarkable, where both are together battling against the race setby Apple. Contributing hardware and software, not only does Google provide Android for Samsung,Samsung on the other hand suppliers hardware such as LED screens to Google for its phone. And theco-branding so strong has played to their advantage against market leaders Nokia, LG, HTC, andnow competing Apple.6.5 Managing Interaction between Open Innovation TeamsAn organization and management of open innovation is different. In an open setting, a managementsetup that might lead to innovation is not immediately arranged, it has to grow.However, the first thing to be done is to make sure that people can work together. There should be aworking culture created. A group has to develop understanding of each other with one vision and onegoal. If people do not believe in a possible perspective then it is doomed to fail.So, how to manage this culture? In a traditional company there is an existing culture. People use thesame language and same procedures. The questions, which open innovation deals with, arefollowing: How to create a trust between those people who had met each other on-line, or just once?They do not know each other. Can that person deliver what he/she promises? How to createchemistry in a group? If we are talking about closed setting, are those things are already set? Due othese, working together from opportunity identification towards the project takes time. Talking aboutsocial projects done in open innovation setting, there is hardly anybody who can devote all time to aproject because it is done in free time. There is a crucial advantage here, personal interest is veryhigh. People do it because they are highly motivated, very skilled, looking for recognition or becausethey have a beautiful idea. 23
  25. 25. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra CecetTo make it work, there is a need of creating a glue, or oil, so there is a need of a leadership. In closedsetting company there is almost all time one leader. On one hand it is convenient as it leads to a verystructured process. On the other hand, it also leads to predictable solutions. That could be a reasonwhy in traditional companies radical innovation is not taking place.However, open innovation is process of balancing in time four aspects: money, people, market andproduct. We cannot say in the very beginning of a project: “we need to develop that technology. Weneed to develop that market insight”. The idea should be developed first. It is like a spider diagram.All different aspects like amount of investment, market, product and human resource managementhave to be developed with the equal speed. But at the certain moment of the process certain aspectsare more important, because they are conditional for progress. For instance, if there is a need forinvestment, then the finance side is important, as a project will get stuck. At the certain moment it isimportant to validate technological possibilities or re-evaluate a proposition towards a market.6.6 Collaboration versus Open InnovationNaming alliances, mergers, collaborations, partnerships and open innovation are various strategieswhere partners come together to create value, and share this value as per their contractual agreement.Open innovation and collaboration similarly share the quality of a partnership creating innovation.However the most common definition as we came across through our interview differentiated thesetwo strategies based on the clarity of the end outcome before starting the project. Open Innovation inthe end is a strategy, which is more than just a buyer supplier relationship even under collaboration.It is to create from new a value unique to both the collaborating partners. Where in both cometogether on the basis of trust and a mindset to create something radical, that would expand theircurrent core businesses. Avoiding uncertainties is a trait of any business but open innovation allowsthis risk taking, where all partners share the stakes. It is collaboration. If companies are investigatingin an open way what the future might bring, that might influence a strategy of both companies. Thatis open innovation.6.7 Closing Open Innovation; Open-Closed innovationThis section discusses the research question; is Open Innovation as an approach carried out throughall stages of NPD? Or in some stages of the project does it become ‘Closed Open Innovation’?Stage gate moment is crucial. (Fig. 1) This is a decision making phase for the companies, where theywould decide to invest hundreds of millions in a project that actually leads to nothing. That happensin big companies more often, as there is much more to lose. A huge investment is spending onapplications of technology that does not reach a market in the end can be a huge lose incurred. Moreover value lost would also include the market reputation and brand image. These losses are muchlarger than a no financial profit situation.People invest because they like an idea, they believe in a technology. However there are certainbiases to a personal idea that restricts many innovators from evaluating their project correctly andcritically. They don’t look at all aspects, all conditions, but they go because it is like a hobby. Sostage gate process is one way to prevent a company, process or project from ineffective innovation,that is not an innovation, as it will never reach the market.Closing open innovation is also reducing the risk. Risk reduction is actually defined by twovariables: impact of success and failure. Other parameter is the probability associated with bothsuccess and failure. So what companies try to do is to reduce the probability of a failure. As wellclosing open innovation process wants to provide the conditions for success. 24