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Innovation research
The 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
The Open Innovation Process and
               Open-Closed Innovation
SPD Research Methodology ID4355              Sandra Cecet (4118782)        Sanya Khanna (4122844)

  INVESTIGATING THE EXCITING STORIES BEHIND THE SUCCESSES
            AND FAILURES OF INNOVATION PROJECT
                         JUNE 2011


ABSTRACT
Open Innovation – what does it mean in the real world? The paper tries to find out an answer to the
question by exploring the process of Open Innovation through interviews with experts of this field
and focusing on bigger companies and their innovation strategies. An intriguing insight was that
companies tended to prefer Open Innovation, as a strategy, for radical projects, especially when they
did not have all competencies in-house. The reasons for adopting such a strategy were faster and
cheaper development, shared responsibility and additional intellectual contribution to the projects.
The projects usually produced better results and higher customer satisfaction since emotion and trust
are given precedence in an open innovation environment.
Our research touched upon the question, whether Open Innovation is indeed such an open paradigm
as suggested by Henry Chesbrough. During the research, it came across that there are different
working agreements between collaborators that limit the flow of information. Hence, we termed the
practical implementation of the ‘Open Innovation’ process as ‘Open-Closed Innovation’ implying
that the openness of the process depended upon various conditions


KEYWORDS
Open Innovation, Closed Innovation, Open-Closed Innovation, Multinational Companies, New
Product Development, Radical Innovation, Mindset, Collaboration.
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
The Open Innovation Process and Open-Closed Innovation
                                   Sanya Khanna and Sandra Cecet

!
1   INTRODUCTION
Open Innovation has caught some spark after Henry Chesbrough coined this term in his book, ‘Open
Innovation: The New Imperative’ (2003). Prof. Chesbrough’s more recent and preferred definition of
the term is, “Open innovation is the use of purposive inflows and outflows of knowledge to
accelerate 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, and
internal 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 literature
available on it. In practice, ‘Open Innovation’ has become a dynamic term that has varied
applications and interpretations. It is therefore interesting to investigate when, how, and why a
company approaches ‘Open Innovation’ as a strategy. In this report we focus on the process as
implemented in the real world. We also tried to answer if ‘Open Innovation’ is indeed such an open
paradigm as existing literature suggests.
The concept of open innovation is more effective in today’s world where availability of private
venture capital along with a huge pool of mobile talent has made it possible to innovate beyond the
secluded fortresses of dedicated labs. Companies on the other hand can gain through successful
partnerships that utilize its investments in research making the proposition a win-win situation for
both. One of the classic cases, often cited, is the failed opportunity of Xerox and its Palo Alto
Research Center (PARC) to convert research into commercially viable products. Technologies such
as Ethernet and the graphical user interface (GUI) developed by them were considered not promising
enough 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 is
practiced, we conducted a literature survey followed by interviews with industry leaders, experts and
professionals who are associated with this new paradigm in their respective fields. We added a
creative element, which was shot in the form of a movie, to the simple Q&A of the interview pattern
to understand the mental process behind the implementation of the paradigm.
The paper is divided into sections containing (a) important suggestions from literature, which justify
our research questions (b) findings from interviews (c) discussion on the comparisons of theory as
proposed in literature and practical as practised in the real world (d) conclusion, limitations and the
scope for future research.




                                                  3
The Open Innovation Process and Open-Closed Innovation
                                                Sanya Khanna and Sandra Cecet



2      LITERATURE REVIEW
First, we would like to elaborate on the terms Closed Innovation, Open Innovation, and subsequently
the term Open-Closed Innovation. Understanding these processes will give the reader a better
understanding 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 and
Development approach, which was the mainstay of innovation for most the 20th century. In this
approach, a company researched and developed its product internally without any aid from external
parties.
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, slower
speed of the process due to a rigid and inflexible business model used. As well, author compares
companies working in this setting to medieval fortresses, which rigorously keep control and are
inaccessible to outsiders. However, lots of companies still work under the same Closed Innovation
model.


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 shows
the necessity of letting ideas flow out of the corporation, in order to find better sites for their
monetization. Parallely, ideas also flow into the company, as new offerings and new business
models. 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
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 Innovation2
The Open Innovation model exploits diffusion of knowledge rather than ignoring it. There are a lot
of debates going on about this new strategy for innovation, which probably has a competitive
advantage. According to literature, Open Innovation is a more efficient way of working in a rapidly
developing world than a traditional slower internal Research and Development approach, called
Closed Innovation.


2.3     What is Open-Closed Innovation?
Open-Closed Innovation is a term introduced here to describe the way companies are innovating in
the present scenario within an open  innovation environment. The term indicates that the innovation
is not an open process in its entirety. It emphasizes that openness of the process depends on multiple
conditions such as different working agreements, which control information flow between
collaborating parties.
There has been a considerable change in the industry after the ‘Open Innovation’ book was
introduced by Henry Chesbrough in 2003. Open Innovation is an umbrella concept covering specific
ideas such as consumer-led innovation (e.g., Lego’s development of robot building sets) to popular
and distinct ones such as the open source movement (e.g., Linux development). However, processes

2
  The famous Funnel model as put together by Henry Chesbrough is a reflection of the innovation process adapted by
innovation firms.


                                                        5
The Open Innovation Process and Open-Closed Innovation
                                   Sanya Khanna and Sandra Cecet

that are very open in their core are not in the scope of our research These include processes such as
consumer-led innovation, open source movement, collaboration between individuals, and innovation
carried in foundations and associations.
Our research focuses on innovation processes followed in larger companies, such as MNCs, that are
normally capable of leading innovation from an idea generation stage, to its introduction in the
market. Nevertheless, such companies may decide to partner with another company as and when
they see a need for that. The answers to why is the Open-Closed Innovation strategy more suitable
for innovation happening in such a setting are a part of our research focus and we will discuss these
in detail through our findings.


3     LITERATURE REVIEW - THE INNOVATION PROCESS

3.1   Current Strategy
One of the first questions that is posed is when should Open Innovation be chosen as a strategy and
in which stage of New Product Development (NPD). The literature does not provide a definite
answer about any particular situation or stage in the NPD. A broader perspective regarding the
environment, where the process will be implemented, is required. In the present case, this
environment is called ‘diffused knowledge environment’, which exists as the outcome of processes
such as globalization, spread of higher education, the Internet, on line accessible knowledge, online
communities, 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 competitive
entry in many industries. According to H. Chesbrough, internal industrial research is less effective
nowadays. While innovation is critical, the usual process of managing innovation does not seem to
work anymore. Although ideas and external capital are plentiful, companies struggle to find and
finance 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 did
the most research in their respective industries and earned most of profits as well. However, these
days, the former industry leaders are finding remarkably strong competitors from many newer
companies: Intel, Microsoft, Sun, Oracle, Cisco, Genentech, Amgen, and Genzyme, who conduct
little or no basic research of their own. Although these newer crop of companies have been very
innovative, they have also gained from the research discoveries outside their companies. The author
suggests that companies should realign innovation strategy in order to answer the demand of a
rapidly changing environment.
Richard Wilding in ‘Connect and Develop’ article for ‘The Innovation Handbook’ says, ‘Open
Innovation approach was taken to realign company’s business to face the demands of the new
millennium’. The author describes Procter & Gamble’s Open Innovation Program, where the
approach 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 to
innovate as well, perhaps better, by doing it faster and cheaper. This would save time on
development as compared to the Closed Innovation strategy, which was previously followed by the
company. This initiative emphasized the need for P&G to reach out to external parties for innovative
ideas. The company’s rationale was simple: P&G had more than 8,600 scientists working on future
technologies but outside P&G there were 1.5 million scientists. The question was why should the
company then try to invent everything internally?’ In addition, the ideas that P&G generates in its
labs and that are not picked up by its internal business are available to other firms; even direct
competitors, after three years. (Wilding, 2008).

                                                 6
The Open Innovation Process and Open-Closed Innovation
                                    Sanya Khanna and Sandra Cecet

In the literature, Open Innovation is presented as a strategy for innovation to compete in a quickly
changing and ‘diffused knowledge environment’. So, the question of ‘when’ is covered with a very
broad perspective with a simple answer: ‘now’. In our research we would like to empirically
investigate this question and provide more concrete answers.


3.2   Fitting the Current Managerial Fabric
Closed Innovation paradigm worked for most of the twentieth century and worked quite well. How
do companies make the transition between different strategies for innovation? How does Open
Innovation fit into the current managerial fabric of a company?
Open Innovation needs a different company culture and mindset than the conventional Closed
Innovation strategy. It does not fit into the traditional managerial fabric of a company. The move
towards open innovation model should be supported by a change in the nature and structure of
organization, with vertical disintegration of the business value chain, concentration on core
competencies and increased outsourcing. There is an ongoing trend that businesses are increasingly
collaborating to offer complex and combined solutions to the customers. They often make alliances
with companies that they are competing with in other markets. This leads to blurring of
organizational boundaries and the development of competences, which are focused on ability to
work collaboratively. This behavior needs a shift in people mindset, from a corporate behavior
towards 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 company
culture there should be management and leadership trainings organized.
For almost all the companies, the shift towards an open approach to innovation required the direct
involvement of top management. This often translated into a shift of culture, whereby working with
other 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 skills
blend is seen as an obstacle to its implementation. This suggests that training is essential, rather than
merely desirable, when preparing the company for OI. Appropriate changes in the incentive structure
are essential to implement Open Innovation successfully (Mortara et al, 2009).
Literature suggests that Open innovation is an entirely new strategy, which is not compatible with
the old one. The new paradigm should change the Closed Innovation approach in most of industries
in order to respond to new age market requirements.


3.3   Managing Interaction between Partners
Partners in many collaborative ventures end up with disagreements on who exactly owns the
Intellectual Property Rights (Elsworth, 2008).. If the Open Innovation strategy is considered as a
method which allows faster time to market at a lower cost, then collaboration between companies
have to work smoothly. So, there are some issues that should be thought about before considering
how to operate such a venture.
The first question is why partners should collaborate. Although collaboration is often considered as
the 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 be
gained through open discussions before collaboration begins. To avoid the possibility of
disagreements, it is important for the partners to identify what each brings to the venture or project.


                                                   7
The Open Innovation Process and Open-Closed Innovation
                                      Sanya Khanna and Sandra Cecet

This will include identifying what Intellectual Property each party owns so that there can be no
disagreements at a later date about any new technology that resulted from the collaboration rather
than from the effort of one of the partners alone.
The last highly important aspect of this innovation strategy is agreement between the parties on the
rights of each party both during and after the venture. Will each party have equal rights and access to
outputs, or will there be restrictions? Even though unequal access may appear fundamentally
opposite to the Open Innovation idea, there may be a way to solve it, namely for partners to have
rights in different territories or technical fields.
The presented description of the process is focused on rights management aspect. However, we
assume that there are other aspects, such as trust and motivation to contribute. We could not find
information 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 be
interesting to empirically investigate how the actual Open Innovation process is managed.


3.4     Choosing Open Innovation
The literature suggests that Open Innovation cannot be supplemented within the existing Closed
Innovation strategy as the new strategy is complementary to the old one. The literature also mentions
incorporating Open Innovation is a difficult change for any company and requires a lot of
investment. For instance, IBM Corporation moved from traditional innovation methods towards an
open paradigm and experienced a lot of difficulties in its way. The question is why Open Innovation
should be chosen as a preferred method.
H. Chesbrough mentions ‘erosion factors’ which force companies to entirely change their strategy
from 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 their
strategy towards collaborative thinking. This means opening company boundaries and trusting the
competences 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 information
not only by facilitating desirable information flows into a company, but also increased the difficulty
of preventing information from spreading. This trend encourages the Open Innovation paradigm and
companies have to learn to take an advantage of a process they cannot stop.




                                                     8
The Open Innovation Process and Open-Closed Innovation
                                   Sanya Khanna and Sandra Cecet

Recently there has been a real shift in the nature of the knowledge-based assets that create value for
business. Brands have become more important than patents (Hunt, 2008). The rate of innovation has
accelerated, due to the fact that getting to a market first can be more important than protecting
knowledge. This challenges traditional models of closed, R&D based innovation. Companies need to
look into new and different ways to create value. This forces companies to search for new knowledge
and fresh ideas wherever they are located.
An important factor, among others mentioned, is competition between rivals such as the one between
emerging 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 the
only way to keep ahead of the game and survive in global market.


3.5   Open-Closed Innovation
From literature, we found that there are a lot of people working in the innovation field, who are
sceptical about the whole concept of Open Innovation. They point out that even companies like IBM
and Procter & Gamble, which are seen as leaders in the new innovation strategy, are still keeping
certain activities ‘closed’. Open source innovation is commonly applied to software, which is
available to anyone who wants to use it, contribute to upgrades and improvements. However there is
an issue about such products being accessible beyond a narrow, technically proficient community
and are not indeed open models. There is very limited information available about the openness of
this innovation strategy.
Another purpose of our research is to investigate whether Open Innovation is indeed such an open
process in a Multinational Corporation setting as literature suggests. We want to question H.
Chesbrough description of the practical implementation of the process. Does Open Innovation
become ‘closed’ in some stages of the NPD project? Why does it happen? If so, can we name the
process as Open-Closed Innovation?




                                                  9
The Open Innovation Process and Open-Closed Innovation
                                   Sanya Khanna and Sandra Cecet

4     RESEARCH METHOD
In order to find an answer to these explorative research questions a case study was executed as a
research method. The case study research method as an empirical inquiry investigates a
contemporary phenomenon within its real-life context; when the boundaries between phenomenon
and 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. It
involves many intangible factors such as different people and their personal experiences’ in real-life
situations.
For the main data gathering, guided interview approach was used. Questions in this session sought
details on corporate pursuits on innovation; what was their definition of Open Innovation and its
benefits; how, when and why they considered this strategy; and what were the barriers faced along
the way.
In addition to the interviews, there was a creative session with the interviewees. Researchers watched
respondents’ draw flowcharts of how they define the process, to learn how they individually interpret
the 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’s
theory on theme identification.


4.1   Selection of Participants
The study was conducted with 5 respondents. A combination of purposive random sampling was
undertaken for choosing participants. Purposive random sampling aided selection of primary
respondents, who named close members of their corporate circle. Snowballing facilitated access to
this core group. Researchers met them only after primary respondents were interviewed, so that trust
was built.
The main criterion for short-listing participants was their real involvement in projects where Open
Innovation was practiced. However, being a qualitative study with a small sample, interviewees were
chosen who represented different involvements in a NPD project team. The nature of NPD projects
emphasized in this case study is of ‘as initiated by a MNC’, with external partners involved.


4.2   Participants Sample
Theoretical sample (not a random one) was created that included firms in the Netherlands with a
reputation for being innovative and dealing with Open Innovation. Experts from the field of
innovation were then chosen from those companies through purposive random sampling.
Information was gathered from key informants who were both knowledgeable about the issue being
researched and had a role of a decision maker in Open Innovation projects. Chosen interviewees are
presented in Table 1.




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Table 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 Unit


The first interviewee is an ex Vice-President of Design for a large-scale consumer electronics
company, apart from that an independent practitioner and academician. As a practicing expert, he
deals with large-scale design projects on organizational change, quality management and design
strategy. The consumer electronics company, a multinational company, is a global leader topping
the list of number of patents owned.
We interviewed two more employees from the same company; an Innovation Officer dealing with
Open Innovation projects at an exclusive RnD campus (set apart from the main corporate body) and
a General Manager of one of the internal business units. They are our fourth and fifth interviewees
respectively.
The General Manager is responsible for a business unit dealing in design and service solutions for
the company. He has previously led strategy and customer driven innovation programs for the
lighting department of the company.
The second Multinational Company was a technology company, a highly innovative company
employing 39,000 people worldwide. The company, which connects people with business and
technology, is innovating with partners, suppliers, academics and researchers. The interviewee,
second in the list, is a Business Development and Customer Manager. He has considerable
experience working with Open Innovation on past and current projects.
The third company we approached was a creative consultancy, a small-scale company. Despite its
size, this company was chosen because it helps clients to innovate and is highly competent in all
innovation methods. The third interviewee in the list is a founder of the company; he has personal
experiences in collaborating with various independent practitioners and provides coaching in the
innovation field for big companies.




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4.3   Data collection procedure
Participants were contacted through email. An introduction about the topic of our research was given
to acquire their interest. Each interview took about 2 hours and consisted of two parts: a 90 minutes
question and answer session, and a 30 minutes creative session.


4.3.1 Question and Answer Session
To gather information for explorative research questions, interview guide approach was used to
conduct interviews. Themes were specified in advance as key or primary questions, in an outline
format. The ordering and wording of the sub-questions was formulated through the course of the
interview (Patton, 2002). The interviews with all the 5 respondents had a nature of a detailed
discussion rather than a one-sided question and answer session. Here in, the respondents shared key
information about their experiences with various project successes and failures, including
confidential data.
We covered nine themes in the interviews: (1) What is Open Innovation (examples, advantages and
disadvantages), (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 was
necessary to have all nine themes in order to cover gaps in the literature and to have a broader
understanding of this complex topic.
There are several strengths of the interview guide approach. First, the outline increased the
comprehensiveness of data and made data collection systematic for each respondent. Second, logical
gaps in data were anticipated and filled with new information. Third, interviews remained fairly
conversational and situational. Additional questions, which appeared during the conversation, were
asked. That provided deeper insights and concrete examples from the practice. All interviews were
recorded (Patton, 2002).


4.3.2 Creative Session
Along with the guided interview session, there was also a second part of the interview called a
creative 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. This
exercise was documented in a video.
Interviewees were asked to demonstrate the process of Open Innovation. There were no restrictions
or requirements for the scenario they had to present. Some of the interviewees presented a broader
view about the reasons why Open Innovation is preferred. In other cases, to make task easier for
participants with non-design background, they were prompted to demonstrate an example of a
project in practice. In most of the cases, a role play was chosen to demonstrate interaction between
parties. Interviewers acted only as helpers in capturing the Open Innovation process. The storyboard
of each video was guided by interviewees.
The aim of the creative session was to sum up the discussion of the guided interview session and
present it in a concrete and schematic way. The overall purpose of the research project was to
investigate the true stories behind the successes and failures of innovation projects. Creative session
tools helped participants to relate process directly to a practice and concentrate on the sequence of
actions in innovation. The outcome of the creative session was a direct and schematic illustration of
Open Innovation process in the setting of Multinational Companies.


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The other purpose of the creative session was to understand which points are the key aspects in the
process of Open Innovation. Participants emphasized paramount moments of the process while
summarizing guided interview session or describing concrete examples. This allowed researchers to
compare first part of the interview with the second and look for repetitions. Repetitions we
considered to be key aspects. They were used for the analysis and constitute a part of the main
findings of the research.


4.4   Data Analysis
The 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 content
of the interviews. The affinity method allowed us to compare user statements and identify common
themes in usage and communication across the target cohort. The points of focus were the
experiences and the views on the innovation process of the interviewees. The attached transcripts
provide a readable version of the interviews conducted.
Raw data was grouped together to generate a hierarchy of themes similar to Ryan and Bernard’s
theory on theme identification. We followed the following interconnected, stages: (1)
Familiarization, (2) Identifying and Indexing, (3) Charting, (4) Mapping and interpretation. Each
stage is explained along with the way that it was applied in the study
Familiarization: Familiarization of the data involved studying the raw data and noting down
relevant information that would need to be segregated. The themes and issues were jotted down and
the ones that were considered important were marked.
Identifying and Indexing: After the initial study of the raw data, we referred the study material to
identify key issues, concepts and themes according to which the data could be examined and
referenced. We had a total of nine themes and we collated all the data under these themes and
indexed them according the expectation and importance level appropriated to them by the
interviewees.
Charting: After we indexed all data, we captured the whole data set visually by considering the
experiences of the users and their views towards the topic. We also tagged small description notes to
further give insight to the indexed data.
Mapping and interpretation: After all the data was indexed and charted, we went through each
theme and sub theme to identify similarities and differences and the relationship with each other. We
then classified and labelled the interactions between each of them and constructed a model that will
be presented in the discussion below. While constructing the model, we used our previous
experiences and background as students of strategic product design to come up with a simple
definitive and explanatory model.
A similar process was undertaken for the video footage, which captured the innovation process as
conceptualized and understood by the participants. The video footage also helped synchronize the
raw data according to a timeline as envisaged by each participant. Each video from the individual
interviews was carefully studied to draw out key points explaining the process as applied in the real
world. The maps created by the interviewee were keys to deriving definitions of the process as
explained. This was then used to further enhance the model constructed previously to give it more
meaning. 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 our
research.




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5    RESULTS
Open Innovation, when asked upon for its meaning as defined by the respondents themselves, neither
of them had a concrete definition of this strategy. Rather they defined it based on the approach their
organization applied towards innovation resulted from collaboration of internal and external
resources. Another question, which left the respondents to think, was the difference between the
terms collaboration and Open Innovation. According to interviewees they didn’t see much difference
in the way either of these terms were put to practice within their industries. The only distinctive way
to define a project for its respective strategy was based on its predictive outcome. The clearer the end
commodity, the lesser it scores on an open innovation scale. As also quoted by an innovation
manager, “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 in
both larger and smaller firms must hold true to its meaning. This importance was however stressed
more during the initial phases of the project, as told by the general manager consumer electronics
business. Towards approaching end of the project, when much is at stake this open attitude is turned
into a cautious approach led by the management. This is where safeguarding value becomes a crucial
step 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, which
safeguarded interests of individual investors. As interviewees suggested if an agreement was not to
take place on set terms put forward by investors, the project doesn’t go forth. “Many projects start
with a coffee and only after a mutual consent are they formally taken to the boardroom for paper
work”, ex Vice President Design (MNC). “Many collaborations die before coming out of
boardrooms”, 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 in
this case the outcome is least defined, it therefore is easier to understand why the legal process for
open innovation becomes more complex. “As soon as the proposition is made clear, interests are
divided among stake holders”, GM consumer electronics business (MNC). “This is the most fragile
stage of a collaboration”, business development and customer manager for a technology company
stated.
In case of individuals who have a setup outside a large operating firm, open innovation is a method
adopted to pull together many others that are alike for beneficial temporary collaborations. These
independent entities as they state from experience work as creative vagabonds that partner for more
socially respectable initiatives. Most of which are efforts of social activism within the innovation and
design community. One of our interviewees has led a design driven open innovation process that
started without any concrete assignment. People were brought together to think about ideas for the
future and were oriented to change current paradigms. They tried to create an image of the future
where possible solutions could take place. Four teams of 5-8 people collaborated to come up with
new themes that later presented potential business value, and the best idea was chosen. The idea that
won was a platform where creative people can contact companies easily or organizations that require
such talent. In the end, it was productized as a web based application.



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The following sections give a more in-depth overview of themes that emerged from affinity analysis
of the data from interview transcripts. Put together to give a clearer idea of themes from literature as
expressed 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 away
from the traditional innovation processes. It is beyond a contractual agreement between two or more
contributors. It is rather an attitude with an open-minded approach to create something new. It is a
novel method of innovation where all the stakeholders collaborate during the process. The
contributors and partners try to stretch outside their current scope of business using respective
internal 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 something
outside one’s current domain, seeking support from experts in the field, in the end coming up with a
solution to expand current boundaries and extract value in any form, and provides both long term and
short term incentives.
The most popular example would be the Philips Senseo, with its new product dimension offered has
been the most talked about project within and outside Philips. Where in two experts in their
respective fields came together, to offer each other the best of their knowledge, in order to deliver the
best product experience to the consumer.
An example that ex Vice President Design of a product company also accepted as true Open
Innovation was that of Ikea. Ikea, although the least discussed example is one of the earliest and
simplest examples of Open innovation strategy. Popular Scandinavian designers were pooled to
create 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 project
scope and thereby create more business value. This would mean seeking fresh ideas and concepts
apart from the in-house knowledge and competencies. It is cheaper to outsource a part of the process
or in some cases the whole process itself since expertise and specialists are easily available outside
and it is more efficient to make use of their knowledge and setup. Open Innovation also occurs when
there is an entrepreneurial push into a market. It also takes s place when something radical needs to
be 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 product
company, was approached for its speciality in another domain, to develop further for the product
company’s interest. This co-development where both companies invested resources resulted in a new
material, which was a customization for scaled use by the product company only. This not only
helped 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 a
innovative material, and value above core competitors, and put the companies new material
application much ahead making the company as a market leader. In the end, a win-win situation.




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5.3   Partnerships and Collaborations
“Open Innovation involves all interested parties to collaborate during the innovation process. All
involved parties are partners, with probably unequal stakes but equal share to contribute and
participate.”
The partners or collaborators are chosen for the process depending on their competencies and the
required domain of expertise required. The partnerships usually extend beyond the mere agreement
on paper and extend to the individual mindsets of the contributors. The scope of the partnership is
usually marked out based on the individual aspirations and objectives. In the case of individual
practitioners or smaller firms such as SME’s, the more contributors in the partnership, the better is
the outcome. However, in the case of larger firms or MNC’s this would be a classic recipe of failure
on the lines of ‘too many cooks spoil the broth’. “Partnerships are like marriage, they are only on
contract unless there is a desire to make it work from all partners.” It may also have an element of
compromise balanced with the expected returns. If either falls short, the partnership may fail. Open
Innovation 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 individual
participants. Companies coming together to work on a common goal, via the Open Innovation
paradigm, make it more commercially viable and could gain long-term value as a result of
investment. This value is however not measured financially in terms of returns but it must justify the
financial investment that has gone into it.
A very important aspect as underlined by interviewees is the trust factor. A successful partnership
exists beyond contractual agreement and should have within itself trust, for every partner to share an
idea without any hesitation. Partnership as stated by respondents defined the contribution of
investment and profit as well as loss incurred. Where as the use of the term collaboration, was to
define conjoint thinking and productive contribution to the task at hand. Collaboration as referred to
as 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. An
interesting trusts story around choosing competitor companies to innovate with would be that of
Apple and Samsung. Apple and Samsung might be giants in making smart phones, and equally giant
competitors. But Apple seeks Samsung’s chip division for the internal components of its smart phone
produce. Here exists collaboration, for any technology upgrade that Apple seeks for its mobile
devices; it must trust Samsung to make it work without any theft of original ideas put across to the
smart phone business division.


5.4   The Process as Captured
The process of Open Innovation can be categorized based on three important influencing factors;
legal procedures including Rights Management, Company Culture as the given environment for
innovation to happen, and the Scope Definition for the expected outcome for clearer resource
investment. These are explained below.


5.4.1 Rights Management
In any collaboration or partnership, legalities exist to safeguard interests but the pure basis of a
starting partnership is simply based on mutual trust. Initial talks to seed a partnership are always
based on goodwill and trust. Only when such a mutual understanding has been established, the
legalities 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


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(NDA) is a beginning and not a barrier if everyone involved treats it as an integral part of the
process. Intellectual Property Rights (IPRs) are discussed on paper; however this is only to safe
guard interest and ideally should not create any conflict within the existing partnership or affect the
inputs towards the desired outcome. IP sharing and distribution occurs at different stages of the
process as soon as there is an emerging point of value that must be safe guarded. This is done jointly
under the partnership leading to a win-win situation. During the agreement process, if the definition
of interest of each party is clear on the value of the proposition, then the stake definition is also
clarified. Legalities also define the contribution that must be made and will be received by the
individual 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 organization
or within a partnership. The innovation team is usually segregated from the rest of the company
because of the mindset required for the job. Whereas, the other business units think of everything
viable within the current business scope of the company, the innovation team needs to break through
this barrier. Incubation space is required and provided to allow innovation free of any influence. A
recent phenomenon as stated by interviewees, company culture supportive of innovation encourages
teaming up with other individuals and to work openly with others. Innovation companies are
becoming 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. As
a 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 that
have budget and experience to steer such game changing projects. The projects once have cleared
test beds are then put across to managers that are experience in the ‘go to market’ phase. Here they
can fine-tune the innovation to achieve best results in the real commercial space. Provided the
innovativeness is not cut down. The High Tech campus by Philips, and work cultures as improvised
by Google are to provide employees for happier environments that allow freedom of thought
translating into innovations and patents.
The down side, as marked by an interviewee, is when there is an organizational change at the higher
level it directly effects the innovation projects in incubation. The budget and importance are
fluctuated 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 of
the size. As per the Creative consultant we interviewed, many a times bigger companies dictate
results of an innovation project when partnering with a smaller firm. This according to the
interviewees from the MNC is not appreciated as Open innovation. Within the frame work of open
innovation as described by the respondents, the differences are dissolved leaving only the intellectual
capita as the key attribute. “The idea is to have a win-win situation at the end for both”, and “not to
squeeze all juice out of the smaller or less powerful company”. In a partnership, a bigger company
should not overshadow a smaller company, as it is against an open-minded framework. Since the
idea is to work together and not for each other.
Symbian a software development company and main supplier of the operating system for Nokia
phones, was bought over by Nokia. But the two continue to work together as a parent and daughter
company without the barrier of big and small. The two entities still separate, work together on
developing the best solutions for the mobile phone business without overriding each others expertise.



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5.4.3 Scope Definition
The scope definition is sometimes important, especially in a commercial setup, so that all involved
parties know their role, their involvement and the expectations from each other. The clearer the
scope of work area, the better the result will be. But the scope should remain only in the meaning of
the word rather than enforce it during the practical process, which would make the outcome control
too strict. The scope should be open and agreed upon rather than conflicting and restrictive. The
scope should also have within it the possibility to change and modify as the project progresses so that
each partner can justify its contribution effectively.




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6     DISCUSSION

6.1   Open Innovation for NPD
Technology has been advancing at a very high rate, leaving organizations to struggle to find their
best 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”. The
reason as to why it is regarded as an entrepreneurial approach, are the characteristics of venturing
into 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 get
together for the purpose of creating something radically new. It is not a one set recipe, rather an
open-minded approach to problem solving or changing the current. It can be called as ‘Open-Minded
Innovation’. The term as coined by Chesbrough is fairly new to the field of innovation, and is facing
multiple twisted applications.


6.2   Open Innovation; a Strategy for Radical Innovation
Companies 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 yet
innovative. On the other hand, open innovation should be approached as a strategy, if we deal with
radical innovations, i.e. bringing new products or services into new markets. As mentioned by one of
our interviewee, this type of innovation can be regarded as ‘future telling’. Roberto Verganti’s
definition of design driven innovation, is much in line with how radical innovation is applied. As
explained in fig. 1 (Verganti, R. 2009), radical innovation results bring about a change in the
perceived 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 cultural
change that can be brought about with its introduction, typically when undertaking use and/or
development of newer technologies. Thus, the position of Open Innovation in this matrix is limited
to the overlap of changing means through design driven innovation with radical change brought by
technology. 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 be
typically 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 easily
achievable as they still pertain to the current domain or area of expertise of the company, the core
business. 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 be
very costly for a company to develop the required competence in house. It is however cheaper to
have access to super-specialty as mastered by another firm in parallel with the project demands. This
practice not only saves up resources that would be spent for infrastructural development, but also
assures top quality input. It is therefore a comparatively less costly process than the formally
practiced closed-innovation. The involvement of multiple partners or stakeholders reduces financial
risk 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 the
implementation investment should be done”. As several partners take a risk of losing their peoples’



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time, 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 to
this list. Coming back to the mindset and culture that Open Innovation inculcates, an environment
highly conducive for innovation is created. The involvement of individuals’ or/of firms with
different ideologies bring newer perspectives and knowledge. This can be regarded as the optimum
acceptance of design discourse (Verganti, R. 2009). Here, all contributors can be from outside the
project circle and their involvement controlled by their scope of contribution to the purpose (as per
their 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 study
can aid each other for better end solutions. E.g. Companies tapping into better understanding of a
domestic space to develop better experiences would range from furniture, to textiles, to lighting, to
appliances, etc. But the area and depth of investigation remains the same, i.e. to study the domestic
environment 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 Innovation
Although the design discourse is not applied in the true meaning of opening sharing information and
knowledge from the field, in the current scenario it is treated as a buyer-supplier relationship. In such
a scenario, a bigger company would hire a smaller company oo firm to carry out certain tasks with
all deliverables covered under a contract.


6.3   Fitting the Current Managerial Fabric
If a company chooses Open Innovation as a strategy, it assuredly brings a change within the
company’s structure and thinking. “It does not fit, it makes a change!”


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In terms of goal, open innovation is not very different from closed innovation; the second one is a
rather common strategy for most of companies. Both these approaches aim at coming up with
something new. It could be a new application of a technology, or its application to find a solution to
an existing problem, answer a demand. Apart from these Open Innovation gives way to something
which 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 there
is a direct hard commercial interest.” It is logical for a company to expect return of their investment
in 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 the
project, as much as possible. The value is not necessarily monetary; it could be both tangible and
intangible. Value acquired in terms of Brand Equity is equally important, as in the end it can be
measured to have converted into a financial gain. If initiating an Open Innovation project can gain
increase in the value of the Brand it is equally valuable as a financial profit gain. The money invested
can be compared to a budget allocation for various advertising media. Here the outcome can be such
that 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; whereas
short term could be looked at as profitable sales. The irony of the current situation in companies is
that the later is more sought after. If there is no short-term benefit visible to the management, it is
difficult to get a ‘go’ for a project. Many companies do not seek long-term benefits, and lack
foresight into how an innovation might develop and add to the business in future. An interesting
example here would be to mention the Xerox Parc who developed innovations pertaining to the
development of ‘Personal Computing’ (PC). However, it failed to productize these innovations since
they did not contribute to the parent company’s core business. These innovations have been
successfully exploited by technology giants Microsoft and Apple. Personal computers revolutionized
not 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 is
what a disruptive innovation can do.
With changing outlooks and paradigms starting in the 70’s by Xerox and in the 80’s by Sony and
Philips, companies came up with innovation strategies to combat organizational restrictions posed
upon internal workforce. Companies did not see much value in investing in research, at that moment
business managers only wanted improvement to happen, in order to make existing products and
services better or faster. The idea was to sell as much, with as less investment as possible. This
slowly translated into a company culture, which gave the opportunity to employees and also people
from outside to work on smaller innovation projects. These projects were experimental and did not
hold 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 that
innovation should fit in current, developing or future markets. The idea was now to let it happen
outside the regular streams, regular paths, or regular ways of working. The incubation board, which
were more like board of investors, conducted the stage gate process together. “They looked at the
merits 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 of
future interest and investment benefit lies in such radical projects. We discuss more about the control
possessed by these managements teams in the section ‘Closing Open innovation; Open-Closed
Innovation.’




                                                  22
The Open Innovation Process and Open-Closed Innovation
                                    Sanya Khanna and Sandra Cecet

6.4   Choosing the Correct Partners
Choosing the right partners is the most critical part of the Open Innovation process. It is important to
know what their competences are, to what extent will they be able with those skills to create an
answer. Equally important is the existence of similarity of interest and motivation from the project. If
both partners expect different returns, it will not be a very well steered project, and would encourage
more conflict of thought than any progress. In order to be productive, partners must comply with and
respect each other’s wishes from the outcome.
Good partners should have come together with an open mindset to accept what is new on offer. The
flexibility 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 the
whole concept of such an enriching partnership. Here the fear of losing IP is predominant, where
partners fear losing ‘great’ ideas. Therefore partners do not bring ideas to the table and thereby
unknowingly losing out on further development potential of these safeguarded ideas. This brings us
to the next important element needed in such a partnership - ‘trust’. It is all about sharing ideas and
competences to collaborate with an open mind in order to bring a socio-cultural change in the
meaning of products and services, from what they currently exist. Therefore trusting the other side
will 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 facilitates
without discrimination a partnership between large and small sized firms. Here the stock exchange
rates do not play a role during collaboration; it is limited to the ideas and the quality of knowledge
exchange that can occur. It is no longer about a bigger fish swallowing a smaller one; instead it is
about 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 phone
market, it would have not been able to capture the mobile OS market as much alone with its phone
Google Nexus. This partnership is remarkable, where both are together battling against the race set
by 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 the
co-branding so strong has played to their advantage against market leaders Nokia, LG, HTC, and
now competing Apple.


6.5   Managing Interaction between Open Innovation Teams
An organization and management of open innovation is different. In an open setting, a management
setup 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 a
working culture created. A group has to develop understanding of each other with one vision and one
goal. 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 the
same language and same procedures. The questions, which open innovation deals with, are
following: 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 create
chemistry in a group? If we are talking about closed setting, are those things are already set? Due o
these, working together from opportunity identification towards the project takes time. Talking about
social projects done in open innovation setting, there is hardly anybody who can devote all time to a
project because it is done in free time. There is a crucial advantage here, personal interest is very
high. People do it because they are highly motivated, very skilled, looking for recognition or because
they have a beautiful idea.

                                                  23
The Open Innovation Process and Open-Closed Innovation
                                    Sanya Khanna and Sandra Cecet

To make it work, there is a need of creating a glue, or oil, so there is a need of a leadership. In closed
setting company there is almost all time one leader. On one hand it is convenient as it leads to a very
structured process. On the other hand, it also leads to predictable solutions. That could be a reason
why in traditional companies radical innovation is not taking place.
However, open innovation is process of balancing in time four aspects: money, people, market and
product. We cannot say in the very beginning of a project: “we need to develop that technology. We
need 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 management
have to be developed with the equal speed. But at the certain moment of the process certain aspects
are more important, because they are conditional for progress. For instance, if there is a need for
investment, then the finance side is important, as a project will get stuck. At the certain moment it is
important to validate technological possibilities or re-evaluate a proposition towards a market.


6.6   Collaboration versus Open Innovation
Naming alliances, mergers, collaborations, partnerships and open innovation are various strategies
where 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 these
two strategies based on the clarity of the end outcome before starting the project. Open Innovation in
the 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 come
together on the basis of trust and a mindset to create something radical, that would expand their
current core businesses. Avoiding uncertainties is a trait of any business but open innovation allows
this risk taking, where all partners share the stakes. It is collaboration. If companies are investigating
in an open way what the future might bring, that might influence a strategy of both companies. That
is open innovation.


6.7   Closing Open Innovation; Open-Closed innovation
This section discusses the research question; is Open Innovation as an approach carried out through
all 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 they
would decide to invest hundreds of millions in a project that actually leads to nothing. That happens
in big companies more often, as there is much more to lose. A huge investment is spending on
applications of technology that does not reach a market in the end can be a huge lose incurred. More
over value lost would also include the market reputation and brand image. These losses are much
larger than a no financial profit situation.
People invest because they like an idea, they believe in a technology. However there are certain
biases to a personal idea that restricts many innovators from evaluating their project correctly and
critically. They don’t look at all aspects, all conditions, but they go because it is like a hobby. So
stage 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 two
variables: impact of success and failure. Other parameter is the probability associated with both
success and failure. So what companies try to do is to reduce the probability of a failure. As well
closing open innovation process wants to provide the conditions for success.


                                                   24
The Open Innovation Process and Open-Closed Innovation
                                    Sanya Khanna and Sandra Cecet

Open Innovation as a process suggests overcoming the barriers set in a stereotypical product or
service development company, which relies heavily on the stage-gate to measure any right or wrong
of innovation. It is a strategic tool which designers and others in the creative profession have been
using since long, and have been striving to bring this model into the real business decision making
processes. The continuously changing economic scenario and the users or customers demand for
innovative products and services, is stressing more and more on the application of this strategy.
Companies like Ikea and Alessi, who have not been very high-tech, had successfully used this
strategy to their advantage of building a reputation with users. From Karim Rashid designing for
Alessi and many Scandinavian designers contributing to the class of Ikea products has earned them a
lot of business.
MNCs are more to the culture of investing large amounts of resources into multiple innovation
projects and running research driven initiatives. Yet not all end up with the best success stories.
These companies offering multiple sponsorships in various universities and providing creative
opportunities to independent practitioners do not critically evaluate the outcome from these
outsourced or rather open creative platforms. Many of them are left as publicity stints to gain value
in terms of brand equity especially within competitive circle. Beyond this the ideas may create a stir
within an organization, and also may be taken in, but many a times these are not aligned with the
roadmap of companies expected returns. This leads to killing the idea, or putting it on hold until the
time is right. This is unfortunately is not seen as an opportunity to take over something new, and take
the market by surprise. A truer evaluation of such ideas that might have sparks needs to be put into
place.
As aptly stated by a respondent, “it is now about the Entrepreneurial Go To Market”, a company
must be ready to the risk at hand like independent practitioners and small firms do. These SMEs and
consultants are keener to safeguard their passion and in the way safeguard their limited resources.
Where as, this passion to lead a project through to its originality, is often lost in a MNC. Resulting it
into a Open-Closed Innovation project. Entrepreneurial stride of Mark Zuckerberg and his passion to
carry it out built Facebook, a disruptive innovation indeed that in today’s date has compelled Google
to follow its footsteps with Google+. Changed the way Internet was perceived and how people
connected. Thus making Google its follower and not a leader in Social Networking.
It is right to safe guard one’s interest, but not to be lead into insecurity, for it is now the time when
the whole world is seeking collaboration.




                                                   25
Open Innovation Process and Open Closed Innovation
Open Innovation Process and Open Closed Innovation
Open Innovation Process and Open Closed Innovation
Open Innovation Process and Open Closed Innovation

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Open Innovation Process and Open Closed Innovation

  • 1. Innovation research The 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. The Open Innovation Process and Open-Closed Innovation SPD Research Methodology ID4355 Sandra Cecet (4118782) Sanya Khanna (4122844) INVESTIGATING THE EXCITING STORIES BEHIND THE SUCCESSES AND FAILURES OF INNOVATION PROJECT JUNE 2011 ABSTRACT Open Innovation – what does it mean in the real world? The paper tries to find out an answer to the question by exploring the process of Open Innovation through interviews with experts of this field and focusing on bigger companies and their innovation strategies. An intriguing insight was that companies tended to prefer Open Innovation, as a strategy, for radical projects, especially when they did not have all competencies in-house. The reasons for adopting such a strategy were faster and cheaper development, shared responsibility and additional intellectual contribution to the projects. The projects usually produced better results and higher customer satisfaction since emotion and trust are given precedence in an open innovation environment. Our research touched upon the question, whether Open Innovation is indeed such an open paradigm as suggested by Henry Chesbrough. During the research, it came across that there are different working agreements between collaborators that limit the flow of information. Hence, we termed the practical implementation of the ‘Open Innovation’ process as ‘Open-Closed Innovation’ implying that the openness of the process depended upon various conditions KEYWORDS Open Innovation, Closed Innovation, Open-Closed Innovation, Multinational Companies, New Product Development, Radical Innovation, Mindset, Collaboration.
  • 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. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet ! 1 INTRODUCTION Open Innovation has caught some spark after Henry Chesbrough coined this term in his book, ‘Open Innovation: The New Imperative’ (2003). Prof. Chesbrough’s more recent and preferred definition of the term is, “Open innovation is the use of purposive inflows and outflows of knowledge to accelerate 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, and internal 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 literature available on it. In practice, ‘Open Innovation’ has become a dynamic term that has varied applications and interpretations. It is therefore interesting to investigate when, how, and why a company approaches ‘Open Innovation’ as a strategy. In this report we focus on the process as implemented in the real world. We also tried to answer if ‘Open Innovation’ is indeed such an open paradigm as existing literature suggests. The concept of open innovation is more effective in today’s world where availability of private venture capital along with a huge pool of mobile talent has made it possible to innovate beyond the secluded fortresses of dedicated labs. Companies on the other hand can gain through successful partnerships that utilize its investments in research making the proposition a win-win situation for both. One of the classic cases, often cited, is the failed opportunity of Xerox and its Palo Alto Research Center (PARC) to convert research into commercially viable products. Technologies such as Ethernet and the graphical user interface (GUI) developed by them were considered not promising enough 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 is practiced, we conducted a literature survey followed by interviews with industry leaders, experts and professionals who are associated with this new paradigm in their respective fields. We added a creative element, which was shot in the form of a movie, to the simple Q&A of the interview pattern to understand the mental process behind the implementation of the paradigm. The paper is divided into sections containing (a) important suggestions from literature, which justify our research questions (b) findings from interviews (c) discussion on the comparisons of theory as proposed in literature and practical as practised in the real world (d) conclusion, limitations and the scope for future research. 3
  • 5. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet 2 LITERATURE REVIEW First, we would like to elaborate on the terms Closed Innovation, Open Innovation, and subsequently the term Open-Closed Innovation. Understanding these processes will give the reader a better understanding 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 and Development approach, which was the mainstay of innovation for most the 20th century. In this approach, a company researched and developed its product internally without any aid from external parties. 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, slower speed of the process due to a rigid and inflexible business model used. As well, author compares companies working in this setting to medieval fortresses, which rigorously keep control and are inaccessible to outsiders. However, lots of companies still work under the same Closed Innovation model. 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 shows the necessity of letting ideas flow out of the corporation, in order to find better sites for their monetization. Parallely, ideas also flow into the company, as new offerings and new business models. 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. 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 Innovation2 The Open Innovation model exploits diffusion of knowledge rather than ignoring it. There are a lot of debates going on about this new strategy for innovation, which probably has a competitive advantage. According to literature, Open Innovation is a more efficient way of working in a rapidly developing world than a traditional slower internal Research and Development approach, called Closed Innovation. 2.3 What is Open-Closed Innovation? Open-Closed Innovation is a term introduced here to describe the way companies are innovating in the present scenario within an open innovation environment. The term indicates that the innovation is not an open process in its entirety. It emphasizes that openness of the process depends on multiple conditions such as different working agreements, which control information flow between collaborating parties. There has been a considerable change in the industry after the ‘Open Innovation’ book was introduced by Henry Chesbrough in 2003. Open Innovation is an umbrella concept covering specific ideas such as consumer-led innovation (e.g., Lego’s development of robot building sets) to popular and distinct ones such as the open source movement (e.g., Linux development). However, processes 2 The famous Funnel model as put together by Henry Chesbrough is a reflection of the innovation process adapted by innovation firms. 5
  • 7. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet that are very open in their core are not in the scope of our research These include processes such as consumer-led innovation, open source movement, collaboration between individuals, and innovation carried in foundations and associations. Our research focuses on innovation processes followed in larger companies, such as MNCs, that are normally capable of leading innovation from an idea generation stage, to its introduction in the market. Nevertheless, such companies may decide to partner with another company as and when they see a need for that. The answers to why is the Open-Closed Innovation strategy more suitable for innovation happening in such a setting are a part of our research focus and we will discuss these in detail through our findings. 3 LITERATURE REVIEW - THE INNOVATION PROCESS 3.1 Current Strategy One of the first questions that is posed is when should Open Innovation be chosen as a strategy and in which stage of New Product Development (NPD). The literature does not provide a definite answer about any particular situation or stage in the NPD. A broader perspective regarding the environment, where the process will be implemented, is required. In the present case, this environment is called ‘diffused knowledge environment’, which exists as the outcome of processes such as globalization, spread of higher education, the Internet, on line accessible knowledge, online communities, 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 competitive entry in many industries. According to H. Chesbrough, internal industrial research is less effective nowadays. While innovation is critical, the usual process of managing innovation does not seem to work anymore. Although ideas and external capital are plentiful, companies struggle to find and finance 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 did the most research in their respective industries and earned most of profits as well. However, these days, the former industry leaders are finding remarkably strong competitors from many newer companies: Intel, Microsoft, Sun, Oracle, Cisco, Genentech, Amgen, and Genzyme, who conduct little or no basic research of their own. Although these newer crop of companies have been very innovative, they have also gained from the research discoveries outside their companies. The author suggests that companies should realign innovation strategy in order to answer the demand of a rapidly changing environment. Richard Wilding in ‘Connect and Develop’ article for ‘The Innovation Handbook’ says, ‘Open Innovation approach was taken to realign company’s business to face the demands of the new millennium’. The author describes Procter & Gamble’s Open Innovation Program, where the approach 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 to innovate as well, perhaps better, by doing it faster and cheaper. This would save time on development as compared to the Closed Innovation strategy, which was previously followed by the company. This initiative emphasized the need for P&G to reach out to external parties for innovative ideas. The company’s rationale was simple: P&G had more than 8,600 scientists working on future technologies but outside P&G there were 1.5 million scientists. The question was why should the company then try to invent everything internally?’ In addition, the ideas that P&G generates in its labs and that are not picked up by its internal business are available to other firms; even direct competitors, after three years. (Wilding, 2008). 6
  • 8. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet In the literature, Open Innovation is presented as a strategy for innovation to compete in a quickly changing and ‘diffused knowledge environment’. So, the question of ‘when’ is covered with a very broad perspective with a simple answer: ‘now’. In our research we would like to empirically investigate this question and provide more concrete answers. 3.2 Fitting the Current Managerial Fabric Closed Innovation paradigm worked for most of the twentieth century and worked quite well. How do companies make the transition between different strategies for innovation? How does Open Innovation fit into the current managerial fabric of a company? Open Innovation needs a different company culture and mindset than the conventional Closed Innovation strategy. It does not fit into the traditional managerial fabric of a company. The move towards open innovation model should be supported by a change in the nature and structure of organization, with vertical disintegration of the business value chain, concentration on core competencies and increased outsourcing. There is an ongoing trend that businesses are increasingly collaborating to offer complex and combined solutions to the customers. They often make alliances with companies that they are competing with in other markets. This leads to blurring of organizational boundaries and the development of competences, which are focused on ability to work collaboratively. This behavior needs a shift in people mindset, from a corporate behavior towards 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 company culture there should be management and leadership trainings organized. For almost all the companies, the shift towards an open approach to innovation required the direct involvement of top management. This often translated into a shift of culture, whereby working with other 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 skills blend is seen as an obstacle to its implementation. This suggests that training is essential, rather than merely desirable, when preparing the company for OI. Appropriate changes in the incentive structure are essential to implement Open Innovation successfully (Mortara et al, 2009). Literature suggests that Open innovation is an entirely new strategy, which is not compatible with the old one. The new paradigm should change the Closed Innovation approach in most of industries in order to respond to new age market requirements. 3.3 Managing Interaction between Partners Partners in many collaborative ventures end up with disagreements on who exactly owns the Intellectual Property Rights (Elsworth, 2008).. If the Open Innovation strategy is considered as a method which allows faster time to market at a lower cost, then collaboration between companies have to work smoothly. So, there are some issues that should be thought about before considering how to operate such a venture. The first question is why partners should collaborate. Although collaboration is often considered as the 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 be gained through open discussions before collaboration begins. To avoid the possibility of disagreements, it is important for the partners to identify what each brings to the venture or project. 7
  • 9. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet This will include identifying what Intellectual Property each party owns so that there can be no disagreements at a later date about any new technology that resulted from the collaboration rather than from the effort of one of the partners alone. The last highly important aspect of this innovation strategy is agreement between the parties on the rights of each party both during and after the venture. Will each party have equal rights and access to outputs, or will there be restrictions? Even though unequal access may appear fundamentally opposite to the Open Innovation idea, there may be a way to solve it, namely for partners to have rights in different territories or technical fields. The presented description of the process is focused on rights management aspect. However, we assume that there are other aspects, such as trust and motivation to contribute. We could not find information 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 be interesting to empirically investigate how the actual Open Innovation process is managed. 3.4 Choosing Open Innovation The literature suggests that Open Innovation cannot be supplemented within the existing Closed Innovation strategy as the new strategy is complementary to the old one. The literature also mentions incorporating Open Innovation is a difficult change for any company and requires a lot of investment. For instance, IBM Corporation moved from traditional innovation methods towards an open paradigm and experienced a lot of difficulties in its way. The question is why Open Innovation should be chosen as a preferred method. H. Chesbrough mentions ‘erosion factors’ which force companies to entirely change their strategy from 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 their strategy towards collaborative thinking. This means opening company boundaries and trusting the competences 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 information not only by facilitating desirable information flows into a company, but also increased the difficulty of preventing information from spreading. This trend encourages the Open Innovation paradigm and companies have to learn to take an advantage of a process they cannot stop. 8
  • 10. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet Recently there has been a real shift in the nature of the knowledge-based assets that create value for business. Brands have become more important than patents (Hunt, 2008). The rate of innovation has accelerated, due to the fact that getting to a market first can be more important than protecting knowledge. This challenges traditional models of closed, R&D based innovation. Companies need to look into new and different ways to create value. This forces companies to search for new knowledge and fresh ideas wherever they are located. An important factor, among others mentioned, is competition between rivals such as the one between emerging 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 the only way to keep ahead of the game and survive in global market. 3.5 Open-Closed Innovation From literature, we found that there are a lot of people working in the innovation field, who are sceptical about the whole concept of Open Innovation. They point out that even companies like IBM and Procter & Gamble, which are seen as leaders in the new innovation strategy, are still keeping certain activities ‘closed’. Open source innovation is commonly applied to software, which is available to anyone who wants to use it, contribute to upgrades and improvements. However there is an issue about such products being accessible beyond a narrow, technically proficient community and are not indeed open models. There is very limited information available about the openness of this innovation strategy. Another purpose of our research is to investigate whether Open Innovation is indeed such an open process in a Multinational Corporation setting as literature suggests. We want to question H. Chesbrough description of the practical implementation of the process. Does Open Innovation become ‘closed’ in some stages of the NPD project? Why does it happen? If so, can we name the process as Open-Closed Innovation? 9
  • 11. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet 4 RESEARCH METHOD In order to find an answer to these explorative research questions a case study was executed as a research method. The case study research method as an empirical inquiry investigates a contemporary phenomenon within its real-life context; when the boundaries between phenomenon and 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. It involves many intangible factors such as different people and their personal experiences’ in real-life situations. For the main data gathering, guided interview approach was used. Questions in this session sought details on corporate pursuits on innovation; what was their definition of Open Innovation and its benefits; how, when and why they considered this strategy; and what were the barriers faced along the way. In addition to the interviews, there was a creative session with the interviewees. Researchers watched respondents’ draw flowcharts of how they define the process, to learn how they individually interpret the 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’s theory on theme identification. 4.1 Selection of Participants The study was conducted with 5 respondents. A combination of purposive random sampling was undertaken for choosing participants. Purposive random sampling aided selection of primary respondents, who named close members of their corporate circle. Snowballing facilitated access to this core group. Researchers met them only after primary respondents were interviewed, so that trust was built. The main criterion for short-listing participants was their real involvement in projects where Open Innovation was practiced. However, being a qualitative study with a small sample, interviewees were chosen who represented different involvements in a NPD project team. The nature of NPD projects emphasized in this case study is of ‘as initiated by a MNC’, with external partners involved. 4.2 Participants Sample Theoretical sample (not a random one) was created that included firms in the Netherlands with a reputation for being innovative and dealing with Open Innovation. Experts from the field of innovation were then chosen from those companies through purposive random sampling. Information was gathered from key informants who were both knowledgeable about the issue being researched and had a role of a decision maker in Open Innovation projects. Chosen interviewees are presented in Table 1. 10
  • 12. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet Table 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 Unit The first interviewee is an ex Vice-President of Design for a large-scale consumer electronics company, apart from that an independent practitioner and academician. As a practicing expert, he deals with large-scale design projects on organizational change, quality management and design strategy. The consumer electronics company, a multinational company, is a global leader topping the list of number of patents owned. We interviewed two more employees from the same company; an Innovation Officer dealing with Open Innovation projects at an exclusive RnD campus (set apart from the main corporate body) and a General Manager of one of the internal business units. They are our fourth and fifth interviewees respectively. The General Manager is responsible for a business unit dealing in design and service solutions for the company. He has previously led strategy and customer driven innovation programs for the lighting department of the company. The second Multinational Company was a technology company, a highly innovative company employing 39,000 people worldwide. The company, which connects people with business and technology, is innovating with partners, suppliers, academics and researchers. The interviewee, second in the list, is a Business Development and Customer Manager. He has considerable experience working with Open Innovation on past and current projects. The third company we approached was a creative consultancy, a small-scale company. Despite its size, this company was chosen because it helps clients to innovate and is highly competent in all innovation methods. The third interviewee in the list is a founder of the company; he has personal experiences in collaborating with various independent practitioners and provides coaching in the innovation field for big companies. 11
  • 13. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet 4.3 Data collection procedure Participants were contacted through email. An introduction about the topic of our research was given to acquire their interest. Each interview took about 2 hours and consisted of two parts: a 90 minutes question and answer session, and a 30 minutes creative session. 4.3.1 Question and Answer Session To gather information for explorative research questions, interview guide approach was used to conduct interviews. Themes were specified in advance as key or primary questions, in an outline format. The ordering and wording of the sub-questions was formulated through the course of the interview (Patton, 2002). The interviews with all the 5 respondents had a nature of a detailed discussion rather than a one-sided question and answer session. Here in, the respondents shared key information about their experiences with various project successes and failures, including confidential data. We covered nine themes in the interviews: (1) What is Open Innovation (examples, advantages and disadvantages), (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 was necessary to have all nine themes in order to cover gaps in the literature and to have a broader understanding of this complex topic. There are several strengths of the interview guide approach. First, the outline increased the comprehensiveness of data and made data collection systematic for each respondent. Second, logical gaps in data were anticipated and filled with new information. Third, interviews remained fairly conversational and situational. Additional questions, which appeared during the conversation, were asked. That provided deeper insights and concrete examples from the practice. All interviews were recorded (Patton, 2002). 4.3.2 Creative Session Along with the guided interview session, there was also a second part of the interview called a creative 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. This exercise was documented in a video. Interviewees were asked to demonstrate the process of Open Innovation. There were no restrictions or requirements for the scenario they had to present. Some of the interviewees presented a broader view about the reasons why Open Innovation is preferred. In other cases, to make task easier for participants with non-design background, they were prompted to demonstrate an example of a project in practice. In most of the cases, a role play was chosen to demonstrate interaction between parties. Interviewers acted only as helpers in capturing the Open Innovation process. The storyboard of each video was guided by interviewees. The aim of the creative session was to sum up the discussion of the guided interview session and present it in a concrete and schematic way. The overall purpose of the research project was to investigate the true stories behind the successes and failures of innovation projects. Creative session tools helped participants to relate process directly to a practice and concentrate on the sequence of actions in innovation. The outcome of the creative session was a direct and schematic illustration of Open Innovation process in the setting of Multinational Companies. 12
  • 14. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet The other purpose of the creative session was to understand which points are the key aspects in the process of Open Innovation. Participants emphasized paramount moments of the process while summarizing guided interview session or describing concrete examples. This allowed researchers to compare first part of the interview with the second and look for repetitions. Repetitions we considered to be key aspects. They were used for the analysis and constitute a part of the main findings of the research. 4.4 Data Analysis The 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 content of the interviews. The affinity method allowed us to compare user statements and identify common themes in usage and communication across the target cohort. The points of focus were the experiences and the views on the innovation process of the interviewees. The attached transcripts provide a readable version of the interviews conducted. Raw data was grouped together to generate a hierarchy of themes similar to Ryan and Bernard’s theory on theme identification. We followed the following interconnected, stages: (1) Familiarization, (2) Identifying and Indexing, (3) Charting, (4) Mapping and interpretation. Each stage is explained along with the way that it was applied in the study Familiarization: Familiarization of the data involved studying the raw data and noting down relevant information that would need to be segregated. The themes and issues were jotted down and the ones that were considered important were marked. Identifying and Indexing: After the initial study of the raw data, we referred the study material to identify key issues, concepts and themes according to which the data could be examined and referenced. We had a total of nine themes and we collated all the data under these themes and indexed them according the expectation and importance level appropriated to them by the interviewees. Charting: After we indexed all data, we captured the whole data set visually by considering the experiences of the users and their views towards the topic. We also tagged small description notes to further give insight to the indexed data. Mapping and interpretation: After all the data was indexed and charted, we went through each theme and sub theme to identify similarities and differences and the relationship with each other. We then classified and labelled the interactions between each of them and constructed a model that will be presented in the discussion below. While constructing the model, we used our previous experiences and background as students of strategic product design to come up with a simple definitive and explanatory model. A similar process was undertaken for the video footage, which captured the innovation process as conceptualized and understood by the participants. The video footage also helped synchronize the raw data according to a timeline as envisaged by each participant. Each video from the individual interviews was carefully studied to draw out key points explaining the process as applied in the real world. The maps created by the interviewee were keys to deriving definitions of the process as explained. This was then used to further enhance the model constructed previously to give it more meaning. 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 our research. 13
  • 15. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet 14
  • 16. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet 5 RESULTS Open Innovation, when asked upon for its meaning as defined by the respondents themselves, neither of them had a concrete definition of this strategy. Rather they defined it based on the approach their organization applied towards innovation resulted from collaboration of internal and external resources. Another question, which left the respondents to think, was the difference between the terms collaboration and Open Innovation. According to interviewees they didn’t see much difference in the way either of these terms were put to practice within their industries. The only distinctive way to define a project for its respective strategy was based on its predictive outcome. The clearer the end commodity, the lesser it scores on an open innovation scale. As also quoted by an innovation manager, “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 in both larger and smaller firms must hold true to its meaning. This importance was however stressed more during the initial phases of the project, as told by the general manager consumer electronics business. Towards approaching end of the project, when much is at stake this open attitude is turned into a cautious approach led by the management. This is where safeguarding value becomes a crucial step 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, which safeguarded interests of individual investors. As interviewees suggested if an agreement was not to take place on set terms put forward by investors, the project doesn’t go forth. “Many projects start with a coffee and only after a mutual consent are they formally taken to the boardroom for paper work”, ex Vice President Design (MNC). “Many collaborations die before coming out of boardrooms”, 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 in this case the outcome is least defined, it therefore is easier to understand why the legal process for open innovation becomes more complex. “As soon as the proposition is made clear, interests are divided among stake holders”, GM consumer electronics business (MNC). “This is the most fragile stage of a collaboration”, business development and customer manager for a technology company stated. In case of individuals who have a setup outside a large operating firm, open innovation is a method adopted to pull together many others that are alike for beneficial temporary collaborations. These independent entities as they state from experience work as creative vagabonds that partner for more socially respectable initiatives. Most of which are efforts of social activism within the innovation and design community. One of our interviewees has led a design driven open innovation process that started without any concrete assignment. People were brought together to think about ideas for the future and were oriented to change current paradigms. They tried to create an image of the future where possible solutions could take place. Four teams of 5-8 people collaborated to come up with new themes that later presented potential business value, and the best idea was chosen. The idea that won was a platform where creative people can contact companies easily or organizations that require such talent. In the end, it was productized as a web based application. 15
  • 17. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet The following sections give a more in-depth overview of themes that emerged from affinity analysis of the data from interview transcripts. Put together to give a clearer idea of themes from literature as expressed 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 away from the traditional innovation processes. It is beyond a contractual agreement between two or more contributors. It is rather an attitude with an open-minded approach to create something new. It is a novel method of innovation where all the stakeholders collaborate during the process. The contributors and partners try to stretch outside their current scope of business using respective internal 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 something outside one’s current domain, seeking support from experts in the field, in the end coming up with a solution to expand current boundaries and extract value in any form, and provides both long term and short term incentives. The most popular example would be the Philips Senseo, with its new product dimension offered has been the most talked about project within and outside Philips. Where in two experts in their respective fields came together, to offer each other the best of their knowledge, in order to deliver the best product experience to the consumer. An example that ex Vice President Design of a product company also accepted as true Open Innovation was that of Ikea. Ikea, although the least discussed example is one of the earliest and simplest examples of Open innovation strategy. Popular Scandinavian designers were pooled to create 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 project scope and thereby create more business value. This would mean seeking fresh ideas and concepts apart from the in-house knowledge and competencies. It is cheaper to outsource a part of the process or in some cases the whole process itself since expertise and specialists are easily available outside and it is more efficient to make use of their knowledge and setup. Open Innovation also occurs when there is an entrepreneurial push into a market. It also takes s place when something radical needs to be 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 product company, was approached for its speciality in another domain, to develop further for the product company’s interest. This co-development where both companies invested resources resulted in a new material, which was a customization for scaled use by the product company only. This not only helped 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 a innovative material, and value above core competitors, and put the companies new material application much ahead making the company as a market leader. In the end, a win-win situation. 16
  • 18. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet 5.3 Partnerships and Collaborations “Open Innovation involves all interested parties to collaborate during the innovation process. All involved parties are partners, with probably unequal stakes but equal share to contribute and participate.” The partners or collaborators are chosen for the process depending on their competencies and the required domain of expertise required. The partnerships usually extend beyond the mere agreement on paper and extend to the individual mindsets of the contributors. The scope of the partnership is usually marked out based on the individual aspirations and objectives. In the case of individual practitioners or smaller firms such as SME’s, the more contributors in the partnership, the better is the outcome. However, in the case of larger firms or MNC’s this would be a classic recipe of failure on the lines of ‘too many cooks spoil the broth’. “Partnerships are like marriage, they are only on contract unless there is a desire to make it work from all partners.” It may also have an element of compromise balanced with the expected returns. If either falls short, the partnership may fail. Open Innovation 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 individual participants. Companies coming together to work on a common goal, via the Open Innovation paradigm, make it more commercially viable and could gain long-term value as a result of investment. This value is however not measured financially in terms of returns but it must justify the financial investment that has gone into it. A very important aspect as underlined by interviewees is the trust factor. A successful partnership exists beyond contractual agreement and should have within itself trust, for every partner to share an idea without any hesitation. Partnership as stated by respondents defined the contribution of investment and profit as well as loss incurred. Where as the use of the term collaboration, was to define conjoint thinking and productive contribution to the task at hand. Collaboration as referred to as 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. An interesting trusts story around choosing competitor companies to innovate with would be that of Apple and Samsung. Apple and Samsung might be giants in making smart phones, and equally giant competitors. But Apple seeks Samsung’s chip division for the internal components of its smart phone produce. Here exists collaboration, for any technology upgrade that Apple seeks for its mobile devices; it must trust Samsung to make it work without any theft of original ideas put across to the smart phone business division. 5.4 The Process as Captured The process of Open Innovation can be categorized based on three important influencing factors; legal procedures including Rights Management, Company Culture as the given environment for innovation to happen, and the Scope Definition for the expected outcome for clearer resource investment. These are explained below. 5.4.1 Rights Management In any collaboration or partnership, legalities exist to safeguard interests but the pure basis of a starting partnership is simply based on mutual trust. Initial talks to seed a partnership are always based on goodwill and trust. Only when such a mutual understanding has been established, the legalities 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. 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 the process. Intellectual Property Rights (IPRs) are discussed on paper; however this is only to safe guard interest and ideally should not create any conflict within the existing partnership or affect the inputs towards the desired outcome. IP sharing and distribution occurs at different stages of the process as soon as there is an emerging point of value that must be safe guarded. This is done jointly under the partnership leading to a win-win situation. During the agreement process, if the definition of interest of each party is clear on the value of the proposition, then the stake definition is also clarified. Legalities also define the contribution that must be made and will be received by the individual 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 organization or within a partnership. The innovation team is usually segregated from the rest of the company because of the mindset required for the job. Whereas, the other business units think of everything viable within the current business scope of the company, the innovation team needs to break through this barrier. Incubation space is required and provided to allow innovation free of any influence. A recent phenomenon as stated by interviewees, company culture supportive of innovation encourages teaming up with other individuals and to work openly with others. Innovation companies are becoming 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. As a 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 that have budget and experience to steer such game changing projects. The projects once have cleared test beds are then put across to managers that are experience in the ‘go to market’ phase. Here they can fine-tune the innovation to achieve best results in the real commercial space. Provided the innovativeness is not cut down. The High Tech campus by Philips, and work cultures as improvised by Google are to provide employees for happier environments that allow freedom of thought translating into innovations and patents. The down side, as marked by an interviewee, is when there is an organizational change at the higher level it directly effects the innovation projects in incubation. The budget and importance are fluctuated 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 of the size. As per the Creative consultant we interviewed, many a times bigger companies dictate results of an innovation project when partnering with a smaller firm. This according to the interviewees from the MNC is not appreciated as Open innovation. Within the frame work of open innovation as described by the respondents, the differences are dissolved leaving only the intellectual capita as the key attribute. “The idea is to have a win-win situation at the end for both”, and “not to squeeze all juice out of the smaller or less powerful company”. In a partnership, a bigger company should not overshadow a smaller company, as it is against an open-minded framework. Since the idea is to work together and not for each other. Symbian a software development company and main supplier of the operating system for Nokia phones, was bought over by Nokia. But the two continue to work together as a parent and daughter company without the barrier of big and small. The two entities still separate, work together on developing the best solutions for the mobile phone business without overriding each others expertise. 18
  • 20. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet 5.4.3 Scope Definition The scope definition is sometimes important, especially in a commercial setup, so that all involved parties know their role, their involvement and the expectations from each other. The clearer the scope of work area, the better the result will be. But the scope should remain only in the meaning of the word rather than enforce it during the practical process, which would make the outcome control too strict. The scope should be open and agreed upon rather than conflicting and restrictive. The scope should also have within it the possibility to change and modify as the project progresses so that each partner can justify its contribution effectively. 19
  • 21. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet 6 DISCUSSION 6.1 Open Innovation for NPD Technology has been advancing at a very high rate, leaving organizations to struggle to find their best 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”. The reason as to why it is regarded as an entrepreneurial approach, are the characteristics of venturing into 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 get together for the purpose of creating something radically new. It is not a one set recipe, rather an open-minded approach to problem solving or changing the current. It can be called as ‘Open-Minded Innovation’. The term as coined by Chesbrough is fairly new to the field of innovation, and is facing multiple twisted applications. 6.2 Open Innovation; a Strategy for Radical Innovation Companies 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 yet innovative. On the other hand, open innovation should be approached as a strategy, if we deal with radical innovations, i.e. bringing new products or services into new markets. As mentioned by one of our interviewee, this type of innovation can be regarded as ‘future telling’. Roberto Verganti’s definition of design driven innovation, is much in line with how radical innovation is applied. As explained in fig. 1 (Verganti, R. 2009), radical innovation results bring about a change in the perceived 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 cultural change that can be brought about with its introduction, typically when undertaking use and/or development of newer technologies. Thus, the position of Open Innovation in this matrix is limited to the overlap of changing means through design driven innovation with radical change brought by technology. 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 be typically 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 easily achievable as they still pertain to the current domain or area of expertise of the company, the core business. 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 be very costly for a company to develop the required competence in house. It is however cheaper to have access to super-specialty as mastered by another firm in parallel with the project demands. This practice not only saves up resources that would be spent for infrastructural development, but also assures top quality input. It is therefore a comparatively less costly process than the formally practiced closed-innovation. The involvement of multiple partners or stakeholders reduces financial risk 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 the implementation investment should be done”. As several partners take a risk of losing their peoples’ 20
  • 22. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet time, 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 to this list. Coming back to the mindset and culture that Open Innovation inculcates, an environment highly conducive for innovation is created. The involvement of individuals’ or/of firms with different ideologies bring newer perspectives and knowledge. This can be regarded as the optimum acceptance of design discourse (Verganti, R. 2009). Here, all contributors can be from outside the project circle and their involvement controlled by their scope of contribution to the purpose (as per their 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 study can aid each other for better end solutions. E.g. Companies tapping into better understanding of a domestic space to develop better experiences would range from furniture, to textiles, to lighting, to appliances, etc. But the area and depth of investigation remains the same, i.e. to study the domestic environment 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 Innovation Although the design discourse is not applied in the true meaning of opening sharing information and knowledge from the field, in the current scenario it is treated as a buyer-supplier relationship. In such a scenario, a bigger company would hire a smaller company oo firm to carry out certain tasks with all deliverables covered under a contract. 6.3 Fitting the Current Managerial Fabric If a company chooses Open Innovation as a strategy, it assuredly brings a change within the company’s structure and thinking. “It does not fit, it makes a change!” 21
  • 23. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet In terms of goal, open innovation is not very different from closed innovation; the second one is a rather common strategy for most of companies. Both these approaches aim at coming up with something new. It could be a new application of a technology, or its application to find a solution to an existing problem, answer a demand. Apart from these Open Innovation gives way to something which 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 there is a direct hard commercial interest.” It is logical for a company to expect return of their investment in 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 the project, as much as possible. The value is not necessarily monetary; it could be both tangible and intangible. Value acquired in terms of Brand Equity is equally important, as in the end it can be measured to have converted into a financial gain. If initiating an Open Innovation project can gain increase in the value of the Brand it is equally valuable as a financial profit gain. The money invested can be compared to a budget allocation for various advertising media. Here the outcome can be such that 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; whereas short term could be looked at as profitable sales. The irony of the current situation in companies is that the later is more sought after. If there is no short-term benefit visible to the management, it is difficult to get a ‘go’ for a project. Many companies do not seek long-term benefits, and lack foresight into how an innovation might develop and add to the business in future. An interesting example here would be to mention the Xerox Parc who developed innovations pertaining to the development of ‘Personal Computing’ (PC). However, it failed to productize these innovations since they did not contribute to the parent company’s core business. These innovations have been successfully exploited by technology giants Microsoft and Apple. Personal computers revolutionized not 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 is what a disruptive innovation can do. With changing outlooks and paradigms starting in the 70’s by Xerox and in the 80’s by Sony and Philips, companies came up with innovation strategies to combat organizational restrictions posed upon internal workforce. Companies did not see much value in investing in research, at that moment business managers only wanted improvement to happen, in order to make existing products and services better or faster. The idea was to sell as much, with as less investment as possible. This slowly translated into a company culture, which gave the opportunity to employees and also people from outside to work on smaller innovation projects. These projects were experimental and did not hold 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 that innovation should fit in current, developing or future markets. The idea was now to let it happen outside the regular streams, regular paths, or regular ways of working. The incubation board, which were more like board of investors, conducted the stage gate process together. “They looked at the merits 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 of future interest and investment benefit lies in such radical projects. We discuss more about the control possessed by these managements teams in the section ‘Closing Open innovation; Open-Closed Innovation.’ 22
  • 24. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet 6.4 Choosing the Correct Partners Choosing the right partners is the most critical part of the Open Innovation process. It is important to know what their competences are, to what extent will they be able with those skills to create an answer. Equally important is the existence of similarity of interest and motivation from the project. If both partners expect different returns, it will not be a very well steered project, and would encourage more conflict of thought than any progress. In order to be productive, partners must comply with and respect each other’s wishes from the outcome. Good partners should have come together with an open mindset to accept what is new on offer. The flexibility 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 the whole concept of such an enriching partnership. Here the fear of losing IP is predominant, where partners fear losing ‘great’ ideas. Therefore partners do not bring ideas to the table and thereby unknowingly losing out on further development potential of these safeguarded ideas. This brings us to the next important element needed in such a partnership - ‘trust’. It is all about sharing ideas and competences to collaborate with an open mind in order to bring a socio-cultural change in the meaning of products and services, from what they currently exist. Therefore trusting the other side will 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 facilitates without discrimination a partnership between large and small sized firms. Here the stock exchange rates do not play a role during collaboration; it is limited to the ideas and the quality of knowledge exchange that can occur. It is no longer about a bigger fish swallowing a smaller one; instead it is about 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 phone market, it would have not been able to capture the mobile OS market as much alone with its phone Google Nexus. This partnership is remarkable, where both are together battling against the race set by 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 the co-branding so strong has played to their advantage against market leaders Nokia, LG, HTC, and now competing Apple. 6.5 Managing Interaction between Open Innovation Teams An organization and management of open innovation is different. In an open setting, a management setup 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 a working culture created. A group has to develop understanding of each other with one vision and one goal. 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 the same language and same procedures. The questions, which open innovation deals with, are following: 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 create chemistry in a group? If we are talking about closed setting, are those things are already set? Due o these, working together from opportunity identification towards the project takes time. Talking about social projects done in open innovation setting, there is hardly anybody who can devote all time to a project because it is done in free time. There is a crucial advantage here, personal interest is very high. People do it because they are highly motivated, very skilled, looking for recognition or because they have a beautiful idea. 23
  • 25. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet To make it work, there is a need of creating a glue, or oil, so there is a need of a leadership. In closed setting company there is almost all time one leader. On one hand it is convenient as it leads to a very structured process. On the other hand, it also leads to predictable solutions. That could be a reason why in traditional companies radical innovation is not taking place. However, open innovation is process of balancing in time four aspects: money, people, market and product. We cannot say in the very beginning of a project: “we need to develop that technology. We need 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 management have to be developed with the equal speed. But at the certain moment of the process certain aspects are more important, because they are conditional for progress. For instance, if there is a need for investment, then the finance side is important, as a project will get stuck. At the certain moment it is important to validate technological possibilities or re-evaluate a proposition towards a market. 6.6 Collaboration versus Open Innovation Naming alliances, mergers, collaborations, partnerships and open innovation are various strategies where 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 these two strategies based on the clarity of the end outcome before starting the project. Open Innovation in the 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 come together on the basis of trust and a mindset to create something radical, that would expand their current core businesses. Avoiding uncertainties is a trait of any business but open innovation allows this risk taking, where all partners share the stakes. It is collaboration. If companies are investigating in an open way what the future might bring, that might influence a strategy of both companies. That is open innovation. 6.7 Closing Open Innovation; Open-Closed innovation This section discusses the research question; is Open Innovation as an approach carried out through all 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 they would decide to invest hundreds of millions in a project that actually leads to nothing. That happens in big companies more often, as there is much more to lose. A huge investment is spending on applications of technology that does not reach a market in the end can be a huge lose incurred. More over value lost would also include the market reputation and brand image. These losses are much larger than a no financial profit situation. People invest because they like an idea, they believe in a technology. However there are certain biases to a personal idea that restricts many innovators from evaluating their project correctly and critically. They don’t look at all aspects, all conditions, but they go because it is like a hobby. So stage 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 two variables: impact of success and failure. Other parameter is the probability associated with both success and failure. So what companies try to do is to reduce the probability of a failure. As well closing open innovation process wants to provide the conditions for success. 24
  • 26. The Open Innovation Process and Open-Closed Innovation Sanya Khanna and Sandra Cecet Open Innovation as a process suggests overcoming the barriers set in a stereotypical product or service development company, which relies heavily on the stage-gate to measure any right or wrong of innovation. It is a strategic tool which designers and others in the creative profession have been using since long, and have been striving to bring this model into the real business decision making processes. The continuously changing economic scenario and the users or customers demand for innovative products and services, is stressing more and more on the application of this strategy. Companies like Ikea and Alessi, who have not been very high-tech, had successfully used this strategy to their advantage of building a reputation with users. From Karim Rashid designing for Alessi and many Scandinavian designers contributing to the class of Ikea products has earned them a lot of business. MNCs are more to the culture of investing large amounts of resources into multiple innovation projects and running research driven initiatives. Yet not all end up with the best success stories. These companies offering multiple sponsorships in various universities and providing creative opportunities to independent practitioners do not critically evaluate the outcome from these outsourced or rather open creative platforms. Many of them are left as publicity stints to gain value in terms of brand equity especially within competitive circle. Beyond this the ideas may create a stir within an organization, and also may be taken in, but many a times these are not aligned with the roadmap of companies expected returns. This leads to killing the idea, or putting it on hold until the time is right. This is unfortunately is not seen as an opportunity to take over something new, and take the market by surprise. A truer evaluation of such ideas that might have sparks needs to be put into place. As aptly stated by a respondent, “it is now about the Entrepreneurial Go To Market”, a company must be ready to the risk at hand like independent practitioners and small firms do. These SMEs and consultants are keener to safeguard their passion and in the way safeguard their limited resources. Where as, this passion to lead a project through to its originality, is often lost in a MNC. Resulting it into a Open-Closed Innovation project. Entrepreneurial stride of Mark Zuckerberg and his passion to carry it out built Facebook, a disruptive innovation indeed that in today’s date has compelled Google to follow its footsteps with Google+. Changed the way Internet was perceived and how people connected. Thus making Google its follower and not a leader in Social Networking. It is right to safe guard one’s interest, but not to be lead into insecurity, for it is now the time when the whole world is seeking collaboration. 25