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

1. Profiting from External
Innovation: A Review of the
Research
Joel West
KGI - The Keck Graduate Institute
www.oiblog.net
Marcel Bogers
SDU - Southern Denmark University
MCPC 2011
San Francisco
18 November 2011

2. Where is KGI?

3. What is KGI?
• Keck Graduate Institute of Applied Life
Sciences
- Mission: “dedicated to education and research
aimed at translating into practice, for the benefit of
society, the power and potential of the life
sciences.”
• Founded in 1997
• Funded by grant from Keck Foundation
• About 150 graduate students
• Youngest of 7 Claremont Colleges
• Mixture of science and business faculty

4. Profiting from External Innovation
• 1986: Teece created a model of small
firms profiting from their own innovation
- “Profiting from Innovation” model
- Partner if they can’t commercialize on own
vRely on established firms for manufacturing,
distribution, support
• Today: firms commercialize external
sources
- Inbound perspective of open innovation

5. What we did
For research on inbound OI:
• Developed a 4-phase process model
• Reviewed OI research (2003-2010)
• Looked for gaps and opportunities
Recent draft is on SSRN

6. Open Innovation

7. Open Innovation: then and now
4,561 960 664 published
cites cites cites 2011

8. What is “open innovation”?
“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.”
Henry Chesbrough, Open Innovation:
Researching a New Paradigm, p. 1

9. Chesbrough funnel
Other Firm’s
Market
Licensing
Technology New
Internal Spin-offs Market
Technology
Base Current
Market
External
Technology
Base
Technology Insourcing
“Open” innovation strategies Source: Chesbrough (2006)

10. Research Design

11. Our process model
We developed a model of profiting from
external sources of innovation:
• Based on current innovation process
models (e.g. Freeman, 1982)
• 3-step linear model of innovation
creation and commercialization
- Add reverse paths (upstream)

12. Our process model
Innova&on
Focal
Firm
Source
1 2 Sales
/ 3
R&D Customers
Marke.ng
Innova&on
Source
Profiting from external sources of
innovation
1. Obtaining Innova&on Innova&on
2. Integrating Source Source
3. Commercializing
Reverse paths
Suppliers Rivals Customers

13. Research Design
• SSCI
- Selected 18 “A” & “B” bus, tech journals
- Published 2003-2010
- Mentioned OI or cite Chesbrough
• Add Google scholar 100+ cites
- Yielded 15 pubs: 11 are duplicates
- 3 Chesbrough books, plus 1 chapter
• 280 papers/chapters
• Manually reviewed the 280

14. Articles by Journal
Journal Papers Journal Papers
Academy of Management Journal 4 Management Science 18
Academy of Management Review 1 MIT Sloan Management Review 6
Administrative Science Quarterly 1 Organization Science 6
California Management Review 11 R&D Management 52
Harvard Business Review 1 Research Policy 52
IEEE Transactions on 3 Research-Technology 39
Engineering Management Management
Industrial and Corporate Change 3 Strategic Management Journal 4
International Journal of 34 Technological Forecasting and 4
Technology Management Social Change
Journal of Product Innovation 21 Technovation 30
Management Total 276

15. Related Research
In addition to Open Innovation:
• Exploration/acquisition strategies
- R&D joint ventures, alliances & outsourcing
• External sources of innovation
- User innovation & co-creation

16. Analysis

17. Categories of Papers (1)
Phase Category Open Innovation Topic
• Sourcing
Searching • Brokerage
• Limits
• Contests
• Intermediaries
Enabling
• Toolkits
1. Obtaining
• Platforms
• Gatekeepers
Filtering
• Technology scouts
• Incentives to share
Acquiring • Contracting
• Nature of the innovation

18. Categories of Papers (2)
Phase Category Open Innovation Topic
• Absorptive capacity
• Culture and “Not Invented
2. Integrating Here”
• Incentives to cooperate
• Competencies
• Commercialization process
3. Commercializing • Value creation
• Value capture
• R&D feedback
Feedback • Customer/market feedback
Nonrecursive
paths • Co-creation
Reciprocal • Communities
• Value networks

19. 1. Obtaining Innovations
• Best covered of the phases
- Searching, enabling, filtering
- Sourcing particularly well covered
• Most popular area: sources of innovation
• Often about external knowledge and not
external innovations
• Not much about asset specificity of potential
innovations

20. 2. Integrating Innovations
• Considers org capabilities and culture
- Absorptive capacity over-researched
is mentioned, not well measured
- Implicit assumptions
• Integration seems to be a black box
- Are new competencies needed?

21. 3. Commercializing Innovations
• Lots of value creation
- Sometimes measured using NPD metrics
- Less research on value capture
• Assumes external innovations
commercialized same as internal ones
- How do firms differ in external innovation
commercialization capabilities?

22. 4. Reverse Paths
Beyond the linear model, this includes
• Feedback mechanisms
- Information flow upstream
• Reciprocal measures
- Ongoing interactions
- Includes co-creation, communities
Research here is scarce

23. Discussion

24. Unanswered questions (1)
• Search: Largest body of research
- Is this what’s new?
- Or is it the most fun to study?
• Integration:
- What competencies are necessary?
- When do external sources substitute for (or
complement) internal innovation?

25. Unanswered questions (2)
• Commercialization
- Is commercialization path the same?
- Where are success metrics?
vDecades of NPD research offer examples
• Non-linear approaches
- Open innovation tends to have linear focus
vOpen Services Innovation is notable exception
- How is this changed by feedback, co-creation,
other cooperative mechanisms?

26. Unanswered questions (3)
• Where is the business model?
- Includes value capture
• Is everything an “innovation”?
- Patent, copyright, knowledge

27. Invention vs. innovation
We owe to Schumpeter the extremely
important distinction between inventions
and innovations … An invention is an
idea, a sketch or model for a new or
improved device or system. … An
innovation in the economic sense is
accomplished only with the first
commercial transaction (Freeman, 1982)

28. Contribution
Profiting from External Sources of Innovation:
• Process model
- Obtaining
- Integrating
- Commercializing
- Reverse (nonrecursive) paths
• Summary of 200+ articles:
- Existing conclusions
- Blind spots and research opportunities

29. For more information
• http://ssrn.com/abstract=1949520
• blog.OpenInnovation.net
• Twitter: @openITstrat