Open Innovation and Strategy

MOOI Theme # 1 – presentation & discussion

December 3, 2013

MOOI Theme 1:

Open Innovation and Strategy

Prof. Henry Chesbrough, University of California, Berkeley & ESADE

Prof. Wim Vanhaverbeke, Hasselt University, ESADE & National University of Singapore

Dr. Nadine Roijakkers, Hasselt University

December 3, 2013

Statements about OI and strategy

– … the need to align open innovation with the organizational strategy

– …. firms need to audit the current status of their innovation strategy and identify areas where value could be added by open innovation

– Innocentive project:• “Quantitative Model to Aid Strategy Decisions

When Applying Open Innovation”

• Crowdsourcing applied to the link strategy & open innovation 3

Overview

• OI and corporate strategy

• OI and business strategy

• OI and strategy types

• A process view on the link between strategy and OI

4

OI and corporate strategies

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OI and corporate strategyCorporate strategy:

– Long-term growth of the company

– in which industries/technologies a firm wants to be active – new business development

– OI and cap ability building (dynamic view):• Absorptive capacity/connective

capacity/desorptive capacity (Lichtenthaler and Lichtenthaler, JMS 2009)

– OI as instrument to drive cognition of future strategy (Itami & Numagami, SMJ 1992). OI frames and drives the way managers think – try to integrate it in the corporate strategy formulation process6

The McKinsey Growth Model

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McKinsey Model & innovation strategy

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McKinsey model and OI

• Innovation efforts aimed at all three time horizons

• H1: Current business: – BM determined/clear

– Incremental innovations with existing partners

– Market related partners more important?

– Short OI innovation cycles with low uncertainty

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McKinsey model and OI

• H2: Related businesses

• H3: New businesses or disrupting businesses

• Work on the three horizons simultaneously

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BCG matrix – Adapted for OIFrank Mattes - Applied Innovation management - nr 3 – 2011 (p. 13)

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Deloitte’s Growth Framework

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Growth matrix – Adapted for OIFrank Mattes - Applied Innovation management - nr 3 – 2011 (p. 14)

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Incubation and EBAs: Growing beyond the

mainstream businesses• Role of corporate incubators & EBAs (DSM) in growth strategy of the firm

• OI in EBAs is quite different than in mainstream businesses

• New capability building through external relations

• Also: capabilities become non-strategic, obsolete (open up to 3rd parties, e.g. Philips Research in specific technical areas)

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Accelerating and supporting innovation

Page 15

DSM Innovation Center

EBA Biomedical

EBA Advanced Surfaces

EBA Bio-basedProducts & Services

Business Incubator

New Business Development

~80% ~20%

CTO Office

Venturing

Excellence in Innovation

Licensing

Enablers

OI and the cognition of future corporate strategies

• Different people working together with external partners:– Different views on the technical and market

opportunities

– Scouters, incubators, EBAs: focusing on LT technical developments vs. mainstream businesses

– Tools to bring bottom-up insights into corporate strategy? (corporate strategic dialogues?) Page

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Capability building(Lichtenhaler & Lichtenthaler, JMS, 2009)

Knowledge exploration

Knowledge retention

Knowledge exploitation

Internal (intrafirm) Inventive capacity Transformative capacity

Innovative capacity

External (interfrm) Absorptive capacity

Connective capacity

Desorptive capacity

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Top-down & bottom-up approachesIfm report (2009)

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Top downStrategically driven

Bottom upAchieved by evolution

Dis

trib

ute

d O

I Act

ivit

ies

Cen

tral

ised

OI A

ctiv

itie

s

Interactive poll 1

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OI and Business Strategy

Page 20

Chesbrough & Appleyard (CMR 2007)

ABSTRACT: The article discusses a process of business innovation known as open innovation and its relation to traditional business strategy. The competitive strategy developed by Michael Porter emphasized rivalry, buyer power, and barriers to entry as forces that could enhance a producer's surplus. The authors discuss the impact of the Porterian value chain, the processes of production through to the consumer, on subsequent business practices. However, this theory does not account for external sources of value to a company, such as innovation communities, volunteer contributors and surrounding networks, including social networking web sites, open source software and the Wiki model of open contributions. The concept of openness requires shifting from ownership to value creation and value capture. 21

Chesbrough & Appleyard (CMR 2007)

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Chesbrough 2006

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• A business model performs two important functions: – it creates value, and – it captures a portion of that value

• Creation of value: by defining a range of activities that will yield a new product or service valued by a (target) customer group

• Value capturing: by establishing a unique resource, asset or position within that series of activities where the firm enjoys a competitive advantage

Chesbrough 2006

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Open business models:

Division of labor: – one party develops a novel idea but does not

carry this idea to the market itself– sells it to another party,who carries it to the

market

Open business model: uses the division of labor to

– create greater value by leveraging more ideas (external ideas)

– capture greater value by using key asset, resource, or position not only in the company’s own business but also in other companies’ businesses

The relation between OI and OBM

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Open Innovation

Closed Innovation

Closed Business Model

OpenBusiness

Model

I-Pod Apple

http://open--innovation.blogspot.nl/2010/02/ipod-thanks-to-open-innovation.html

SkyNRGhttp://skynrg.com

Tide (P&G)

http://www.acs.org/content/acs/en/education/whatischemistry/landmarks/tidedetergent.h

tml

Senseo (Philips/Sa

ra Lee)http://www.entrepreneurship.ethz.ch/education/lectures/Alliance_Advantage/Trust_Risk_de_Man_

2009.pdf

(P/SL)

OI and Strategy Types

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Jaruzelski & Holman/Booz & Company(Ivey Business Journal, 2011)

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OI and Innovation strategy types

Frank Mattes - Applied Innovation management - nr 3 – 2011 (p. 20)

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A PROCESS VIEW ON THE LINK BETWEEN STRATEGY

AND OI29

Slowinski & Sagal(Research Technology Mgt 2010)

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Interactive poll 2

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References- Abernathy and Clark, Harvard Business R., September 1981

- Chesbrough & Appleyard, California Mgt R., 2007

- Chesbrough and Crowther, R&D Mgt, 2006

- How to implement OI, IfM report, 2009, University of Cambridge

- Itamy & Namagami , Strat Mgt J., 1992

- Lichtenthaler & Lichtenthaler, J Mgt Studies, 2009

- Jaruzelski & Holman/Booz & Company, Ivey Business Journal, 2011

- Mattes Frank, How to make OI work for your R&D, Applied Innovation management - nr 3 – 2011

- Slowinski & Sagal, Research Technology Mgt, 2010

- Brandenburger en Nalebuff, Co-opetition, HBS press, 199632

Q&A

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