Open Innovation in Business Ecosystem - DiVA portal542359/FULLTEXT02.pdfOpen Innovation in Business Ecosystem Sylvain Milon | LINNAEUS University Master’s Thesis, Spring 2012 1 Open

OpenInnovationinBusinessEcosystem

SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012 1

OpenInnovationinBusinessEcosystem–FromtheanalysisoftheAppleITCPlatformthroughitsbusinessecosystem

Author(s):SylvainMilon

Leadership&ManagementinInternationalContext

Tutor:

Examiner:

Dr.Pr.PhilippeDaudi

Dr.Pr.BjörnBjerke

Subject:

BusinessAdministration

Levelandsemester: Master’sthesis,Spring2012

2 SylvainMilon|LINNAEUSUniversityMaster’sThesis,Spring2012

ACKNOWLEDGEMENTS

This project would not have succeeded without the intervention of several people I

wouldliketothankanddedicatemythesis.

Firstofall,IwanttothankProf.Dr.PhilippeDAUDIbecauseofhisexcellentcooperation

and the motivation given to realize this research project. I am very grateful for his

advicesandsupportthroughoutmyresearches.

Secondly, this thesiswould not have emergedwithout the support and trust ofmany

people.

Fortheircomprehension,Ithank“OuestManutention”,myhostcompany,andespecially

my two apprenticeship mentors, CEO Henry MATTE and Business Administration

ManagerCecileDROUADAINE,whogavemetheirconfidence,pushedmetosucceedin

thisdifficultworkandwithoutwhomIwouldeverhaveaccessed to thisMBA.Then I

wanttothankMr.PONTET,ESCBretagneBrestProgramDirectortograntmetheaccess

tothedoubleMBADegree.AsanapprenticeintheESCBrest,thisprogramshouldnot

havebeenproposedtome.

I alsowant to gratitude twoexcellentProfessors in theESCBretagneBrestwhohave

alwaysbeenattentiveandfullyavailablethroughouttherealizationofthisthesis.Iam

also grateful for their inspiration, support and time theywaswilling todevote. If this

thesishasbeenachieved,witheffortandenthusiasmitneeds,itispartlythankstothe

seriousness and the remarkable skills of greats Prof. Dr. Sébastien CHANTELOT and

Prof.Dr.DavidMERIEAU

Forhertime,herhelpandadvicesinEnglishwritingskills,Iwanttosincerelythankmy

aunt,CatherineMILON.

Fortheirstrongsupportandencouragementsallalongmystudies,Idedicatethisthesis

tomyparents,mybigbrotherandsister,allmyfriendsandespecially,forherpatience,

NadègeLEZIART.



ABSTRACT

Firmsoperateinanincreasinglycomplex,unpredictableandfast‐movingenvironment.

Understandthebusinessecosysteminwhichaninnovativecompanyoperatesisamajor

leadershipstake.Indeed,knowhowthevariouspossibilitiestointeractwiththeactors

presentinthebusinessecosystemofanorganizationarepartoftheleadershiprole.

In order to survive facing competitive organizations, and to get a sustainable

competitiveadvantage,aninnovativeorganizationmustbeabletocombinewithvarious

partnersonitsbusinessecosysteminordertoshareknowledgeandcompetencies,and

thereforeimplementopeninnovationprocessesmaybeakeysuccessfactorthatshould

notbesidelined.Todoso,anorganizationmustunderstand innovationtoadoptopen

innovation processes, must also take into account various elements of its business

ecosystemtosettlecompetitivedynamicswithstakeholdersandbeabletointeractwith

thesedifferentactors,andtofinishaninnovativeorganizationmustbeabletosetopen

innovationprocessestofindakeysuccessfactorandperformasustainablecompetitive

advantage.

Keywords:innovativeorganization,businessecosystem,openinnovation,ITCplatform.


TABLEOFCONTENT

CHAPTER1.INTRODUCTION:BACKGROUNDOFTHESTUDY......................................................... 9

CHAPTER2.RESEARCHPURPOSE ..........................................................................................................10

2.1.RESEARCHQUESTIONS ........................................................................................................................................... 10

2.1.1.Mainresearchquestion.................................................................................................................................102.1.2.Relatedquestions.............................................................................................................................................10

2.2.RESEARCHOBJECTIVES........................................................................................................................................... 112.3RESEARCHPERSPECTIVES....................................................................................................................................... 122.4RESEARCHSCOPE ..................................................................................................................................................... 14

2.4.1Conceptualframeworkmap ........................................................................................................................142.4.2Innovativebusinessorganization..............................................................................................................152.4.3BusinessEcosystem..........................................................................................................................................162.4.4.OpenInnovation...............................................................................................................................................16

CHAPTER3.RESEARCHMETHODOLOGY .............................................................................................18

3.1.THECHOICEOFAQUALITATIVEAPPROACH ....................................................................................................... 183.2.SAMPLINGMETHOD................................................................................................................................................. 203.3.COLLECTIONANDDATAANALYSIS ....................................................................................................................... 203.4.RELIABILITY,VALIDITYANDLIMITATIONSOFTHESTUDY .............................................................................. 223.5.CONCLUSION............................................................................................................................................................. 23

CHAPTER4.ANOPENINNOVATIVEBUSINESSORGANIZATION...................................................24

4.1.ANEWVIEWOFORGANIZATIONS......................................................................................................................... 24

4.1.1.Thecomplexity..................................................................................................................................................244.1.2.Theplatformofthecomplexity .................................................................................................................264.1.3.Thecomplexorganization ...........................................................................................................................27

4.2ANEWVISIONOFINNOVATIONFORACOMPLEXORGANIZATION.................................................................... 30

4.2.1Understandingtheinnovation....................................................................................................................314.2.2Adoptopeninnovation ...................................................................................................................................364.2.3Anorganizationbasedontheprinciplesofopeninnovation........................................................40



CHAPTER5.THEGENESISOFTHEBUSINESSECOSYSTEMCONCEPT.........................................44

5.1.UNDERSTANDINGELEMENTSOFBUSINESSECOSYSTEMS ................................................................................ 445.2.THECOMPETITIVEDYNAMICSWITHINBUSINESSECOSYSTEMS...................................................................... 51

5.2.1.Thecoevolutionprinciple ...........................................................................................................................515.2.2.Coopetition .........................................................................................................................................................545.2.3.Electronicplatforms:sharedvaluesandleadershipwithinthebusinessecosystem.........55

5.3.BUSINESSECOSYSTEMANDOPENINNOVATION ............................................................................................... 58

CHAPTER6.THELINK,OPENINNOVATION ........................................................................................62

6.1.DETERMINANTSOFOPENINNOVATION ............................................................................................................. 646.2.THEADVENTOFNEWBUSINESSMODELSFORINNOVATION ........................................................................... 666.3.THEOPENINNOVATIONPRACTICES ..................................................................................................................... 696.4.ADVANTAGESANDLIMITATIONSOFOPENINNOVATION.................................................................................. 71

6.4.1Advantages ..........................................................................................................................................................716.4.2Limitations ..........................................................................................................................................................72

6.5.CONCLUSION............................................................................................................................................................. 73

CHAPTER7.EMPIRICALSTUDY:TOWHATEXTENTTHEBUSINESSECOSYSTEMCANBEEFFECTIVEINSTEVEJOBSOPENINNOVATIONSTRATEGYFORAPPLE? ..................................75

7.1.CONTEXT................................................................................................................................................................... 75

7.1.1.AppleCompany.................................................................................................................................................767.1.2.SteveJobs,a“visionary” ................................................................................................................................77

7.2.APPLE,ANINNOVATIVEORGANIZATION ............................................................................................................. 787.3.APPLEBUSINESSECOSYSTEM............................................................................................................................... 79

7.3.1.Theecosystemadvent....................................................................................................................................797.3.2.AnElectronicBusinessEcosystem:TheiTunesStore ......................................................................807.3.3.MainactorsinteractingintheiTunesStore ........................................................................................807.3.4.TheAppStore ....................................................................................................................................................827.3.5.Thedevelopers:Awidecommunity .........................................................................................................827.3.6.MobileApplicationDevelopment:Thecoevolutionconcept.........................................................837.3.7.Theremunerationmodels............................................................................................................................847.3.8.Conclusion...........................................................................................................................................................85

7.4.APPLEITCPLATFORM:LEADERSHIPWITHINTHEBUSINESSECOSYSTEM .................................................. 87

7.4.1.Overviewoftheplatform: ............................................................................................................................877.4.2.Aplatformfacilitatinginteractions ........................................................................................................87


7.4.3.TheAppleiPhoneandtheAppStore:Saleofanecosysteminsteadofaproduct ...............887.4.4.Conclusion...........................................................................................................................................................89

7.5.OPENINNOVATIONINACLOSEDBUSINESSECOSYSTEM:APARADOX ........................................................... 90

7.5.1.OpeninnovationpracticesthoughtheAppStoreecosystem .......................................................907.5.2.Aneweffectivebusinessmodel..................................................................................................................927.5.3.Theparadox:Aclosed&perfectlycontrolledecosystem ...............................................................937.5.4.Abusinessecosystemtargetingtoopenitself .....................................................................................96

7.6.EMPIRICALSTUDYCONCLUSION .......................................................................................................................... 96

CHAPTER8.CONCLUSION&RECOMMANDATIONS ..........................................................................99

8.1.GENERALSUMMARYOFTHESTUDY ..................................................................................................................... 998.2.RESEARCHCONTRIBUTIONS ................................................................................................................................1028.3.RESEARCHLIMITATIONS ......................................................................................................................................1028.4.FUTURERESEARCHOPPORTUNITIES..................................................................................................................103

REFERENCES ............................................................................................................................................... 105



LISTOFFIGURES

FIGURE2.1.CONCEPTUALFRAMEWORKMAP................................................................................................................. 14

FIGURE4.1REPRESENTATIONOFTHEPHENOMENONOFCOMPLEXITY .................................................................... 26

FIGURE4.2.ORGANIZATIONADAPTATIONWITHCOMPLEXITY ................................................................................... 30

FIGURE4.3.THEKEYCOMPONENTOFTHEINNOVATIVEORGANIZATION ................................................................. 35

FIGURE4.4.OPENSYSTEM:CONVERSIONOFINVENTIONINTOINNOVATION .......................................................... 39

FIGURE4.5.CLOSEDSYSTEMMODELVS.OPENSYSTEMMODEL ................................................................................. 42

FIGURE5.1.THEBUSINESSECOSYSTEMVIRTUOUSCIRCLE(MOORE,1996,P.28)................................................ 45

FIGURE5.2.BUSINESSECOSYSTEMCHARACTERISTICS(PELTONIEMI,2005,P.64) .............................................. 49

FIGURE5.3.THECO‐EVOLUTIONINTHEBUSINESSECOSYSTEM(PELTONIEMI,2005,P.35) .............................. 53

FIGURE6.1.CLOSEDINNOVATIONVS.OPENINNOVATION(CHESBROUGH,2006,P.47) ..................................... 63

FIGURE6.2.CLOSEDBUSINESSMODELVS.OPENBUSINESSMODEL(CHESBROUGH,2007,P.27)...................... 68

FIGURE6.3.THEITCPLATFORM:RELATIONALLINKBETWEENOPENINNOVATIONANDORGANIZATIONALSTRATEGYONTHEBUSINESSECOSYSTEM.............................................................................................................. 74

FIGURE7.1.DIFFERENTINDUSTRIESINTERACTINGONTHEAPPLEBUSINESSECOSYSTEM .................................. 81

FIGURE7.2.FLUXESBETWEENAPPLEANDSTAKEHOLDERSONTHENUMERICALBUSINESSECOSYSTEM .......... 86

FIGURE7.3.ITCPLATFORMATTHEHEARTOFTHEAPPLEOPENINNOVATIVEORGANIZATIONALSTRATEGY .. 98


LISTOFTABLES

TABLE6.1.THEMAINDETERMINANTSOFOPENINNOVATION(CHESBROUGH,2003A,PP.45‐57)................... 65

TABLE6.2.OPENINNOVATIONMODES:TECHNOLOGY&MARKETS(EIRMA,2004,P.24) ............................... 69



CHAPTER1. INTRODUCTION:BACKGROUNDOFTHESTUDY

The intensification of global competition, market globalization and advances in

information technology are in the process of transforming the economies of

industrializedcountries(RabeauandPernée,2000,p.2).

In suchanenvironment,particularlynoticeable inareasofhigh technology (software,

banking,biotechnology, information technology (IT)and telecommunications,etc), the

boundariesofindustriesaremoreandmoreopeningasaresultoftheaccessiontomore

knowledge and the increasing off shoring activities, which resulted in a convergence

effectpoweredbyIT.Moreover,companiesoperatinginrelatedareasnowexperiencing

fewer difficulties to collaborate and distribute their operations with other partners.

Thus, structures of industries take the form of a networkwhere a simple product or

serviceistheresultofcollaborationbetweenseveralpartnerslocatedinvariouspartsof

theworld(IansitiandLevien,2004,p.19).Thesedifferentcooperationdynamicswithin

this vast network of partners are made more fluid and less complicated to manage

thanks to the remarkable development of IT. Thus, innovation development for a

company is made through an integrated electronic chain of worldwide partners,

facilitatedbyremarkably fluid informationfluxes,byeasyexchangewithpartnersand

customers of the company and, above all, a quick innovation initiatives launching

(Rabeau,2007,p.9).

Beforesuchacontext,anurgentquestionmustbeaddressed:inordertocreatevaluefor

customersandshareholders,howa companyneeds todevelop its innovationstrategy

withinsuchanetwork?

Tofurtherrefinemyquestioning,therelationbetweenecologyandbusinessworlds,as

put forward by many authors like Moore (1993, 1996), allowed me to develop the

business ecosystem concept in order to better elucidate the appearance network

advancedtoabove.Second,theparadigmofopeninnovation(Chesbrough2003,2007,

2011) allows to clearly describing the new innovative environment in which the

businessislocated.


CHAPTER2. RESEARCHPURPOSE

This chapter will be dedicated first to the main research question that will lead my

study, and then will introduce the related questions. The three last subchapters will

bringsomedetailsabouttheobjectives,perspectivesandscopeoftheresearch.

2.1.RESEARCHQUESTIONS

The research questions will be distinguished in one part by defining the principal

question,andthentherelatedquestionsonthisstudy.

2.1.1.Mainresearchquestion

Themainpurposeof thisstudy is tounderstandall theessentialelementsof “Howan

ecosystemcancontributetoopeninnovationstrategiesof innovativefirmsinorderto

strengthen their competitive position on themarket?” by including the importance of

each factordefininganopen innovationstrategysettledbya leaderaccordingto their

businessecosystem.

2.1.2.Relatedquestions

To give a better definition of what is the open innovation and to get a broader

understandingofitanditsuseinabusinessecosystem,Ineedtofocusonthreerelated

questionsthatwillnurturethemainquestion.Thosequestionsare:

‐“Evaluatethemainfactorsdeterminingthepossibleadoptionofopeninnovationforan

innovativebusinessorganization”

‐“Considerabusinessecosystemandlearntointeractinit”

‐“Understandanduseopeninnovationprocesses”



2.2.RESEARCHOBJECTIVES

Innovation is a key mean to gain a competitive advantage by responding to market

needs.Innovationisaboutcreatingnewproductsanddevelopingexistingproducts,but

also optimize its production system, adopting the latest technologies from basic

researchasitsresearchanddevelopmentdepartment.Therearebasicallytwolevelsof

applicationofinnovationintheenterprise.

An organization can innovate punctually; it is called “innovation project” or “product

innovation”. This is essentially a project to improve existing products, creation or

adoptionofnewtechnologytoaproduct.

An organization can also innovate permanently, in the long term. Here comes the

innovationmanagement.Thisisnolongertogainacompetitiveadvantagebuttosustain

this competitiveness. At this level, innovation must become a pillar of corporate

strategy.

The successof an innovationdependsnot onlyon the technological performanceof a

company. All of its resources (human, technical, financial, etc.) are indeed the key

successfactorsofaninnovativeproject.Thisishowacompanywillmanageitscapacity

for innovation that will make it innovative. By definition, innovation is based on an

originalidea:Wecannotinnovatewithoutnewideas.Buttheinnovationliesmainlyin

the ability to turn those ideas into commercial successes. For this, there aremethods

andwork techniques that help companies in all stages of innovation processes. Open

innovationprocessesareoneofthem.

I focusedontheopen innovationsubjectbecauseopen innovation is thesixthandthe

lastmodelappearedininnovation.ItisaveryinterestingsubjectformebecauseIwant

settlemyownmobileapplicationbusinessbymakesitevolvethroughanincubator.My

studentpartnersandmearecurrentlyworkingonthisproject.

The research objective is therefore to provide new insights to business leaders,

particularlythoseworkinginthefieldof innovation.Therefore,AppleCompanyseems

anappropriateground to considerboth thevarious competitivedynamics inherent in


thebusinessecosystemsandtheopen innovationmanagementchallengeswithinsuch

environment.Thus,Ideliberatelychosethecaseofthewell‐knowninnovativecompany

Apple,where the innovationmanagement strategywithin the NTIC sector, answer to

someextentatleast,tomymainresearchobjective.

2.3RESEARCHPERSPECTIVES

The"openinnovation"termwasusedforthefirst timein2003byHenryChesbrough,

professorandcenterdirectorwantedforOpenInnovationattheUniversityofCalifornia,

Berkeley,inhisbook‘OpenInnovation:TheNewImperativeforCreatingandProfiting

from Technology’. In a later version of his book published in 2006, Professor

Chesbroughdefinesitasfollows:"Openinnovationistheuseofpurposiveinflowsand

outflows of knowledge to accelerate internal innovation, and expand themarkets for

externaluseofinnovation,respectively"(Chesbrough,2006,p.1)

Inotherwords,openinnovationisupstream:theincreaseduseofinformationsources

and external knowledge to the company and downstream: the commercialization

channelsmultiplicationofthoseintangibleassetsinorderaccelerateinnovation.

This current is an alternative to the traditional mode of "closed development" that

business innovations are only those that emanate exclusively from its department of

R&Dandevolvinginsecrecy.

Contrarytothebeliefofsomepeople,openinnovationdoesnotmeanthatknowledgeor

technologywillbefree,inthesensethatthistermcanhaveinthefieldoffreesoftware

(opensource)whichletcirculatesthesoftwaresourcecodeforuseandimprovementby

thepublicwithoutroyalties. Indeed, the term"open innovation"refers toamethodof

open collaboration between various partners in a business ecosystem to develop a

commonproject,which does not exclude the protection through intellectual property

rightsandlicensesgrantingwithroyaltiesonresearchresults.



In an open innovation model, companies use various information and knowledge

sources in their innovative activities such as R&D, new technologies acquiring,

specialized human capital hiring, etc. To improve productivity and competitive

capabilities of companies in the market, they increasingly tend to externalize these

informationsourcesthroughinteractionswithvariouspartners.

There are of course crowdsourcing, a practice for an organization to outsource an

activity, throughawebsite,drawingon thecreativity, intelligenceandexpertiseof the

Internetcommunityuserstocreatecontent,developanidea,solveaproblemorachieve

aninnovativeprojectatalowercost.However,suchapracticebasedonconsumersdoes

notdirectlytargetapartnerwithspecificskillsorknowledgetocarryoutalargejoint

project.

Forsuchalargeprojectwheresomespecificexpertiseisrequired,thepartnershipwill

oftenbetargetedbetweenvariousstakeholdersintheprivateand/orpublicdomain,or

the academic field. These partnerships can take many forms such as partnerships

between a company and its suppliers, alliances or joint ventures between private

stakeholders in the same sector, consortia between universities and companies, spin‐

offs,etc.


2.4RESEARCHSCOPE

2.4.1Conceptualframeworkmap

Inordertodetermineascopeformystudy,Imadeaframeworkmappresentingtheall

theaspectpresentinthisthesis.

Figure2.1.Conceptualframeworkmap

I develop my conceptual framework based on the business ecosystem and open

innovation concepts. It is thereby considered to what extent does the business

ecosystemcanbeamanagementstrategyofopeninnovation.

Basedontheliteraturereview,Iadmitthatacompanywishingtoexcelbyadoptingthe

paradigmofopeninnovationisimperativetodeveloplinkswithcustomers,institutions



(universities, research laboratories, government, etc) and other partners

(manufacturers, competitors, etc) in order to access ideas and technologies to ensure

their sustainablevalue creation.Obtainassurancebymaintaining these linksbetween

thedifferentactorsmaynotonlybeachievedthroughacoevolutionprocessthatwould

strengthen the interdependence between the actors within the same business

ecosystem. In addition to this coevolution, relationships involving competition and

cooperation illustrate special situations of coopetition. Moreover, electronic trading

platformsplayafundamentalrolenotonlyinthesharingofvaluebyallmembersofthe

ecosystem, but also and especially in the management of contributions from various

stakeholdersaroundcompany.Thisallows,therefore,introducetheconceptofopenness

in the operations of business innovation. Similarly, the nature of the firms’ business

models ishighlydependenton theenvironment inwhich theyare located. Implement

businessmodelsthatmayaffecttheinnovationprocessandcreatingnewopportunities

forgeneratingvaluecanactuallybedone,butonlyinasupportiveenvironmentwherea

multitudeofinterdependentactorssharetheirideasandtechnologieswiththoseofthe

company. Therefore, this knowledge sharing is established on the basis of a rich

portfoliointermsofinnovationpracticesbytechnologyandenterprisemarkets.

2.4.2Innovativebusinessorganization

An innovative business organization evolves in the complexity, a complexity coming

from its environment. A complex organization needs to know how to understand

complex phenomena, how to manage its resource based, so its knowledge and

competencies.Moreover, a complex organization has tomanage internal and external

exchanges. By choosing external exchanges management and so dealing with the

complexitysurrounding,acomplexorganizationopensitsystem.

Open systems allow organizations to interact with their environment. Thus, an

innovativecompanydealingwithitsenvironmentandsharingknowledgecreatesmore

value by partnering with stakeholders from its industry or another, an offer the

opportunity to its stakeholders to create more value too. This idea is the basis of a

business ecosystem. Furthermore, by externalizing Research & Development (R&D)

projects, an innovative organization begins its ascension into an open innovation

process.


2.4.3BusinessEcosystem

The business ecosystem is presented as a business strategy to copewith new issues

market,where innovationhasbecomeessential to create thevalue for customersand

shareholders. Duringmy literature review, Iwill detect not only the various features

related to this concept, but the main challenges facing companies operating in this

environment.

Furthermore, analysis of the principle of co‐evolution as well as the dynamics of

coopetition, mention the study of electronic platforms will enable me to explain as

clearly as possible the competitive dynamics within this environment and reticular,

especially, to put forward the issues associatedwith the interdependenceof actors in

relationship management (Gueguen and Boucher, 2004, p.4), shared values and

leadershipwithinthiscomplexstructure.

2.4.4.OpenInnovation

AsIwillmentioninChapter6,theopeninnovationprocessistoconsiderthatthesocial

networkisthesourceofinnovation,notonlyaparticularcompany(Rabeau,2007,p.17).

Thus,ashasbeeninferredfromtheworkofChesbrough(2003a,pp.45‐57),numbersof

factorsencouragecompaniestoopt forthiskindofprocess.Asasummary,remember

thenatureofeachdeterminantofopeninnovation:

‐Usefulknowledgehasbecomewidelyavailable;

‐Ideasthatarenotusedmaybelost;

‐Ideaortechnologyvaluedependsonitsbusinessmodel;

‐Presenceofventurecapitalmodifiestheinnovationprocessforeach;

‐Companiesmustbesellersandbuyersofintellectualpropertyassets.

Achievebenefitfromtheideasandtechnologiesavailableoutside,however,requireson

thepartofcompanies,areconfigurationoftheirbusinessmodelstoensurecontinuous

efforts in innovation. As a result, companies are being forced to combine various



approaches to innovation (spin‐in/spin‐off, internal development, acquisitions, etc) to

ensureproperpositioninginthisnewinnovation.

Finally, they must be aware of the benefits and limitations are associated with this

paradigm.


CHAPTER3. RESEARCHMETHODOLOGY

Thispartwillfocusonthemethodologicalaspectoftheresearch.SoIwilldescribethe

methodology Iused inorder todo thisstudyby firstsupporting theapproach for this

purpose. We will then describe the various phases involved in the research process,

whichare:Sampling,datacollectionandanalysis,andstudythereliability,validityand

limitationsofthestudy.

3.1.THECHOICEOFAQUALITATIVEAPPROACH

The study of the Apple business ecosystem as a management strategy for open

innovationrequiresadetailedanalysisonmultipledimensions: thediversityofactors

withintheecosystem,thedegreeofinterdependencebetweenthese,thebusinessmodel

implementedbyApple, innovationapproachesdeployedbythisfirm,etc.Theresearch

purposealsorequirestheadoptionofaparticularperspectivetounderstandhowdoesa

company working in the high technology field is able to adapt to these dimensions.

Giventhecomplexityoftheresearchobject,aquantitativeapproachwasalsodifficultto

envisage.

Indeed, tounderstandphenomenarelated to theresearchsubject,wemustnowusea

holistic vision. This vision will enable us not only to achieve detailed situations and

eventsdescriptions,butalsotogainathoroughunderstandingofthebehaviorofactors

evolvinginthisecosystem,andtheinteractionsamongthem(Gagnon,2005,p.23).

Qualitative research methods are the only ones to make available such a holistic

approach. According to Yin (2003, pp.9‐11), choosing a research strategy depends on

theshapeoftheresearchquestion,thelevelofcontrolthattheresearchermaytakeon

theeventsbeingstudiedandonthecontemporarynature(ornot)ofthephenomenon

linkedtothestudy.Yinaddsthatthecasestudyisthebestresearchwhentheresearch

question focuses on the ‘how’ and ‘why’ of a phenomenon, even if the researcher has



little or no control over events and if the phenomenon study is contemporary,which

correspondswelltothesituationofthisresearch.

The case study is defined as "an empirical inquiry that investigates a contemporary

phenomenonwithin its real‐life context, especiallywhen the boundaries between the

phenomenonandcontextarenot clearlyevident" (Yin,2003,p.13). Indeed,Woodside

and Wilson (2003, pp.497) state that this research method is appropriate for the

description, explanation, prediction and control of processes involved in various

phenomena,nomatterthattheyareindividual,ingrouporinanorganization.

Thedevelopmentof theories fromcase studyhas someadvantages, including the fact

that there are good probabilities to generate a new theory, this theory can often be

testedusingstructures,whichcanbeeasilymeasured(Eisenhardt,1989,p.540).

Toaccounttheimpactofsomethingascomplexasthemanagementofopeninnovation

withinabusinessecosystem,itisusefultoconductalongitudinalstudythatisinsuringa

periodoftimeaslongaspossible.Thatiswhythisresearchcoveredaperiodfromthe

returnof Steve Jobs inAppleCompany (1997)until theendof is exercise in the firm.

Indeed,thehistoricalreconstructionoftheevolutionofaleaderisinstructivebecauseit

allows a better understanding of changing innovation activities since its arrival and,

more importantly, observing changes in its business ecosystem as well as the whole

relationswithallstakeholders.

Theapproachofthispaperisthereforeintended,at leastinpart,descriptive.Indeed,I

will begin by conceptualizing an innovative firm (Chapter 4), followed by a detailed

analysisofthebusinessecosystem(Chapter5)andopeninnovation(Chapter6)before

finallycompileathoroughanalysisoftheinteractionsbetweentheAppleCompanyand

theactorspresentinitsbusinessecosystem,thankstodatacollected(Chapter7).

ThiswholestudywillconcludeinChapter8bytakingthefindingsduringtheempirical

study(Chapter7)andlinkingthemwiththeliteraturereviewedinChapter4,5&6.


3.2.SELECTIONOFTHECASESTUDY

IhavedeliberatelychosenthecaseofAppleactingwith itsbusinessecosystem,which

respondstosomeextenttomymainresearchobjective.Asthefirmdevelopsitsactivity

withsupport fromvariousstakeholders,whichhelp itpromote itsoffer: this is indeed

one of the basis of the business ecosystem concept. In addition, partnerships and

alliancesundertakenbythecompanyinitsR&Dencouragemetoseemorecloselythe

placeofopeninnovationinthevariousoperationsoftheAppleCompany.

Thus, given the above observations, the choice of the company was not neutral.

Moreover, I checked, as far as possible, cases, articles and research papers that have

beenpublishedsincetheearlyactivitiesastheAppleCEOofoneofthemostvisionary

leader:SteveJobs.

3.3.COLLECTIONANDDATAANALYSIS

Thisresearchisbasedonsecondarydata.Whiletakingcaretogatherinformationthat

wasintendedasexhaustiveaspossible,Ioptedforthemostreliablesourcesandknown

fortheircredibility,at leastwhenthatchoicewasofferedtome.Whenpossible, Ialso

performed a triangulation of data to verify the veracity of information available. The

secondarydatawerecollectedfromfivemainsources:

‐Annualreportsofthecompany;

‐Pressreleases;

‐Magazinesandnewspaperarticlesonbusiness;

‐Casestudies;

‐Researchreports.

The choice to base an analysis on secondary data derived from the impossibilities to

obtain an understanding of the internal reality of Apple through primary data from

AppleInc,asthecompanyisknowntonurtureinternalsecrecy.



However, the secondary data as Steve Jobs Keynotes, Annual Apple Reports, but also

testimony frompartners or competitors found on the internet, even case studies and

research made by professional consultant companies have deeply helped me to

elaboratemyempirical study.Secondarydataadvantages lies in theiravailability, and

alsobecauseoftheirgreaterobjectivityinevaluation.

Finally,whenanalyzingthisdatabase,Ifollowedtotheextentpossible,theapproachof

MilesandHuberman(1994)andDeWeerd‐Nederdho(2001),whichconsistsofaback

andforthofthreecompetingactivities:

1 ‐ thedatapurifying:Select, simplifyand transformrawdata inorder to identify the

essentialcomponents;

2‐codingandanalyzingdata:Meetingtheinformationunitsdirectlyassociatedwiththe

studied phenomenon (Catterall and Maclaran, 1996; Huberman and Miles, 1994).

AccordingtoHubermanandMiles(1994,p.108),thiscouldbedonebyusingmatrixes,

tables, charts and graphs as presentation formats, or by grouping information into

paragraphs,and,aftermakingseveralcompletereadingstofamiliarizewiththecontent

and,aboveall,bybeingawareoftheglobalsensegivenoff;

3‐codifieddataanalysis:concludingbylettingthedataexpressingthemselvesandby

checking if any trends emerge, i.e. if some evidence of different sources converge on

similarfacts(Yin,1981,p.64).

Moreover, I based my research methodology on the grounded theory. Indeed, this

methodprovidedanapproachthatwouldencourageinnovationbyamethodofrooting

intheanalysisoffielddata(StraussanCorbin,1994,pp.1‐18).Thecentralprinciplein

the data analysis is the constant return to the comparison between the theoretical

analysis and empirical data. Not only the analysis takes as its starting point the first

episodesofdatacollection,butalsoitcontinuesinavalidationprocessthatisconstantly

coming back, or the already collected, or new data. So instead of force theories on

empirical data interpretation, I opened the emergence of theoretical elements or

conceptsthatwassuggestedbyfielddataandtheoreticalanalysis.Thisconstantreturn


totherootsandtheconstantvalidationtoexaminewhethertheproductsofanalysisare

well adjusted to the empirical data are the basis of the claim to innovation. Indeed,

attentiontowhatemergesfromthefieldcandiscoveroriginalpointsofview,especially

since this implies that careful analysisdevelops according toquestions from the land,

notexistingtheoreticalframeworks.

Validation discussed above involves more than an audit. This is, indeed, a constant

adjustment to what is happening on the ground. This adjustment directs the entire

processfromtheformulationofthemes,throughtheprocessofcollectingandanalyzing

data, until thevery endof theprocessof theorizing. In sum, theprimacygiven to the

emergence usually results in analyzes of ways of theorizing that have not yet been

explored.Thereforeitispossibletotalkintermsofinnovation.

3.4.RELIABILITY,VALIDITYANDLIMITATIONSOFTHESTUDY

Amongthegreatstrengthsofthecasestudywefounditsabilitytoprovideathorough

analysisofphenomenaintheircontext,anditsabilitytooffertheopportunitytodevelop

historical parameters (Gagnon, 2005, p.32). Specifically, the strength of this research

methodisitsabilitytoprovidestronginternalvalidity.AccordingtoEisenhardt(1989,

p.546), theprobability that thetheorydevelopedusingacasestudybevalid is indeed

high;thedevelopmentprocessofthistheoryisintimatelyrelatedtoempiricalreality.

The generalization of the results (resulting theories) beyond the case(s) studied,

however,isoneoftheinherentdifficultiesinthisresearchmethod.Unlikeaquantitative

approach where “statistical generalizations” are well accepted, case studies lead to

“analyticgeneralizations”(Yin,2003,pp.31‐33).Yinalsostatesthatthefindingsofacase

studycansometimesnotbeappliedgenerally.Consequently, these findings shouldbe

tested on other samples in order to develop a true generalization. This is one of

limitationstothisresearch.

Ultimately, it is important to remember that using the case study must comply with

certain scientific standards. In addition, its realizationmust be characterized by rigor



equivalent to that of quantitative researchmethods (Yin, 2003, p.34). Its usemust be

groundedinasystematicapproachwherethevalidityandreliabilityofdataandresults

aredemonstrated.AsEisenhardt(1989,p.543)highlight,itislargelybasedontherigor

shownbytheresearcherincarryingouteachstageoftheresearchprocess.

3.5.CONCLUSION

Inthischapter,Ipresentedthemethodologythatbothseemedmoreappropriatetothe

themeofthisresearchandwhichcorrespondedmosttoourinterests.Ithereforeopted

for a case study based on secondary data. Conduct an analysis of the business

ecosystemsandopeninnovation,however, isessentialelementsforunderstandingthe

innovationcontextwithinwhichInnovativeAppleCompanyis.Thatwillbethesubject

ofthenextchapters(4,5&6).


CHAPTER4. ANOPENINNOVATIVEBUSINESSORGANIZATION

4.1.ANEWVIEWOFORGANIZATIONS

Before give a mode of understanding of innovation and processes derived from

innovation, it is important to observe inwhat kind of environment organizations are

evolving now. Therefore, we are interested in phenomena related to the growth of

organizationsandhopetogiveanewvisionofthoseprocesses.

4.1.1.Thecomplexity

First, let’sexploreon theconceptof complexity.Thisuniversal conceptapplies toany

environment.Itisthereforenecessarytodealwiththiscomplexity.Byunderstandingits

principles,wewillbeabletoapplythem–inthefollowingsections‐toorganizations.

First,wemakethedifferencebetweenwhatissimple,complicatedandcomplex.Whatis

simpleandwhat is complicated canbe controlled inanordereduniverse,notwhat is

complex. Indeed, what is complicated can be simplified and understood, as the

mechanismofawatchbasedonrelationsof"causality".Whatiscomplex,however,takes

into account amultitude of interactionswith retroactive effect (disordered universe),

such as weather phenomena. This multitude of cross‐feedback is simpler and is the

resultofchance.(Morin,2005;SnowdenandBoone,2007).

“Iscomplexwhatcannotbesummarized inakeyword,whichcannotbereduced toa

law that cannot be reduced to a simple idea [...] this is a network of heterogeneous

inseparablyassociatedconstituents.”(Morin,2005,p.10)

“Complexityisaprocesswheredifferentfieldsinterferewitheachother[...]”.(Oliveira

Martins,2005,p.2)



Thus, the complexity cannot be controlled with a simple way of thinking. Only the

acceptanceofthecomplexityitself(orcomplexthought)offerspathwaystounderstand

theemergenceofpatterns(SnowdenandBoone,2007,p.6).

Edgar Morin proposes a definition of complexity: “The simple thought solves simple

problemswithoutthinking.Complexthoughtdoesnotresolveonitsownproblems,but

itisanaidstrategythatcansolvethem”.(Morin,2005,p.86)

In his book ‘Introduction à la pensée complexe’ (2005, pp.93‐112), Edgar Morin

proposesthreeprinciplestosuggestthecomplexity:

1.Thedialogicprinciple.

2.Theprincipleoforganizationalrecursion.

3.Thehologramaticprinciple.

The dialogic principle corresponds to the group of inverse processes or inseparable

contradictory ideas and even necessary for the understanding of some phenomena.

Thus,tocontrol,forexample,acomplexprincipleasslashandburn(whichcorresponds

totheactionofburningthelandtomakethemmorefertile),itwillbenecessarytojoin

twooppositetoeachother:destructionandcreation.

Theprincipleoforganizationalrecursioncomes fromtheproductionof theproduct:a

virtuouscycleofcreation.Takethecaseofreproduction; thiscomplexphenomenonis

conceivable ifweapplyon it thisprinciple.Thus,aman,byreproducingcreatesother

menandsoon.Inthecaseofvortices,itisthespiralmovementthatisself‐producer.

Finally,Morindiscussesthehologramaticprinciple.Thisprincipleimpliesthepresence

of“partsinthewhole"and"wholeintheparts”.Itcanbeillustratedbytheexampleof

the individual insociety thatconstitutesa “part in thewhole"and“whole in thepart”


becauseofthelearningbysocietyofalanguage,culture,standardssincehisbirth.Every

individuals(theparts)livinginasocietyhavethissociety(thewhole)anchoredinthem.

Inconclusion,wecansaythattheconceptofcomplexityimpliestheneedtodealwithit

by applying three principles (the dialogic principle, the principle of organizational

recursion and the hologramatic principle). I propose below a very refined

representationofthephenomenonofcomplexitybyemphasizingthepresenceofinter‐

retroactive loops onwhichwe can apply the principles developed above. The arrows

representtheinteractionsandareofdifferentcolors(greenandwhite)toreflecttheir

distinct nature. Thus, acceptance of complexity and its principles is similar to the

understandingandthecopewithourenvironment.

Figure4.1Representationofthephenomenonofcomplexity

4.1.2.Theplatformofthecomplexity

Amodeofunderstandingoftheconceptofcomplexitygiven,itisinterestingtoseethe

impactitcanhaveonknowledge.Thus,theknowledgewillbecomeaplatformbetween

the principles of complexity in complex organizations and more specifically for

innovativecompanies.



Indeed, given the complexity, several questions emerge. How we are capable of

understandingcomplexphenomena?Wherearethe limitsofourknowledge?Howcan

weovercomethem?

IninterviewswithSamuelThomas(2007),EdgarMorinsays:“wedonotknowwhatis

goingon,butthisiswhathappens”.Suchistheincapacitytomasterthecomplexity.

“Thereisaninsurmountablebarriertotheachievementofknowledge.Butitcanalsobe

seenasanincentivetotheexceedingofknowledge.”(Morin,2005,p.18)

WhatMorinsayshereisthatinterestinthehumanmindisnottorejectortosimplify

complexphenomena,butonthecontrarytopushitslimitstothemaximumbyaccepting

thatthereisamultitudeofnon‐controllablevariables.Thus,itisadvisabletodealwith

complexityinordertogrowintellectually.

Morin(2005)alsoexplainsthatthereisreciprocityofknowledgeontheknowledgeto

make it grow. This phenomenon of reciprocity is presented in the context of

contemporary complexity. It is also present in thework of Tocqueville (1831) in the

formofasocialphenomenonthatenablesthefreedomofAmericandemocracy.

“Feelingsandideasarerenewed,theheartenlarged,andtheunderstandingdeveloped

onlybythereciprocalactionofmenoneupontheother.”(Tocqueville,1831,p.515)

Thus,wecanconcludebysayingthattheartofdealingwithcomplexityisreachedbythe

acceptanceofcertainprinciplesandbythewillofmentosharetheirknowledge.

4.1.3.Thecomplexorganization

As we saw in the previous sections, complexity affects the entire environment and

should dealwith accepting its principles and the phenomenon of reciprocity.Wewill

nowstudytheimpactofcomplexityinaspecificarea.Indeed,itisinterestingtoexamine

thestateofknowledgeinorganizationsoperatinginacomplexenvironment.Forthis,I

will give a mode of understanding of the complex organization and its related

phenomena.


EdgarMorinexplainsthattheorganization(the"whole")ismoreandlessthanthesum

of its parts: More because such molecules combine to form a new entity and

consolidation leads to another point. Less because the combination may have a

retroactive action of the parties, as in the case of social organizations that reprimand

morethantheygivefreedom(Morin&Thomas,2007).

You canalso take the example inhisbook ‘Introductionà lapensée complexe’ (2005,

p.113)oftapestry.Tapestrymayindeedhavemorevirtuesthanthethreadthatmakesit

upandviceversa.Thisprinciple,thatthewholeisgreaterthanthesumof itsparts, is

calledHolism(Smuts,1926,p.24).Thus,weunderstandthattheorganizationbecomesa

new"part"initself.Soitfollowsthehologramaticprinciplediscussedabove.

Followingthehologramaticprincipleofcomplexityandapplyingittotheorganization,

thisorganization canbe seenas aminiature society,madeupwith three components

interacting among themselves andwith their environment in complexways. The first

component is the structure that corresponds to the physical, strategic and political

organization (e.g., goals, assets, rules, etc.). The second is the culture, which includes

normative and affective behaviors that influence both internally and externally (e.g.,

ideologies,symbols,customs,etc.).Thethirdcomponentcorrespondstotheindividuals

of theorganization.These threeseparatecomponentsof theorganizationarecomplex

because they interact and are both products and producers of their environment.

(AllaireandFirsirotu,2004,pp.92‐104)

Moreover, a complex organization, as a living organism, fights against disorder and

destruction inregenerating.Todoso, itmustmakeexchangesbetweenthe insideand

outside.Tosurvivethiscomplexorganizationmustalsofeedonotherorganizationsto

supportit.(Morgan,1999,p.34)

To survive, the organization enters into a complex interaction processes with its

environment.Thereareexchangesbetweeninternalandexternalelements inorderto

grow.Thisphenomenonofself‐organizationissimilarfromonehandtothereciprocity



of human knowledge (in its bidirectionality) and to the other hand to the law of

"requisite variety" (by its complexity). This law states that to deal with a varied

environment and therefore complex, the organization must show at least as much

variety and complexity (Ashby, 1958, p.89). Finally, this complex process of

bidirectionalexchangesbetweentheorganizationanditsenvironmentiswhatiscalled

anopensystem,amodeloracoherentsetofelementsandprocessesthatinteractwith

their environment out. In fact, it is by adopting this system that the organization

survivesandgrows.(Genelot,2001,p.124)

Inconclusion,wecansaythatcomplexorganizationsoperateinanenvironmentwhere

interactionsaremultipleandoutcomesofchance.Inordertosurviveanddevelopthere,

they should consistwith the principles of complexity and the lawof requisite variety

and they do show reciprocity as in the case of knowledge. To do this, complex

organizations should adopt an open system to promote bidirectional exchanges with

their environment. In the following figure, I seek to represent how the organization

adapts to the complexity. I present on the one hand, a closed organization whose

operationisself‐sustaining(1);ontheotherhand,wecanobserveanorganizationthat

opensitselftoacomplexenvironment,integratesinitandprospers(2).


Figure4.2.Organizationadaptationwithcomplexity

4.2ANEWVISIONOFINNOVATIONFORACOMPLEXORGANIZATION

Wehaveseenthatorganizationsevolveinacomplexenvironmenttowhichtheymust

open in order to survive. Thus, after defining the complex organization and its

principles,let’sseetheprocessesthatcomposethiscomplexorganization.Amongthese



processes,asexplainedintheResearchPurpose,Ichosetofocusoninnovation,asitis

since the end of the twentieth century a new aspect in line with the principles of a

complexorganization.Indeed,understandingtheconceptofinnovationandconsiderthe

currentcontextinwhichbusinessesoperate,permittohighlightthecomplexprocessof

thecontemporaryinnovation.

InnovationistheresultofaglobalprocessinwhichR&Disonlyoneingredientamong

many, to be integrated into a complex organizational process. [...] Innovation is the

result of multiple processes involving many functional and organizational factors

(MorandandManceau,2009,pp.34‐36).

Iwillthereforeinthefollowingsectionsgiveamodeofunderstandingoftheinnovation

concept then I will show the principles in line with complex organizations and open

system. Finally, I will make a summary of the implications of this new business

innovationbycomparingclosedandopensystems.

4.2.1Understandingtheinnovation

At first,wemustunderstand that innovation is a concept toooften reduced to thatof

invention. Indeed, the distinction between these two concepts is very important,

innovation concerns inventions, but only if they are born in destination to markets

(Baumol,2002,p.56).Iwillthereforeunderstandwhatmaybeaninventionandhowit

canbemarketedandthusconvertedintoinnovation.

So let's lookonthe inventionconcept.Oftenwronglyreducedtoanewtechnology,an

invention is amuch broader concept that is how to identify new links between some

elements that seemed so separated (Bronowski, 1958, pp.58‐59). Therefore, this

conceptincludesalltheideastoaccomplishataskunexpectedly.

Wecandistinguishtwotypesof innovationresultingfromthenatureoftheinvention:

technological innovationandinnovationbyusage.Thefirst involvestheappearanceof

aninventionwithinthemeaningofnewtechnologywhilethesecondisredefininghow


touseanofferbytheemergenceofnewunexpectedconnections.Toillustrate,wecan

take the example of the compotes to drink, or how to redefine the consumption of a

product by linking amethod of consumption of a product previously unthought‐of or

rather"unthinkable."Notethatthesetwotypesofinnovationarenotmutuallyexclusive

and canbe combined as in the case of theNintendoWii‐Fit,mixingnew technologies

withanewapplicationoftheoffer(MorandandManceau,2009,pp.66‐68).

Returningtotheconceptofinnovationthatcorrespondstothecommercialexploitation

of an invention. Take for example India and China. Both countries now have well‐

developedscienceparksbut lackoftheresourcesandinfrastructurenecessaryforthe

commercialization of new technologies. In contrast, the United States, they lose their

supremacycertainlyintermsofresearch,buthaveabilitytomarketinventions,allowing

themtomaintaintheirleadingpositioninthemarket(Bhidé,2009,pp.2‐5).

Thisillustratesthefactthateconomicgrowthlinkedtoinnovationisattainable,notby

theexcessiveacquisitionofknowledgebutbytheacquisitionofassetsdedicatedtoits

use(Bhidé,2009,p.6).

Thus,we understand the importance not only of the invention but also itsmarketing

process. Indeed, to convert an invention into innovation, organizationsmust make it

availableandforthattheyshouldfocusontheirabilitytocombinealatentorexpressed

practicalneedandanaestheticneedforitsadoption.Innovationcanthuscorrespondto

newprocesses,servicesorotherwaystocommunicatewiththemarket(Brown,2008,

p.3).What can be learned here is that the conversion of invention into innovation is

possiblethroughtheidentificationofopportunitiesintermsofmarketneedsandbythe

developmentorredesignofabusinessmodel thatpromotes themarketingofanoffer

meetingtheneed.

Beforewe look at businessmodels, let's lookonhow tomake an inventionusableby

connecting it to a need: the detection of business opportunities. The opportunity

perceivedcanbeunderstandasameantogenerateeconomicvaluethatisnotandhas

neverbeenexploited.Similarly,thedetectionofopportunitiescanbeunderstoodasone

or more cognitive processes that enable individuals to identify an opportunity. The

cognitive process is part of an algorithm type scheme according to patterns (Baron,



2006;Vaghely and Julien, 2010). Thus, thepattern creation in the contextual changes

that lead to the detection of opportunities (or not) ismade possible by three factors

specifictotheleadersoforganizations:Search,AlertnessandKnowledge.

First, the active research for information on the environment of the organization is

essentialandspontaneousfactorinthedetectionprocess.

Second, the leaders "on alert" can distinguish patterns less actively for an almost

unconsciousmean.

The final factor necessary to explore links between the surrounding elements comes

fromknowledgeandexperienceofthoseleaders(Baron,2006,pp.104‐119).

Finally, this method allows managers to determine relationships unnoticed in their

environmentandthereforeaneedappropriatetotheinvention,andviceversa,through

patternscreation.

Itisnownecessarytounderstandhowthemarketingofaninventionismadepossible.

Chesbrough (2003b, pp.76‐81) uses the example of FedExwho used the Internet and

offered to its customers an online tracking service for packages. This offer, until here

absent,allowedFedExtocreateacompetitiveadvantagebecauseitfilledaneed.Thus,

the success of their innovation comes from the company's ability to integrate an

invention (Internet)by connecting it to amarketneedby altering its businessmodel.

Indeed, the invention commercialization and thus the innovation concept are made

possiblebythebusinessmodeladoptedbythecompany.

“Weconsiderinnovationastheexploitationofnewideasintonewproductsorservices,

newbusinessmodelsandnewwaysofworking”.(MorandandManceau,2009,p.42)

In conclusion, we have seen here that innovation is a concept much broader than it

appears(not justa technologicalnovelty),butanorganizationalprocess incorporating

boththeinventionandtheneedforthesearchofopportunitiesandthedevelopmentof

a business model. In addition, knowing that the organization is a combination of a


structure,acultureandindividuals,weunderstandthatinnovationasanorganizational

process has a direct impact on these three components (Allaire and Firsirotu, 2004,

p.102).Thus,Iproposethefollowingdiagramwherethestructure,thecultureandthe

individualsoftheinnovativeorganizationaretheresultofacomplexcombinationofkey

componentsoftheResearch(green)andDevelopment(violet)i.e.theinventionrelated

to the need and the opportunity’s research related to the development of a business

model.



Figure4.3.Thekeycomponentoftheinnovativeorganization


4.2.2Adoptopeninnovation

Wenowhaveanunderstandingofwhatisinnovation.However,aswehaveseeninthe

firstpartofthischapter,thecontextinwhichtheorganizationevolveshasanimpacton

its own nature. Thus, in order to apply the principles of complexity and openness to

innovation,wefocushereonacontemporaryvisionthatChesbrough(2003a,p.34)calls

OpenInnovation.

Since the 80s, the business has changed: the competences are more mobile, capital

marketsarefreerandproductlifeisshorter(Chesbrough,2003a,p.12).It isalsowhat

mentionsthebook‘Stratégiesetmoteursdeperformances’(AllaireandFirsirotu,2004,

pp.12‐14),whichintroducesthecontextcalled"MutualLoyalty"andthecontemporary

context of the “ThreeMarkets” (competencesmarket, capital market and products &

servicesmarket).

We are interested in a first step to the mutual loyalty concept where enterprises

operated before the 80s. Indeed, firms formed stable employees in order to create a

competitiveadvantagethatallowedthemtoensurethesupremacyofauniqueproduct

or service, whose incomes were re‐injected into the company (Allaire and Firsirotu,

2004, p.68). Capital and competences were very static, making the business

environment(competitors,suppliers,etc.)verysmall.Companiessearchingthecontrol

of novelty and promote vertical integration and the protection of their knowledge by

working in self‐sufficiency in a very small systemdevelop a closed innovation system

(Chesbrough,2003a,p.30).

Thus,ifinthecontextofmutualloyalty,theclosedinnovationmodelisadequate.Wecan

then in a second step note that changes involved in terms ofmovement of the three

markets make firms adopting a closed innovation, which is vulnerable: intellectual

property can not be retained internally because it travels in a cross‐border business

(Genelot,2001,p.53).

TheadventofInformationTechnology(IT)isnostrangertothiscontextchange.Indeed,

the progresses made by the current IT now allow everyone to have access to



confidential information. The licenses and patents reach very quickly their limits and

newtechnologiescanbequicklycopiedorimproved(Manyika,2007;Thackara,2009).

In summary, we are able to argue that the movement of skills and so knowledge

complicatethecurrentenvironmentoforganizations.Aswehaveseen intheprevious

section,inacomplexenvironment,theorganizationfollowsthelawofrequisitevariety,

adoptsa complex systemanddemonstrates reciprocity.Furthermore, as innovation is

part of the organization as the hologramatic principle of complexity (Morin, 2005;

Ashby,1958), it follows thesamerules: innovation is complexandadopts reciprocity.

Thisiscalledopeninnovation(Chesbrough,2003,p.4).

Wecanalsosaythatsinceinnovationisaninventionrelatedtoaneedandalsolooking

foropportunities related to thedevelopmentof abusinessmodel, itsopennesswould

affect its components in terms of complexity and reciprocity. Thus, I insist on the

following: inventions,detectionofopportunitiesandbusinessmodelsoforganizations

adoptingopeninnovation.

Concerninginventions,knowingthatcompetencesandintellectualpropertycannotbe

retainedinternallybutareatthecontrarybroughttotravelbetweenbusinessesandthe

market,theabilityofanorganizationtocreatevaluefromthiseconomicphenomenonis

nolongerinpossessionofaninvention,butinmarketingofanyinventionregardlessof

thelocationfromwhichitemerges(Brown,2008;Bhidé,2009;Estrin,2009andVarian,

2009). Thus, the invention can equally emerge internally and externally and can be

subsequentlydevelopedwithin theorganizationormove toa thirdpartyoraspinoff

(ChesbroughandGarman,2009,p.73).Thisdynamic isassociatedwith thepracticeof

reciprocityexplainedabove.

Italsocorrespondstothebidirectionalityofknowledge:"Thisdoubleinformationflow,

fromthecentertotheperipheryandtheperipherytothecenter,isabsolutelyessential

forthefunctioningofthecompany."(Genelot,2001,p.172)

Withregardtotheopportunitiesdetection,wesawbeforethatthismethodwasbased

onacognitiveapproachandsooutcomesfromthedevelopmentofspecificpatternsto


the leaders. However, movements in the three markets involve a broader, more

complex,whereamultitudeofindividualsinteract.Leadersarenolongeralonetoactin

theneedsrecognitionprocesslinkedtoinventions.Infact,leadersshouldnowdealwith

aconstructivistapproachtothismethod,namelyanapproachbasedontheinformation

sharing,trialsanderrors(VaghelyandJulien,2010,pp.73‐78).Thus,upondetectionof

opportunities, Iwill combine the three factors (Search,AlertnessandKnowledge)and

addafourth:thebreadthofleaders’socialnetworks(Baron,2006,p.111).Inthisway,

detectionofneedsthatapplytoaninventionleadstoitsconversionandbecameajoint

effortofindividualsinordertocreateeconomicvalueandinnovationsattheserviceof

thisgroup.Bymixingtheinformationsharingandresearchapplicationofaninvention

in a collectivemanner, we arrive at the concept of co‐creation, corresponding to the

creation and marketing of ideas by a vast network of competences and individuals

possessingcomplementaryexpertise(Bughin,2008,p.7).

Finally, regarding thebusinessmodelofopen innovation,wemustunderstand thatas

everything else in the organization, it will be complex and will facilitate exchanges

betweeninternalandexternaltobeopened.

“Generally speaking, companies should involve external perspectives deeply in the

innovation process. They should have well‐defined ways to interact routinely and

repeatedly”.(Anthonyetal.,2008,p.143)

Take the caseof Intel, amanufacturerofmicroprocessors.Thesegoodsare inavalue

chaingoingbeyondtheboundariesofthefirm.Also,themanufacturerchoosesanopen

innovation model because information needed for the development of its inventions

dependsonthepartnersthatwilluseitsmicroprocessors.Byfocusingitsbusinessand

being responsive to the market, Intel has created a business model for interaction

(informationandprocesses)andco‐creation.Itthenbecomesavitallinkinitssectorby

participating intherapiddevelopmentofthecomputer industry(Anthonyelal.,2008,

pp.144‐145).

Inconclusion,wecansaythattoinnovateintoday'senvironmentandthuscreatevalue,

surviveandgrow,itispreferabletoadoptanorganizationpromotingopeninnovation.

Todothis,leadersmustadoptabusinessmodelbasedonanopensystemsupportingco‐



creation.Suchquantumphysics, thebusinessmodel integrating theprocessesofopen

innovation is attached and makes permanently interact the infinitely small (the

individuals)andtheinfinitelylarge(globalizationofcompetencesandprocesses)acting

inapositivewayforallstakeholders.

Onthefollowingdiagram,wecanobservethemovementandespeciallythesharingof

inventions (external in green and internal in violet), and the opportunities detection

method that lead (or not) business to the development of a businessmodel for open

innovation.

Figure4.4.Opensystem:Conversionofinventionintoinnovation


4.2.3Anorganizationbasedontheprinciplesofopeninnovation

Tosummarize theprinciplesofopen innovation,beforeenteringwidely in it (Chapter

6), and their implications at the business model level, I propose to group but also

comparetheprinciplesderivedfromtheliteratureonopenandclosedsystems.

Also,inthefirstsectionwehaveseenthattheorganizationoperatesinthecomplexand

tosurvivetheyhadtoadoptanopensystempromotingexchangesbetweentheinternal

and external. In the previous section, we went in more detail by studying an

organization process: innovation. Knowing that innovation has an impact on the



structure, culture and individuals of the organization, we understand that open

innovation requires an open system specific to complex organizations in the current

context of the three markets. So we understand that contemporary innovation is an

opensystemprocess.

The transition from the closed to open organizational system has two implications: a

newrelationshipwiththeenvironmentandaneworganizationalstrategy.Thus,inthe

following figure, in order to compare the two systems, we show both aspects. The

relationshiptotheenvironmentcomesfromtheprinciplesofopenandclosedsystems.

Organizational strategy is derived from the principles of open and closed innovation.

Theconfrontationoftheseprinciples(columnleftandright)canidentifythetrackstobe

followedbytheleadersintermsofbuildingorganizationalsystem.

Finally, toexplain theobservationscollected in the literature, Icomplete the figureby

twodiagrams,onerepresentingtheclosedsystemandtheothertheopensystem.The

first is a red dot representing the organization (O) in its environment (E). In this

representation, theorganization isclosed, intangiblewitharestrictedenvironment. In

addition,weemphasizesontheideaofclosingbyshowingthateachorganizationhasits

own environment and does not "blend" itwith other organizations and environment:

thereisnosharing.

The second diagram depicts the organizations in red (O) as mass‐like variables and

permeable boundaries operating in a common and extensive environment (E). This

allowsshowingthatorganizationsareadaptable,opentosharingwitheachotherandan

environmentbeyondtheirmarket.


Figure4.5.Closedsystemmodelvs.Opensystemmodel



Open System

Closed System

System Environment

Punctual interactions of the organization with its environment (Morgan, 1999, p.28)

Restrained, closed and intangible system (Genelot, 2001, p.54)

Environment reduced at the organization and its market (Genelot, 2001, p.54)

Environmental complexity rejected (Genelot, 2001)

Organizational Strategy

“The smart people in our field work for us.” (Chesbrough, 2003a, p.26)

“To profit from R&D, we must discover it, develop it and ship it ourselves.” (Chesbrough, 2003a, p.26)

“If we create the most and the best ideas in the industy, we will win.” (Chesbrough, 2003a, p.26)

In line with the model of “Mutual Loyalty” (Allaire & Firsirotu, 2004,

p.12)

E E

E

O O

O

System Environment

Permanent interactions of the organization within its environment (Morgan, 1999, p.65)

Large system, adjustable quickly and unexpectedly (Genelot, 2001, p.89)

Extended environment (political, social, economic etc.) (Genelot, 2001, p.90)

Comprehension and adaptation to the environmental complexity (Genelot, 2001)

Organizational Strategy

“Not all of the smart people in our field work for us.” (Chesbrough, 2003a, p.26)

“ External R&D can create significant value, internal R&D is needed to claim some portion of value.” (Chesbrough, 2003a, p.26)

“If we make the best use of internal and external ideas, we will win.” (Chesbrough, 2003a, p.26)

In line with the model of the “Three Markets” (Allaire & Firsirotu, 2004,

p.14)

E

O

O

O


CHAPTER5. THE GENESIS OF THE BUSINESS ECOSYSTEM

CONCEPT

InthischapterIdiscussthegenesisofthebusinessecosystemconcept.Todothis,Ifirst

analyzethemainunderstandingelements,itstheoreticalroots,aswellascharacterizing

thecompetitivedynamics.Finally, Iwilladdress the limitations thatmayemergeafter

the analogical relationship built between the business ecosystem and its biological

counterpart.Inadditiontotheabove,Iwilldescribetheevolutionofinnovationsystems

by emphasizing the industrial centers effects on the business innovation practices, as

wellastheemergenceofnewinnovationcontextfollowingtheadventofseveralfactors

including the markets globalization, access to knowledge worldwide, the ease of

electronicexchangesandmore.

Thebusinessecosystemconcept isstillrelativelynewandnotwidelymobilizedinthe

academic literature. However the managers, themselves, have rapidly adopted this

concept but with a rather reductionist confined to the wider environment of the

company,itscustomersandpartners,withoutnecessarilyunderstandingtheunderlying

logicandimplicationspolicyassociatedwiththedynamicinnovation.Inthispart,Iwill

highlightthemainfeaturesofabusinessecosystem.

5.1.UNDERSTANDINGELEMENTSOFBUSINESSECOSYSTEMS

TheAmericanauthor JamesMoore inhisbookentitledTheDeathofCompetitionwas

thefirsttoimplementtheecosystemconcepttobusiness:"Acompanybeviewednotas

amemberofasingleindustrybutaspartofabusinessecosystemthatcrossesavariety

ofindustries".(Moore,1993,p.179)

Although mentioned by some authors, a precise definition is still lacking. In what



follows, I discuss a number of definitions proposed by several authors to extract far

morefundamentaltheories,whicharebasedonthestudyofthisconcept.

InTheDeathofCompetition,Moore(1993,p.26)describesabusinessecosystemas"An

economic community supported by a foundation of interacting organizations and

individuals—theorganismsof thebusinessworld.Theeconomiccommunityproduces

goods and services of value to customers who are members of the ecosystem. The

member organisms also include suppliers, lead producers, competitors, and other

stakeholders.Over time, they coevolved their capabilities and roles, and tend to align

themselveswiththedirectionssetbyoneormorecentralcompanies.Thosecompanies

holdingleadershiprolesmaychangeovertime,butthefunctionofecosystemleaderis

valuedbythecommunitybecauseitenablesmemberstomovetowardsharedvisionsto

aligntheirinvestments,andtofindmutuallysupportiveroles”.

Figure5.1clearlyillustratesthevariousactorsdescribedearlierbyMoore(1996,p.28):

Figure5.1.Thebusinessecosystemvirtuouscircle(Moore,1996,p.28)

Source:Moore, J.1996.«TheDeathofCompetition:Leadership&Strategy InTheAgeOf

BusinessEcosystems»,HarperBusiness.


Thus, the author highlights the importance of the notion of community to the extent

that,inabusinessecosystem,thiscommunitywilllinkheterogeneousfirmsonthebasis

of one ormore core capabilities. Such heterogeneity implies, among other things, the

convergenceof a varietyof industries.Thesmartphone is aperfect example since the

device performs functions previously reserved to a computer, camera, TV or audio

device(Rabeau,2008,p.64).

Itthusappearsthattheconceptofindustryislosingitseffectivenessagainsttheconcept

of ecosystem. According to Moore (1996, p.42): "We are witnessing the end of the

industry,notasaneconomicphenomenonbutratherasaneffectiveconcepttoobserve

majorchangesinthebusinessworld."

Addtothisideatheimportanceoftheprincipleofcoevolutionmentionedbytheauthor,

amajorimportanceprincipleexplainingthedynamicsinherentinabusinessecosystem

and meaning that we can not understand the evolution phenomenon of a business

without incorporating changes of other companies in its environment (Torres‐Blay,

2003, p.13). In the following sections, I will try to deepen my analysis vis‐à‐vis this

principle.

Inspired by Moore, Torres‐Blay (2000, p.5) defines a business ecosystem as “a

heterogeneous coalitionof companieswithindifferent sectors and forming a strategic

communityof interestsorvaluesinnetworkstructuredarounda leaderwhomanages

toimposeortoshareitsdesignoritscommercialtechnologystandard”.

From this definition, the author substitutes the word "Coalition" to the notion of

community proposed by Moore to highlight the partnership nature that dominates

relations between firms in a same ecosystem.Thesepartnerships have their origin in

another concept characterizing the business ecosystem, i.e. the interconnectedness

betweenstakeholders.Suchanotioniscrucialtohighlightissuesrelatedtoinnovation

policywithinabusinessecosystem,insofaras,beinginsuchacontext,theleadersofa

company are required to coordinate an innovation flow from a large number of



contributorsfromseveralmarketsandhierarchies(Moore,2005,p.2).Specifically,itis

not enough to penetrate the market with innovations from only the internal

environment of the company and it is more important to share information with

partnersandbuildonthemintheinnovationprocess.

Indeed,IansitiandLevien(2004,p.3)arguethatindividualstrategiesofacompanyhave

no effect if the success depends on the collective performance of organizations that

influence creation and marketing of its products. In such cases, the strategies to be

adoptedbythecompanymustbequalifiedascollectivestrategies.

Instead of proposing a concrete definition of a business ecosystem, both authors are

basedontheanalogyeffectlinkingthebusinessecosystemtoitsbiologicalcounterpart.

As a result, several common features between the two ecosystems deserve to be

highlighted:

‐ Inbothcontexts,wefinda largenumberofparticipantsnotonly interconnectedbut

alsointerdependentandthoseparticipantsshareboththeireffectivenessandsurvival;

‐Membersoftheecosystem,regardlessoftheirpower,cannotescapetheimpactsthat

mayaccompanyrelentlessrelationshipslinkingwithothermembers;

‐Withineachecosystemare"keystones"(keyparticipants)thatmanagetomaintainthe

goodperformanceoftheentireecosystem.

Besides the features mentioned above, Iansiti and Levien (2004, p.9) believe that a

businessecosystemcouldinclude,forexample,firmsinwhichthecompanyoutsources

business processes, institutions providing company finance, and other technologies

needed to guarantee a good continuity in its activities, as well as manufacturers of

complementary products. The ecosystemmay even include company's competitors as

wellascustomerswhosebehaviorislikelytoinfluencethebusinessperformance.

Finally,PeltoniemiandVuori(2005,p.13)definethebusinessecosystemasadynamic

structure consisting of interconnected organizations populations, which are small


businesses, largecompanies,universities,researchcenters,publicsectororganizations

orotherpartiesthatinfluencethesystem.

Characteristicsandissuesofabusinessecosystem

At the end of this section, I will try firstly to summarize as clearly as possible the

characteristicsassociatedwithabusinessecosystem,while Iwill findoutother issues

likelytosupportcompaniesoperatingatthewithinsuchastructure.

Thecharacteristicsofabusinessecosystem

GueguenandBoucher(2007,pp.6‐18)identifythefollowingcharacteristicsasdominant

inbusinessecosystems:

‐Severalcompaniesuseastandard,normorknow‐how.Thiswillhelptodeveloponeor

morecorecompetencies.

‐ Companiesusing these skillswill be a common strategicdestinyon theprincipleof

coevolution.

‐One(ormore)companywillplaytheleadingrole.Thiscompanywilldevelopavision

shared by other members of the business ecosystem. Founded on the basis of

contributions and critical embedded (Moore, 1996, p.54), the leaderpowerwill guide

theevolutionofcorecompetencies.Theleadingpositionisevolutionaryanditsbehavior

isimportantinthebusinessecosystem.

‐ Stakeholders composing business ecosystems are heterogeneous (companies,

institutions,tradeunions,pressuregroups,etc).

‐ The business ecosystem stakeholders come from different industries. We are thus

witnessingaconvergenceofindustries.

‐ There is not necessarily an exclusive membership to one business ecosystem.

‐Significantcompetitiveprocessesdrivebusinessecosystems,bothintra‐ecosystem(to

acquiretheleadingposition)thanatinter‐ecosystems(competitioninseveralbusiness



ecosystems). A business ecosystem involves both cooperation and competition,which

correspondstothelogicof"Coopetition."

The figure 5.2. proposed by Peltoniemi (2005, p.64) schematizes clearly all relevant

featureslistedabove:

Figure5.2.Businessecosystemcharacteristics(Peltoniemi,2005,p.64)

Source:Peltoniemi,M.2005, ‘BusinessEcosystem:Aconceptualmodelofanorganization

populationfromtheperspectivesofcomplexityandevolution’.EBusinessResearchCenter,

ResearchReports18.

Issuesrelatedtotheconceptofbusinessecosystem

Through the literature review consulted above, we have identified a multitude of

featuresandconceptswhoseimpactontheinnovationmanagementbythecompanyis

decisive.Werecognizehoweverthatitfacesmanychallenges,challengesthatIpresent

below.


Challenge1.Thecoevolutionprinciple

Thefirstchallengeconcernsthenatureofthestrategiesthatmustadoptacompanyin

its ecosystem. Indeed, in such a lattice environment, individual decisionswill be less

important than collective decisions (Torres‐Blay and Gueguen, 2003, p.9), implying a

decline in individual strategies to face the pressure of collective strategies. Thus, the

company, as well as other parts of its ecosystem, is led to "co‐evolutes" collegially,

knowing that suchaprocess couldalso lead to closer collaborative relationships than

conflicts(Moore,1996,p.33).

Challenge2.Newavenuesofinnovation

Thesecondchallenge,meanwhile,issomehowaconsequenceofthefirstchallenge.This

effect relates to the innovation policy of the company in its ecosystem. In terms of

innovation,successofthecompanyinthiscontextnowdependsonitsabilitytoclosely

monitoritsnetworkofpartnersandpotentialcustomers(Adner,2006,p.1).Thisleads

ustointroducetheconceptofopeninnovationthatreflectsthisnewreality.

Challenge3.Leadershipwithinthebusinessecosystem

Wealsonotethepreponderanceoftheleadershipnotioninabusinessecosystem,since

the stability of this ecosystemdepends critically on the performance of one leader in

particular.Asanexample,considerthecaseofIBMinthemid80s.AccordingtoMoore

(1993,p.60),thiscompanyhasmanagedtocreateanentirelynewcommunityofwork‐

basedpersonalcomputers,whichhad theeffectofbringingall theplayerscircling the

companytopayitstechnicalstandardsandmanufacturingprocesses.

It shouldherebementioned thatbeing a leaderof abusiness ecosystemrequires the

existence of an electronic platform likely to attract many participants around the

company,andthis,tostrengthenthepotentialforcreatingvaluewithintheecosystem.



Challenge4.Therisksassociatedwithbusinessecosystemcontext

Althoughthefactofsucceedinginmanagingtheassetsoutofreachallowsthecompany

tomonopolizeanycompetitiveadvantageoveritsrivals(IansitiandLevien,2004,p.22),

it appears that its successnow rests on its ability tomanage risks associatedwith its

operationswithinthebusinessecosystem(Adner,2006,p.2).Indeed,theroleofleaders

isno longer limited todetermining themarketand targetsperformance,butrather to

identify the risks inherent in their actions. According to Adner (2006, p.3), the co‐

innovation risk (related to coordination with co‐innovators), the execution risks

(associatedwithprojectexecution)andtheadoptionchainrisks(relatedtooperations

management within the value chain) are all variables that must have a careful

examination by the leaders. This exercise is a major importance since it could lead

managers to review the actions taken since their beginning, or even change their

innovationstrategy.

Finally, the presentation of all features related to the strategy of business ecosystem,

andthekeychallengesassociatedwithit,allowedustodeepentheconceptanalysis.

5.2.THECOMPETITIVEDYNAMICSWITHINBUSINESSECOSYSTEMS

5.2.1.Thecoevolutionprinciple

Theco‐evolutionprincipleiscrucial inexplainingthecompetitivedynamicswithinthe

business ecosystem. At the beginning of this section, I briefly explain the theoretical

rootsofthisprinciple.Ithenwilllookmorecloselytherelevanceofthisprocessinthe

businessecosystem.Tobetterclarifythisconcept,tworelevantexamplesofcoevolution

arefinallyprocessed.

5.2.1.1.Co‐evolutioninthebusinessecosystem

Many researchers, includingKauffman,Nelson, andZimanbelieve that developing co‐


evolution models is a necessary exercise to successfully understand the dynamics

associatedwithindustrialchange(Murmann,2003,p.21).

According to Moore (1993, p.76), the co‐evolution process helps to strengthen the

innovation efforts of firms in the same business ecosystem. These must indeed "co‐

evolve" their efforts to promote a new innovation: they therefore act in both

cooperation and competition to promote new products, satisfy customers and adopt

newinnovationstomarket.

Furthermore,thisprocessisplayingtheroleofcontributorbetweenanorganizationand

itsenvironmentcomposedofotherorganizationsanditsbroadercontext.Accordingto

Peltoniemi(2005,pp.3‐4),severalconditionsmustbemetsothatthereiscoevolution.

Theyaresummarizedasfollows:

1‐Alimitednumberofcustomersencouragingenterprisestochangeandevolve.

2‐Aconsciouschoicefocusingbusinesstochange.

3‐Interconnectivitybetweenorganizationsallowingthemtohaveareciprocaleffecton

eachother.

4‐Afeedbackprocessreinforcingtheco‐evolutioneffects.

TheFigurebelowneatlysummarizesthecommentsmadebytheauthor:



Figure5.3.Thecoevolutioninthebusinessecosystem(Peltoniemi,2005,p.35)

Source:Peltoniemi,M.2005, ‘BusinessEcosystem:Aconceptualmodelofanorganization

populationfromtheperspectivesofcomplexityandevolution’.EBusinessResearchCenter,

ResearchReports18.

Intheirbook“TheKeystoneAdvantage”,IansitiandLevien(2004,p.26)usetheconcept

of"SharedFate"toillustratetherelevanceofco‐evolutionprocessdescribedabove.The

authors, however, use this notion under a critical eye insofar the interconnections

between communities forming the ecosystem could induce the whole system into a

spiraloferrorsandmiscalculations,which is likely tospreadall thesemalfunctionsto

otheractors.

5.2.1.2.Examplesofcoevolution

Example.ApplicationdevelopmentintheMobileOperatingSystem

In the field of Mobile Operating System, developers need access to Application

Programming Interfaces (APIs) and other characteristics of the platform to create

applications, which will be valued by users of smartphones. Beyond this, demand‐

coordinatorsmayalsoberelatedtocost‐minimizes(Evans&Schmalensee,2007,p.34)


since‐inadditiontofacilitatingaccesstotheplatform‐theymakeavailabletoagroup

of actors the tools to increase their productivity. Thus, the SoftwareDevelopmentKit

(SDK),otherssoftwarelibrariesandotherresourcesaremadeavailabletodevelopersin

ordertofacilitatetheirworksandencouragethemtoinvestinthedevelopmentofthe

platform.Themoretherewillbetojointheplatform,themorethepotentialvaluethat

canbedeliveredtocustomerswillbeimportant,andwithitthebusinessecosystem.

Eisenmannetal(2007,pp.92‐93)distinguish"proprietaryplatforms”whereoneplayer

controls the technologydeveloped(e.g.Apple iOS4 that the iPhoneuses)and“shared

platforms” where several companies collaborate and develop technology while

competingtoofferconsumersdifferentbutcompatibleversionsoftheplatform(e.g.the

differentdistributionsofLinux,orGoogleAndroidthroughtheOpenHandsetAlliance).

5.2.2.Coopetition

Although co‐evolve means that players in the business ecosystem must act in

cooperation and competition (Moore, 1993, p.61), we must also recognize that this

process is based more on a partnership approach (Torres‐Blay and Gueguen, 2003,

p.11).

The coopetition concept, unanimously defined as "a situation of cooperation and

competition"(Baumard,2007;BranderburgerandNalebuff,1996),allowscoopetitionto

combinethesetwoantagonisms(cooperationandcompetition)withinasingleprocess

(BoucherandGueguen,2004,p.3).Accordingtothem,thedevelopmentofthebusiness

ecosystemismadefirstandmostlyonthestrengthofcooperation,beforeexperiencinga

newdynamicthroughcoopetition.Inathirdstep,thesetwoapproachessimultaneously

fuelingthedevelopmentofthebusinessecosystem.

ForHamel,Doz andPrahald (1989, p.134), the interest of coopetition lies in learning

andknowledgecreation,whichwillbeembodiedinnewproductsorservicesofafirm.

Irecognizethatconsiderationofthisconceptgotaconsiderableimportanceinstudying

thesubjectofmyresearch,sinceitstemsfromtheopeninnovationprocess.



Indeed,firmsforcedto"coopete"mustnotonlyadapttoahyper‐competitiveworldby

adopting competitive postures, but they must also carry out collective strategies to

counterothercompetitorsor topoolresourcesandshareknowledge(Lado,Boydand

Hanlon,1997,pp.23‐25).

Some observers believe, however this concept as rather paradoxical (Schmiele and

Sofka, 2007, p.7), especially when firms operate in an international context where

multiple barriers including cultural, regulatory or trust would increase the risk

associatedwiththesharingofIntellectualProperty(IP)rights.Theinternationalcontext

is in fact likely to adduncertainty to the coopetitionprocess,whichwould encourage

firmstoprotectthemselvesthroughseveralpracticesthatwewilldiscoverlater.

5.2.3. Electronic platforms: shared values and leadership within the

businessecosystem

Iproposeinthissection,toscrutinizetheroleofelectronicplatformsinordertoexplain

as clearly as possible the competitive dynamics within the business ecosystem and,

aboveall, to foreground thevarious challengesassociated to thevalueand leadership

sharingidentifiedabove.

It is important first to identify themain factors that contributed to the emergence of

electronicplatforms,andtheirusebyafewdominantfirmsinabusinessecosystem.

5.2.3.1.Whatisanelectronicplatform?

Attempt here to explain what is an electronic platform. According Iansiti and Levien

(2004, p.148), electronicplatforms represent an indispensable structure for the value

sharingbyallmemberswithinthebusinessecosystem.

Bothauthorsalsoarguethataplatformofferstheabilitytoembedsharedsolutionsin

ordertosolvecommonproblemsfoundinthebusinessecosystem.


Eisenmannetal(2006,p.93)defineaplatformasfollows:

“Aplatformembodiesanarchitecture–adesignforproducts,services,andinfrastructure

facilitatingnetworkusers’interactions–plusasetofrules;thatis,theprotocols,rights,

andpricingtermsthatgoverntransactions”.

Thus, from this definition, it seems clear that network effects give to the notion of

platformitsentireglow.Themajorityofcompetitivestrugglesoccurredinseveralareas

includingoperatingsystems,onlinerecruitmentservices,searchenginesorvideogames

are clearlybasedon theseeffects,withas result a limitednumberof actors thathave

succeeded in establishing itself, which are among many competitors in a given field

(Rabeau,2006,p.55).

GawerandCusumano(2008,p.13)indicate,however,thattobuildaplatformarounda

productoraroundanytechnologyrequirestwospecificconditionsthatarepresentedas

follows:

1‐Theplatformmustperformatleastoneessentialfunctionaccordingtothefactthatit

canbedescribedasa"Systemofuse",orsolveacriticaltechnologyinanindustry.

2‐It must also allow members to connect easily, offer the possibility to expand the

“system of use” by the construction of new features, just as it must accept new

contributionsfromitsmembers.

5.2.3.2.ICTplatformsandthechallengeofleadership

In his book entitled ‘The Death of Competition’, Moore (1993; 1996) states that the

business ecosystem is experiencing a life cycle through four major stages of

developmentmarkedbyphasesofstabilityandinstability:birthstage,expansionstage,

leadershipstageandself‐renewal(ordeath)stage.

At the third stage, the notion of leadership is here all its light. At this level, a leader

emerged in the business ecosystem and provides the function to add value to the

communityofplayersaroundhim.Todothis,heencouragesthemtoact inacommon

visiontoadapttheirinvestmentsandfindmutualsupportroles.



Protocols,standardsandcommunicationstandardsmustthennecessarilybecompatible

and the most universal possible. Indeed, leadership is often based on technology

standardizationprocess(Torres‐BlayandGueguen,2003,p.11).

However,Moore'sapproach,althoughitwasappropriatetoputforwardtheleadership

challenge in the business ecosystem, does not result in an extensive and rigorous

analysis of the relationship between the leader power and the build of a platform

capableofmanagingthecontributionsofdifferentactors.

CitingclearexamplesofWal‐Mart(withitselectronicplatformnamedRetail‐Link)and

Microsoft(withitsWindowsoperatingsystem),IansitiandLevien(2004,p.114)indeed

showthatthestabilityofthebusinessecosystemiscloselyrelatedtotheroleplayedby

somekeyparticipants,called"Keystones".Theyareabletoenjoyaremarkablepower,

powerdeliveredthroughanelectronicplatformonwhichthewholesystem.

In the same vein, (Gawer and Cusumano, 2002, p.32), in their book “Leadership

Platform”, specify that being leader of an electronic platform can exert considerable

influenceonthetrajectoryofinnovationintheindustryand,ultimately,ontheformed

networkofbusinessecosystemsandcustomersproducingandusing“complements”.

To clarify my explanations and to make them more concrete, I propose to consider

brieflythecaseofGooglebusiness.AccordingtoIyerandDavenport(2008,p.61), two

attributesmakethesuccessofthiscompany:itshighperformancesearchengineandits

technological infrastructure, which acts as a platform capable to increase, for the

company,networkeffects.

Throughthisplatform,thecompanyhasindeeda"Keystone"initsbusinessecosystem

comprisedofvariousstakeholders,namely:

•Advertisers(companiesandindividuals):

‐ConstituteaveryimportantsourceofrevenueforGoogle;

‐Providecontentthatattractsmorecustomers.

•Customers:

‐Seekinformationandfeeltheirinterests;


‐Usetargets‐Ads;

‐Testtheinnovationsperformanceandqualityavailableonthenetwork;

‐Helpbycontributingideasandsuggestingimprovements.

•Contentproviders(mediacompaniesandindividuals):

‐Createtheinformation;

‐ Stimulate customers’ interests and encourage the formation of user communities

aroundtheiroffers.

• Innovators (independent software sellers, Google engineers, "Open Source"

communities):

‐Formtogetheradiversenetworkofproductdevelopment;

‐Developnewoffers fostering, on theonehand, customer engagement and, secondly,

encouragingGoogletoremain"attached"totheiroffering;

‐GenerateincomebothforthemandforGoogle;

‐ExtendthetoolsandtechnologiesvalueofGoogle.

Followingtheexampleabove,itseemsclearthatGoogle'stechnologyinfrastructure,in

this reticular environment, canmanage all the contributions from several players, to

consolidate its leadership in several areas (including online advertising and the

developmentofInternetapplications)and,moreimportantly,tosharethevaluewithall

theactorspresentedabove.

5.3.BUSINESSECOSYSTEMANDOPENINNOVATION

Asitwasdemonstratedabove,thebusinessecosystemdevelopmentischaracterizedby

collectiveinnovationand"open"logicsinvolvingseveralcompanieswithdifferentskills

and complementary. The analysis of different stages of the life cycle of an ecosystem

clearlyshowsthattheKeystoneattheoriginofaninnovationwillsoonneedalliesthat

couldcontributetothedevelopmentanddiffusionofitsnewproductorservice(Moore,



1996, p.84). As we have seen, platforms allow the exploitation of indirect network

externalitiesthatcontributetothesupplypincarriedbythefirmanditspartners.

Moore'sanalysis(1996,pp.24‐58)ofvariousphasesofdevelopmentofanecosystemis

actually an open innovation strategy to Chesbrough (2011, p.33), innovation strategy

supportedby ICT, includingplatforms.ToChesbrough (2003a, p.12), companiesmust

move from a closed innovation model in which they drive their own R&D and

commercializationofnewproducts/services,toanopenmodelusingavailablesources

of innovation intheirenvironment(outside‐in)andvaluingthebestoutput fromtheir

ownR&D(inside‐out).Theopeninnovationconceptthereforehighlightstheincreasing

role of external sources of innovation as opposed to only internal resources, and the

particularcapabilitiesofcompaniesR&D.Chesbroughmakefrom"openness"awayfor

companiestooptimizetheirinnovationprocessandexploitnewbusinessopportunities.

In his latest book, Chesbrough (2011, pp.61‐65) also clearly recognizes the role of

platforms in open innovation. By opening its platform, the Keystone can integrate

contributions of different partners and thus support the business ecosystem

development. It is through the platform that the Keystone will integrate its business

model – i.e. resources – to its partners: "One important device that enables this

integration of business models throughout an ecosystem of suppliers, customers,

partnersandcollaboratorsistheabilityofthecompanytoestablishitstechnologiesas

thebasisforaplatformofinnovationforthatecosystem"(Chesbrough,2011,p.64).

Theimplementationofanopeninnovationstrategydoesnotmeanthatweshoulderase

internalR&D,butthisinternalprocesswillgenerallybereservedforthecorebusiness,

theoneonwhich thecompanyhasa significantmarketpowerandwhich isgenerally

usedasa lever todeveloponanother sideof themarket throughaplatformstrategy.

This platform strategy may be a part of an inside out logic, which will allow to the

platformowner:

‐Tocapturepartofthevaluewithinthebusinessecosystemthroughtheexploitationof

intellectual property rights (including licensing), thus ensuring a certain degree of

control.


‐ To contribute to the development of an “ecosystemical” competency (the other

membersoftheecosystemcanusethe leadertechnologyandthusensureitsdiffusion

whilecreatingvalueforthemselves).

‐ To reduce uncertainty by introducing switching costs thatwill sustain the business

ecosystem,especiallyinviewofinter‐ecosystemcompetition.

Thebusinessecosystemdevelopment is clearlybasedon logicof collective innovation

andopeninwhichdifferenttypesofresourcesorideasaresharedamongmembersof

this business ecosystem. This innovation logic is in many cases brought by the

Keystone/platform owner and usually results in the platform implementation, which

aimstoshareresourcesandcoordinatetheactors(Chesbrough,2011,p.62).Manyare

companiesthatusesuchplatformstosupporttheirinnovationandexplore/exploittheir

businessecosystem.Iftheseplatformsofteninvolvephaseofideationintheinnovation

process (Dell's IdeaStormor IBMwith IBM IdeaJam) theyalsomay involve the stages

furtherdowntheprocesseswhichare thenmarkedby thesealof "co": co‐conception,

co‐design, co‐production, co‐branding ... In any case, the Keystone must increase the

innovationprocessefficiencythat thisKeystonedriveswhilegiving to itspartners the

meanstoconsolidatetheirpositioninthebusinessecosystemandensureitscontinuity.

There isnowa largenumberofpracticesusingopen innovationandaremanipulated

through platforms. Following Phillips (2011, p.43) we can consider two important

dimensionsoftheopeninnovationprocess(particularlyintheideationphase):

‐Who is responsible foror submitting the idea? Some companies areopeningat this

stagealargenumberofparticipants(crowdsourcing);othersonthecontrary,limitthe

numberofparticipantsinasmallgroupofexpertsworkingonaspecificissue.

‐Howisdonetheselectionoftopicsorthemesofinnovation?Insomecasesbusinesses

openwidelythethemesofreflectioninothers,thethemesaresetandlinkedtoaspecific

problemorissue.

Thus, in many cases, the platforms are mobilized to drain, collect, analyze and filter

ideasthatrepresentpotentialsourcesofvalueforcompanies(IBM,Dell,etc).Sothisis

good for these companies to exploit their business ecosystem. The choicewhether to



initiate the ideation process depends on the objective of the company. It may be

exploringanewareaor conversely concentrateonanarrower scope in enhancing its

knowledgebasandpatentbase.Theapproachcanbe completelyopenandapply toa

wideaudienceorrathertorelatetoamorelimitedaudienceofspecialists.Whilesome

companies develop their own platform to support their open innovation, others in

contrast, rely on "innommediaries" (Sawhney et al, 2003, pp.126‐128),whichprovide

themwiththeentirecollaborationinfrastructurenecessary.Thedevelopmentandrole

of these intermediates are not neutral and requires from companies to proactively

manage their intellectual property, have a greater attention to external technological

developments and requires significant organizational changes to support the process.

This lastpoint confirms thepositionofLichtenthaler andHolger (2008,pp.14‐25) for

whichthelimitationsassociatedwiththeuseofthesecollaborationplatformsarenotso

muchrelated to the technology itself, asgovernancestructuressupposed todriveand

institutionalizethedeviceestablished.

The business ecosystem concept emphasizes the need for companies to build an

extensive network of partners thatwill enable them to innovate faster, at lower cost

whileenhancingtheirtangibleandintangibleassets.Thebusinessecosystemapproach

provides a framework for analyzing the innovation process particularly interesting

group which takes into account the variety of inter‐firm relations (cooperation,

competition, coopetition), business models, skills mobilized, built and reconstructed

through the innovation process, including the role of platforms. In this sense, the

approach allows the business ecosystem to put into perspective the open innovation

phenomenon.


CHAPTER6. THELINK,OPENINNOVATION

The open innovation concept was promoted by Henry Chesbrough, professor and

director of the Center for Open Innovation at Berkeley, California, and popularized

through his book “Open Innovation ‐ The New Imperative for Creating and Profiting

fromTechnology",publishedinOctober2003.

Theopeninnovationparadigmhassetinmotiononcetheinnovationstrategiesadopted

bycompanies in the20thcentury.At that time,according toChesbrough(2003a,p.8),

companieswerespendingmostoftheirR&Dbudgetininternalactivities,recruitingthe

bestcandidatestoattendtheseactivitiesandaccountedforalargeparttothestepsfor

creatingvalueinordertopromotetheirownideas.Thus,followingthisapproachorthe

closed innovation model, they seek firstly to erect barriers to entry facing potential

competitors and, secondly, to achieve independence or "Self Reliance" vis‐à‐vis their

networksofpartnersandsuppliers(Chesbrough,2003a,p.35).

Underthisnewinnovationlogic,firmsarenowabletomarketnotonlytheirownideas,

butalsoideasandtechnologiesfromoutside.Chesbrough(2003a,p.14)definestheopen

innovationprocessasfollows:

"The use of purposive inflows and outflows of knowledge to accelerate internal

innovation, andexpand themarkets for externaluseof innovation, respectively.Open

Innovationisaparadigmthatassumesthatfirmscanandshoulduseexternal ideasas

well as internal ideas, and internal and external paths tomarket, as the firms look to

advancetheirtechnology".

Thus,fromthisdefinition,itseemsclearthattheopeninnovationprocessistoconsider

that it is thenetworkor chainof employees,which is the sourceof innovation rather

thanaparticularcompany(Rabeau,2007,p.9).

Figure6.1summarizesclearlytheexplanationsabove:



Figure6.1.Closedinnovationvs.Openinnovation(Chesbrough,2006,p.47)

Source:Chesbrough,H.,West,JandVanhaverbeke,W.2006.‘OpenInnovation:Researching

anewparadigm’,OxfordUniversityPress.

ForWestandCallgher(2006,p.2),openinnovationinfact,encouragestheexplorationof

a wide range of internal and external sources that may constitute innovation

opportunities for the company. Furthermore, this paradigm allows the integration of

theseexplorationswith internalresourcesandcapabilitiesof thecompany, justas the

paradigmusesthisopportunityaswidelyaspossible,and,throughseveralchannels.

According to Henkel (2006, pp.133‐139), the concept of openness in the innovation

process of firms goes beyond the traditional relations of exchange taking place in

marketswherethetechnologiesareconsideredassimplegoodstobepurchasedorsold

onthemarketunderfavorableconditions.Toinstillthenotionofopenness,theauthor

quotes theexampleof thedevelopmentof theLinuxsoftwaresourcecode.Under this

new logic,Henkelasserts that companiesarenowable to share their technologywith

thepublictoencouragethedevelopmentofpossiblecollaborations.

Leadbeater (2007) proposes a distinction between two open innovation modes: he

meanswellby the term"OpenInnovation IN is thebasicmodelwhere ideas flow into

companies from different sources (Crowdsourcing)”. This mode "IN" provides


organizationswithawidenetworkoftalentandideasonwhichtheycouldrelyfortheir

innovations.Severalcompaniescitedbytheauthor,likeGoldcorpandProcter&Gamble,

arestrikingexamplesofthisinnovationmodel.

Ontheotherhand,usingtheterm"OpenInnovationOUT",theauthor impliesamodel

“where a group of people, a movement, sometimes a company, create a kernel or a

platform, with some tools, onto which people can add their ideas and contributions

(Open Source Software)”. Several companies, like Wikipedia and Linux (mentioned

above) practice this innovation model. This brings us also put into perspective the

relevanceoftheroleofelectronicplatformsintheinnovationstrategyofacompany.

Onthisside,Chesbrough(2009,pp.68‐76)definestwoopeninnovationmodes.Thefirst

istomaximizetheuseofsolutionsdevelopedexternally("outside‐in"),soanopenness

toexternalcompetenciesandthesecondtomonetizetechnologydevelopedinternally,

which cannot findapplications for the company corebusiness ("inside‐out ") or tobe

moreprecise,anintellectualpropertyoptimization.

To summarize, West et al (2006 p.283) state that open innovation is "both a set of

practicesforprofitingfrominnovationandacognitivemodelforcreating, interpreting

and researching those practices". In such an environment, the boundaries of the firm

tendtofade,toeasethepenetrationofnewideasandtechnologies.

Finally, to get a more concise open innovation concept, I propose below to further

explore the main determinants contributing to the building of this new innovation

context.

6.1.DETERMINANTSOFOPENINNOVATION

As mentioned previously, the literature identifies several factors that have helped

change the innovation concept inwhich companiesoperate. In a report,OECD (2008)

attests thatglobalization isamajordeterminantof themoreopen innovationprocess,

not only because it means greater and more global competition, but also because it

createsamorecomprehensivelandscapeforinnovation.



Inhisbookentitled"TheNewImperativeforCreatingandProfitingfromTechnology",

Chesbrough(2003a,pp.45‐57)identifiesseveralfactorsthatwouldencouragefirmsto

committoanopeninnovationprocess.Thetablebelowsummarizesthesedeterminants

clearly:

Table6.1.Themaindeterminantsofopeninnovation(Chesbrough,2003a,pp.4557)

DETERMINANTS MAIN ASPECTS

• A relevant change towards an

economy based on knowledge 1. Useful knowledge has

become widely

distributed • Broadening the knowledge scope of

business

2. Not used ideas may be

lost

• Research ideas are placed "on the

shelf" until development teams are

ready to work on it

3. Idea value or

technology depends on

the business model

• Economic value of a technology

remains latent until it is marketed

in an open business model

4. Presence of venture

capital modifies the

innovation process

• Corporate venture capital and

startups funds are considered as an

integral part of the field of

innovation

5. Firms should be

buyers and sellers of IP

assets

• IP is an integral part of the

technology strategy, and its

management must be done at a

strategic level of society

Source:Chesbrough,H.2003.‘OpenInnovationNewImperativeforCreatingandProfiting

fromTechnology’,HBP,Boston2003


All the above factors thus create the new open innovation logic, which embraces

externalideasandknowledgeinaccordancewiththeinternalprocessesofinternalR&D

(Chesbrough,2003a,p.45).

6.2.THEADVENTOFNEWBUSINESSMODELSFORINNOVATION

Following what has been mentioned, it seems clear that the major benefit of open

innovationforcompaniesistoprovideabroaderbaseforideasandtechnologies(OECD,

2008,p.2).

Achieve benefit from these resources, however, requires the establishment of a rich

portfoliointermsofpracticesandmodesofinnovationthatcanensureboththetransfer

ofthisknowledgetocompaniesandtheirdevelopmentintheoutside.Inotherwords,in

this context, companiesmust constantly reconfigure their businessmodels to ensure

continuouseffortsininnovation.

According Rabeau and Ben Letaifa (2004, p.55), technological changes that occurred

during the last decade are the source of a deep transformation of business models.

CompanieswithoutlegacyasDellComputer,hasindeedimmediatelyadoptednewways

ofdoing,which, invaryingdegreesdependingonsectorsandcountries, arebecoming

dominant business model (Rabeau, 2007, p.9). The added value chain, electronically

integrated,matches(inapartnershipinformation)allelementsoftheaddedvaluechain,

sincethecustomertothelatestprovider(Rabeau,2000,p.12).

For the author, these new ways of changing the innovation process and allow the

emergence of new opportunities that can generate value. Consequently, many value

creationenginesassociatedwithinnovationareemerging.Wetranscribethefollowing:

‐Afirstconvergenceoftechnologiesandindustriesaroundthesenewbusinessmodels;

‐ A second convergence touches key customers worldwide who demand products

comparableandinterchangeable;

‐Afinalconvergencethatreferstotherolesofbusinessesworldwide.



These three convergences are transforming the innovation process and, by extension,

howtoproceedinR&D.

Rabeau(2008,p.76)assertsthattheinnovativecapacityoffirmstendstomovefroman

area of traditional innovation ‐that describes a context inwhich innovation is usually

technological in nature‐ to a new universe, as the author refers to as "the universe

comingfromtheexperienceofinnovation."

Inmovingtowardsthisnewworldaswell,themarkettendstobecomemoreglobaland

interdependent. This new environment constituted of "co‐creation" experiences

thereforerequiresthatfirmsexpandtheirvaluecreationspacebyinvolvingmoreorless

all stakeholders of the value chain (customers, suppliers, partners networks and

academicunitsforresearchanddevelopment).

Thechoiceofanappropriatebusinessmodelplaysakeyroleinpositioningthefirmin

this newworld, and by accelerating the generation of an innovation portfolio that is

profitable for the firm. IBM, for example, has successfully transformed its business

modelby creating thebusinessunit "IBMGlobal Services,"whichassembles solutions

from itsproductsand thoseof itscompetitors in thegoal toprovide thebestpossible

valueforthecustomerthroughouttheworld.

To Chesbrough (2007, p.27), IBM offers a compelling example of a firm that has

managed to reconfigure its businessmodel bymaking itmore "open". This notion of

openingcoincidesindeedwithanenvironmentwhereR&Dcostsarehigh,andwhilethe

productlifecycleisshortened.Chesbrough,thatdistinguishesthebusinessmodelwith

two basic functions create and capture value, also states that companies should

experimentwithcreativewaystoopentheirbusinessmodels.Todothis,theymustsee

touseexternalideasandtechnologiesintheinternaldevelopmentoftheirproducts,and

they should allow the internal IP to be marketed externally. Figure 6.2 schematizes

clearlythisnewparadigm.


Source: Chesbrough, H. 2007. ‘Why companies should have open business models’, MIT

SloanManagement,vol.48,no2.

Finally,justtotakeadvantageofexternalknowledgeintheirnetwork,itseemsessential

forcompaniestocombinedifferentapproachestoinnovation.InthenextsectionIwill

try to explain as clearly as possible the different methods used by companies in the

contextofopeninnovation.

Figure6.2.Closedbusinessmodelvs.Openbusinessmodel(Chesbrough,2007,p.27)



6.3.THEOPENINNOVATIONPRACTICES

Inits2004report,theEuropeanIndustrialResearchManagementAssociationidentifies

severalopeninnovationmodesastheyapplytotechnologyandenterprisemarkets.The

matrixbelowdescribesthevariousmodesadoptedbycompaniesinthecontextofopen

innovation.

Table6.2.Openinnovationmodes:Technology&Markets(EIRMA,2004,p.24)

Jointventure Venturecapital Spinoff

UnfamiliarR&DContact

Internalventure

fundSale

Jointdevelopment Licensing Venturecapital

NonstrategicAcquisition

Internalventure

fund

AcquisitionInternal

developmentJointventure

Licensing Strategic

Spinin Acquisition R&Dcontract

Markets

Strategic NonStrategic Unfamiliar

Technology

According to the EIRMA (2004, p.28), internal development and acquisition practices

aretypicallyimplementedintechnologiesandmarketsthatarestrategicnatureforthe

company.Insuchacase,openinnovationandcollaborationwithexternalpartnerscan

indeedberiskyforthelong‐termsuccessofthecompany.

When it is about non‐strategic technology and markets, licensing or equity practices

remainthepreferredmeansbycompanies.

To summarize, the OECD (2008, p.52) identifies two models used in business:

partnershipswith thirdparties throughalliances, jointventuresandco‐developments,


aswellastheknowledgeacquisitionorsalebytheR&Dthroughcontract,or licensing

purchases/sales.

Other approaches, such venture capital operations, equity investments in "young

shoots”fromuniversitiesorininvestmentfundsfromventurecapitalhavebecomenew

pathways taken by companies. The nature of objectives set by those companies –

strategic or financial‐ and the link nature ‐narrow or remote‐ existing between the

activitiesofthosecompaniesandthosestart‐upsthereforegenerateseveralinvestment

options(Chesbrough2002,p.55).

Somecompanies “addict” toopenapproachcouldeffectively, forexample, support the

creationofstart‐upsbyinvestingduringtheirlaunchinginsomeexperimentsor, later,

bypartneringandengaging inalliances (Chesbrough,2003b,p.35).Thesepracticesof

“Spinning in” can allow companies to grow, in the future, theirmarket penetration to

access to new markets, or respond to competitive threats related to their existing

businessesandtechnologiesportfolio.

Note, however, that this practice also concerns universities, which research activities

mayberelevantwithinnovativecompanies.Rabeau(2008,p.78)supportstheideathat

the support for universities (e.g. to enable them to offer various programs for the

innovationmanagementforhigh‐levelexecutives)isonewayamongotherstostimulate

innovation.Wright(2008,p.80)forhispartdefendsthe ideathatuniversitiesarewell

suited to fulfill the external need of companies in terms of new skills, new ways of

thinking,ornewplatformstodealwithcomplexissuesforfirms.

InadditiontotheSpinIn,somecompanieschoosetopracticeexternalspinning(“Spin

Off”),which is to invest in start‐upswhose activity is closely linked to the one of the

company but offers little in terms of strategic perspectives (Chesbrough, 2002, p.55).

According toRabeau(2008,p.83), sometimes thecompany invests ina research team

and finances it initially in order to develop new research. In the case of a research

progression, the technology development thus reaches a more advanced stage. To

financiallysupporttheprojectanddevelopabusinessplan,thecompanywillthenuse

variouspartners,oreventoventurecapitalcompanies.Theprototypeinplace,itisthen

tested by an expert panel to assess the validity of the researches. If necessary, the

company may decide to refinance research to facilitate the transition to

commercialization.



Finally,tocombinedifferentinnovationpracticesisanecessaryexerciseforcompanies

wishingtoexcelintheopeninnovationcontextdescribedabove.Thefollowingsection

providesanoverviewofthemainadvantagesandlimitationsassociatedwiththemode

ofopeninnovation.

6.4.ADVANTAGESANDLIMITATIONSOFOPENINNOVATION

6.4.1Advantages

At the end of this section, we will make an overview of the main advantages and

limitationsofopeninnovation,asidentifiedfromtheliteratureconsulted.

AccordingtoOECD(2008,p.40),oneofthemostobviousbenefitsofopeninnovationis

thelargestbaseofideasandtechnologiesavailablefromwhichacompanycouldextract

andstrengtheningbothinnovationinternalandgrowth.

ForDocherty(2006),openinnovationensuresaleverageofR&Dconductedoutsidethe

company.Italsoofferstheopportunitytofocalizeagainsomeinternalresourcesonthe

discovery, the selection (“screening") and the implantation management. This new

paradigm can also provide internal groupswith a greater sense of urgency to act on

ideasortechnology.Accordingtotheauthor,thereareotherbenefitssuchasimproving

thereturnoninternalR&DactivitiesthroughlicensessalesortransfersforunusedIP,or

theabilitytoconductstrategicexperimentswithlessriskandfewerresourcesinorder

toprotectandextendthecorebusinessofthecompany.

Ina study,Vanhaverbekeetal (2008,pp.253‐254)attempted toassess thebenefitsof

emission practices of companies (i.e. do “Corporate Venturing") as a particular

mechanismofopeninnovationaccordingtoarealoptionsperspective.Accordingtothe

authors,theopeninnovationapproachallowsinnovativecompaniestotakeadvantage

of the first participation in new technologies or business opportunities. Secondly,

innovativecompaniesareabletodelaytheirfinancialcommitmentbytakingadvantage

of a greater flexibility regarding the timingwhere the internal part of the innovation


process must be initiated. Thirdly, open innovation provides to companies the

advantageofleavingthemarketquickly,toavoidadditionallossesaswellastheability

torealizesomevaluefromprojectsnotbeingfedinternally.Finally,asmentionedabove,

spinsoffpracticesallowcompaniestocontrolthedevelopmentofunitscreatedoutside

thecompanywhiledelayingthedecisiontoexit.

Otherbenefits(includingreducingtheriskofaresearchproject)arefundamentaltothe

follower companies of this new business paradigm. In choosing among the open

innovationapproachespresentedabove,companiesareableineffecttoreduceexpenses

to be allocated to the research project, but they also manage to reduce the labor

necessaryforitsimplementation(Rae,2008).

6.4.2Limitations

Despite these advantages, several limitations may arise in the context of open

innovation.According toRabeau(2007,p.9), themajorproblemwith thisparadigm is

the protection of the company IP. The OECD (2008, p.60) asserts that the increased

leakage risk of corporate knowledge means that knowledge can only be revealed to

external partners, who can possibly compete with or worse, use wisely the results

obtainedbythebusinessoritsknow‐how.

Company’followersofopeninnovationalsofacechallengesmainlyassociatedwiththe

management of their international activities. According to Schmiele and Sofka (2007,

p.14),workingwith internationalpartnersnotonly exposes companies to a culturally

complexknowledge,but italso increasesuncertainty.ForNewmanandStanley(1996,

pp.753‐779), choosemanagement practices based on local culture of the country is a

major factor to strengthen themanagement practices of leaders working in different

contexts.

Ghemawat(2001,pp.137‐146)assertsthatthedistancebetweenbusinessesfromtheir

international partners take a cultural dimension that adds to other dimensions of an

administrative, political or economic nature, which can make foreign markets

considerablylessattractive.



Other aspects of complexity accompany the firms operations in the context of open

innovation, including confidence in international trading relationships. In the eyes of

Zaheer and Zaheer (2006, p.28), this dimension is particularly important, especially

when collaboration between international partners comes from asymmetric trust

contexts. According to the authors, these international partners bring with them

differentbehaviorsandmotivations.Itthereforeseemsinevitablethatlegalissuesarise

in these business models. Firms can also estimate that it’s well worth the trouble,

instead of being downgraded by major innovations affecting their market (Rabeau,

2008,p.54).Theseproblemsarealsowithcompaniesseekingtoprotecttheircreations

in several jurisdictions because the IP rights are specific to a particular country, or

geographically plotted in a limited territory, the European Community, for example

(GreenhalghandRogers,2007,p.542).

To sum up, the literature on cooperation, collaboration and alliances shows various

disadvantages such as additional costs associated with managing cooperative

relationships with external partners, the lack of control, the negative impact on

flexibility, the over‐dependence to external parties, or the potentially opportunistic

behaviorofpartners(OECD,2008,p.73).

6.5.CONCLUSION

Basedon the literature review,we identified the special characteristicof thebusiness

ecosystemconcept,sinceit isanorganizationalstrategywherebyacompanyisableto

improvethemanagementofmultiplestakeholdersfromvariousindustriesbydifferent

means(coevolutionorcoopetition).MoreoverIhavebeenablediscovertherelevanceof

therelationshipbetweenabusinessecosystemandopeninnovation.

Theopen innovationrequiresan infrastructure ‐dedicatedornot ‐able tohandle the

different partners contributions (material or immaterial) inside, but also outside the

bordersofthecompanies.ICTplatformsareessentiallydevicesthatpermittoconnect,

bringtogether,exchangeandshare.Thus,theirroleisfundamentalinthedevelopment

of the open innovation. The fact that the open innovation concept has appeared in a

period characterized by a strong interest (both among managers than among


researchers)forcollaborationsofallkindsandtheInternet(Huizingh,2010,pp.2‐9)is

notneutral.DevelopmentoftechnologiesfromtheInternetandICTplatformsincluding

greatly facilitated the development of practices and the opening of the innovation

process of companies. There is therefore every reason to believe that with the

developmentofICT,otherpracticesandnewformsofopeninnovationwillemerge.

Inordertoschematizetheapparentlinkbetweenbusinessecosystem,openinnovation

andInnovativeorganizationstrategy, Iproposethisscheme(figure6.3),adaptedfrom

thebusinessecosystem’scharacteristicsofPeltoniemi(2005,p.64):

Figure6.3.TheITCplatform:relationallinkbetweenopeninnovationandorganizationalstrategyonthebusinessecosystem



CHAPTER7. EMPIRICAL STUDY: TO WHAT EXTENT THE APP STORE

NUMERICALBUSINESSECOSYSTEMCANBEEFFECTIVEINSTEVEJOBSOPEN

INNOVATIONSTRATEGYFORAPPLE?

Iwant to redevelopmymethodology section (Chapter 3) by recalling the points that

haveguidedmycasestudy.Thisstudyisnotbasedonasearchestablishedbymyown

way,thisisareconstructionbasedonseveralcasestudiesofthecompanyAppleIncthat

allowsselecteddatatoanswermyresearchproblem.Then,thisstudyisbasedonSteve

JobsleadershipintheAppleCompany,particularlyfromthelate90swhenthecompany

has grown popular because of him. The aim is to highlight the points raised in the

theoreticalstudyandoverlayingthedatacollectedontheAppleCompanytomakethe

linkbetweentheoryandpracticeinordertodrawthebestconclusionsontheissueof

search: “Howanecosystemcancontribute toopen innovationstrategiesof innovative

firmsinordertostrengthentheircompetitivepositiononthemarket?”

In order to follow the same pattern as my theoretical study, I will start first by

explaininghowthecompanyAppleisdefinedasinnovativeorganization,includingthe

strategysetupbySteveJobscreatingitspopularization.Inasecondstep,Iwillputupa

"map" identifyingkeyplayers in the ecosystemofApple's business, particularly those

involved in the proof of the act of open innovation at Apple, so that in a third time I

speakofopeninnovationpractices inthebusiness,theiradvantagesandlimitationsin

AppleInc.

7.1.CONTEXT

To have a better understanding of the case study, and in order to settle it, a quick

historicoftheAppleCompanylife,andonitsSteveJobswillhelptobetterunderstand

thesituationandtheenvironmentinwhichthisfirmevolves.


7.1.1.AppleCompany

Apple Inc, originally Apple Computer Inc. is an American multinational computer,

createdonApril3,1976inCupertino,thenincorporatedasacompanyJanuary3,1977.

Fromitsinceptionthecompanyasitexiststoday,Applehasexperiencedvariousstages

of evolution of the computing world, from a world without personal computers in a

networked society of the next century through fixed andmobile devices. His story is

particularlylinkedtothatofoneofitsco‐founders,SteveJobs,forcedtoleavethefirmin

1985 and rehired in December 1996, before becoming CEO of the company in 1997.

AmongtheleadingproductsApplehasknownsinceitsinception,aretheAppleIandII,

theMacintosh,iPod,iPhoneandtheiPad.

Applehasknownmanysuccessesatitinception,buttheentryofMicrosoftinthemarket

hasalmostsunkthecompany.SincethereturnofSteveJobsastheCEOinaugust1997,

Apple has known many successes. Actually, Apple reached the rank 35 in 2011

accordingtothefortune500,arankingofAmerica’slargestcorporations(Fortune500,

2011),andup21slotsbetween2010and2011.Itisimportanttohighlightthatin1997,

ApplerankedtheslotNo.150andlosses$816millions(Fortune500,1997).

Today, Apple is considered as the most innovative company since the seventh

consecutive year (50most innovative companies, 2012). These awards are thanks to

Steve Jobs, itsCEOwhohas shaped theApple culture throughout theyear. Indeed, as

explained very well by Olivier Clodong and Georges Chetochine in their book “Le

Storytellingenaction”,SteveJobsandApple'sscriptwriterswereabletosellan"Apple

wayof life",withtheiPhone,theMacBook,theiPod,etc.Thereisan“Appleculture”,a

communityoffanswhothinkApple,workApple,playandcommunicateApple.

ForthisreasonIwillfocusontheperiodwhenSteveJobsranAppleratherthanwhen

thefirmwasledbyprofessionalCEOs(i.e.Sculley,Spindler,Amelio).

Some question emerged:What happened to this firm at the edge of the end? How it

becamethemostinnovativeUSCompany?Thosequestionswillfindanswerinpart7.2.

First,let’shaveabrieflookonwhoisSteveJobs,andwhyhewastheherowhosavedhis

owncompany.



7.1.2.SteveJobs,a“visionary”

The Steve Jobs case, since its coming back as the Apple CEO will deeply help us to

understand how this legendary leader has straightened a firm yet at the edge of

bankruptcy. This brief history wasmade thanks to theWalter Isaacson’s Steve Jobs

biography,publishedin2011

Steven Paul Jobs, or Steve Jobs, was an American inventor and entrepreneur, widely

recognizedasavisionaryleaderandapioneerofthepersonalcomputerrevolution.Co‐

founder,CEOandchairmanoftheboardofAppleInc,healsodirectedthePixarstudios

andbecameamemberof theboardofDisney in2006duringthetakeoverofPixarby

Disney.

Steve Jobs, Steve Wozniak and Ronald Wayne established Apple on 1 April 1976 in

Cupertino.Inearly1980,SteveJobsconvincesthePARCmanagerstoletAppleusethe

Graphical User Interface (GUI)/mouse technology. According to Steve Wozniak, co‐

founder of Apple: "He told them directly that they had a great technology, but Apple

couldmakeitaffordableenoughtochangetheworld(Xeroxtechnologycosttwicethe

priceApplecouldproposeit".ItisoftensaidthatJobshad"stolen"theideasofthePARC

byappropriatingtheconceptofgraphicalinterface.AccordingtoIsaacson,Jobshasjust

convinced the leaders of Xerox,who seemedunconcerned about the future of PARC's

interestto letApple"share"thisknowledge.Anagreementwasalsosigned,andXerox

invested one million dollars in Apple shares. To resume, Steve Jobs bought the

commercial potential of the Xerox PARC work on an innovative technology; this is a

goodOutside‐Inexample,becausethisopeninnovationprocessledtothedesignofthe

famous “Macintosh” in 1984, the first computer to take advantage of these graphical

userinterfaceinnovations.

AfterlosingapowerstrugglewithAppleCEOJohnSculleyyethehadrecruited,heleft

thecompanyinSeptember1985tofoundNeXTanddosomeotherbusinesses.

Inearly1997,AppleboughtNeXT.ThistransactionallowsSteveJobstoreturnashead

of the firmheco‐founded,andprovides thesourcecodeofNeXTSTEPfromwhichhas

developed the operating system Mac OS X (i.e. Outside‐In innovation process). He

oversawduring fourteen years the creation, development and launch of the iMac, the

iPod,iTunesandAppleStoreretailchain(2001),theiTunesStore(2003),iPhone(2007)

and the iPad (2010), showing the various products in a multi‐year pace during his


famouskeynotesandmakinghiscompanyoneoftherichestintheworldatthetimeof

hisdeath,theOctober5,2011.

“Goodartistscopy,greatartistssteal”–SteveJobsparaphrasingPabloPicasso

Thissentencemeanshissearchforinspirationelsewherethaninthecomputerfield.It

thusexpressesitsabilitytolinkseeminglyunrelatedthingstogether.Infact,SteveJobs

delivered the followingwords: "This is to get in touchwithwhathumanshavebetter

done, then try to integrate it intowhat you do. Picasso said: Good artists copy, great

artistssteal.Wehaveneverbeenashamedtostealgreatideas.IftheMacintoshhasbeen

so successful is because it is the work of artists and zoologists and musicians and

historianswhoalsohaveproventobethebestcomputerscientists intheworld".This

quote shows that Jobs is less talk of looting as the importance of the notion of

association,whosecreativeprocessfeedsonavarietyofexperiences.

SteveJobsissogoodatassociations(e.g.AppleIIinspiredbykitchenrobots)thatApple

continues to innovate today in all aspectsof computing includingpower cords. Called

MagSafe,theadapterwithwhichyouconnectanAppleMacBookonthesectorendswith

amagnetonthesideofthecomputer.Mostusershavethebadexperiencetotakeonthe

cordandseehelplesslytheirlaptopcrashingtotheground.Bydisconnectingeasilythe

computeranditscord,theMagSafeavoidthisterriblescenario.Apple"stole"thisideato

the Japanese rice cookers equipped since a long time with this magnet. Specifically,

Applehasestablishedalinkbetweentwoobjectsapparentlyforeigners,thericecooker

andthecomputer.

7.2.APPLE,ANINNOVATIVEORGANIZATION

Differentiation is now the watchword of leaders and strategists addressed to the

directions of innovation. Differentiation that is precise margin creative, safe,

differentiationdrivenbyacontinuousflowofinnovations,innumber,tocostcontrol.



To give an example, in 2001, Steve Jobs has diversified Apple activities by moving

partially toward themusic industrywith the iPod and the iTunes Store twoproducts

designedfordigitalmusic,thentothemobilephonewiththeiPhone.Appleisknownfor

user interfacedesign andvery elegant and careful of its products, particularly for the

introductionofconsumer technologiesoftenconsidered innovative: thegraphicaluser

interface, computer mouse, and multi‐touch screen. These elements are, in part, the

cause of the prices slightly higher than the market average, and make Apple brand

perceived as high‐end public opinion. These few words permit to describe this

differentiationstrategyasvitalforthecompanythanforitsleader,SteveJobs.

TheAppleCompany(asitisalsothecaseforGoogleorProcter&Gamble)hasalower

R&Dthankeyindustryplayersandlivesa2‐digitgrowthoverthelast5yearswherefor

others in the same sector is sluggish. These actors are icons of a newkindof a value

creationmodelcombiningbusinessecosystemandopeninnovation.

7.3.APPLEBUSINESSECOSYSTEM

7.3.1.Theecosystemadvent

ThereturnofSteve Jobs in1997marksthebeginningof theAppleecosystem. Indeed,

after many failures, the company bought NeXT, a company founded by Steve Jobs

himselftobenefitfromtechnologiesestablishedbyNeXT(e.g.theNeXTSTEPOperating

System(OS)thatservedtocreatetheoperatingsystemcalled"MacOSX"),andsecondly

topropelSteveJobsattheheadofApple.

In his first keynote after his return as the Apple CEO (MacWorld Boston, 1997), Jobs

stated: "Apple is living in an ecosystem, and to survive it must get help from its

partners".JobsdecidedtocreateapartnershipwithMicrosoftsothatthetwocompanies

work together on several patent cross licenses, and on the parallel development of

MicrosoftOfficeforMac,andcollaborationforthedevelopmentof"Java"onMac.

As I said above, Jobs decided to partneringwith his rival, Microsoft, on the personal

computermarket in 1997 in order to beginning the Apple rebirth. This example is a

typical case that can illustrate a coopetition strategy between two companies. By


contracting this partnership, Apple cooperated with its nearest competitor to pool

knowledge,technologiesandcompetenciesandbycooperatingwithacompetitorApple

andMicrosoftdefinedacoopetitionstrategyontheirecosystem.

7.3.2.AnElectronicBusinessEcosystem:TheiTunesStore

TheiTunesStore(formerlyiTunesMusicStoreoriTMS)istheonlinemusicstorefrom

Apple,availablefromiTunes,whichprovidesmusic,TVshows,movies,videoclips,audio

books,podcasts,gamesandapplicationsforiPodandIPhone.

ITunes handles transfers of music, photos and videos on variousmultimedia devices

fromAppleiPod,iPhone,iPadandAppleTV.Itisalsostreamingsoftware,whichletsyou

listen to radio stationsworldwide streamedover the Internet. It integrates thedigital

hubstrategydefinedbySteveJobsin2001(Macworld,January,the9th2001).

7.3.3.MainactorsinteractingintheiTunesStore

The iTunes Store gathermany actors from different industries. In this part I will list

thembyindustry:

‐Musicindustry:theiTunesStoresellsmusicthankstocontractswithfourmajorlabels,

and also independent labels and distributors of self‐producing artists. Moreover, the

Appledigitalecosystemnowalsodistributesmusicvideos,audiobooks,andincludesa

podcastsdirectory.

‐Filmindustry:TheU.S.iTunesStoreoffersforsalesince2006televisionseriessoldin

the episode or season, the motion picture production houses Disney, Paramount

PicturesandLionsGateFilms,andshortPixarfilms.

‐ VideoGame industry: Since2006, the iTunes Store sells downloadable video games

designedforfifthgenerationiPods,mostlydevelopedbyElectronicArts.

‐Book&Newspaperindustry:Soldelectronically,thisindustryisrecentandgrowson

theiTunesStorethankstothedevelopmentoftheiPadtablet.



Since July 11, 2008, the iTunes Store added a section called App Store, which allows

users to download applications on iPhone, iPod touch and iPad. Apple ecosystem

partnersmainly develop those applications, this innovation permit to growup a new

industry: the mobile application industry. Indeed, thousands of external software

developerswritecomplementaryapplicationsfortheiPhone/iPad.Iwilldeeplydiscuss

on the App Store and external developers in the subchapter below about the Apple

electronicplatform.

Main industry enunciated I want to integrate the iTunes Store users because it is

possibleforthemtopublishtheirowniTunesplaylistontheiTunesStore.Userscanalso

uploadpodcasts,as,forUniversities,academiccoursesinvariousformats(audio,video,

books,etc.)thankstoiTunesU,anappdedicatedtothesharingofacademicknowledge.

In order to have a better view on industries interacting with the Apple iTunes

ecosystem,Iproposethefollowingfiguregroupingthemaroundthe iTunesStore.The

industriesareevolvingaroundtheApple iTunes&AppStore. Idrewthe iTunesStore

usersbiggerbecausetheyaremorenumerous.

Figure7.1.DifferentindustriesinteractingontheApplebusinessecosystem


7.3.4.TheAppStore

The Apple “App Store”, which stands for Application Store, is the service that allows

AppleiPad,iTouchandiPhoneownerstodownloadapplicationsdirectlyontheirdevice.

Anapplicationisnothingbutacomputerprogramthatrunswhenitslaunched,itcanbe

video games, web application, message application, social network app, eBooks etc.

Applicationscanbefreeornotfrom$0.99upto$999.

TheAppStorewaslaunchedbyJuly11,2008andoperatesontheprincipleofamarket

place: developers offer their applications to the user community who choose to

downloadthemaccordingtoitsneedsandtastes.

Beforedownloadingtheseapplications,usersmustfirstopenaniTunesaccount(which

includearequestofuserbankdetails),anditiswiththisaccountthatausercandirectly

connects on the App Store to download applications. Access to the downloading of

applicationsandpaymentcanbedoneeitherviatheiTunessoftware,eitherdirectlyvia

thedevice(iPhone,iTouchoriPad).

7.3.5.Thedevelopers:Awidecommunity

AnyonecandevelopanddeliveranapplicationdedicatedtotheAppStore.Application

developerscanthereforebeindividualorprofessionaldevelopers,companies,brands...

firstconditiontobemet,adevelopermustpayanannuallicensetoApplefortherightto

propose its applications; it remains modest at $99 per year for individuals and

industries. This license entitles the publisher tomake available its application on the

App Store. For companies wishing to develop "internal" applications and there is a

secondlicensecosts$299/year.(AppleDeveloperProgram).

Oncelicensebought,andafterhavingaddressedapplication,adeveloperwilldecideits

price. The application price is set by the developer (or publisher, or the company, in

short the one creating the app), finally, the price is not "100% free" since itmust be

chosen from levels determined by Apple. Indeed, for readability in the applications

pricing,Appleexpressesamountsofwhichthedeveloperwillchoose,ifitisnotfreethe

minimumpriceanapplicationis0.79€andthenthereisdifferentlevels(0.79€,1.59€,

2.39€,€2.99,€3.99,€4.99,€5.49,€5.99etc).



Finallyafterthepricechoice,thedeveloperfinallysubmitsitsapplicationtoApplethat

will(ornotwill)validateitsapplicationandmakeitavailablefordownloadontheApp

Store.

As it has been demonstrated, the App store is very closed and tightly controlled by

Apple.Thisconstantmonitoringisthesourceofmuchdiscontentamongthecommunity

of developers and publishers, which are subject to the whim of Apple who refuses,

sometimes arbitrarily, to validate certain applications. Their policy is to prohibit

broader applications proposing sexual content, but also applications with too few

features,inordertomaintainahighqualitylevel.

7.3.6.MobileApplicationDevelopment:Thecoevolutionconcept

March 6, 2008, Steve Jobs introduced in a Keynote in San Francisco a Software

DevelopmentKit(SDK)foriPhonetobothbusinessesandconsumers.Thiskitisfreely

downloadableon theApple'swebsiteandallowsdevelopers tocreateapplications for

iPhone,iPadandiPodTouch.

Since June 2008, developers distribute their applications through the App Store.

Developers have the choice of the price since Apple takes a 30% commission. The

successofthekitisimmediate,thedevelopercommunityhasdone100,000downloads

thefirstweekend.

InJuly2009,oneyearaftertheAppStoreopening,thenumberofavailableapplications

exceeds 85,000. Every day, hundreds of new applications are available. November 4,

2009,PhilipSchiller,seniorvicepresidentofApple,announcedthattheAppStorehas

reachedthesymbolicfigureof100,000applications(ApplePressInfo,2009).

On6 January2010,Apple announced that it surpassed3billiondownloads of iPhone

applications.InearlyMarch2010,morethan150,000applications,developedbymore

than28,000developers(Bemobee.com,October9th,2011),areavailable fordownload

ontheappstore.

On 7 June 2010, Apple announced that 225,000 applications are available on the app

store. Eachweek, 15,000 applicationswere submitted and95%are accepted (WWDC


2010 June7th,2010).Since launchingtheappstoreonebilliondollarswasdonatedto

developers(WWDC2010June7th,2010).

In March 2012, Apple made a contest, the person who downloads the 25 billionth

application win an iTunes card for $ 10,000. This winner will have the choice to

downloadamong550000apps.Thegameisover;the25billionthappwasdownloaded

on03/03/12(OfficialAppleWebsite).

Withallthesefigures,IwanttorepresenttheextraordinarydevelopmenttheAppStore

rising. Indeed,asIsaidearlier,morethan25billionapplicationsweredownloadedon

the App Store since 2007, a very impressive growth. But why the Apple App Store

becamearealsuccess?Whythisdeveloper’scommunitycontinuesworkingwithApple

despitethestrongApplepresenceandcontrolontheirproducts?HowApplecansurvive

thanks to this innovative businessmodel? These questionswill find answers into the

partbelow.

7.3.7.Theremunerationmodels

7.3.7.1.Appleremunerationmodel

ThegoalofAppleisnotfreetoliveitsdevelopercommunity;thegentlemenofthefirm

attheappleareremuneratedprincipallybytwomeans:

Afixedremuneration:annualdevelopers’licenses.

Acommission:apercentagetakenfromeachapplicationsale.

Like any marketplace, charging each developer with a percentage of every sale, that

percentage is 30%, compensates Apple. For example if a publisher has sold 100

applicationsto$0.99,ithasaccountedfor$99ofturnover,hewillreceive$69,3(70%)

andApplewilltake$29,7asacommission(30%).Thisdealisnotinherentlybadinthe

sense thatAppleoffersadistributionchannelanda fantasticshowcase fordevelopers

andpublisherscanconcentrateonthemanufactureandpromotionoftheirapp.



7.3.7.2.Developersremunerationmodel

The developers’ objectives with their apps can be many: promotional tool, generate

income,increasebrandimage,forspecialevents,etc.Themonetizationofanapplication

is not necessarily a goal that iswhy Apple established a free application distribution

mode.However,ifadeveloperwantstoearnmoneydirectlyviaanapplication,revenue

modelsareoffourtypes:

‐Incomeondownloading:Ifyourapplicationisnotfree,itwillearnyoumoney(70%of

yourbusinessvolume)ateachdownload.

‐Advertising revenues:mostofwhat is traditionallydoneon thenet, it ispossible to

advertise in its application and take incomedepending on the display number, clicks,

affiliate,etc.

‐Theinapppurchase:usershavetopayextratoacquirecontent.Example,the“TapTap

Revenge”musicapplication,freelydownloadableandtogetnewsongsusersmustpay

individualsongs.

‐Subscription:theapplicationcontentisavailableasasubscription(e.g.theAmerican

WashingtonPostnewspaperapplication,whichcosts$1.99peryear).

Also,toclosethispart,IwanttoinsistonthefactthatApple"finances"thedevelopers.

Thefirmhasdonatedfourbilliondollars,including$700millionthelastquarterof2011

inordertohelpthemevolveandinnovate.

7.3.8.Conclusion

Before entering in the explanations of the iPhone platform, I want to regroup

information collected for this part and make a conclusion on the Apple App Store

ecosystem in order to link the coevolution model implemented by the firm with a

theoreticalaspect.

Aswehaveseenduringthissubchapter,theApplebusinessecosystemisininteraction

with many different external industries capable of creating and providing mobile

applications for the App Store since Apple freely offers a Software Development Kit.


However, by exercising a total control ofwhat can (or cannot) be on itsmarketplace,

Appleshowsacertainclosureonitsecosystem.

CoevolutionseenintheAppleorganizationalstrategybetweenthefirmandapplication

developers, is on the fact that Apple rent (with a license) a store for developers that

permitcommunicateandreceiveremuneration(againstacommissiontakenbyApple).

Moreover the Cupertino Company finances developers in order to encourage them

continuing creating and innovating on the application development. AsMoore (1993)

said,acoevolutionprocessstrengthensinnovationeffortsoffirmsinthesamebusiness

ecosystem.Furthermore,toillustratethiscoevolutionprocessandbyquotingIansity&

Levien (2004)Apple anddevelopershave a “SharedFate” tobe successful, theymust

cooperate to attract more customers and so make their businesses and business

ecosystemgrowing.

TheAppStoresuccessdependsonthewidevarietyofapplicationsold,themorethere

willbeappsencounteringusers’needs,themoretherewillhavedownloads.Moreover,

byfinelyselectingapplicationsdevelopedfortheAppStore,Appleproposesonthestore

onlyfunctionalandgoodqualityproducts.

ImadeafigureinordertorepresentfluxesbetweenAppdevelopers,Applethoughthe

AppStoreandiPhoneuser:

Figure7.2.FluxesbetweenAppleandstakeholdersonthenumericalbusinessecosystem



AsIputforwardonthefigureabove,usersneedanAppledevicetoaccessapplications.I

took the iPhonebecause it is themost famousAppleplatformon thisecosystem.This

iPhoneistheplatformlinkingApple,developersandusers.Let’sfocusonitinthepart

below.

7.4.APPLEITCPLATFORM:LEADERSHIPWITHINTHEBUSINESSECOSYSTEM

WhenIquotetheAppleITCplatform,IquoteoneofthebestApplesuccessesthathave

revolutionizedthemobilewebsurfing:TheiPhone/iPad.Let’s focusontheiPhoneITC

platformcase.

7.4.1.Overviewoftheplatform:

IPhone is a line of smartphones designed and marketed by Apple Inc since 2007.

Products,whoseuserinterfacewasdesignedaroundthemulti‐touchhaveacamera,an

integrated iPod, an Internet client (for browsing theWeb or check e‐mail), and basic

functionssuchastextmessagesandmultimediamessages,butalsohavetheAppStore,

which permit to download applications, from games to social networks, via the GPS,

television,electronicmedia,etc.

7.4.2.Aplatformfacilitatinginteractions

TheApplesmartphone,asIsaidabove,providestheAppStoreandpermittofacilitate

interactionsbetweenApple,developersandusers.Toexplaininmoredetails,Iwillgive

yousomepreciseexamples.

First of all, I will repeat my comments saying that Apple evolutes in a vertical

integration:Thecompanycontrolseverythingintheecosystem,fromthedevelopment

of itsmarketplace, to themanufacture of its platform and by choosingwhat external

applicationsarevalidated(ornot)ontheAppStoremarketplace.HereIwanttofocus

deeplyonthefactthat,unliketheGooglecompetitoranditsAndroidmarketplaceusing


manyplatforms(HTC,Samsung,Motorola,etc), there isonlyoneITCplatformexisting

on theAppStore, at leastonebrand:Apple.Appleproducts aredesigned in the same

way:Toguaranteeagreatuserexperience. IfAppledecided toclose itsecosystemto

competition, it is naturally on onehand to be the Leader of its ecosystem, but on the

other hand to offer only one kind of product, the best. By this, users have the same

deviceandthesamefunctionality.Thisspecificationcreatedaverymarkedcommunity

effectthatpromotesinteractions,exchanges,popularityandsuccessoftheApplebrand

ITCplatform.

Secondly, thanks to its “openness” by permitting external partners to develop new

applications, theApple ITC platform can see its essential function (so, a Smartphone)

expanded by the download of new applications on the App Store, made by external

Applepartners.Thispartleadsustoseefurtheronitsecosystem:TheAppStore.

7.4.3.TheAppleiPhoneandtheAppStore:Saleofanecosysteminsteadofa

product

An iPhonewithout the App Store is just an animated pad.Without the App Store, no

applications,noupdates,onlythebasisofacommonsmartphone.

Interdependenceisheremainlybilateral:theiPhoneis"dependent"ofsoftware.Itisthe

same for the iPod and the iPad. This evokes a strong interdependency link between

Appledevices.However,asIexplainedabove,theAppStoreisdependantofiPhoneor

any Apple devices. Concretely, the App Store without iPhone will be a ghost

marketplace.

AnimportantpointtofocusonisthatwhatmakestodaythestrengthoftheiPhone,this

isnotsomuchtheproduct(othersmartphoneshavesimilartechnicalcapabilities,eye‐

catching design and a lower price), but the ecosystem created around it: Clearly, the

applicationsavailablethroughtheAppStore.

Once the product in hand, 90% of the consumer purchases does not come from the

supplieroftheproduct,butfromwhathasdevelopeditsecosystem(i.e.MobileApps).

UsingtheexampleoftheAppStoreecosystem,werealizethatwhatmakestheproduct

value that is not somuch thedevice (e.g. the iPhone)butwhat it permits through its



ecosystem.Wecanconcludeherethattheecosystemistheelementthatbringsvalueto

theproduct.

7.4.4.Conclusion

This part, dedicated on the Apple ITC platform, allowed us to understand its power

through the App Store business ecosystem. To link the theoretical aspects with this

empiricalstudy,somepointsarevisible.

Firstly, inorder tobuild an ITCplatform, theGawer&Cusumano (2008) two specific

conditionsaretrue:

Theplatformmustperformatleastoneessentialfunction,heretheAppleITCplatform

performasmartphonerole.

Theplatformmustallowmemberstoconnecteasily(bytheAppStore),andoffersthe

possibilitytoexpandtheessentialfunctionbynewfeaturescreatedbyitsmembers(in

theApple iPhonecase, it ismobileapplicationdevelopedbypartnersanddownloaded

byusers).

Secondly, Gawer & Cusumano (2002) explained that being leader of an electronic

platformexert considerable influence on the innovation trajectory andon the formed

network of customers producing and using “complements”. Apple has a considerable

influenceonitsecosystemanditsplatform.Indeed,byselectingdevelopedapps,Apple

offersonlyhigh‐qualityfeaturesonitsecosystem.ThisfactpermittheAppStoretohave

a lot of downloads everyday. This point constitutes an important income source for

Apple(asIdemonstrateearlier,Applesalesitsecosystem).Toconcludethispart,andby

paraphrasingIansiti&Levien(2004),wecanassertthatmobileappsdevelopersonthe

Apple App Store ecosystem are “Keystones” because they have a remarkable power

throughtheAppleITCplatformandalsothebusinessecosystem:WithoutexternalApps,

Apple,theLeaderofitsecosystemwouldneverbeensosuccessful.


7.5.OPENINNOVATIONINACLOSEDBUSINESSECOSYSTEM:APARADOX

7.5.1.OpeninnovationpracticesthoughtheAppStoreecosystem

On this part we will focus on open innovation cases existing though the App Store

business ecosystem. As I presented in my empirical study, the App Store radically

changedconsumptionmodewiththeonlinedistributionofsoftwaremadebypartners.

BeforetheAppStore,softwaredevelopershadtoevolveinafiercecompetitioninorder

to have the opportunity to distribute their products. The Apple ITC platform and

ecosystem broke down this barrier, by allowing any software developer to distribute

andpromoteitsproductsontheAppStore,andbymakethoseappsvisibleandavailable

toanyAppledeviceusers.Thislastsectionwillenunciateandexplainopeninnovation

modelscommonlyusedbyAppleInc.

7.5.1.1.SteveJobsInside‐Outspirit:theCrowdsourcingcase

Thanks to its ecosystem, Apple makes available to the public a true technological

environment that encourages creativity and gives its users a "digital experience" to

which they adhere and encourages others to do the same. Indeed, Apple has brought

togetheracommunityofincreasinglybroadwillingtobepartoftheAppleadventure.

Apple had the idea to create a revolutionary new business model based on

crowdsourcing,allowinganyone(professionaldeveloperand/oruser)tocreateitsown

application in aprocedure and strict criteria, in a controlled, secure environment and

providingbettervisibilitythroughtheAppStore.

Indeed,theAppStoreisakindofcrowdsourcingconcept(e.g.theSDKtoolspermitsfor

developersandusers tobenefit fromApplecompetencies inapplicationdevelopment)

coupledwithanetworkeffect(Rohlfs,1974),sinceusersbringarealaddedvaluetothis

ecosystem.



7.5.1.2.TheSteveJobsOutside‐Inspirit

Let’s begin this part with one of the most famous open innovation example: The

Apple/XeroxPARCcase.Xeroxcreatedin1970aresearchcenterinPaloAltocomputer,

named PARC. These included Xerox to capitalize on the acquisition of computer

companyScientificDataSystems.Anumberofinnovationshaveemerged:theGraphical

UserInterface(GUI)thatisstillusedtoday,iconscontrolledfromamouse,thescreens

in several colors, theEthernetprotocol, fonts, etc. In1979, Steve Jobs,Apple founder,

visitedthisresearchcenter.

WhilethePARCheadmanagementbecameawareofitsinabilitytoexploittheGUIthat

wasdevelopedbyitsresearchers,SteveJobssawthepotentialofthisinnovationthatthe

companyhasnot carriedout internally.ApartnershipwasestablishedbetweenXerox

andAppletoallowAppletousethisGUIonitsfamousMacintosh.

This is concrete case showing open innovation, simply because a firm exploits R&D

results of another company. Moreover it is an outside‐in innovation process because

SteveJobs“took”thisideafromthePARCinordertocreateaninnovativeproduct:The

Macintosh.

SteveJobswasnotaleaderusinginside‐outprocesses.AsIexplainedabove,thereisa

realsecrecyatApple,andmorepreciselyaboutinternalR&D.Butconcerningtheinside‐

outprocess,SteveJobswasagreatthinker,andavisionary,hehad(mostofthetime)

the particularity to find ideas at embryonic level and turn them into commercial

successes.Toillustratemywords,IwillpresenttheiPodconceptioncasebelow.

Ichoosethiscasebecausefirstly,theAppleiPodisatoolpresentonitsITCplatformand

secondlybecausearecentcourtcaseagainstApplerevealedtheoriginofthisproduct.

Tobeclear:iPodisnottheoriginalfruitofSteveJobsorAppleteam.

TheoriginalconceptwasactuallybornintheheadofaBritishinventor,KaneKramer.

Thelatterfiled,in1981inthePatentOffice,theiPodconcept(namedIXIatitorigin)and

decided to launch the company itself, which was to produce themusic player of the

future.Butin1988,whenhewasreadytotakeaction,itsadministrationboardrefused

torenewthisexpensivepatent(about60,000Eurosfor120countries).Sotheideaof

KramerfellintothepublicdomainandAppleacquiredit.


So here come from the original concept. It remained to industrialize the concept.

This is on this part that Apple has managed to implement the outside‐in approach.

TheiPodprojectisbornbytheencounterofSteveJobswithTonyFadell,ex‐employeeof

GEandPhillips,whowantedtoinventabetterMP3player.Afterdisappointmentswith

PhillipsandRealnetworks,Fadell receivedsupport fromAppleandsucceeded ineight

weeks to develop an iPod prototype. He was hired in 2001 as Chief of independent

projecttoleadamultidisciplinaryteamof35people.Again,theopeningtotheoutside

for research skills was appropriate. The partners in this team were integrated

companies like IDEO(design),GeneralElectric,ConnectixandWebTV.At thesoftware

level,companiessuchasPortalPlayerandPixowereresponsiblefordevelopingtheGUI

underthedirectionofSteveJobs.Thus,withthisteam,ApplecouldlaunchtheiPodon

themarketinonlysixmonths.

Using thisexample, it is interesting tonote thatoneof theApplekeysuccess factor is

thereforeitsabilitytogetoutsidefromthecompanyideas,technologiesandskillsApple

needandintegratethemintoitsinnovationstrategy.Thisallowstocompanytogoeven

beyonditsstronginternalinnovationcapabilities.

7.5.2.Aneweffectivebusinessmodel

Appledoesnot innovateonlytechnologicallybuthassetuparealbusiness innovative

model.

At the iTunes launching, thepresswas very critical.However, themusic industryhas

had to use it, the Apple digital marketplace is even now perhaps the only bulwark

against illegal music downloading. Apple does not sell music but offers a secure and

pleasanttouseonlineserviceofmusicproviding.

Howtosellsomethingthathasbecomefree?Doingitbetterthanfree.Sameprincipleto

theAppStore,howtofightagainstthegratuitousnessofOpenSource?Revenuesfrom

distributionofthirdpartysoftwarearebecomingmoreimportantassellingthedevices.

Applehasfocuseditsbusinessmodelontheestablishmentofatruemulti‐faceplatform.

Suchaplatformconnectsactorsfromthecontent,telecomsandinformationtechnology

industries: music and movie producers, software developers, game publishers, and



telecomoperators.Apple thusbecomesan intermediary foraccess toamarketdriven

andcontrolledbyitstechnologicalecosystem.

7.5.3.Theparadox:Aclosed&perfectlycontrolledecosystem

In this part Iwant to insist on something really interesting, and proper to the Apple

strategy: Everything is extremely controlled by Apple. Indeed, Apple introduced a

complete systemwith software & hardware platform, and an online distribution tool

thatbelongstoit.

7.5.3.1.Onthedeveloperside

According to Mohssen Toumi from Booz & Company, the firm is very strict and

methodical in the developers and apps selection. Developers’ apps are key products

because the user have varied and specific needs. Indeed, one actor cannot provide

everything.

However,inordertokeepitsStore“clean”,Appledoesnothesitatetomakelawonits

numericalecosystem.Indeed,thefirmcontrolseverythingthatpassesthroughit.

Let’s focus on the Molinker developer case and its 1011 Apps. A user noticed that

severaloftheseprogramshadacommonpoint:acommentarypoorlywrittenbutgiving

fivestars,whichisthemaximumratingonApple'sonlinestore.

Suspecting something, this user sent a letter to the iPhonegraphy blog, which covers

topicsrelatedtophotographyandvideo.TheletterwasthentransferreddirectlytoPhil

Schiller,thevicepresidentofmarketingatApple,oneofthemainleadersofthefirm.

Finally,thedeveloperMolinkerhadadoptedthefollowingtechnique:hedistributedfree

copies of its applications and in exchange users gave to its programs the maximum

scores, even bad writing criticism. When the maneuver was discovered, Apple

immediatelytookactions:the1011applicationswereallremovedfromtheAppStore,

andthedeveloperhasbeenbanned.


ThemessagetotheAppledevelopercommunityisclear:iftheywanttheirapplications

known,theymustdoitbymeanspermitted.ThisexampleshowsthatAppleistheonly

judgeon theAppStore, anddoes thepolice inorder tokeepsecurityandorder in its

numericalstore.

Let’s take the example of theNonDisclosureAgreement (orNDA is a close that each

developerhastosignbeforetheycanaccesstheSDK,whichisinaprivateaccess.This

NDAprohibits toreportanythingor talkabout thenew “Enyo” language: thebasisof

theAppleapplications)ontheSDK,checksrequiredbeforevalidationfortheapplication

tobebroadcastedontheuniqueinstallationarea(theAppStore)givetoApplerightto

lifeanddeathonanyiPhoneapplicationproject.

ThisisoneofthereasonshowingthattheAppStorecannotaccommodateopensource

project, becausediffuse software sourcesviolates theSDKNDA.Andadevelopermay

finditselfpushedbackafterseveraldays/monthsonthedevelopmentofanapplication

andpaidthe$99rightofaccesstotheAppStore.Appledoessoinordertomaintaina

stable,cleanandconsistentecosystem.

Moreover, inordertoavoidallcompetition(everonApple‐madeApps), theCupertino

firmdonothesitatetoeraseexternalAppsthatmakessimilartasksasAppleApps.To

giveapreciseexample,let’staketheEviCase.

EviisanapplicationavailableontheAppStore.DevelopedbyTrueKnowledge,itcould

have a narrow relationship with Siri, the vocal assistant present on the iPhone 4S.

Indeed, itperformssimilar tasks,andcanevenbemoreextensive forsome.However,

Apple through representative Richard Chipman reported that Evi would be removed

fromtheAppStorebecauseitistoosimilartoSiri.AccordingtoChipman,theybreaka

rule in the charter developers, "Applications that are confusing to a product or an

advertisement similar to an existing fromApplewill be rejected".Apple employsApp

administrator to control and test any new developed and proposed App for the App

Store, this permit to offer the best quality Apps by avoiding any incompatible

applications.



Toconcludeonthispart,SteveJobs'companyhasbuiltitsecosystemonatotalcontrol

overthevaluechain,frombeginningtoend:itimaginestheterminals(e.g.theiPhone),

the control platform distribution (e.g. the App Store) and operates on the cloud

computing.Appleprefers a closedandproprietary ecosystemwith auniqueaccess to

contentforusersbasedontheappsdownloadontheAppStore.Wewilldeeplyfocuson

thispartinthesubchapterbelow.

7.5.3.2.Ontheuserside

AllAppleproductscanworktogether,however,whenyoubuyAppleproductandsoits

ecosystem,itisimpossibletogetaccesstocompetitorservices.AsImentionedearlier,

an iPhonedeviceworkswith iTunesand theAppStore, andonlywith those tools.To

giveapreciseexample,theAppStore(comparedwithitscompetitors)onlyworkswith

Appleproducts,userscanconnectontheAppStorewithcompatibleiOSdevices,devices

createdbyApple.

Moreover,whenusersbuymusic/AppsontheAppStore, theseproductsaresavedon

their personal iTunes account and are impossible to transfer on competitors ITC

platforms(e.g.RIMBlackberryorGoogleAndroid).

By controlling and closing barriers on its ecosystem, Apple can easily keep its users,

avoidingthemtotestcompetitionproducts.So,itisdifficultforuserstoseparatefrom

theAppleecosystem.

Tocompletethispart,theApplestrategyisto“trap”usersinitsecosystem.Indeed,by

providingexclusiveAppleproducts, fromtheITCplatformtothenumericalecosystem

workingwith thisplatform,andsince theapparitionof thecloudcomputingandwith

theAppleiCloud,forallusersbuyingproductsonthisecosystem,andstoringtheirdata

on this "cloud", it becomes more and more difficult to move from one ecosystem to

another.“This is the lock‐ineffect”,highlightLouisNaugès,ortheuserdetentionfrom

theinterior.


7.5.4.Abusinessecosystemtargetingtoopenitself

SincethecreationoftheiOS5(OSespeciallypresentintheAppleiPhone4s,lastbornof

the firm), Apple targets to deeply integrate the Twitter services. Thus, application

developers for mobile devices directly from Apple can add features to their social

sharingsolutions.This integrationallowstheCupertinoCompanytoopen itsproducts

totheweb2.0andcatchupitsdelay,giventhelimitedsuccessofpreviousattemptsona

socialnetworkcreation(Pingon iTunes).Moreover, this is the first time thecompany

includesautomaticallyanexternalserviceinsideitsplatform(allbaseservicespresent

intheiPhonewereAppledevelopedapplications.

ButwhychoosingTwitter,ratherthanFacebook,giventhepopularityofthelatter?This

isbecauseasimpledifferenceseparatingbothsocialnetworks.Thus,Facebookistrulya

socialnetwork,andaclosednetwork,justliketheAppleecosystemisclosed.Itfunctions

asa shareddatabase. Instead,Twitter isa freeopendiffusionwitha lowersociability

(followersandfriends).Functioningasamessagingbus(W.Vambenepe),itconnectsthe

"closed garden" Apple outward, instead of redirecting it to another "closed garden",

differencesthatmayhavecountedforAppleinthechoiceofthefirm.

7.6.EMPIRICALSTUDYCONCLUSION

More recently, several studies have attempted to take stock of the open innovation

phenomenon and appreciate the future lines of development (Gassman et al, 2010;

Giannopoulouetal,2010).ICTplatformsareanimportantelementcitedinmyresearch

and investigations in this area should provide a better understanding of the open

innovation practices. Beyond that, the "platformization" (Evans et al, 2006) of the

innovationprocessisnotneutralasoutlinedEvans&Schmalensee(2007).Theraceto

openinnovationis increasingthroughplatformsandit isthroughtheseplatformsthat

companies will compete to ensure their adherence to their business ecosystem and

maintain leadership.Workon theplatforms indicates thatnetworkeffects can lead to

the supremacy of one platform to another (Evans et al, 2006 speak of "platform



Imperialism").Inthiscontext,aplatformcouldeasilydrainandtakeonboardinfluential

playerswiththeriskoffallingintoaformof“NotInventedHere”syndrome.Membersof

this "club" would innovate together what would not be without problems for

ecosystemscompetitors.

Thebusinessecosystemstudyopensupavenuesofinvestigationthatseemveryfertile

becausetheymaketheconnectionwithmanyworksandtheoriesasplatformstrategies

and open innovation. But the main difficulty at this level is the wide variety of

observable configurations: there are indeed different platforms strategies and several

possible variations into collective innovation logics (outside‐in, inside out, the

combinationofboth).

Nevertheless, inorderto linkmytheoreticalresearchestomyempiricalstudy, Imade

this figure, adapted from the synthetic scheme implemented in my conceptual

framework (i.e. figure6.6).This figure7.3 shows thedifferent linksprovided through

theempiricalstudyoftheAppleCompany.Hereit ispossibletounderstandhowopen

innovation,ITCplatformandorganizationalstrategyofApplearelinkedtoitsbusiness

ecosystem.

As Imentioned above, Applemade the conscious choice to create value and innovate

withexternalAppdevelopersthankstotheSDK.Thisopeninnovationprocessislinked

to theApple ITCplatform. Indeed,without this platform, users cannot access toApps

developedbyApplepartners through theAppStore, and therearenopossibilities for

Appleanditsthirdpartiestocreatevalue.SotheITCplatformisthecentraltechnology

permittingtheCupertinoCompanytolinkitsorganizationalinnovativestrategytoopen

innovationprocessesthroughitsecosystem.


Figure7.3.ITCplatformattheheartoftheAppleopeninnovativeorganizationalstrategy



CHAPTER8. CONCLUSION&RECOMMANDATIONS

8.1.GENERALSUMMARYOFTHESTUDY

Themain objective of this researchwas to address the open innovationmanagement

withinthebusinessecosystem,andthat,byadoptingadifferentangleofapproachfrom

theoneadoptedbytraditionalmethods.Throughoutthisstudy,Ihaveactuallyadopted

an approach to combine various searches, including those of Moore, Iansiti & Levien

Peltoniemi in thebusiness ecosystem concepts, and thoseof Chesbrough,Rabeau and

Leadbeater in the open innovation framework, which have been indispensable to

provide various answers tomy research question: “Towhat extent does the business

ecosystem can be effective in a leadership strategy of innovation open for innovative

firms?”

Todothis,Iproposedaconceptualframeworkrespectingtheseinterestsofintegration

and thecharacterbothcomplexandsystemicassociatedwith theorganizationand its

businessecosystem.Usingacasestudy,Ihavebeenabletoverifytherelevanceofsucha

framework(inthiscasethecompanyAppleInc.).Suchachoiceisexplainedbythefact

that the company gave an iconic vision of the business ecosystem concept, and this,

throughthecompetitivedynamicscharacterizingitstechnologicalenvironment.

It is important however to precise that the choice of a case study methodology is

explained by the flexibility of this kind of approach. A quantitative studywould have

limitedmyanalyticalframework,andIwouldnothavebeenabletoadequatelyrespond

to the various research questions. These are too static methods for such analysis.

ItseemedevenmoreevidentinmydescriptionoftheApplebusinessecosystem,which

featurednotonlyarealdiversityintheplayers(musicindustry,movieindustry,video

game industry, mobile application developers, users, etc..), but mostly illustrate


competitive dynamics , which intensity contributed greatly to shaping the open

innovationpracticesmaintainedbytheCupertinoGiant.

I studied the evolution of the business ecosystem of Apple here based on three sub‐

chapters,whichIsummarizeasfollows:

•Sub‐Chapter1:TheBusinessofAppleecosystem(7.3)

Aswe have seen during the first part, the Apple business ecosystem is in interaction

with many different external industries capable of creating and providing mobile

applications for the App Store since Apple freely offers a Software Development Kit.

However, by exercising a total control ofwhat can (or cannot) be on itsmarketplace,

Appleshowsacertainclosureonitsecosystem.

CoevolutionseenintheAppleorganizationalstrategybetweenthefirmandapplication

developers, is on the fact that Apple rent (with a license) a store for developers that

permitcommunicateandreceiveremuneration(againstacommissiontakenbyApple).

Moreover the Cupertino Company finances developers in order to encourage them

continuing creating and innovating on the application development. AsMoore (1993)

said,acoevolutionprocessstrengthensinnovationeffortsoffirmsinthesamebusiness

ecosystem.Furthermore,toillustratethiscoevolutionprocessandbyquotingIansiti&

Levien (2004)Apple anddevelopershave a “SharedFate” tobe successful, theymust

cooperate to attract more customers and so make their businesses and business

ecosystemgrowing.

TheAppStoresuccessdependsonthewidevarietyofapplicationsold,themorethere

willbeappsencounteringusers’needs,themoretherewillhavedownloads.Moreover,

byfinelyselectingapplicationsdevelopedfortheAppStore,Appleproposesonthestore

onlyfunctionalandgoodqualityproducts.

•Sub‐Chapter2:TheAppleplatform:Atoolforco‐evolution(7.4)

Regarding the second part of my case study on the Apple platform, I provided an

overview of interdependencies established by Apple with its partners within the

businessecosystem,whichhelpedtoconsolidateitsinnovationefforts(Moore,2003),or



choose the co‐evolution with its ecosystem partners. In addition to its internal R&D

operations,Appleincreasedtheshareofspendingoutsourcedinthisareabyleveraging

the contributions of severalmembers of the value chain. The presence of the iPhone

platformhasalsohelpedtoincreasethevaluegeneratedwithinthebusinessecosystem,

and by encouraging the contribution of various actors. This seems to corroborate the

idea thatelectronicplatformsareanessential structure for thesharingofvaluebyall

memberswithinthebusinessecosystem(IansitiandLevien,2004,p.114).

Secondly, Gawer & Cusumano (2002, pp.28‐35) explained that being leader of an

electronicplatformexertconsiderableinfluenceontheinnovationtrajectoryandonthe

formed network of customers producing and using “complements”. Apple has a

considerableinfluenceonitsecosystemanditsplatform.Indeed,byselectingdeveloped

apps, Apple offers only high‐quality features on its numerical ecosystem. This fact

permit the App Store to have a lot of downloads everyday. This point constitutes an

important income source forApple. By paraphrasing Iansiti& Levien (2004, p.114), I

can assert that mobile apps developers on the Apple App Store ecosystem are

“Keystones”becausetheyhavearemarkablepowerthroughtheAppleITCplatformand

alsothebusinessecosystem:WithoutexternalApps,Apple,theLeaderofitsecosystem

wouldneverbeensosuccessful.

•Sub‐Chapter3:Openinnovationinaclosedecosystem:TheParadox(7.5)

Examination of the third party has revealed that open innovation requires an

infrastructure ‐ dedicated or not ‐ able to handle the different partners contributions

(materialor immaterial) inside,but alsooutside thebordersof the company.The ICT

platform is essentially an intermediary device that connects, to bring together, to

exchange and share. As such, its role is fundamental in the development of open

innovation. The fact that the open innovation phenomenon has emerged in a period

characterized by a strong interest in collaborations of all kinds and the Internet

(Huizingh,2010;pp.2‐9)isnotneutral.DevelopmentoftechnologiesfromtheInternet

and especially ICT platforms greatly facilitated the development of practices and the

openingoftheinnovationprocessofcompanies.Therearethereforealotofreasonsto

believe that with the development of ICT, other practices and new forms of open

innovationwillemerge.


8.2.RESEARCHCONTRIBUTIONS

The most important contribution of this research is the design of an analytical

framework that enabled to decipher, at least in part, the complexity associated with

managingtheopeninnovationoperationofafirmwithinabroad,diffuseandcomplex

environmentthatisthebusinessecosystem.

Sucharesulthasitsoriginfrompersonalreflectionsdevelopedusingnumerousbooks,

articles, essays, and of course personal perspectives. It was thus easier, from this

synthesisofideas,puttingtogetherafreespiritandmyownjudgment.

Inaddition,mystudy ispartofaperspective targeting towatchasclearlyaspossible

innovation operations, by observing them at Apple, a company operating in the ICT

sector.However,thisstudycouldbearelevantbasisforfurtherresearchbyobservinga

largernumberofcases,andcomparingApplewithsomeofitsmaincompetitors.

Finally, I consider that my synthesis diagram could be presented as an original

observation model, which would be able to guide business leaders toward a better

understanding of the inherent key dimensions in business ecosystems of their

businesses.

8.3.RESEARCHLIMITATIONS

The methodological approach I have advocated obviously has some weaknesses.

Mention first, as the first limit, the transparency and credibility degree of the

informationcontainedinthedocumentsandarticlesthatIhaveexamined.Asthestudy

wasmainlybasedonqualitativedata,generalizableonlyinspecificcontexts,itappears

thatmystudycouldbeflawedbysomeinherentsubjectivity.Toaddressthesecriticisms

andtomakesureofthevalidityofthisstudy,however,Iappliedascarefullyaspossible

thepreceptssetoutbelow.



First, information has been sparingly selected, so that the data have a link with the

conceptual frameworkandwithmy researchquestion.The analysishas thereforenot

divertedtoissuesofsecondaryresearchquestionsduetoanyexcessinformationfroma

wealthofsecondarydata,whichallowedmetoavoidsuffocationduetoahighnumber

ofdata.

Second,dataanalysiswasperformedwithaconcernfortriangulationofinformation.To

dothis,datawerecollectedfrommultiplesources(officialdocumentsofthecompany,

press releases, case studies, video conferencing, etc.) known for their seriousness and

credibility (Official Website Apple, Apple Press Info, Steve Jobs Keynotes, etc.)

Thesecondlimitationofmystudyconcernsthemethodofcontentanalysis.Thismethod

limited me because the Apple Company has a very important cult of secrecy. This

informationgaphassomewhataffectedthequalityofmyanalysis,while forcingmeto

work twice as hard to provide for a clear analysis and particularly rigorous. Some

informationwas also difficult to access,whichwould have been useful for this study.

While enriching, my attempt to create a conceptual framework integrating several

dimensionshavenumberofdangers,thegreatestriskisalackofdepthintheconcepts

discussed.Moreover,realizingatthesametimeaMasterDegreeinManagementatthe

ESCBretagneBrest,aswellbeinganapprenticeinaFrenchcompany,timemanagement

forthisstudy,myMasterexamsandmyapprenticeworkhavebeencomplex.

8.4.FUTURERESEARCHOPPORTUNITIES

I must finally admit that the limitations of this study are all interesting avenues of

research. Indeed, it could be interesting (for example) to use in conjunctionwith the

case study, aquantitativemethodology thatwould confirmsome ideas.Moreover, the

complexity associated with my research always opens the door to many questions

raising various reflectionsof all industryplayers from the Smartphone industry.Here

arealsoafew:Isthereathresholdbeyondwhichtechnologycompaniescannolonger

opt for an open innovation approachwithin their ecosystems? Shouldwe seek other


analysismeanstoelucidateasbestaspossiblethefuturedevelopmentsthatmayaffect

thesmartphoneindustry?

In conclusion, although some limitations remain, we must admit that this research

project was conducted on the basis of deep reflection to bring some actuality and

originality (a fewresearcheshasexaminedthe integrationof the twoconcepts).Many

precautionswerealsotakentomakethisstudythemostrigorousever(triangulationof

data,verificationoftheauthenticityofdata,etc.).Withsuchavision,itwaspossiblefor

me to enrich the research on the management issue of open innovation within the

businessecosystemofafirm.



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Open Innovation in Business Ecosystem - DiVA portal542359/FULLTEXT02.pdfOpen Innovation in Business Ecosystem Sylvain Milon | LINNAEUS University Master’s Thesis, Spring 2012 1 Open