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Managing Inbound Open Innovation Strategies in Context of the Business Model

Theoretical and empirical Considerations

Bachelor Thesis 2017 63 Pages

Business economics - Business Management, Corporate Governance

Excerpt

TABLE OF CONTENTS

LISTOF FIGURES / LIST OF TABLES Ill

LIST OF ABBREVIATIONS IV

1. INTRODUCTION
1.1. OBJECTIVES

2. METHODOLOGY

3. DEFINITIONS AND THEORETICAL BACKGROUND
3.1. INNOVATION
3.1.1. THE BASIC CONCEPT OF INNOVATION
3.1.2. TYPES OF INNOVATIONS AND THEIR ECONOMIC RELEVANCE
3.1.3. THE OPEN INNOVATION PARADIGM
3.1.4. ILLUSTRATION OF CORE OPEN INNOVATION ACTIVITIES
3.2. THE BUSINESS MODEL
3.2.1. LATEST BUSINESS MODEL CONCEPTS
3.2.2. AN ORGANIZATIONAL BUSINESS MODEL CONCEPT
3.3. THE CONTINGENCY FRAMEWORK
3.3.1. MARKET-BASED INNOVATION STRATEGY
3.3.2. CROWD-BASED INNOVATION STRATEGY
3.3.3. COLLABORATIVE INNOVATION STRATEGY
3.3.4. NETWORK-BASED INNOVATION STRATEGY

4. THEORETICAL EXAMINATION AND ANALYSIS OF THE FRAMEWORK
4.1. THE ADOPTION OF OPEN INNOVATION - RECENT INSIGHTS
4.2. ANALYSIS OF THE CONTINGENCY FRAMEWORK
4.2.1. EXAMINATION OF OPEN INNOVATION STRATEGIES
4.2.2. EXAMINATION OF SUCCESSFUL OPEN BUSINESS MODELS

5. EMPIRICAL APPLICATION OF THE CONTINGENCY FRAMEWORK
5.1. THE INTERVIEWGUIDE
5.2. CASE STUDY OF NOVO NORDISK

6. DISCUSSION

7. CONCLUSION

REFERENCES

APPENDICES
ZUSAMMENFASSUNG (GERMAN VERSION OF THE ABSTRACT)
INTERVIEW GUIDE - QUESTIONNAIRE
INTERVIEW - NOVO NORDISK

ABSTRACT

In accordance with today's fierce competition between firms in being innovative, firms face new challenges in transforming knowledge into innovations to gain competitive advantage. In the light of the trend towards open innovation, executives and entrepreneurs must reconsider their firms' inbound innovation strategies to not to lose competitiveness. Additionally, they must align their business models accordingly to enable and to support open innovation activities. However, while the trend towards open innovation is evident, theoretical approaches on how different business models demand different open innovation strategies still provoke a lot of controversy in current business and academic literature. Based on latest research this thesis will introduce a novel type of contingency framework that matches inbound open innovation strategies with equivalent open business model designs. A theoretical analysis and an empirical application of a case study of Novo Nordisk will provide an answer to how inbound open innovation strategies and business models can be aligned accordingly with the help of a contingency framework. Additionally, a German more comprehensive version of the abstract is given in the appendices.

Keywords: Open innovation, business model, inbound innovation strategies, contingency framework

ACKNOWLEDGEMENTS

To begin with, I have to thank my research supervisor, Assoc. Prof. Dr. Timo Friedel Mitze, for his assistance and dedicated involvement throughout the process. I would like to thank you very much for your willingness and support. Furthermore, I am aware of that collecting empirical information about the innovation strategies of firms cannot be taken for granted. Hence, I would like to show gratitude to all involved participants of Novo Nordisk for the support and the confidence you placed in me.

LIST OF FIGURES / LIST OF TABLES

FIG. 1 THE SIMPLISTIC LINEAR MODEL OF THE INNOVATION PROCESS (SWANN, 2009, p. 23)

FIG. 2 EFFECTS OF PRODUCT AND PROCESS INNOVATIONS (SWANN, 2009, p. 53)

FIG. 3 TERRITORY MAPS BEFORE AND AFTER INNOVATIONS (SWANN, 2009, p. 54)

FIG. 4 ISO 9001:2015 PDCA CYCLE OF THE QUALITY MANAGEMENT SYSTEM (ISO, 2015)

FIG. 5 CIP MODEL (CHESBROUGH, 2003B, p. 36)

FIG. 6 OIP MODEL (CHESBROUGH, 2003B, p. 37)

FIG. 7 THREE CORE PROCESSES OF Ol (GASSMANN & ENKEL, 2004, P.6)

FIG. 8 GRAPHICAL ILLUSTRATION OF THE BM CONCEPT BASED ON THE CONSIDERATIONS OF ZOTT AND AMIT (2010, PP. 220, 222)

FIG. 9 ADOPTION OF Ol ACROSS DIFFERENT INDUSTRIES (CHESBROUGH & BRUNSWICKER, 2013, p. 6)

FIG. 10 SHARE OF PROJECTS WITH INBOUND AND OUTBOUND COMPONENT IN 2011 (IN %) (CHESBROUGH & BRUNSWICKER, 2013, p. 11)

FIG. 11 INBOUND PRACTICES - IMPORTANCE IN 2011 AND CHANGE OF IMPORTANCE 2008 TO 2011 (CHESBROUGH & BRUNSWICKER, 2013, p. 13)

FIG. 12 IMPORTANCE OF Ol PARTNERS (CHESBROUGH & BRUNSWICKER, 2013, p. 15)

FIG. 13 IMPORTANCE OF STRATEGIC Ol OBJECTIVES (CHESBROUGH & BRUNSWICKER, 2013, p. 15)

FIG. 14 FINANCIAL AUTONOMY LEVEL OF INDIVIDUAL ORGANIZATIONAL UNITS (CHESBROUGH & BRUNSWICKER, 2013, p. 20)

FIG. 15 ADOPTION OF FORMALAND INFORMAL PRACTICES FOR MANAGING Ol (CHESBROUGH & BRUNSWICKER, 2013, p. 25)

FIG. 16 PRACTICES FOR MANAGING Ol AND INTENSITY (CHESBROUGH & BRUNSWICKER, 2013, p. 26)

FIG. 17 CHALLENGES OF ENGAGING IN Ol (CHESBROUGH & BRUNSWICKER, 2013, p. 25)

FIG. 18 ECONOMIC PRESSURES ON INNOVATION (CHESBROUGH, 2007A, p. 24)

FIG. 19 CLOSED BM vs. OBM (CHESBROUGH, 2007A, p. 27)

FIG. 20 TYPOLOGY OF INBOUND OIS (SAEBI & FOSS, 2015, p. 205)

TABLE 1 DESIGN / TRANSACTION PARAMETERS OF THE BM CONCEPT (ZOTT & AMIT, 2010, pp. 219-222)..

TABLE 2 CF FOR INBOUND OIS AND THEIR EQUIVALENT OBM (SAEBI & FOSS, 2015, p. 211)

LIST OF ABBREVIATIONS

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1. INTRODUCTION

Looking at firms of every and most diverse size and business model all over the globe, they all end up in a fierce competition. To increase market shares and shareholder value companies aims to be more productive and efficient than its competitors. Doing so, some firms seem to compete better than other firms. Furthermore, to their astonishment among the competitors it sometimes happens that a novel, small and possibly underestimated firm suddenly competes them all. It just recently happened that Tesla's stock price while selling 4000 cars surpassed Ford's while selling 234000 cars in the same period (Vlasic & Boudette, 2017, April 3). What is the secret levering factor behind Tesla's enormous success over Ford?

A crucial factor is innovation. The competition between firms leads to an increasing pressure which forces them to discover new ways and methods to increase their outcome (Chesbrough, 2007, p. 24). By exploiting new knowledge and developing innovations to produce, buy or sell goods more efficient firms are able to gain competitive advantages over other firms (Swann, 2009, pp. 38-66). Due to progressively increasing development costs and shrinking revenues caused by more complex customer needs, shorter product lifecycles and rising innovation costs the pressure even increases (Chesbrough, 2007, p. 24). As necessity is the mother of invention, some decades ago due to this economic pressure a few high-tech firms such as IBM started to experiment on unconventional ways to develop innovations. While searching for external problem solutions, these companies began to open their innovation processes and to integrate external knowledge sources such as the user (von Hippel, 2005, pp. 64-67). Finally, they increased their innovation performance and achieved higher revenues. Since Chesbrough in 2003 heralded this young phenomenon of open innovation (Ol) it has progressively attracted a lot of attention and shifted it to a new innovation paradigm.

However, while being highly discussed there is still no entirely consistent terminology within academic literature and even less precise applicable knowledge for companies within business literature. Indeed, companies have recognized the advantages of external knowledge sourcing and started to adopt Ol activities. Nevertheless, latest research indicates that the returns of Ol activities decrease at the margin caused by organizational challenges such as limited absorptive capacities (Laursen & Salter, 2006, pp. 143146; Leiponen & Helfat, 2010, pp. 232-234). Too much openness or the wrong management of inbound Ol activities can have negative impacts. Important for managers and entrepreneurs, to leverage their companies to higher innovation performances and to master these challenges, they must know how to reorganize their companies and how to align the business models (BM) accordingly to accommodate the pursued inbound open innovation strategies (OIS) successfully and beneficially. Hence, a comprehensive contingency framework (CF) could be advantageous for strategical decision-making processes.

1.1. OBJECTIVES

A lot of recent studies indicate that in order to gain advantages of 01 a various amount of strategies can be chosen. Some literature suggests different inbound OIS while other literature suggests different BM designs (Linder, Jarvenpaa & Davenport, 2003, p. 46-48; Salge, Bohne, Farchi & Piening, 2012, pp. 14-19; Hienerth, Keinz & Letti, 2011, pp. 358-363; Frow, Nenonen, Payne, Storbacka, 2015, pp. 59-62). However, as this scientific field is very young and controversial there is only little research that explicitly links Ol to the BM or rather an equivalent supportive open business model (OBM) (Saebi & Foss, 2015, p. 205). Hence, this leads to the question:

- How can different inbound OIS be aligned with equivalent supportive BM designs?

Motivated by this question, this thesis examines the proposed hypothesis:

- The CF that is examined in this work is an advantageous and adequate tool to consider the management of inbound OIS in context of the BM.

To finally verify the hypothesis, this thesis is structured by the following framing questions that are going to be covered with the relevant chapters:

1. Firstly, what are inbound Ol activities?
2. Secondly, what is a BM?
3. Thirdly, what is a CF?
4. Fourthly, why is it advantageous in contrast to randomly adopted Ol activities?
5. Fifthly, how far is the CF adequate and consistent with current research?
6. Finally, how can the CF be applied to empirical data?

2. METHODOLOGY

This thesis aims to examine a CF for matching different inbound OIS with equivalent supportive BM designs. To begin with, it is therefore necessary to get an overview over the interdisciplinary field of Ol and the still not unified terminology of the BM. Hence, the third chapter starts with a brief illustration of the terminology and the basic concept of innovation. By means of the three brief examples of product, process and organizational innovation, some microeconomic effects will point out the economic relevance of innovation. Subsequently, the open innovation paradigm (OIP) will be introduced and theoretically differentiated from the closed innovation paradigm (CIP). Furthermore, the OIP will be defined more precisely into three archetypical core processes of outside-in, inside-out and coupled processes to distinguish inbound from outbound activities. This first part of the theoretical background is inter alia covered within the books The economics of innovation (Swann, 2009, pp. pp. 23-66), Open Innovation: The new Imperative for Creating and Profiting from Technology (Chesbrough, 2003a, pp. 21-24) and within the considerations of Gassmann and Enkel (2004, pp. 5-13). Finally, this part serves to answer the first framing question.

Subsequently, the second part of the third chapter illustrates the concept of the BM. Due to an abundance of relevant academic literature on the one hand but a lack of consistent terminology on the other hand three different relevant current concepts will be considered. In accordance with the former considerations, the concepts of Chesbrough and Gassmann (Frankenberger, respectively) will briefly be illustrated. Regarding the currency and a rather more comprehensive perspective on the BM, a third concept developed by Foss and Amit will be introduced. Because of the deviation of their concept, a brief critical comparison will point out their argument for developing the BM from an organizational perspective considering three transactional designs (i. e. content, structure and governance). This concept will serve as basis for the subsequent examination of the CF. The second part of the third chapter is covered in the book Open business models (Chesbrough, 2006, pp. 107-108) and the articles of Frankenberger, Weiblen, Csik and Gassmann (2013, pp. 251-252) and Zott and Amit (2010, pp. 220, 222). Finally, this part serves to answer the second framing question.

Finally, at the end of the third chapter the CF by Saebi and Foss will be introduced. Based on a comprehensive literature review, they developed a CF in order to match four different inbound OIS with the BM transactions of content, structure and governance. While considering four strategies (i. e. market- based strategy, crowd-based strategy, collaborative strategy and network-based strategy) in terms of the former considered BM transactions it suggests four different OBM designs. The CF is covered in the article of Saebi and Foss (2015, p. 211). Finally, this part serves to answer the third framing question.

After having covered the theoretical background the CF shall be examined in terms of its justification or rather legitimation. Because the whole multidisciplinary field of Ol activities and strategies as well as its measurement is still emerging (Bahemia & Squire, 2010, pp. 607-608; Dahlander & Gann, 2010, p. 707) and the possibility to get access to firms' sensitive data concerning their innovation strategies (IS) is rather difficult this thesis will rely on recent considerations based on other researchers and literature. To begin with, the findings of a current study conducted by Chesbrough and Brunswicker (2013) concerning the adoption of Ol activities provide vital information. Additionally, some other research will underline why using a CF is justified and moreover advantageous for managing inbound OIS. Finally, this part serves to answer the fourth framing question.

The subsequent part will theoretically analyze the CF. Due to the novelty of this multidisciplinary field there is no guideline how to analyze this recently CF or what it should comprise. Flence, following method to consider its premises has been selected. To begin with, the adequacy of the four contained strategies will be examined. Flowever, while literature suggest many different strategies this thesis cannot cover all. Thus, based on literature and recent findings a way of aggregating several 01 activities in terms of their number of different actors and their intensity with external actors has been chosen to conclude the adequacy. Subsequently, the adequacy of the suggested OBM designs will be analyzed. Flere again, recent literature suggests various OBM concepts that cannot be considered all. Therefore, an analysis of the characteristics of successful OBM that pursue certain OIS has been chosen and categorized in context, structure and governance to conclude the adequacy. Finally, this part serves to answer the fifth framing question.

To empirically examine how firms can adopt inbound OIS in context of their BM the usability of the CF will be analyzed by using a case study of the pharmaceutical company Novo Nordisk. The data to this case study is based on a qualitative empirical research from a self-conducted unstructured, open and exploratory expert interview. It appeared to be the most proper method to analyze how companies acknowledge 01 and how they adopt it. The interview guide is more closely explained in chapter five and illustrated in the appendices. Because of the difficulties regarding the high sensibility and a limited access to relevant data of firms' IS, other sources (i. e. annual report and secondary literature) have been added to the case study. Flence, a combination of the empirical data with data of recent research on the BM of Novo Nordisk by Rasmussen and Foss (2015, pp. 240-265) shall increase the accuracy and objectivity. Flowever, as the sample contains only one observation this survey does not claim to be representative at all. The reason for this survey is in first instance to deliver empirical real-world data about the inbound 01 processes to create a case study for subsequently applying the CF. In sum, this part serves to answer the last framing question.

Finally, a discussion will consider the findings of the former chapters and point out some legitimating, critical and missing aspects of the CF in terms of strengths and weaknesses. As this young interdisciplinary field is widely-discussed the limitations of this thesis will provide an interesting outlook and suggest further research topics. Subsequently, the conclusion will briefly summarize the core findings while answering the abovementioned research question and either verify or falsify the proposed hypothesis.

3. DEFINITIONS AND THEORETICAL BACKGROUND

This chapter aims to introduce the theoretical background and to answer the first three framing questions while illuminating the topics of 01, the BM concept and the CF.

3.1. INNOVATION

As the term innovation has become extremely fashionable today it is often used interchangeably to describe a technological improvement or rather an invention. It is therefore necessary to clarify the basic terminology before introducing the scientific field of 01. Initially, a short introduction will illustrate the basic idea of innovation in terms of the linear model which is described by Peter Swann (2009, p. 23). However, the linear model shall only give a first introducing idea with this very basic concept of innovation to distinguish an invention from an innovation. Additionally, while covering the OIP it gets apparent that innovation processes are not necessarily linear.

3.1.1. THE BASIC CONCEPT OF INNOVATION

Abbildung in dieser Leseprobe nicht enthalten

Fig. 1 The simplistic linear model of the innovation process (Swann, 2009, p. 23).

The graphical illustration in Fig. 1 is called the simplistic linear model and characterized by the linear relationships between the certain stages. It serves as an initial simple illustration to understand the innovation process. The first stage called research & creativity aims to create an invention which is illustrated in stage two. A developed invention at stage two means only a novel idea of something (i. e. products, processes etc.). It is not an innovation jet. Forthat, subsequently the invention must be designed and developed in the third stage. Designing and developing the invention transforms it into an economically exploitable innovation in stage four (Swann, 2009, p. 23). Due to this theoretical consideration, not all inventions transform consequently to an innovation. The criterion that distinguishes an invention between an innovation is the designed and developed commercial or economical exploitation of the invention (i. e. products on the market, firms' production processes, or a new BM) (Swann, 2009, p. 23). This illustrated concept is based on the initial considerations of the Austrian economist Joseph Schumpeter. As he is one among the most popular economists and considered to be the founding father of innovation he determined that an innovation is something novel invented with economically exploitable asset. He furthermore stated that innovation can occur in various forms (e. g. new markets, better or new products, new methods to distribute or produce and whole new forms of business organization) (Swann, 2009, p. 27). This is thusly acknowledged by the Oslo Manual which is an OECD[1] published official document regarding innovation. It distinguishes between four different innovation types: product innovations, process innovations, organizational innovations and marketing innovations (Organisation for Economic Co-operation and Development & Statistical Office of the European Communities [OECD & Eurostat], 2005, pp. 16-17).

3.1.2. TYPES OF INNOVATIONS AND THEIR ECONOMIC RELEVANCE

To understand the economic relevance of innovations the combined graphical illustrations covering product and process innovations in Fig. 2 and Fig. 3 theoretically depict the effects from an economic perspective. In addition to that, due to the focus of this thesis on Ol and BM, the product and process innovations will only be covered briefly and followed by a subsequent example of effects due to organizational innovation illustrated in Fig. 4.

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Fig. 2 Effects of product and process Innovations (Swann, 2009, p. 53).

The theoretically illustrated effects of both product and process innovation are based on the characteristics approach (i. e. treating a product as an aggregate of characteristics) (Swann, 2009, p. 48).

Conveniently, to keep the theoretical consideration simple the characteristics of certain products (A, B,

Bl, B2 and c) have been reduced to quality and price (Fig. 2) and it is assumed that people prefer better qualities at equal prices (Swann, 2009, p. 50). Moreover, for simplicity reason a linear willingness to-pay (WTP) curve[2] is added. It indicates the turning point where the consumers are considered to be indifferent if they chose product A, ? (Bl, B2) or c. The graphic called product territory map in Fig. 3 analogously illustrates the effects of innovations on the market shares of the products A, ? (Bl, B2) and c on a progressive WTP curve (Swann, 2009, p. 54).

The transformation from ? to BÍ in Fig. 2 illustrates a product innovation. According to the Oslo Manual[3] and other literature, a product innovation is defined as a new or an improved product or service regarding its intended use (OECD & Eurostat, 2005, p. 48) without any change in the production process (Swann, 2009, p. 48). The effect that takes place at the transformation from point ? to point BÍ is an increase in quality caused by an innovation (Fig. 2). Consequently, this transformation increases the WTP for the novel product BÍ followed by an increase in the market share. With regards to price and quality consumers now prefer product BÍ instead of for example product c due to their WTP (Fig. 3). Considering this theoretical scenario in a realworld case, the firm which is innovating product ? to BÍ can thus increase the market shares and benefit from higher profits.

In contrast to the former product innovation the other transformation from B to B2 in Fig. 2 illustrates a process innovation. In accordance with the literature, a process innovation is defined as an improved or new method in terms of how a product is produced (OECD & Eurostat, 2005, p. 49) without any change at the product itself (i. e. every product characteristics except the price) (Swann, 2009, p. 38). Flowever, there are several effects caused by process innovations. For simplicity reason, only one effect can be considered. Considering a real-world case where a firm increases its productivity and efficiency due to a new automated production line that transforms commodities into products. This will have two consequences. Either the company produces the same number of products at lower unit costs or it produces more products at the same unit costs. In both situations economies of scale are increased while average costs are reduced (Swann, 2009, pp. 38 - 40). The transformation from ? to in B2 Fig. 2 represents exactly that effect. In accordance with the WTP regarding price and quality the consumers who preferred for example product A before do now prefer B2 instead (Fig. 3).

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:Fig. 3 Territory maps before and after innovations Swann, 2009, p. 54).

As OI can be considered as a form of organizational innovation (Christensen, 2006, p.35) the basic concept of organizational innovation and their economic effects will briefly be illustrated in the following. Due to a shortage of space, the marketing innovation concept will not be covered. In accordance with the Oslo Manual, an organizational innovation is defined as the implementation of a new organizational method in a company's business practice, workplace relation or external relations (OECD & Eurostat, 2005, p. 51). It is important to distinguish organizational innovation from product and process innovations. Even if it might seem clear to distinguish product innovations between organizational innovations it gets difficult considering products as services. Distinguishing process innovation between organizational innovation is not that clear either. Following the guidelines that are stated in the Oslo Manual it is a matter of product innovation if the innovation involves new or improved characteristics of a service offered to a customer (OECD & Eurostat, 2005, p. 55). If the innovation involves a new or improved method used to perform a service it is a process innovation (OECD & Eurostat, 2005, p. 55).

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Fig. 4 ISO 9001:2015 PDCA cycle of the quality management system (ISO, 2015).

A good example for organizational innovation in terms of a new method of business practice, workplace relation or external relations is the quality management system norm ISO[4]9001:2015. The ISO 9001:2015 is an international protocol describing a standardized system of activities to structure, ensure and further increase the organizational quality (International Organization for standardization [ISO], 2015). Following the system of the Plan-Do-Check-Act cycle (Fig. 4) can increase firm's efficiency, profits as well as customer satisfaction and employee satisfaction (ISO, 2015). Thus, adopting this cycle results in new business practices to achieve certain objectives more efficiently while preventing negative effects (ISO, 2015). Organizational innovation can have different forms and purposes. One purpose is to create innovations even faster, more effective and more efficient by innovating the firm's BM as such (Chesbrough, 2007, pp. 16-17). A recent developed BM innovation framework is the 41-framework[[2].

By innovating the BM in terms of administrating external knowledge systematically it improves the organizational innovation creation processes (Frankenberger, Weiblen, Csik, & Gassmann, 2013, pp. 265-266). Particularly, the novel term and topic of BM innovation or rather OBM innovation provokes a lot of controversy in current business and academic literature (Foss & Saebi, 2015, p. 1). This is where the OIP comes into play which will be covered in the following.

Aware of other characteristics of innovations such as the diffusion[5]effect or the grade of change (in terms of incremental[6][7]as well as radical[5] innovations), they cannot be covered anyway due to the focus of this thesis. Hence, the next part will cover the two innovation paradigms.

3.1.3. THE OPEN INNOVATION PARADIGM

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Fig. 5 CIP model (Chesbrough, 2003b, p. 36).

New ideas emerge and knowledge is being created randomly all the time and almost everywhere in various not consequently business institutions or organizations. Hence, two major theoretical perspectives have emerged concerning the sources and the traffic of knowledge and its transformation into innovations.

The traditional Schumpeterian perspective illustrates the source of innovation as the creation of knowledge and the creation of innovations from exclusively within the same firm due to funded internal research and development (R&D) processes (Fig. 5). This approach is rather analogous to the simplistic linear model in Fig. 1. That traditional Schumpeterian concept is examined by the American economist Henry Chesbrough. He describes it as the CPI which is stated to be an exclusively inward orientated landscape of ideas and knowledge in terms of funding and organizing innovation activities inside the firm's R&D laboratories (Chesbrough, 2003a, pp.

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Fig. 6 OIP model (Chesbrough, 2003b, p. 37). 21-24).

Due research by Eric von Hippel and others, the logic of the traditional CIP has continuously been reconsidered. Traditionally, the locus of an invention was assumed to be the locus of the innovation. Back in the late 1980's after twelve years of research regarding innovations, he found that the innovation sources for product innovations vary significantly and against common assumptions they were not exclusively developed by the manufacturers due to internal R&D (Von Hippel, 1988, p. 3). With his studies, he pointed out that in certain scopes suppliers had developed the greater part of innovations, while in other scopes users innovated more. Taking new implications into account, he examined innovation processes as an interconnection between manufacturers, users, suppliers as well as others and named his new findings functional sources of innovation (Von Hippel, 1988, p. 3). Thus, the way continuously opened for the concept of the OIP. This concept was initially described by Chesbrough who defined 01 as "[...] the purposive use of inflows and outflows of knowledge to accelerate innovation in one's own market, and expand the use of internal knowledge in external markets, respectively." (Chesbrough, Vanhaverbeke & West, 2006, p. 1). Due to Chesbrough, there are four erosion factors compelling companies with the upcoming trend of the OIP (Chesbrough, 2003b, p. 36). The mobility and the availability of skilled workers increase which makes it difficult for firms to control their knowledge (Chesbrough, 2003b, p. 36). Another factor is the increasing capability of external suppliers (Chesbrough, 2003b, p. 36). Moreover, the venture capital market continuously creates new opportunities for firms while the availability of external options of unused ideas is growing (Chesbrough, 2003b, p. 36). These factors have transformed the way to draw on the sources of innovation. The rather porous boundary of the firm enables the flow of knowledge between the company itself (e. g. R&D) and its external environment (e. g. suppliers, users, universities). The larger amount of knowledge flows results in much more ways to commercialize new knowledge (Chesbrough, 2003b, p. 37). Fig. 6 illustrates the membrane in form of a firm's porous boundary which allows ideas and knowledge to pass through in both directions out and in. These knowledge flows or rather core activities are more closely illustrated in the following.

3.1.4. ILLUSTRATION OF CORE OPEN INNOVATION ACTIVITIES

In accordance with recent research, Gassmann and Enkel argue that not all companies chose the same core Ol activities to the same degree (Gassmann & Enkel, 2004, p. 6). As illustrated in Fig. 7, Ol can moreover be divided into the three different core processes or rather archetypes: The outside-in process, the inside-out process and lastly the coupled process (Gassmann & Enkel, 2004, pp. 5-15).

The outside-in process covers all activities (inbound activities) concerning the integration of external knowledge in form of co-operation with customers, suppliers, other companies etc. (Gassmann & Enkel, 2004, p. 7). Firms can integrate external knowledge and benefit from transforming it into innovations by open the boundaries to the internal innovation processes in the form of integration external knowledge sources, application of innovations from different industries, by buying intellectual property[8](IP) (IP in-licensing) or investing in global knowledge creation projects etc. In accordance with that, Gassmann and Enkel argue that companies which are possessing the necessary abilities and supplier management capabilities could for example co-operate in different innovation activities and gain competitive advantages (Gassmann & Enkel, 2004, pp. 7-10). More precise, complementing internal resources with critical external resources from value chain members (e. g. suppliers) or beyond by expanding the product development processes beyond the firms' organizational boundaries can increase the innovation performance (Fritsch & Lukas, 2001, pp. 310-311). Another important external actor is the aforementioned customer which can be integrated in the form of user toolkits[9]or lead-users[10](Von Hippel, 1986, p. 796; 2001, pp. 249-255). Companies which focus on the outside-in process most often come from low-tech industries expecting to gain from knowledge spillovers[11]from higher and larger tech companies (i. e. electronic or processor manufacturers) (Gassmann & Enkel, 2004, p. 9). In sum, typical outside-in (inbound) activities are IP in-licensing, acquiring external knowledge in terms of a company take-over, formal or informal R&D alliances, knowledge contests, crowdsourcing or co-creation with the user.

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Fig. 7 Three core processes of Ol (Gassmann & Enkel, 2004, p.6).

The inside-out process (outbound activities) is in a way the opposite of the former process. A firm can externalize its knowledge or rather the locus of innovation due to no further internal innovation transformation potential or at least a slower internal innovation transformation or development process than the market. Instead, the firm outsources its knowledge to the market to commercialize its idea and generate profits by for example IP licensing (out-licensing) or technology multiplying by investing and sharing ideas (e. g. incubation) with other firms (e. g. in order to set technology standards) (Gassmann & Enkel, 2004, p. 10). Furthermore, the inside-out process has following other beneficial effects (Haour, 1992, pp. 179-181). It can be used to canalize ideas and knowledge to the external environment and thus get access to new areas of knowledge (complementary knowledge). The canalization can furthermore help to the manage capacity problems, the focus on core competencies, the speed (reducing-time-to-market) and the sharing of costs. In sum, common inside-out activities are IP out-licensing, business incubation, jointventure activities and development of spin-offs[12].

The coupled process is a combination of both the outside-in process and the inside-out process of two or more firms co-operating with each other within strategical networks (Gassmann & Enkel, 2004, p. 12). Gassmann and Enkel furthermore argue that a mutual give and take of knowledge is necessary based on the coupling of the inside-out and the outside in processes. Examples are strategic options such as alliances between complementary partners with shared IP and joint development of knowledge within specific relationships (e. g. consortia of competitors, supplier / customer relations, joint ventures and alliances and co-operations with universities and research institutes) (Gassmann & Enkel, 2004, p. 12). The purpose of focusing on the coupled process is to improve the competitive position and minimize the risk by establishing networks and setting dominant designs, in particular, standards (Gassmann & Enkel, 2004, p. 12-13). In sum, typical coupled activities are inbound and outbound interactions between the parties (e. g contracted R&D alliances, joint-ventures, co-creations and networks).

In sum, adopting Ol activities has large potential for the innovation performance and moreover for new business opportunities in terms of out-licensing. Due to the purpose of this thesis, the focus will lie on the inbound activities and their potential. However, recent studies indicated that the innovation performance while adopting Ol activities vary greatly and can moreover result in diminishing returns (Laursen & Salter, 2006, 143-145; Leiponen & Helfat, 2010, 233-235). Of cause, this can have several reasons. Though, beside reasons such as the right partnerships or the product complexity studies indicate that a most crucial factor concerning the innovation performance lies in the organizational aspect (e. g. the ability or capacity to integrate and exploit foreign knowledge) (Van de Vrande, De Jong, Vanhaverbeke & De Rochemont, 2009, p. 427; Spithoven, Clarysse & Knockaert, 2011, p. 19). To manage OIS successfully it is necessary to re-organize the firm's BM accordingly (Chesbrough, 2006, pp. 1-48). Thus, the following part will address the concept of the BM.

3.2. THE BUSINESS MODEL

Today, the terminology of the BM is ever-presently debated in vigorous relevant academic and management literature. It helps managers and entrepreneurs to understand an organization or rather a business as a system with common fitting components (Magretta, 2002, p. 91). However, the term is not equally or rather consistently used since the construct of the BM has only been sparsely considered before 1990. In the course of the internet and the development of e-businesses it came up as one of the greatest buzzwords. Between 1995 and 2010, about 1200 articles addressing the BM concept have been published illustrating various types of BM (Zott, Amit & Massa, 2011, p. 1019). They all express the core logic or rather "[...] the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit." (Teece, 2010, p. 172). In other words, a BM describes "the way we make money" (Bienstock, Gillenson & Sanders 2002, p. 174). Due to the shortage of space only three different approaches will be covered in the following.

3.2.1. LATEST BUSINESS MODEL CONCEPTS

In the light of Chesbrough's theoretical examinations of Ol, it seems natural to stick to his BM concept too. In his book Open business models he illustrates a BM in terms of six different functions: the articulated value proposition[13], the identity of the market segment (i. e. the group of those users), the defined structure of the value chain (including own and complementary assets), the specified revenue creation mechanism (i. e. cost structure and profit potential), the described position within the value network (i. e. ecosystem) and lastly the formulated competitive strategy (Chesbrough, 2006, p. 107). Summarized, he argued that a BM (i. e. articulated or not) performs two important functions namely value creation[14]and value capture[15](Chesbrough, 2006, p. 108).

However, in accordance with Gassmann's former added considerations regarding Ol it seems natural to consider his concept too. Together with other scientists, he elaborates a concept focusing on four elemental dimensions expressed in the questions: Who is the customer? (i. e. the definition of the market / customer group), what is the customer value? (i. e. the value proposition), how is the value built and distributed? (i. e. the activities and processes / value chain) and lastly why is the BM financially realizable? (i. e. the cost structure and revenue mechanisms / revenue model) (Frankenberger et al., 2013, pp. 251252). In short, they also comprise the creation and the capture of value.

Regarding the accuracy and a more comprising but simple perspective of the BM concept, a third concept developed by Zott and Amit is worth to be considered too. Due to a comprehensive review of recent relevant business and academic literature Zott and Amit examine the theoretical core of a BM from an organizational[16]perspective in terms of a minimized assortment of essential components (Zott & Amit, 2010, pp. 219-222).

These considerations correspond to recent considerations of Santos, Spector and Van der Heyden (2009, p. 13).

illustration not visible in this excerpt

Fig. 8 Graphical illustration of the BM concept based on the considerations of Zott and Amit (2010, pp. 220, 222).

However, it is important to mention that Zott and Amit (2010, p. 219-222) depict three components (i. e. content, structure and government) calling them transaction design elements or activity systems whereas Santos et al. (2009, p. 13) mention four. The four components are described as follows: firstly, a set of elemental activities, secondly a set of organization units performing those activities, thirdly a set of linkages between the activities and units and lastly the set of governance mechanisms which control the units and linkages (Santos et al., 2009, p. 13). The difference between these two considerations is that Zott and Amit combine the performing business units with their controlling instance under the element of governance (Zott & Amit, 2010, p. 220). Due to the argument, that their business model concept in terms of the content (i. e. value creation), the structure and the governance (i. e. organizational relations) incorporates different business model concepts following considerations are based on Zott and Amit.

[...]


[1]Organisation for Economic Co-operation and Development which is an intergovernmental economic organization containing 35 member countries.

[2] Economic concept of the maximum price at or below the consumer is willing to buy (not necessarily linear).

[3] The OECD guideline for how to collect and interpret data regarding innovation.

[4]International Organization for standardization.

[5]recently developed organization innovation to innovate the whole BM.

[6]Theoretical approach regarding a society's ability to adopt to new things or rather innovations.

[7]Innovations which happen in steadily small and slow changes.

[8]Innovations which happen in large and fast changes (e. g. disruptive technologies).

[9]An intellectual property is a monopoly on for example a designated idea for a product etc. assigned by law.

[10]Pre-built solutions that can be further customized by the customer (Von Hippel, 2001, pp. 249-255).

[11]Users with certain needs before markets encounters them with an additional solution (Von Hippel, 1986, p. 796).

[12]The exchange of knowledge and ideas between random individual which is also known as local buzz.

[13]A business unit that has been externalized or rather outsourced.

[14]The value of a product etc. offered to the customer.

[15]Processes of retaining some percentage of the value that is provided.

[16]Processes of generating the value that is provided.

Details

Pages
63
Year
2017
ISBN (eBook)
9783668685994
File size
955 KB
Language
English
Catalog Number
v419888
Institution / College
University of Flensburg – Internationales Institut für Management und ökonomische Bildung
Grade
1,3
Tags
Open Innovation Innovation Innovationsmanagement Business Model Geschäftsmodell Strategy Strategie Novo Nordisk

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Title: Managing Inbound Open Innovation Strategies in Context of the Business Model