In Pushing the Boundaries Part 1 I was discussing “the different faces of open innovation”. That is, managing open innovation to source technologies to strengthen the current businesses is quite different from managing relationships with partners to develop new businesses in the long term. This distinction has received insufficient attention in prior work on open innovation management. In this 2nd part, I indicate that that open innovation can be applied in many different strategic settings compared to the showcases described in different publications during the last decade.
Open innovation has always been centered on new product development.
Open innovation has always been centered on new product development. Firms source external knowledge from technology and market partners to speed up product launches and to get access to complementary technologies. The open innovation funnel has been used time after time to explain open innovation, implicitly assuming that open innovation is always related to new product development.
Accordingly, open innovation has been defined in terms of inside-out or outside-in innovation: External knowledge is acquired to strengthen internal competencies and to speed up the innovation process within the company, and unused, internal knowledge is monetized through external paths to market. In both cases, new product development determines the value of knowledge: external knowledge only creates value when a firm’s new product development benefits from it, and internal knowledge which is no longer useful for a firm’s new product development is a candidate to be licensed or sold to other firms in other industries.
However, open innovation is also valuable in other business activities that are not related to new product development.
However, open innovation is also valuable in other business activities that are not related to new product development. NPD is only one of many activities where open innovation is applicable and valuable. New product development based on new technologies is not an option in many industries such as services where firms typically focus on creating solutions for customers rather than producing and selling products based on new technologies. Moreover, in many manufacturing industries, companies produce and sell commodities and NPD is hardly an option. Therefore, NPD should be considered as a special case where open innovation is applicable.
Instead of focusing on the technological needs for a firm’s new product development, one should examine which strategic drivers of a (focal) firm’s business can be leveraged to gain competitive advantage. To lever these drivers the firm doesn’t have to be involved into NPD itself, but it should identify how technological innovations of other companies may lever these strategic drivers. Therefore, the focal firm should spur them to develop these innovations in line with its needs.
To reach that objective, it has to establish a network (or an innovation ecosystem) of external partners who have deep expertise in the required technologies: when partners develop these technological innovations the focal firm should gain a competitive advantage. In sum, management scholars have been lining open innovation to new product development but, in this way, they have been limiting drastically the scope of open (innovation) strategies. Management should look for specific strategic drivers and for a network of partners whose technological expertise can leverage these strategic drivers. Let’s illustrate this with an example.
Assume you are the general manager of the crude oil business within a large oil company . The product sold by the business unit is a commodity and therefore new product development is not an option (at least at the business-unit level). Competitive advantage in the crude oil industry is determined by a number of strategic drivers. Two of them are early detection of large oil wells and effective drilling of these wells. Therefore competitiveness in the crude oil business depends on various technologies that boost the productivity of exploration and extraction.
Oil companies have to find the richest oil wells before their competitors do and drill them more effectively through new technologies that extract oil more productively at greater depths. Oil companies rely on specialized oil services companies such as Schlumberger and others to develop new technologies for oil exploration and extraction. An oil company gains a competitive advantage if it partners with Schlumberger (in combination with other specialized services companies by setting up a research consortium with these partners and (co-) finance the R&D of new exploration and drilling technology. The oil company will typically require exclusive use of the technology for several years before oil service companies can sell the newly developed technology to other oil companies.
This is just one example how companies that were not typically considered as open innovators can still thrive through orchestrating innovation ecosystems. There are many other possibilities. Elsewhere, we provided examples illustrating how firms may thrive by setting up innovation networks in which other firms’ innovation results are used to strengthen some of a focal firm’s strategic drivers.
Examples are service companies that develop superior business models deploying new technologies from their innovation partners. Similarly, small firms may not have the required technology in-house to develop new value propositions for their customers: interesting examples are Curana (www.curana.be) and Quilts of Denmark (www.qod.dk). Also governmental institutions such as ESA or NASA derive their success mainly from new technologies developed by their technology partners. In all these examples, the focal actors orchestrate a network of partners whose technological developments help them in improving particular strategic drivers, and helping them in this way to become competitively stronger.
To sum up, open innovation—once sundered from the open innovation funnel and new product development—offers business opportunities for a broad range of companies that were not previously considered as beneficiaries of open innovation strategies. Within this broadened view on open innovation, NPD should be considered as a strategic driver that applies to some situations but not to others. Therefore, one should start from the strategy of a firm, identify the key strategic drivers for creating value/enhancing the firm’s competitive position, spot and select potential innovation partners, and set up a joint project to develop technologies or strengthen the firm’s strategic drivers. Even in the absence of internal new product or service development, companies can still nurture their innovation network to boost their competitiveness.
By Prof. Wim Vanhaverbeke, Hasselt University, ESADE& National University of Singapore
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This example is also developed as part of the following chapter:Vanhaverbeke W. and Roijakkers, N. (2013) Chapter 2: Enriching Open Innovation Theory and Practice by Strengthening the Relationship with Strategic Thinking”. In: N. Pfeffermann et al. (eds.), Strategy and Communication for Innovation, Springer Verlag, 15-25.