Teaching

Resources
and
Instructors’
Guidelines
Chapter 11: Exploiting open innovation and collaboration

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 •After this chapter you should be able to:

• understand what open innovation is, and the

range of strategies and mechanisms available to
apply it in practice
Learning • assess the advantages and limitations of
Objectives different strategies, such as outsourcing,
licensing, joint ventures and strategic alliances
• identify the factors which influence the motives,
outcomes and success of open innovation and
strategic alliances.

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 Joint Ventures and Alliances
• Why do firms collaborate?
• What types of collaboration are most appropriate in different
circumstances?
• How do technological and market factors affect the structure of
an alliance?
• What organizational and managerial factors affect the success
of an alliance?
• How can a firm best exploit alliances for learning new
technological and market competencies?

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 Core themes
• Role of • Forms and
• Joint ventures
supplier patterns of
and alliances
innovation collaboration

• Influence of
• Supplier • User-led
technology and
collaboration innovation
organization

• Benefits and
• Extreme users limitations of
open innovation

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 Why Firms Collaborate?
• Firms collaborate for a number of reasons:
• To reduce the cost of technological development or market entry
• To reduce the risk of development or market entry
• To achieve scale economies in production
• To reduce the time taken to develop and commercialize new products
• To promote shared learning
• Two factors need to be considered when making the decision whether to
‘make or buy’ a technology: the transaction costs and strategic implications
• Transaction costs focus on organizational efficiency, specifically where
market transactions involve significant uncertainty
• When technology is still evolving, it is difficult to contract what must be
delivered
• When technology is mature and widely available, market transactions
like subcontracting or licensing are more appropriate
• Outsourcing technologies can limit future technological options and
reduce competitiveness in the long term

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A model for collaboration

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 Joint ventures and strategic alliances
• Competitive advantage, market expansion and extending
product portfolios are important
• Technology acquisition begins with evaluation of company
strengths and weaknesses
• Collaboration is normal when technology is novel, complex or
scarce
• Competency development requires a firm to have an explicit
policy or intent to use collaboration as an opportunity to learn
rather than minimize costs
• Strategic considerations suggest which technologies should be
developed internally, and transaction costs influence how the
remaining technologies should be acquired.

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 Joint ventures and strategic alliances
• Benefits
• Brings in ‘peer review’ for internal R&D function
• Reduces ‘not-invented-here’ syndrome
• Challenges in-house researchers with new ideas and
different perspectives
• Risks
• Leakage of information
• Loss of control or ownership
• Divergent aims and objectives, resulting in conflict
• Collaboration is more likely when the product is ‘new to the
market’ than ‘new to the firm’

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 Joint ventures and strategic alliances
• Strategic alliances have a specific goal and timetable and does not
normally take the form of a separate company
• Why strategic alliance?
• To build critical mass through co-option.
• To reach new markets by leveraging co-specialized resources.
• To gain new competencies through organizational learning.
• Cheaper and less risky technology: in-house development is better

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 Alliances or joint ventures?
• Why transit from formal joint ventures to more transitory
alliances?
– Speed
– Partner fit
– Partner type
– Commitment
– Focus

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 Patterns of Collaboration
• Studies are based on: (1) aggregate data and examine
patterns, (2) structured case studies
• Joint ventures increase with firm size and capital expenditure
• Large firms use joint ventures to acquire technology
• Small firms place greater emphasis on the acquisition of
market knowledge and financial support
• Primary motive for collaborating with domestic firms is access
to technology, but market access is more important in the
case of cross-border alliances
• Joint ventures occur between partners who are in the
industries relatively unrelated to one another; generally short-
lived

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 Influence of technology and organization
• Technology acquisition is influenced by: (1) the characteristics
of the technology, (2) the organization’s inheritance
• Characteristics of the technology includes:
• Competitive significance of the technology
• Complexity of the technology
• Codifiability, or how easily the technology is encoded
• Credibility potential, or political profile of the technology
• Organization’s inheritance includes:
• Corporate strategy, for example, a leadership versus
follower position
• Capabilities and existing technical know-how
• Culture of the firm, including receptivity to external
knowledge
• ‘Comfort’ of management with a given technical area
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Influence of technology and organization

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 Influence of technology and organization
• Competitive Significance
• Most important factor that influences companies’
decisions about how to acquire a given technology
• Pacing technologies:
• Some companies prefer to develop in-house
• Some prefer to keep an eye and see universities or join
ventures as the most efficient means of achieving this
• Extensions to in-house research: through universities
because of high risk or limited in-house resources
• University-funded research
• Base technologies: acquire externally or by cooperative
efforts

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 Influence of technology and organization
• Complexity of the technology
• To stay at forefront of their key technologies: Both in-
house competencies and external collaborations are
needed
• Exploration or exploitation
• Products or patents
• Codifiability of the technology
• Codified means in terms of formulae, blueprints, rules, etc
• Knowledge that cannot easily be codified is called ‘tacit’.
These are transferred by experience and F2F interactions
• Develop tacit technologies in-house
• Without intellectual property rights (IPR) or patent
protection, tacit knowledge will provide competitive
advantage
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 Influence of technology and organization
• Credibility potential
• The credibility given to the company by a technology, or
by the source of the technology, is a significant factor
influencing the way companies decide to acquire a
technology
• Corporate Strategy
• To what extent the company strategy dictates that it
should puruse a policy of technological differentiation or
leadership
• Can be strategic or enabling
• Can intervene in the technology supply market to ensure
supplier availability

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 Influence of technology and organization
• Firm Competencies
• Weak: acquire from outside
• Strong in-house
• Acquisition strategy depends on the speed to market
• Company Culture
• Culture is “the way we do things around here”
• “we are the best”
• International networks
• Local perspectives
• Management Comfort
• Degree of comfort that management has with a given
technology
• Management is familiar with the technology or confident
in the team to succeed
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 Influence of technology and organization
• Managing alliances for learning
• Alliances for learning new market and technological
competencies [acquire Know-how]
• The more equal the partners, the more likely an alliance
will be successful
• Partners must specify mutual expectations of respective
contributions and benefits
• Success of an alliance depends on: what can be described
as operational and people-related factors rather than
strategic factors such as technological, market or product
fit

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 Influence of technology and organization
• Managing alliances for learning
• Three approaches to minimize cultural mismatches:
• One partner to adopt the culture of the other
• Limit the degree of cultural contact necessary through the
operational design of the product
• Appoint cultural translators or liaisons to help identify, interpret
and communicate different cultural norms
• Factors that contribute to success of an alliance:
• The alliance is perceived as important by all partners.
• A collaboration ‘champion’ exists.
• A substantial degree of trust between partners exists.
• Clear project planning and defined task milestones are established.
• Frequent communication between partners, in particular, between
marketing and technical staff.
• The collaborating parties contribute as expected.
• Benefits are perceived to be equally distributed.

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 Influence of technology and organization
• Bases of trust in alliances include:
• Contractual
• Goodwill
• Institutional
• Network
• Competence
• Commitment
• Overreliance on contractual and institutional forms may indicate the
absence of types of trust
• In the case of innovation, better to go beyond goodwill trust
• Interpersonal trust can facilitate communication and learning in
collaboration
• Organization trust will survive changes in individual personnel
• Factors that affect learning through alliances: intent, transparency, and
receptivity

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 Influence of technology and organization
• Acquiring the skills of a partner Vs gaining access to such skills
• Transparency
• Receptivity or absorptiveness

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 Influence of technology and organization
• Tactical alliances are most appropriate to obtain migratory or
explicit knowledge, but more strategic relationships are
necessary to acquire embedded or tacit knowledge
• Absorptive capacity of an organization is not a constant and
depends on the fit with the partner’s knowledge base,
organizational structures and processes, such as the degree of
management formalization and centralization of decision-
making and research
• Why we need to scan for alliances?
• The need to identify relevant knowledge in the
environment
• Ensure the developments continue to be relevant to the
changing environment
• Organizational structure and culture will determine absorptive
capacity in interorganizational learning 22
 Influence of technology and organization
• Operational learning is obtained through close alliances with potential
competitors
• If financial control and short-term financial benefits is the focus of the
alliance, then learning through alliances is difficult
• Cultural differences exist between different departments in an
organization
• Information trading happens via: value-oriented, competition-oriented,
and complex decision makers

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Why alliances fail

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 Collaborating with suppliers to innovate
• Horizontal or vertical alliances exist
• Horizontal
• Vertical
• Contracting and licensing are more tactical
• Strategic alliances, formal joint ventures and innovation
networks are more strategic and more appropriate structures
for learning

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 Collaborating with suppliers to innovate
• Quality of the relationship with suppliers and the timing of
their involvement in development are critical factors
• ‘Japanese’ or ‘partnership’ model: long-term relationship,
suppliers make significant contribution to NPD

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 Supplier relationships
• Homogeneous
• Differentiated
• Indeterminate

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 Supplier relationships
• Characteristics of partnerships or ‘Lean’ supply relations:
• Fewer suppliers, longer-term relations
• Greater equity
• Focus on value flows
• Vendor assessment, plus development
• Two-way or third-party assessment
• Mutual learning
• In lean relationship: the suppliers’ sales were dominated by a
few key customers, and asset specificity, a measure of how
much a supplier’s plant and equipment are dedicated to a
particular customer, was much higher
• Rigid supply structure might be inefficient in developing novel
technologies, products and processes

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 User-led innovation
• Lead users are critical to the development and adoption of
complex products
• Characteristics of lead users:
• Recognize requirements early
• Expect high level of benefits
• Develop their own innovations and applications
• Perceived to be pioneering and innovative

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 User-led innovation
• When seeking to develop innovative complex products and
services, you should identify potential lead users with such
characteristics to contribute to the co-development and early
adoption of the innovation
• Lead users, as early adopters, can provide insights into
forecasting the diffusion of innovations
• Tough customers
• Lead users
• Free revealing

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Types of user innovation

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 Extreme Users
• Users in the toughest environment may have needs
• Tough customers mean good designs
• Co-development
• Democratic innovation and crowdsourcing
• Organization makes an open call to a large network to
provide some voluntary input or perform some function
• Peer or User communities: motive is to help others
• Competitions
• Long tail problem

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 Benefits and limits of open innovation
• Open innovation can be applied in later stages of innovation
process, including development and commercialization
• Firms acquire valuable resources from external firms and
share internal resources for NPD
• Different degrees of openness for innovation: Needs to
manage different types and degrees of interfirm relationship
with external companies to create value
• Total open strategy for innovation is rarely the best option

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Open innovation

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 Models for open innovation
• Orchestra
• Creative bazaar
• Jam Central
• Mod station
• Infusion

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 Strategies to support open innovation
• Open and closed (internal) innovation should complement
each other
• Externally sourced knowledge takes less time to absorb and
exploit compared to internally generated knowledge, but the
internal knowledge creates higher returns over the longer
term
• Reliance on external knowledge had a negative effort if not
supported by internal R&D

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 Challenges in open innovation
• Four factors that influence the best approach to
exploit open innovation in practice:
• conditions and context
• control and ownership of resources
• coordination of knowledge flows
• creation and capture of value.

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Challenges in open innovation

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 Summary
• Organizations collaborate for many reasons, to reduce
the cost, time or risk of access to unfamiliar
technologies or markets.

• The precise form of collaboration will be determined

by the motives and preferences of the partners, but
their choice will be constrained by the nature of the
technologies and markets, specifically the degree of
knowledge complexity and tacitness.

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 Summary
• The success of an alliance depends on a number of
factors, but organizational issues dominate, such as
the degree of mutual trust and level of
communication.
• Open innovation is a very broad and therefore popular
concept, but needs to be applied with care as its
relevance is sensitive to the context. The appropriate
choice of partner and specific mechanisms will
depend on the type of innovation project and
environmental uncertainty.
• In most cases open innovation and internal innovation
capabilities are complementary, rather than
substitutes.
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