Open innovation can be defined as the “use of purposive inflows and outflows of knowledge do accelerate internal innovation, and expand the markets for external use of innovation, respectively” (Chesbrough, 2006b). The provided definition suggests that open innovation is simpler than it actually is after digging a bit deeper into the subject. After all, open innovation is a paradigm change from closed to open innovation. A paradigm change by definition is a change in the underlying basic assumptions within the ruling theory of science in a specific field (Kuhn, 1970).
After analyzing the current innovation paradigm titled closed paradigm open innovation will be introduced on a conceptual level. Pointing out the differentiation factors between the two paradigms should lead to a better understanding of the consequences of the paradigm change.
The final section analyses the implications on the company and the ecosystem of an industry that arise from the new open innovation paradigm.
Open Innovation Concept
The present study concerns, as it has already been stated, investigating the tendencies of innovation dominant in the contemporary business reality and looking deeper into the tendency of change that may be witnessed in the shift of the innovation paradigm. With the help of thorough research it became possible to find out that the innovation strategies that used to be the sole task of the research and development department of any company undertaking the change became not the only ones applied in the sphere innovation. The changing needs and business environment dictated the necessity of a new approach which was found in the open exchange of achievements that are becoming the common heritage of the world business community and are being utilized nowadays with a different measure of success. The present chapter deals with the main concepts of the change taking place in the sphere of research, development, change and innovation nowadays – in this chapter the author investigates the both models that are currently in use – closed and open innovation, and investigates the leading factors for the emergence of the new model, as well as correlation of these two models.
Describing the new paradigm
Everything in the world is changing, and the way things are done is always affluent and dynamic. Evolution has always been the primary mover of survival – the human beings would still live in caves if they did not evolve and improve their conditions of living, tools of labor and physical status. Business is also a living organism that exists dynamically and fosters a huge amount of human and physical capital, gives work and sources for existence for millions of people all over the world. It is a new venture that is comparatively new – earlier people used to provide for their living with the help of physical labor, hunting and gardening etc. However, they would never succeed and survive if they did not invent some ways to improve their tools or methods of conducting the types of activities they did – in other way other neighbors would defeat them and take the majority of food to their families, consequently making other families starve. This simplistic example shows the necessity of constant improvement and innovation that people realized millions of years ago and that brought them to the present stage of their development.
Innovation is essential in every sphere of human activity, which is obvious for every businessman, be it an owner of a small private company or a huge multinational corporation. With the purpose of constant updating the resources, strategies and technologies of any company the research and development department has been created. Creative and motivated people have received the only task they had to be guided by – to find innovative methods of production, marketing etc. to win the competitive advantage as compared to other companies existing in the same segment of the market and to become financially successful and profit-making. The R&D department has always been considered to be a very prestigious place to work, and the job of an R&D manager has also been thought of as an elite position extremely hard to gain. The employees of this department bore the main responsibility for the success of the strategy of change and became the guiding force, taking all risks of failure or tremendous success on themselves. The research and set of decisions as well as solutions taken by this department was kept secret in order to protect the innovativeness of decision and to allow the company to surprise the customers, competitors and potential clients. This model may be roughly characterized as a controlled, inner process of conducting innovation, and it has been termed as a ‘closed innovation model’.
However, nowadays it is important to note the emerging tendency of open change – the utilization of widely accessible experience of other companies that previously conducted certain changes and succeeded in their undertaking. After the strategy has been implemented it becomes a worldwide heritage to which everyone may turn and the findings of which he or she may use. This way of conducting change has been termed as ‘open innovation model’, which has evolved as an equally efficient alternative to the closed change model.
In order to understand the open innovation phenomena it seems necessary to understand the closed innovation paradigm and the erosion factors: why this innovation paradigm became not the only one used and what benefits, advantages and improvements the open innovation model may bring to a company with a specific profile. Looking at the issue more fundamentally, it is also crucial to discuss the underlying shifts that enabled open innovation to be developed and gave it efficiency in implementation by the research and development managers seeking success for their companies.
The Closed Innovation Paradigm
The innovation paradigm was founded on a set of assumptions that were true for many years and specifically led to many breakthrough innovations after the World War II era (Chesbrough, 2003, p. xxi). Taking into consideration the Cold War influence and the common way of thinking after such a drastic shock to the world population, economy and well-being it goes without saying that the main principle of any activity in the sphere of business was strict control, guidance and surveillance. The natural outcome of such business philosophy was the closed innovation model, the main principle of which was control of all processes in the company, including innovation and improvement.
In the dominant paradigm of internal research and development the logic followed the virtuous cycle shown in Figure 1. Given that logic, fundamental technology breakthrough led to the production of new products and this advantage resulted in increased sales and profits with the existing business model. Those increased profits where then used to invest more resources in R&D in order to find the next technology breakthrough. It is obvious in the presently described and illustrated model that the development of innovation was isolated and circular, making the firm invest in itself and closing the circle of exchange on itself, thus making a span up at the spiral of improvement but spending too much more than it should have done if it took a more optimal approach. From this model it becomes evident that the company’s development and innovation are limited by the resources and potential of the company itself, which caused certain inconvenience and involved much more use of human resources (Herzog, 2008).
The model described also presupposes a certain model of construction of the R&D department that was the body responsible for innovation in the company. The understanding of innovation that follows the virtuous cycle of closed innovation (see Figure 1) led to heavily vertically integrated R&D departments within companies which in turn amplified an internally focused logic in understanding R&D(Chesbrough, 2003). This vertical integrated model was based on a set of assumptions. According to Chesbrough (2003, p. xx) the implicit rules of the closed innovation are the following:
- The best and brightest people in an industry have to be hired so that the smartest people work for the company in question (Chesbrough, 2003, p. xx).
- The only way to bring new products and services to market is discover and develop them inside the company (Chesbrough, 2003, p. xx).
- If a company makes a discovery first it will get the resulting product or service to market first and have the full first mover advantage (Chesbrough, 2003, p. xx).
- The company that brings an innovation to market first usually wins (Chesbrough, 2003, p. xx).
- If a company leads the industry in terms of R&D expenditure, this company will discover the most and best ideas and therefore become the market leader (Chesbrough, 2003, p. xx).
- Intellectual property is used to control the competition not to profit from the firm’s ideas and discoveries (Chesbrough, 2003, p. xx).
The enumerated principles of the closed innovation model in work imply that the company bears the overall responsibility for all stages of production, from the very beginning till the introduction of the product to the market, which increases time and expenditures enormously. Thus, following the idea of Philipp Herzog (2008), the process brings about the following consequences: first of all, the product planned for the innovation can enter the innovation process only at the very beginning; secondly, the innovation is put into practice with only the internal ideas, resources and competencies being involved; and, thirdly, can be commercialized only with the help of the firm’s own distribution resources (p. 19).
The result of the described considerations shows a completely another procedure of making innovation decisions as compared to the open innovation model. The products, ideas and projects generated with the help of the R&D department of one firm taking up the innovation go through the funnel process to reduce the number of alternatives that may be utilized by the firm itself, hence putting aside less promising or less successful ideas, or the projects that are beyond the potential of the firm. As a consequence of the funnel process, a huge number of ideas are neglected and stored inside the firm without any possibility for being implemented – with the purpose of securing the intellectual property or with the fear of gaining disadvantage with the competitors every company prefers not to publicize the results of the innovation process even if the company itself decided to drop those ideas for varied reasons. The innovation process yields productive results, but only for the preferred projects, while those left aside remain unused and are lost in the multitude of unsatisfactory opportunities that would be successfully utilized by other companies (Herzog, 2008).
The main two models of decision-making that were considered dominant in the course of the companies’ usage of the closed innovation model are the innovation funnel and the stage gate process – they both possess a certain number of peculiarities and are illustrated further.
Innovation Funnel in a Closed Innovation Paradigm
The innovation funnel has been currently used as a tool of the decision-making process in order to ensure consideration of a wide range of possible solutions and to investigate every possible alternative with the purpose of defining the best variant, integrating the positive features of the alternatives that have not won the tender and eliminating all possible drawbacks in the best variant that has been chosen, thus creating an integrated, improved and collective product or solution that would fit the demands of as many consumers as possible and would ensure the success of the company in the market. However, the closed model of innovation had certain peculiarities that resulted in certain specificity of the described model usage.
The list of logic underlying the implementation of the closed innovation model led to management of R&D and innovation that is mainly focused on eliminating as many false positives as possible (Chesbrough, 2003, p. xxii). False Positives in this sense are research projects or ideas which the company is working on but which do not result in new products or services the company sees potential to capitalize on in its current market with the current business model. Figure 2 illustrates the innovation funnel that follows the paradigm of closed innovation.
Out of an internal science and technology base research projects are started and pushed through the innovation funnel ending with new products or services for the customer. During this process, projects that do not fit the strategy are eliminated and the scarce internal research resources are allocated to more promising projects (Chesbrough, 2003, pp. xxi-xxii).
The only limitation that was already noted and that reduced the potential of the decision-making process currently described is the refusal to involve any ideas, people or expertise from outside the company, which made the decision isolated and deprived of diversity, freshness of understanding and objectivity of a glance of an outsider. It goes without saying that the considerations of closed innovation were mainly guided by the fear of competitors’ intelligence measures that would threaten the success of the planned innovation by means of utilizing the results of research and implementing them at earlier deadlines thus destroying the innovativeness of the strategy itself. However, engaging a limited number of ideas and a stable number of specialists would lead to the gradual outworking of the creative potential, the perception of researchers and developers becoming accommodated to the needs of the company thus reducing the creative potential and stagnating the generation of breakthrough ideas.
Stage Gate Process in a Closed Innovation Paradigm
Similar to the innovation funnel (Figure 2) the stage gate process is used to manage the innovation processes. This management principle also relies on the basic assumptions of a closed innovation paradigm.
The main idea of the stage gate process is breaking the innovation process down into more manageable steps – into well-defined stages that are a series of activities. Every gate represents a decision point where, according to predefined measures, the project is moved forward or stopped. Secondly, the gates are used for allocating resources within the company to those projects that are the most promising (“Product Innovation Process,” 2008).
The Implications of the Closed Innovation Paradigm
The closed innovation paradigm worked very well throughout the 20th century and many breakthrough innovations are based on that paradigm (Chesbrough, 2003, p. xxi). According to Chesbrough (2003) the Bell Laboratories are a good example of a R&D department that had tremendous success following the closed innovation paradigm and discovered many physical phenomena which they were able to turn into many profitable products.
However, the focus of closed innovation lies on finding new products and services for the current market with the current business model (Chesbrough, 2006b). Moreover, the tools developed to manage R&D departments such as the stage gate process have their main advantages in resulting in an innovation process and in faster time of the product’s way to market, efficient resource allocation and not missing any critical point within the process because, if implemented correctly, those steps should be controlled in the gates (“Product Innovation Process,” 2008).
In the changing environment of the 21st century it is necessary to admit that the technology intensity is steadily increasing – in order to succeed and to be competitive in the growing and evolving world market every company has to keep pace with the development, research, innovation and change. With the help of the closed innovation model it was possible to generate high-quality and well-researched products; however, the period of time of slow business has passed away, and at the present moment businesses and enterprises have been put into conditions of tough competition. They have no time and ability to research and generate their own products following the traditional gating or funnel scheme as this will turn them into loss-making enterprises. High mobility of intellectual workers who are available on a short-term basis and who may bring innovation, fresh ideas and creativity to every single researched project – all this facilitated the use of open innovation model as well. For this reason open innovation may successfully help all firms gain their competitive advantage forces and enable them to survive in the changing and turbulent conditions of the world market.
As it was stated earlier the closed innovation paradigm worked for many years and led to uncountable technological breakthroughs. However, during past few decades several factors combined and started to undermine the principles of the isolated use of the closed innovation paradigm. The need for a new approach was recognized, so taking into consideration the underlying principles of innovation as a process that should bring benefit and profit to the company through the production of a new concept (entering a new market, adopting a new technology or generating a new product) it was understood that the closed innovation model cannot be the only way to achieve the expected results. Since the change in the perception of change took place, the researchers as well as specialists from different spheres of business began looking for alternative ideas of the innovation process organization that would fit the needs of the business world. Open innovation was a newly found concept that took a deeply different approach to the process of production, thus promising profound changes in the process organization. It was conceptually different from the closed model process arrangement, so the main task at the present moment is to understand the way it approaches the change. The following chapter will be devoted to the reasons underlying the shift from the closed to the open innovation model and factors that brought about this change, making one model more preferable and usable than another one.
Undermining Factors in the logic of closed innovation
The following section addresses the changes that eventually led to the fact that some of the underlying factors of the closed innovation paradigm (see section 2.1) are not valid anymore and the realization of the fact that the application of closed innovation has already become not the only efficient variant of conducting the change in a company.
The first factor to be considered is the increased availability and mobility of skilled people. Whenever people leave a company they take a great deal of the knowledge with them and the new employer normally does not pay for that knowledge to the former company (Chesbrough, 2003, p. 34). In contrast, soccer clubs that have their own junior teams are paid for the effort of education of new and coming players by transfer fees. The fact that knowledge remains in the heads of the people however was true also in times when closed innovation worked well. The change that occurred in the context of the 21st century is the increased mobility of workers; it was traditional for many decades that employees were devoted to their companies and tried to retain their working places from the very beginning of their working age activity till its end, i.e. retirement. This work model is outdated today and it is the norm that people switch back and forth between companies and even industries (Aberdeen et al., 2007, p. 21). Furthermore, the knowledge of workers gets more important in general as society is moving towards a knowledge society leading to the fact that more and more knowledge is only stored in the heads of individuals rather than in procedures and methodologies (Naisbitt, 1984, p. 11) & (Aberdeen et al., 2007, p. 22).
The second factor is the increasing presence of venture capital firms that specialize in creation of new firms and commercialization of research activities. These start-ups, backed by the venture capitals knowledge of building firms, quickly became competitors for the large and established firms that used to be the only source of R&D in a given industry (Chesbrough, 2003, p. 37). However, this tendency does not seem to be that negative because the constant movement of ideas, inflow of creativity and alternative approaches to some traditional issues increases the potential of innovation and its chances for success because of its innovativeness and the intergated work of a number of minds with the purpose of creating a unified and successful product.
An additional, third factor can be found in the decreasing time to market many products and services which made it difficult for vertically integrated companies to leave innovations that do not fit the current market or business model lying on the shelf (Chesbrough, 2006b, p. 4).
The forth factor can be seen in the increasing pressure on research departments within the large companies that was further increased by more knowledgeable and informed customers and suppliers. This high pace is only partly compatible with the do-it-all-yourself approach from the closed innovation paradigm (Chesbrough, 2003, p. 39).
These four factors do not occur in all industries at the same time but it could have been observed that in those industries where the erosion factors are true, the virtuous cycle of the closed innovation paradigm (see Figure 1) does not work anymore (Chesbrough, 2003, p. xxiii). When a fundamental technology breakthrough was found within one of the research silos of a vertically integrated cathedral the researchers were well aware of an outside option to bring that innovation to market. When an innovation did not fit for the current market with the current business model it used to be shut down or put on the shelf. This is a direct result of the management of a stage gate or similar innovation process. For the reason there was no profit expected for the company concerning the innovation, it was put aside and neglected. Today, engineers or researchers have an option outside of the firm – something they lacked before (Chesbrough, 2003, pp. xxiii-xxiv). Unused ideas which the creators nevertheless consider worthy, profitable and potentially successful, can be taken to other firms and companies and be accepted there. Not all of created ventures of such kind have to be a success but if they are, a significant firm can rise out with the help of their start-up assistance and even obtain the potential to become a competitor.
More importantly, with the possibility of that outside path the company that originally financed the basic research does not profit from the innovation and cannot therefore use the money to reinvest it in its own research and development department. With the loss of the reinvestment possibility the closed innovation model is not sustainable anymore (Chesbrough, 2003, p. xxiv).
Figure 4 illustrates the virtuous cycle including the outside option that leaves to the break in the cycle because through an IPO or Acquisition the next fundamental technological breakthrough is not funded by the company that has profited from the profits the later innovation brought (Chesbrough, 2003). This option became understood by those intellectual workers who used to be employed in some companies and saw their ideas not used or neglected. The option brought about several benefits – the first one concerns the employee who ensures his intellectual and creative potential is realized and his idea is implemented into production, bringing him/her profit and working for the benefit of the company that agreed to accept it and risked to assess its profitability while another company refused to do that.
The second profit lies in the feedback of the company that agrees to utilize the idea that was not used by its competitor – the essence is that the idea is surely innovative, since it was rejected by another company, implying that the competitor took an initially different approach to the production of the present product. Another consideration is that the drawbacks seen in the rejected project and resulting in the refusal to generate it and implement it into production may come not from the evident disadvantage of the product, but from the lack of facilities in the competitor’s company to put the product into production or to market it. This way, it turns out that the project that was dropped by one company may be utilized by another one without any problems and, what is more, with even more success and profit that the competitor would have gained even if he/she implemented the production.
Thus, it is necessary to keep in mind the possible benefits that the open innovation model brings to companies implementing it in their everyday practice. The initial purpose of every innovation is to surprise the consumers, win the beneficial position in the market that will yield benefits for the company and for the customers. In this sphere it is notable that the closed innovation model outlived itself because of the failure to bring profits to the initial investors and to the breakage of the process of feedback to those who invest with the hope to gain profit from the company they rely on:
“The company that originally funded a breakthrough did not profit from the investment, and the firm that did reap the benefits did not reinvest its proceeds to finance the next generation of discoveries” (Chesbrough, 2003, p. 36).
This tendency undermined the principles of self-reliance in the process of innovation and initiated the new research in the sphere of innovation – it became clear that the firms themselves were unable to cope with the innovation process on their own without suffering considerable losses; more than that, the continuing tendency of losing the priority in investment and other firms’ gaining advantage from other companies’ effort made the manufacturing and business progress stagnate and seize developing, evolving in the way everybody wanted. The process of innovation seemed to be required as a dynamic, more or less autonomous and lively process in order to satisfy the changing needs of consumers and the ambitions of business people. This way the concept of open innovation emerged, becoming a productive alternative to the closed innovation model, complementing to it, but not substituting it fully however.
Looking at the two models in a comparative aspect, it is also relevant to recollect the opinion of Han van der Meer (2007) about the essence of some particular difference between open and closed innovation models:
“Inspecting the open innovation model closer, we can see mechanisms for importing and exporting knowledge, ideas and projects. Such mechanisms include methods, structures and systems in every stage of the innovation process that enable in- or outflow” (p. 196).
Van der Meer (2007) offers a set of solutions that become available with the help of the open innovation model, and classifies them according to their place in the business arrangement process. First of all, he indicates what the company may import and what may be beneficial for it, naming creative sessions networking with universities and scientific institutes, knowledge clusters ‘open day’, conferences, fairs and suppliers and end-users, and licensing in concerning the sphere of concepts. He continues with the sphere of development indicating such issues as patent search, partnering and spinning in. As for the business sphere, the author indicates venturing in as a profitable outcome of the open innovation model. Speaking about exporting, the author also gives out a number of spheres from which the enterprise may benefit: the sphere of concepts includes cluster projects, industry groups, and public-private cooperation as well as licensing out; development sector involves patent brokers and spinning out; business involves venturing out (van der Meer, 2007, p. 197).
So, as one can see, the benefits offered by the open innovation structure are enormous – the key issue only lies in the concepts of its correct usage in order to gain benefits and not only suffer losses. Open innovation creates a free space of business experience exchange in all possible spheres of activity in order to utilize unused ideas and enhance the current state of affairs in every particular company. However, the open innovation model is a much deeper concept than only open exchange of experience – it conceals a great set of implications, peculiarities and underwater stones that may infringe the rights and intellectual property of certain enterprises – the issue is that the verge between the open innovation exchange and the intellectual property violation is too vague because of the comparative novelty of the concept. These issues will be considered in the following chapters.
The Mouse case
One example that illustrates the shortcomings of the closed innovation model can be found in the first computer mouse. Originally the mouse was developed with the first graphical user interface for computers at the Palo Alto Research Centre (PARC), the cutting edge internal research lab from XEROX (Soojung-Kim Pang, 2002). But neither the graphical user interface nor the mouse as the input device that was needed in order to interact with the newly developed GUI was of much value to XEROX because they were looking for improvements in the printer and document management business (Chesbrough, 2003, pp. 4-12).
Rather it was an up and coming entrepreneur that saw the potential of the graphical user interface and the mouse to be used in personal computers. So Steve Jobs from Apple took up the idea he saw at the XEROX research facilities and further developed the GUI in order to be implemented in the first Macintosh and Lisa personal computers (Soojung-Kim Pang, 2002). The development of the mouse was outsourced to IDEO, a design company, which significantly reduced the complexity of the mouse and made it possible that the mouse could be produced for under 35$ – the original XEROX pointing device cost over 400$ to produce (Soojung-Kim Pang, 2002).
Even though XEROX has developed both breakthrough innovations in-house they did not profit from its commercialization.
The Open Innovation Paradigm
The open innovation paradigm is very complex and multi-faceted, thus making myriads of scholars and researchers look for the core sense of the concept that has been put into practice only lately. As defined by Joel West (2005), the open innovation paradigm represents the following concept:
“Open innovation reflects the ability of firms to profitably access external sources of innovations, and for the firms creating those external innovations to create a business model to capture the value from such innovations. Contrasted to the vertically integrated model, open innovation includes the use by firms of external sources of innovation and the ability of firms to monetize their innovations without having to build the complete solution themselves” (p. 2).
However, it is highly important to state why this model acquired popularity and became widely used as well as the closed innovation model. With the original virtuous cycle broken, the original model of knowledge monopolies of the established vertically integrated companies has come to an end. This paradigm change has led to rethinking of the underlying paradigm and led to generation of the term Open Innovation (Chesbrough, 2003c). According to the open innovation paradigm the internal R&D department still has value. But the internal forces of research are not seen as the only source of ideas and innovation. Ideas can as well be generated outside of the company’s research and development department and move inside the company’s development process (Chesbrough, 2003c, p. xxiv). Based on the same logic, the current market with the current business model is not the only possible way of profiting from an internally developed innovation. Other options are actively taken into consideration. One of the possibilities of marketing an innovation which does not fit in the development portfolio of the company in question is a start-up that is often staffed with the companies’ own research personnel but in this case is funded (fully or partly) by the company where the idea originates. In contrast to the closed innovation paradigm the leakage mechanism of a start-up is not seen as a cost of the research efforts but rather as a possibility to profit from an innovation that does not seem feasible with the current business model (Chesbrough, 2003c, p. xxiv).
Following the ideas of Chesbrough (2005) it is possible to give out a clear and over-grasping definition and understanding of the concept of the open innovation paradigm:
“Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology. Open innovation processes combine internal and external ideas into architectures and systems. Open innovation processes utilize both external and internal ideas to create value, while defining internal mechanisms to claim some portion of that value. Open innovation assumes that internal ideas can also be taken to market through external channels, outside the current businesses of the firm, to generate additional value” (p. 2).
Additionally to the leakage path of a start-up, the company can also decide to license a discovery to another firm, assuring that the original expenses are covered with future revenues from that innovation. Figure 5 summarizes those different paths of research projects (Chesbrough, 2003c, p. xxv).
Compared to the closed innovation paradigm of managing R&D (see Figure 2), the open model not only acknowledges the in- and outflow of ideas but manages those flows actively.
One more aspect of the open innovation paradigm is its profitability recognized by a huge number of scholars concerning the assistance it may provide for the companies currently going through a period of radical innovation (RI) which takes a long period of time and can be hardly lived through even by large and stable companies (O’Connor, 2005). The underlying problem is that RI requires a long period of time and brings back profit only in about 10 years, which is highly unsatisfactory for the stakeholders and affects the consumers as well. Thus, the companies that have taken the risk to undertake radical innovation are led to a situation when the stakeholders withdraw their capital from the resources of the company, thus turning it bankrupt and destroying the core sense of the radical innovation, which appears to yield no results. In comparison with the closed innovation model, the open innovation may become helpful for the company going through a period of radical innovation through a set of characteristics that may save the company from bankruptcy and affect the period of radical change which the company has to overcome:
“Large established firms are seeking ways to develop RI competencies that can be sustained over time. The open innovation model offers firms an enormous help. If discoveries can be sourced from external parties as well as internal groups, and the innovation required to nurture those discoveries into business opportunities becomes more interactive with market and technology partners sooner, the lifecycle of RI can be sustainably shortened” (O’Connor, 2005, p. 4).
What makes Open Innovation Different
So far the focus of the paper was made on the factors that led to the paradigm change toward to open innovation one. If implemented in the research process of a company, a set of differentiation factors can be identified in contrast to the prior paradigm. These are the key factors that shape the new paradigm and constitute the major difference between the two discussed models. For this reason they need to be assessed in a particular way.
The role of external knowledge
In closed innovation, external knowledge only played a supplementary role. The firm was the primary source of knowledge and the internal knowledge creation was the focus of interest. The role model of using and creating internal knowledge was the Bell Laboratories (see 2.2) and many industrial R&D departments which were organized similarly. Even when companies started to take external knowledge into account, the balance between outside and inside knowledge was biased towards internal knowledge creation and usage (Chesbrough, 2006b, p. 8).
For the open innovation paradigm the external knowledge that was not created from within the firm should have an equal standing as the internal knowledge (Chesbrough, 2006b, p. 8).
External knowledge usage is the key characteristics of the novelty of the open innovation strategy, while it is the chief source of income, information, production variants, creativity and change. The internal R&D department is still involved in the process of innovation, but it bears less burden of knowledge generation – it is not responsible for the generation of ideas, which is the most time-consuming and significant stage. For this reason the external knowledge utilization becomes the central stage of the open innovation process. As it has been stated by Vanhaberveke and Cloodt (2005), “insourcing of externally developed technologies is crucial for the innovativeness of the company” (p. 2). These scholars also attribute major attention to the process of absorption of external knowledge, since there is nothing new that can be generated within the company with the help of its internal sources, or these new concepts will be limited and not fresh enough to satisfy the needs of the company for innovation.
Role of the business model
In the era of open innovation the R&D business model is at a central point of interest. In the closed paradigm world little attention was paid to the business model of innovating. The model used was more similar to securing the best and brightest people and if they are funded sufficiently they will come up with the best ideas possible (see 2.1) (Chesbrough, 2006b, p. 8).
In open innovation companies actively seek good people in and outside the company to help to improve the business model. Additionally, in the open innovation model, the way to market is not restricted to the current business model of the company but the way through different channels (licensing or start-ups) is open and also desired (Chesbrough, 2006b, p. 8).
In this point the remark of Vanhaverbeke and Cloodt (2005) from their article investigating agricultural biotechnology going through a period of open innovation also seems relevant in the context of the present discussion. When speaking about the new technologies interfering with the existing business model and the way of conducting business affairs, thus disrupting the production process, they state that “it is not the technology itself but the business model behind the application of that technology that gives it its disruptive power” (p. 11). This way, it becomes clear that the business model is a very influential element enacted in the process of the open innovation implementation, which plays a significant role in shaping the whole process, thus requiring separate attention.
Measurement Errors for evaluating R&D
Due to the fact that the focus in closed innovation attributed to innovation is laid on the existing business model, it is assumed that the evaluation of innovation projects does not have a systematic measurement error. If a R&D project is canceled it happens because the project does not fit the current business model and there is nothing to be done about it further on. The R&D processes are designed and managed in order to minimize Type I or false positive evaluation errors – meaning that a project goes through the firm’s process but fails in the market (see stage-gate process in section 2.1.2) (Chesbrough, 2006b, p. 8). The possibility of Type II errors, where projects are stopped because they do not fit the current business model but still have value, is neglected (Chesbrough, 2006b, p. 8). Statistical theory actually suggests that an elimination of Type I errors will increase the chance of Type II errors (“Type I and type II errors,” 2008).
In open innovation, the process of evaluating R&D projects is not only focused on project value within the current business model of the firm. In addition to the evaluation of whether a project fits the current strategy of the firm, an additional test in order to evaluate and identify if the project in question can create value in a potentially new market with a new business model has to be implemented (Chesbrough, 2006b, p. 9). The core importance of this testing lies in the fact that the competitors also take risks when taking up the projects that were dropped by initial creators. The risk is in the potential attempt of the competitor to provide the company with a falsely profitable product, to make the company produce this product and then fail at the market. This technique may turn out to be useful if the company absorbing external knowledge relies on the advisor fully and does not continue testing the product. However, this is an extremely rare occasion, provided the competition in the contemporary business world is too tough and fierce to believe rivals. A second variant is more credible in the course of consideration of the issue – the company conducting certain research and deciding to establish additional testing with the purpose of eliminating errors of both types may be successful in leaving more projects inside the company (still bringing it more profit than in case of open innovation project exchange from which the company will then get only certain additional value and not full one) and eliminating a larger number of projects that prove to be potentially unsuccessful, leaving the challenge of implementing them to another company and sharing profits with it in case of its success.
Outbound flow of knowledge and technology
In closed innovation the outflow of knowledge and technology is not considered. In the open innovation paradigm knowledge and technology for which no clear path to market within the company can be identified have to be enabled to seek an outflow path externally (Chesbrough, 2006b, p. 9).
The result of the outbound flow of knowledge was not fully positive, because the newly adopted innovation strategy led to such issues as licensing and intellectual property rights arising. Tim Simcoe (2005), basing his judgment on the ideas voiced by Chesbrough, states that the most problematic point in assessing the procedures of conducting open innovation processes lies in the fact that both closed and open standards may enable a wide range of companies to externally generate ideas for business, but the open method proves to generate more value:
“Open standards and open innovation both refer to a process that involves sharing and exchanging technology across firm boundaries. The difference is that the objective of open standard setting is to promote the adoption of a common standard, while the objective of open innovation is to profit from the commercialization of a new technology. In other words, open innovation might take place in a regime of either open or closed standards” (Simcoe, 2005, p. 9).
In open innovation the internal businesses have to take into consideration the external channels to market such as licensing, ventures and spin-offs as well. These channels have to be managed actively and taken into consideration as an alternative way of creating value for the firm (Chesbrough, 2006b, p. 9). Nevertheless, it is still a slippery path which every firm is taking in order to increase its competitiveness and profitability, since there is always a threat of misinformation and distribution of false data that may hurt the company’s reputation or even make losses for it (Cooke, 2005, p. 12).
The underlying knowledge landscape
In closed innovation one of the underlying logic is that knowledge is scarce and hard to find. In open innovation it is believed that knowledge is widely distributed and generally useful. Therefore, also the best R&D departments have to be well connected to external sources of knowledge (Chesbrough, 2006b, p. 9). Merck, a company that names itself a research-driven company, stated in the annual report 2000 that the internal resources are not enough to remain the leader in its field and that it is crucial for them to connect to the outside world:
“Merck accounts for about 1 percent of the biomedical research in the world. To tap into the remaining 99 percent, we must actively reach out to universities, research institutions and companies worldwide to bring the best of technology and potential products into Merck. The cascade of knowledge flowing from biotechnology and the unravelling of the human genome – to name only two recent developments – is far too complex for any one company to handle alone.” (“Merck Annual Report,” 2000)
This openness of knowledge flow goes well beyond incorporating external sources in order to develop an innovation within the internal innovation process. In the knowledge landscape illustrated in Figure 6 knowledge flows almost freely in and out of companies (Chesbrough, 2003, pp. 43-44).
The in- and outflow of knowledge is restricted to not only two companies but within the complete ecosystem of an industry.
Role of IP management
Intellectual property management had the primary role of defending competition to free-ride on ideas created within a firm. The open innovation paradigm calls for a proactive use of IP management. In open innovation IP becomes a critical element of innovation, because according to the knowledge landscape (see Figure 6) knowledge and therefore also IP has to flow in and out of the company on a regular basis (Chesbrough, 2006b, p. 10). This is how the situation should look like ideally; however, it often happens another way and the cases of unauthorized use of some other firms’ findings have become more and more frequent.
O’Mahony (2003) in his study of community based projects and the set of ways they use to protect their intellectual property rights has found out seven core methods of retaining proprietary appropriation:
- adopt software licenses with distribution terms that restrict proprietary appropriation;
- encourage compliance with licensing terms through normative and legal sanctions;
- incorporate to hold assets and protect individual contributors from liability;
- transfer individual property rights to collectively managed non-profit corporations;
- trademark the brands and logos designed to represent their work;
- assign trademarks to a foundation;
- actively protect the project’s brand (p. 1183).
Looking at the set of proposed solutions it becomes clear that nowadays there are a huge number of opportunities for firms to protect their private property rights and to save them from unauthorized use and application. Nonetheless, the set of licensing and protective rules does not provide full-scale protection; for this reason every company has to pay particular attention to the issues of security and non-violation of its rights.
In open innovation, intermediaries start to play an important role. As the innovation process becomes more open, intermediate markets can arise in which parties can transact at stages that previously have been done completely inside the closed innovation process. When companies want or even need to exchange knowledge at an early phase of an innovation initiative, intermediaries can provide information, access or even financing to enable transactions to occur (Chesbrough, 2006b, p. 10).
The emergence of such organizations made the process of open information interchange much easier and securer, thus giving a chance for a new segment of the market to emerge, first of all, and further providing diverse assistance for the companies in assessment of their needs and allocating a set of resources to meet those needs. In general, involvement of intermediaries has become beneficial for the exporting and the importing companies because of their provision of systematized, professional help and protecting both participants of the open exchange process of the excessive participation of labor forces, excessive expenditures and time spent on the choice and arrangement of the open innovation process.
Metrics used to assess innovation capabilities
While R&D departments have been assessed based on principles that were true in the closed innovation, these measurements have to be adapted in order to assess the effectiveness of R&D departments that opened their innovation process. Chesbrough (2006b, p. 10) argues that questions like how much R&D is conducted within the firm’s value chain or what percentages of innovation activities originated outside of the firm, become more important. Another measure can aim at assessing the effectiveness of the different sources of innovation or profitability of the channels used to bring the innovation to market (start-up, licensing or own development). These measures will eventually substitute classical measures such as the percentage of sales spent on R&D, the percentage of sales that come from new products or how many patents were filed in the last year.
Summarization of the differentiation factors for Open Innovation
The following Table 1 summarizes the factors that differentiate open innovation from the closed innovation paradigm:
|Section number||Differentiation Factors|
|3.3.1||Equal importance given to external knowledge, in comparison to internal knowledge.|
|3.3.2||The centrality of the business model in converting R&D into commercial value.|
|3.3.3||Type I and Type II measurements errors in evaluating R&D projects.|
|3.3.4||The purposive outbound flows of knowledge and technology|
|3.3.5||The abundant underlying knowledge landscape|
|3.3.6||The proactive and nuanced use of IP management|
|3.3.7||The rise of innovation intermediaries|
|3.3.8||New metrics for assessing innovation capability and performance|
Table 1: Points of differentiation for Open Innovation7.
Thus, it is possible to sum up the facts that have been collected about the issues connected with both paradigms and to produce a set of relevant conclusions on the topic: first of all, it is necessary to remember about the importance of inflow and outflow of knowledge in the open innovation system, compared to the isolated knowledge circulation in the closed innovation model. Then, it is vital to estimate the importance of the business model in the context of which the open innovation process takes place. It is as well important to remember about the hidden challenges that have appeared with the emergency of open standards including violation of intellectual property rights, and to adopt a set of recommended policies to protect the intellectual knowledge of a particular firm. Intermediaries are the newly created segment of business activity that may help in the process of setting up an open innovation procedure. And, after all, the approach to assessing innovation process that is currently enacted also requires a change that was already illustrated in the works of Chesbrough.
Implications of Open Innovation
The preceding section described the closed innovation paradigm as the origin of the open innovation paradigm. Using the description of open innovation, the following sections will analyze the impact the open innovation will most likely have on business. The impact and implications for companies and management thereof can be structured on different levels. Starting with the most specific level, the implications on the R&D department will be derived from the above stated findings and differentiating factors. The second level is the company and its innovation strategy, followed by the implications on the ecosystem of an industry.
Impact on the R&D department
The role of the internal R&D department is not just canceled because of open innovation, but the role of the R&D department will change significantly. Rather than having the internal monopoly of research and creating new ideas, the research and development departments of companies that are managed according to the findings of the open innovation paradigm will have altered responsibilities. As the results of the study conducted by Michael Fritsch and Rolf Lukas (1999) show, it has been found out that the R&D department is highly important in every company and brings about only positive tendencies of its development:
“Firms that are engaged in R&D cooperation tend to be relatively large, have a comparatively high share of R&D employees, spend resources for monitoring external developments relevant to their innovation activities (‘Gatekeeper’) and are characterized by a relatively high aspiration level of their product innovation activities. Enterprises that maintain cooperative relationships with their suppliers tend to have a relatively low share of value added to turnover, indicating that this type of cooperation tends to be a substitute for internal R&D” (p. 14).
The new role will be to identify and connect the right ideas and research projects from outside and inside the company in order to identify the right projects that can create value. It will still be in the responsibility of the R&D department to scan and select the available technology and knowledge in order to create new products and services. However, the possible sources where ideas and knowledge can originate from have opened dramatically and more resources will be needed to fulfill the task that now appears crucial (Chesbrough, 2003, pp. 45-55).
Value creation will be less dependent on the deep understanding of one single technology that directly leads to a product or service. More likely, the most valuable innovations for the company will be created out of complex combinations of internal and external knowledge and different technologies. The underlying role of the R&D department is better described with the term knowledge brokering than the classical understanding of an R&D department (Chesbrough, 2003, pp. 45-55). Jens Christensen (2005) also indicates the changing role of the R&D department in the context of the open innovation and emphasizes its internationalization and decentralization (p.21).
Additionally, R&D’s responsibility will also be to identify the right and most profitable channels to bring an innovation to a market – the existing market, a new market within the current business model, a new market with a new business model (a venture) or licensing to other firms (Chesbrough, 2003, pp. 45-55).
The above stated has an important impact not only on the role of the R&D department in general but also on the individual roles of the personnel working in the department. The researchers and engineers will still be needed in order to conduct the research parts done internally. A number of new roles that are equally important have to be filled. Know-how on how to create a venture, and assessing the potential of a new innovation which is brought to the market on its own through a new created venture is now also needed internally. Additionally, the identification of new potential technologies and innovation needs a different set of skills than traditionally needed in the research field. Finding the right people to manage a more complex knowledge landscape will be crucial. Network abilities and broad understanding of many different fields of applications and technology in order to identify the missing pieces that will lead to market success of an innovation are important roles in the new R&D landscape.
Under such changing and challenging conditions there has appeared an alternative method of R&D management in the context of open innovation – it has been termed ‘corporate incubators’ and has been explicitly described by Becker and Gassman (2006). They authors distinguish four types thereof: fast-profit, market, leveraging and in-sourcing incubators. These specialized corporate units are meant for hatching new businesses by means of providing physical resources and support, and are mainly facilitated by the application of four basic types of knowledge: entrepreneurial, organizational, technological and complementary market knowledge. (Becker and Gassman, 2006). The incubator procedure has proved to be highly efficient in the process of decision-making in the R&D department due to its optimal segmentation encompassing all stages that are necessary to achieve the necessary result. The process includes four stages: selection, structuring, involvement and exit.
In order to proceed to the selection stage it is necessary to consider selection criteria – innovative projects, the proposed business plan and high growth potentials. Tenant origin is also one of the characteristics to be taken into account, including start-up and branches of existing companies. Industry focus is made on information and communication technology, services and financials as well as manufacturing. One more criterion is the ratio of enquiries to screening and admission – here such characteristics as high number of enquiries and high number of initial screening are required.
The next stage is structuring – here the relevant characteristics are equity ownership (should be about 20% but still is considered low) and service charges (the main attention is paid to internal charges, though a certain number of external charges is also taken into consideration). The involvement stage encompasses more characteristics that are relevant in the overall process. First of all, it is the involvement process (including no particular arrangements and little management time for advice), feedback to tenants (here the relevant points are information, periodical meetings and periodical surveys) and feedback to stakeholders (informal, periodical meetings).
The final stage is exit – it includes exit criteria (unachieved objectives, achieved objectives and limited space), reasons for which certain tenants leave (whether it is more room or end of the fixed period); and the assessment of the incubator performance (graduates, occupancy rate and financial performance) (Becker and Gassman, 2006). This method has repeatedly proved its efficiency and helps the R&D department accommodate to the changing environment of conducting its regular responsibilities under the conditions of the open innovation paradigm.
In order to be successful in open innovation the management principles of the R&D department will also have to change and adopt in order to manage the increased complexity the open innovation paradigm brings with it. The increased openness of the innovation process also creates an increased transparency of the innovation process and benchmarking possibilities with other companies. Additionally that leads to more competition between the internal R&D department and outside providers (Chesbrough, 2003).
Impact on the company and its innovation strategy
With the elimination of the simple understanding of R&D as a bunch of very smart people who, if funded sufficiently, will produce valuable outcome, the overall innovation strategy is more complicated to formulate. It will possibly need completely new tools to allocate budget to an R&D department in the open innovation. The first thing to be paid adequate attention to is the arrangement of innovation in a proper way, so that it would succeed and yield awaited results. With this purpose it is important, according to the opinion of Jan Bujis (2007), to create a proper pattern of leadership in order to satisfy the needs of the changing environment. The author considers such aspects of innovation as the content of innovation (whether it is the new product, the new technology or the new market), group dynamics of the innovation team, consideration of the innovation process as the creative process and the adequate construction of leadership, which is the key element in the point (Bujis, 2007, p. 1).
It is still important to attribute much attention to the human factor in the course of studying the change in the company’s strategic change – as it is witnessed from the case study of the company Endesa that successfully overcame the open innovation phase adopting the described model efficiently, “innovation cannot be created without the support of the organization’s employees. The aim is to take advantage of the organization’s internal knowledge as an essential resource” (Sanchez, 2007).
Moreover, companies within an open innovation are not forced to build up all their research abilities in-house. They also have a possibility to build their innovation strategy on an acquiring technique. With this approach the needed technology innovations are not built within the company and the internal R&D resources are minimal. The innovations are identified within technology ventures that do the research. This approach needs different skill sets within the organization. As an example of the innovative approach to the company’s structure in the process of open innovation one may consider the case described by Jacobides and Billiger (2006) in which the authors have been investigating change in the company Fashion Inc. for three years and assessed the changes that took place with their vertical integrated structure:
“By identifying the specific advantages resulting from a vertical architecture, we emphasize dynamic benefits. Appropriately designed boundaries allow firms to change and improve their own operations, strategic and productive capabilities, innovation potential, and resource allocation processes” (p. 258).
Identification and integration of ventures into a particular organization becomes dramatically more important than internal management of research and development projects. As noted by Chesbrough (2003a) in his work A Better Way to Innovate the 21st century dictates a really dramatic necessity for all companies to adopt the open innovation strategy, which is “accessing and exploiting outside knowledge while liberating their own internal expertise for others’ use” (p. 12).
Impact on the network of an ecosystem of an industry
Open Innovation is strongly linked to the concept of tying companies closer together with other companies. Companies are working more and more together in networks in order to create the greatest customer value (Vanhaverbeke, 2006, p. 205). Therefore innovation always has an important impact not only on the individual firm but also on the ecosystem or network the company operates in (Vanhaverbeke, 2006, p. 218). It has been identified as a general trend in management that companies specialize more on their core competency and break the value chain apart focusing only on those parts where a real competitive advantage can be gained (Aberdeen et al., 2007, p. 22). Due to the collapse of transaction costs, caused by the developments of information technology, the networking premises are more widely available today (Vanhaverbeke, 2006, p. 217) – not only for innovation but for doing business in general.
Continuing the point of discussion, it is necessary to mention the newly established concept of systemic innovation – it is the approach to open innovation that helps involve other participants and create an efficient network to reduce costs for different aspects of production processes:
“While integrating systemic innovation economizes on the cost of coordination and provides control benefits, it is frequently infeasible since even the largest firms lack the financial resources let alone technological and market capabilities to create the simultaneous complementary innovations necessary for the successful systemic innovation” (Maula et al., 2005, p. 7).
The network economy is another driver that can push the diffusion of open innovation even further. The reason for this is that in case companies are already connected to their suppliers, customers and sometimes competitors, the same network can also be partly used to foster the collaborative innovation processes.
The innovation network allows a different set of players to play an important part of a new product or service. The mixture of the involved partners depends on the goal the driving force behind an innovation wants to achieve. For example, a company can partner with universities or research facilities in order to explore the potential of a new technology (Vanhaverbeke, 2006). A company can also establish alliances with start-ups to learn from their technology or it can set up networks with suppliers and customers to launch new products or services together with the suppliers for the selected customers (Vanhaverbeke, 2006). In this respect it is relevant to recollect the results of the study of Christensen et al. (2005) in which the researchers made an attempt to look into the scheme of arranging the production networks and to investigate the ways in which they function successfully. The study was arranged on the sample of the transformation of consumer electronics in the context of the open innovation paradigm. The authors admit that from at the first glance the world market of electronics seems to be overfilled by products of a limited number of suppliers such as Sony, Panasonic, JVC etc. However, not everyone knows about the whole scope of companies involved in the overall supply chain of these companies, which is the innovation in itself –
“several other categories of firms that are mostly not associated with consumer electronics: small specialized suppliers of components and modules, broad-scoped electronic component providers, small providers of end-user products in the high-end markets, and the dedicated manufacturers and assemblers of components and systems” (Christensen et al., 2005, p. 1536).
This way it is seen that the practice of arranging large and extended conglomerates is widely spread – evidence for this may be found in practically every industry of the world business market nowadays. However, the impact open innovation has on the network and ecosystem in a given industry can only be guessed today, because collaborative learning and innovating is still a rather underexplored area in the field of network theories (Vanhaverbeke, 2006).
Based on the impact that open innovation will have on companies and networks, probably the most important impact for management is the different culture needed. This is true not only for the company in question but also for all the participating companies or institutions – the 21st century has been marked by a changing paradigm of cultural implications in business as well as in the overall cross-cultural communication involved in the process of conducting business affairs (Chesbrough, 2003).
If one has a look at the organizational and individual changes needed in the R&D department, it seems obvious that there is a major shift needed to become a successful player in the open innovation. Management principles, skill sets of individuals and work incentives will have to undergo a radical change to accept innovations that originate outside the company or let innovations flow outside the own R&D. Thus, it is of crucial importance to estimate the key objectives of the change necessary to be undergone on the way to change and to implement open innovation successfully.
One of the biggest challenges after having understood the main driving forces of open innovation will be its successful adoption in companies and the cultural change will probably be one of the major hurdles in order to adapt to open innovation and profit from its advantages (Robbins and Judge, 2008).
In the context of discussing the cultural change it is important to turn to the work of Edgar Schein (1988) in which he defines the main concepts of culture relevant for the period of business change. First of all, he attracts the reader’s attention to the importance of perceiving the innovation in two major aspects – ‘content innovation’, i.e. the emergency of new products, new services, structures and strategies, and the ‘role innovation’, i.e. the way things are done and the new approaches to the distribution of roles in the production and management process. The primary attention in the preceding chapters was paid to the first aspect of the innovation, so this chapter is devoted to the second part of the issue – the deeply routed concepts that underlie the psychology of performing business tasks, the culture and tradition of conducting business affairs and the roles of leaders, managers and performers that are engaged in the overall process of production to make it innovative. The essence of the process is to make not only the outer change – in order for the change to work out it is essential that the inner change and perception of the personnel involved in the process would also evolve together with the enterprise. In order to define the ways to arrange this, it is necessary to consider the cultural implications relevant for the process.
First of all, one needs to define culture in order to facilitate further understanding of implications bound to this concept:
“Culture can be defined as the pattern of learned basic assumptions that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to the problems of survival and integration“ (Schein, 1988, p. 8).
Judging from this point, it is clear that culture is a set of moral and ethical principles that guide every person in his or her decision-making process while conducting business affairs. The way this set or code of rules and principles is arranged shapes the profile of the company and creates the company’s reputation, which is a trademark in itself. Thus, in order to create a correct set of rules that will help the personnel successfully adjust to the innovation process one has to understand the principles underlying the human perception of morale, virtue, correctness and propriety of certain activities etc. The organizational culture should be strong in order to become a firm basis for the company’s innovation. Edgar Schein (1988) outlines the following characteristics a culture should possess in order to follow the initial goal:
- the strengths of the initial convictions of the organizational founders;
- the stability of the group organization;
- the intensity of the learning experience in terms of number of crises survived and the emotional intensity of those shared crises;
- the degree to which the learning process has been one of anxiety avoidance rather than positive reinforcement (the more the culture serves to reduce anxiety, the more it will resist change (p. 9).
Judging from that point, it is possible to make certain implications about the inner structure of a particular organizational culture in order to assess the possibility of change within this organization. It has been long ago proved that the basic principles guiding the establishment of cultural values in a certain group are the underlying factor of success of innovation planned in this particular group. For this reason, to adequately assess the possibility of innovation change, it is first of all essential to take up the cultural change – the way people within the organization perceive innovation and the way they accept and promote it.
One more moment in defining the cultural change in an organization is defining what exactly is needed from an organizational profile in a company under the conditions of the open innovation paradigm. Menzel et al. (2006) have a firm opinion on this point:
“An appreciation of the importance of culture and cultural differences has high relevance for entrepreneurship and innovation. From an organization’s point of view, innovation activities are basically built around interaction processes between individuals and the surrounding organization, including the interaction and transfer of people across national, professional and corporate cultural boundaries” (p. 5).
According to the materials provided by Edgar Schein (1988) it is possible to estimate the level of fatalism in the personnel of the company – fatalistic companies are typically satisfied with the niche they occupy in the market and do not strive for success at all. They do not have any competitive spirit and are not used to innovation, thus being resistant to any introduced change. If the cultural situation in the company looks like that, the innovation measures are certain to fail and the personnel of the company itself will suppress any attempts for innovation (p. 17).
The second factor worth paying attention to is the level of cultural organization of the group constituting the personnel of the company – there are three types of group organization concerning innovation: proactive, reactive and harmonizing people (Schein, 1988, p. 18). The change is possible to be conducted only in a group of proactive people, because two other groups are likely to be highly resistant towards the change and will possibly create mechanisms for suppression of innovation inside the company.
The aspect of decision-making and the system of finding solutions is also relevant for the cultural change, as the change should concern all spheres of group activity. In this case Schein (1988) makes a hypothesis that the group work of which is strictly based on dogmas, traditions, rules and strict regulations are also not likely to be susceptible to innovation since they are too normalized in their activity in order to want anything else (p. 20). Change also requires time, and in order to produce the cultural change efficiently and achieve visible results one has to determine the period of time to implement the innovation plan. It is a common practice to divide the business time into certain periods, and an interesting peculiarity that has been revealed in the course of long-lasting studies is that the personnel of different levels of authority perceive time in different terms. Thus, it is important that the innovator should estimate the target audience to which he or she is going to address suggestions. The innovation plan may not be successful if the stipulated periods are handled in the wrong way – either wrong portions of time are used, or the wrong people are addressed.
Another important implication drawn by Schein (1988) lies within the scope of the group construction – he states that the innovative cultural change also depends on whether there are innovative people in the senior management of the company. If there are some people who may implement the change, then the innovation is more likely to succeed. However, if there are no people in the administration who would assist the change then even the prevalence of people in the staff seeking innovation may fail to promote the change within the company (p. 26-27).
Schein (1988) sees the main key to success in the innovation process in the promotion of cultural diversity and involvement of active participation in the process of representatives of different cultures which, nevertheless, have to be authoritative enough for their opinion to be respected and taken into consideration seriously within the organization. The author sees the way out in the multinational organizations that have subsidiaries in several countries – by promoting cultural exchange between the subsidiaries and the parent organization the change is likely to be more successful and prompt, yielding much better results.
From everything that has been said one can make an inference that the cultural change is possible only under the condition of systematic, well-organized change of the implications for the managerial staff and for the regular personnel taking into consideration all aspects of group characteristics and group dynamics in a particular company. One specific trait of every individual comprising a group should be paid even more attention to, distinguishing itself in the whole set of characteristics mentioned in the list – it is creativity that pushes the progress of innovation ahead, so it has to be encouraged in all possible ways in order to achieve the change in cultural standards and guidance of a particular company. As noted by Teresa M. Amabile (1997),
“Creativity is the first step in innovation, which is the successful implementation of those novele, appropriate ideas. And innovation is absolutely vital for long-term corporate success. Because the business world is seldom static, and because the pace of change appears to be rapidly accelerating, no firm that continues to deliver the same products and services in the same way can long survive” (p. 40).
The Case of DSM
In the context of discussing the cultural change implications it is relevant to have a precise look at the experience of the DSM company, the organization that proved to be successful in expanding their business, creating additional opportunities and sustaining its competitive advantage in the world market in its segment of life sciences and performance materials with the help of adapting to the conditions of open innovation. The case is explicitly described in the work of Kirschbaum (2005).
First of all, the company claimed to adopt the strategy of ‘culture of change’ with the purpose of creating value – what is significant, the choice of culture as the underlying principle of gaining profit was rather innovative for that time. They also realized that venturing is important in the process of achieving growth, so they adopted an innovative policy of gating – the way they established new subsidiaries that had to pass a certain number of gates, being closed in case they did not prove to be competitive at any of the gating stages, or continuing their existence in case they remained profitable and promising for the paternal business (Kirschbaum, 2005, p. 26).
In addition to the newly established method of expansion, the DSM Company worked out a set of inner incentives for the employees involved in the process of production. They called this new type of mindset ‘intrapreneurship’, thus implying that the person engaged in the working process of DSM has to be fully dedicated and committed to the company and to the job he or she does. The concept of intrapreneurship comprised a set of rules and characteristics that had to be observed in order to correspond to the stipulated image of the worker, e.g. the person had to be ready to do any job necessary for his or her project to work out; he or she should be true to the stipulated goals, but realistic on how to achieve them; recruiting a strong working team has become an essential factor of success; the person had to forget the pride and to be able to work in a team, sharing credits and benefits wherever it was necessary; the initiative was highly encouraged as intrapreneurs were welcome to ask for forgiveness rather than for permission (Kirschbaum, 2005, p. 27).
Managerial culture was also paid thorough attention to in the DSM because a set of cultural change implications was worked out for managers as well. The new philosophy of conduct included such items as daring to decide (thus encouraging initiative, creativity and active participation in the development of the company); attracting the right people (thus ensuring the high quality staff engagement); managing and meeting expectations (ensuring the overall commitment of managers to the mission of the company); making sure that the knowledge flows (encouraging managers to actively participate in the open knowledge exchange); balancing financial and strategic goals (thus binding the cultural goals to the practical aim of gaining profit by the company through the cultural change); actively managing portfolios (engaging mobile personnel in the overall working process with the help of open innovation principles); proving the sustainability of corporate venturing in the chemical world (since venturing is a widely spread element of open innovation, the aspect is paid much attention to) and putting ‘open innovation into practice’ (thus summarizing all implications that consider all aspects of this diverse phenomenon) (Kirshbaum, 2005, p. 28).
The result of the cultural change process, as investigated by Kirschbaum (2005), was successful and brought the company success and prosperity. Thus, it would be useful to pay more attention to the methods DSM applied to introduce the open innovation change into their everyday practice, so that other companies would be able to gain some efficient experience for future:
“Successful, profitable innovation depends upon teamwork and an intrapreneurial culture. It is not enough simply to identify technologies that are ripe for innovation – to create real value, it is necessary first to identify what is needed in particular market segments and then to identify which technologies can be adapted or developed to meet this need. Value creation requires a coherent strategy” (Kirschbaum, 2005, p. 28).
Process View of Open Innovation
It goes without saying that innovation in general is a very complex process that includes many aspects and stages that have to be taken into consideration in order to make open innovation a success. Initially it is important to find out what becomes an incentive of innovation, causing the need of actions being taken with the purpose of improving or reconstructing a certain segment of business. As it has been stated by Goffin (2005), there is a set of primary factors that cause the necessity of a change, i.e. innovation:
- technological advances (the development of technology is a dynamic process that is highly intensified in the context of the 21st century; for this reason it is very hard for all companies to keep up with the technological progress, which makes them aspire innovations and advancement. It is not a secret for anyone that a company possessing a more advanced and innovative set of equipment, no matter whether it is meant for providing services or for production of a certain type of goods, has more chances to gain the competitive advantage in the segment in which it conducts its activities);
- changing business environment (the contemporary business world is dynamically developing at a quick pace, so various business innovations are evolving every day, making the companies respond in a prompt and efficient way in order to sustain a competitive potential – for this reason innovation in the structure, set of goods, services or technologies, the need to provide the consumers with novelties make every business go ahead along the path of innovation);
- changing customers and needs (customers have always been the primary target of businesses’ attention as they are the second indispensable element of every business’ functioning; without customers any business would seize to exist, this is why every company has to conduct constant surveys and monitor the level of customer satisfaction in order to detect the changes in the customers’ perception of its goods; at the moment when the customers become saturated with the products and the level of sales may be falling, the need for change may become evident);
- intensified competition (the world market is overcrowded with new organizations and ventures willing to take their chance in the world of business affairs; it is clear that some firms turn bankrupt and disappear from the business arena, and some succeed and achieve a tremendous success. However, even an established and popular company possessing a fair share in its business segment should always beware potential competitors that may win that share and force the company to leave the market. For this not to happen, the companies should constantly sustain an adequate level of competitive advantage in order not to lose their beneficial position).
The research of Gassman (2006) also led to somewhat similar results, indicating the trends that bring about the major popularity of the open innovation model and assisting its implementation. Among many factors contributing to the formation of the present situation he emphasizes the following ones: globalization (making the process of conducting business affairs much easier and thus contributing to the implementation of the open innovation model due to overall international integration); technology intensity (as it has already been discussed, the quick pace of technological discoveries and advancements dictates the need to keep pace with the rest of the business world); technology fusion (the overall integration of different spheres and multi-aspect cooperation have become the guiding line for the majority of companies to establish their open innovation models and put them in work); new business models (that are one of the key elements of the open innovation paradigm and dictate a new approach to conducting business affairs); and knowledge leveraging (the mobility of knowledge worldwide enables enterprises of any scale, size and specification pick up the strategies, tools for the change and methods openly, freely and quickly thus facilitating the change within their borders) (p. 2).
More than that, Gassman (2006) goes a bit further in his assessment of incentives for the change and innovation and outlines the main perspectives they draw in case the push towards innovation is taken correctly and implemented in a rational way. He includes globalization of innovation, outsourcing of R&D, early supplier integration, user motivation and external commercialization and application of technology in the list of possible advantages a firm may acquire as a result of innovation implementation (Gassman, 2006, p. 2).
So, the described factors are the prime movers of innovation – influencing the company in a diverse way and to a different measure, they initiate generation of ideas on the subject of improvement and change. However, it is still not easy to define innovation in such simplistic terms – it is also essential to identify the phases innovation goes through on its way to be implemented. Again, according to the information provided by Goffin (2005), the process of innovation looks the following way: ideas concerning the change are generated, then they are sorted out with the non-fitting part of ideas being rejected and ‘killed’. After that the concepts chosen to be appropriate for implementation become projects that are worked out and sorted out again, for the sake of saving the company’s money, time and effort on the production of an unsuccessful project. After the second phase of funneling the projects are implemented and commercialized (Goffin, 2005, p. 17). This way the ideas become profitable for the company after going through the whole period of transformation, consideration and assessment.
Nonetheless, one should always remember that the process of innovation conceals a number of complexities depending on different factors. First of all, the level of complexity depends on the degree of innovation and the range of dimensions being involved in the change. For example, the radical change project will require much more time for implementation and will be much harder in application than a regular, simpler segment change not involving many dimensions enacted (Goffin, 2005).
Speaking about the dimensions and functional elements of the company involved in the change, it is first of all important to enumerate the sectors of a company taking part in the process, their importance and the range of functions they are responsible for.
The main department involved in the process of conducting innovation is the R&D department. The responsibility of R&D is to monitor generation of ideas, monitor the world market of knowledge in a constant search of alternative decisions that may prove to be better and more profitable for the company. Thus, the department is responsible for the initiation of the innovation and giving it the theoretical filling, i.e. a set of ideas that will be further processed and considered with the purpose of accomplishing the change.
The marketing department is also a significant element of the innovation process because of the importance of final commercialization of the project. It is useless to create an innovative service, product or technology if the company does not gain any profit from it, and it has no potential benefit and profit for the investor. Thus, it is the task of the marketing department to scan the business environment in which the company exists with the purpose of stipulating the possible range of applications of the project and the potential profit it may bring to the firm.
Operations department is another sector involved in the innovation – the task of this department is to assess the technological capacities of the firm and assess its possibility to accomplish the considered project. It may sometimes happen that the project is profitable and has a good potential, but in fact it may appear beyond the limits of the company’s power, thus becoming a challenge impossible to overcome.
Finance and accounting department is responsible for the financial side of the innovation process and performs for the most part a controlling function. Again, as in case with technological capacities, the project may appear beyond the limits of the company’s financial possibilities, or may become a great risk not worth taking for the sake of the company sustaining its stable financial position, thus becoming an undesirable option to take up.
Human resource management department is responsible for managing the staff of the company that is involved in the process of innovation. Motivation and intrinsic stimulation are highly important in the situation of undergoing change, so it is the task of the HR department to create the favorable working environment. Besides, implementation of the project may require participation of some external specialists, so it is the responsibility of the described department to assess the needs for the project in a timely manner and choose the necessary specialists for the successful completion of the project.
Outside resources are the last but not the least factor participating in the process of innovation. In the case with open innovation open resources obtain the key importance, since the whole process of open innovation is built on the concept of borrowing findings of other companies and attracting outer resources for a more complete and successful accomplishment of the project.
Finally, finishing the discussion of the process of innovation and stages it includes it is important to have a look at the findings of Gartner (2008) about the common pitfalls the companies undertaking innovation make. This list of the most widely spread mistakes has been made with the purpose of saving the companies that plan innovation for future, showing the sad experience of other companies that have already suffered from these pitfalls. Among the main issues worth paying attention to Rozwell (2008) names the following five points:
- Failing to set the stage for the need to ideate;
- Working on the wrong problem;
- Misjudging ideas;
- Neglecting to capitalize on the new opportunities ideation generates;
- Ignoring the ideation infrastructure requirements (Rozwell, 2008, p. 2).
Taking proper account of the enumerated pitfalls, and considering all stages of the process and bodies involved in it may save the company from many problems and complications in the course of implementing the open innovation model into practice. Consequently, the present chapter should be considered attentively while planning the process and building up the strategy planned for implementation.
In the course of studying innovation it has already become clear that the change is impossible with the involvement of only external, material phenomena and subjects. The process of innovation should be multifaceted, multi-level and complex enough to affect all levels of the organization’s existence. Open innovation is impossible without the change in thinking, perceiving the events and the philosophy of human conduct. Since open innovation is a basically new approach to conducting business affairs, it requires a basically new attitude, morale, ethics and philosophy. The implications of human behavior in any organization may have been functioning for a number of years, and they may be the problem for implementation of the innovation because of resistance to change. As it has already been discussed in the previous chapter, change may be hard to introduce for a number of reasons, and the main reasons lie within the group perception thereof. Every group possesses a certain culture which is a set of their experiences, moral heritage and predetermines their attitude to the majority of things they do, the way they think and make decisions etc. However, the notion of culture is still under-researched because of the ambiguity of concepts of an organization and culture itself. Thus, the issue requires more particular attention in order to state what culture is and how it influences the transition to an open innovation paradigm.
Definition of Culture
The term ‘culture’ has been popular with the researchers in the business sphere for many years and has even become too frequently met in order to understand its genuine meaning. The problem with the definition of culture of an organization lies within the scope of consideration of an organization itself – it is too dynamic and unclear a term with vague limits so that culture may not be simply defined as a set of characteristics and experience of a certain group possessing some type of knowledge and conducting a certain kind of activities. However, it has become the central issue in the context of analysis of an organization and organizational behavior (Robbins and Judge, 2008). Edgar Schein (1990) has conducted research on the subject of organizational culture theoretical base, and according to his findings culture can be treated as follows:
“Culture is what a group learns over a period of time as that group solves its problems of survival in an external environment and its problems of internal integration. Such learning is simultaneously a behavioral, cognitive, and an emotional process. Extrapolating further from a functionalist anthropological view, the deepest level of culture will be the cognitive in that the perceptions, language, and thought processes that a group comes to share will be the ultimate causal determinant of feelings, attitudes, espoused values, and overt behavior” (p. 111).
From the following definition it comes out that the term of ‘culture’ first of all refers to the cognitive experience the person obtains when sharing participation in a certain group, or which he or she accumulates while performing certain activities or just being within the limits of a certain group. Thus, referring the term to the notion of an organization, as in the described case, it is possible to summarize that ‘culture’ is the commonly accumulated experience of those who are a part of the organization’s team, which they share with newcomers and which they accumulate to create deeper spirituality, deeper commitment to the common group and to establish a stronger sense of belonging of an individual to the group, which is essential for the successful team-work and individual existence within a certain organization.
Continuing the considerations of Schein (1990) on what culture is, it is important to turn to his statement about the levels culture has in reality: observable artifacts, values and basic underlying assumptions (p. 111). In the present case it becomes clear that the observable artifacts represent the highest and the most superficial level which is easy to observe but hard to grasp. To be more precise, one can say that the observable artifacts are the way culture is revealed in the overall process of human behavior – these are physical, verbal and non-verbal implications of culture that may help an independent observer understand the principles guiding this behavior. However, the seemingly simple overview of observable artifacts does not give any clue to understanding the motivation of such actions – the person who undertakes his or her research may see only what people do, and may only make subjective conclusions about why they do so. Here comes the most widely spread mistake – when the researcher starts making his or her personal inferences on the subject of the nature of these actions, while it is impossible to create an objective idea of what principles really guide those people and make them act that way, and not any other way.
Values are a deeper layer of the organizational culture that may give a better understanding of what culture really means for people working for a certain organization and how it is implemented in their everyday life. Values are a set of norms, dogmas, moral guidance or ethical codes that are important and relevant for the certain organizational group, thus becoming the set of rules established for them, or the code dictated by the profile of an organization. It is hard to estimate the boundary in moral questions as to who is the main authority stipulating standards – at times it may be an imposed code of behavior and morale keeping to which secures the person’s employment; at times it may be a result of moral evolution and enrichment, as it has already been said, the heritage of a certain group, its experience that was accumulated and improved, systematized and then processed into a set of values (Schein, 1990, p. 111).
The deepest level is represented by the basic underlying assumptions. They are usually more common for all groups and organizations and represent operations and interpretation of some basic human truths and ethical codes concerning the founding principles of human existence, e.g., that hurting other people is bad, lying to other people is bad, one should take care of his own dignity and virtue, one should correspond to the social role he or she has chosen etc. These principles are the dominants of human behavior and create the framework in which values are inserted to create a more diverse and flexible system of morale and ethics (Schein, 1990. p. 111).
However, discussing the culture in a certain organization, it is also highly important to estimate the range of efforts the individual has to take in order to enter or participate in a certain culture, what challenges a group may meet on the way of establishment of cultural implications etc. In this context the study of Schein (1990) is again highly relevant. He stipulates a set of tasks that has to be performed by the participants of the group from inside and outside in order to sustain the culture’s existence.
So, there is a set of external and internal adaptation tasks to which members of an organization and thus the participants of a certain culture have to comply. External tasks include developing consensus on the following set of concepts: the core mission, function and primary tasks of the organization vis-à-vis its environments; the specific goals to be pursued by the organization; the basic means to be used in accomplishing the goals; the criteria to be used for measuring results; and the remedial or repair strategies if goals are not achieved (Schein, 1990, p. 113). Internal integration tasks also include developing consensus on the following issues: the common language and conceptual system to be used, including basic concepts or time and space; the group boundaries and criteria for inclusion; the criteria for the allocation of status, power, and authority; the criteria for intimacy, friendship, and love in different work and family settings; the criteria for the allocation of rewards and punishments; concepts for managing the unmanageable – ideology and religion (Schein, 1990, p. 113).
From the present set of principles the group has to follow in the course of existing within a certain culture it becomes clear that the group has to consider not only some tasks concerning the production and business process, but has to take broader concepts into account – the way the members of the group live, what personal preferences and problems they have, what beliefs and principles they have in life etc. Thus, a culture of an organization is a natural mix of common and individual traits and considerations that interrelate in a dynamic way to create a healthy or unhealthy working environment.
What is also relevant in the course of discussing the definition of culture and its implications in an organization is the way the culture should not be perceived. As it has been stated at the beginning of the section, the notion of culture still remains undefined enough to make a more or less precise conclusion. Thus, analyzing the assumptions of Edgar Schein (1986) it is possible to outline a set of mistakes researchers make in the course of studying culture as a phenomenon. The first misunderstanding Schein turns the reader’s attention to is the superficial or limited perception of the concept of culture. The author states that many researchers give too varying definitions of culture without paying attention to each other’s findings, and as a result the main focus is made on the outer implications of culture observed in patterns of behavior of the members of the group. Other researchers even mix the term of ‘culture’ with such terms as ‘organizational climate’ or ‘management style’ neglecting the fact that culture has nothing to do with these notions and constitutes a much broader concept into which the former two are included (Schein, 1986, p. 30).
Another finding of the author is that too little attention is paid to the scope of influence of the concept of culture – he admits that the perception of culture is too limited and does not include the long history of its creation, formulation and establishment. A strong cultural background cannot be created artificially – it has to be the logical result of human experience accumulated in the course of the period of the company’s existence and becomes an integrated, fused phenomenon including all individual and common traits characteristic for the organizational group, in order to suit everyone and be naturally introduced into everyone’s life and daily practice (Schein, 1986, p. 31).
Among other findings of the author one can consider the stereotyping of total cultures into general types, though it is still impossible to create a more or less intelligible classification of cultures because of lack of research and data; simplistic views on how the culture begins, evolves and changes; ignoring the effects of different organizational life stages on cultural issues; and failure to recognize training and organization development’s occupational cultures (Schein, 1986, p. 31-33). All these findings are very thought-provoking and have to throw more light on the issue of what culture really is and is not. As Hofstede et al. (1990) have indicated, organizational is a fad for managers; fads pass and this one is not an exception. But in order to deal with it productively, much more work should be done, so the present chapter has a set of highly efficient conclusions and implications for future use to deal with the phenomenon of culture.
Getting back to the issue of corporate culture, it is important to note that the notion of culture is also attributable in a broader form to the lately discussed notion – as it has been defined in the previous chapter, culture exists only in a group, so where is a group of individuals, there is a culture. Thus, it is possible to draw a parallel with an organization the staff of which also constitutes a group and makes it possible to apply the meaning of culture to the working group as well. However, one should remember that corporate culture is rather hard to define because of its connection with a set of sciences that interact and intervene with one another – namely, it is anthropology, sociology, social psychology and organizational behavior (Schein, 1990, p. 109).
It is known that in fact organizational culture had been existing long before it was discovered – about half a decade ago it was implemented in the notion of institutionalization. This term included compliance of every person in the organization to a certain set of written and unwritten rules that had to be followed for the individual to merge with the overall working team:
“When an organization becomes institutionalized, it takes on a life of its own, apart from its founders or any of its members… it becomes valued for itself, not merely for the goods or services it produces. It acquires immortality. If its original goals are no longer relevant, it doesn’t go out of business. Rather, it redefines itself” (Robbins and Judge, 2008, p. 551).
From this point it becomes possible to judge that the organizational culture of an organization has a certain value in itself, without any additional supplements. It is a set of values pursued by a group, created by this group in response to the needs of the external and internal environment and as a result of a long historical process. Thus, it is a value in itself – it is the heritage of morale, ethics and principles of conduct an organization has chosen on its long way of existence as the ones adequately suiting the profile of the company and satisfying the needs of both the customers who are the target public of every company, and of the staff, who are the productive potential of the company and bear the main responsibility for its functioning and prosperity.
It is notable that culture is broadly considered to be a descriptive term because of the inability to adequately assess the meaning of the phenomenon. For this reason there are some researchers who make culture equal to formalization (Robbins and Judge, 2008). However, it is essential to understand the core difference between these two notions – formalization bears a solely controlling function; it has been created to sustain a more or less homogeneous profile of the company and to promote keeping to a limited set of principles, laws and regulations to make control over the personnel of the company easier. Corporate culture is a deeper, broader and more loyal term that includes many aspects neglected by formalization.
First of all, the founding difference lies within the scope of diversity – if formalization prohibited any way of self-expression lying beyond the measures stipulated by the code of the company, then corporate culture, on the contrary, nurtures self-expression and freedom of self-realization. The underlying principles of a strong and adequately formed organizational culture are respect towards diversity of subcultures constituting it, nurturing individualism, encouraging active participation, creativity and enthusiasm; the shift was made in the course of realizing the fact that the progress can be achieved only due to the common effort of the whole staff of the organization, so unnecessary limiting formalizing rules may kill someone’s talent or bury one’s initiative that might have brought profit and success to the company. This tendency is still conflicting with the initial purpose of organizational culture – “organizations develop cultures that are expressed in structures that permit large numbers of people to coordinate their efforts, and that permit new generations of members to continue to perform effectively” (Schein, 1986, p. 3).
Nevertheless, it is still hard to estimate what actually culture does in the organization and how it affects the life of group members during the working process and beyond it. In order to estimate these facts more precisely, one should turn to the study of the previous century conducted by Hofstede et al. (1990) in their attempt to define the role of corporate culture in the overall working process, its contribution to the success of the firm and the overall scope of influence the notion has within the borders of the company.
The research included thee dimensions of assessment, with the fist stage assessing the influence of organizational membership on the formation of the personality and the realization of his o he inner self at the working place. The questionnaire offered to the personnel of 20 researched companies included 22 questions on their work goals, 22 questions on general beliefs, 44 questions about practices in one’s work situation, some other questions about decision-making styles of their bosses, 7 questions about the behavior of a typical member of the organization, 13 questions about the reasons for dismissal or promotion and 4 demographic questions. The results of the study showed that membership in a certain organization surely influences the way of answering questions, since the implications of corporate culture are rather strong in every of them (Hofstede et al., 1990).
The second part of the research was dedicated to the dimensions of culture that may be investigated within the studied 20 organizations. This part was conducted with the help of factor analysis because of the corporate culture being not the attribute of every separate individual, but of the whole organization. Thus, the researched factors were the following: need for security, work centrality, need for authority. In this case the research revealed a huge difference according to the national characteristic, so the researchers decided to attribute this difference to the peculiarities of prevailing education or cultural dominance in the age of formation of the personality (Hofstede et al., 1990).
The third part of the study was devoted to the issues of practice differences in the described companies. The factors researched in the context of that study wee the following whether the model of the organization was: process-oriented or results-oriented, employee-oriented or job-oriented, parochial or professional; whether the system was open or closed and whether the control was loose or tight. In this case, and as a summary of all findings from the three surveys conducted by the researchers, the following conclusions: values of founders and key leaders undoubtedly shape organizational cultures, and these cultures affect ordinary members of the organization through shared practices. The influence was understood the following way – founders and leaders have their own values that are transformed in the ordinary members’ practices. Besides, it was clearly defined that national differences in organizational practices do exist (Hofstede et al., 1990).
From everything that has been said and investigated in the present section it is possible to draw a conclusion that organizational culture is a living organism that is formed through cultural practices on a long-term basis and includes a multitude of implications both of an individual and of generalized level, becoming an integral part of every member’s life – through shared values implemented through everyday practices members of every organization exercise, strengthen and develop their corporate culture in a set of ways.
In the course of discussing culture connected with the concept of open innovation it is highly important to understand the tools to implement the necessary scope of changes into the organizational culture existing at every particular moment within an organization. From the previous sections discussing the formation and inner essence of culture it is understandable that the culture is a stable, deeply-rooted phenomenon that exists partially on the conscious level of understanding of employees, and partially is incorporated into the unconscious perception of individuals and groups, thus being a constant rather than a variable. However, introduction of an open innovation model into the company’s practice demands change in all spheres of the company’s functioning, which implies the introduction of certain changes into the organizational culture structure as well. According to the opinion of Dombrowski et al. (2007), culture is hard to alter as it is exercised on all levels of individual and group functioning in a company:
“Organizational culture is reflected in the stories the members of the organization tell, the mottoes they espouse, the behaviors they reward in the long and short term, their marketing efforts, the management’s approach to relationships, the values they evaluate, and the alliances they create. For example, if only strong performance is rewarded (whether that means pulling in new clients or meeting manufacturing quotas or other measurements), a culture of largely risk-averse employees will develop, and only incremental changes will be valued, even if management desperately seeks radical shifts in strategy” (p. 191).
Thus, according to the results of thorough research, testing, failures and victories it was found out that there is a set of indispensable elements necessary to be incorporated in the company’s everyday practice in order to make the corporate cultural change successful. Dombrowski et al. (2007) have identified eight key elements which, if used properly and conjointly, may aid considerably in the achievement of cultural change that will not cause any negative consequences. They will be considered in a more detailed way further.
The first item to consider is the implementation of innovative vision and mission statements – this process acquires key importance because of the commitment of the team or an individual are usually concentrated in the vision and mission statement of the company. It has always been a rule to arrange the managerial practices in such a way so that to nurture the development of culture around the overall commitment to these key elements of the company’s strategy. Thus, the majority of an organization’s values and practices are focused on this concept. Changing it, management will be able to actively refocus the staff on other values and practices, this way efficiently communicating the new goal and objectives to the personnel to avoid misunderstanding and following the wrong directions on the way of performing everyday working activities (Dombrowski et al., 2007).
The second element is democratic communication – as it has just been mentioned, the key moment in the implementation of a new corporate culture is to efficiently communicate the shift of goals, practices and strategies to the staff of the company, since they are the main target of the change, the bearers of culture who have it incorporated in their lives. Thus, efficient communication of the shift, thorough explanation without any impositions may be the only efficient means of achieving the goal. In the discussed case lack of information from the side of management or administration may bring about a failure in the change implementation; this is why communication, building up a constructive and reciprocal dialogue is of vital importance in the present case (Dombrowski et al., 2007).
The third element is safe spaces – segregated, well-funded and quickly convened fast emerging ventures or stable departments. According to Dombrowski et al. (2007),
“These forms of safe innovative environments have a hands-off approach that allows for the mysterious innovation process to unfold without restrictions or boundaries. In general, these segregated spaces remove employees from the usual business routine and allow them to think radically, unfettered from usual assumptions and practices” (p. 194).
The next element to be considered is flexibility. Every manager whose task is to introduce the innovation and change the corporate culture has to remember that the personnel of the company consists of individuals with their personal peculiarities, life situations and problems; some of them may be susceptible for the quick change and some may not. This is why the change should involve as little imposition, pressure and formalization as possible – the softer it is, the better results it will yield in future (Dombrowski et al., 2007).
Collaboration is also considered highly relevant in the process of open innovation. It goes without saying that no individual will cope with the change individually, without cooperation and mutual support. First of all, team work on the innovation will ensure the homogeneous understanding of the purpose of innovation, thus ensuring the growing commitment to the newly established goal. Secondly, the collaboration approach to the change will ensure more or less equal movement along the way of change, not leaving some employees aside or behind, and logically bringing the team of a certain company to the awaited and desired results (Dombrowski et al., 2007).
Boundary spanning constitutes the establishment of efficient communication between different levels of the organization – its departments, laboratories, teams and subdivisions. This communication will promote overall integration and unification of the human resources within the company and will help achieve homogeneous results in the process of the change. As proved by the research conducted by Flemming and Waguespack (2007), boundary spanning is an increasingly important element of introducing the change:
“Firm boundaries are more formal, longer lived, and probably support the transformation and hardening of technological boundaries into social boundaries. In private firms, brokerage and boundary spanning probably correlate more strongly, such that individuals who span a cohesive boundary should become increasingly rare over time. If this were true, then the combination of boundary spanning and cohesion might be an even more effective promotion strategy in private firms than in open innovation communities” (p. 177-178).
Incentives are one more element necessary to be taken into consideration in the context of discussing the cultural change. Employees need encouragement for participation in the overall change, so the initial task of the manager responsible for the change is to create a set of incentives that would promote team work, overall participation, activity, openness and creativity.
Leadership is one of the main elements of the change because of its key role of organizing the overall process. It goes without saying that the innovative approach demands an innovative leadership pattern, this is why the prior attention has to be paid to determination of key objectives leadership has to be focused on, stipulation of means to achieve these goals and thorough selection of people who suit all needed demands, possess the necessary leadership qualities and therefore can guide the overall innovation process.
Onion Model for Culture
Culture is a complex and multifaceted phenomenon that cannot be directly and fully understood and grasped by researchers as well as distant, detached observers. Culture, as it has already been stated, has many implications that may be visible and obvious or deeply-rooted and unintelligible. The open innovation model of conducting business affairs is very closely connected with the cultural change, since it represents a typically new approach to conducting business affairs, to perceiving the whole business process and to communication within the company and beyond its borders. It is a new paradigm including many cultural elements, this is why it is important to study all relevant cultural implications and implement them into everyday business practice.
It is known that interaction activities are the center of open innovation – these are mostly interactions between the individuals and the surrounding organization, multiplied by the transfer of people across national, professional and corporate cultural boundaries (Menzel et al., 2006). This transfer is based on the cultural exchange and sharing common values, practices and morals, thus culture in the open innovation case represents the means of communication and efficient collaboration. Hofstede created the model of cultural exchange that constitutes conscious sharing of ideals, cultural values and practices, which has become a breakthrough in the business science, since before that nobody considered culture such an active element of conducting business affairs. Thus, it has been proved that the essence of culture lies much deeper than it has been traditionally considered – it also means understanding and interpreting the world, which is the core activity of professionals engaged in the business process.
In the context of discussion of culture it is necessary to mention the onion model of culture that summarizes all inferences about the nature of culture and the nature of its influence on individuals, groups, and the overall company activity.
This onion model of culture was created by Schein and later Hofstede at the beginning of the 21st century is analogous to the iceberg model of Selfridge and Sobolik worked out by them in 1975. It illustrates the layered structure of the phenomenon of culture as a multifaceted notion and explains which aspect of culture is situated on which stage of human perception. From the model it is clearly seen that the outer layer, which is called artifacts and products, is evident and visible in the everyday life, being realized through traditions, foods, clothes, language, mode of behavior, style of living etc. This is the outer evidence according to which it becomes possible to judge about the person belonging to a certain culture. However, this layer does not give the complete understanding of all cultural implications existing within the nature of a certain individual (Menzel et al., 2006).
The deeper levels of the cultural model include norms and values according to which every individual being a part of a certain culture functions and acts. This is a deeper level of the person’s consciousness and can be examined in a number of ways. In general, norms and values are very subjective as they have an interpretative nature – every person understands concepts lying at the very depth of his conscience or sub-conscience in a subjective, biased way and forms a set of norms and principles for his or her own life.
“Norms are the mutual sense a group has of what is right and wrong; they can develop on a formal level like written laws, and on an informal level like social control. Values determine the definition of good and bad, and are therefore closely related to the ideals shared by a group. While norms, consciously or subconsciously, give us a feeling of “this is how I normally should behave”, values give us a feeling of “this is how I aspire or desire to behave” (Menzel et al., 2006, p. 6).
The deepest level of the onion model, as it can be seen, is called basic assumptions – this is the basic level from which all cultural implications of a person come and which becomes the background of formation of all principles in case of producing some change. This core set of assumptions does not change; however, by means of influencing the covering layer of perception, which is the deepest subjective level, the change may be conducted in a productive and successful manner.
The onion model of culture connected with the intrapreneurship-supportive culture dictated by the open innovation change model may assist enormously in advancing one’s understanding of the basic principles needed to be taken into consideration when constructing the open innovation model change and implementing this change into life. Taking into consideration all implicit and explicit cultural assumptions may become decisive in the process of estimation of the range of actions needed to introduce the open innovation paradigm into the structure of a certain company.
Adaption for Open Innovation
The open innovation paradigm is a very attractive and progressive mode of behavior in the world market, which has been proved by the experience of many companies that managed to implement the change successfully. However, it is a complex phenomenon that has to be treated with caution and serious attention to all hidden complications, since there are examples of failures in this field:
“many large industrial firms have become too insular and failed to take advantage of the potential of working with actors outside the organization to find ways to create and then take ideas to the market. In this view organizations need to open themselves up to external networks and relationships in order to gain the full potential of their investments and capabilities in innovation” (Dodgson et al., 2006).
In connection with the risk of failure or incompleteness of the process that also includes a number of negative consequences for the company undertaking the change there appeared the need to work out a set of techniques to adapt to the change and avoid complications. The main focus, according to the opinion of Dodgson et al. (2006) should lie in business strategy and technologies of implementing the change. These technologies theoretically should be targeted at two spheres of activity – on the one hand, they should help the company establish a firm strategic direction of the change, and, on the other hand, should facilitate the change itself for the sake of achievement of initial goals of the company (Dodgson et al., 2006).
The results of their findings on the example of successful implementation of the open innovation change by the company Propter & Gamble showed that among the most important aspects of adapting to the change are such issues as: changes in skills and organization, industrial disaggregation, managing interfaces requiring different strategies, handling the complexity of the process, and proper handling of protection of intellectual property (Dodgson et al., 2006).
In addition to the precise consideration of the described technologies, it is equally important to turn the innovators’ attention to the necessity of these technologies’ licensing. The issue is that in the context of existing and conducting business affairs in the context of open innovation it is highly important to introduce licensing promptly in order to avoid the unauthorized intrusion and usage of results achieved through hard labor, spending time and effort:
“Prior research and many firms have focused on the monetary dimension, and they have often neglected the strategic drivers. However, some strategic drivers have been described in detail for specific industries (e.g., ensuring freedom to operate in the electronics/ semiconductors industry) or for particular settings (e.g., realizing foreign market entry by means of international licensing). Besides the monetary and strategic drivers, companies may be forced to license out technology due to legal requirements, which is termed compulsory technology licensing” (Lichtenthaler, 2007, p. 69-70).
Despite the fact that open innovation has proved its efficiency and profitability on a continuous basis, there are still certain considerations on the issue of risks connected with the use of external technologies. As examined in the article of Chesbrough (2005) there are some paradoxes connected with the application of external technologies: first of all, the issue is in the reason for a sharp difference in the number of companies using this type of technologies if they have proven to be profitable; the second issue is about the number of technologies sold as compared to the number of technologies being worked out within a certain corporation, and the number of technologies that still remain unsold; and, finally, the third issue is about managing the open source software in a company using the open innovation model. All these issues are still unsolved completely; however, the author makes a supposition about the traditional bias of internal employees of the company and hostility to everything brought inside the company from external sources. The patriotism of the staff, as well as the fear to share the source that may be utilized by the company itself in future still remain the restraining factors in adapting to the open innovation paradigm.
Witzeman et al. (2006) also emphasizes the fact that using external technologies and open implementation thereof does not constitute any threat and does not bear any negative implications, so, in case they are used in the correct and well thought-over way, they may bring only benefit and profit to the company using them:
“Managers no longer see external innovation as a threat, but as a risk management vehicle that allows the firm to control costs and share development risks. As the external innovation process unfolds, the internal staff is reenergized with new ideas, new resources and new ways of looking at the world” (p. 19).
Summing up the findings of the present chapter, it becomes necessary to say that despite the whole possible range of risks, fears and threats connected with the implementation of the open innovation strategy there is still the undefeatable evidence of its potential success and profitability that it is likely to bring to the company taking it up and daring to utilize external technologies. As a result, it is relevant to admit that there is a set of technologies invented to secure the change and to ease the implementation of the discussed strategy, thus providing overall assistance to the companies that are on the threshold of the open innovation change.
Personality of employees
The personalities of innovative employees need to combine a different set of characteristics.
Determination, non-conformity, imagination, achievement-motivation (Michalik, 2002, p. 150)
Creativity and pro-activity (Herzog, 2008, p. 96)
Personal initiative as in self-starter, proactive, persistent (Frese, Kring, Soose, & Zempel, 1996, p. 38; Herzog, 2008, p. 96)
Persons in an innovative environment go beyond the formal job description and they spend additional energy on their job specifically they demonstrate stamina in the face of barriers (Rank, Pace, & Frese, 2004, p. 523; Salomo & Mensel, 2005, p. 478)
A major part of being innovative is proactive behavior. Innovative persons take personal initiative in a broad range of activities and situations (Seibert, Kraimer, & Crant, 2001, p. 847). Showing an intrapreneurial personality which is positively related to innovation (Herzog, 2008, pp. 96-97).
Another important personal characteristic positively associated with innovation is extroversion (Kuhl, 1992, p. 97; Rank et al., 2004, p. 520).
According to Herzog (2008, p. 97) an innovative personality has to show proactive, action and result oriented behavior furthermore it has to be extroverted, creative and ha to have a technical and business mindset (Herzog, 2008, p. 97). Additionally they should be open to take risk but take the responsibility linked to the risk (Herzog, 2008, p. 97; Huston & Sakkab, 2007, p. 23).
In order to hire the right personnel that is needed for the chosen strategy – Open of Closed Innovation paradigm – the right people have to be hired accordingly. Oden (1997, p. 80) argues that for an innovative culture the HR function has a critical role. Specifically it is stressed that a comprehensive effort should be undertaken to hire the right creative people (Oden, 1997, p. 80).
Define an innovative personality
Hypothesis 1a: The personality of employees in an Open Innovation environment shows more distinct characteristics of an innovative personality.
(Hypothesis 1b: Managers in a more Open Innovation environment are more aware of the specific innovative personality needed in order to succeed and put therefore more effort in hiring and retaining the employees who show those characteristics. )
How would you describe the personality of the employees working in innovation departments?
Motivational Factors for employees
Intrinsic motivation means the motivation to work on something because the nature of the work is interesting, involving, exciting, satisfying and personally challenging. (Amabile, 1997, p. 39)
Happy at work, motivated by challenges, positive involvement (Sundgren, Dimenäs, Gustafsson, & Selart, 2005, p. 362).
Only motivated people can also be innovative because taking that extra step and overcoming barriers motivation (öö citation needed possibly (Herzog, 2008, pp. 98-99)).
Hypothesis 2a: Intrinsic motivation does not differ between Open and Closed Innovation culture.
Question: How would you describe the motivational factors of the employees in your department/firm that work in the innovation departments.
Intrinsic motivation clearly has more influence on the innovation process but is very hard to manage. Extrinsic motivation can be used as an effective management system in order to motivate employees and work on the common goal of a company (öö Citation needed).
Extrinsic motivational factors are motivational factors that are not related to the work itself (Amabile, 1997, p. 950). The main building blocks of extrinsic motivation are rewards and bonuses that are tied to the employees performance (Angle, 1989, p. 139; Sundgren et al., 2005, p. 362).
The empowerment of people is critical for an innovative culture in an organization because only with empowered employees they will use the real value for the company (Oden, 1997, pp. 73-74). Besides providing employees with the necessary information they need to do their job, the reward system can have a major influence on the empowerment of the employees (Oden, 1997, pp. 73-74).
Systems for extrinsic motivation like incentive schemes can play a crucial part in the promotion and fostering of culturally aligned behaviors(Dombrowski et al., 2007, p. 198). “For example, if a culture encourages employees to share information, but individuals are rewarded based on individual effort, this contradiction will render behavior that is not in the interest of the desired culture” (Dombrowski et al., 2007, p. 198). Extrinsic motivational factors have to be aligned with the desired culture to have the desired effect and be used as a means to shape the culture (Dombrowski et al., 2007, p. 198). On the other hand, to assess the culture in an organization the extrinsic motivational factors can give insights about what culture an organization wants to promote to its employees.
Effective leaders in an Open Innovation culture reward employees for using external sources effectively by creating an infrastructure to support these activities (Witzeman et al., 2006, p. 26).
Hypothesis 2b: Open Innovation firms foster the use of Open Innovation practices by including these practices into their extrinsic motivational systems.
Question: Does your company reward the use of Open Innovation practices (idea sensing, networking, external commercialization etc.) in the bonus, reward or appraisal processes?
Management Support / Leadership
In order to create an innovative culture the company has to provide sufficient resources – people, budget and time and additionally it has to be assured that the right people are hired (de Brentani & Kleinschmidt, 2004, p. 313).
(öö) Integrate the champions discussion in (Dombrowski et al., 2007, p. 199)
Besides formal roles and resource allocation to innovation, management can also have an influence on innovation by personally be involved in the innovation process (Herzog, 2008, p. 118). Additionally management has also a crucial role to encourage employees to take initiative, give guidance and build a vision and to guide the effort taken by employees (Herzog, 2008, p. 120)
Informal roles and support play a crucial role in building and maintaining an innovative culture (Herzog, 2008, p. 118). Herzog (2008, pp. 118-119) identifies three different informal supporting roles in the existing literature which are mostly called champion or promotor8. These roles are mainly identified to overcome intraorganizational barriers for innovation.
The technology promotor is involved in the technical designing of an innovation and helps therefore to overcome the intraorganizational barrier of ignorance often associated with new technologies (Hauschildt & Kirchmann, 2001, p. 41; Howell & Higgins, 1990, p. 318; Witte, 1973, p. 18).
The power promotor helps to overcome the barrier of unwillingness by using the formal or informal power she or he has in the organization (Hauschildt & Kirchmann, 2001, p. 41; Howell & Higgins, 1990, p. 318; Witte, 1973, p. 17).
The process promotor builds a bridge between the process and power promotor in order to overcome organizational and technological complexity. The process promotor therefore helps to overcome the barrier of nonresponsibility and indifference (Chakrabarti & Hauschildt, 1989, p. 161; Hauschildt & Kirchmann, 2001, p. 42; Howell & Higgins, 1990, p. 318).
In addition to the above mentioned promotors and champions which are primarily discussed in a closed innovation paradigm an additional role is identified that has its justificiation specifically in an open innovation setting (Herzog, 2008, p. 119). A role called relationship promotor (Gemünden & Walter, 1995, p. 973; Walter, 1998a, p. 61, 1998b, p. 268; Walter & Gemünden, 2000, p. 86) or alliance champion (Forrest & Martin, 1992, p. 51) is added to the above mentioned to cover the specifics of an open innovation. The relationship promotor establishes links between partners in the innovation process (Walter, 1998a, p. 116), and is responsible to overcome the barrier o not looking outside the firm for ideas and commercialization possibilities (Herzog, 2008, p. 119).
More generally Chesbrough and Crowther (2006, pp. 234-235) call for an Open Innovation champion for the needed management support to sustain the commitment towards the Open Innovation paradigm over time. Involvement of senior executives is crucial for the long term success of Open Innovation (Huston & Sakkab, 2007, pp. 22-23)
The leadership style for Open Innovation cannot be based on power relationship (Raymond, 1999, p. 38)
Hypothesis 3.1a: Management support and resource provision does differ between Open and Closed Innovation environments, in the sense that the more open an innovation process is, the more Open Innovation practices are actively supported and founded by management.
Hypothesis 3.1b: The more open an innovation process the more distinct is the role of a relationship promotor within an organization.
Question: How would you characterize is the management support for the innovation process. Can you identify any specific support activities that encourage the use of Open Innovation practices by the management? Would you be able to identify a person in the innovation environment within the company that is mainly responsible to initiate and maintaining relationships with partners for innovation?
Freedom to express thoughts
Innovativeness can be encouraged by diverse team members. But in order that team members with a diverse background can work together in the most effective manner it is crucial that the team environment is such that one can constructively challenge one’s ideas and opinion (Amabile, Conti, Coon, Lazenby, & Herron, 1996, p. 1160).
Additionally, respecting suggestions and contributions in discussions and solving the resulting controversy is crucial for innovative teams (Dornblaser, Lin, & Van de Ven, 1989, p. 210; Hoegl, Weinkauf, & Gemünden, 2004, p. 46f). However, constructive dissent is crucial for innovation (Horibe, 1999, p. 34).
It seems clear that for the above mentioned dissent but respecting others opinion that freedom to express one’s own opinion, doubts and believes is crucial in order to create an innovative environment (see also Herzog, 2008, p. 117).
Hypothesis 3.2: The general attitude towards freedom to express one’s opinion, doubts and believes does not differ between Open and Closed Innovation settings. However the freedom to express doubts about internal technology superiority is expected to be greater in an Open Innovation culture.
Question: How would you characterize the freedom to express one’s owns opinion, doubts and believes towards innovation? How common is it that team members express doubts about the internal technology superiority compared to technology found elsewhere?
Organizational risk taking
It comes with no doubt that every innovation involves a certain amount of risk (Herzog, 2008, p. 113), and normally companies tend to e risk averse and tend to favor mechanism to avoid risks öö citation needed).
In the technology sourcing process too many risk filters tend to slow down the innovation project which is contradictory to ever shorter product life cycles (Herzog, 2008, p. 114). Additionally to this general tendency which is also true for a Closed Innovation culture external technology sourcing is perceived to increase the risk involved in the technology sourcing process. Higher uncertainties that come with external technology (Chesbrough, 2006a, p. 17), higher transaction cost that increase the perceived risks (Conner & Prahalad, 1996, p. 477) and information asymmetry (Hauschildt, 1992, p. 106) all make the external technology sourcing process more risky than internal technology sourcing. (öö add risk of customer integration from Kausch et al.)
On the other end external technology commercialization also has a distinct set of risks involved that make Open Innovation riskier than Closed Innovation. Boyens (1998, p. 42) notes that external technology commercialization can lead to a weakening of the firms technological position because the knowledge is lost to the participating firm. Additionally external technology commercialization cannot be reversed and the perceived risk is therefore higher (Lichtenthaler, 2006, p. 89).
Given the above stated the organizational risk taking is expected to be higher in Open Innovation environment than Closed Innovation and the following Hypothesis is formulated:
Hypothesis 3.3: The organizational risk taking is higher in Open Innovation firms than in Closed Innovation environments.
Questions: How common is it to take personal risks by the people in the innovation departments? Is it generally accepted to fail with an innovation endeavor that was perceived to be risky?
Separated in two parts technology sensing capability and technology response capability.
Technology sensing capability
Technology sensing capability describes the attitude towards the process of searching for technology (Herzog, 2008, p. 111). Leading companies in the adaption of Open Innovation dedicate complete departments to the exploration of technology (Herzog, 2008, p. 111). See also the technology identification process (O’Conner, 2006, p. 72) and the idea hunter (O’Conner, 2006, p. 71; O’Conner & Ayers, 2005, p. 24) concept.
The organization needs the ability to acquire knowledge about and understand new technology developments (Srinivasan, Lilien, & Rangaswamy, 2002, p. 48).
Where the technology sensing capability is crucial for al technology related innovations it is an absolute necessity for an Open Innovation environment where technology sensing is a major part of the outside-in process (Herzog, 2008, p. 111).
Hypothesis 3.4a: Open Innovation firms have a more formalized process of technology sensing capability than Closed Innovation organizations.
Question: How successful do you think your company is in detecting new technological developments that may affect your business? How is this technology sensing process formalized and organizationally positioned?
Technology response capability
The technology sensing capability as described in paragraph 22.214.171.124 does not in itself ensure a successful implementation of the detected technology. Additionally the potential of a new technology for the organization has to be recognized, a step various companies fail with (Rice, Kelley, Peters, & O’Conner, 2001, p. 410).
The organizations ability to adequately response and judge the potential of a new technology it has sensed in its environment is summarized under the organizations technology response capability (Herzog, 2008, p. 113; Srinivasan et al., 2002, p. 49).
Similarly to the argumentation for the technology sensing capability, a strong technology response capability is needed for organizations that want to take advantage of Open Innovation. In an Open Innovation environment the external technology is seen as a value driver for the development of new products and therefore the capability to recognize the potential of sensed technology is expected to be stronger and proactive than for companies that follow a more closed innovation approach (Herzog, 2008, p. 113).
Hypothesis 3.4b: Open Innovation firms have a stronger technology response capability than Closed Innovation ones.
Question: How would you judge the ability of your company to assess the potential of new technologies once they have been detected in the environment?
Basic assumption: NHI-syndrome has a stronger present in a Closed Innovation culture.
Hypothesis 4.1a: Open Innovation organizations have a greater trust in external technology and the successful implementation thereof in the own development process.
Hypothesis 4.1.b: Open Innovation organizations do not see sourcing of external technology a threat to their competitive position while this mindset is predominant in a Closed Innovation culture.
Hypothesis 4.1c: In Open Innovation organization the management supports actively the use of external technology as a means of gaining competitive advantage.
How would you judge the trust your organization puts in external technology compared to internal research? Can you identify a favor towards internally researched and developed technology by the involved people?
Do you think that sourcing external technology does weaken your competitive position? Would your answer differ for core technology and secondary technology?
Does the management in your company make any differences in assessing a potential innovation based on the fact that the underlying technology was developed in-house or sourced externally? Does Management actively support the sourcing of external technology?
Not-sold here syndrome
Hypothesis 4.2a: The fear of losing a competitive advantage by using external paths to market for a technology is stronger in a Closed Innovation culture.
Hypothesis 4.2b: In Open Innovation organization the management supports actively the use of external paths to market as a means of profiting from technologies that otherwise would not be used.
Hypothesis 4.2c: In an Open Innovation culture, a formalized process and/or organizational structure is in place to actively manage the outflow of technologies.
Question: Do you think that your company will loos a competitive advantage when internally developed technology is sold (licensed) to a third party or is formed into a new venture?
Question: Do you think that management in your organization does actively support the use of external pathways to market for technologies that are not used within your company?
Question: Does your company have a formalized process or dedicated organizational structure that supports the use of external pathways to market for technology (licensing, internal VC or alliance building)?
Shared basic values
Link to the validation of the cultural model of the onion (hard to measure or at least to assess the basic values of an organization.
A vision, values and mission statement should reflect does basic believes (Oden, 1997, p. 12). If these statements exist in an explicit form the can be a good indicator about the underlying shared basic values of the organization (Oden, 1997, p. 4). A mission and vision statement has the ability to bind the disparate groups in an organization together to focus on the common goal of an organization (Dombrowski et al., 2007, p. 193). Furthermore, the mission and value statement should clearly encourage innovation to have a positive influence on the innovative culture of an organization (Dombrowski et al., 2007, p. 193).
The vision, values and mission statement will here be used as an indicator about the implementation of an innovative culture. It is not expected to find significant differences in the above mentioned statements between Open and Closed Innovation organizations; rather it should give an indication about the general innovativeness of the organization in question. Nevertheless, if the Open Innovation concept is mentioned in any of statements it is a strong signal for an embedding of this mindset in the shared basic values of the corporate culture.
Hypothesis 5: Open and Closed Innovation organization do not differ in the way innovativeness is stressed in vision, values and mission statements.
Question: Does the vision, the values or mission statement emphasize the innovativeness of your company? Are any Open Innovation concepts mentioned specifically?
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- Illustration according to Chesbrough (2003).
- Illustration according to Chesbrough (2003, p. xxii) and(2006b, p. 3).
- Illustration in courtesy of Stage Gate Inc.(“Product Innovation Process,” 2008).
- Illustration according to Chesbrough (2003, p. xxiii).
- Illustration according to Chesbrough (2003, p. xxv) and(2006b, p. 3).
- Illustration according to Chesbrough (2003, p. 44).
- Illustration according to Chesbrough(2006b, p. 11).
- Champion and promotor are used interchangeable (see also Herzog, 2008, pp. 118-119).