SM9633

International Business and Innovation

Open innovation and innovation networks
 Contents
What are the sources of innovation?
Open innovation
Innovation and clusters
That Eureka moment
 James Watt and the kettle
 Percy Shaw and the reflection of light in a cat’s eye
 George de Mestral and plant burrs (Velcro)

 Sadly these are rare events

Tidd and Bessant
2013
Origin of the term open innovation
 Henry Chesbrough in 2003
 Open Innovation: The New Imperative for
Creating and Profiting from Technology
 He argued there were fundamental changes in
how innovation was managed
 Idea was rapidly adopted by both academic and
practitioners
 Several other books followed, big uptake in the
literature
What do we mean by open innovation?

‘Open innovation is a paradigm that assumes that firms can and should use external and internal
ideas, and internal and external paths to market’ (Chesbrough, 2003)
“the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and
expand the markets for external use of innovation, respectively.” (Chesbrough, 2006, 8)
Principles:
 Sourcing knowledge from outside the firm
 Co-ordinating external relationships
 Partnering around knowledge input and outputs
 IP and licensing agreements
Narrow and broad perspectives – is it just about IP exploitation or about sourcing and managing
knowledge?
Open innovation
 Open innovation seen as a solution to a crisis in innovation
 Costs of invention rising in many industries esp Pharma
 Increased complexity – no one person can understand all the
technologies involved
 Not so many radical innovations – much more incremental innovation –
no low hanging fruit
 So even large firms are prepared to look outside for sources of innovation
 Open innovation can be seen as a strategic approach to external sourcing
of ideas
Permeability
 Central idea is that knowledge can flow into and out of the
organisation – walls are permeable
 Combination of internal and external knowledge
 Knowledge has a value and can be traded – no assumption that this
is all free
 Intellectual property means can still be protected – indeed how do
you get paid for your idea if you can’t protect it?
A new idea?
 Compared with closed innovation – a bit of a ‘straw man’ argument
 Innovation has always involved the assembly of knowledge and
ideas from different sources
 Patent licensing is not a new idea
 Other studies have looked at new forms of more distributed
innovation processes
 Chesbrough focused on a particular model of product innovation
based on the funnel model – narrow perspective
 But sold the idea very well and made it very accessible
Chesbrough’s principles of closed and
open innovation
Practical examples – P&G
 How to achieve organic growth of 4-6% when you have a turnover of
$70bn? A new $4bn business each year?
 Internal R&D can’t generate that kind of growth
 By 2000 P&G was struggling to cover all the new technologies that
were relevant and only 35% of new products met financial targets
 “Squeezed by nimble competitors, flattening sales, lackluster new
launches, and a quarterly earnings miss, we lost more than half our
market cap when our stock slid from $118 to $52 a share”. (Huston and
Sakkab, 2006)
 R&D productivity was flat but innovation costs were rising
Future sources of innovation
 Success in the past from innovating across internal businesses
 Some success from ideas from outside
 CEO set goal of 50% of innovations to be sourced from outside
 200 times the number of relevant researchers outside P&G – 1.5
million compared with 7,500
 ‘Connect + develop’ project
 By 2006 35% of ideas from outside compared with 15% in 2000
Implementation
 Building on 300 brands, $2billion R&D and 150 science areas
 Top ten list of needs from each business each year – defined as
science problems
 Adjacencies – products to extend existing brands into related areas
 Technology game boards – core technologies that have effects
across other categories
 Networks of entrepreneurs, suppliers and open web based systems
http://www.pgconnectdevelop.com/
Impact
 In 2013 launched 7 of the top 10 most successful non-food products
in US
 More than 2000 successful agreements signed
 20 submissions each weekday
 Partnerships with universities – Leeds P&G Simulation centre
 Joint ventures – eg with Inverness Medical on diagnostics
 Trademark licencing – partnering with Disney, Honeywell
 In out licencing – buying in Bounce Fabric Softener
 Open Innovation in Practice: Advantages

 Model offers structured benefits:

 It can lead to reduced costs & lowers risks of conducting R&D
 Potential for improvement in development productivity
 Encourages better scanning of the external technology horizon and task
environment
 Encourages inclusion of customers & users early in development process
 Better awareness of firm’s markets; supports increased accuracy in
market research & customer targeting
 Synergies between internal & external innovations possible

17 17
Innovation networks and clusters
 Porter Definition
 “Geographic concentrations of inter-connected companies, specialised
suppliers, service providers, firms in related industries and associated
institutions (for example, universities, standards agencies and trade
associations) in particular fields that compete but also co-operate.”
 ‘Clusters’ vs the process of ‘clustering’
 Clusters as self-generating groupings
 Processes of facilitating clusters
 Importance of linkages and interdependence
 External economies and untraded interdependencies
 Firm strategy,
Chance structure and
rivalry

Factor Demand
Conditions conditions

Related and Government

supporting
industries
Clusters as innovation systems
 Porter definition linking strategy and
economic geography
 Alternative notion of a cluster as a form of
innovation system
 Networks of production of strongly
interdependent firms linked to each other in a
value-adding production chain.
 Clusters also encompass strategic alliances
with universities, research institutes,
knowledge-intensive business services, bridging
institutions and customers.
Uniqueness

 Each country or region has its own unique cluster forms

 Variation in selection and variation in processes
 Between countries/regions
 Technologies
 Policy systems
 No ‘ideal’ cluster or form – no best practice
 Cluster ‘innovation styles’
Silicon Valley

 ‘the largest agglomeration of knowledge capital in the world. But it also has
financial capital in abundance, with the world’s largest concentration of
venture capitalists. The region’s economy is orchestrated by social ties and
networks that stretch from universities to companies, from venture
capitalists to lawyers, from large companies to small.’
 ‘Entrepreneurship thrives in Silicon Valley because when an entrepreneur
– often someone straight out of university – emerges with a good idea,
they are immediately embraced by a network of venture capitalists,
lawyers and advisers who help to ring in companies and managers with
complementary skills and assets. It is almost an organic process, like cells
reproducing and growing.’
Cluster as knowledge community
 Node of knowledge generation and dissemination
 Focus on agglomeration of skilled people rather than firms
 Dominant designs, genres and movements
 Competition and co-operation
 Conventions and institutions
 Shared assets
Motorsport valley
 Dominant agglomeration in world motorsport production
 c40,000 employees
 ¾ of world single seat racing cars
 Majority of formula 1 and Indy cars assembled in UK
 Large number of rally teams based in region
 a knowledge community is ‘a group of people (principally
designers, managers, and engineers in this case) often in
separate organisations but united by a common set of
norms, values and understandings, who help to define the
knowledge and production trajectories of the economic
sector to which they belong’. (Henry & Pinch, 2000, p194)
People mobility
 Intense movement at the end of each season
 Move every 3.7 years on average
 8 moves per career
 Most movement within region
 Most global motorsport engineers spend some time in MSV
 Firm births and deaths
 Regular bankruptcy of weaker firms, some resurrected, staff disperse
through cluster
Knowledge mobility
 Links through suppliers
 Confidentiality but subtle steering and convergence
 Innovations incorporated into standard products
 Gossip, rumour and spying
 Spying I do a lot of, I think that’s all fair in love and war. So if I get a
chance to photograph someone’s wing profile or something like that
I’m there, and I walk with a camera permanently attached to me.
That’s so important.
 Discussions about new concepts in regulatory bodies
 Technical panels and technical questions
Conclusions
 Innovation comes from various sources not just within the firm
 Open innovation is the new label for this phenomenon, but is a well
established principle
 Ideas can flow into or out of the firm, and can be protected with IP
 Intermediaries help companies to manage external knowledge
 Clusters are agglomerations of inter-related firms which helps foster
innovation, especially through the movement of people
References
 Tidd, J and Bessant, J (2018) Managing Innovation, Wiley, chapter 5
 Chesbrough, H. (2003) Open Innovation, Harvard Business School Press.
 Chesbrough, H. and Crowther, A. K. (2006), Beyond high tech: early adopters of open
innovation in other industries. R&D Management, 36: 229–236.
http://onlinelibrary.wiley.com/doi/10.1111/j.1467-9310.2006.00428.x/full
 Larry Huston and Nabil Sakkab (2006) Connect and Develop: Inside Procter & Gamble’s New
Model for Innovation Harvard Business Review https://hbr.org/2006/03/connect-and-develop-
inside-procter-gambles-new-model-for-innovation
 Von Hippel, E. (2005) Democratizing Innovation, MIT Press,
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=712763
 Porter M (1998) Clusters and the New Economics of Competition, Harvard Business Review,
https://hbr.org/1998/11/clusters-and-the-new-economics-of-competition
 Leadbeater, C (2000) Living on thin air: the new economy, Penguin
 Henry, N., & Pinch, S. (2000). Spatialising knowledge: Placing the Knowledge Community of
Motor Sport Valley. Geoforum, 31(2), 191-208. https://doi.org/10.1016/S0016-7185(99)00038-X