Lecture: Open Innovation

Open Innovation:
Engaging resources outside of the organisation
Novem 23rd, 2023
Michal Hron, PhD

Galileo Galilei
“In the summer of 1609, Paolo Sarpi, a statesman and scientist from
Venice, told Galilei about new optical devices called “occhialini”.
Occhialini can magnify distant objects. Sarpi had heard about occhialini
through his network of diplomats.
Through this network, Sarpi also heard and then told Galilei about a
traveling businessman who sold occhialini in Padova and Venice.Venice
is where Galilei spent most of his time.This is probably how Galilei first
saw occhialini. It is told that he tried but did not purchase one.
Occhialini at the time cost about four times Galilei’s annual salary.
Then, less than three weeks later, on 21 August 1609, Galilei presented
his first telescope to the public.Within a few months after this initial
presentation, Galilei had surpassed his competitors in the European
telescope market.And he had laid the foundation for his scientific
discoveries (e.g. the moons of Jupiter and the phases of Venus).“
3
De Padova, Thomas. Das Weltgeheimnis. Piper Verlag, 2013.

Galileo Galilei
Galilei had an active and diverse network of academics,
manufacturers, businesspeople, diplomats, and others.Through
this network, Galilei obtained high quality, clear glass to make
his own telescope.
Galilei was no ivory tower scientist. Rather, he had his
own construction lab, where he could rapidly test and improve
ways of manufacturing telescopes
Galilei was not just scientist or just businessman. He
combined both worlds. Perhaps this enabled (or forced) him to
sometimes come up with pragmatic solutions
4
https://mergeflow.com/how-to/galilei-style-innovation

Galileo has practiced OPEN INNOVATION

Open innovation
▪ Open innovation is a concept that involves
collaborating with external partners to develop
new ideas, products, and services.
▪ departure from the traditional closed innovation
model, where companies rely solely on their
internal resources to innovate.
▪ can take many different forms, such as
crowdsourcing, partnerships, and collaborations.
▪ Idea formulated most strongly by Henry
Chesbrough
6
Chesbrough, Henry William. Open innovation: The new imperative for
creating and profiting from technology. Harvard Business Press,
2003.

Xerox spawned a lot of innovation from
its research lab
▪ The first graphical user interface (GUI), which used
icons, pop-up menus, and overlapping windows that could be
controlled easily using a point-and-click technique1
▪ The development of the Ethernet, a ubiquitous
computer networking technology5
▪ The creation of the Alto, which was the first personal
computer
▪ The invention of the laser printer
▪ The development of page description languages
(postscript)
7

However, Xerox commercially benefited less
than its spin-offs from the research it funded
8

Xerox
I have concluded that Xerox’s problems with PARC
arose from the way Xerox managed its innovation
process. Xerox managed PARC through a
Closed Innovation paradigm:The corporation
sought to discover new breakthroughs; develop them into
products; build the products in its factories; and
distribute, finance, and service those products—all
within the four walls of the company.This
paradigm was hardly unique to Xerox; it was used to
manage all the leading industrial R&D facilities
operating in the U.S. economy after World War II.
10

Another view of the closed innovation funnel
11

What really worked was an open innovation funnel
12

Open innovation
13
Chesbrough, Henry William. Open innovation: The new imperative for
creating and profiting from technology. Harvard Business Press,
2003.

Open innovation
▪ Open Innovation is the use of purposive inflows and
outflows of knowledge to accelerate internal innovation, and
expand the markets for external use of innovation,
respectively (Chesbrough, 2003)
▪ ‘a distributed innovation process based on purposively
managed knowledge flows across organizational boundaries,
using pecuniary and non- pecuniary mechanisms in line with
the organization’s business model’ (West, 2014)
14
Henry W. Chesbrough, Open Innovation: The New Imperative for Creating and Profiting from
Technology (2003); Henry Chesbrough et al., Open Innovation: Researching a New Paradigm
(2006).
Joel West et al., Open Innovation: The Next Decade, 43 Res. Pol’y 805, 808 (2014)

A lot off other terms go after the similar principle…
15
Open Innovation
Distributed innovation via purposively
managed knowledge flows across organization
boundaries.
User Innovation
Innovation by single individual user or user firm,
in order to use that innovation.
Open collaborative innovation
Innovation by a group of contributors
who share the work of generating a
design and reveal outputs openly.
Free Innovation
An inherently simple grassroots innovation
process, unencumbered by compensated
transactions and intellectual property rights.
Peer Production
Decentralized, collaborative, nonproprietary production
by widely distributed, loosely connected peers.
Open source
Computer software licensed on terms
that meet criteria for redistribution, source
code, derivative works, etc
Creative Commons
A nonprofit organization providing standardized
legal tools (licences) that enable sharing and use.
Public domain
Material that is not covered by, and can be
spread without, intellectual property rights
Beer, Jeremy de. 2021. “Intellectual Property and ‘Open’ Innovation: A Synthesis of Concepts.” In Handbook of Intellectual
Property Research, 714–45. Oxford University PressOxford.

Remember lead users?
16
https://www.youtube.com/watch?v=bNXEwAxM41E&list=PLNcIaQF37bZlefB_Cz3URNBtSJ_bRk4i1&index=3

Remember diffusion of innovations?
17
Lead users
Are likely going to be
innovators

User innovation is subset of open innovation
18
innovation
Open innovation
User
innovation

Outside-in
20
Two principal approaches to open innovation
Inside-out
• organization's capabilities and resources are
more valuable than outside influences, and
will be the key to success
• Most new ideas are born inside the organization, typically
generated by management or the innovation and R&D
department.
• E.g:Venturing, spin-offs, patenting
• External resources are the keys to success.
• Innovation processes involving customers, especially lead
users, are more likely to succeed in the marketplace
since customers have better and more creative ideas
than internal product developers
• External technology and knowledge is helpful.
• E.g: Lead user involvement, acquiring startups
Coupled process
combination of outside-in a inside-out process
by means of alliances, collaboration and joint-
ventures
Gassmann, Oliver, and Ellen Enkel. "Open innovation: Externe Hebeleffekte in der Innovation erzielen." Zeitschrift Führung+ Organisation 3 (2006): 132-138.

Outside-in
21
A study of companies from Korea shows different combinations
of inbound and outbound behaviours
Inside-out
Kim, N., Kim, D.-J., & Lee, S. (2014). Antecedents of open innovation at the project level: empirical analysis of Korean firms. R&D Management, 45(5), 411–439.
doi:10.1111/radm.12088

Think-pair-share
22
▪ 1.What is the difference between inside-out and outside-in approaches?
▪ II.Which of the companies in the table is most open? Most closed? Uses coupled process?
▪ III. Does your project use any external resources?
Inside-out
Outside-in

How does open innovation work?
23

24
▪ Systematic review from January
2023 answers this question
▪ I rely on it to structure this talk
Ogink, Ruben HAJ, et al. "Mechanisms in
open innovation: A review and synthesis of
the literature." Technovation 119 (2023):
102621.

25
Ogink, Ruben HAJ, et al. "Mechanisms in open innovation: A review and synthesis of the literature." Technovation 119 (2023): 102621.

26
4.
3.
1.
2.
Governance and policies
Learning by doing
Env. Interactions
Knowledge skills and capabilities

27
Description Mechanisms
What makes OI work
1.Governance
and politics
The way rules, norms, and actions
are structured, sustained, regulated
and embedded.
Formal contracting, Organizational
permeability,Value capturing, IP protection,
Risk sharing, Integrated standardization
2. Environmental
interactions
The way a person, project, firm,
network or society interacts with, or
is affected by its environment
Entrainment, Orchestration, Scouting,
Innovation intermediation, foresight
workshops
3. Knowlede,
skills and
capabilities
Awareness or understanding about
specific topics, capabilities or
experiences
Absorptive capacity, Endowed knowledge
base, Collaborative trust
4. Learning by
doing
Executing OI-related activities and
outcomes
Tacit knowledge transfer, Collaborative
prototyping
Ogink, Ruben HAJ, et al. "Mechanisms in open innovation: A review and synthesis of the literature." Technovation 119 (2023): 102621.

Governance and politics
▪ Definition:The way rules, norms, and actions are
structured, sustained, regulated and embedded.
▪ Mechanisms: Formal contracting, Organizational
permeability,Value capturing, IP protection, Risk sharing,
Integrated standardization
28
Power, Michael. "Accounting, boundary-making, and organizational permeability."
Toward Permeable Boundaries of Organizations?. Emerald Publishing Limited, 2018.
31-53.
1.

Example of IP protection
Paradox of openness
▪ the creation of innovations often requires
openness, but the commercialization of innovations
requires protection (Laursen and Salter, 2014)
▪ Does IP protection help or restrict open
innovation?
29
Laursen, Keld, and Ammon J. Salter. "The paradox of openness: Appropriability, external
search and collaboration." Research policy 43.5 (2014): 867-878.
Alexy, Oliver, Paola Criscuolo, and Ammon Salter. "Does IP strategy have to cripple
open innovation?." MIT Sloan management review (2009).

Paradox of openness
▪ From another perspective, however, there is no paradox at
all. IP is a tool used to enable open innovation by mediating
the tensions between collaboration and competition.(West,
2006)
30
West, Joel. "Does appropriability enable or retard open innovation." Open innovation:
Researching a new paradigm (2006): 109-133.

Paradox of openness
▪ “patenting increases new entrants’ number of open
innovation relationships, on average” (Zobel, Balsmeier and
Chesbrough, 2016)
▪ Patents are public and need to include full description of the
process that a person knowledgable in the art should be able
to follow. Is this closed?
▪ Designers can “invent around” a patent which increases
innovation (Katznelson and Howells, 2021)
31
Zobel, Ann-Kristin, Benjamin Balsmeier, and Henry Chesbrough. "Does patenting help or
hinder open innovation? Evidence from new entrants in the solar industry." Industrial and
Corporate Change 25.2 (2016): 307-331.
Katznelson, Ron D., and John Howells. "Exclusive Rights Stimulate Design
Around: How Circumventing Edison’s Lamp Patent Promoted Competition
and New Technology Development." Journal of Competition Law &
Economics 17.4 (2021): 1007-1052.

32
The myth of Edison’s monopoly
Comparison of Edison’s all-glass globe lamp
(right) and a stopper lamp (left). Edison’s
claim was limited to lamps with a
globe made entirely of glass with
conductors passing through the glass.The two-
part stopper lamp did not infringe this claim
because it had a stopper portion and because
the conductors were not “passing through the
glass.”
Economics 17.4 (2021): 1007-1052.

33
The myth of Edison’s monopoly
“Stopper” lamps, or lamps made of two parts,
were the most commercially-significant design-
around Edison’s patent because they enabled
Edison-GE rivals to retain market
share through the period of
enforcement of Edison’s patent
Economics 17.4 (2021): 1007-1052.

Environmental interactions
▪ Definition:The way a person, project, firm, network or
society interacts with, or is affected by its environment
▪ Mechanisms:Technology scouting, foresight workshops,
Customer integration n(e.g. lead users), joint development,
strategic alliances
34
Rohrbeck, René, Katharina Hölzle, and Hans Georg Gemünden. "Opening up for competitive advantage–How Deutsche Telekom creates an open innovation
ecosystem." R&d Management 39.4 (2009): 420-430.
2.

Example:Technology scouting at Deutsche Telecom
▪ Deutsche Telekom engages with selected partners in joint workshops
where this knowledge is shared.This is particularly surprising because
Deutsche Telekom is operating a worldwide network of technology scouts
(Rohr- beck, 2007) and it could be expected that this effort would be
exploited by keeping this information secret and using it exclusively
35
Rohrbeck, René, Katharina Hölzle, and Hans Georg Gemünden. "Opening up for
competitive advantage–How Deutsche Telekom creates an open innovation
ecosystem." R&d Management 39.4 (2009): 420-430.
Rohrbeck, René, Katharina Hölzle, and Hans Georg Gemünden. "Opening
up for competitive advantage–How Deutsche Telekom creates an open
innovation ecosystem." R&d Management 39.4 (2009): 420-430.

Example: Crowdsourcing ideas @ Lego
36

Example: Corwdsourcing ideas @ Lego
37
▪ Recent research develops findings:
▪ Let Customers Find the Hits: Customers are as
good as (or better than) experts in identifying which
products will become hits
▪ Give Unhappiness an Outlet: Rejecting ideas can lead
to disappointment and negative comments on other ideas
▪ Share the Wealth: the company encourages not only
creativity but entrepreneurship as well… Many creators are
able to earn money from their proposals outside of Lego
Ideas competitions
Beretta, Michela, et al. "Lego Takes Customers’ Innovations Further." MIT Sloan
Management Review 65.1 (2023).

Knowledge, skills and capabilities
▪ Definition:Awareness or understanding about specific
topics, capabilities or experiences
▪ Example Mechanisms:Absorptive capacity, Endowed
knowledge base, Collaborative trust, permeable org
structures
39
Wu, Linfei, et al. "How do digitalization capabilities enable open innovation in manufacturing
enterprises? A multiple case study based on resource integration perspective." Technological
Forecasting and Social Change 184 (2022): 122019.
3.

Example: In manufacturing, digital
capabilities enable openness
▪ “we conducted a multiple case analysis with interviews and
document data from four different types of manufacturing
companies with open innovation enabled by digitalization
capabilities… “
40

Example: In manufacturing, digital
capabilities enable openness
▪ “The company has used the past one and a half years to
completely independently plan and design a data and business
digital operation platform system for both ecological partners and
consumers, to open up the whole chain of e-commerce and
logistics, to cultivate future- oriented digital business in the
existing business operation system, and to better meet the needs
of suppliers, distributors and consumers in the digital era
(B1-45).”
▪ “Our innovation center relies on the accumulation of Internet of
Things and big data to conduct joint R&D with research
institutions and universities (D1-58).”
41

Learning by doing
• Definition: Executing OI-related activities and outcomes
• Mechanisms:Tacit learning transfer, collaborative
prototyping
42
Bogers, Marcel, and Willem Horst.
"Collaborative prototyping: Cross-fertilization of
knowledge in prototype-driven problem solving."
Journal of Product Innovation Management
31.4 (2014): 744-764.
4.

Example Prototyping of smart thermostat
▪ Prototyping of smart thermostat at Danfoss
▪ We presented the ideas, what kind of ideas we are going for now, to
practically all departments that are involved in this
project. So they got an understanding of it and had the opportunity to
provide feedback early on.
43
31.4 (2014): 744-764.
4.

Example Prototyping of smart thermostat
▪ Prototyping of smart thermostat at Danfoss
▪ We distinguish formal managerial level and informal designer
level of prototyping,. collaborative prototyping transforms
from an activity belonging exclusively to the domain of design
engineers to an activity integral to NPD, with participants
from within the organization (different functions and
managers) and from outside (consultants and users).
44
31.4 (2014): 744-764.
4.

45
4.
3.
1.
2.
E,g, Patents
E,g, Foresight
E,g, prototypes
E,g, digital capabilities

Galileo Galilei
this network, Galilei obtained high quality, clear glass, for
instance
46

47
Firm-centric OI:
Focus on firm-centric aspects in Open Innovation (OI), emphasizing the role of
knowledge, technology, and R&D in collaborative development.
Research explores strategic expansion through R&D alliances, technology
partnerships, and collaborative development, highlighting knowledge exploration
and absorptive capacity.
Management of OI Networks:
Limited research on Open Innovation (OI) network management, with attention
to industry networks, corporate ventures, and intellectual property (IP).
Neglect of institutional networks, public sector roles, and wider strategic
management issues like sustainable business models and governance
mechanisms within OI networks.
Users and Communities in OI:
Limited attention to users and communities in Open Innovation (OI), despite
being topical.
Emphasis on collaborative development with value chain partners, with minimal
focus on individual users as innovators. Scarce exploration of community roles,
except in Open Source Software (OSS) projects, where profit appropriation
and benefit accrual are key areas of interest
OI is an expansive literature with open opportunities

Critique: Old wine in new bottles
1) Creating false dichotomy to introduce a “new concept“
– Wrong vs. Right, black and white view
– Companies already most of the way there
2) OI model is linear, variation on stage-gate model (vs. Chained model of innovation )
3) Simplicity  popularity
4) Research ethics – not giving credit to prior work formulating similar ideas
Trott, P., & Hartmann, D. (2009). Why „open
innovation" is old wine in new bottles. International
Journal of Innovation Management, 13(04), 715–
736. https://doi.org/10.1142/S1363919609002509

Galileo Galilei
this network, Galilei obtained high quality, clear glass, for
instance
49

Innovation ecosystems
Alliances, complementors, platforms

Remember Helix models?
51
Etzkowitz, Henry, and Loet Leydesdorff. "The dynamics of innovation: from National
Systems and “Mode 2” to a Triple Helix of university–industry–government
relations." Research policy 29.2 (2000): 109-123.
▪ Triple helix model: industry, government and universities
▪ The model represents the shift from the dyad industry-government
that dominated industrial society to triad industry-government-
universities that is typical for knowledge society.
Industry
Gov
Academia
▪ knowledge produced for application
(Mode 2)
▪ As opposed to pure primary research
(Mode 1)

Open innovation…. Is opening up!
52

Business Ecosystems
▪ ecosystem is defined by the alignment structure of the
multilateral set of partners that need to interact in order for
a focal value proposition to materialize.
54
Moore, James F. "Predators and prey: a new ecology of competition." Harvard business review 71.3
(1993): 75-86.

Business Ecosystems… two ways
of understanding the concept
55
Ecosystem-as-Affiliation Ecosystem-as-Structure
Activities Discrete actions to be
undertaken in order for the
value proposition to be created
Specifies the discrete actions to be
undertaken in order for the value
proposition to materialize
Actors Entities that undertake
activities
Entities that are tied to the focal
actor
Positions Specified locations in the flow
of activities across the system
Specifies where in the flow of
activities across the system actors
are located and who hands off to
whom
Links Transfers across positions,
which may or may not include
the focal actor
Transfers across actors, specifying
the content of these transfers,
which need not have any direct
connection to the focal actor
Adner, Ron. "Ecosystem as structure: An actionable construct
for strategy." Journal of management 43.1 (2017): 39-58.

Faculty of Business Administration
Prague University of Economics
and Business
W. Churchill Sq. 4
130 67 Prague 3, Czech Republic
Thanks
Michal Hron
Assistant professor
michal.hron@vse.cz
hronmichal.net

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