How to create and capture value
through open innovation in lowlowtech SMEs?
Wim Vanhaverbeke
Hasselt University - Belgium
Esade Business School - Spain
Vlerick Leuven Gent Management School - Belgium
Symposium
‘Organizing Open Innovation: Combining value creation and value appropriation’
AOM Annual Conference 2011
August, 17 2011
1
1
Some observations after
8 years OI
2
1
Some observations
• Open innovation is a booming research area
• Main focus on:
• HighHigh-tech industries
• Large manufacturing (and now also services) companies
• What do we know about open innovation in SMEs:
• Few articles published so far (e.g. Van de Vrande et al. 2009,
Technovation))
Technovation
• A few case studies or some survey based evidence
• No systematic analysis yet of OI in lowlow-tech SMEs
• Today: first conclusions of an in depth study of OI successes
in 10 European SMEs in low tech industries
3
2
The broader framework:
Business model as starting point
The Strategic Dimension
4
2.
BM as starting point for your analysis
•
•
•
Studying open innovation in SMEs makes only sense within the
broader framework of a business model (innovation)
You can only understand why SMEs engage in OI if it is an integral
part of how they can create value for their customers and
appropriate part of that value for the company (Chesbrough
2007, SMR)
How to analyze a BMs?
• Renewed attention among management scholars for BMs and BM
BM-innovation
• Afuah (2004), Morris and Schindehutte (2005), Osterwalder
(2004), Osterwalder et al. (2005), Schafer et al. (2005), Chesbrough
and Rosenbloom (2002), Johnson (2010), and Johnson et al.
(2008).
• Critical remark: BM(I) models do not pay enough attention to
network partners/ OI …
5
2.
BM as starting point for your analysis (after Johnson et al. 2008)
6
2.
BM as starting point for your analysis (after Johnson. 2010)
7
3
The start: vision of the
entrepreneur
The entrepreneurial dimension
8
3.
How value creation starts?
•
Vision / basic insight of the entrepreneur:
• Diverse: From the obvious to hard to articulate:
•
•
•
•
•
•
•
•
Seghers Balcaen
Balcaen:: developing innovation in packaging in close cooperation with
key customers
Devan Chemicals: continuous NPD in textile chemicals industry
Isobionics:: Producing Flavors & Flagrances at half the price
Isobionics
Airfryer:: How to make fried food in a healthy way? (80% less fat)
Airfryer
Curana:: developing a mudguard with sleek modern design
Curana
QOD: A provider of a healthy sleep
I styling : virtual shopping for fashion goods
BM conception: from days to years
•
QOD:
•
•
•
•
•
Who can define “what is a healthy sleep?”
How to translate these insights into technical specs for a functional quilt?
Istyling : piecewise development of the BM (body scanner)
Articulating a BM may take time: A process view on BM formation
There is no grand design – discovery driven growth strategy +
experimentation (Rita McGrath)
9
4
Creating and sharing value with partners:
How open innovation fits into the picture?
The relational dimension
10
4,
11
4.
How to create value with innovation partners? CURANA
• Combination of internal and external knowledge (external design
company and polymer extrusion manufacturer) – KEY
RESOURCES/ COMPETENCIES
• Coordination with leadlead-customers (bicycle manufacturers) in
exchange of an exclusive deal that is limited in time (Batavus
(Batavus
and Sparta)
• Protecting your invention : IPR
• Progressively increasing the ecosystem of partners:
• Locus of innovation is in the network: viability of the network
determines the health of your company
• Network as enabler: rapidly changing designs and use of new
materials – competitive advantage
• Economic strength ≠ f(firm size)
• Open Innovation leads to more decision power = creating your
company’s destiny and that of the industry
12
4.
How to create value with innovation partners? QOD
the making of the first functional quilt
introducing NASA technology
13
4.
How to create value with innovation partners? QOD
14
4.
How to create value with innovation partners? QOD
• Outlast invented the microcapsules with PCMs
• QOD optimized the technology (getting the right mix) to have a
better sleep
combining the insights of different scientific fields (control point)
• Outlast licenses the technology to QOD
•
•
•
Worldwide and exclusive license for quilts & pillows
Sublicenses to other manufacturers in countries where QOD is not active
Outlasts licenses to other firms for other applications
•
Shoes, jackets, underwear, etc…
• Both companies coco-developed a new, stronger Temprakon in
2010
QOD is now a worldworld-wide producer minimizing the number of sublicenses
• SME OIOI-strategy should not / cannot be perfect from the start:
nd
2 generation technology or product allows you to perfect the
strategy.
15
4.
How to create value with innovation partners? JAGA
16
4.
How to create value with innovation partners? JAGA
Jaga Experience Lab :
JEL
- Product: testtest-facility
- Experience: test and develop
your own products
- Jaga invites professors &
engineers worldwide
- Low cost form of publicity:
new projects as Federation
Tower / Telefonica
17
4.
How to create value with innovation partners? JAGA
Jaga Product days 2007
• Total number of projects:
119
• Total number of products
created by non
professionals: 49
• Number of Jaga Product
days ideas taken into
production within 6 months:
6
18
4.
Example : The Play radiator
19
5
Managing your external
network (partners) as a key
process
20
5.
Managing your innovation network (key process
process))
• Connecting partners (SMEs and other knowledge partners) is
based on strong personal ties between the main partners
• Trust + transparency about the objectives of the partners
• Time and money have to be invested
• Does everybody wants to take risk?
• Cooperation is easier between companies of the same size
• But cooperation with large ones is possible too (different logic)
• Important that the different firms are prepared to grow together
• Over time assimilate the knowledge of different partners.
Become smarter by knowing more partners (knowing who) and
knowing more than your partners
• …
21
5.
Managing your innovation network (key process
process))
• Project management (central partner) with partners is quite
different from internal project management
• Each one is busy with a part of the project : costs easily raise
excessively
• Diplomacy and mutual respect
• Same corporate culture
• Tensions will pop up after a while
• Good relationship may become under pressure
• Open innovation
innovation?
? Open communication
communication!!
• Organize (mutual
mutual)) evaluation session with partner(s)
• Open bookkeeping with main partners ((their
their problems will be
yours))
yours
• Set out rules for disloyal behavior
22
5.
Managing your innovation network (key process
process))
• IP?
• Make proper arrangements with your partners
• Who is the owner?
• How partners can make use of the technology?
• Who is going to court (and who pays) in case of patent
infringement?
• Make sure that all partners are better off than when they would
not join / stay in the network
• Open innovation: benefits should be a multiple of when
companies work on their own.
23
6
Creating and capturing
value through OI:
A stepwise process
24
4.
Curana:: an illustration of a stepwise process
Curana
OEM
Original
Equipment
Manufacturer
>
ODM
>
OSM
>
OBM
Original
Design
Manufacturer
Original
Strategic
Management
Original
Brand
Management
• price setting
• technology driven • design driven
• no added value
• added value
• vision driven
• image driven
• price pressure
• proactive design • reliability &
solutions
authenticity
• Innovative
• market pull from
customers
25
6.
Curana: an illustration of a stepwise process of capturing
more value
1.
OEM
• Internal competence = market knowledge & steel bending
• Execute according to the specs of the client
• No market power: price taker - Replaceable
2. ODM
• External competences: design & polymer extruding
• Design driven strategy – once customer commits to a project
• Some market power: price setter – can be imitated
3. OSM
• Vision driven (where is the market going)
• Proactive design cycle: customers are following - design = internal competence
• Curana develops its own style for bike accessories
• More & more bicycle manufacturers want to differentiate their products using
Curana accessories
4. OBM
• Branding: Curana capitalizes on its growing reputation
• Lifestyle: biking as an experience , market pull from customers (authentic vs.
fake)
• Power?: Curana shapes its own future and that of the entire industry
26
6.
Curana: an illustration of a stepwise process of capturing
more value
1.
OEM
• Internal competence = market knowledge & steel bending
• Execute according to the specs of the client
• No market power: price taker - Replaceable
2. ODM
• External competences: design & polymer extruding
• Design driven strategy – once customer commits to a project
• Some market power: price setter – can be imitated
3. OSM
• Vision driven (where is the market going)
• Proactive design cycle: customers are following - design = internal competence
• Curana develops its own style for bike accessories
• More & more bicycle manufacturers want to differentiate their products using
Curana accessories
4. OBM
• Branding: Curana capitalizes on its growing reputation
• Lifestyle: biking as an experience , market pull from customers (authentic vs.
fake)
• Power?: Curana shapes its own future and that of the entire industry
27
6.
Curana: Growing decision freedom
1.
OEM
• Internal competence = market knowledge & steel bending
• Execute according to the specs of the client
• No market power: price taker - Replaceable
2. ODM
• External competences: design & polymer extruding
• Design driven strategy – once customer commits to a project
• Some market power: price setter – can be imitated
3. OSM
• Vision driven (where is the market going)
• Proactive design cycle: customers are following - design = internal competence
• Curana develops its own style for bike accessories
• More & more bicycle manufacturers want to differentiate their products using
Curana accessories
4. OBM
• Branding: Curana capitalizes on its growing reputation
• Lifestyle: biking as an experience , market pull from customers (authentic vs.
fake)
• Power?: Curana shapes its own future and that of the entire industry
28
6.
Curana: Growing uniqueness of the offering
1.
OEM
• Internal competence = market knowledge & steel bending
• Execute according to the specs of the client
• No market power: price taker - Replaceable
2. ODM
• External competences: design & polymer extruding
• Design driven strategy – once customer commits to a project
• Some market power: price setter – can be imitated
3. OSM
• Vision driven (where is the market going)
• Proactive design cycle: customers are following - design = internal competence
• Curana develops its own style for bike accessories
• More & more bicycle manufacturers want to differentiate their products using
Curana accessories
4. OBM
• Branding: Curana capitalizes on its growing reputation
• Lifestyle: biking as an experience , market pull from customers ((authentic
authentic vs.
fake))
fake
• Power?: Curana shapes its own future and that of the entire industry
29
6.
Curana:: More market power
Curana
1.
OEM
• Internal competence = market knowledge & steel bending
• Execute according to the specs of the client
• No market power: price taker - Replaceable
2. ODM
• External competences: design & polymer extruding
• Design driven strategy – once customer commits to a project
• Some market power: price setter – can be imitated
3. OSM
• Vision driven (where is the market going)
• Proactive design cycle: customers are following - design = internal competence
• Curana develops its own style for bike accessories
• More & more bicycle manufacturers want to differentiate their products using
Curana accessories
4. OBM
• Branding: Curana capitalizes on its growing reputation
• Lifestyle: biking as an experience , market pull from customers (authentic vs.
fake)
• Power?: Curana shapes its own future and that of the entire industry
30
6.
Some conclusions
1. Open innovation makes only sense when integrated in broader
strategic objectives of small firms
2. Therefore, start with the business models and business model
innovation (CVP, profit formula, key resources (external and
internal) and key processes (external network management))
management))
3. BM: Customer Value Proposition is crucial and comes first
4. Value is created in different ways : no one fits all “open
innovation strategy”
5. Value capturing by creating a unique strategic position
through OI (unique differentiation ; blue ocean strategy)
6. OI can be a valuable strategy for many SMEs
SMEs:: it is not the
result of a long term grand vision – discovery driven strategy
31
6.
Some conclusions
6.
7.
8.
9.
Open innovation enters through “key resources” that a firm
needs to create value.
OI requires network management by a central firm – the network
itself is source of competitive advantage (relational view)
Network management in SMEs is still embryonic. Most SME
managers fail in managing their partners – required skills are
different than for internal management
OI is about:
•
•
•
Increasing VC through cooperation
Capturing part of that share
Fair share of the pie for each partner (his problem is your problem)
problem)
10. OI management is different for lowlow-tech SMEs (more research!)
11. Need to integrate SME strategy – entrepreneurship - OI
32
QUESTIONS?
33