Open Innovation and Business-Model Innovations - Essay Example

CRITICALLY DISCUSS WHAT IS MEANT WITH OPEN INNOVATION? WITH REFERENCE TO A SPECIFIC FIRM, DISCUSS THE EXTENT TO WHICH OPEN INNOVATION PLAYS A ROLE INTHIS FIRM’S INNOVATION PROCESS. By Author’s Name Name of the Class Name of the Professor Name of the School City, State 24 February, 2015 Background to innovation The aftermath of the 20th century has been characterised with increased globalization and technology development efficient to promote innovation. Over the last two decades, many different and unexpected companies have sprung to top competitors in their industries, while some of earlier monopoly companies have either declined in performance or popularity. The many entrants and few earlier domineering companies that have remained competitive, profitable and successful in the free market are those that have embraced open innovation. With increasing new changes, entrepreneurs and investors are seeking to restructure and adopt new strategies that can overcome barriers to entrance into a marketplace for their products/services. Prior to acceptance of open innovation, companies were focused on self-reliance and methods of internalized research and development (R&D), which characterize the idea of closed innovation. This centralized approach in the current era has proved challenging for most businesses who need to meet consumers need and thrive in the market. Open innovation It is the current strategy that SMEs and LSC/MC have adopted to stay abreast and competitive in the market. According to Chesbrough, Vanhaverbeke and West, 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” (2014, p. 4). It emphasizes that useful ideas and knowledge are not limited within an organization, but distributed across other organization as well as in the market labour force. Clearly, it’s true there exist smarter people who are not the organization’s employees, but with innovative ideas that give a firm its competitive advantage. Similarly, a company’s internal R&D expertise may be insufficient and may require to be harnessed through external knowledge if the organization needs to be successful. The concept stresses on the need for individuals firms to appreciate and leverage external knowledge and incorporate it with their internal capability. Open innovation (OI) is concerned with creation of knowledge through pooling of ideas and information that create value and give superiority to organizations. One, an organization’s R&D discoveries is fundamental to each organizations, hence cannot be disregarded. It is part of the knowledge/idea that an organization own. Second, other sources of knowledge/idea are in the labour force (some of who are sole proprietors or in partnership) or external firms with smart employees. Therefore, an organization can engage into an innovative process by tapping into ideas originating from each, which can be customized for the needs of the organization or used to create a niche in the competitive market. Apparently, it’s through this process that most organizations reap the benefits of ideas and expertise, which they never invested to develop. Inventions and ideas of specific individuals and organizations today thrive in different settings. They need not invest to generate the ideas, or engage in production of a specific product, but can insource the idea and outsource a task. Through commercialization of ideas, innovations can move freely and allow firms to exploit others’ intellectual property to create a significant value. Part of OI has been stimulated by loosened restriction facilitating increased mobility of knowledge workers and access to venture capital (Chesbrough, Vanhaverbeke and West, 2014). Through open innovation solving an unmet need in an organization is possible through a collaborative community of experts inside and outside of an organization. Utilizing external knowledge or collaboration with external individuals/firms through partnership for innovation does entail sharing of risks and rewards. The products of the co-developed innovations can them be introduced into the market as joint venture or through licence deals among others. Unlike closed innovation, screening of ideas in OI tends to give considerations to both promising and non-promising ideas: rather than discarding the latter ones it rescues them to later deliver their unforeseen commercial value. Huizingh explains that empirical studies has found more use of inbound OI (“internal use of external knowledge”) than outbound OI (“external exploitation of internal knowledge”) (2010, p.3). Extent to which open innovation plays a role in Nokia’s innovation process Business model innovations Each firm has a specific business model it has implemented that guides on how to reach to their customers and make utmost profits. New companies coming up have an obligation to develop and implement suitable business models to stay competitive, create and capture value in the market. Similarly, some established firms need to change or renovate their business models when they fail to give them a competitive edge. A business model has several functions which entail formulation of a competitive strategy that gives the company an advantage over its rivals, define how business earns it revenues and describes its value chain structure and the position the company takes within the value structure (Chesbrough, 2010). Some of the invested business models in organizations are out dated or ineffective in business practices because they fail in their functions and have no chance in operation compared with modern business models designed purposefully through open innovations. OI plays an integral role in changing the business models for established large organization. Today, companies have structured open business models and others have engaged in business model innovations to change their organizational inertia. OI has been adopted by SMEs and large firms like Nokia in innovation of their business models enable them stay competitive in ever changing business environment. The case of Nokia is an example of applicable open innovation. Aspara et al., identify the“corporation for its successful business model transformation or turnaround that rescued the firm from near bankruptcy and set it on the path to becoming one of the world’s great corporate success stories of the 1990s and 2000s” (2011, p. 6). The corporation recognized aspect of inter-organizational cognition, bringing together the ideas from its stakeholders (customers and employees), different top executives of the branches and previous existing models to develop appropriate corporate business model. By allowing diverse environmental interpretations, Nokia was able to gather intelligence and structure key decisions that allowed it to mitigate financial and business risks. This was an aspect of open innovation that influenced executives to adopt change in business model to reap the benefits. In the end, the corporate top managers were able to retain certain elements of their previous business model, but also renewed out dated ones adopted new ones based on the gathered intelligence based on inter-organization’s cognitions. Change in organizational culture Changes in organizations’ culture of doing things can easily be influenced by open innovation. When open innovation is embraced by systems and people who drive change in companies, culture and practices of the firm risks been altered in the process of interaction. Often top management have supported and intervened in different stages during implementation of new/foreign ideas in their organizations. Part of this is because most operational employees have resisted change to newer innovations for individual reasons like fear of losing their jobs. The top management take the obligation to convince the employees otherwise and overcome the resistance. With such support, open innovation is adopted and that fuels change, reorganization and way of doing things in the organization. Open innovation introduces companies to new ideas, concepts and practices and once adopted changes employees cognition and mind-set in the way they should perceive and operate in the organization. Beyond the resistance in a company, OI is in the perfect position to stimulate change in the communication structure between employees. Some organizations that formally used and followed complex hierarchical structure in way communication have changed to horizontal communication structures after influence by OI, which has allowed greater interaction and exchange of information/ideas across departments. OI also influences organizational processes, employees’ attitudes and their deeply held values, which all make up an organization’s culture. Nokia had been known to have bureaucratic corporate culture that is recognized as one of its contribution to declining performances prior 2011. Nokia corporation went ahead to appoint Mr. Stephen Elop previously from Microsoft corporation as its CEO to drive a strategic change in the company. He was not part of Nokia, but the corporation opened up to his foreign expertise in management. He is known to have facilitated open innovation and multiples changes in his reorganization. Hestad claims that this change of Nokia’s leadership is what has led to change in design of Nokia’s products and brand and restorations of its past glory (2013). By delayering of the organizational structure, delegating decision making from centralized senior management to local and national teams, and enhancing transparency, he modified the previous bureaucratic culture to improve efficiency for Nokia. It has changed ways in which and who make certain decisions in Nokia corporation, empowered employees and smoothened the communication structure to reach managers and employees. New products and service innovations Firms have gone ahead to utilize open innovation in their diverse functional areas to enable development of new successful products and services in the market. Consumers of the products in the competitive market have changing desires and need to be convinced that a product from a specific company is best in quality because it meets their needs. Whether it’s all about renovating or introducing a new product, it requires brilliant minds and ideas to manage new product development. In a survey conducted by Reznik and Morelli, 63 percent of the executives open innovation as a cost effective alternative method of tapping more effectively into a larger idea pool for creation of the right products in the communication industry (2009). Open innovation has taken the lead in firms in the high tech sector by opening up to external sources for innovation for their services and products. Firms running short of in house ideas have incorporated numerous external actors in their innovation network to drive greater innovation in development of their service/products. According to Monsef, khairuzaman and Ismail, “open innovation identifies the new product development performance where the internal R&D function can provide NPDs need solely, or it needs external sources such as the knowledge of individuals, customers’ ideas and technology” (2012, p. 9). The end product following OI ends up matching consumers’ needs and preferences. Nokia has often deployed open innovation strategies in development of wide array of new products and services that meet consumer’s needs (Dittrich and Duysters, 2007). Nokia has made the world its lab by going outside the organization for ideas and technologies that can improve or help introduce new products in the market. Through Innovent team and Nokia venture partners, Nokia looks for ideas and technologies outside the company and analyses them before investing into (Nokia, n.d.). Similarly, it opens up its non-core ideas to other research hubs and partners as an initiative to develop them into valuable technologies, products and services, which can be incorporated back in Nokia’s innovation process. From time to time you hear of Nokia’ open innovation challenge, which is part of soliciting ideas and technologies from individuals, partners and communities like universities that would steer the mobile industry, but as well as giving them the opportunities to work with the corporation to address real problems in the society or business environment. Facilitating collaboration with other firms and third parties The traditional internal focus to drive innovations by firms is slowly been changed by open innovation strategies that bring on board external expertise. There multiple unmet needs in the society and businesses that require meaningful solution through collaborative innovation. OI has allowed companies to connect and work with other external parties from consumers, suppliers and rival firms to create sustainable solutions. One way is by allowing communities of developers and experts in the industry from both small and large scale firms to come together and brainstorm each other to create sustainable solutions to existing problems. It’s a way of exchanging ideas among experts and challenging their cognition to harness their inventiveness of new technologies and products. Companies today better perform their innovation and research with partners to effectively cut costs and time spent in the activities. Large firms and SMEs move to adopt external means of innovation by forming strategic alliances and networks with other larger firms to access markets and sales channels, enhance technological competence and innovation in products/services (Lee et al., 2009). Companies partner with third party firms to gather information on consumer needs or specifications in development of a product, or hire them for distribution and marketing down the supply chain. Part of Nokia corporation’s success and innovation can be attributed to its numerous efforts in collaboration to other firms. According to Dettrich and Duyster, in the period between 1997 and 2002, “Nokia had 48 strategic alliance agreements, of which 25 were joint development agreements, 16 co-production contracts, six joint ventures and one standardization consortium” and the number has since doubles in the years after (2007, p. 518). It’s the embrasure of OI approach that has enhanced greater collaboration of firms with Nokia in R&D, processing of unfinished into new products, enhancing of technological competence, gather consumer intelligence, and exploit external technologies for their benefit. As a result, OI bring together Nokia, its partners and customers in a continuously interaction for quality innovations in development of software and hardware platforms in the telecommunication industry. Unlike when alone, alliances require that Nokia engage in a give and take routine as a way of idea transfers to enrich its corporation. OI support to co-creation The search and need to access knowledge have forced companies to actively engage with end users of their products to enhance creativity in designs of products. With open innovation, design and production managers in companies have the opportunity to steer their firms to greater innovations through co-creation of value with their consumers. Collaboration between design teams and consumers in the market is an essential process today leading to establishment of co-creative relationships. It allows companies to get feedbacks and preferred specifications from the consumers by facilitating open communication between firms departments and end users through provided channels (like websites). Open innovation facilitates appropriate collaboration between the parties and co-creation to exchange knowledge and resources. Firms then use the knowledge gained or at the intersection of these ideas and information, they influence creations through personalized experiences to deliver high value products/services. Through OI approach, co-creation is being put into action extensively, providing opportunities where firms can gather knowledge through consumers’ shared ideas and thoughts. Apparently, end users are no longer dormant participators, but co-creators of value. Open innovation with customer allows them to take an integral role in designing of products that deliver their needs. What is evident today is consumers’ involvement in marketing practices where organizations and their clients engage in creation process. Other than customers in discussion forums, there are customer communities of creation whom are resourceful sources of novel concepts and ideas. Supplies and other stakeholders in the supply chain can also be involved in co-creation. Nokia is a step ahead in implementing customer derived collaborations across the globe. Due to increasing competition in the industry it Nokia has continuously solicited ideas and information from consumer groups of its various products to improve functionality. The company engages in co-creation to secure its future performances, look at conception and functionalities of its products. It holds co-creation workshops involving Nokia designers, tech savvy consumers, design researchers among others, which is a way of developing and refining ideas, but also influencing creation of output (Parker, 2010). It has developed co-creation hubs across the continents, which have also been used to conduct testing and validation of products’ platforms. An example is the co-creation project for Nokia Asha in Lagos, Mexico and India’s largest cities that brought together Nokia’s team and over 80 young creative consumers to work together; the effect was generation of great insights, breakthrough ideas and rich feedback to push the mobile phone concept to the next level (frontier strategy, n.d.). Conclusion Open innovation approach and strategies are the way to go for companies today if they need to stay competitive and thriving in the business. As firms open up information and ideas flow in and out of the firm to support a wide array of organizations reap their commercial value. Open innovation has been fundamental in formation of strategic alliances and networks for Nokia Company’s collaboration with other firms. It has also played the role in Nokia’s innovation with customers in co-creation, innovation of new products and services through supportive internal and external ideas, influencing of the organizational culture and innovation its business model. References Aspara, J., Lamberg, J., Laukia, A. and Tikkanen, H., 2011.Corporate Business Model Transformation and Inter-Organizational Cognition: The Case of Nokia. Long Range Planning, p. 1-23. Chesbrough, H., 2010.Business Model Innovation: Opportunities and Barriers. Long Range Planning 43: pp. 354-363. Chesbrough, H., Vanhaverbeke, W. and West, J. Eds., 2014. New Frontiers in Open Innovation. Oxford: Oxford University Press Dittrich, K. and Duysters, G., 2007. Networking as a Means to Strategy Change: The Case of Open Innovation in Mobile Telephony. Journal of Product Innovation Management 24: pp.510-524. Fronteer Strategy, n.d. Elevator Validation & Co-creation Sessions for NOKIA Asha - Shanghai, Mumbai, Jakarta, Lagos & Mexico City. [online] Available at:[Accessed 25 February 2015]. Hestad, M., 2013. Branding and Product Design: An Integrated Perspective. Aldershot, Hampshire: Gower Publishing Ltd. Huizingh, E.K.R.E., 2010. Open Innovation: State of the Art and Future Perspectives. Technovation, pp.1-8. Lee, S., Park, G., Yoon, G. and Park, J., 2009. Open innovation in SMEs - An intermediated Network Model. Research Policy 39: pp. 290-300. Monsef, S., Khairuzaman, W. and Ismail, W. The Impact of Open Innovation in New Product Development Process. International Journal of Fundamental Psychology & Social Sciences, 2(1): p.7-12. [online] Available at:[Accessed 25 February 2015]. Nokia. n.d. Safeguarding Discontinuous Innovation. [online] Available at:http://homepages.rpi.edu/~oconng/CorpEntrepreneurship/Model%204/Nokia%20caseNewBizIdeaAcceleratorCorpStratBd.pdf[Accessible 25 February 2015] Parker, S., 2010. Building a Model of Customer Co-Creation. [Online] Available at:[Accessed 25 February 2015] Reznik, G. and Morelli, A., 2009. Open innovation: How to Create the Right New Products, the Right Way. Outlook (3): 1-10. [Online] Available at: [Accessed 24 February 2015]. Read More