Innovation

 Innovation is the implementation of a new or significantly improved

idea,good, service, process or practice which is intended to be useful

 Rubenstein defined
innovation as
the process whereby new
and improved product,
processes, materials, and
services are developed and
transferred to a plant
and/or market where they
are appropriate
 Relation between
Technology & Innovation
 Technology is the practical
implementation of learning and
knowledge by individuals and
organizations to aid human endeavor.
Technology is the knowledge, product,
Technology procesess, tools, and system used in the
creation of goods or in the provision of
services (Margaret A. White and Garry D
Bruton)

 Technology enables innovation and

innovation enables technology

Innovation
 Technology = input for innovation
Innovation = resulted on new technology
Open Innovation
THE BASIC PREMISE
“Opening up the innovation process”

DEFINITION
„The use of purposive inflows and outflows of
knowledge to accelerate internal innovation, and to
expand the markets for external use of innovation,
respectively‟
(Chesbrough et al., 2006:1)
The first process is called inbound open innovation
and the second out-bound open innovation

Henry Chesbrough connected the processes

of acquiring external knowledge and
exploiting internal knowledge externally by
placing them both under the open innovation
umbrella with the labels INBOUND AND
OUTBOUND OPEN INNOVATION
Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
 Based on these terms Herzog (2011) defined
the open innovation as...

A holistic approach to innovation management as

“systematically encouraging and exploring a wide
range of internal and external sources for
innovation opportunities, consciously integrating
that exploration with firm capabilities and
resources, and broadly exploiting those
opportunities through multiple channels”

Herzog, P. 2011. Open and Closed Innovation, Different Cultures for Different Strategies. 2nd Ed. Gabler Verlag, Springer. p. 1-8.
 Difference between
Open & Closed Innovation
"Closed" Innovation Viewpoint
Nobody can know what we are innovating
Spending more on internal R&D will
improve our market position and help
us grow
First-to-patent = highest profit
We need more R&D staff to close our
knowledge gaps
"Open" Innovation Viewpoint
Nobody can know the confidential ideas
that we are working on
"Smart" innovators engage with the global
innovation community and reap the
highest returns
First-to-market = highest profit
We need our R&D staff focused on our
core competencies, allowing outside
solution providers to provide the rest

OPEN INNOVATION IS USUALLY CONTRASTED

WITH CLOSED INNOVATION
•“Supposedly its predecessor, where companies generate their own
innovation ideas, and then develop, build, market, distribute, service,
finance, and support them on their own”
(Chesbrough, 2003a, p. 20)
Comparison between....
 Closed Innovation Open Innovation
Paradigm Paradigm

Perusahaan melakukan Perusahaan melakukan riset

riset dan pengembangan dan pengembangan dengan
dengan resource dari resource dari internal dan
internal perusahaan, dan eksternal perusahaan,
hasil/produk-nya dilindungi demikian pula hasil penelitian
oleh perusahaan sampai internal dapat dipakai oleh
diluncurkan ke eksternal perusahaan
pasar/market
 Why we need to applied
OPEN INNOVATION PARADIGM?
To increase investment in new business Firms expect to further reduce their
development internal basic reserach efforts

To managing the product To make more use of acquiring

portofolio technology from external sources

To be competitive, to create the basis for Deepen their competence base in their
innovation strategies current technologies and markets

Technologies and markets sooner or later will be

mature
• Firms need to initiate new businesses

Firms need to focus on their current business

• Firms need to identify, acquire, and develop new
competencies, simultaneously

Herzog, P. 2011. Open and Closed Innovation, Different Cultures for Different Strategies. 2nd Ed. Gabler Verlag, Springer. p. 1-8.
RELEVANT DEVELOPMENTS IN THE WIDER
INNOVATION ENVIRONMENT INCLUDE :
 Social and economical changes in
working patterns,
 Increased labor division due to
globalization,
 Improved market institutions for
trading ideas,
 And the rise of new technologies to
collaborate across,
 Ggeographical distances (Dahlander
and Gann, 2010)

THE ‘DO-IT-YOURSELF’ MENTALITY IN INNOVATION MANAGEMENT

JUST BECAME OUTDATED (GASSMAN, 2006)
Trends such as outsourcing, agility, and flexibility
had already forced companies to reconsider their
strategies and processes in other areas, and to
become network organizations

Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
Content of Open Innovation
Open innovation is a relatively new
and rich concept

THE 3 CONTENT OF OPEN INNOVATION:

 Classifications of openness
 The two main activities of inbound
versus outbound open innovation
 The focus shifts to the various aspects
of open innovation effectiveness

Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
Classification of Openness

 The various knowledge flows in open

innovation. Lichtenthaler and Lichtenthaler
(2009) distinguish between three knowledge
processes:
 Knowledge exploration,
 Retention,
 Exploitation
that can be performed either internally or
externally

 Open innovation practices can also be

grouped by distinguishing between
 Process
 Outcome

Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
Various ways of innovation based on the openness of
both the process and the outcome of innovation
INNOVATION PROCESS INNOVATION OUTCOME
CLOSED OPEN

CLOSED 1. CLOSED INNOVATION 3. PUBLIC INNOVATION

OPEN 2. PRIVATE OPEN 4. OPEN SOURCE
INNOVATION INNOVATION

 CLOSED INNOVATION
Proprietary innovation is developed in-house
(Chesbrough, 2003a), both the process and the
outcome are closed

 PRIVATE OPEN INNOVATION

The outcome is closed (a proprietary innovation)
but the process is opened up, either by using the
input of external partners or by externally exploiting
an internally developed innovation. Such as Procter
& Gamble (Huston and Sakkab, 2006)

Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
 PUBLIC INNOVATION
Devoting scarce resources to innovation and then to give away the
outcome for free seems highly unlikely for economists (e.g., Lerner and
Tirole, 2005; Kogut and Metiu, 2001), but in some cases it makes good
economic sense (von Hippel and von Krogh, 2006). The example is
standard setting, where the original innovators do not exclude others to
use an innovation in order to reap the benefits of a de facto market
standard, examples include the introduction of JVC’s VHS videotape in
1976 and the IBM PC in 1981

 OPEN SOURCE INNOVATION

Where both the innovation process
and the outcome are open. Open
source software is the best known
example of this category example ms
office by microsoft & open office by
oracle

Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
Inbound vs Outbound Innovation

 INBOUND OPEN INNOVATION

refers to internal use of
external knowledge
 OUTBOUND OPEN INNOVATION
refers to external exploitation
of internal knowledge

This relates to the three knowledge

processes of knowledge exploration,
retention, and exploitation that can
be performed either inside or outside
a firm’s boundaries (Lichtenthaler
and Lichtenthaler, 2009)

Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
 INBOUND INNOVATION
Empirical studies have consistently found that
companies perform more inbound than
outbound activities :
 Chesbrough and Crowther, 2006;
 Bianchi et al.,
 Cheng and Huizingh, 2010;
 Chiaroni et al.

Procter & Gamble reportedly only uses 10

percent of its technologies (Huston and
Sakkab, 2006)

Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
 OUTBOUND INNOVATION
Possible explanations for external under
exploitation include:
 Historical reasons
 The possibility to use existing relation- ships
 The fear of diffusing relevant knowledge
(Rivette and Kline, 2000)
 To give away corporate ‘crown jewels’ (Kline,
2003)

 A rise in efforts of companies to

license out their technologies
(Fosfuri, 2006; Granstrand,
2004)
Motorola estimates the potential
of licensing out as $10 billion
annually (Lichtenthaler, 2007)

18
Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
Effectiveness
Interesting issue is what aspects of open innovation
activities make the concept effective:
 Lower costs
 Shorter time to market
 More sales
 Licensing technologies increases company profits
 Exploiting company’s own market to focus at the expense
of its customers
 Offensive reasons (stimulating growth) were more
important than defensive reasons (decreasing costs and
risks)
The chain of open innovation effects,
from immediate to long term, strategic
consequences:
“Strategic benefits of outbound open
innovation include getting access to
new markets and enhancing the firm‟s
technological position” (Lichtenthaler,
2007; Nagaoka and Kwon, 2006)

Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
Context of Open Innovation
I. INTERNAL CONTEXT CHARACTERISTICS:
Company characteristics related to demographics and
strategies
Demographics include:
 Number of employees,
 Sales,
 Profits,
 Age,
 Location,
 Market share,
 Ownership type.

Strategy characteristics include:

 Strategic orientation,
 Aspects or goals of the innovation
strategy,
 Incumbents versus new entrants,
 Organizational culture.

Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
II. EXTERNAL CONTEXT CHARACTERISTICS:
The most obvious external context characteristic is
industry. Many open innovation studies focus on
specific industries :
 Consumer electronics (Christensen et
al., 2005),
 Food (Sarkar and Costa, 2008),
 Financial services (Fasnacht, 2009),
 Automotive (Ili et al., 2010),
 Biotechnology (Fetterhoff and
Voelkel, 2006; Bianchi et al.,)

Applying open innovation seems to be

more a matter of business strategy than
a matter of industry trends (Keupp and
Gassmann, 2009), open innovation
adoption the internal environment in
firms is more important than the
external environment.

Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
Open Innovation Process
I. TOWARDS OPEN INNOVATION
The transition process from closed to open
innovation
Chiaroni et al. (2010) identify four organizational
dimensions:
 Inter-organizational networks,
 Organizational structures,
 Evaluation processes
 Knowledge management systems
II. OPEN INNOVATION PRACTICES
The outside players range from suppliers, customers, and
competitors, to research institutions and organizations in very
different industries that either have solutions that can
improve the company’s innovations or that can exploit
solutions the company has developed.
Fetterhoff and Voelkel (2006) propose a model including the
following five stages:
(1) seeking opportunities,
(2) evaluating their market potential and inventiveness,
(3) recruiting potential development partners,
(4) capturing value through commercialization,
(5) extending the innovation offering.
Huizingh, E. 2011. Open innovation: State of the art and future perspectives. Technovation, 31, 2-9.
Conclusion
 Open innovation is a concept that
has recently attracted a lot of
attention, both in practice and in
academia with the basic premise
“opening up the innovation process”
 One of the main reasons is that the
concept inbound / outbound open
innovation fits very well with many
trends in the broader management
arena
 The firm need to applied open
innovation paradigm because of the
advantages and their strategy to
make the effectiveness
 The „do-it-yourself‟ mentality in
innovation management just became
outdated