Bazaar Of Opportunities For New Business Development: Bridging Networked Innovation, Intellectual Property And Business

Bridging Networked Innovation, Intellectual Property and Business

Jaakko Paasi, Katri Valkokari, Tuija Rantala, Soili Nystén-Haarala, Nari Lee, Laura Huhtilainen

• Publisher: ICP
• Year: 2012
• Print ISBN:
  9781848168916
• eBook ISBN:
  9781908977304
• Topic: Biological Sciences
• Subtopic: Science General
• Index: Biological Sciences

Bazaar of Opportunities for New Business Development goes beyond the paradigm of open innovation and underlines the variety of opportunities that firms may have in innovation and new business development with external actors. This book shows readers that firms can interact, innovate, and do business with different known and unknown actors, both formally and informally, and use different levels of openness within interorganizational innovation processes. External actors, however, also mean additional risks for the firm that they should manage. The subtitle of book, Bridging Networked Innovation, Intellectual Property and Business, addresses the guidance and perspectives that the book will provide in order to better prepare the reader for innovation with external actors.Bazaar of Opportunities has a multidisciplinary approach to the subject, bringing innovation, business, legal and network management perspectives together. The findings are based on state-of-the-art practices of innovative firms in Europe, empirical data collected through interviews and case studies. Through this multidisciplinary approach and the empirical findings, the reader may gain insight on how to be successful in open and networked innovation.

Chapter 1

Introduction

Think about a place where you can find the missing piece of knowledge to develop the offering for a new business opportunity. Think about a place where you can create and capture value for your unused ideas and intellectual property (IP) through finding an actor who is interested in applying them in their business offering. Think about a place where you can find other actors who share your vision, who are willing to open and share their knowledge with you to jointly explore new business opportunities and works towards making these identified opportunities happen. Would such a “Bazaar of Opportunities” be a fantastic place to supplement your own business development efforts? In the Bazaar of Opportunities for New Business Development¹ you do not have to do everything by yourself. Instead, you can deal with numbers of known and unknown actors and gain from their knowledge, IP, business relationships, visions, and opportunities. You may not yet be there in your business ecosystem, but with this book you are a step closer.

Many readers may have heard about the Connect and Develop program of Procter & Gamble,² where work in research and development (R&D), commercialization and brand strength is shared with the company's innovation partners worldwide. The program works in both inbound and outbound directions within business value chains. Procter & Gamble is searching for partners with promising products, technology, business models, methods, trademarks, packages, designs, or ideas that could be integrated into the company's offering. They are also actively offering their technology and other innovation assets for others through licensing. Most readers may also have heard about the successful strategic movement of IBM where IBM donated closed source code of their operating system (internal IP) to create open source projects and communities in order to fuel adoption of related products and services.³ The value of the related products and services has exceeded the value of the original IP of the closed source code many times over. These two examples are famous success stories of “business giants”. Similar inter-organizational innovation actions take place daily on a smaller scale in thousands of smaller firms and research organizations worldwide. Some of those actions lead to success stories from which we may hear about later on. From most of them, however, we will never hear anything.

You may now ask what is then new in the Bazaar of Opportunities? Is it not so that firms have always been interested in interaction with their customers and other firms in their value chain in innovation? And we have to answer that yes, it is absolutely true that firms have always had interaction with their customers and suppliers in innovation. Innovative endeavour almost always requires a network of independent actors with different competences. Single firms as organizational systems alone do not emerge with innovation, except in a minority of cases. Designs of new innovation, on the other hand, are often developed internally by individual firms that keep strategic control over their designs.⁴ However, there are two things that have essentially changed during the past three decades, which have had a major impact on innovation. Firstly, the interaction is no longer restricted to face-to-face meetings in the neighbourhood. The growth of electronic commerce and the internet has expanded the possibilities of interaction and networking to dimensions not seen previously. While 50 years ago the innovation mainly took place within the neighbourhood, now it can be truly global. Face-to-face innovation has been supplemented by virtual and global places of innovation, where firms can interact, innovate and make business with different known and unknown actors, both formally and informally and using different levels of openness. Secondly, business offerings are nowadays increasingly complex. They may include several technologies — both hardware and software — accompanied with services. Market demand for complex and intelligent products and systems together with global competition has driven firms to search for external partners. In many cases it is no longer feasible and competitive for a firm to do the innovation work (or product development work) related to new business offering alone.

Any collaborative innovation action between two actors requires that the actors open and share their knowledge with each other in one way or another. Therefore, openness has become a technical and philosophical tenet which has a variety of definitions because works and processes cannot simply be described as open or closed (or proprietary). Instead there is a continuum that ranges from closed to open, the work's degree of openness being determined by the availability, accessibility and modifiability of the knowledge as an innovation outcome. A multiple of different models in terms of “collaborative”, “democratized”, or “open” innovation has been introduced to describe the variety of collaborative models of openness in innovation.⁵ These models differ from each other in respect to the availability, accessibility and modifiability of the innovation outcome, forming a continuum of networked innovation from almost closed collaboration to full openness where the results are available and modifiable by all.

Networked innovation is a general expression that we are using in this book to cover all models of inter-organizational innovation as well as models where individuals can be actors of innovation.⁶ The term “networked innovation” does not commit to the degree of openness in the innovation work. It only assumes that there is some kind of collaboration in innovation that goes over the boundaries of a firm(or another kind of organization) and, thus, there are external actors involved in innovation in one way or another. In some instances in the book we are speaking about open and networked innovation in order to underline openness in networked innovation.

Involvement of external actors opens up lots of new opportunities for a firm to create new business: the firm can utilize external knowledge or technology to create new offerings, and the firm can find external paths to commercialize its knowledge or technology. But like in a real bazaar, some actors succeed better in the Bazaar of Opportunities than others. Some actors are better prepared for finding the right partners for their innovation, negotiating with partners, creating successful models of collaboration and business, and managing the networked innovation through formal and informal methods. Firms must also manage additional risks when using external actors.

In this book, Bazaar of Opportunities for New Business Development — Bridging Networked Innovation, Intellectual Property and Business, we present basic models for open and networked innovation in firms and how they manage knowledge and IP in these relationships with external actors. We describe how firms’ legal procedures should be adapted to networked innovation so that they do not only safeguard their own business but also encourage other contractual parties to innovate and create new business together. We also present how networked innovation should influence the IP management in firms, in the form of IP strategy that makes the firm prepared to be active in the Bazaar of Opportunities and in the way the firm valuates IP. The content of the book is based on a large multidisciplinary research project about firms’ practices of knowledge and intellectual property management in inter-organizational innovation and new business development.

Collaboration, Open and Networked Innovation — Why?

Motivations for inter-organizational, collaborative, open, and networked innovation can be illustrated by examples given in Figs. 1.1, 1.2 and 1.3. In Fig. 1.1 the present knowledge of a firm is positioned in respect of the knowledge required for the planned future offering of the firm (where we have supposed that the offering has been described in such a detail that the knowledge required for the offering can be specified).⁷ By the knowledge we mean here both explicit (i.e. codified) knowledge in the form of patents, copyrights, source codes, written documents, etc., and the tacit knowledge (i.e. know-how) that can be somewhat isolated and controlled by contracts, policies, norms, etc.⁸ The knowledge can be related to technology, processes, services, business, markets, customers, local business ecosystems, regulation, legislation, etc., covering all fields required for the running of a successful business.

Fig. 1.1. Alignment of present knowledge of a firm in respect of the knowledge required for the realization of a firm's planned offering.

Fig. 1.2. Alignment of the present knowledge of a firm in respect of the knowledge to be used for the planned offering of the firm.

Fig. 1.3. Alignment of present knowledge of firms A and B in respect to the knowledge required for a potential new offering as an outcome of co-creation (joint innovation).

In Fig. 1.1 the bars are to some extent overlapping, meaning that part of the knowledge required for the realization of the planned offering exists in the firm. However, in the upper-right corner of the figure there is a gap of knowledge meaning that not all the knowledge required for the realization of the planned offering exists in the firm. Now the question is, how can we fill the gap? Alternatives to fill the gap are: 1. Creation of the missing knowledge by in-house R&D; 2. Sourcing of the knowledge through a transaction from another actor (i.e. transaction of existing knowledge); 3. Co-creation of the missing knowledge with external actors (i.e. co-creation of new knowledge).

In-house R&D is the classical way of dealing with the problem. Sometimes it really is a good solution, but sometimes other alternatives could be better. Networking and knowledge acquisition through a transaction or co-creation of new knowledge are often more effective in time and costs than in-house R&D and lead to better solutions because “not all the smart people work for you”.⁹ Transaction of existing knowledge through buying, licensing, subcontracting, etc. is a good alternative when you know that there is another actor somewhere who already has the knowledge that you are missing and has an aligned interest with you, in the sense that you could agree on the conditions of transaction. In the past it was not easy to find such knowledge, but today the situation is different. Explicit knowledge is typically in an electronic form and there is a lot of information available on the internet in different kinds of databases which help in the search for knowledge.¹⁰ Co-creation of new knowledge with an external actor is a good alternative when there is no existing knowledge available to fill the gap. In co-creation your own resources could be multiplied through networking.

Figure 1.2 sets up the question of unused knowledge in the bottom-left corner of the figure: what will the firm do with the unused knowledge? Most firms do nothing with the unused knowledge. But does that create value for the firm? Usually not. There are examples in which it is strategically reasonable to keep some part of a firm's knowledge unused in house and in this way create more “freedom of action” for the business of the firm,¹¹ but often one should consider making profit with the knowledge that the firm is not aiming to commercialize by itself. Then the alternatives are knowledge transaction (in this case we should speak about IP transaction) to another actor by selling or licensing the IP, or sharing the knowledge with an external actor and co-creating new business with her.

Innovations often arise at the interface between different pieces of existing knowledge, experience, culture, etc. Figure 1.3 illustrates the exploration of new knowledge and (later on) new business offering through opening and sharing of existing knowledge bases of Firm A and Firm B. A prerequisite for the co-creation is that the existing knowledge bases of the actors are supplementary and partly overlapping and that the interests of the actors are aligned so that conditions for an innovative dialogue are right. When successful, the result of co-creation is such that neither actor could have done that (easily) by him or herself. The commercialization of the offering could be done by Firm A, by Firm B, by a joint venture, or by a third party after an transaction of the joint innovation.

Collaboration, Open and Networked Innovation — What?

The aim of most firms is to create value and capture some portion of that value for itself. Creating and capturing value usually involves third parties both within the vertical value chain and from the value network of the firm, regardless of how the innovation has been arranged. In a so-called closed innovation model with inside R&D only, any innovation activities happen inside the boundaries of a firm and inter-organizational activities are transactions of products and services within the value chain or network. In an open model, the firm opens up its innovation activities and lets external ideas, knowledge, and technology flow in from the outside and lets internal knowledge and technology flow to the outside in a controlled way. Thus opening may happen both to the inbound direction of the value chain, which typically means external collaboration in the technical domain, and to the outbound direction, which typically means external collaboration in the market domain of a firm.

Networked innovation activities in the technical domain require different capabilities and skills from the firm than networked innovation activities in the market domain. In the technical domain (outside-in innovation activities) the firm acts as a customer for technical suppliers, regardless of the form of the customer–supplier relationship (principal-agency, equal partners, etc.). Much of the networked innovation activities in the technical domain are explorative in nature from the viewpoint of the firm in the role of customer. In the market domain (inside-out innovation activities) the firm acts as a supplier to its customers and end users, regardless of the form of the customer–supplier relationship. Much of a firm's networked innovation activities in the market domain are exploitative in their nature (i.e. exploitation of existing knowledge).¹² The firm must “wear different hats”¹³ in outside-in and inside-out innovation, and changing the role (the hat) may not be easy. Many firms are good in one of these two cases but firms are rarely good in both.

Collaborative, open, and networked innovation is often considered to be R&D activity, but this is only true in part. If we are restricted in our consideration to R&D only, we miss the key point of open and networked innovation and the key point of the Bazaar of Opportunities, which is business, and business models¹⁴ in particular. In the examples given in Figs. 1.1, 1.2 and 1.3, the search of knowledge for a new product or service is R&D, but all the other activity is related to business. Innovation can take place in the R&D domain, in the business model domain or in both of them. This is a fact which many people do not think about. Innovation which is confined to the R&D domain seldom leads to real success stories. Innovation in the business model domain (i.e. how the firm makes money), on the other hand, could easily improve the profit of the firm.¹⁵ The best prognosis for success is when the innovation covers both the R&D and t...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Preface
• About the Authors
• Contents
• Chapter 1. Introduction
• Chapter 2. Open and Networked Innovation
• Chapter 3. Collaboration Models and Knowledge Management
• Chapter 4. IP in Networks
• Chapter 5. Contract and IP Management in Networked Innovation
• Chapter 6. IP Strategy and Collaboration
• Chapter 7. Bridging Networked Innovation, Intellectual Property, and Business
• Chapter 8. When is Dealing in the Bazaar of Opportunities Beneficial?
• Appendix I: List of Publications from the IPOB Project
• Appendix II: List of the Organizations in the Interview Study
• Appendix III: IPOB Industry Project
• Index