Business Strategy KNOWLEDGE OBJECTIVES

Transcription

1 KNOWLEDGE OBJECTIVES Business Strategy AA 2016/2017 Chapter 4 Integrating Internal and External Resources: Open Innovation, Absorptive Capacity and Integration Approach Understanding why firms need to bring the internal organization to bear on the environment Understanding how firms may bring important aspects of the environment inside the organization Closed and Open Innovation Pros and cons of open innovation Different approach to integration Understanding how firms enhance absorptive capacity Outsourcing and reasons for its use Internalizing external resources

2 Key Terms External Resources are assets, knowledge and skills that lie outside the boundary of corporations and are often owned by other market players. Lead users are often intrinsically motivated individuals or communities, who experiment to invent, improve and adapt existing products. Threadless designs are created by and chosen by an online community. Each week, about 1,000 designs are submitted online and are put to a public vote. Key terms Sensing leads to awareness of weak signals, opportunities or new knowledge. Consumer ethnography is an approach that seeks to understand consumers and their behavior by employing frame form and other ethnographic tools. Fieldwork is the methodological approach to generate data and insight in (Consumer) ethnography.

3 By developing four main approached firms can integrate internal resources and external threats: Key terms Competences can turn into core rigidities when Identify critical external resources Internalize them and develop synergies with internal resources Increase performance by exploiting these complementary assets Institutionalize the integration of external and internal resources and analysis of risks companies lose the ability to learn and end trapped with what mattered in the past.

4 The context of resource integration Technology development and internet have lowered barriers to integrating external resources. Why Open Innovation? Cost of Research and Development Rapidly changing environments Resource integration is the mutually beneficial combination of external and internal resources. Firms should leverage unique bundles of resources and capabilities available in the internal and external environment to sustain their competitive advantageous. Knowledge as assets Time-to-market Source of Knowledge Innovation capacity

5 An Example Coopetition Coopetition is the value creating constellation in which market players cooperate or develop complementary products and simultaneously compete, e.g. when it comes to values capture.

6 Benefits of integration and its costs Offering more value to customers by innovatively bundling and leveraging resources and capabilities. There are costs attached to being open and integrating external resources. Focusing on the environment or focusing on core competences leads to lock-in effects that prevent firms from seeing and external resources offers a way to avoid these limitations. What is Open Innovation The term Open Innovation was first defined by Chesbrough in his seminal 2003 work: Open Innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology. Open Innovation combines internal and external ideas into architectures and systems whose requirements are defined by a business model.

7 Open Innovation Contrary to closed innovation, which relies primarily on internal resources, open innovation involves commercializing external ideas by deploying outside (as well as in-house) pathways to the market. Open Innovation Closed Innovation Open Innovation

8 Closed vs Open Innovation Closed Innovation R&D activities are discovered, developed and shipped internally. The focus is on first introducing an innovation on the market. All smart people work for the company. To be successful the company has to create the most and the best ideas. The company has to control its IP. Open Innovation Valuable R&D activities may be discovered and developed externally. The focus is on building a better business model. The company has to work with smart people inside and outside of the company. To be successful the company has to make the best use of internal and external ideas. The company has to profit from the use of its IP from others, as well as it should buy other s IP. Challenges of open and closed innovation Main challenges in identifying, developing, deploying and protecting resources, capabilities and core competences Uncertainty, Complexity and interorganizational dynamics in managerial decisions The main question: How open is good? Peripheral Vision allows people to become aware of e.g. movement without visually focusing on what moves.

9 Open Innovation, Absorptive Capacity and Organizational Change Firm-Level Capabilities Source : Lichtenthaler, U. (2011). Open innovation: Past research, current debates, and future directions. The Academy of Management Perspectives, 25(1),

10 Challenges of selecting and absorbing knowledge Absorptive capacity relates to the ability to explore external. Value Recognition of new technologies. Ability to learn depends on the ability to value the new external knowledge, i.e. prior knowledge and experience. Assimilation means placing new knowledge within the existing frame of reference. Disruptive innovations make transforming the frame of reference, i.e. fundamental organizational change necessary. Challenges of selecting and absorbing knowledge Strategy implementation is the necessary link between strategy formulation and performance that requires organizational change, which includes adapting structures, processes and methods and cognition. Alliances are agreements between two or more parties to undertake activities to pursue shared goals or protect common interests.

11 The challenge of developing routines for open innovation Not Invented Here syndrome. Adaptive resistance (e.g. humour, anticipation) is related to habitual reluctance or the lack of incentives (e.g. political games), and it is constructive when compared to maladaptive (e.g. dissociation, denial, obstruction). Companies do not wish to disclose internal R&D intellectual property at all. Fears of knowledge spillover especially for SMEs. There is no need for change. Management style keep down creativity and innovativeness. Basic Models of integration Basic models of integration describe broad, alternative approaches to integrate internal and external knowledge. For stable integration companies select and internalize resources without trying to change the new combination. Modular integration is the purposeful selection of resources that are better sourced externally to substitute specific elements of the original value chain. Compared to stable and modular integration that result in more structural solutions, dynamic integration resembles a process.

12 Open Innovation Strategy OI in different industries (I) Three archetypes of open innovation processes Source: Gassmann, O. and Enkel, E. (2004) Towards a Theory of Open Innovation: Three Core Process Archetypes.

13 OI in different industries (II)