Open Innovation - a Fad or a Phenomenon - Coursework Example

Open Innovation: A Fad or a Phenomenon? Introduction The essence of this essay is to evaluate whether open innovation in corporations is a practice that is bound to lose meaning within the course of time or is set to remain one of the key activities that define the operations and strategies of organizations. The argument is based on an extensive review of literature that is related to the issue of the use of open innovation within organizations. For purposes of clarity, the essay is divided into four main parts. The first part is about the need for organizations to adopt open innovation. The second part is about the manner in which large and small and medium-sized enterprises adopt open innovation. The third part is about the manner in which open innovation is linked to the performance of organizations. Lastly, the essay examines the challenges that organizations which seek to use open innovation face. In the essay, it is argued that open innovation is an essential approach that has evolved over the course of time, has a big impact on the performance of organizations, and is set to remain important for a long time to come, regardless of the challenges that organizations face when attempting to adopt it. Open innovation and why companies engage in it Open innovation is not a fad, it is a phenomenon that has not only been evolving over the course of time, but has also been successfully used by different organizations to achieve different types of results (Rothwell 1994, p. 8). Its evolution has been made necessary by the changing needs of organizations and how they use different approaches to help them achieve desired results (Leonard-Barton 1992, p. 4; Rothwell 1994, p. 14). Essentially, open innovation is defined by the process by which organizations use inflows and outflows of knowledge as a way of increasing the speed with which the organizations innovate in their own markets and effectively use their knowledge to achieve results in their external markets (Chesbrough & Brunswicker 2014, p. 18). There are several reasons that can make it necessary for organizations to adopt programs that help them to use the inflows and outflows of knowledge that are available to them as part of the process of open innovation. One of them is related to the changes that take place in the business environment and the need for organizations to adapt to them. According to Van de Vrande et al. (2009, p. 425), large companies as well as small and medium-sized enterprises (SMEs) rely on open innovation as a way of discovering and taking advantage of new technologies (Stahlbrost & Bergvall-Kareborn 2011, p. 301). Essentially, the emergence of new technologies appears to be one of the key factors that define the competitive nature of business organizations (Stahlbrost & Bergvall-Kareborn 2011, p. 302). This is because organizations can use emerging technologies to develop new product offerings that help them to have a competitive advantage in their industries (Saebi & Foss 2009, p. 4). The second motivation that makes organizations to adopt open innovative approaches is to help them develop their core strengths and deal with their weaknesses (Atterfors & Farneman 2012; Hutter et al. 2013; Tripsas & Gavetti 2000; West & Bogers 2011). The ways in which organizations intend to or actually use open innovation to achieve this objective are varied. For instance, Levy and Reid (2011, p. 14), in a study about the need for innovation in corporations, argue that companies use different collaborative approaches such as the formation of joint ventures and networking as a way of building their internal capacities. It is argued that the rise of the knowledge economy has made it necessary for organizations to build value chains that are increasingly based on open innovation (Levy & Reid 2011, p. 19). On the other hand, West and Bogers (2011, p. 6) state that the main reason as to why organizations use open innovation is for them to profit from the innovation. Hence, organizations obtain, integrate and commercialize open innovation as a way of achieving their profit-making objective. But as much as organizations use open innovation as a way of achieving a competitive advantage in their industries, changes in the business environment have made the adoption of open innovation a necessity. Hutter et al. (2013, p. 14) indicate that the use of open innovation increases the survival rate of SMEs by up to 22%. Van de Vrande et al. (2009, p. 425) argue that in the past, large companies relied on big research and development facilities to gain advantage in their markets. However, SMEs may not have the capacity to develop large research and development facilities. For such organizations, the use of open innovation becomes a necessity rather than a choice since it provides the only viable and reliable way that such organizations can effectively exploit valuable resources. Adoption of open innovation in large companies and SMEs Large companies as well as SMEs need to adopt open innovation (Batterink 2009; Chesbrough 2013; Chesbrough & Brunswicker 2014; Dodgson, Gann & Salter 2006; Hossain 2015; Tidd, Bessant & Pavitt 2013). In practice, the reasons as to why large companies as well as SMEs adopt open innovation vary but the basic reason is to help them overcome the basic difficulties that are inherent in the traditional business strategies and take advantage of changes that are taking place in their environments (Idelchik & Kogan 2012, p. 29). Further, it is argued that the extent to which companies have been using open innovation has been increasing over the course of time (Chesbrough & Brunswicker 2014, p. 19). Companies that operate in diverse industries and which vary in terms of size have been increasingly using open innovation as a way of helping them to navigate through a business environment that is characterized by increasing competition and other forms of change. Examples of companies, large as well as SMEs that have successfully used open innovation are many. One of the large companies that have successfully used open innovation is Procter & Gamble. Back in 1999, the company launched a program that was titled “Company 2005” (Dodgson, Gann & Salter 2006, p. 336). The essence of the program was to enable the company to achieve growth by taking advantage of fragmented processes of innovation (Dodgson, Gann & Salter 2006, p. 337). The basic part of the program was the “Connect and Develop” strategy that the management of the company developed as a way of helping the company to play a leading role in the process of using open innovation to stimulate its own growth in the market (Huston & Sakkab 2006, p. 62). Using this strategy, the company has so far managed to develop open and highly collaborative networks that have helped it to develop a broad range of new products (Huston & Sakkab 2006, p. 64). What this implies is that the company has managed to achieve growth as a result of developing and using an open innovation strategy. Another example of a large company that has successfully used open innovation to stimulate its growth in the market is General Electric (GE). According to Idelchik and Kogan (2012, p. 29), GE decided to change from its originally closed system to an open one as a way of helping it to achieve rapid growth within the shortest time possible. In doing so, the company developed a system in which it recruited and trained individuals as global research scouts (Idelchik & Kogan 2012, p. 30). The duty of the individuals was to scout in different regions of the world for the development of new technologies that could be of interest to the company. Based on the work of the scouts, the company was able to develop collaborations with smaller companies that had developed key technologies. Therefore, it can be seen that large corporations develop open innovation strategies in response to the need to abandon their closed systems for open ones. It is important to note that the use of open innovation strategies has not been a preserve of large companies (Batterink 2009; Lee, Park, Yoon & Park 2010; Steninger 2014; Trott & Hartmann 2009). In practice, many small companies have successfully used open innovation. Lee, Park, Yoon and Park (2010, p. 291) state that the nature of research that is carried out in SMEs makes it suitable for the companies that fall within this category to use open innovation. The same authors argue that by developing a network that makes it possible for companies to use valuable ideas from inside as well as outside sources, SMEs can effectively focus their research on the future and ensure that they survive over the long-term (Lee, Hwang & Choi 2012, p. 150). Therefore, it can be seen from the foregoing that large as well as SMEs use open innovation. Benefits of open innovation Companies adopt open innovation strategies because by doing so, they are able to benefit in several ways (Chesbrough 2006; Dahlander & Gann 2010, 704). The implication of this is that there is a complex link between open innovation and the performance of companies. In general, companies that adopt open innovation systems as opposed to closed systems are able to perform relatively better than those which do not use open innovation (Dahlander & Gann 2010; Parida, Westerberg & Frishammar 2012; Vahter, Love & Roper 2012). The manner in which the adoption of open innovation by companies helps the companies to perform better is linked to several attributes of open innovation as a system and the practices that companies that use open innovation adopt. Essentially, open innovation helps companies to broaden their boundaries (Kemp et al. 2003, p. 5). It helps companies to break from the confines of traditional research and development and take advantage of knowledge resources that may exist outside the system of the company (Huizingh 2010, p. 4). This is the fundamental benefit of using open innovation. Companies that use open innovation are simply cognizant of the fact that they can benefit a lot from resources that exist outside their systems (Corsino 2008, p. 3). By doing so, they are able to improve their pipeline of commercial products over the course of time. A clear link between open innovation and firm performance is seen in the manner in which open innovation enhances the development of new products (Parida, Westerberg & Frishammar 2012, p. 300). Vahter, Love and Roper (2012, p. 4) state that the use of open innovation accelerates the speed at which companies develop and introduce new products to the market. The argument that is advanced is that when companies use open innovation, they are able to develop linkages with other entities that develop technologies which may be important to what the companies in question may be working on (Laursen & Salter 2005, p. 135). Linkages through collaboration and other forms of open innovation accelerate the process at which ideas are developed into full products that are ready to be introduced to the market (Ahn, Mortara & Minshall 2012, p. 77). The third most important benefit of open innovation is reduced costs. Basically, when companies use open innovation, they are able to cut down the costs that would otherwise have been used to develop new products in the traditional way (Ahn, Mortara & Minshall 2015, p. 40). Comparing the costs of using the traditional closed system of research and development with that of open innovation shows that companies can cut down the costs of carrying out research and development activities by taking advantage of inbound open innovation practices such as crowd sourcing, customer-consumer creation and informal networking (Chesbrough 2006, p. 18). Therefore, reduced costs, accelerated development of products and access to new technologies are some of the basic benefits that companies get when they use open innovation. Challenges to the development of open innovation as a management approach There are several challenges that companies face when they choose to use open innovation. These challenges are related to managing the activities that are undertaken in the process of open innovation, allocating resources that are used in the process and choosing the right approach that should be used. Stoetzel and Wiener (2013, p. 507) point out that the greatest challenge that companies face when they use open innovation as a method of developing new products is related to balancing the competing needs of the activities that are carried out. It is noted that in the course of carrying out a process of open innovation, companies have to deal with different complexities that arise during the stages of ideation, selection, developing and testing the products before they are introduced to the market (Stoetzel & Wiener 2013, p. 508). Therefore, in the course of this process, managers have to make decisions, resolve dilemmas and allocate resources. These activities can be challenging because their outcome usually has a direct bearing on the overall success of the innovation process. In a different study, West and Gallagher (2006, p. 3) point out that the manner in which internal and external innovation processes are integrated under the approach of open innovation presents companies with three key challenges as follows. The first challenge is related to the need for companies to make sure that they maximize the returns that they get from the entire process. Given that the process of open innovation is made up of inbound and outbound activities that either cost or benefit the company, there is need for organizations to ensure that the return that they get on internal innovation is maximized (West & Gallagher 2006, p. 3). The second challenge is related to the need for companies to actually utilize the knowledge that exists in their external environments. It is stated that the mere existence of external knowledge does not constitute open innovation but that rather, companies have to take the step of scanning, identifying and absorbing such knowledge (West & Gallagher 2006, p. 3). This can be a challenge in the event of there being no willingness among the senior management team of a company to actually seek and use external knowledge for the benefit of the company. Furthermore, open innovation makes it necessary for a company to collaborate with other individuals and companies. This is done as a way of accessing new knowledge from external sources and utilizing the internal knowledge for the benefit of the company. However, this process can present a number of challenges to companies. According to Bakar (2015, p. 6) the need to engage with new parties means that the management of a company that is using open collaboration will have to experience the problems of managing the new entities who may be having cultures and practices that are different from those of the company in question. It can be seen that these challenges are generally related to the nature of the open innovation process. However, some challenges that companies seeking to use open innovation as a management strategy may experience are related to the nature of the company and even the industries in which they operate. At the very basic level, there is a wide variation in the nature of challenges that SMEs and large companies may face when they are using open innovation. In the case of SMEs, it is apparent that the main challenge they face is related to how to access and allocate the resources that are needed to make the process successful (Albulrub & Lee 2012, p. 137; Vo, Mounoud & Hminda 2011, p. 4). Compared to large corporations, SMEs have limited resources. As a result of this, managers of SMEs that decide to use open innovation face the challenge of ensuring that the resources that they are using are allocated in the most efficient manner (Zhang & Luo 2013, p. 4). Similarly, it has been argued that in some industries, companies have been known to adopt the process of open innovation more than it is the case with companies in other industries (Albulrub & Lee 2012, p. 138). What this means is that some of the challenges that companies may experience when they use open innovation may be related to the industries in which the companies operate. Conclusion Open innovation is not a fad, it is a phenomenon. The essence of the approach is that it helps companies to easily access and pool resources in the process of innovation. This approach helps companies to improve and speed up the process of innovation. Large as well as SMEs have been adopting open models innovation as opposed to the traditional ones. The motivation for this trend is that open innovation is the only way that companies can use to reduce the overall costs of maintaining traditional research and development activities while at the same time helping companies to use ideas within and without their borders for their commercial success. This strategy helps companies go gain and maintain competitiveness in their industries over the course of time. However, managing the process of open innovation is characterized by a number of challenges. Most importantly, companies have to successfully manage all the activities that are carried out as part of the inbound and outbound innovation processes. This calls for resources and the need to balance competing needs. Regardless of this situation, the current trend indicates that open innovation is set to remain one of the key strategies that large and SMEs use over the course of time. A critical reflection on the assignment This assignment required me to evaluate whether open innovation was merely a passing fad or it was a phenomenon that has an important impact on organizations. There are several things that I learnt while handling the assignment. First of all, I learnt that it is completely valid and acceptable to argue either that open innovation is not important or that open innovation is important. While researching on the topic, I was baffled by the fact that scholars have explored both positions quite well. I was surprised to find that there are many arguments which show that open innovation is not very significant to organizations that have been advanced. I, therefore, had to take a position with regard to the statement and develop a string of compelling arguments to show my position. The second lesson that I learnt is that the importance or benefits of open innovation can only be understood in relative terms. There is no way that open innovation can be regarded as completely beneficial to organizations at the expense of the closed approach. What I have learnt is that the benefits of open innovation such as savings in costs and access to new and developing technologies can only be realized when they are assessed in relation to those that are associated with the closed system. The third lesson that I learnt in practice, open innovation is a highly complicated process. The case studies on the use of open innovation at companies such as GE, Procter & Gamble and others that I learnt has convinced me that the implementation of inbound and outbound processes of open innovation is a very complicated process. References Ahn, JM, Mortara, L & Minshall, T 2015, ‘Open innovation: a new classification and its impact on firm performance in innovative SMEs,’ Journal of Innovation Management, vol. 3, no. 2, pp. 33-54. 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