International Management of Knowledge and Technology - Case Study Example

International Management of Knowledge and Technology 1. Introduction Acquiring technological capabilities from external sources and using it to commercialise products in both new and existing markets are common trends for innovating firms. Closed business models had become obsolete while openness in research and development is becoming the common approach for most firms requiring improvement or generate new products for new or existing market. Open innovation is undoubtedly helpful particularly for companies planning to maintain their lead in the market. However, like other business strategies, the open model has its own set of implications specifically in terms of foreign R & D investment and technology protection. The following sections discusses the current trends in business organisations innovation process, the erosion of the closed paradigm, the advent and advantages of the open business model, and the practical implications of open innovation in firms. 2. Trends in the Innovation Process 2.1 The Erosion of the Closed Paradigm During the 20th century, most firms were relying on closed innovation model where large enterprises generate their own ideas, develop, build, market, distribute service, finance, and support them. These firms can viewed as self-reliant since they do not depend on other external ideas. Firms like Philips, Xerox, and IBM are a few of those employing closed paradigm investing and re-investing in internal innovations to bring newer and newer products to the market. However, although it was undoubtedly a success in its time, closed models eroded and became obsolete during the 21st century. One of the primary reasons according to De Jong et al. (2008, p.15), is that a lot of people today can obtain higher education and training and these knowledge are spilling over other enterprises including small companies initiating innovations of their own. A good deal of knowledge is spreading while multiple sources of innovations are emerging including tailor-made products and increasing competition due to globalization. There are several contrasting principles between closed and open innovation. In the closed model, the firm believes that all experts in their field are working for them while open model practitioners believed they are smarter people out there that need to work for the company. Moreover, for closed model practitioners winning is to get the innovation to the market first while building better business model matters most than racing with competitors (Liu 2009, p.13). One significant implication of internally focused innovation is the need for firms to rapidly generate new products each year due to the decreasing product life cycle. According to Camarinha-Matos et al. (2010, p.96), a ten percent decrease in their products life cycle would require a company to double their effort in producing new products annually. This means more funding for internal innovation to sustain the company’s position in the market. Moreover, since globalization forces firms to go beyond their usual boundaries and collaborate with others, it is more logical to acquire external expertise than rely on limited creativity potential of internally focused innovations. However, this does not necessarily mean that they should completely abandon their internal mechanism for innovation but rather implement an open-closed process where it can freely create value through openness (Whittaker & Cole, 2006, p.129). In other words, their openness can help them create value across the company’s value chain such as its suppliers, customers, and end users while their closed-ness guarantees their share of that value. 2.2 The Advent of the Open Model As the closed paradigm fades, open innovation approaches enable enterprises to exploit both external and internal ideas that they can use to improve their products or generate new products for the market. Acquiring technological capabilities from external sources has become the common approach from most firms. These include partnership of different types including customers, academics, suppliers, other entrepreneurs, and anybody who have new ideas and great inventions (Lindegaard 2010, Introduction). In a bigger scale, some firms developed global innovation networks with institutions, government, and other companies located in different parts of the world (De Backer 2008, p.9). These partnerships enable each member to contribute their expertise which is profitable for the firm and very rewarding to those who contribute more (Ganguli et al. 2009, p.131). Some of the companies who benefited from the open model are Qualcomm and Protect & Gamble. For instance, although it started manufacturing cell phones and base stations, Qualcomm today only make chips and only sell licences to its partners while selling is being handled by its customers. Similarly, Protect & Gamble developed a program called ‘Connect and Develop’ where it licensed partners, acquire and market products from other firms such SpinBrush, Olay Regenerist, Swiffer, etc. These companies along with others using the open model constantly look for external innovations and technologies developed outside the organisation (Chesbrough 2007, p.3). For foreign firms such as those in developing countries may benefit from acquiring technological capabilities from external sources rather than being dependent on technology transfer. For instance, technology transfer from bigger international firms generally entails numerous technologic inputs, equipments, services, and others but they are usually outdated compared to the technology being used in the country where it came from (Figueres & Opaku 2003, p.254). Acquiring external technological capabilities is probably the most logical approach for firms in developing countries as aside from benefitting from new technologies; they can save more by eliminating inflated rates being imposed by transnational corporations on their services. According to the United Nations’ report, open innovation can bring a number of benefits to developing countries by acquiring knowledge from other institutions such as local universities, research centres, and other firms. Supported by appropriate science and innovation policies, research and development can produce useful products and add new value (United Nations, 2007. p.33). 2.3 Practical Implications of Open Innovation Like many other business strategies, open innovation approaches do have practical implications for companies particularly those that already established global innovation networks. For instance, most OECD countries are active participants in offshore research and development and although it had created great opportunities for countries in the third world, the emergence of China and India as research and development platforms can threaten the viability of local research and development infrastructure. Consequently, smaller OECD members may find it difficult to compete with the increasing number of global players. Moreover, considerable national resources may be diverted to foreign-based platforms and deny the local research and development with their needs (Chandra et al. 2010, p.101). Since open innovation in a global scale provides opportunities for third world countries to use research and development platforms for their own development, investments made by firms can back fire in the form of additional competition. Another implication of open innovation is its effects on policies such as those involving product and labour market, competition, government research, and local innovation. According to Chandra et al., (2010, p.101), although open innovation is generally recognized as business-driven, its tendency is to go beyond national boundaries and may be entangled with local or national policies as well as foreign government guidelines such as intellectual property and innovators rights. The idea of open innovation is far more complex than many believed as it can cost more and the expected openness may not achieved easily It is therefore necessary to pay attention to the different barriers and limitations involved in outsourcing expertise beyond borders. For instance, firms must understand the level of capabilities required to enable integration of ideas from different foreign sources. Moreover, they should think about the implications of such effort to practices within the organization as it can create tension for internal research and development practitioners (Bessant & Venables 2008, p.74). Open innovation does affect traditional intellectual property model because there is a need to protect the firm’s investment. For instance, open innovation partnership with a foreign firm can result to IP issues such as dispute over ownership of rights and distribution of benefits. Although it can be solve by allowing equal cost, benefits, and rights distribution, a company in reality cannot control an important technology for as long as they want. This is because knowledge is being diffuse rapidly and more likely, their partners would be the cause of this diffusion (Liu 2009, p.15). In general, a firm should stay away from such partnership since innovation created from within a network of entrepreneurs is more likely to result in disorder and may be use against the firm. One of the safest forms of open innovation is to search and develop rather entering into partnership with foreign innovators. A good example of such approach is the “Connect and Develop” approach of US-based transnational corporation Procter & Gamble and Finland’s Nokia. In 2000, Protect & Gamble abandoned its closed innovation approach and adopted a unique open innovation strategy. The idea was to search, connect, and collaborate with suppliers, scientist, and so on for innovation opportunities while some developments are being done internally. For instance, when the organization needed to enhance the sale of their potato crisp by printing images on it, they searched for somebody who already has the idea. After a long search, they found a small bakery in Italy printing edible images on their products and the company adapted the idea and applied it to their potato crisps (United Nations 2007, p.201). Apparently, Protect & Gamble did not invest so much on research and development and do not have to worry about their partners. In Nokia’s case, ideas for innovation was made possible by an electronic platform on the Internet. This platform allows millions of users to avail of Nokia products’ technical information that they need to develop novel solutions. These users become informal partners of the company and source of information that can help Nokia identify user needs and subsequent innovation response. With this type of open innovation, the firm enjoys the safety of their investment and prevent additional competition from their former partners (United Nations 2007, p.201). According to Chesbrough et al. (2006, p.129), open innovation strategies supporting shared innovation and licensing significantly increase coordination cost and possible disputes over royalty, IP revenues, and preferences of large number participants. The strategy of Protect & Gamble and Nokia is then more feasible considering the significant protection and low investment and complete avoidance of the problems above. 3. Conclusion The erosion of the closed paradigm is due to knowledge diffusion and the need to rapidly generate new products for different markets. Internal innovation is no longer enough to sustain a company’s position in the market as forces such as globalization, high-cost of research and development, and the emergence of smaller but innovative enterprises threatens the viability of larger firms. Acquisition of expertise from external sources enable firms to exploit the potential of new ideas in improving or generating products for new and existing market. The benefit of open innovation for both the firm and its partners in terms of profit and business stability is huge as whoever possesses the latest technology dominates the market. However, acquiring capabilities outside the firm particularly in a global scale is complex and requires a deep understanding of its requirements and implications. This is because globalized innovation networks usually entail collaboration with different types of partners such as educational institutions, customers, academics, suppliers, and foreign entrepreneurs. These opportunities and the large investments being made by firms in research and development can be use by foreign firms for their own development. Moreover, innovative technologies produced by external entities can result in intellectual property issues that would later disadvantage the firm. Another likely implication is the effects on local and international policies as well as practices within the organisations own R & D. It is therefore necessary for firms to select the safest open innovation strategy where they can secure their investments and protect their newly found technology. In general, a firm should not open up completely as they need to retain their share of the value created from external R & D. Similar, to Procter & Gamble and Nokia, a firm should minimize its investment on research and development and avoid formal R & D partnership that could bounce back as an additional competitor. 4. 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