This post will take you through a new eco-system to create other eco-systems. The current snapshot of innovating the process of innovation. The sharing of great ideas, collaborating over its optimization, teamed with pooling of resources, which ultimately leads to a platform that can continuously churn out radical, innovative, commercialization-ready ideas to hit the marketplace. Is this the beginning of systematic factory-calibration of innovation itself ?
Innovation Networks or Open Innovation is a paradigm that infers that Global firms can use external ideas as well, apart from internal ideas to advance their technology or create solutions to user or mass demands and real world problems. As the economy is going more globally interconnected and permeable, there is a need for networking of innovation and R&D departments of various firms to foster innovation at a grander scale, but keeping it more economical. The term “Innovation Networks” encompasses many other similar structures such as cumulative innovation, mass innovation, crowdsourcing, Networked Innovation, etc.
The central idea behind Innovation networks is that, in a world of widely distributed knowledge and niches, an individual firm cannot, by itself, rely entirely to conduct its own research on all areas, but instead, resort to buying or licensing processes, inventions, or even research data from other firms which might be having a niche on that specific area. Also, in case the R&D department of a firm is planning to conduct researches on new subjects that are not central to the firm, it would be highly economical and optimal to take the research outside the company by licensing, joint ventures or spin-offs.
Innovation networks go beyond just using external sources of innovations such as rival companies, customers, academic institutions and can also incorporate employment and management of intellectual property. Thus Innovation networks as a whole would encompass a firm’s systematic use of a wide range of internal and external research opportunities, integration of such globally shared research opportunities with its own local capabilities and resources, and exploitation of such opportunities through multiple channels. The advantages of implementing a networked architecture in the innovation and R&D processes are as stated below:
· Highly economical since a firm needn’t start from scratch in a specific research domain. A lot of research manpower and time is saved by reusing already existing research data and technology employed by external sources.
· More effective since due to the globally distributed architecture, a firm can employ the best tools and techniques employed by external firms to come to a better and more optimal research conclusions. Hence it gives a larger base of ideas and technologies for a firm to access.
· Reduce redundancy since firms need not go on ‘reinventing the wheel’ but to implement already existing pioneering research models and data to reduce excessive effort.
· Conserve time since firms can directly use the research data and innovative ideas already existing in the environment and save time on unnecessary redundant R&D processes.
· New source of Revenue: Firms can now resort to licensing and selling their research data to increase revenue.
What drives them?
In order to match the growing demand for innovation from customers, suppliers companies increasingly adopt innovation “eco-systems” across countries. In these innovation networks, companies link up with people, institutions (universities, government agencies, etc.) and other companies in different countries to solve problems and tap into new ideas. Network Innovation is fast becoming an integral part in the innovation strategies and business models of companies in recent years. Innovation is based on the knowledge assets that are, most of the times, beyond the boundaries of the companies and hence cooperation has become an important of way accessing the knowledge assets outside in order to generate new ideas and bring them quickly into the market. Apart from this “outside-in” approach, companies may also, license out or sell intellectual properties that they have developed internally, but might be outside their core business scope and may be better developed and commercialized by other players (the inside-out approach).
The main motives for companies to join hands and collaborate on the R&D sector is to seize new business opportunities and to share risks. The R&D sector packs alongwith it, a certain amount of risk which grows bigger as the research domain grows. Hence sharing risks enables the companies to minimize the losses in case the R&D does not come up with profitable results. Also it helps pooling of resources which enables driving of research on matters that are too big to be handled by any individual firm on its own. The emphasis on open innovation reflects a greater awareness of the firms around the world of the importance of innovation and organization of the same across the firm’s boundaries with equal importance to the internal and external sources of innovation. The term “Open Innovation” however, does not signify royalty-free knowledge or technology sharing, but application of collaborative methods and/or pooling of R&D resources.
How do they operate?
Most companies use mix of various approaches to innovation. Some Intel may be purchased from other firms, others may be acquired through partnerships, alliances, or licensing, and still other knowledge assets are developed internally using their own local or outsourced R&D. The degree of openness of the firms when it comes to sharing of research assets may depend on many factors such as strategy of the firm, importance of technology, the type of industry, etc. For example, the open innovation approach might be the most relevant in the Information and Communication Technology (ICT) and the Biotechnology (Pharmaceutical) sectors. Openness grows lesser in the commercial automotive and aerospace industries, and the least in military research.
In case of ICT, electronics and telecommunications industries, where the life-cycle of a technology is rather short, firms have sought external firms and alliances to keep up the new developments in and around their sectors to quickly explore, implement and commercialize on the same. In industries characterized by rather long technology life cycle and strong protection of Intellectual Property Rights, like Pharmacy, Chemical & Material industries, companies mainly explore external sites to keep up with research data only. In case of FMCG and Transport industries, where IPRs are significant but can be easily circumvented, firms usually set up collaborations to keep up with the developments and to easily include them in their own products and services.
There are different methods that are used by various firms to source external knowledge assets, such as Alliances, Joint Ventures, Joint Developments, Contract R&D, Direct Purchase, Licensing, Investments in University Spin-offs & Spin-off Companies, etc. Companies usually decide to internally develop their core competencies, directly deciding what to outsource and which whom to partner. Core competencies are developed internally as much as possible, and the network innovation model stays more prevalent in the non-core technologies and markets.
Challenges in Network Innovation Models
· Since innovation is fast becoming the prime factor for competitive advantage for a company in a certain sector or market, the intense amount of interactions, collaborations, and joint developments of innovative ideas has a negative impact in protecting and safeguarding of the Intellectual Properties. It may also increase of involuntary sharing of proprietary knowledge and spill-overs.
· Since network innovation model relies on keeping strong ties or relationships with the partnering firms or external sources, there is extra overhead of capital, time, and labor spent on building, maintaining, and sustaining over a long period, the networks and relationships with different external factors.
· This might also enable over-dependence on external partners, which they could use to their advantage in an inorganic way, showing opportunistic behavior.
· Extensive knowledge sharing might also increase the risk of partners slowly becoming domain competitors as they start possessing ample amount of Intel and research data from the niche partners which they can put to use to build their own products and services.
Role of National Policies
The rise of Network Innovation Model on a global scale implies that innovation policies cannot be designed solely in a national context anymore. As the attractiveness of a country of being a prime location for R&D increases, the policies of that government should encourage appropriate labor market and competition policies, good public infrastructure, and encouraging a highly skilled workforce. Universities and public research organizations play a vital role in network innovation strategies of firms both as a source of basic knowledge, and being potential partners. The need for policies which encourage the development of world-class clusters and networks for better faster coordination and sharing of knowledge assets in a more diverse way, is critical.
There is also a need to implement clear and regulatory policies governing intellectual properties and their sharing and protecting measures. Distinct and non-contradicting policies need to be in place for IP violations which should be flexible enough to foster convenient sharing and licensing but also firm in regulating IP violations. Also R&D programs need to be more open to foreign participation, ensuring benefits via cost-sharing agreements.