Business Strategy (MN30076)

Session 6 Resource Integration & Open

Innovation
 Learning Outcomes for Today
Understand the typical limitations of
the resource based view of the firm
Understand how embracing open innovation can help to
address the typical limitation of focusing almost
exclusively on internal resources

Be able to identify and provide practical examples of

the different sources of open innovation

Comprehend why the concepts of absorptive capacity and

peripheral vision are important for successfully embracing open
innovation.

Understand what are the challenges associated

with an open innovation approach

Understand what is open strategy and how it

relates to open innovation
 Resources and Competences
Leveraging the Global Opportunities
 The Resource-based View

It mainly focuses on VRIN internal resources

It is a rather static approach

Diminishing returns to exploitation of internal resources due

to:
Increasing rate of technological change
Shortening product life cycles
Globalization of technologies and competition
Closed innovation (internally focussed)
Jay Barney
 Resource Rigidity

Often key R&C which fundamentally contributed to the historical

success of a firm become the key cause of its failure (e.g. Xeroxs
managerial rigidities; Blockbusters and HMVs inability of upgrading to
digital distribution)

Core resources and capabilities > Core rigidities

Senior managers develop a shared set of beliefs (dominant logic)
based on their shared history
Its the way we do things here
Includes beliefs about who the relevant competitors of a firm are and what market the
firm is in
Managers may not be aware of their own beliefs

Internal resources and capabilities are inherently limited because of the

path dependence of a firms routines:
Firms routines can only change incrementally and cannot have a clean break from the
past
Routines can be a big constraint in rapidly evolving markets
 Examples Of Dominant Logics

Dominant logics can develop at the level of the industry as well as the firm:

"I believe there is a market for about five computers. Tom Watson,
general manager of IBM, 1943

"Guitar bands are disappearing. Decca Records, refusing the Beatles,

1962

"Who the hell wants to listen to an actor talking? Harry Warner, Warner
Brothers, regarding silent movies, 1927

"People will soon get bored of spending their evenings staring at a

wooden box. Darryl Zanuck, president of 20th Century Fox, speaking
about television (in the 30s)
In January 2012, Kodak filed for Chapter 11
bankruptcy protection. In February 2012, Kodak
announced that it would cease making digital
cameras, pocket video cameras and digital
picture frames and focus on the corporate
digital imaging market. (Source: Wikipedia)
Example: EASTMAN KODAK
(http://www.youtube.com/watch?v=FfZ3K3YXQeQ&feature=mfu_in_order&list=UL )
9.35
 Innovation & Absorptive Capacity
Challenge
In 3 minutes write down all possible ways you can use a pencil. At least 20
different uses, ideally 50. Be creative!
 HOW TO OVERCOME
THE LIMITATIONS
OF INTERNAL RESOURCES?
 Inside Linkedin

http://www.bloomberg.com/news/videos/b/b4eff3b3-2b6b-4d17-b849-8d05a0da06af
 Open vs Close Innovation

Contrary to in-house innovation, the open innovation paradigm emphasises the

integration of external resources, mainly in the form of external knowledge
sources
The use of purposive inflows and outflows of knowledge to accelerate
internal innovation, and expand the markets for external use of innovation,
respectively. (Chesbrough, 2003)
 Open vs Close Innovation

Today, in many industries, the logic that supports an internally oriented,

centralized approach to research and development (R&D) has become
obsolete. Useful knowledge has become widespread and ideas must be used with
alacrity. Such factors create a new logic of open innovation that embraces external
ideas and knowledge in conjunction with internal R&D. (Chesbrough, 2003)

Example: P&G (https://www.youtube.com/watch?v=_7mMToRlAxs )

 Open vs Close Innovation

Open Innovation Closed Innovation

Not all the smart people in the field
work for us so we need to tap into
knowledge from outside sources
External R&D can create significant
value, particularly when combined
with internal knowledge
We don't have to originate the
research to profit from it
If we make the best use of internal
and external ideas, we will win
We should profit from others use of
our IP, and we should buy others' IP
The smart people in the field work for
us
To profit from R&D, we must discover
it, develop it, and ship it ourselves
If we discover it ourselves, we will get
it to the market first
If we create the most and the
best ideas in the industry, we will
win
We should control our IP, so that our
competitors don't profit from our
ideas

Source: Chesbrough, 2003

 Innovation Example
Creating Separate Unit for New Projects
 Peripheral Vision Concept

Peripheral vision allows people to become aware of e.g., movement,

without focusing their eyes on what moves.
 Peripheral Vision Concept

Maintaining focus and becoming aware of weak signals is difficult

for managers and the companies they lead.

Focusing on dominant technologies to satisfy customer needs

TODAY might be a good decision in the short run but it can mean the
demise of the company in the long run!

Managers today need to use their peripheral vision to capture

emerging trends and opportunities, no matter how small.

TO DEVELOP PERIPHERAL VISION managers need to open up the

company and engage with a multiplicity of external actors to avoid
stagnation and core rigidities.
How does the image Relate to Strategy?
 Absorptive Capacity Concept

Set of organizational routines and processes by which firms

acquire, assimilate, transform, and exploit knowledge to
produce a dynamic organizational capability (Zahra &
George, 2002).

Basically it is the ability of the company to integrate new

knowledge and continuously update their view of the world
importance of frames of reference.

The organisation needs to keep moving fast, continuously

changing and adapting its paradigm this is not easy!
 Open Innovation Exercise

With the Colleague to your right discuss examples of open innovation in

todays world. What external sources are being used to help companies?
 Open Innovation Sources

Lead Consumers, which are very proactive and opinionated can help to generate
great ideas and improve products (e.g. Muji development of consumer led
products; Zara; Google Glass)
 Open Innovation Sources - Glass

http://www.google.co.uk/glass/start/how-it-feels/
 Open Innovation Sources
Freelance workers More and more people work independently and undertake
multiple projects. Opportunity for companies to tape into a global pool of
specialised and creative workers (Alessi global designers;)
 Open Innovation Sources

Innovation Ecosystems and Platform Innovation Models A company creates

a platform and then opens it up for independent and specialised works. Apple iOS
app store and Goggle Android platform are good examples.
 How can we apply Open Innovation
in this case?

http://mashable.com/2017/03/03/3d-house-24-hours/#5bfVRRCI8Oqd
 Open Innovation Sources

Innovation Contests and Innovation Tournaments Organising contests is

fantastic way to generate knowledge from a group of of very diverse people. The
contest are generally competitive and the prizes worth the effort. Good example is
Facebook Hackthons.
 Example Facebook Hackathons

http://www.bloomberg.com/video/inside-facebook-s-education-hackathon-w9fhkjTWQLWAxGIYu8CvEQ.html
 Open Innovation Sources

Crowdsourcing Opportunity to access a market of ideas that can have great

potential for development. Procter & Gamble Connect and Develop
Programme allows anyone in the world to submit proposals for new product
ideas and they can become co-developers
 P&G CEO

Example: P&G (https://www.youtube.com/watch?v=_7mMToRlAxs )

 Open Innovation Sources

Start-ups and small companies These companies are source of new ideas and
innovations. Working cooperatively or buying them is another opportunity to
increase the overall company resources and competences.

Example: P&G (https://www.youtube.com/watch?v=_7mMToRlAxs )

 Challenges to Embrace
Open Innovation

Contracting Idea Generators - This might be a problem if the company

has not established a reputation of rewarding idea generators fairly. People
might be unwilling to collaborate with their ideas if they do not think they will
be compensated properly.

Increased Complexity The organisation embraces and actively works with

a larger number of stakeholders this increases the number of relationships
the company needs to manage. If there are no clear processes to address
these issues the company might have difficulties managing all the
relationships and integrating the new ideas/innovation.

Maintaining a Clear and Cohesive Strategy Embracing open innovation

opens up a sea of new opportunities and products. If this is not managed
properly the company might disperse into too many directions which can
lead to unclear strategy. In turn this can lead to frustrated employees which
do not understand the company purpose and direction.

Intellectual Property Protection Less control over intellectual property

rights because ideas and products might be originating outside the
company. It can create doubts about who own the new product.
 Challenges to Embrace
Open Innovation - Example
Open Innovation in Practice
 Open Innovation in Practice

http://mashable.com/2017/02/28/boston-dynamics-reveal-highly-anticipated-agile-
handle-robot/#tG8U66SLyGq3
 Summary of the Session
The traditional resource based view is limited because it puts
excessive focus inside the company. In a world where the pace of
change is ever increasing, companies struggle to compete when they
only focus on their own resources/competences.

To address traditional limitations a company should embrace

Peripheral Vision, that is, pay attention to their environment and
open up the company to exploit global opportunities and ideas.

Absorptive Capacity is crucial if companies aim to successfully

integrate external knowledge and resources.

There are different sources of knowledge globally and

companies need to consider ways of leveraging these sources
for their own benefits.

Open Innovation has some challenges that need to be

recognised and properly addressed.
 Summary of the Session
The traditional resource based view means widening inclusion of
participants (internal and external) and developing more
transparency.

Open strategy has the benefit of enlarging the scope of ideas to

develop a more valuable strategy and it can increase the commitment
in strategy implementation.

Open Strategy goes against traditional thinking and it make first-

mover advantage very difficult. Coordination of multiple input can also
be a challenge.