OPEN INNOVATION Researching a New Paradigm

Chesbrough 2006

and Nokia IBM

Chandler (1977, 1990) Vertical integration from R&D to Distribution

Successful innovation requires control

Increased mobility of knowledge (manpower)

Availability of Venture Capital

Interfirm modularity and subdivision of labor Langlois (2003)

Open Innovation: the business model utilizes both internal and external ideas to create value, while defining internal mechanism to claim some portion of that value (Chesbrough 2003)

LEVELS OF OPEN INNOVATION

Individual and Group level

How Open Innovation affects incentives of R&D workers. From innovation creation to system integration

External innovations returns or other interest? (own utility Von Hippel, 1988 2005)

Groups

Implications for firms

Faster time to market?

Explorative - Exploitative (March, 1991) Incremental innovative output or faster metabolism of knowledge?

Control of spillovers more or less ?

What circumstances motivate firm to Open Innovation? Industry, size,

Management of Intellectual Property from Identification to licensing Conflict between internal and partner’s goals

External ideas network requires internal network

Inter organizational value networks

Alliance

Size

Management

Industry Sector

Infant or rapidly changing industries

Specialization within firms, degree of technical modularity audio digital components

Entry barrier analysis: Amazon and E trade no distribution channels

National Innovation SystemsNational, EU, US

Legal framework

Innovation Policy

Clusters

Sector

G ran ts to F irm s M A G N E TB io tech n o log y

S ate llite C om m u n ica tion

TN U F A

Tech n o log ica l In cu b ators

C H IE F S C IE N TIS TM in is try o f In d u s try

O th er M in is tries

N E TH E R L A N D S

F R A N C E

U .k

U S B IR D

B I N A TIO N A L F U N D S V E N TU R E C A P ITA L F U N D SY O Z M A

O TH E R S

E U R & D F R A M E W O R K P R O G R A M

ISRAEL SYSTEM OF INNOVATION

OCS R&D Grants are available to companies whose projects have been approved by the Research Committee of the OCS. The grants are a percentage (between 30% and 66%, depending on circumstances) of the estimated R&D expenditure. In cases where the government assisted R&D results in a commercially successful product, the developers must repay the grant through royalties.

The MAGNET program allows the encouragement of generic- pre- competitive technological cooperation executed by consortia of industrial companies and academic research institutes.

Multi-lateral Programs

European Union - The Sixth Framework Programme of the European Union's Commission on Science, Research and Development EUREKA - the Israeli Liaison Office of EUREKA CELTIC - The European Cooperation in Telecommunications GALILEO - Galileo is a Euro 4B project managed by the EU and ESA for a new Global Navigation Satellite System

Bi-National Research

India - Second Call for Proposals – India-Israel Initiative for Industrial R&D (i4RD) Finland - Call for Proposals For Joint R&D Projects in Information and Telecommunications Technologies Victoria (Australia) First Call for Proposals – VISTECH FUND - Victoria (Australia)- Israel R&D Cooperation Program France  MOU for cooperation between the OCS and ANVAR      Second Call for Proposals - Israel-France Industrial R&D Cooperation Program       FIRAD - The France-Israel Industrial R&D Cooperation Framework new website

Germany - German-Israel Technological & Industrial Cooperation Maryland / Israel Development Fund (MIDF) NEW!! Maryland-Israel call for proposals Italy      - Italy- Israel Industrial Cooperation Programs Sweden - MOU for Industrial Cooperation between Swedish and Israeli Companies Ireland * The Netherlands Portugal Spain USA: BIRD - Binational Industrial Research and Development Foundation USA: USISTC - US-Israel Science and Technology Commission UK: BRITECH - UK-Israel Industrial R&D Foundation Canada: CIIRDF - Canada-Israel Industrial R&D Foundation

India - MOU for Industrial Cooperation between India and Israel China - THE PROGRAM FOR CHINESE-ISRAELI TECHNOLOGICAL COOPERATION Hong Kong - HONG KONG -ISRAEL TECHNOLOGICAL COOPERATION KORIL-RDF Korea-Israel Industrial R&D Foundation (the web site www.koril-rdf.or.kr is under constraction). Singapore: SI-IRD - Singapore-Israel Industrial R&D Fund Multinational Corporations

Technological incubators

Technological incubators are support corporations that give fledgling entrepreneurs an opportunity to develop their innovative technological ideas and set up new businesses in order to commercialize them. The incubator program is applied in all parts of the country, under the guidance and with the support of the Office of the Chief Scientist of the Ministry of Industry and Trade.

The program supports novice entrepreneurs at the earliest stage of technological entrepreneurship and helps them implement their ideas by turning them into exportable commercial products and forming productive business ventures in Israel

Budget

Between US $350,000 to US $590,000 per two years.

Grant

Level of grant: 85 percent of approved budget.

Ownership

Regular Incubators – General manager directives 8.2

Initial ownership in the Project Company is as follows:

At least 50 percent— the developer/entrepreneur;

At least 10 percent— key staff members other than developers/entrepreneurs;

Up to 20 percent— the provider of supplementary financing (i.e., additional to the State grant) for project implementation. (Of course, this may also be the developer/entrepreneur.);

Up to 20 percent— the incubator

Privatized Incubators – General manager directives 8.3

Initial ownership in the Project Company is as follows:

Between 30 to 70 percent— the developer/entrepreneur;

Between 30-70 percent— the incubator (including the provider of supplementary financing)

 State Support

1. Incubator Project

The Grant between US $150,000 to US $250,000 per year for up to two years, i.e., total between US $300,000 to US $500,000.

Level of grant: 85 percent of approved budget.

2.

Incubator Administration

Grant of up to up to NIS 729,500 per annum (about $175,000), including the incubator director's salary, administrative expenses, outlays for sorting and studying of ideas, and organizational expenses for project commercialization and marketing.

 

Results

By the end of June 2004, 806 projects had left the incubators (in addition to the 200 that remained). Of these "graduates," 45 percent have continued on their own steam and 55 percent have been discontinued.

 

Most of the ongoing projects have managed to attract private investments.

The total private investment obtained thus far is in excess of US $773 million.

 

The technological incubators have become massive repositories of potential ideas for new high-tech venture funds in the future.

European Union 6th 7th Framework Agreement

An active participant in the European Union’s R & D Framework program since 1996

Israel continues to be active in the 6th Framework Agreement that began in November 2002

Technological Incubator Projects

• 23 technological incubators operate

• 200 projects operate currently

• 735 projects have left the incubators in the last decade

• 54% have received further private investment

NETWORKING AS A MEANS TO STRATEGY CHANGE. THE CASE OF OPEN INNOVATION IN MOBILE

TELEPHONY Koen Dittrich

Exploration is often characterized by opportunistic behaviour and enables a firm to bridge two distinct networks of firms, thereby benefiting from the resources of both networks (Burt 1992). ‘weak ties’ Non-equity alliances

Exploitation of existing knowledge and capabilities on the other hand is associated with refinement, selection, production and execution (March 1991). ‘strong ties’ longer-term relationships

Companies that follow an exploration strategy will look for partners with distinctly different capabilities

Companies pursuing an exploitation strategy will search for companies with similar technological capabilities

Exploration networks partner turnover will be higher than in exploitation networks.

Exploration networks will make use offlexible legal organizational structures, whereas exploitation alliances are associatedwith legal structures that enable long-term collaboration

In the late 1980s and 1990s Nokia was one of the forerunners in mobile telephony.

During the late 1990s Nokia tried to maintain its prominent market position in the development of 3rd generation mobile telephony, changing from an exploitation strategy towards an exploration strategy.

Nokia Group defines the company’s core competencies to be in three fields: mobile handsets, network technology and middleware.

First, will Nokia be able to produce the technology fast enough to do it alone? Second, does thecompany have the necessary competencies to

produce it in a short time period?

Core mobile handsets: the largest production volume of mobile phones is still in high-wage countries such as Finland Germany and the USA

Network elements (switches, routers and

modems, and standardized software platforms ). Nokia buys them from SCI, Flextronics Finland and Elcoteq Networks Oyj, since they can produce them much more efficiently

complementary products, such as integrated circuits, Nokia will

simply buy them from e.g. Texas Instruments

Nokia typically joins forces to create a new market, for instance with other

mobile phone manufactures like Ericsson, Siemens and Motorola. Market creation

was the main goal for entering the joint venture Symbian in 1998.

general trend is that Nokia shifts from pure sub-contracting in production, to manufacturing partnerships, to

R&D sub-contracting and ultimately to R&D partnerships.

Exploitation and exploration in innovation networks at Nokia Corporation

80’s First technological trajectory NMT standard initiated by Ericsson

85-96 Second technological trajectory Licensing of technology with Motorola (and Tandy) and a 4-year joint venture for R&D on cellular communication with Alcatel, AEG and Standard Elektrik Lorenz (SEL)

In 12-year period, Nokia only engaged in 25 alliances, mostly in bilateral agreements., 14 were joint development agreements, 6 were licensing and technology sharing agreements and 5 were joint ventures

One cross-licensing agreement In 1993 Motorola and Nokia engaged in a cross-license agreement, which allowed the exchange of all future GSM contracts

More than half of all alliances were on telecommunications and almost one sixth

on both software and microelectronics

Exploration

Third Trajectory Period 1997-2002

48 strategic alliance agreements, of which 25 were joint development agreements, 16 co-production contracts, six joint ventures and one a standardization consortium.

Joint development agreement with Nordea Bank and Visa International.

pioneering pilot to test and verify mobile

payment services based on dual chip technology

Partnerships with competitors joint developmentagreement standard setting is a strategic alliance with the Japanese NTT DoCoMo. Nokia and NTT DoCoMo open mobile architecture for WCDMA-based third-generation mobile communication services : browsing, messaging and application execution Agreement between Nokia, CMG Wireless Data Solutions,Ericsson/Sony Ericsson, Comverse, Logica, Motorola and Siemens, founded the Interoperability Group for the Multimedia Messaging Servcices.

Strategic repositioning by means of alliance networks:The case of IBM

UNIX was an ‘open’ operating system, supported by Sun and Hewlett-Packard, which offered customers the first attractive alternative to IBM’s

mainframe computers (Gerstner,2002) .

IBM failed to see that personal computers (PCs) would be widely used by business and enterprisesIBM gave control over the operating system to

Microsoft and the microprocessor to Intel, andin the early nineties IBM’s leadership position

started to deteriorate

Fujitsu, Digital Equipment and Compaq were the competitors for hardware components

EDS and Andersen Consulting were gaining ground in information services, while Intel and

Microsoft were more profitable in the PC market than IBM

First force: systems integration for business enterprises and bundled software and services for the consumer market ICT industry would be service-led rather than technology-led.

Second force: the emergence of the networked model of computing that would replace the stand-

alone PCs that dominated the market

Computing infrastructure and software would have the future

Exit commodity hardware technologiesand concentrate on higher-margin software and services, and especially integrated (ebusiness)solutions

IBM's alliance network: 1991-200291-9255 strategic alliances, 23 were in the field of computer manufacturing, mainly in the development of microprocessors, and 23 in the field of software development, mostly related to operating systems and software architecture

two important alliances with Microsoft and Intel. Microsoft and IBM cross-licensed Windows New Technology and with Intel, IBM had a long-term agreement on the development of microprocessors.However, in the period 1991-1992 IBM and Apple shared ten strategic alliances, mainly related to the development of microprocessors and software architecture.microprocessors for PowerPCs and mainframe computers96-97

Exploitation multiple partnerships with Toshiba and

Motorola are all in developing microchips,

Exploration joint R&D in the development of multimedia and browser software.

6 out of 32alliance agreements dealt with the Internet, Netscape, Oracle, Sony, Nintendo, Sega Enterprise and NEC

Internet browsers, ThinkPad, WebSphere and other e-business applications. e-business solutions

2001-2

Software: Microsoft, Peoplesoft, and Citrix Systems

Telecom: Cisco and Nortel Networks, and leading mobile phone manufactures such as Ericsson,

Nokia and NTT DoCoMo