POLITECNICO DI MILANO

School of Industrial and Information Engineering Master of Science in Management Engineering

Challenges and barriers faced while implementing

OI in digital and possible measures to overcome

them

Supervisor: Prof. Antonio Ghezzi

MSc Report by: Nicolas Felgueras Llorente

ID: 864259

Academic year 2016/2017

Index Abstract ............................................................................................................................................ 2

Sommario .......................................................................................................................................... 4

Objectives, research methodology and research framework.............................................................. 6

Research objectives ....................................................................................................................... 6

Research methodology .................................................................................................................. 7

Research framework ...................................................................................................................... 8

Introduction .................................................................................................................................... 10

Literature review ............................................................................................................................. 12

1. Methods of implementing OI ............................................................................................... 12

2. General challenges and barriers on implementing OI ........................................................... 14

2.1. Related to culture and mindset of employees ............................................................... 14

2.2. Related to internal management and procedures ......................................................... 15

2.3. Related to the skills present in the firm ........................................................................ 16

2.4. Related to the context of the firm and the intermediate market................................... 17

3. Possible management measures to deal with general challenges/barriers ........................... 18

3.1. Related to culture and employees’ mindset: ................................................................. 18

3.2. Related to internal management and procedures ......................................................... 19

3.3. Related to skills present in the firm .............................................................................. 19

3.4. Related to firm’s context and the intermediate market ................................................ 20

4. Challenges and barriers of implementing OI in specific cases ............................................... 20

4.1. Tournament-based crowdsourcing ............................................................................... 20

4.2. Open source software development ............................................................................. 22

4.3. Firms that use an internal VC ........................................................................................ 22

5. Possible management measures to overcome specific challenges/barriers .......................... 23

5.1. Tournament-based crowdsourcing ............................................................................... 23

5.2. Open source software .................................................................................................. 24

5.3. Firms that use an internal VC ........................................................................................ 25

6. Findings ............................................................................................................................... 25

Discussion and conclusions .............................................................................................................. 29

List of references ............................................................................................................................. 31

Abstract In the last 15 years, firms have been realizing that the knowledge monopolies have

ended and that valuable knowledge is far more distributed nowadays (Chesbrough, 2003).

Therefore, firms that rely completely in internal R&D department to develop new innovations

are facing diminishing returns and Open Innovation (OI) is arising. As Henry Chesbrough

(2003) said, “In a world of widely distributed knowledge, companies cannot afford to rely

entirely on their own research, but should instead buy or license processes or inventions (i.e.

patents) from other companies. In addition, internal inventions not being used in a firm’s

business should be taken outside the company”, this paradigm aims to take advantage of

external ideas and, of under-used internal ones while providing the possibility of accelerating

time to market, reducing the innovation costs and sharing risks (Chesbrough, 2006).

Unfortunately, the process of implementing OI is not easy and many firms struggle with the

process of opening-up.

The purpose of this study is to provide a new, synthetic overview of the extant

knowledge, related to the challenges and barriers in implementing Open Innovation and the

possible management measures to deal with them. This overview aims to be simple and clear,

with the hopeful objective of helping firms that want to implement OI. Even though, as Henry

Chesbrough defined: “Open innovation is the use of purposive inflows and outflows of

knowledge” (Chesbrough et al. 2006 p. vii), this study mainly focuses on the inflows of

knowledge, the OI practices that try to exploit external ideas, technology, etc.

There are three main parts in the report:

The first part deals with the methods for implementing OI from an organizational point

of view. These methods vary according to two dimensions: if the implementation is

encouraged by a top-down or a bottom-up approach; if the implementation is carried

out in a centralized or a decentralized way.

The second part deals with the common challenges and related barriers that a firm may

face while implementing OI and some possible measures to overcome them. Here the

challenges are grouped in four clusters and, consequently, the barriers and measures

too. The clusters are: “Culture and mindset of employees”, “Internal management and

procedures”, “Skills present in the firm” and finally, “Firms’ context and intermediate

market”.

The third part deals with the challenges and barriers that arise in particular cases that

were given a higher attention in extant knowledge, and some possible measures to

overcome them. The cases are: Tournament-based crowdsourcing, Open source

software and Firms that use an internal VC.

In the current analysis, the number of publications contributing to the second part was

considerably bigger than the number of publications contributing to the third. In consequence,

the common challenges and barriers that arise while implementing OI and the possible

measures to deal with them are more complete than the ones related to the particular cases. It

is also important to highlight that almost all the material was obtained by analysis made from

companies in Europe or North America.

Analysing the experiences of other companies that tried to implement OI provides

valuable information on the key factors of the process. Experts’ studies of this information have

created useful knowledge which is available for firms that want to acquire it. As it could be

very helpful to avoid errors that others committed, this report intends to display that knowledge

in a clear, organized way.

Sommario Negli ultimi 15 anni le aziende hanno reso conto che i monopoli della conoscenza sono

finiti e che la preziosa conoscenza è oggi molto più distribuita (Chesbrough, 2003). Pertanto,

le aziende che si affidano completamente al dipartimento di indagine e sviluppo interno per

sviluppare nuove innovazioni, stanno confrontando diminuzioni nei profitti e la “Open

Innovation” (OI) sta emergendo. Come ha affermato Henry Chesbrough (2003), "In un mondo

di conoscenze diffuse, le aziende non possono permettersi di affidarsi completamente alla

propria ricerca, ma dovrebbero invece acquistare o autorizzare processi o invenzioni (cioè

brevetti) da altre società. Inoltre, le invenzioni interne non utilizzate nelle attività normali di

una impresa devono essere esternalizzate all'esterno della società ", questo paradigma mira a

sfruttare idee esterne, e anche quelle interne inutilizzate, pur offrendo la possibilità di

accelerare il tempo di sviluppo, riducendo i costi della innovazione e i rischi condivisi

(Chesbrough, 2006). Purtroppo, il processo di implementazione di OI non è facile, e molte

aziende soffrono nel processo di apertura.

Lo scopo di questo studio è quello di fornire una nuova e sintetica panoramica della

conoscenza esistente, correlate alle sfide e alle barriere nella implementazione della open

innovation e le possibili attività di gestione per affrontarle. Questa panoramica ha lo scopo di

essere semplice e chiara, con il obiettivo di aiutare alle aziende che vogliono implementare OI.

Anche se, come definisce Henry Chesbrough: "La open innovation è l'uso di afflussi e deflussi

di conoscenza" (Chesbrough et al. 2006 p. VII), questo studio si concentra principalmente sugli

afflussi della conoscenza, sulle pratiche tipo OI che cercano di sfruttare idee esterne,

tecnologia, ecc.

Su questo report sono presenti tre parti principali:

La prima parte riguarda ai metodi per l'implementazione della OI da un punto di vista

organizzativo. Questi metodi possono variare in base a due dimensioni: se

l'implementazione è incoraggiata da un approccio top-down o bottom-up; se

l'attuazione viene eseguita in modo centralizzato o decentralizzato.

La seconda parte riguarda le sfide comuni e le barriere correlate che una azienda può

affrontare nella implementazione della OI e alcune misure che possono applicarsi per

superarle. Qui le sfide sono raggruppate in quattro cluster e, di conseguenza, anche le

barriere e le soluzioni. I gruppi sono: "Cultura e mentalità dei dipendenti", "Gestione e

procedure interne", "Competenze presenti nella impresa" e, finalmente " Contesto delle

Imprese e mercato intermedio".

La terza parte ha a che fare con le sfide e le barriere che emergono in casi particolari

che hanno ricevuto una maggiore attenzione nelle conoscenze esistenti, e alcune

possibili misure per superarle. I casi sono: il crowdsourcing basato nelle competizioni,

il software open source e le aziende che utilizzano un VC interno.

Nell'analisi corrente, il numero di pubblicazioni che contribuiscono alla seconda parte è

stato notevolmente più grande del numero di pubblicazioni che contribuiscono al terzo. Di

conseguenza, le sfide e le barriere comuni che emergono durante la implementazione della OI

oltre le possibili misure da trattare, sono più complete di quelle relative ai casi particolari. È

sostanzialmente importante evidenziare che quasi tutto il materiale è stato ottenuto con gli

analisi effettuati da aziende in Europa o Nord America.

Analizzare le esperienze di altre aziende che hanno cercato di implementare la OI, fornisce

informazioni preziose sui fattori chiave del processo. Gli studi degli esperti di queste

informazioni hanno creato conoscenze utili, disponibili per le aziende che vogliono acquisirlo.

Poiché potrebbe essere molto utile evitare errori che altri hanno già commesso, questo rapporto

intende a mostrare tale conoscenze in modo più chiaro e organizzato.

Objectives, research methodology and research framework

Research objectives

Open Innovation has been proved to add strategic value to the firms that implement it.

In the past 15 years, it has been increasingly adopted through different practices and due to

diverse reasons. Firms all over the world, despite their origins, the industry they belong to or

their size, are searching the way to profit from external ideas/technology or from internal ones

that were not being fully exploited, making their boundaries more permeable with the

ecosystem.

Nevertheless, it is not easy for firms to implement OI. Despite the incredible success

stories, or even deluded by the easiness of them, firms all over the world try to implement OI

through wrong procedures or with lack of planning or effort, and fail or have a very hard time

in the process.

This research work focuses on the challenges and barriers identified in extant

knowledge, that firms may encounter in their opening-up process. I tried to identify and present

in an organized, synthetic way, the common ones that every firm should consider before

starting that process and then also, the ones that raised while implementing certain OI practices

that for some reason are more popular in extant knowledge, such as open source software and

tournament-based crowdsourcing. In addition, I identified and explained a few possible

management measures that can be taken to overcome the barriers or to deal better with the

challenges.

Research methodology

To analyse the extant knowledge, filter and organize it, I established a process. First, I

looked at the literature that could be interesting and useful for the specified objectives and I

identified which were possible to obtain in the libraries and through academic websites. Once

done that, I searched in each book, article or paper, examples of challenges and barriers that

could arise on the implementation of OI. I tried to filter the ones that were related to specific

cases, looking for the generic ones, the ones that are possibly encountered by all the firms that

decide to open-up their innovation process. If the challenges/barriers were present in more than

one book/article/paper, I considered them general, unless those books/articles/papers had

investigated related topics.

I searched in the same literature for examples of management measures to overcome

those barriers or deal better with those challenges.

The next step was the search of barriers and challenges related to the more specific OI

practices. I searched in the extant knowledge, those books/articles/papers that referred to a

specific OI practice and selected the most popular themes. Once I had done that, I searched

again for the challenges/barriers related to the implementation of those practices and tried to

explain them in an organized way.

The extant literature that named or gave examples of measures to overcome these more

specific barriers was not easy to find, there were some gaps. As I could not find all the

information I needed, there are some identified barriers/challenges that still have no suggested

management measures to overcome them. Nevertheless, I tried to organize again these new

challenges/barriers and associate some management measures that could help to deal with

them.

Research framework

So far, extant knowledge mainly focuses on trying to explain what is Open Innovation,

why it is becoming so important, which are the benefits of implementing it and which are the

possible modes or practices. I was not able to find many books dedicated to the challenges and

barriers that can be found during the implementation of OI, most of the information gathered

comes from books of another topic of OI that had certain chapters dedicated to that.

Consequently, the clusters or ways of grouping these challenges/barriers vary a lot.

The first step to classify and organize the literature was trying to find the clusters or

main groups to which the challenges belong to and the barriers that arise related to that type

of cluster. After some iterations trying to find the clearest way to organize it, I decided to

create the following clusters and group the challenges (and related barriers) according to

them:

Related to culture and mindset of employees: the implementation of OI also involves a

change in the firm’s culture to which employees must adapt. These challenges refer to

the difficulties that arise in the diffusion of a whole new identity and values and the

changes in employees’ way of working. As the metrics that the firm uses to measure OI

and the motivation to employees influence the culture of the firm, the challenges

dealing with these aspects also conform this group.

Related to internal management and procedures: implementing OI often requires

appropriate changes in internal procedures and structures to support internal and

external network development (Chesbrough & Crowther 2006; Mortara et al., 2009).

Yet, there are many challenges that arise due to lacking appropriate infrastructure or

breaking with structured routines. These are the ones that belong to this group.

Related to skills present in the firm: to implement OI, employees must do tasks they

have never done before. There are some skills that must be present or acquired to

implement OI or the barriers can become too strong to overcome. The challenges

related to the identification, development and spreading of these skills are the ones that

belong to this group.

Related to the context where firm operates and its intermediate market: implementing

OI is not the same process for every firm, especially if they are in different sectors. As

each sector has its characteristics and intermediate market, some firms face challenges

that others do not. The challenges related to the interaction with the ecosystem belong

to this group.

I classified and organized all the common/general challenges and barriers of

implementing OI I found into these groups. Furthermore, I also grouped the examples of

possible management measured to deal with them in the same way.

Whereas, for the more specific cases of OI practices, the organization was simpler. I

decided to group the challenges/barriers and possible measures in the same clusters or to find

to which it is related. As they were already specific cases, I just tried to identify these

information, synthetize it and present it in a clear way.

Introduction

Nowadays there is no discussion on the crucial role that innovation plays in every

company. “The companies that do not innovate die” (Chesbrough, 2006 p. XVI). The big issue

is that it is not easy to innovate. In a world of constant technological breakthroughs with the

potential of shaping lives of numerous people, a world where an unexpected, random event can

suddenly have a huge impact on your business and a world full of problems and opportunities

that reach farther places due to globalization, the ability to adapt and innovate becomes a

necessity no matter how difficult it might be.

In this world businesses face two realities: knowledge is not concentrated in small

groups or institutions, but distributed all over the globe, and there is now the possibility of

reaching beyond companies’ conventional boundaries to learn from customers and users

(Chesbrough, 2003). This relatively new realities suggest firms to search for new ways of

contacting the people that have knowledge related to their business and convince them to

cooperate with the firm on the common topic. In part, that is what Open Innovation aims; it

proposes that firms should use more external ideas or technology and, leave their own

unexploited or unsuccessful ones for others to take advantage (Chesbrough 2006).

To understand the potential of OI first it is needed to understand what it is. So, what is

Open Innovation? As the “father of OI” Henry Chesbrough (Chesbrough et al. 2006, p. vii)

defines it: “Open innovation is the use of purposive inflows and outflows of knowledge to

accelerate internal innovation, and expand the markets for external use of innovation,

respectively” In one of his book, professor Chesbrough stated that firms should use not only

internal ideas and paths to market, but also external ones if they look to make progresses in

their technology (Chesbrough et al. 2006). These statements suggest that the firms and its

environment should be more porous. In this way, the innovations have more freedom and it

decreases the possibility of investing money and time on ideas that then are filtered and do not

see the light of day.

Once the concept is understood, the next question is why. Why is OI being applied?

Which are the main reasons for companies to implement OI? As Chesbrough (2006) stated, in

the presence of an open business model, the OI provides the possibility of accelerating the time

to market, reduce the cost on innovation and share the risks. This explains why, on a series of

workshops carried out by Mortara and colleagues (2009), the results showed that the main

advantages firms looked for while adopting OI instead of a traditional closed model were:

Reduction of time to market of their products

Increase availability of new technologies

More access to competences

It can be seen now why companies would like to become more open and change the

traditional closed model of pursuing innovations. The problem of OI is that it is not easy to

implement, it has different methods to reach it and many challenges and barriers that lead to

unsuccessful implementations. Even if a closed business model is having many problems and

opening theoretically seems a good solution, if it is not carefully thought and established

correctly, the new model will not succeed. To implement OI effectively, a systemic shift is

needed in which many aspects of the business must be re-thought, it is not just a change in

R&D but in many aspects and areas of the company (Chesbrough and Brunswicker 2013).

As it can be read in the definition, OI involves inflows and outflows of knowledge. In

this work the focus will be mainly in inflows of knowledge, which are the OI cases in which

the firms try to exploit external ideas/technology. The aim of the work is to identify the

different methods to implement OI and, analyse and classify the barriers and challenges of

them, in order to recognize and clarify the reasons behind the failures in this process and

consequently, increase the probabilities of its success in the future.

Literature review

There is a great number of publication related to OI, so in the following part we are

trying to explain and summarize which are the main methods of implementing OI, which

challenges and barriers could be faced during this process and which kind of measures can

managers take to overcome those challenges and barriers.

1. Methods of implementing OI

There are 2 dimensions that must be considered to understand which method is being

applied to implement OI: whether if it is a top-down (strategically driven) or a bottom-up

(evolutionary achieved) process and if the OI is carried out in a centralized or decentralized

way (Mortara et al, 2009). The top-down process is basically when the senior management

guides this transition, often in a short time period. Conversely, a bottom-up approach takes a

longer time to implement and it is based on a business unit that implements OI, shows it works

and then it starts to spread the practice to other business units. With respect to the level of

centralization, the methods can vary from assigning a centralized OI team, to the opposite case

of spreading OI practices over several departments and company’s functions which is much

more decentralized.

The combinations of these variables lead to 4 possible methods/approaches of OI

implementation, each of them with different characteristics and effects. It can be visualized

clearer in Figure 1:

- OI encouraged for strategic reasons

- The implementation happens ad hoc

- Clear OI implementation traits

- Clear implementation strategy with a central OI team

- E.g. IBM, P&G

- Implementation by evolutionary development

- People empowerment to start collaboration easily

- E.g. Air Products

- Implementation by evolutionary development but with clear traits established by other than senior management (e.g. HR)

TOP-DOWN

CENTRALIZED

DISTRIBUTED

DD

BOTTOM-UP

Figure 1: Characteristics of each method to implement OI. Adapted from Mortara et al 2009.

The focus of this report will limit to the top-right and bottom-left methods because they

are the most popular ones and as Mortara and colleagues (2009) said, the most mature

approaches.

The Air Products case it interesting because it explains how a firm dedicated to

industrial chemicals quietly refashioned itself and embraced OI. It was an old-fashioned

company in the innovation management that subtle approach to implement OI. Even though

the top management supported the opening-up process, the implementation was done as if they

did not have it. It started just with a small business unit that did not called the attention and

tried to spend the less money possible, making small steps and hiding from the attention. Only

after they could prove the success of the implementation, they ask for the attention that was

previously tried to be eluded and it made the transition of the rest of the company to an open

model, much easier (Chesbrough, 2006).

On IBM’s and P&G’s approach, the idea of opening arose after a shock, a crisis. The

cases are very similar and the concept is the same, so it is going to be explained just one:

IBM hired highly skilled and trained researchers, but inflexible. In consequence, if they

could not foresee future innovations, there were not able to adapt on time to develop external

successful ones on time. Moreover, the research and development departments were culturally

separated, which lead to competition among them instead of synergy or collaboration. After

years of leading their industry, IBM started to decline, they were falling behind specialised

competitors and they were not able to react, what led to the single largest quarterly and annual

loss in the U.S. This crisis led to large-scale layoffs and it was decided to bring for the first

time an outsider CEO who began the opening-up process, trying to listen more to the customers

and finding value in selling semiconductors, more basic technology that was superior than its

competitors’ one. Clearly, this transition was promoted by the leader of the company so it could

not be carried out being unnoticed. Specially because it had to be in a short time and the changes

were abrupt. Consequently, the process was carried out with clear traits and a clear strategy,

relying on a central OI team (Chesbrough, 2003).

Fabbri and colleagues (2015) agree that the internal set-up related to the implementation

can have either a centralized, dedicated structure or decentralized staff spread through each

division dedicated to OI practices. Nevertheless, they propose also a third option that is not

present in Mortara and colleagues’ (2009) analysis, where there is no people dedicated to OI

practices, but everyone is expected to integrate OI activities in their day to day tasks. It is

important to consider this organization because, even though most Fabbri and colleagues’

sample had dedicated OI staff, there was also almost a third of their sample that considered

there was an OI culture spread through the company without staff dedicating especially to it.

2. General challenges and barriers on implementing OI

Extant knowledge proposes a big number of challenges while implementing OI which

have their relative barriers associated. The ones that are more common and generally appear in

all the cases can be grouped in four clusters:

2.1. Related to culture and mindset of employees (Mortara et al. 2009, Ard-Pieter de Man et

al. 2008, Chesbrough and Brunswicker 2013):

This cluster represents the challenges that arise when a change reaches the culture of a

firm. As Mortara and colleagues (2009) said, this cultural shift is a major issue because it means

doing something differently than how it has been done throughout the history of a company,

even sometimes, in a completely opposite way. Moreover, changing the mindset of the

employees is one of the 4 main challenges when implementing OI (Ard-Pieter de Man et al.

2008) because it is not only necessary to have well-defined strategies, but they also must win

the consideration of the employees.

In addition, the way employees are motivated and the metrics that the company cares

about are related to the mindset of the employees and the culture that the firm is trying to create.

Companies are used to motivate and reward according to a closed innovation model, once they

start opening-up, these prizes, career paths, etc. need to change to keep employees motivated

because OI is a people driven process (Golightly et al., 2012). Moreover, the company must

develop new metrics to measure the performance of the firm and employees according to the

new model (Chesbrough and Brunswicker 2013). Otherwise, the top management will not be

able to measure neither the firm’s nor the employees’ performance which can lead to

uncertainty in results and demotivation of the staff.

The extant knowledge states that those firms where the work is based on support or an

achievement culture respond better to appreciative control methods but in those which the

culture is based on role or power, the best responses are to regulative ones (Mortara et al. 2009).

Among the most important barriers related to this challenge, there are the, “Always done so”,

Not Invented Here syndrome (NIH) and the Not Sold Here syndrome (NSH):

- NIH: it is defined as “overemphasis on internal technologies, ideas or knowledge” (Clagett,

1967; Katz and Allen, 1982). This leads to a rejection of external ideas due to a biased

analysis of them.

- NSH: it basically states “If we do not sell it, nobody else should do it” (Chesbrough et al.

2008). It considers that it has high probabilities of not being sold by anybody if the company

that invented it could not sell it, and it is also based in a strategy of not losing control over

a technology as competitors may steal it.

- Managers do not provide a formal career path: employees cannot see what is their possible

future if they apply OI and succeed (Mortara et al. 2009)

- “Always done so”: employees do not want to change a way of working because in the past

they have always done it in that way and, consequently, they have come to think that is the

right way to do it

- Managers fail to provide the correct rewards: as the firm, did not provide prizes or

recognition on anything similar before implementing OI, the incentive system is not well

defined

- It is not easy to measure the level of contribution of employees: as there are many stages

and different people involved, it is difficult to distribute rewards because it is difficult to

track everyone’s contribution

2.2. Related to internal management and procedures (Mortara et al. 2009, Ard-Pieter de Man

et al. 2008, Chesbrough and Brunswicker 2013):

This cluster focuses on the managing of the internal changes on the company, which

according to a study carried out by Chesbrough and Brunswicker (2013), it is the most difficult

challenge to overcome by large firms. In the opening process, the internal structures and

organizations must change. The OI team (if centralized) or the empowerment of people to

collaborate (if decentralized) require a change in structure, procedures and tools (Mortara et al.

2009, Ard-Pieter de Man et al. 2008).

Among the barriers related to the management of the internal change and the

implementation of new procedures, the following are the most common:

- Creation of a reasonable Intellectual Property (IP) strategy: it is crucial for firms that are

opening-up to protect their critical know-how but, at the same time find a balance in order

to be able to collaborate with others and not scare them, like the “IP Medusa Effect” (Alexy,

Criscuolo & Salter 2009). Moreover, Ard-Pieter de Man and colleagues state that firms

cannot find a knowledge balance, they can usually bring external knowledge to the

company but it does not happen in the other way around.

- Breaking the organizational inertia (Ford & Probert 2011): some employees are reluctant

to change the structures and procedures that were used before. This is also related to the

lack of clear management supporting processes towards new procedures and the use of new

ideas.

- Lack of tools to promote collaboration (Ard-Pieter de Man et al. 2008): the development

of knowledge-sharing platforms among employees is a great tool that many firms do not

apply. There are many examples of tools that could help OI but are scarcely applied.

2.3. Related to the skills present in the firm (Mortara et al. 2009, Chesbrough, 2006, Steninger

2014):

When a firm is opening-up, there are many skills that suddenly become very important

and that were not considered or trained before. The ability to build and maintain external

relationships, identify new innovation processes and to manage IP consist a few of the set of

skills needed to succeed in the implementation of OI.

Mortara and colleagues (2009) classified these skills in 4 groups:

Introspective: the ones that lead organizations to asses’ internal gaps and opportunities

Extrospective: the ones that enable a firm to recognize external opportunities and

capabilities, and the other companies’ point of view

Interactive: the communication skills needed either for internal, or external relationships

Technical: all the skills needed on a firm such as financial, marketing, etc.

On the other hand, Enkel and Gassman (2008) classified the abilities in another way

and considered crucial for the implementation of OI the following ones:

Absorptive capabilities: the ability of identifying useful new knowledge, incorporate it and

apply it in your firm

Multiplicative capabilities: the ability of a firm to select the correct partners and exploit

together certain knowledge

Relational capabilities: the ability to create an external relationship and being able to

maintain it through time

Even though the second classification is clearer, it is missing the technical skills that

are necessary for the procedures of an OI firm, such as IP capability. If these skills cannot be

trained or developed, the firm will end up facing multiple barriers such as: acquisition of

external knowledge, identification of new innovation sources, risk of contamination and

difficulties on finding valuable partners (Chesbrough 2006, Chesbrough and Brunswicker

2009).

2.4. Related to the context of the firm and the intermediate market (Golightly et al., 2012):

The sector in which a firm performs can have great influence in the process of

implementing OI. It does not depend only in the maturity of the intermediate market (e.g. when

a company gives in license its know-how or IP to another one) present in that sector, but also

in the practices of OI that work better on it. In addition, firms must try to see themselves as just

one part of the ecosystem that surrounds them, this way will lead them to realize its full

potential (Golightly et al. 2012).

According to Golightly and colleagues (2012), there are 4 key broader trends which

affect the take-up of OI in each sector:

- Relative influence of technology push on sector innovation, compared to consumer pull

- Length and complexity of the sector’s innovation cycle, as well as regulatory requirements

which may give the possibility of cycle shortcuts and market testing

- Preferred source of innovation (from existing supply and value networks or from new

sources)

- Overall disruption and turbulence facing the sector

Even though the barriers to the implementation of OI may vary depending on the sector,

there are a few related to the intermediate market that can be highlighted such as: great

importance of IP in the sector, lack of informative standards to facilitate the exchange of

technology and its IP, lack of information of the technology available in the market and after

it is discovered, difficulties in evaluating the technology’s value (Chesbrough 2006, Golightly

et al. 2012). In addition, there are some barriers related to the performance of firms that

collaborate with each other if they do not act like a part of the ecosystem such as, threatening

the value balance among the players due to the firm’s size, which leads to less trust (Golightly

et al. 2012).

3. Possible management measures to deal with general challenges/barriers

The challenges/barriers explained before are the most common in the implementation

of OI, consequently there are many examples of companies that could overcome them applying

a series of measures. Every cluster of challenges has one or more possible measure that leads

to its solution, it depends on each firm to find the one that suits them best. Below there are a

few of them proposed by different authors that studied the topic grouped by the analysed

clusters:

3.1. Related to culture and employees’ mindset:

According to Mortara and colleagues (2009) there are mainly 4 types of cultures a

firm can have (role, power, achievement or support), it is crucial for the management

to use the appropriate control method to its culture (regulative for role and power,

and appreciative for achievement and support). “those working in a ‘support’ or

‘achievement’ based culture (…) prefer ‘appreciative’ methods of control. On the

other hand, groups characterised by a ‘role’ or ‘power’ culture, work well with

‘regulative’ methods of control” (Mortara et al. 2009 p. 47).

Strong leadership and effective communication are extremely important because then

they become pillars of the OI practice. “Companies who successfully overcame the

NIH syndrome provided strong leadership, a focus and clear direction, accompanied

by means of effective communication” (Steninger, 2014 p. 28).

The involvement of the R&D department since the beginning is a great way of

spreading the new culture. “The research showed that adopters to the open innovation

concept perceived it extremely important to provide focus and a clear top down

direction, while greatly involving R&D in due diligence and integration activities”

(Steninger, 2014 p. 22).

“Introduce examples of success stories that help to answer the question, ‘What’s in it

for me?’” (Mortara et al. 2009 p. 47).

Try to implement ROI-related metrics no matter how complicated it can be. “The

ultimate aim for most of them is to be able to evaluate the Return on Investment (RoI)

from their Open Innovation initiatives” (Golightly et al. 2012 p. 28).

Design incentive system to motivate individual action. If the employee is not

rewarded for the use of OI procedures he/she will stop trying to use them. It is also

important to show there is a career path. “open innovation is a people driven process

so managers also has to work with the right incentives in order to motivate individual

action” (Steninger, 2014 p. 67).

Implement new performance metrics to evaluate OI impact such as strength of

innovation pipeline, customer feedback and time to market. “As well as RoI-related

metrics some commonly deployed metrics included:

• the strength of the innovation pipeline, with distinctions made between those

innovations which have contributions from external parties;

• customer feedback on innovative offerings;

• time to market” (Golightly et al. 2012 p.28).

3.2. Related to internal management and procedures:

Write down & standardize procedures is important to change them in a faster and

more efficient way. “today scholars argue that a formalized approach to the

management of knowledge inflows and outflows is needed (…) The formal approach

means to use a documented open innovation strategy, to write down and standardize

procedures for its implementation” (Steninger, 2014 p. 70).

Integrate OI in current processes (Steninger, 2014).

Provide OI tools such as knowledge sharing platforms. “Traditional techniques for

Open Innovation have been implemented…but the latest tools have scarcely been

applied” (Ard-Pieter de Man et al. 2008 p. 29).

3.3. Related to skills present in the firm:

Training using the WFGM process: It proposes these phases to train the personnel:

Want Find Get Manage. “Delivery of training and skills is often made easier

by a clear framework that clarifies what OI is and what it implies. One of the most

popular choices is the WFGM process” (Mortara et al. 2009 p. 42).

Implement rotation to build cross-functional teams. “If people are not allowed to

move around within the organization, the intensity of essential internal networks and

the so-called “cross-functional ties” will likely make employees less open”

(Steninger, 2014 p. 23).

Assign OI champions (people who take extraordinary interest for the implementation

of OI) to support integration of new technologies. “A company can also assign

internal “champions”, who interacts with different functions across the enterprise,

supporting the integration of the new technology in the current development phase-

gate process” (Steninger, 2014 p. 29).

3.4. Related to firm’s context and the intermediate market:

Increase understanding of offensive and defensive IP strategies through capacitation

and investigation. “They shall develop a business-lead IP strategy that translates into

smart IP policies and processes, where employees know how IP fits into the overall

value-capturing corporate strategy” (Steninger, 2014 p. 29).

Foster culture where OI is considered an option for new knowledge and build trust in

relationships. “The more informal dimension of management shall strive to foster an

open organizational culture, with norms, values and relationships that supports open

innovation efforts” (Steninger, 2014 p. 70).

4. Challenges and barriers of implementing OI in specific cases

Besides the publications on the general challenges and barriers of implementing OI,

extant knowledge also focused on a few specific cases in which it is reached a deeper analysis.

Among these topics, this report will focus on the most recurrent ones, which are: tournament-

based crowdsourcing, open source software and firms that use an internal VC.

4.1. Tournament-based crowdsourcing

In the tournament-based crowdsourcing the firm that is seeking for a solution (usually

for a technical problem) proposes an open challenge. The ones who want to try and solve it,

apply and send their response (a solution proposal which must respond to a pre-defined

performance criteria). In this way, the firm receives the winner solution. There can also be used

intermediaries to make this process better (Piller et al. 2013). Although it may seem as a simple

technique, Blohm and colleagues (2013) and Piller and colleagues (2013) have identified major

challenges (and related barriers) to implement it that are grouped in the same clusters defined

for the common challenges and barriers:

4.1.1. Related to culture and employees’ mindset:

NIH syndrome (explained in 2.1)

Lack of internal commitment: Lack of interest and commitment especially from the R&D

department on this kind of projects.

Allocating wrong task to pilot: Employees propose unrealistic tasks hoping they are

unsolvable. This opportunistic behaviour is aimed to prove that the method is not working

efficiently.

4.1.2. Related to internal management and procedures:

Difficulty in creating internal awareness of the platform and overcoming resistance of

employees to participate

Workflow rigidity: Employees and even full departments do not want to adapt to another

technique. The work has always been done in a specific way and it is difficult to change it

or they fear not receiving any recognition or reward for their effort.

Organizational/administrative barriers: If standard processes have to be respected no matter

the difference in the method, it will lead to unnecessary delays. The processes that were

used before do not correspond with the actual method, so new processes should be created

embracing the times that suit best OI.

Communication barriers: Among different departments and through the hierarchy of each

one. This also leads to delays.

4.1.3. Related to the skills present in the firm:

Difficulty in data absorbing: it may happen that the volume of responses and the rate of

their generation are too high, so it is difficult to absorb all the data. Moreover, it is difficult

to find an equilibrium on the variety of the collaborations: if it is too high it is difficult to

absorb it and if the parameters of the contributions are too rigid the community cannot

provide very innovative ideas.

Difficulty in data evaluation: if employees have to analyse each contribution they lose a lot

a time while if the community can vote others’ contributions (to make it faster so employees

just see analyse the best ones), it needs many evaluations not to become ambiguous

Platform design: it is very influential for the contribution of the community and its’

interaction, so it needs hard work to find the desired one.

Legal skills barriers: The lack of knowledge on Intellectual Property for this kind of

projects led to delays in the contract stage.

Insufficient resources: Usually the reason for this barrier is that there are unrealistic

expectations; this happens because there had been successful cases that led to believe that

the implementation was easy and so the effort needed to make it work was underestimated.

4.2. Open source software development

The open source software development is a collaborative development carried out by

numerous independent sources. People have the possibility to modify and share it because its

design is publicly accessible. To carry out a project of this kind, it is necessary to overcome

certain challenges (Chesbrough et al. 2006):

4.2.1. Related to internal management and procedures:

Difficulty in incorporating external sources with firm’s resources and capabilities: In this

case, the difficulty comes on the coordination and alignment of shared interests. If the firm

is not able to incorporate the external knowledge, then there is no way of profiting from it.

Maximizing the exploitation of diverse IP sources: There are many approaches a firm can

use to maximize the returns to internal innovation. The more approaches the firm can use,

the better. Some examples could be: patent pooling or encouraging other products’ demand

by giving away technology or IP.

Technical-related barriers such as setting a too high technical-entry level which diminishes

collaboration or the lack of tools to enable collaboration Johansen (2012).

4.2.2. Related to the skills present in the firm:

Difficulty in motivating people and generating external contributions: this kind of projects

depend fully in external collaboration, so it is crucial to be able to generate the right

incentives and motivation to make it succeed. Unfortunately, it is not easy to maintain third

party’s interest.

Dealing with diversity: people have different levels of knowledge, skills and even cultures

Johansen (2012).

4.3. Firms that use an internal VC

Until this part, there focus has been mainly in the incorporation of external technology

into a firm. But what about taking internal knowledge out to the external market? The creation

of a venture group inside a company is a possible way to exploit more internal

ideas/technologies that previously were being left beside because it was thought that they did

not fit with the firm. In other words, it is a way of saving false negatives. In addition, it makes

faster the movement of technology out of the lab because if the corporate VC identifies a

technology that can be used for a spin-off, the company’s business units have to rush to decide

if they want to use it or not (Chesbrough, 2003). Nevertheless, this new source of creating

revenue it is easy to implement. According to a case study described in Chesbrough (2003),

there a are a few challenges (and related barriers) that need to be handle properly:

4.3.1. Related to culture and employees’ mindset:

Difficulty in quantifying the benefits: How faster is the technology development or how

are sales affected are not easy things to measure.

Political costs: Competition to commercialize technology inside the firm is not something

easy to keep healthy and technologies unused by managers that then work for others leads

to uncomfortable situations.

Difficulty in visualizing the value for shareholders: Difficult to translate the corporate

portfolio of new technology to actual value for shareholders.

5. Possible management measures to overcome specific challenges/barriers

5.1. Tournament-based crowdsourcing

In the tournament-based crowdsourcing there Piller and colleagues (2013) suggest a

new way of clustering the barriers as it is seen below:

Barriers of will: reasons less justifiable that are mainly related to resistance against

change in general.

Barriers of ability: related to the lack of knowledge and the inability of solving a

technical problem though he/she can identify it.

Bureaucratic and administrative barriers: related to organizational or hierarchical

circumstances where an employee wants and can help but he is not permitted due to

internal company reasons.

Extant literature highlights the importance of the usage of role models to overcome

these barriers, particularly, the German literature proposed a multi-personal model that

distinguishes 3 kind of promotors to address different barriers (Gemünden et al. 2007):

Power promotor: someone who has the” hierarchical power to drive a process, to

provide necessary resources” (Piller et al. 2013 p. 14) Helps to overcome will

and bureaucracy and administrative barriers such as: workflow rigidity, NIH

syndrome, lack of internal commitment, insufficient top management support,

insufficient resources and legal barriers.

Expert promotor: someone who possess specific technical knowledge for certain

innovation problem Helps to overcome barriers of ability such as: difficulty in

data absorption and analysis.

Process promotor: “derives her influence from organizational know-how and intra-

organizational social networks” (Piller et al. 2013 p. 14). He/she connects the other

promotors and the project members Helps to overcome bureaucratic and

administrative barriers, and barriers of will such as: insufficient resources,

insufficient top management support, unrealistic expectation, legal barriers,

organizational/administrative barriers and communication barriers.

Whereas, to deal with the challenges of tournament-based innovation, Blohm and

colleagues (2013) suggest an approach based on 6 steps:

1. Adopt a broad definition of success: the business value generated is multidimensional, it

can improve innovation, marketing, post-sales services, etc.

2. Start small and ensure responsiveness: it is better to begin with a few motivated employees

working actively with the crowd and improving their absorptive capacity before expanding

to other domains with more complex tasks.

3. Make it cool: include a way of winning social prestige in the platform to motivate

employees’ engagement.

4. Post precise and understandable tasks: in this way, the content generated by the

collaborators has lees variety, it is easier to translate and it is analysed faster.

5. Use it for experimentation: the fast response of collaborators permit trying new ways of

getting content of higher quality through tests and iterations.

6. Involve the crowd in improving data quality: contributors can help in the data structuring

through incentives and point systems.

5.2. Open source software

Related to the open source software’s barriers, managers can take a few measures to

increase the probability of overcoming them. For example, if they focus on lowering as much

as possible the entry-barriers for all the roles, then more people will be able to collaborate. In

addition, the provision of well-functioning collaborative tools lead to more interaction between

the community and make easier its development. Lastly, to increase the visibility of the source

code, it could be shaped according to the best practices (Johansen, 2012).

5.3. Firms that use an internal VC

The creation of a venture group inside the company as it was seen before it can have

many barriers. In fact, the case studied by Chesbrough (2003) (Lucent group and Bell

laboratories) ended up on a divorce between the firm and the venture group. Nevertheless, there

are some management measure that could have helped to overcome the named barriers such as

the use of innovation bonds to understand the value creation for shareholders (Chesbrough,

2003). It would be executed with an external capital supplier and it “would assign to the holder

the revenues from the activities of a portfolio of venture firms created to commercialize a

corporation’s technology. The bondholder would also govern the portfolio of ventures. The

corporation, in turn, would receive from the bondholder a steady stream of payments over the

expected period of the ventures” (Chesbrough, 2003 p.153).

6. Findings

The results of the study are displayed in Table 1 and Table 2. Both contain the relevant

extant knowledge in the topic organized in a synthetic, simple way which permits a clearer

understanding of the studied topic:

Challenges Related barriers Possible management measures

Culture and

employees' mindset

NIH

NSH

“Always done so”

Employees resist to changes

Reward systems must change

No formal career paths

Difficulty in finding right metrics

Identifying company’s culture

and applying correct control

method

Strong leadership and effective

communication

R&D involvement

Introduction of success stories

Design new incentive system

motivating individual action

Implement ROI-related metrics

Implement new performance

metrics that consider OI’s impact

Internal

management and

procedures

Organizational inertia

Lack of tools for collaboration

“IP medusa effect”

Top management and R&D

involvement

Writing down & standardizing

procedures

Integrating OI in current

processes

OI tools provision

Skills present in the

firm

External knowledge acquisition

capturing external ideas,

Identification of new innovation

sources

Risk of contamination

Finding valuable partners

Use WFGM training process

Implement rotation

Assign OI champions for

technology integration

Context in which

firm works and

intermediate market

Firms not thinking as part of an

ecosystem

Lack of informative standards to

facilitate technology and IP exchange

Lack of information of technology

available in the market

Difficulty in evaluating technology’s

value

Capacitation and investigation

on IP strategies

Foster OI culture basing

relationships on trust

Table 1: General/common challenges and barriers on the implementation of OI, and management

measures to overcome them.

In Table 1 it can be seen the four main clusters in which the challenges and barriers

were grouped. In addition, it can be seen examples of management measures that aim to deal

with these challenges and barriers to try to overcome them and implement OI successfully.

Whereas in Table 2 it can be seen the specific cases analysed with the extant knowledge.

Their related barriers and challenges are also displayed accompanied by some possible

management measures to overcome them. All the information is organized with a structure

similar to the Table 1 with the objective of making easier possible comparisons and future

analysis. Nevertheless, as the research of extant knowledge had some gaps in certain topics,

there are some parts in the table that are left in blank.

Specific cases Challenges Related barriers Possible management measures

Tournament-based

crowdsourcing

Related to culture and

employees’ mindset

Allocating wrong task to pilot

NIH

Lack of internal commitment

Overcoming employees’ resistance

Use power and process promotors

Adopt a broad definition of success

Include social prestige

Related to internal

management and procedures

Workflow rigidity

Communication barriers

Difficulty in creation of internal

awareness of platform

Organizational/administrative

barriers

Experiment, iterate to find what works best

Use power and process promotor

Related to skills present in the

firm

Legal barriers

Insufficient resources

Difficulty in data absorbing (high

quantity, rate and variety)

Difficulty in data evaluation’s time

Platform design’s influence

Involve crowd in improving data quality

Post precise and understandable tasks

Use expert promotor

Start small and ensure responsiveness

Open source

software

Related to internal

management and procedures

Incorporating external sources

with firm’s resources and

capabilities

Technical-related barriers

Maximizing IP exploitation of

diverse sources

Insufficient collaborative tools

Shape source code rendering to best practices

Provide well-functioning collaborative tools

Related to skills present in the

firm

Diversity on level of knowledge,

cultures and skills

Difficulty motivating people and

generating external contribution

Try to lower as much as possible the entry-

barriers

Creation of VC inside

the company

Related to culture and

employees’ mindset

Quantifying the benefits

Political costs

Difficulty visualizing value for

shareholders

Use innovation bonds

Table 2: Challenges and barriers of specific cases and possible management measures to overcome them.

Discussion and conclusions

The main part of the work is summarized in Table 1 and Table 2. It can be seen in the

tables that much more information was found in extant literature related to the general aspects

of Open Innovation than related to the specific practices. Due to this reason, one of the major

difficulties on the making of Table 1 was the creation of clusters and further classification of

barriers. On the other hand, the major difficulty concerning Table 2, was finding the desired

information in the extant knowledge as the number of publications found regarding those topics

was much lower.

In Table 1 it can be seen all the challenges and their related barriers that a firm can face

while trying to implement OI. As it was said previously, these ones are clustered according to

the source the challenges and barriers can be related with. The clusters are:

Firm’s culture and employees’ mindset

Firm’s internal management and procedures

Skills present in the firm

Firm’s context and intermediate market

The barriers appear synthetized to fit in the table and facilitate the understanding of the

table but each one of them is explained in the literature review part. Moreover, in the last

column of Table 1 it can be seen examples of measures that managers can take in order to

overcome the barriers or deal better with the challenges.

Regarding Table 2, it has the same structure that Table 1 but with one difference: it has

a first column to understand of which specific case is the re information being displayed.

Nevertheless, it still considers the challenges related to the specific cases analysed, the barriers

related to those challenges and the possible management measures that can be taken to face

them. I intended to create it as similar as possible to Table 1, in order to permit a fast

understanding of the information present but also having clear to which practice it refers.

Through the creation of these two tables and the explanation of its content in the

literature review part, it can be said that the objective of analysing and organizing the extant

knowledge referred to “The challenges and barriers of implementing Open Innovation and the

possible management measures to overcome them” has been completed. This work presents a

synthetized, clear, organized way to learn about the common challenges and barriers that a firm

could face in the process of opening-up, and immediately suggests how to deal with these

challenges and barriers, and increase the chances of implementing OI successfully.

The study presents limitations that are important to highlight as they affected the

development of this work and can propose future developments of the work:

Gaps in the literature: due to certain gaps in the extant knowledge the Table 2 ended up

being incomplete. The research on extant literature was a bit limited for the specific

cases, I could not find valuable information to deliver a more complete analysis. Table

2 just showed barriers regarding a few types of challenges, in consequence some of the

clusters were not covered. It could be interesting to see if there really are not present

challenges and barriers of the four clusters or if it was just a problem in the research.

No access to useful material: in certain cases, it came into our knowledge that there

were books written over certain topics whose content could have improved the quality

of this work. However, these materials were inaccessible due to diverse reasons such

as: not being present in Milan’s libraries, content just for sale, server problems in

webpages where it used to be displayed, etc.

Limitations of works analysed: as this study mainly summarizes and organizes what

other people wrote, it is based in many books, articles and papers, that studied different

firms, in different countries and with diverse limitations. This could end up affecting

the quality of the work because the different findings that we grouped, might had varied

in these different contexts. Thus, future works could try to analyse if the summarized

material is valid in different contexts or what are the main variations on them.

List of references

Blohm, I., Leimeister, J. M., & Krcmar, H. (2013). Crowdsourcing: how to benefit from

(too) many great ideas. MIS Quarterly Executive, 12(4), 199-211.

Brunswicker, S., Bagherzadeh, M., Lamb, A., Narsalay, R., & Jing, Y. (2016).

Managing Open Innovation Projects with Impact.

Chiaroni, D., Chiesa, V., & Frattini, F. (2011). The open innovation journey: How firms

dynamically implement the emerging innovation management paradigm.

Technovation, 31, 34-43. doi:10.1016/j.technovation.2009.08.007

Chesbrough, H. W. (2006). The era of open innovation. Managing innovation and

change, 127(3), 34-41.

Chesbrough, H. (2006). Open business models: How to thrive in the new innovation

landscape. Harvard Business Press.

Chesbrough, H., Vanhaverbeke, W., & West, J. (Eds.). (2006). Open innovation:

Researching a new paradigm. Oxford University Press on Demand.

Chesbrough, H. W. (2006). Open innovation: The new imperative for creating and

profiting from technology. Harvard Business Press.

Chesbrough, H., & Brunswicker, S. (2013). Managing open innovation in large firms.

Berkeley, CA: Fraunhofer Verlag.Henry Chesbrough The new imperative for creating

and profiting from technology 2013

Crowne, K. A. (2008). What leads to cultural intelligence?. Business Horizons, 51(5),

391-399. Enkel, E., Gassmann, O., & Chesbrough, H. (2009). Open R&D and open

innovation: Exploring the phenomenon. R&D Management, 39(4), 311-316.

doi:10.1111/j.1467- 9310.2009.00570.x

Golightly, J., Ford, C., Sureka, P., & Reid, B. (2012). Realising the value of open

innovation. Big Innovation Centre (The Work Foundation and Lancaster University),

London.

Johansen, A. (2012). Overcoming barriers for successfully building an open source

community: a case study of Open e-PRIOR, an e-procurement software project at the

European Commission (Master's thesis, Universitetet i Agder; University of Agder).

Lüttgens, D., Antons, D., Pollok, P., & Piller, F. T. (2012). Implementing Open

Innovation Beyond the Pilot Stage: Barriers and Organizational Interventions.

de Man, A., Hoogduyn, C., & Dekkers, K. (2008). “Four challenges for implementing

Open Innovation”, retrieved on 2017/07/08 at: [https://secouu.wordpress.com/]

STENINGER, S. Open Innovation and Barriers to Adoption. Chalmers University of

Technology, Gothenburg, Sweden–2014. Mortara, L., Napp, J. J., Slacik, I., & Minshall,

T. (2009). How to implement open innovation: Lessons from studying large

multinational companies. University of Cambridge, IFM.