Innovation and Creativity Management Session 5 Open innovation

Innovation and Creativity Management Session 5: Open innovation, technology acquisition rotes, partnership management Raushan Aman Raushan. aman@sdu. edu. kz

Technology roadmapping and open innovation Agenda 1 Issues arising from the previous session 2 Open innovation and collaborative development 3 Guidelines for technology acquisition 4 Partnership management 5 Briefing for exercises 2

Issues arising from the previous session The previous session identified ten steps to develop technology strategy. Analysis : Step 1 Where might we want to compete? Step 2 How can we satisfy customers? Step 3 What are our core competencies? Step 5 What technologies do we need? Step 4 What new technologies? Synthesis : Technology condition Step 6 How do we compare with competitors on these technologies? Technology condition Step 9 What acquisition projects should we support? Step 10 What are the implications for our business strategy? This session Step 7 What technologies must we acquire? Step 8 What acquisition routes are attractive? Source: Floyd 3

Issues arising from the previous session CP/CI analysis suggests priorities. Competitive Impact Base Key Pacing Competitive Position Clear leader Strong Alarm signal for waste of resources Opportunities for competitive advantage now Opportunities for future competitive advantage Favorable Industry average Tenable Weak Alarm signal for survival Alarm signal for present Alarm signal for future Emerging 4

Issues arising from the previous session What does this tell you? Base Key Alarm signal for waste of resources Alarm signal for survival Opportunities for present competitive advantage Alarm signal for present Industry average Pacing Opportunities for future competitive advantage Alarm signal for future Emerging Clear Leader Strong Favourable Tenable Weak 5

Issues arising from the previous session What does this tell you? Base Key Alarm signal for waste of resources Alarm signal for survival Opportunities for present competitive advantage Alarm signal for present Industry average Pacing Opportunities for future competitive advantage Alarm signal for future Emerging Clear Leader Strong Favourable Tenable Weak 6

Issues arising from the previous session What does this tell you? Base Key Alarm signal for waste of resources Alarm signal for survival Opportunities for present competitive advantage Alarm signal for present Industry average Pacing Opportunities for future competitive advantage Alarm signal for future Emerging Clear Leader Strong Favourable Tenable Weak 7

Issues arising from the previous session In Step 7 we set objectives for each technology. Clear Leader Competitive Position Strong Favorable Tenable + 3 yrs Competitive Impact Base + 2 yrs Key Pacing Emerging Weak + 1 yr T 1 T 4 T 3 + 1 yr T 2 + 1 yr + 3 yrs T 5 T 6 T 7 Objectives: What level of ability, relative to competitors? When to reach this level? 8

Technology roadmapping and open innovation Agenda 1 Issues arising from the previous session 2 Open innovation and collaborative development 3 Guidelines for technology acquisition 4 Partnership management 5 Briefing for exercises 9

Open innovation and collaborative development 8: Select acquisition routes. Technology condition Step 7 What technologies must we acquire? Step 8 What acquisition routes are attractive? Step 9 What acquisition projects should we support? Step 10 What are the implications for our business strategy? Where can we source technology? – Own R&D – Customers and suppliers – Partnerships and alliances – Licenses and company acquisitions – Contract and academic R&D 10

Open innovation and collaborative development Technological competitiveness has traditionally depended on internal R&D. 100 % Other external relationships Active supplier relationships Passive supplier relationships Sources of technology Internal R&D 0 1980 s Source: Arthur D. Little CEO/CTO survey 11

Open innovation and collaborative development The importance of external technology sources has been growing. . . 100 % Other external relationships Consortia and Associations JVs and strategic alliances Sources of technology Active supplier relationships Passive supplier relationships Internal R&D 0 1980 s 1990 s Source: Arthur D. Little CEO/CTO survey 12

Open innovation and collaborative development … and continues to do so. 100 % Sources of technology Outsourcing External sources Internal R&D 0 1980 s 1990 s 2000 s+ Source: Arthur D. Little CEO/CTO survey and estimates 13

Open innovation and collaborative development There are many pressures to work more with external sources and partners. Issue The drivers Complexity The technologies needed to create new products and processes are increasingly diverse and intricately linked – no-one can excel in all Strategic focus Given limited resources, internal development must maximize its efficiency and value creation by focusing on critical skills/technologies Speed and agility Development and commercialization cycle times continue to shrink – internal development is too slow Globalisation The opening up of international markets and the growing impact of global economic forces make the use of local resources essential Intelligence Conventional “desk-based” competitor, market and technology research is no longer sufficient – the insights of others are essential Stimulus The search for a continuous stream of new ideas demands fresh stimulus and thinking from as wide a range of sources as possible Access to talent However good the internal resources, there will always be many more good people elsewhere – success depends on access to these people 14

Open innovation and collaborative development These pressures are driving the growth of “open innovation”. “Do it yourself” Success requires control Corporate research centres A few large firms dominate the industry Own R&D provides barrier to competition Exploit through new products/process Low staff turnover Knowledge concentration Closed Innovation Open Innovation “Use the best available” Work with others Research networks Industry leaders may be small New entrants lack own R&D Also exploit through new firm creation High staff turnover Knowledge diffusion Source: Chesbrough 15

Open innovation and collaborative development Different industries are at different stages in the adoption of open innovation. Open Innovation Clothing Oil & Gas Motion pictures Communications Investment banking Biotechnology Consumer electronics Closed Innovation Personal computers Pharmaceuticals Semiconductors Nuclear reactors Automotive Food and drink Aircraft engines (? ) Mainframe computers 16

Open innovation and collaborative development Proctor & Gamble is an enthusiastic collaborator. www. pgconnect develop. com External collaboration plays a key role in nearly 50 percent of P&G's products. We've collaborated with outside partners for generations but the importance of these alliances has never been greater. Our vision is simple. We want P&G to be known as the company that collaborates — inside and out — better than any other company in the world. A G Lafley, Chairman of the Board and Chief Executive Officer 17

Open innovation and collaborative development Rolls Royce partners with academic research via its ‘University Technology Hydrodynamics Companies’ Gothenburg, SE Systems & Software Engineering York Advanced Electrical Networks Strathclyde Materials Damping Technology Sheffield Electrical Systems for Adverse Environments UMIST Control & Systems Engineering Sheffield Materials Partnership Swansea, Cambridge and Birmingham Manufacturing Technology Nottingham Solid Mechanics Oxford Gas Turbine Transmission Systems Nottingham Heat Transfer and Aerodynamics Oxford (Osney lab) Computational Fluid Dynamics Oxford University Gas Turbine Partnership (UGTP) Cambridge (Whittle lab) Design Partnership (with BAE) Cambridge, Sheffield & Southampton Combustion Aerodynamics Loughborough High-Mach Propulsion Purdue, USA Source: Rolls Royce Aerospace Performance Cranfield Noise Southampton Vibration Imperial College Aero-thermal Systems Sussex Thermo-fluid Systems Surrey Turbomachinery Cottbus, DE Combustion Stuttgart, DE India China 18

Technology roadmapping and open innovation Agenda 1 Issues arising from the previous session 2 Technology roadmapping 3 Open innovation and collaborative development 4 Guidelines for technology acquisition 5 Partnership management 6 Briefing for exercises 40

Issues arising from the previous session The previous session identified ten steps to develop technology strategy. Analysis : Step 1 Where might we want to compete? Step 2 How can we satisfy customers? Step 3 What are our core competencies? Step 5 What technologies do we need? Step 4 What new technologies? Synthesis : Technology condition Step 6 How do we compare with competitors on these technologies? Technology condition Step 9 What acquisition projects should we support? Step 10 What are the implications for our business strategy? This session Step 7 What technologies must we acquire? Step 8 What acquisition routes are attractive? Source: Floyd 2 0

Guidelines for technology acquisition Decide what acquisition route to use by considering the nature of the technology. Characteristics – Consider Competitive Impact, Competitive Position, and cost; and the speed at which these are changing Complexity – Technologies requiring multi-disciplinary inputs offer greater opportunities for selective external acquisition Codifiability – The more difficult the technology is to document, the more attractive it is to retain in-house Competitors’ ability to access – The easier it is for others to appropriate the benefits of a technology, the greater the attractiveness of collaborative research Further reading: Floyd, Jolly 21

Guidelines for technology acquisition Take “inheritance factors” into consideration as well. Corporate business strategy – Technological differentiation or leadership strategies by individual businesses favour greater reliance on in-house R&D. Capabilities – Where the company is weak, often there may be little choice but to source externally. Culture and Comfort – Resist pressure to choose a particular acquisition route simply because “that’s the way we do things around here” or because management does or does not feel comfortable with the technology. Compliance – Recognise government or societal pressures to develop or invest in domestic technology capabilities. 22

Guidelines for technology acquisition Identify and evaluate potentially attractive acquisition routes. Base Technology Competitive Impact Key Pacing Buy or Collaborate Weak Make Average Strong Company Competitive Position 23

Guidelines for technology acquisition Identify and evaluate potentially attractive acquisition routes. Base Technology Competitive Impact Buy Key Collaborate Make Pacing Low Medium High Cost 24

Guidelines for technology acquisition Choose what technologies to acquire externally: Checklist 1. Question Implication of answer “Yes” “No” 1. Is this technology powerful in differentiating our products today, by performance or cost? Candidate for internal sourcing, to keep control and maintain competitive advantage (but see Checklist 2) Candidate for outsourcing. Internal resources may be better used elsewhere 2. Is this technology, once a powerful differentiator for us, now becoming widely available and so losing its differentiating power? Candidate for outsourcing. Continued internal sourcing may waste resources which could be better used elsewhere Candidate for internal sourcing, to maintain competitive advantage (but see Checklist 2) 3. Is there another technology, new to us but well-known to someone else, which would enable us to do a lot more with one of our existing technologies? Candidate for outsourcing. The combination of technologies could lead to major new product opportunities and outsourcing gets us to market fast No action 4. Is this differentiating technology so expensive that sharing development costs with a partner is attractive? Candidate for outsourcing, at least partially. The savings in cost and time may justify the partial loss of control Candidate for internal sourcing (but see Checklist 2). We can afford to retain complete control and business benefit may justify doing so 5. Is this technology also available from external specialists, who will always be stronger than us? Candidate for outsourcing. Access to best technology may be more important than control Candidate for internal outsourcing. Business benefit may justify using internal resources to maintain our own strength (but see Checklist 2) 6. Is this technology, which is new to us, already mastered by someone else? Candidate for outsourcing. Cost and Candidate for internal sourcing. Developing time savings may be more important our own strength may be more attractive than control than having someone else develop the technology for us 25

Guidelines for technology acquisition Choose what technologies to acquire externally: Checklist 2. Question Implication of answer “Yes” 1. Do we have adequate internal strength in this technology, today? 2. “No” Candidate for internal sourcing : go to question 2 The critical issue is whether, realistically, we could develop sufficient internal strength in time to meet business needs and at a cost we can afford. If so, this is a candidate for internal sourcing: go to question 2. If not, consider outsourcing Can we sustain adequate internal Candidate for internal sourcing : go to strength in this technology, in the question 3 future? Consider outsourcing. Internal sourcing may still be possible for a while, but we should start now to look for other sources 3. Is this technology already well known Consider outsourcing. Even though it and understood by others outside our would be possible for us to rely on our company? internal resources, outsourcing may still be more cost effective Rely on internal resources 26

Guidelines for technology acquisition Choose the most appropriate form of relationship. Are we only trying to solve a specific problem within a distinct timeframe ? No Consider building long-term partnerships Yes Consider licensing or purchase of intellectual property rights No Consider collaborative development Yes Consider a contractual or project relationship Does the solution already exist ? Is there an organization with strong position in this subject which we could acquire ? Development is needed Is it important for us to contribute our own know-how ? No Consider alliance or sponsored R&D Yes Consider partial or total acquisition No Are there strong reasons to place the development in a separate company ? Consider a jointventure No contract or sponsored R&D Yes Consider a consortium 28

Guidelines for technology acquisition Every form of relationship has strengths and weaknesses. Potential gains Potential losses License/purchase of rights • Fast access • Low (initial) cost • Difficult know-how transfer • Limited further development Contract R&D • Extra capacity/skills without adding to headcount • Weak performance incentives • Poor understanding of needs Project partnership • Extra capacity/skills • Mutual learning • Low long-term commitment Alliance • Complementary skills • Shared risk/reward • Potential for conflict • Low long-term commitment Joint venture • Complementary skills • Shared commitment • Potential for conflict • Loss of control Acquisition • Control • Loss of key staff • Damage to culture 29

Technology roadmapping and open innovation Agenda 1 Issues arising from the previous session 2 Technology roadmapping 3 Open innovation and collaborative development 4 Guidelines for technology acquisition 5 Partnership management 6 Briefing for exercises Richard Granger Copyright © 2013 Richard Granger RHUL MSc PM 5004 Session 2 notes v 2 50

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