Management for Professionals

Transcription

1 Management for Professionals For further volumes:

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3 Georg Weiers Innovation Through Cooperation The Emergence of an Idea Economy

4 Georg Weiers African Development Bank Carthage Tunisia ISSN ISSN X (electronic) ISBN ISBN (ebook) DOI / Springer Cham Heidelberg New York Dordrecht London Library of Congress Control Number: # Springer International Publishing Switzerland 2014 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher s location, in its current version, and permission for use must always be obtained from Springer. Permissions for use may be obtained through RightsLink at the Copyright Clearance Center. Violations are liable to prosecution under the respective Copyright Law. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. While the advice and information in this book are believed to be true and accurate at the date of publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for any errors or omissions that may be made. The publisher makes no warranty, express or implied, with respect to the material contained herein. Printed on acid-free paper Springer is a part of Springer ScienceþBusiness Media (

5 Foreword The way firms innovate is changing. Top-line growth is increasingly driven by innovation. Research and Development (R&D) budgets are growing, but also much more is demanded of them to churn out new inventions quicker and more efficiently. A lot of focus is on how to make such innovation processes leaner and more effective. And as the old model of brick and mortar R&D infrastructure is under pressure, new avenues are being explored. Open innovation is becoming the new normal. Start with two observations: (1) Competition is increasingly driven by innovation. Product cycles have become shorter. Competition has become more global. New products and new production methods drive success. (2) Inventions increasingly come from outside the firm. Companies increasingly understand this and are starting to adapt their business models. Connecting to inventors from outside the firm, companies can speed their innovation and time to market. They take on inventions that work. The risk of discovery and initial development is with the inventors. This reduces the risk of in-house research as well as the administrative burden of running R&D units and raises the return on the company s core business of producing and marketing products. The world is a big pond with many sources of ideas. Any one company does not have all the ideas in the world. New ideas come from unanticipated places, many adjacent to, or farther away from, a specific company or sector. This is a huge opportunity for companies to leverage the capabilities of the world, not just their own R&D. No one can do everything themselves. No one expects in-house researchers to know all. For most challenges a company may face, there are readyto-go solutions out there used somewhere else. To make the best use of research capacity, good networks are needed to link up with others outside to discover promising inventions and bring these ideas from the outside inside the firm. Achieving such a more open innovation model is challenging. It is not easy to tap into this wealth of inventions from the outside, connect to the inventors around the world and jointly develop a product. Many firms developing extensive networks with other companies, research institutions or suppliers, to be tuned into new developments, have early access and co-create new products. Another approach, one that has developed into a multibillion-dollar industry, is using innovation v

6 vi Foreword prizes. Firms publish an R&D need to attract effective solutions that already exist or can easily be found instead of trying to develop a solution themselves, often from scratch. This is changing the business approach to product development by starting from the product and finding appropriate solutions, not from the technology identifying a market for it. Procter and Gamble (P&G) has been a pioneer in opening up the innovation process. It was one of the first to realize this huge potential and take appropriate measures to realize it. Connect and Develop was launched to move from a traditional R&D model to a more open one: connecting to inventors outside and developing products jointly connect and develop. We realized that for any one of our 9,000 researchers inside the various units of P&G, there were 200 just as qualified outside. Instead of relying on the 9,000 inside, tapping into a network of million offers a quite different potential. It multiplies the number of ideas to work with. It can leverage the best ideas outside and combine them with expertise inside the company. R&D productivity went up by 60 %. More than 250 products resulted from it. Insourced innovation went up from 15 % to 50 %. Many companies are embracing similar strategies. But not everyone has yet realized its immense potential of looking beyond the company s walls. Those that have realized the potential of connecting to the world often have a hard time making the necessary changes. Turning a company s innovation model on its head from an inward- to an outward-looking approach requires a whole new strategy. From the perspective of the inventors, the picture is a different one. Firms were closed to them and not willing or able to connect to and work together with them. Now they are opening up, welcoming solutions and actively looking for inventions across the globe. Managers recognize that inventions are developed throughout the globe that can help companies innovate and grow. This offers new prospects for inventions to be scaled up and profited from. This book pulls together many of these aspects, laying out how innovation has changed and is changing, opening up to inventions from the outside. It captures the increasingly collaborative nature of innovation from both the inventor and the firm perspective. It goes a step further even by proposing collaboration at an earlier stage than is currently the case where intellectual property is not fully defined. If it were possible to connect not only with inventors who have a ready product safeguarded by intellectual property but earlier on in the invention process, many new opportunities would open up. Both firms and inventors could develop the invention together. This has been a crucial constraint of open innovation. Going beyond it raises a number of new challenges that intellectual property could not solve. An alternative solution would hold tremendous promise for both inventors and firms. It gives firms access to even more inventions and makes it easier for inventors to work together with firms to develop products jointly. The book is a pioneering attempt to identify the underlying principle that can make such joint development work. It will still have to prove itself in practice. Already it offers a promising way forward that deserves to be explored further, discussed, refined and developed. Larry Huston

7 Preface Imagine: you have an idea, a brilliant idea that, you are certain, could make you rich. Alas, you do not have the means or skills to realize it. Now imagine this: you have an idea and you can sell this idea to a big firm that can realize it easier and more profitable than you ever could. They profit, as do you. They pay you handsomely for your idea. Your idea, as an idea, already is valuable. Nonsense, many would say, this does not work. And they would be right. Unfortunately, we have no ready solution to make such trading in ideas work in practice. This means countless good ideas get lost. Innovation does not live up to its full potential. Ideas may pop up in every imaginable corner only to be forgotten there. And while invention is becoming more and more democratic, innovation is not. This unfortunate enigma has been subject to long and extensive debates. Many a tree has fallen victim to academic controversies on it, politicians have littered speeches with it and perfectly good dinner conversations have been spoiled over it. Such disputes span far and wide. They have trickled down into many debates, political, scholarly, colloquial and otherwise. Often disparate, many never overlap. This book tries to pull many of them together. This has two implications: it prescribes the structure and sets the tone. (i) A simplified structure: Though the proposed argument may sound simple on the outset, it is highly complex once you look behind the pretty facade. Much thinking has gone into these topics by legions of academics and practitioners. For each and every point, you can probably link to entire lifeworks of research and discussions, and for each you can find some specialist able to get into it in much, much more detail. No such attempt can ever be complete, only reasonably comprehensive. Balancing the need to venture into details, while maintaining a more general storyline, is challenging. It can be done. This is such an attempt. To make it easier to read, it is split into two parts. A deliberate choice to separate two broad perspectives: the macro and the micro view. The big picture first for anyone more interested in the framework than the nittygritty of making it work. The argument extrapolates the current debate. It follows in the footsteps of Drucker, Audretsch, Chesbrough and von Hippel and extends their argument. It is a bird s-eye view, showing broad strokes, vii

8 viii Preface rough trends of how innovation has and will continue to evolve. The second part looks at the details for anyone interested in how to make the vision laid out in Part I a reality. It translates various academic discussions into a coherent approach to demonstrate what the problem is (Arrow s Fundamental Paradox of Information) and what new processes need to be developed to overcome it and make trading ideas possible. It is about the practical details of how cooperation can work. (ii) An accessible tone: As much of the discussion is sparsely connected, straddling this divide, spanning across disparate fields and various groups with mostly siloed edifices of literature, means translating one into the other, or better yet, making it accessible to all. The argument draws on diverse backgrounds, from economic literature to business cases to very theoretical discussions. Even within these broad fields, the lines are drawn, with members using their own genre, their own language, their own denotation. This book tries to translate it into a common and accessible format that anyone can read. It will be light to the expert in their respective field, yet hopefully accessible to the unacquainted.

9 Acknowledgments Because it is so broad, because it is quite bold, it has been a lengthy, yet fascinating, journey from early sketches to final drafts, a journey that alone would surely have been most boring, most tedious and utterly unsuccessful. The manuscript has benefited from innumerable discussions with colleagues and friends, too many to thank all of them in person. Some should be mentioned here, nonetheless, for their tireless efforts and for graciously donating their time to provide detailed comments and suggestions to help improve and refine the various drafts. I am especially grateful for this to Christoph Meineke, Gabriele Fattorelli, G unther Tschabuschnig, Johannes Kiess, Mariana Todorova and Vasco Steltenkamp. David Audretsch, Joshua Gans, Nikolaus Franke, Larry Huston and Kenneth Arrow kindly agreed to provide feedback and guidance. Also, I am grateful to the World Bank, African Development Bank and George Washington University for providing the muchneeded access and stimulating intellectual environment to pursue this work. Of course, a significant gratitude is owed to my editor. Publishing is a little like trading ideas. Without a ready product, you need to convince a stranger that it is worth their time and effort to team up. Prashanth Mahagaonkar, Springer s Business and Economics Editor, took a chance on an outsider, far afield the academic centres, submitting a proposal from Africa. Most importantly still, I would like to thank my wife Ursula for her inspiration, motivation, patience and tireless support in finishing this book. ix

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11 Contents Part I Introduction 1 Introduction... 3 References Part II The Emergence of an Idea Economy 2 Economic Evolution References The Entrepreneurial Society References Open Innovation References The Idea Economy References More and Better Innovation References Part III Cooperative Innovation 7 Setting the Stage References The Missing Link References Narrowing the Gap References xi

12 xii Contents 10 Bridging the Gap Trust Fairness References Cooperative Innovation Matching Feedback Mechanism Code of Conduct Guidance References Cooperative Innovation and Its Future References Concluding Remarks References References Index