July 1, 2016

Standardization as an open innovation activity

An important but understudied form of open innovation is the network form (network as defined by Powell 1990). As we noted back in West et al (2006), OI needs more research on this area: at that point, OI had emphasized studying dyadic (bilateral) cooperation between firms, and a decade later that’s still true.

This week I am attending the 21st annual meeting of the European Academy for Standardisation (EURAS), being held at the University of Montpellier. The theme for EURAS 2016 is ‘Co-opetition and Open Innovation’, and so I was invited to deliver the keynote address. The slides for my talk (entitled “How standards research can inform open innovation”) are online at SlideShare.

The three-day conference (June 28-July 1) is taking place at the Université de Montpellier, which was established in 1289 by Pope Nicolas IV. Along the banks of Le Lez, we are only 5km from the Meditterane, and the small size (about 50 attendees) and mild summer climate have made for an enjoyable conference.

Networks in Open Innovation

Between our first book in 2006 (Open Innovation: Researching a New Paradigm) and the second in 2014 (New Frontiers in Open Innovation) my own personal role in the OI ecosystem became painfully obvious. Before the 2006 book, I had done research on standards wars, standardization, platforms, ecosystems and communities, and this continued again between the two books.

In the 2006 book, co-editor Wim Vanhaverbeke introduced the importance of networks in open innovation with two chapters (10, 13) as well as editing several other chapters on the role of networks. However, one notable omission in the book was a failure to mention communities, which Karim Lakhani and I addressed in 2008 with a paper about the overlap in a special issue based on his talk (and mine) at the 2007 EURAM conference.

For the 2014 book, I sought to bring together the prior research on the various network forms and tie them to open innovation. In Chapter 4 (West, 2014a), I listed these network forms:
  • Networks of alliances, which was the subject of my later introduction to the book on OI & strategic alliances (West, 2014b)
  • Communities: in addition to my 2008 paper with Karim, this is the subject of his 2011 paper with Siobhan O’Mahony (O'Mahony & Lakhani 2011) and my chapter with Jonathan Sims (West & Sims, forthcoming)
  • Consortia: although under-studied, this is an important topic of open innovation research, with limited prior OI research (notably Müller-Seitz & Sydow, 2012) and my paper in the EURAS proceedings.
  • Ecosystems of complementary product producers, encouraged by modularity (Baldwin, 2012); firms have an interest in incentivizing ecosystem participation by sharing value control with participants
  • Platforms: although founded by Bresnahan & Greenstein, this research area has almost single-handled been revived and grown by Annabelle Gawer (2009, 2010, 2014; Gawer & Cusumano, 2002, 2014)
Note that some two-sided markets (such as found in third-party software ecosystems) would fit into these categories, but other forms of two-sided markets (such as payment systems) usually would not; these networks are about conducting transactions but don't fit the OI requirement of providing innovations (or antecedents or commercialization of innovations) (West & Bogers, 2014).

Failed OI Network Strategies

Often the research in managing innovation networks (platforms etc.) has focused on the success cases; this is similar to the problem of open innovation more broadly, where we have lots of studies of success but (as Chesbrough has argued over years) we have few examples of failures (West & Bogers, 2014). Two of my own papers touch on this topic.

From 2007-2013, I worked to study the case of Symbian, the British software company that coined the term "smartphone” and had (thanks to Nokia’s smartphone sales) the leading global market share during the first decade of the smartphone OS wars. As predicted by Teece (1986), Symbian lacked the ability to commercialize its own innovations directly but instead partnered with leading cellphone makers to bring its technology to market. (Its founding was due in part to a desire by leading hardware makers to avoid having Microsoft take over the market).

Symbian successfully built one of the most complex ecosystems I have ever seen. Its multiple stakeholders corresponded to (at least) a four-sided market: handset makers, mobile operators, independent software vendors and end users. However, the most central relationship was between Symbian and the large handset makers (notably Nokia and Ericsson) that had founded the company as a spinoff of Psion.

In the end, Symbian OS was unable to cope with competition from iOS and Android; the company was bought and its technology eventually killed by Nokia. Two factors in its OI strategy contributed to its problems:
  • Symbian attracted and promoted a large ecosystem of third-party software vendors. However, due to difficulties customers faced in buying software, few of these complementors achieved financial success: Symbian had an ecosystem but it wasn’t healthy and underestimated its problems and the significance of those problems. Similarly, Symbian considered establishing a direct distribution channel (before the arrival of the iTunes Store and Google Play) but it was constrained by pressures from its stakeholders (West & Wood, 2013).
  • Rather than rely on traditional venture capital, the company was funded by the corporate VC from its wealthy handset customer-partners. While this approach provided funds to develop innovations that were nominally in both parties’ interests, in the end the interests were not fully aligned, preventing Symbian from taking steps that would have assured the continuing health (in fact survival) of its platform (West, 2014).
PC standards wars of the 1980s were prior to a complete understanding of network effects, ecosystems, and tipping — let along modern platform strategy. IMHO, the smartphone OS contests of the past 20 years provide a much better avenue for studying platform strategies than any other computing environment, with a wide variety of entrants and strategies. Today we have two winners — iOS and Android — but other entrants also included Symbian, Windows, Palm OS as well as various Linux efforts such as Maemo, Moblin, Tizen and Bada.

Smartphones (as with early laptop computers) also provided an example of joint innovation in the ecosystem among multiple parties. While the Windows desktops soon became a commodity — and thus innovation was driven by component makers supplying to all systems vendors — the adoption and market success of smartphones clearly demonstrate an interdependent combination of innovation in both hardware (handsets and components) and software (OS, apps, cloud services).

Conclusions

Alliance networks, communities, consortia, ecosystems and platforms provide important opportunities for researchers to apply, develop and extend principles of open innovation. At the same time, as Chesbrough (2006) noted, open innovation builds upon many prior streams of research regarding inter-organizational cooperation in innovation. There is considerable research prior to (and outside) the OI paradigm that informs open innovation, but from a practical standpoint it will not necessarily be known to OI scholars unless the explicit link is made (in such a way that it can be found in Google Scholar).

Cooperative standardization between firms through consortia and communities can provide an important antecedent or input to firm-specific open innovation strategies (West & Sims, forthcoming). In their standardization efforts, firms must trade off the joint value creation of the common standard against their private value capture from products and services that leverage that standard (Simcoe, 2006). Even firms that unilaterally define their own platform must balance the value capture within their ecosystem of complementors (West & Wood, 2103). Meanwhile, the adoption of basic standards (such as ASCII or ISO 9000) enable the division of labor for decentralized innovation within cooperative value networks. As such, understanding how firms do (and have previously) cooperate to create and capture value through standards bears directly on core issues of open innovation.

References

Baldwin, Carliss Y. 2012. “Organization Design for Business Ecosystems,” Journal of Organizational Design 1(1): 20-23.

Chesbrough, Henry. 2006. “Open innovation: A new paradigm for understanding industrial innovation,” in Henry Chesbrough, Wim Vanhaverbeke and Joel West, eds., Open Innovation: Researching a New Paradigm, Oxford: Oxford University Press, pp. 1-12.

Gawer, Annabelle, ed. 2009. Platforms, markets and innovation. Edward Elgar Publishing.

Gawer, Annabelle. 2010. “The organization of technological platforms.” Research in the Sociology of Organizations 29: 287-296.

Gawer, Annabelle. 2014. “Bridging differing perspectives on technological platforms: Toward an integrative framework.Research Policy 43 (7): 1239-1249.

Gawer, Annabelle, and Michael A. Cusumano. 2002. Platform leadership: How Intel, Microsoft, and Cisco drive industry innovation. Boston: Harvard Business School Press.

Gawer, Annabelle, and Michael A. Cusumano. 2014. “Industry platforms and ecosystem innovation.” Journal of Product Innovation Management 31 (3): 417-433.

Müller-Seitz, Gordon, and Jörg Sydow. 2012. “Open innovation at the interorganizational network level - Collaborative Practices in a Semiconductor Industry Consortium,” Open Innovation: New Insights and Evidence conference, Imperial College London, June 25.

O’Mahony, Siobhán and Karim R. Lakhani. 2011. “Organizations in the Shadow of Communities,Research in the Sociology of Organizations 33, 3-36.

Powell, Walter W. 1990. “Neither Market Nor Hierarchy.Research in Organizational Behavior 12: 295-336.

Simcoe, Timothy S. 2006. “Open Standards and Intellectual Property Rights,” in Henry Chesbrough, Wim Vanhaverbeke, and Joel West (eds.), Open Innovation: Researching a New Paradigm, Oxford: Oxford University Press, pp.161-183.

Teece, David J. 1986. “Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy,” Research Policy 15 (6), 285-305.

West, Joel. 2014a. “Challenges of Funding Open Innovation Platforms: Lessons from Symbian Ltd.,” in Henry Chesbrough, Wim Vanhaverbeke and Joel West, eds., New Frontiers in Open Innovation, Oxford: Oxford University Press, pp. 71-93.

West, Joel. 2014b. “Open Innovation: Learning from Alliance Research,” in Refik Culpan, editor, Open Innovation Through Strategic Alliances, New York: Palgrave MacMillan, pp. 1-16.

West, Joel and Marcel Bogers. 2014. “Leveraging External Sources of Innovation: A Review of Research on Open Innovation,Journal of Product Innovation Management, 31, 4 (July 2014): 814-831.

West, Joel and Karim R. Lakhani, 2008. “Getting Clear About Communities in Open Innovation,Industry & Innovation 15 (2), 223-231.

West, Joel & Jonathan Sims, forthcoming. “How Firms Leverage Crowds and Communities for Open Innovation,” in Allan Afuah, Christopher L. Tucci and Gianluigi Viscusi (eds), Creating and Capturing Value through Crowdsourcing.

West, Joel, Wim Vanhaverbeke and Henry Chesbrough. 2006. “Open Innovation: A Research Agenda,” in Henry Chesbrough, Wim Vanhaverbeke and Joel West, eds., Open Innovation: Researching a New Paradigm, Oxford: Oxford University Press, pp. 285-307.

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