Three Important Mechanisms Are Discussed Commerce Essay

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Open innovation can be understand easily if we understand traditional closed innovation in which Research and Development activities and new product development are done internally in the organization and then distributed by the same organization. Whereas open innovation is antithesis of the closed innovation. In open innovation organization share and works with the external organizations or firms to develop new products or to develop technologies and then to distribute in the market. Open innovation is stated by Chesbrough as

"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. Open innovation is a paradigm that assumes firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology."

(Chesbrough et al., 2006b, p. 1)

The aim of the open innovation model is to commercialize the internal ideas of the firm and also the external ideas of other firms or individuals. The boundaries between the organization and external environment are permeable to facilitate the movement of innovations between the internal and external environments. The open innovation concept is aimed to export and import valuable knowledge, technologies, ideas and innovation at any time in the innovation chain. In this context firms use both external firm discoveries and their own discoveries. In order to accelerate internal innovation firms consider inflow and outflow of knowledge as productive. For any firm to be successive only internal innovation cannot be possible, firms need external innovation also.[1][2]

Traditional organizations use centralised Research and Development technique. This is partly due to their belief that the employees working for them are in good position to develop new technologies. Research and Development operations are controlled internally in traditional organizations to restrict the access to the competitors to the technology developed. This ensures the solid profits as they were the first to innovate and distribute the product. This approach is called closed approach.[3]

FIG1-Chesbrough's Open Innovation Funnel [4]

Open innovation advocates different approach. Without abandoning internal R&D, technologies and ideas from other companies are supplemented into the internal R&D to develop new technologies. Businesses are encouraged to acquire and sell intellectual property to exploit the market and to have profits. Open innovation is good for the parties involved in the collaboration. [4]

Closed innovation mainly occurs with the use of internal cooperation and resources where as open innovation uses bidirectional exchange mechanisms of innovations, ideas, technologies and knowledge between the internal and external interfaces. The internal interfaces in the organization are business units, structures and processes. The external interfaces in the organization are competitors, customers, suppliers and universities.[1]

Comparing Closed and Open Innovations

CLOSED INNOVATION

OPEN INNOVATION

Knowledge

Best knowledge comes from own firm.

Best knowledge comes either from own firm or outside the firm.

Innovation

R&D process is limited to the boundaries of firm.

Works along with outside R&D to create significant value and to claim some portion of that value.

Proprietary

Proprietary is used to land in the market at first place.

Commercializing the product first than protecting proprietary.

The Source of Value

The value of first-mover advantage is emphasized.

The value of good business models is emphasized over the first-mover advantage.

Competition

The quality and number of ideas are emphasized in competition.

The best use of external and internal ideas is emphasized in competition.

Intellectual Property

IP is used to stop competitors to not to use it to make profits.

IP is provided on the basis of license or selling completely to make more profits.

TABLE 1 Open and Closed Innovation [3]

Open innovation can be of any business model form. Different organizations implement open innovation in different approaches. The sheer range is shown in the spiral diagram shown below.[5]

FIG 2- Different Models from Closed to Open Innovation [5]

Need for Open Innovation

There are several reasons for the companies to implement open innovation; the important aspect for this need is availability of highly educated people has increased when compared to old days this led to the spreading of knowledge to more and different firms other than few firms. In this fast changing environment when employee changes job he or she will take their knowledge with them. Traditional employees mostly work for same organization for entire life so the knowledge and ideas are only shared with the people in the same organization. But due to increased employee firm changes knowledge also flows to other firms.[1]

Venture capital firms are also fuelling the open innovation in different organizations. Companies also want to work with suppliers and the firms from outside business interests to increase the effectiveness in innovation.[2]

Companies which are R&D intensive have embraced open innovation effectively. Open innovation appears to be offering great advantages over the traditional method of innovating in companies. To come up with a radical innovation which can change the future growth of the company open innovation appears to be the best idea to implement as in open innovation access to untapped and unknown fields is possible. The cost of maintaining R&D in traditional organizations is more when compared with open innovation enabled R&D department as inputs to the R&D are from different firms. The other firms bring innovative ideas and also funds. Open innovation is the best possible solution for the projects which are halted with the lack of funds. Expensive and technology intensive innovation projects can be done efficiently with the open innovation. This collaboration between different organizations can give an idea of other potential business opportunities. Open innovation offers several advantages in creating new innovations in this fast changing world.[4]

Companies Implementing Open Innovation

There are several multinational companies using open innovation as a means to achieve productive results and profits. There are also even more firms looking for open innovation over closed innovation to produce value to the product. Some important organizations which are implementing open innovation are detailed in the section below.[6]

Unilever is a consumer goods company which produces cleaning agents, beverages, foods, and personal care products. Unilever is asking the potential collaborators to contribute in the development of environment friendly detergent and sugar reduced beverages. This move is a part of globally growing trend of open innovation and to effectively outsourcing technology or research to a worldwide pool of scientists, academics, technology companies and more importantly competitors.[6]

Procter Gamble one of the competitors to Unilever also aims to get $3bn sales from open innovation mechanisms by 2015.[6]

BAE Systems is running a multimillion pound Investment in Innovation program which is a open innovation program to develop technologies for BAE Systems security and defence customers. Not only with funding BAE systems is also providing with non financial support like skills and processes training. Currently investment is concentrated on developing surveillance, cyber security and biometrics. A BAE system is already working with several small and medium businesses and universities (Research Labs) as part of their open innovation to develop new technologies and concepts.[7]

Alternative Mechanisms to setup Open Innovation

There are several ways to setup open innovation in any organization. Few of the alternative mechanism to setup open innovation are described below.

Broadcasting Search Mechanism

In this mechanism companies post their problem with specific requirements and configuration to the public community channel. The best suitable solution will be selected from the list of solutions from the community members or groups. A preset monetary reward will be presented to best solution provider under the guidelines of intermediate community organization. In this type of open innovation methods there will be no collaboration between members of the community usually solutions for the problems are from individual users. The whole process is supported and monitored by experts. There is a possibility sometimes that there will not be any support from experts because of the nature of the problem or it uniqueness. Most of the broadcasting search mechanisms of open innovation are through World Wide Web channels to reach as many people as possible. [8]

The companies providing this type of service are Innocentive, Brain Rack, One billion minds, ninesigma, Battle of concepts, challenge.gov, BeeQuu, Ideaken, TopCoder etc.

Several companies are using this type of mechanism to setup open innovation in their companies. Some of them are ACCENTURE, EMC2, P&G, BAE Systems, Hewlet-Packard etc.[9]

Advantages of Broadcast Search Mechanism

In this mechanism there is highest possibility to interact with problem solvers from diverse streams and with most number of problem solvers.

The best and suitable solution to the problem is selected not innovated by company this will reduce the R&D burden and increases the profits.

Understanding of different unknown risks can be found easily with the participation of several experts worldwide.

Disadvantages of Broadcast Search Mechanism

There will be no secrecy to the project initiated as most of the concept is available to public experts. This may lead to changing or copying schemes by competitors.

Internal innovating strength may reduce due to the over dependence on external innovators. This may become big problem in future for the company.

Brain Storming (With Ranking)

In this mechanism companies ask for solution to the problem to an expert company or group which specializes in innovations. The solution to the problem is brainstormed by a group of expert on the subject and let the customer or company to choose the best and suitable solution to the problem. There will be complete collaboration between the members of the expert group. A preset monetary award is provided to the group and the existing group members share the monetary award between them. Usually the company which is providing expert group leverages the innovative ideas available around the world. [8]

The companies which provide this type of service are Openideo, Big Idea Group, Brain Reactions, My Startbucks Idea, eYeka.[10][8]

There are several companies using brainstorming mechanism to implement open innovation some of them are HSBC, Philips, Knorr, Cocacola, Unilever etc.[10]

Advantages of Brain Storming (With Ranking)

In this mechanism companies only share and interact with certain number of members who are already best innovators so the solutions available are usually with some genuine and productive content than with solutions from broadcast search mechanism where everyone can provide solutions.

Concepts and knowledge share is protected under the contract with service provider and the innovation project resources are only known to few outside innovators.

Disadvantages of Brain Storming (With Ranking)

The solutions and suggestion are in very limited number when compared to broadcast search mechanism.

The monetary reward may be more when compared to broadcast search mechanism.

License Out

Companies license out innovations and technologies to communities to develop new applications and technologies. The license is most of the times restricted to limited use and solely for research purposes. Community members share their contribution to the innovation and technology provided. The research work and its prospect are subjected to the agreement between company and community. There are many companies providing this service of connecting big firms and concerned members of the community. The companies which are already using this approach of innovation are DARPA, Guardian, Emirates, and Waitrose etc.[8][9][10]

Advantages of License out Mechanism

There will be control of companies own technologies as technology is provided on the basis of agreement to the users.

High number of interested circles are involved which helps in giving value to the product.

Disadvantages of License out Mechanism

There will be certain degree of loose of control over companies own proprietary technologies.

There is no guarantee to have good result by giving licenses to communities.

PART B

Bass Model Application

The given forecast data is used to find the required results in MS Excel.

Given Forecast Data

http://www.displaysearch.com/images/DisplaySearch_E-Paper_Display_Forecast_090824.png

We need green bar graph values to derive required results.

To find parameters use bass model formula

a, b, and c can be estimated by running ordinary least squares regression, using the cumulative sales as dependent variables, the lagged sales and the squared lagged sales as the independent variables

The cumulative and lagged sales are given below, these values are found in excel.

n(t)

N(t-1)

N(t-1)^2

 

 

 

22

0

0

100

22

484

300

122

14884

470

422

178084

650

892

795664

800

1542

2377764

1060

2342

5484964

1260

3402

11573604

1360

4662

21734244

1800

6022

36264484

a,b,c parameters derived are

c=-3.60E-05

b=0.480908

a=-434.576

Market Capitalization (M)

-4ac=0.246070557

=-0.97696

=13568.93

Therefore M=13568.93

Coefficient of Innovation (p)

p=0.007573687

Coefficient of Imitation (q)

q=p+b

q=0.488481307

The model simulation parameters for time t 1 to 31is derived in Excel and presented here.

 

Model Simulation

 

 

 

 

 

 

N(t-1)

 

T

pM

(q-p)N(t-1)

-(q/M)N(t-1)^2

0

n(t)

1

102.77

0.00000

0.00000

102.76679

102.77

2

102.77

49.42133

-0.38020

254.57473

151.81

3

102.77

122.42693

-2.33310

477.43535

222.86

4

102.77

229.60230

-8.20600

801.59844

324.16

5

102.77

385.49480

-23.13216

1266.72787

465.13

6

102.77

609.17909

-57.76558

1920.90817

654.18

7

102.77

923.77938

-132.83597

2814.61836

893.71

8

102.77

1353.57142

-285.19476

3985.76182

1171.14

9

102.77

1916.78323

-571.90670

5433.40515

1447.64

10

102.77

2612.96594

-1062.78809

7086.34979

1652.94

11

102.77

3407.87961

-1807.78872

8789.20747

1702.86

12

102.77

4226.79685

-2781.00605

10337.76507

1548.56

13

102.77

4971.50999

-3847.29792

11564.74394

1226.98

14

102.77

5561.57348

-4814.75889

12414.32533

849.58

15

102.77

5970.14365

-5548.15704

12939.07873

524.75

16

102.77

6222.50156

-6027.11130

13237.23578

298.16

17

102.77

6365.88755

-6308.07880

13397.81133

160.58

18

102.77

6443.10956

-6462.04854

13481.63914

83.82781

19

102.77

6483.42299

-6543.16538

13524.66355

43.02441

20

102.77

6504.11376

-6584.99487

13546.54923

21.88569

21

102.77

6514.63875

-6606.32386

13557.63092

11.08168

22

102.77

6519.96802

-6617.13682

13563.22891

5.59799

23

102.77

6522.66013

-6622.60243

13566.05341

2.82450

24

102.77

6524.01846

-6625.36099

13567.47768

1.42427

25

102.77

6524.70340

-6626.75222

13568.19565

0.71797

26

102.77

6525.04868

-6627.45360

13568.55753

0.36188

27

102.77

6525.22271

-6627.80712

13568.73991

0.18238

28

102.77

6525.31042

-6627.98530

13568.83182

0.09191

29

102.77

6525.35462

-6628.07509

13568.87814

0.04632

30

102.77

6525.37689

-6628.12035

13568.90148

0.02334

31

102.77

6525.38812

-6628.14315

13568.91325

0.01176

To check whether the sales data forecasted above confirms to bass model we need to draw sales graph by taking sales on y-axis and time on x-axis.

FIG Growth Projection

The growth projection shown above conforms to the bass model as sales followed s shape with stabilization and then decline.

Peak Sales Level

From the projected values we can say that peak sales number is 1702.86 Million Units.

Peak Sales Time

The peak sales value 1702.86 occurred at time t=11

Conclusion

The assigned two tasks are completed successfully in this report. The concept of open innovation is studied in depth and also presented in the report. Many companies are implementing open innovation rather than continuing with traditional closed innovation system due to the fast changing business environments and availability of R&D people to every company. Companies like P&G, Unilever, Cococola, BP, Philips, LEGOS, SUBWAY etc has already started setting up open innovation into their organizations. Different alternative mechanisms to implement open innovation are studied and presented in this report.

Part B of this course work is done with the help given forecast sales details. The given forecast details conforms to bass model in which sales figure follows s curve over time and the peak sales number in a year is 1702.86 Million units and this will occur in the eleventh year. By this we have achieved objectives of this course work.

Bibilography:

1. JISC Facilitating Open Innovation, Landscape and Feasibility study, October 2009

2. http://www.emotools.es/static/upload/files/Openinnovationparadigm.pdf [Accessed on 26/10/2012]

3. http://www.openinnovation.eu/open-innovation/ [Accessed on 27/10/2012]

4. Design and creativity in open innovation processes: The case of Italian industrial districts, Giorgio Casoni, Strategic Design Research Journal, 3(2): 33-40 maio-agosto 2010.

5. Frontiers of Open Innovation: Marko Torkkeli (Editor), LAPPEENRANTA UNIVERSITY OF TECHNOLOGY Department of Industrial Management Kouvola Unit Research Report 225.

6. Open innovation as an alternative for strategic development in the aerospace industry in Brazil 2010, Mariana de Freitas Dewes* Univ. Federal do Rio Grande do Sul Porto Alegre - Brazil.

7. http://www.unilever.com/innovation/collaborating-with-unilever/open-innovation/ [Accessed on 06/11/2012]

8. http://www.pg.com/connect_develop/index.shtml [Accessed on 06/11/2012]

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