open innovation and open business model

Ini adalah tugas selanjutnya yg dikasih sm pak apiq, kt disuruh untuk bikin tulisan ttg open innovation dan open business model, dan ini adalaaah tulisan saya, *saya mengmbil juga dari bbrp references yg ada.

tapi sebenarnya saya masih agak sedikit bingung, disuruhnya bikin semacam artikel atau apa ya??saya bikin artikel aja ya pak semacam paper gitulah pak, hehe

Ok, kt pake bhs inggris ajalah biar sm kyk judulnya..

Now, open innovation and open business model become more important in all aspect.

Based on presentation in the last class, 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. But As originally explained by Henry Chesbrough:

Open Innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology. Open Innovation combines internal and external ideas into architectures and systems whose requirements are defined by a business model.

Henry Chesbrough, Open Innovation: The New Imperative (2003: xxiv)

And several years later, Prof. Chesbrough’s more recent (and preferred) definition is:

“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. [This paradigm] assumes that 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.”

Henry Chesbrough, Open Innovation: Researching a New Paradigm (2006)

I think open innovation is affected by all developments, it is still different from all these buzzwords. It identifies the common intention of these methods and describes the overall strategy and innovation model that these methods require. This means that open innovation is not a single technique to improve some aspects of the firm’s innovation process. Open Innovation describes a much broader concept than all other mentioned methods. Open innovation redefines the inbound-innovation-process. It is characterized by its porous innovation processes and the strong interaction with the environment. By integrating a large number of individuals into the innovation process a lot of new creativity and know-how is brought into the organization.

But open innovation is not only about the inbound transfer of creativity and innovations through e.g. customer integration. The company can utilize their unused intellectual property through licensing of innovations on an intermediate market. Intermediate markets could also increase the number of markets where a technology might be used and therefore increase the total value of the innovation.

Open innovation offers a significant opportunity to leverage intellectual resources from outside the company. In fact, despite the number of resources available internally, the very largest companies have the greatest need for open innovation because of a natural tendency for institutionalized thought associated with any large entity.

Beyond just another business fad, open innovation attempts to create new sources of ideas and solutions with the potential of influencing every aspect of business activity. However, open innovation is often ill-defined, and as a result, implementation can create confusion. Oftentimes, corporate culture and policies need to change for open innovation to succeed.

To make the most of open innovation, companies should integrate it into all stages of activity, from early-stage product ideation and R&D to late-stage marketing and sales. Companies will realize the greatest benefit by maximizing open innovation in all stages of business activity. This expansion of scope calls for more strategic thought on how innovation networks are built and how they function.

MOVING OPEN INNOVATION FROM CONCEPT TO REALITY

Open innovation should occur throughout the entire innovation lifecycle, not just during product design. For simplicity of discussion, we organize the innovation lifecycle into four distinct stages: ideation, product design, production, and distribution/sales. Companies should benefit from innovations that result in both revolutionary and evolutionary technology disruptions: those that directly impact product mix and design as well as incremental improvements to operational effectiveness such as shipping, product packaging, and marketing programs.

OPEN INNOVATION PARADIGM

Rather than being held closely within the firm, under the concept of open innovation research results are able to traverse the firm’s boundaries. Other companies that are able to utilize a technology can license it, creating a win-win situation. Similarly, the firm may be able to license the technologies created by other firms. This concept of open innovation is illustrated in the following diagram:

this is a layout and concept from open innovation, i get a picture from http://www.quickmba.com


this diagram uses dashed lines to illustrate that the boundaries of the firm are porous. The lines exiting the firm represent technologies that are licensed to other firms and that otherwise would have gone unutilized (they were the red lines in the closed innovation diagram). The lines entering the firm represent outside technologies that are licensed to the firm. These are technologies that did not originate in the firm’s own research laboratories but nonetheless are useful in the firm’s core business.

IF WE SEE FROM INNOVATION LIFE CYCLE

ideation ——-> prod. design —–> production —–> distribution/sales

Ideation

The first stage, ideation, deals with the conceptualization of new products or services. Characterized by brain-storming, it is unstructured, encourages extravagant solutions to problems, and involves professional critiques of many, partially thought-out ideas. In this stage, open innovation can have great impact because disruptive technologies often come from thinking “outside the box,” a key ideation objective.

Product Design

The product design phase is the sweet spot for open innovation, where most discrete technical problems arise and require resolution. As opposed to the ideation phase, product design is more closely linked to written specifications and customer requirements, which means that discrete problems can more easily be defined and posed to multiple innovation partners.

Production

The production phase provides opportunities for suppliers to contribute to innovation. They can share best practices from similar customers and can contribute during the design phase to ease production problems ahead of time. Often these innovations lead to reduced production costs or manufacturing flexibility, both of which are profound competitive advantages.

Distribution/Sales

The distribution/sales phase of the product lifecycle model involves shipping, sales channel strategy, merchandising, and similar factors that can have a dramatic effect on the success of a product, often a more important factor than the actual product features themselves. Some of the most innovative products and services achieve their success at this stage.

beside that, open innovation also make a changing in corporate,

OPEN INNOVATION REQUIRES CORPORATE CULTURE CHANGES

The ramifications of disappointing results promise a downward spiral for the future of open innovation. Successful use of open innovation depends upon cross-functional support. Those within a company who oppose the effort, based on “not invented here” or other objections, use open innovation failure to justify relying on internal efforts in solving the most important and visible challenges. Their objections are bolstered by very credible arguments:

>> Identifying and educating outside channels of innovation costs more time and effort than solving the problem    directly.

>> The process naturally limits the targeted problems to those that can be succinctly defined and described, whereas most of the toughest problems are conceptual and cannot be articulated in summary form.

>> Disruptive technology rarely results from resolving a discrete problem and more often results from the innovator’s understanding of how the product or service solves a problem for the ultimate customer.

Therefore, without a significant cultural shift, open innovation too often remains within the internal R&D domain, focusing heavily on technical problems.

okey, then there are type of open innovation network, usually use in company, which is :

Non-Qualified Open Innovation Networks

Solution providers in non-qualified innovation networks are vetted only superficially before they are added to the network. Examples include Innocentive (www.innocentive.com) and NineSigma (www.ninesigma.com). One advantage of non-qualified innovation networks is size; they tend to be large with many participants around the globe. In addition, they are maintained and administered by third-party companies for a relatively small cost. Discrete problems are typically summarized in a problem brief and are submitted to the innovation network in a bid-for-solution process

Pre-Qualified Open Innovation Networks

Some companies, for example Proctor & Gamble, have gone to great lengths to create prequalified innovation networks of solution providers to ensure that they have the capabilities and sustainability appropriate to the challenges they may help address. The networks are managed so that confidential information and intellectual property are protected. They may include current suppliers, experts in particular fields, independent research and engineering companies, or virtually any other entity that the company thinks could add value to its innovation efforts.

Business Partners

Companies often ignore one of the most promising forms of open innovation: their existing business partners. Too often companies subconsciously define an appropriate innovation partner as one that is much smaller than they. These partners often lack resources to exploit technologies on their own, and do not have sufficient market presence or resources to capture the true value of their technology contributions during negotiations. However, this thinking excludes powerful and resourceful business partners that have technical and market research resources that smaller partners lack. And they think bigger, which means an increased chance of discovering disruptive technologies. Naturally, there’s the potential that they might steal ideas.

Suppliers

Managing a set of suppliers as part of a comprehensive innovation network requires special care. Suppliers often view open innovation strategies as a threat to their embedded relationships. They have worked hard and loyally to earn their position as a preferred supplier and will resist outsiders’ efforts to address critical problems. Often they have cultivated high-level relationships with company executives, so their efforts at obstruction can be a significant threat to the success of an open innovation strategy.

Customers

Companies have a vested interest in satisfying customers and seeking their input on products and services. However, this process may be ad hoc or tactical, not an integral part of the full innovation lifecycle. By developing more robust strategic, cross-functional relationships with customers, companies can not only leverage customers’ expertise but also increase switching costs for a customer to change suppliers. For B2B companies, customer contributions to open innovation can come from user conferences, customer advisory boards, and product ideation contests. For B2C companies, consumer contributions can come from blog sites, product support web sites, beta users and consumer surveys.

CONCLUSIONS: THE FUTURE OF OPEN INNOVATION AND HOW TO LEVERAGE IT

Open innovation is currently employed, often in only a limited way, primarily during the product design stage of the innovation lifecycle. The perception is that open innovation is a part of this single stage of the innovation lifecycle, which impedes its expanded deployment and realized benefits.

With that in mind, companies that are not leveraging open innovation during all stages of the product lifecycle are encouraged to find ways to do so. Implementing and leveraging innovation across the entire lifecycle, inherently spanning functions and other organizational boundaries, can require a fundamental shift in thinking and corporate culture. Specifically, companies that have a collaborative, team-based culture have a distinct advantage in implementing and leveraging open innovation versus those that have more rigid boundaries among functions and lines of business. Typically any significant change to corporate culture requires support from the highest levels.

This cross-functional, trans-lifecycle transformation has begun in the most successful open innovation initiatives. Accordingly, open innovation is giving way to open business models, where all phases of the innovation lifecycle are subject to external thinking. This transformation requires placing each target innovation into the appropriate phase of the innovation lifecycle and establishing specific innovation network strategies for each phase.

Okay, then why we need to have open business model??

Innovation is becoming an increasingly open process thanks to a growing division of labor. One company develops a novel idea but does not bring it to market. Instead, the company decides to partner with or sell the idea to another party, which then commercializes it. To get the most out of this new system of innovation, companies must open their business models by actively searching for and exploiting outside ideas and by allowing unused internal technologies to flow to the outside, where other firms can unlock their latent economic potential.

Let’s be clear about what is meant by the term business model. In essence, a business model performs two important functions: It creates value, and it captures a portion of that value. The first function requires the defining of a series of activities (from raw materials through to the final customer) that will yield a new product or service, with value being added throughout the various activities. The second function requires the establishing of a unique resource, asset or position within that series of activities in which the firm enjoys a competitive advantage.

I think open business models enable an organization to be more effective in creating as well as capturing value. They help create value by leveraging many more ideas because of their inclusion of a variety of external concepts. They also allow greater value capture by utilizing a firm’s key asset, resource or position not only in that organization’s own operations but also in other companies’ businesses.

The success of a business mainly depends on its market strategies and its fundamental business model design. Due to our business plan, and I think triangular-business model minding every aspect of a business indulged in search for new markets and building a very effective relationship with existing customers from businesses of all scale. First, you can  identify the possible incoming customers, then you propose the value of the project with a very affordable cost comparing others in the similar field and finally, then you  determine the needed resources and our capabilities to deliver better results to our precious customers. The strategy always is interdependent and we can start it from any point of the model to attain the destination. This simplified strategy and the assured quality makes your customers to come back. There is a structured business model to represent the core aspects in our business like:

customers —-> value proposition ——-> resources and core capabilities

Customers

With our very extensive services, more than money, well, we earned and maintained a good rapport of mutual trust and relationship with our customers. Our customers stay with us after experiencing a more stable solution they get for their requirements and went on to improve their business values and performances. You can see the details of our clientèle testimonials in the Company’s section to acquire more information about our customer’s satisfaction.

Value propositions

We follow the most-cost-effective way in delivering the solutions meeting all the requirements of a customer and our propositions are well-planned, flawless since we plan it from the customer mode observing all the fundamentals and needs of the customer.

Resources & core capabilities

We have a well-structured and facilitated environment with highly-qualified professionals in 100’s and the capability to deliver any kind of services and solutions using our terrific manpower. In our belt, we already have a range of web-based products and other IT based solutions and had undergone some massive application development projects for various clients. Our main strength is our resource-pool and market-knowing professionals with wealthier database to handle all type of projects.

ROLE OF THE BUSINESS MODELS

A business model draws on a multitude of business subjects, including economics, entrepreneurship, finance, marketing, operations, and strategy. The business model itself is an important determinant of the profits to be made from an innovation. A mediocre innovation with a great business model may be more profitable than a great innovation with a mediocre business model.

They list the following six components of the business model:

  1. Value proposition – a description the customer problem, the product that addresses the problem, and the value of the product from the customer’s perspective.
  2. Market segment – the group of customers to target, recognizing that different market segments have different needs. Sometimes the potential of an innovation is unlocked only when a different market segment is targeted.
  3. Value chain structure – the firm’s position and activities in the value chain and how the firm will capture part of the value that it creates in the chain.
  4. Revenue generation and margins – how revenue is generated (sales, leasing, subscription, support, etc.), the cost structure, and target profit margins.
  5. Position in value network – identification of competitors, complementors, and any network effects that can be utilized to deliver more value to the customer.
  6. Competitive strategy – how the company will attempt to develop a sustainable competitive advantages , for example, by means of a cost, differentiation, or niche strategy.

BUSINESS MODEL VS. STRATEGY

Baesd on, information I get, that said Chesbrough and Rosenbloom contrast the concept of the business model to that of strategy, identifying the following three differences:

  1. Creating value vs. capturing value – the business model focus is on value creation. While the business model also addresses how that value will be captured by the firm, strategy goes further by focusing on building a sustainable competitive advantage.
  2. Business value vs. shareholder value – the business model is an architecture for converting innovation to economic value for the business. However, the business model does not focus on delivering that business value to the shareholder. For example, financing methods are not considered by the business model but nonetheless impact shareholder value.
  3. Assumed knowledge levels – the business model assumes a limited environmental knowledge, whereas strategy depends on a more complex analysis that requires more certainty in the knowledge of the environment.

THE ENTREPRENEURIAL ADVANTAGES

A successful business model such as that of companies tends to build momentum and the company becomes confined to its successful model. However, new technologies often require new business models.

Because start-up companies are free to choose or develop a new business model, in this regard start-ups have an advantage over more established firms. In addition to the risk incurred in the technological and the economic domains, an unproven business model adds additional risk, and entrepreneurial ventures usually are more prepared to accept this risk than would be a large, well-entrenched firm.

In fact, many venture capitalists see themselves as investing in a business model. Consequently, it often is the VC that pushes for a change in the business model when it becomes apparent that the original model is not working.

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