Outbound open innovation & its effect on firm performance: examining environmental influences-by Ulrich Lichtenthaler.PRESENTER: DANIEL LAMECK

12TH NOV.2013

OutlineIntroduction

Segment of innovation

Outbound & inbound open innovation

Open innovation

Theories of outbound open innovation

Theories of environmental moderators

Hypotheses of the theories

out licensing

Corporate strategies

Methodology

Discussion and conclusion .

Introduction There are two dimensions firms opt for innovation

Inbound innovation and

Outbound innovation

Author of this article discusses the relationship between outbound open R&D strategies and firm performance

Segment of innovation

Tradition(closed innovation)

Focus on internal development of new tech.& apply to their own products

Open innovation

Large volume of technologies acquired from external source

Coupled innovation

Involves internal and external technology sources and external technology commercialization channels

Outbound & inbound open innovationOutbound

Its an outward technology transfer where by firms can seek for external organizations with business models suitable to commercialize a technology or addition to its internal application

Inbound

Its an inward technology transfer which leverage the discoveries of others because firms need not to rely on their own r&d.

Open innovation (A)outbound open innovation

Outward technology transfer whereby firms can look for external organizations with business models that’s suits to commercialize a technology exclusively or adds to its internal application.

(B) Inbound open innovation

Inward technology transfer which describes the practice of leveraging the discoveries of others because firms need not to rely exclusively own their own R&D.

Theories -0utbound open innovation

Outbound open innovation and firm performance

Refers to systematically relying on firm`s dynamic capabilities of internally and externally carrying out the major technology management tasks along the innovation process.

Although outwards technology its not the core activity of most companies, some pioneering firms have achieved major benefits.

Closed innovation strategies limit the return on firm`s R&D expenditures because they lead to lower licensing revenues, which often carry high profit margins.

Theories-Environmental moderators

Environmental

Patent protection

Technological turbulence

Transaction rate

Competitive intensity

Hypothesis-01 Patent protection

Moderates relationship between outbound open innovation and firm performance

Regarded as an essential facilitator of successful outbound open innovation

Strong patent protection affects a firm`s possibilities of profiting from outbound open innovation

Hypothesis - 02Technological turbulence

Moderates the relationship between outbound open innovation and firm performance

Technological turbulence which describes the rate of technological change reduces a firms' possibilities of capturing value from its technologies.

As consequence, higher technological turbulence increases a firms` benefits from pursuing an outbound open innovation strategy

Hypothesis-03Transaction rate

Moderates the relationship between outbound open innovation and firm performance.

A higher degree of market perfection based on frequent transactions seems to constitute a facilitator of additional interfirm technology transfers.

A high rate of technology transactions helps firms to capture the benefits from outbound open innovation strategies.

Hypothesis-04Competitive intensity

Moderates relationship between outbound open innovation and performance

Competitive intensity in technology markets may affect the outcome of open innovation strategies

Firms may achieve higher performance increases from outbound innovation despite additional competition that they face in technology market.

Out licensing- e.g. Texas instrumentsBy means of outbound open strategies:-

① Firms attempt to achieve monetary & strategic opportunities

② Firms are reluctant to transfer technologies, reasons can be;

Fear to strengthen competitors by selling “corporate crown jewels”

pioneering firms like Texas instruments -annual licensing revenues

Texas Instruments Inc. is an American company that designs and makes semiconductors, which it sells to electronics designers and manufacturers globally

Corporate strategy

Outbound open innovation regarded as

Part of corporate strategy where by;

Firms simultaneously exploit technology inside and outside

For instance IBM –achieved benefit by relying on open innovation strategic decision.

IBM-licensing revenue of more than $ 1.2 billion in 2004(corporate strategy)

Involves major risks:

•weakens firms competitive position based on transferring relevant knowledge.

•Firms focuses on their products business rather than transfer technology

As the results firms experience difficulties.

Suggestion

formulate an open innovation strategy which guides firms` individual “keep or sell” decision in addition to “make or buy”

Methodology Scholars used two data set-survey from Lichtenthaler & Ernst`s(2007)study and combined with performance data from financial database and annual reports.

155 firms participated, response rate 37.6%

Used linear regression models then

Test for moderating effects, moderated multiple regression analyses

Shown on table 1&2

Analytical procedures

Results of regression

Cont. methodologyOutbound innovation strategy

Measurements comprised four items on firms` willingness to commercialize all technological knowledge.

Firm performance

Used a popular financial indicator of profitability,(ROS),to measure firm performance.

Environmental moderators

Which includes construct of patent protection, importance of technological change, transaction rate and competitive intensity

Control variables

Firm size ,R&D intensity, cross industry approach and country of origin

Discussion

Firms should not focus on established closed innovation strategies

Study provides reasons to managers to open up the innovation processes of their companies

Results emphasize the importance of outbound open innovation because open strategies significantly contribute to firm performance.

Conclusion

This studies expressed the importance and positive effect of outbound open innovation strategies on firm performance.

Its among the first rare quantitative empirical studies that demonstrates a positive relationship between outbound open innovation and firm performance.

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