Agenda A Historical and Theoretical Overview

Fifth-Generation (5G) Innovation Process

Digital Technology is Everywhere

The Connected Car Concept: A Hybrid Digital Artifact

Platform wars in the Connected Car Ecosystem

• The First-Generation (1G) Innovation Process, • Second-Generation (2G) Innovation Process, • Third-Generation (3G) Innovation Process, • Fourth-Generation (4G) Innovation Process,

• Innovation Technologies (IvTs), • The Gamification Process, • Innovation Services, • The Co-creation Paradigm & Customer Co-Creation, • A Network-centric Approach, • Platform-based Innovation,

• Digitalization & Digital Technology, • A four-layered Service* Architecture, • The Layered Modular Architecture Continuum, • The Unbounded, Chaotic & Dynamic nature of Digital Innovation, • New dimensions of Digital Innovation,

Conclusion

• Third-Generation (3G) Innovation Process

• Coupling of R&D and marketing : research-push + demand-pull (emphasis is given to the interface between the two). The process is still sequential but with feedback loops. • The management challenge of this process involves significant investments in cross-organizational communications and integration.

• The 3G model can be seen as ‘open R&D models’ (Berkhout et al, 2006), emphasising product and process innovation (technical), and neglecting organizational and market innovations (non-technical). • This means that 3G innovation models tend to focus on the company’s new technological capabilities rather than including solutions for institutional barriers and societal needs.

3

• Fourth-Generation (4G) Innovation Process

• The 4G (and 5G) : Collaborative, or ‘chain-linked model’ (Kline & Rosenberg, 1986), - incorporates feedback processes within and between firms, - underlines the concurrent learning with customers and suppliers,

• The process recognizes the role that can be played by alliances with other firms and

competitors.

• The 4G model views the innovation process as parallel activities across organizational functions.

ICT, Groupware, Intranet,..

ICT, Groupware, Intranet,..

Cross functional teams

• In the 4G model, IP may be shared from the start by research partners. 4

Fifth-Generation (5G) Innovation Process

The Main Characteristics

5

1. Innovation Technologies (IvTs),

2. The Gamification Process,

5. A Network-centric Approach,

3. Innovation Services,

4. The Co-creation Paradigm & Customer Co-Creation,

The Main Characteristics of 5G Innovation Process

6. Platform-based Innovation,

• Central to the emergence of 5G innovation processes are the arrival of new ICT and especially Innovation Technologies (IvTs).

• IvTs ≈ Digital Technologies Digital Innovation (Yoo, 2010a, 2010b; Yoo et al, 2010a, Yoo et al, 2010b). • IvTs connect the different knowledge-bases and complex networks of suppliers, collaborative partners, customers and research affiliates (Thomke 2003 ; Dodgson et al.2005, 2008).

• The term e-Science is used to represent the increasingly global collaborations – of people and of shared resources – needed to solve the new problems of science and engineering (Allen et al, 2008; Mc Cullough, 2004; ). • IvTs encompass simulation, modelling and visualization technologies… including rapid prototyping, virtual worlds and metaverse platforms (Zagalo et al, 2012; Kohler et al, 2009, 2011).

• The 5G model is a strategically integrated network-based innovation process. • The 5G model is an open-innovation process :the innovation process within the firm is deeply integrated with sources of knowledge both inside and outside the firm.

• Research, development, design, and engineering take place in concurrent iterations, supported by ‘innovation technology’ (IvT) in a model called ‘Think, Play, Do’ (Dodgson et al,2005; 2008).

Innovation Technologies (IvTs)

6

KTM Co-creation Experience Steelcase chair designs (Motorbike of the future)

Philips Design Co-creation island Aloft testing the virtual hotel (Ideation Quest)

IvTs fuel the Innovation Process

7

‘Style your Smart’ Contest.

• Free, on-line design tools that make it possible to combine different patterns, colors...

• In total, 52,838 designs and more than 600,000 evaluations and 27,000 comments were submitted.

• The second step of the project dealt with the community-based selection of the best design ideas... Then designs were commented and evaluated.

9

• 10,000 participants from 99 countries competed for prizes (5,000€) that were promised for the best design ideas by an expert jury.

A Taxonomy for Distributed Innovation Mechanisms

Type of Governance

Natu

re o

f C

ollabora

tion

Com

munity-based

Indiv

idual (1

-1)

Firm-centric (hierarchy-based)

Market-centric (Market-based)

Collaborative Innovation

Communities of creation

Virtual Knowledge brokers

Open-source software

(Prandelli, Sawhney and Verona, 2008)

Virtual communities (# CoP): collaborators, suppliers, distribution partners, users and/or customer groups,…involved in NPD/NSD : Beta versions for game-oriented communities.

Yet2.com, Innocentive, NineSigma, Pharmalicensing, Liquid Generation, Edmunds, ComScore, …

Free/Libre Open Source Software (FLOSS) Open Source System (OSS)

Linus, IBM, Alphaworks, RedHat…

Virtual communities (# physical):communities of consumption, of interest, of relationship….involved in idea generation : Ducati, Sun Microsystems,

Diesel...

13

Minimizing Transaction Costs Maximizing Transactional Value of Exchange Relationships

The Governance Continuum

• Two dimensions : the type of governance & type of collaboration. • The type of knowledge these mechanisms help generate may range from unstructured information and ideas for innovation to completely developed solution (customization). • The interaction needed to support the creation of such knowledge can be episodic or sustained, depending upon the firms’ needs and customers’ competences. • The incentives offered to contributors may be different across the mechanisms. • Each mechanism supports different types of innovation and in different ways. • Hence, a firm that want to pursue competitive advantage through innovation on an ongoing basis should employ a portfolio of such mechanisms to overcome limitations of specific mechanisms.

Collaborative Innovation

Communities of creation

Virtual Knowledge

Brokers

Open Source systems

Hierarchical Approach

Etherarchical Approach

(Prandelli, Sawhney and Verona, 2008) 14

• Eric von Hippel “user-driven” innovation model (von Hippel 2005), “lead customers” (Seybold, 2006), “customer co-creators” (Prahalad & Krishnan 2008).

Co-creation Paradigm & Customer Co-Creation

• A general consensus on the benefit of customer (user) integration for innovative performance (Danneels, 2002; Fredberg & Piller, 2008; Fang 2008; Carbonell et al 2009; Humphreys et al.,2009 ).

• ICTs and Web-based technologies allow the deployment of distributed innovation approaches in which customers become active participants throughout the NPD-NSD process and become “co-creators” of new products/ services (Kambil et al. 1999; Prahalad & Ramaswamy, 2000; Ramaswany,

2009).

• Interacting with customers (Dahan & Hauser, 2002) : (Mode 1) “Listen into” the customer domain, (Mode 2) “Ask” customers, and (Mode 3) “Build” with customers.

• The aim of co-creation is to enhance organizational knowledge processes by involving the customer in the creation of meaning and value. Co-creation transforms the consumer into an active (“prosumer”, Toffler, 1980) partner for the creation of future value.

15

1. The stage in the innovation process refers to the time when customer input from co-creation activities enters the NPD/NSD process: in the front end stages of the process (idea generation & concept development) or in the back-end stages (product design & testing).

2. The degree of collaboration refers to the structure of the underlying relationships in a network-centric model: a dyadic collaboration between a firm and one customer group vs a networks of customers who collaborate among themselves more or less independent from the firm.

3. The degrees of freedom refers to the nature of the task that has been assigned to customers: narrow and predefined task vs open and creative task.

A Typology of Methods for Customer Co-Creation (Diener & Piller, 2010; Piller & Ihl, 2009; Reichwald & Piller, 2009).

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(Piller, Ihl and Vossen, 2011)

17

Idea Contests : Fujitsu Siemens Computers (FSC)

Idea Screaning: http://www.threadless.com./

Product-related Forum : www.smart-club.be Community of Creation: Harley-Owners-Group (HOG) 18

19 (Piller, Ihl and Vossen, 2011)

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Platform Rules

• Exchanges in platform-mediated networks have a triangular structure (Eisenmann et al., 2006). Users transact with each other and simultaneously affiliate with platform providers.

• Because interfaces are the main junction or control points in a platform system, they are a source of strategic tension between platform sponsors and actual or potential complementors.

• Decisions to open a platform entails tradeoffs between adoption and appropriability (West, 2003)

Digital Technology is Everywhere

The penetration of digital technology into non-digital products is going mainstream!

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Digitalization & Digital Technology

• Digital Innovation (DI) : An innovation enabled by digital technologies (DT) that lead to the creation of new forms of digitalization in ways that reshape the underlying value proposition.

• Digital Innovation is a broad horizontal “domain” of technologies that have strong generative and non-linear effects on innovation outcomes and processes…emerging in non-linear, and often surprising ways…combining multiple previously unrelated technologies and social contexts over time (technology transmogrification).

• Digitalization : The transformation of existing socio-technical structures (industrial and organizational contexts) that were previously mediated by non-digital artifacts or relationships into ones that are mediated by digitized artifacts and relationships with newly embedded digital capabilities (Yoo et al.,2010; Yoo et al., 2008; Yoo, 2012a, 2010b).

Digital Technology (DT): The main engine for market innovation.

Three design characteristics of DT Homogenization of digital data: all digital data can be stored, transmitted, processed

and displayed by the same bit stream, regardless of its contents, Reprogrammability : the ability to add and modify functions of a product (hardware

device) by embedding software-based capability (semiotic logic), Self-referential nature : digital innovation requires digital technology

Few Definitions (1/2)

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The Layered Modular Architecture Continuum

• The layered modular architecture extends the modular architecture of physical products by incorporating four loosely coupled layers of devices, networks, services and contents created by digital technology.

• Modularity # Generativity - The goal of modularity is to contain complexity & increase flexibility - The goal of generativity is to create variety

Modular Architecture • Fixed product boundary and meaning, • Loose coupling between components through standardized interfaces, • Components nested in a single design hierarchy, • Product-specific components,

• Components designed and produced by firms sharing product-specific Knowledge,

Layered Modular Architecture • Fluid product boundary and meanings, • Loose coupling between components through standardized interfaces, • Heterogeneous layer Following multiple design hierarchies, • Product-agnostic components,

• Layer are coupled through standards and protocols shared by heterogeneous firms,

Reprogrammability Homogenization of data

Self-reference

Low

Hig

h

(Yoo et al.,2010)

• Firms operating in a competitive landscape shaped by layered modular architectures invest in digital product platforms that cater for multisided markets and help build vibrant business ecosystems.

30

33

The Connected Car Concept: A Hybrid Digital Artifact

34

“The LTE Connected Car Concept brings together ideas and technology from a range of companies to bundle various kind of services and functionalities including on-demand entertainment, infotainment, diagnostics, navigation and other mobile services made possible by connecting a vehicle to ultra-fast 4G/Long Term Evolution (LTE) networks.”

What happens if you connect a car to an ultra high-speed mobile network?

See: http://youtu.be/7lvGQD2ryKU

Just Remember

Connected Car is now a reality !

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Market Trends

1. Rise of the Smartphone

2. Thirst for connectivity

3. Willingness to pay

4. Rise of location services

The opportunity is for connected daily utility highly integrated into the car.

39% European penetration by 2014. 77% of Europeans cannot live without daily internet access. Analysts estimate Apple’s App store generated $500 in revenue since launch. Facebook places, Gowalla, Google, Glympse, etc…

(Ubermore research, march 2011; SDB, 2011) 36

What About Customers’ Needs?

41

Security

Information Reliability

Efficiency

Safety Entertainment

Luxury Convenience

Future generations of car buyers will place far greater importance on in-car services and software capabilities.

(SDB, 2011) 37

Connected car programs came a long way and are here to stay!

(Source: iSuppli, April 2009)

The Connected Car As a New Source of Competitive Advantage.

Over 1 million connected cars were sold last year. (Source: Automotive News Data Center, 2011)

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• Regardless of connectivity mode, car makers need to manage new business and technology components of the ecosystem, such as:

Business components Technology Components

• Customer activation & retention / billing infrastructure, • Consumer privacy management, • Emergency management, • Wireless carrier relationships, • Content management, • IT Systems, back office analytics, data centers, • Software validation and release, • Service innovation,

• Navigation, • Traffic, • Media, social network … etc. • Human Machine Interface, • Chips architecture, • Software (middleware, APIs,…) • App Developer Community, • Voice Recognition Solutions, • Wireless technologies,

OEMs Are Facing New Challenges

For firms to leverage the external creative potential, they need to shift their focus from firm-centric innovation to network-centric innovation.

Outside Core Competencies Outside Core Business

39

• Integration of fast evolving consumer electronics (CE), especially smartphones with vehicle infotainment is critical,

• Vehicle connectivity penetration rates enjoying rapid growth,

Connected Car is Reaching Mainstream

• A growing set of connectivity technologies is being deployed to support this evolution,

• Vehicle is now a key node in our “connected” life (in-car display often described as the fourth screen),

Connectivity has gone from being a unique feature that makes some brands stand out for having it to being a must-have feature that make some brands

stand out for not having it.

• Within five years, 90% of new cars will ship with connected car features,

(Source: Automotive News Data Center, 2011) 40

Vehicule App Store

Apple’s iPod Out

Smartphone Head-Unit

Handset Integration

Embedded Module

Terminal Mode (VNC)

Embedded Telematics Control Unit (TCU), Classic Telematics Program, Focus on Safety & Security,

Use of handset for tethering, Access to cloud services, Focus on Infotainment, productivity and Hands-free calling,

Mobile device applications are presented on the vehicle’s head-unit, Applications can be controlled via the vehicle HMI,

iPod Out enables the car to display iPod navigation menu in the vehicle’s main center display, and control features using the vehicle’s controls.

For Head Units without a Graphical Display, Car Integration Kit, Specialty Apps,

Embedded TCU, SDK with APIs to develop auto specific apps, Safety, Diagnostics & Infotainment,

The Connected Car Comes In Many Flavors

Internet in the Car Embedded Module, Content & Service Aggregation via built-in Apps, Access to the Cloud and Internet, In

-Veh

icle

In

fota

inm

en

t (I

VI)

Syste

m

- M

idd

lew

are

-

Automotive manufacturers are increasingly viewing IVI Systems as a key differentiator in their products.

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Connected Car: Four “Interconnected” Perspectives • Car Manufacturer

– Extending Current Services:

• Remote diagnostics, dynamic navigation, improved support and safety, ….

• Service Provider – Extending Mobile Services and the edge of the communications infrastructure:

• Point of services delivery, docking/complement for smart phones, ….

• Content Provider – One more Environment for Content Delivery and Advertising:

• Point of services delivery, mobile theater, …..

• User/Owner – Extension of Computing/Storage/Communications/Entertainment to Car:

• Complements and syncs with laptop, smart phone, home Media Hub, ….

For OEM, embracing these perspectives requires adopting an ecosystemic approach.

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New dimensions of Digital Innovation

• The later waves of digitalization are fundamentally re-shaping how, where, when and why firms and other stakeholders innovate around automotive based products and services.

What are the consequences of pervasive

digitalization on both innovation outcomes (convergence, and digital materiality) and innovation processes (generativity, heterogeneity, locus of innovation, and pace)

44

45

• Locus of innovation: The network-centric logic of the innovation process reflects the increasingly loose coupling in the digital service architecture and the heterogeneity of knowledge requirements that is needed by the convergent and generative nature of digital innovation.

• Pace of innovation: The layered architecture facilitates rapid local experimentation by more and increasingly large set of actors within each layer further fueling the acceleration of the digital innovation pace.

• Convergence: Digital convergence creates a space for novel products and services that can be created through unforeseen combinations of digital representations ad infinitum. Digital convergence changes the nature of products towards digital platforms.

• Materiality: Embedding digital materiality into previously non-digital products lead to the transformation of purely physical product into a hybrid product (evolutionary logic).

• Generativity: Digital technology endowed new possibilities for re-inventing existing cars, opening up new innovation trajectories.

• Heterogeneity: Diverse actors from different communities are collaborating in order to explore the promises of connected car.

Innovation O

utc

om

es

Innovation P

rocess

Main Implications

• The loose coupling across the four layers of the digital service architecture provides a powerful condition for expansive unbounded innovation processes and generativity.

• The focal firm can assert significant influence on the nature and the dynamics of digital innovations through design decisions about its architectural control points (West, 2003).

• The architectural control influences the degree to which four layers of digital service architecture are loosely coupled, and affect heterogeneity and generativity of digital innovations (Van De Ven et al. 1999; Yoo et al. 2008; Yoo et al. 2005).

# If a firm, for example, exercises more control over critical elements of the digital service architecture, the heterogeneity of the innovation network will decrease.

# To the contrary, when the firm lowers the architectural control and increases the loose coupling across four layers in digital service architecture, the heterogeneity of the innovation network will increase with unbounded scale.

46

48

Platform wars in the Connected Car Ecosystem

VS

She who controls the interface controls des Apps

• Automotive OEMs want to own the customer interface, yet face a dilemma over whether to offer open access to the internet from their vehicles. While this gives users the widest possible range of services, it also means losing control of content and associated revenues. • The preferred alternative for many OEMs is to install proprietary software solutions - such as IV systems -, yet this entails moving outside of their core competencies and may involve significant investment.

• In this fragmented market, there's no clear leader in delivering APIs and SDKs. This kind of leadership can come from auto makers themselves, tier 1s, or software companies.

Carmakers need to make some strategic decisions about what they want to maintain in a closed versus

an open environment.

• The most efficient strategy to date is to expose APIs from in-car systems that allows Apps to interact with the car while defining the HMI.

49

GENIVI and QNX: The Advent of Super Communities

• The core driver for these communities is the recognition by certain industries that a big part of the software they develop is non-differentiated software that absorbs a significant amount of resources that could otherwise be used to innovate, differentiate and compete.

• Open IVI systems integrated into the car and provide an all-in-one solution which includes an application platform hooked up with driver-friendly displays and controls.

• OEMs need now to differentiate their IVI solutions from other automakers while pursuing an network-centric innovation strategy for automotive software supply.

• Trough such communities, OEMs and developers are trying to replicate the thriving mobile phone ecosystem in the car.

• Both GENIVI and QNX support OEMs and tier one suppliers who make this transition, overcoming the challenges and optimizing the benefits of OSS development…but not in the same way!

50

The GENIVI Alliance...In short

• GENIVI® is a non-profit industry alliance (165 members) committed to driving the broad adoption of an IVI open-source development platform. • Founded in 2009 by BMW Group, Delphi, GM, Intel, Magneti-Marelli, PSA Peugeot Citroën, Visteon, et Wind River Systems. • GENIVI aims to align requirements, deliver reference implementations, offer certification programs, and foster an open-source IVI community by: - Delivering a reusable, open-source platform (core services, middleware, open APIs), - Engaging developers to deliver compliant applications, - Sponsoring technical, marketing, and compliance programs,

• The GENIVI compliance program (2.0) provides a set of specifications for GENIVI member companies to evaluate their products and services. Those that meet the specifications (Tizen, Mentor Graphics IVI, MontaVista IVI, Ubuntu Remix IVI and Wind River) be registered as GENIVI compliant and listed on the GENIVI website.

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• A reusable open-source IVI platform : - Speed time to market, - Accelerate innovation and increase perceived value, - Reduce development costs, - Provide a basis on which to cultivate the IVI ecosystem, - Provide code transparency and mitigate vendor lock-in,

• The benefits of open-source solutions over proprietary solutions: - A target for software developers seeking to enter the automotive domain, - Multi-sourcing of a consistent but commercialized software platform, - Transparency and high level of access during development,

The Main Benefits of GENIVI 0pen-Source Platform

• FOSS license for GENIVI members (4 « freedoms » of OSS):

1) Ability to access & execute, 2) Ability to study how the program works and change it, 3) Ability to redistribute copies, 4) Ability to distribute mods,

• Will GENIVI license its technology to non-members? Not yet but this is under discussion !

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QNX Car platform…In Short

• QNX is a POSIX-conform (IEEE.1003) proprietary real-time operating system (RTOS) for embedded devices and is the foundation of a wide range

of IVI systems (Audi, BMW, GM, Chrysler, Porsche, Hyundai). • A pre-defined platform for IVI platform is provided under the name QNX Car. • QNX claims that 20 million vehicles are equipped with QNX technology . QNX is used in more than 200 vehicle models.

• QNX is a leader in embedded software technology: - Founded over 30 years ago, - Widely deployed across markets, - Heavily used inside the automotive domain,

• Valuable technological asset: - Acquired by Harman International in 2004, - Acquired by RIM in 2010,

• The source code for QNX was made publicly available in September 2007, but is not accessible under an open-source license.

• QNX Car is not marketed as an open source project. 53

The Main Benefits of QNX Car

- Reskinable HMI, - HTML5-based HMI framework allows the OEM to leverage apps from the consumer electronics space (iOS, Android, BlackBerry, Windows 7).

• Improve bottom line by using a reliable and scalable application platform that provides the lowest costs to develop, deploy world-class infotainment systems:

• Dramatically reduce development risks by partnering with the de facto automotive leader.

• QNX Hybrid Software Model is now offered under four different licensing streams:

# QNX Commercial Software License Agreement: These runtime licenses allow to make copies, to embed and to distribute (sublicense) QNX software. # QNX Partner & Consultant Software License Agreement: Certain limits apply to these free and perpetual licenses. # QNX Evaluation, Non-Commercial & Academic End User License Agreement: These licenses are free and are perpetual for non-commercial developers. # Open Source License Agreements: QNX has started to publish certain parts of QNX software under open source license terms, which allow you to use the software for any purpose.

54

Tradeoffs Between Adoption and Appropriability

• GENIVI had chosen an open source licensing model in order to spur

adoption of its platform in the ecosystem.

• Opening a platform can spur adoption by harnessing network effects, reducing users’ concerns about lock-in, and stimulating production of differentiated goods that meet the needs of user segments (OEMs). • At the same time, opening a platform typically reduces users’ switching

costs and increases competition among platform providers, making it more difficult for them to appropriate rents from the platform.

• QNX had chosen to monetize its platform through licence agreements, but the recent publication of certain parts of its platform under open source license terms reflects QNX willingness to increase adoption…. taking the best out of the two worlds.

QNX Horizontal strategy is aimed at consolidating its leadership : (1) Allowing GENIVI platform’s users to interact with the QNX platform’s users (interoperability), (2) Allowing additional parties to participate directly in QNX platform’s commercialization (licensing new providers); (3) Allowing additional parties to participate directly in the focal platform’s technical development (broadening sponsorship).

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Does Openness Work?

What did Facebook do in early 2007?

59

Platforms Get Enormous Value from 3rd Party Developers

Most firms can only concentrate on most

valuable Apps

Profits increase when others add Apps to

platform’s “Long Tail”

Consider Apps available on Apple AppStore or Android Market

The long-tail effect !

65

• In recent years, platform-based competition is becoming increasingly a ubiquitous phenomenon. • To meet the heterogeneous needs of users and to exploit indirect network effects, owners of platform often seek to encourage complementary third-party innovation from resources located outside the firm. • This approach of complementary innovation has given rise to the model of an innovation ecosystem, where the collective power of platform users, developers, and partners (The Global Brain), is harnessed by the platform owner to achieve the shared success of the community (Adner 2006, 2012).

71

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