A comprehensive analysis of the organizational changes encountered when transitioning from Open to Closed Innovation. The proliferation of Open Innovation has been widely acknowledged in management studies becoming the most talked about topic of the decade. Open innovation has flourished from an under-developed concept into a mainstream research field within technology and innovation management. Despite the substantial amount of literature available, organizational change during the transitional period from Closed to Open Innovation remains a compelling grey area. My report has been designed to assimilate the potential organizational changes for an innovating firm. Unfolding Chiaroni et al. (2010) four-dimensional theoretical framework, ‘Managerial levers for Open Innovation’ classified into: inter-organizational networks, organizational structures, evaluation process and knowledge management systems. A collection of pertinent case studies are assessed, highlighting the changes faced from varying industries. 1. Introduction In 1934 Schumpeter first highlighted the significance of innovation, emphasizing on its importance and classifying it as a pivotal driver for economic progress (Lli et al, 2010). Solow (1957) echoes Schumpeter’s notion of innovation being the key driver for economic growth. Chesbrough’s various studies in 2003 centralised the concept of ‘Open Innovation’ within the academic world. (Lli et al, 2010). Chesbrough identified the potential for accelerating internal innovation could be heightened through the facilitation of external innovation. (Gassmann et al, 2010). 2. Literature review A number of research areas have benefited from the conducted studies on Open Innovation, despite it being predominantly observed by research and development academics. Gassmann et al. (2010) distinguished nine distinctive streams of research that have been influenced by Open Innovation, including the analysis of structural, institutional and even cultural perspectives. The innovation paradigm is segmented into two dimensions. Firstly Inbound Open Innovation defined as the flow of external information within an organization or the development of a multitude of external relationships that empower exploitation of their expertise (Chesbrough and Crowther, 2006). Laursen and Salter (2006) identify two elements defining Inbound Open Innovation, breadth and depth, in relation to the external networks built by businesses. On the contrary, Outbound Open Innovation is the practise of acquiring unutilized technologies from organizations to support internal innovation. Cohen and Levinthal (1990) emphasises the importance of securing a balance between internal research and the dependency on external knowledge.

Discrediting the importance of Open innovation increases an organizations opportunity cost, Christensen (2006) affirms the value of Open Innovation as it deeply impacts organization and management systems. Open innovation has transformed from an under-developed concept, to a mainstream research field within technology and innovation management (Gassmann et al, 2010).

Huston and Sakkab (2006) give prominence to the changes ICT departments have faced in the shift from closed to open innovation. Chiaroni et al. (2010) states with the proliferation of external knowledge inflow, the development of an ICT department that can manage this information effectively is fundamental. Dodgson et al. (2006) further elaborates on the role of information technologies such as data mining in supporting firms shift to open innovation. Essentially, managing external information demands a development of new organizational structures (Hansen and Nohria, 2004). Evidence strongly advocates the establishment of new departments independently managing Open Innovation practises (Krischbaum, 2005). Leading to the requirement of new organizational roles such as gatekeepers, who connect the external environment to the firm. Lli et al. (2010) argues that firms are passing up numerous potential benefits due to their small external networking radius. Reaching out to customers deems to be the most significant source of innovation. Contrasting this, Arrow (1962) illustrates the difficulty of attracting potential customers after revealing information about technological breakthroughs. Over coming industry traditions such as patents is crucial to help reduce the deterrence of Open Innovation (Chesbrough, 2003). Inspiring employees for cultural and altitudinal change in support of Open Innovation will allow the firm to capitalise ample opportunities. Lli et al (2010) research concludes that rigid organizational culture is the primary barrier in consolidating Open Innovation. Applying Open Innovation will have an extensive impact on organizational management. The innovating firm will be confronted with a number of challenging obstacles during their transition from Closed to Open Innovation (Chesbrough, 2006). 3. Theoretical Framework Numerous theorists have contributed a range of imperative frameworks regarding the composition of organizational change, originating from Lewin’s (1947) ‘Model of Change’. Chiaroni et al. (2010) developed Lewin’s model when constructing the theoretical framework for ‘Managerial levers for Open Innovation’. The proposed four dimensions (networks, organizational structures, evaluation processes and knowledge management systems in Figure.1), which elucidate the exercises conducted during a Closed to Open Innovation transformation. Most importantly, consolidate the improvements achieved.

Figure 1. Theoretical framework of Managerial levers for Open Innovation

Source: (Chiaroni et al., 2010) 3.1 Networks: Academic research holds firm the importance of networking for innovation-related successes. Building inter-organizational relations informally with universities and research foundations to generate knowledge has been deemed a fundamental source for industrial innovation (Brown & Duguid, 1991). The network of mangers within the R&D department plays a crucial role, in supplying the firm with opportunities to access the latest forms of technologies (Chiaroni et al, 2010). Cohen et al. (2002) expresses the feasibility of utilizing higher educational institutions for licensing and other collaborative ventures. 3.2 Organizational Structures: Altering organizational structure is paramount in efficiently implementing acquired information from external sources (Tsai, 2002). Chiaroni et al. (2010) suggests that the new reconfiguration ought to see the innovating firm establish a department dedicated solely to ‘Open Innovation’ practises (Orlikowski and Hofman, 1997). Consequently, new organizational roles will be introduced such as gatekeepers, a position that appoints management of the firm’s external affairs. (Chesbrough and Crowther, 2006) also discuss the importance of champions or as he states, ‘heavyweight managers’. They unite relevant and beneficial external technology into an existing product development project. 3.3 Evaluation Processes: A strategically designed evaluation processing system as shown in Figure.2 is essential for analysing continuous technological breakthroughs and opportunities in the internal and external environment (Christensen and Raynor, 2003). Due the increasing complexities of technology, adopting tactical practises such as market scouting, exhibition analysis and patent inspections are ever more fundamental when integrating Open Innovation (Van De Vrande et al., 2006).

Figure 2. A strategic plan to evaluate an Open Innovation investment.

Source: (Van De Vrande et al., 2006) Effective scrutinising and manipulation of external opportunities enhances the progression towards Open Innovation. Adopting the paradigm of Open Innovation will diminish opportunity cost, curtailing business expenses to a bare minimum, particularly in R&D. (Sanchez, 2003). 3.4 Knowledge Management Systems: The concept of Open Innovation revolves around leveraging internal and external information to generate innovation opportunities (Chesbrough et al., 2007). The implementation of Open Innovation demands appropriate knowledge management systems to comprehend the spread and transferal of information within a firm and the external environment (Rashman and Hartley, 2002). Subsequent to the drive toward Open Innovation, empirical studies illustrate the growing trend in automating human skill (Lundvall, 2003). The role of ICT in facilitating the inflow of information plays an instrumental role in Open Innovation, allowing for transferable knowledge and accelerated change. Codifying information makes innovating firms less dependent on employees, reducing the use of tacit knowledge (Lundvall and Nielsen, 2007). 4. Discussion and Analysis Lewin’s (1947) three-phased model that includes unfreezing, moving and institutionalizing has laid the foundations for the study of organizational change albeit some may argue it’s out-dated. Chiaroni et al. (2010) framework restructures Lewin’s model, broadening its dimensions to account for the evolving study of organizational change. 4.1 Networks The establishment of inter-organizational relationships with external parties indicates progression towards Open Innovation. In addition to being a marketing strategy for the firm, networking helps mangers develop relationships with external contacts that could be extremely beneficial to the organization. Extensive relations help generate business connections, increasing interaction with a broader number of suppliers, investors and potential customers. (Ford & Hakansson, 2010)

Organization-level links depend highly on personal efforts and social interaction between actors. A prime example of this is university-industry relationships as they rely heavily on informal social links (Audretsch and Stephan, 1996). In selected industries, links to public research organization can generate economic and social advantages as it provides an important source of industrial innovation. Jaguar Land Rover reflected the automotive industry’s gradual transformation from Closed to Open Innovation with their recent investment in Warwick University, building a National Automotive Innovation Campus (NAIC). The British multinational announced research laboratories, engineering facilities and design studios valued at £100m (Dunn, 2013). The 30,000 metre squared ultra-modern research centre will unite 500 Jaguar Land Rover staff members and academics from leading universities into this ultra-modern research centre (Mullen, 2013). 4.2 Organizational structure The value of managing internal networks is synonymous to that of external networks/inter-organizational relations. Chiaroni et al. (2010) paradigm proposes that effective implementation of Open Innovation requires composing a department dedicated solely for its practises. As a result of this new independent business unit, a pool of specialist talent will be pumped into the organization in order to fill the new positions available. Hansen and Nohria (2004) state that amending a business’s structure to apply the concept Open Innovation will also present a new organizational culture, to which employees may find difficult adapting to. Interaction is key. Some organizational cultures create barriers of inter-unit collaboration, preventing individuals from engaging together due to pride or internal competition. The unwillingness to seek for input from team members can delay breakthrough solutions or even lead to poor performance (Brewer, 1979). In 2002 HP, created an in-house system that noted down the logistical procedures used by different geographic branches and compared the time taken to dispatch customer orders. The system instantly highlighted the underperforming countries; HP executives noticed that mangers of these regions were not willing to contact the better performing countries for assistance in fear of humiliation. The active involvement of senior executives broke the tension, enforcing collaboration practises to ease regional interaction (Hansen and Nohria, 2004). The potential re-design of an organizational structure should centre around interlinking all departments together. Morgan Stanley Group Inc. was determined to leverage employee power by practising a more collaborative culture. Rather than a hierarchal appraisal system that monitors performance, executives announced 360-degree review procedure, which resulted in improving cooperation within the company. Bankers that achieved outstanding results without supporting others would be restrained from any form of vertical promotion (Tsai, 2002). 4.3 Evaluation processes Evaluating the firm’s external potentials is important when adopting Open Innovation for effective utilisation of internal resources. Scrutinising the external environment for project involvement and technological breakthroughs can contribute to constructing a robust business strategy (Christensen and Raynor, 2003).

Lli et al. (2010) research represented the segment of organizations that encompass a culture of Closed Innovation (common in monopolised markets) whom feel investing in external evaluation systems is not economically beneficial. A multi-national cooperation’s representative stated, ‘We are a world market leader, there is no external ideas which we had not already pipelined’ (Lli et al, 2010, p.252). Such industry traditions provide innovation intermediaries with opportunities to utilize their expertise and relations. A powerful intermediary company in today’s world is InnoCentive. Registering 300,000+ virtual ‘employees’ to help resolve a variety of industrial issues. The privately owned business has resolved over 40,000 innovation challenges rewarding more $40 million to 1500 different ‘Problem Solvers’ (Innocentive, 2013). 4.4 Knowledge management systems Companies can refrain from depending on innovation intermediaries and overcome included growth expenses by developing an internal multipurpose Knowledge Management System that evaluates the external environment. Determining the appropriate Knowledge Management System (KMS) that meets the organization’s demands has shown to be a real challenge. Chiaroni et al. (2010) contends that in order to implement Open Innovation, the selected system should be able to support the ‘diffusion, sharing and transfer of knowledge within the firm and external environment’ (Chiaroni et al, 2010, p.226). (Stewart, 1997) makes a strong statement regarding the inefficiencies of KMS: ‘Knowledge management resources go unused for one simple reason. They’re not useful. Either the work isn’t connected to the knowledge or the knowledge isn’t connected to the work.’ (Stewart, 1997, p.48) When selecting a KMS, the focus should be to diagnose the innovation problem such as ineffective management of internal/inflowing knowledge, filtering irrelevant approaches. Knowledge Management Systems vary in cost and time consumption. Therefore a firm intending to adopt a KMS needs to study to ensure the investment will be valuable and beneficial, planning budgetary restraints to safeguard the venture from loss (Benbya, 2008). Building an organizational culture that encourages employee interaction and information sharing can benefit the firm in enhancing their current collective insight. The KMS should focus on accumulating the tacit knowledge (information that is not codified, registered or documented) within the business, especially information retained by more experienced employees (Noaka and Takeuchi, 1995). The multinational chip manufacturer, Intel Corporation developed a plan (Figure.3) in approaching strategic knowledge management to sever the risk of a counterproductive system, with the ambition of connecting knowledge and work.

Figure 3. Intel Co. Strategic plan to analyse Knowledge Management Systems.

Source: (Benbya, 2008, pp.100) After illustrating the plan, three Intel knowledge strategists dedicated four months to collect the tacit and explicit knowledge at their Silicon Valley branch. In total 50 interviews were conducted with 70 interviewees, which includes 12 senior mangers from assorted organizational units. Despite the comprehensive and costly research, experts stated that only a very small fraction of knowledge was tapped into (Benbya, 2008). 5. Conclusion In order to consolidate Open Innovation improvements, Chiaroni et al. (2010) states that all four managerial dimensions proposed in their framework should be integrated effectively for efficient results. It is fundamental to understand that each lever has an impact on another due to their strong interdependence. The findings of this paper highlighted the importance and developments of Open Innovation in today’s global economy. The report aimed to decipher explored the organizational aspects that necessitate modification in order to successfully invoke Open Innovation. Researching for this coursework brought my attention to its extensive impacts on organizational culture. My knowledge increased on the pivotal role research institutions play and their potential for constructing valuable inter-organizational networking. Furthermore I became aware of the importance of designing, piloting and implementing a focused strategy in order to effectively advance as an open innovator.

Understand and

Plan

Analyse

Design and

Develop

Implement

1. KM objective (preliminary) 2. Key processes identified 3. Strategic project summaries 4. Project plans and schedules 5. Project team formed

1. KM objectives (final) 2. Business process flows/maps 3. Obstacles/ problems identified 4. Root caused determined 5. Knowledge leverage points identified 6. Solution elements identified 7. Expected benefits identified 8. Plans/schedules refined 9. Organizational change strategy

1. Solution elements implemented 2. Organizational change strategy executed 3. Evaluation process executed 4. Engagement lessons captured

1. Solution elements designed 2. Implementation PLAN 3. Evaluative metrics defined 4. Organizational change strategy initiated.

Strategic knowledge planning approach: Key phases and deliverables

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