MOOI Theme 3:

Processes and structures for open innovation

Prof. Henry Chesbrough, University of California, Berkeley & ESADE

Prof. Wim Vanhaverbeke, Hasselt University, ESADE & National University of Singapore

Dr. Nadine Roijakkers, Hasselt University

February 4, 2013

Processes and structures for OI:Overview Innovation: OverviewFindings

Both vertical and horizontal integration work, depends on the business

Distinction between formal and informal organization. How OI is related to these forms?

Implications Key actions to implement in an organizational

structure Some organizational structures

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FINDINGS

Processes and structures for OI:Overview Innovation: OverviewFindings

Both vertical and horizontal integration works, depends on the business

Generally distinguishes between formal and informal organization. How OI is related to these forms

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Processes and structures– Finding 1: Vertical and horizontal integration: OverviewBoth vertically and horizontally integrated companies have moved forward with adopting open innovation concepts, but the resulting innovationprocesses are distinct:

Horizontally integrated companies

[..] because they leverage their market position and network of suppliers/clients to become the nexus of the evolving open innovation network[..].

In this way, these central companies are greatly increasing the number of ideas coming in [..]while greatly decreasing their R&D costs.

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Processes and structures– Finding 1: Vertical and horizontal integration: Overview Vertically integrated companies

normally have a very strong core competency in their product development, and their competitive advantage is based on this. [..]

These firms are not blessed with the same network of suppliers and clients as their horizontally oriented compatriots;[..].

Challenge … these large R&D operations can produce too many ideas all trying to go down the product development funnel

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Structuring horizontal and vertical OI• Horizontal OI:

– Standards? Precompetitive R&D?

• Vertical OI (Lego):

– “We have made a … cultural shift internally, where we have gone from considering our customers as necessary intermediaries for reaching our end users to see them as very important partners” Mads Nipper

– Partnerships with large customers like Wal-Mart, Target and Toys-r-us has proved invaluable to Lego.

• more shelf space

• involve both customers and some of the key suppliers in the development of new products.

• “Lego invites up to 20 of their largest and most important customers very early in their development process in order to discuss what the new products should be and whether the pricing ideas are right.”7

Processes and structures for OI:Overview Innovation: OverviewFindings

Both vertical and horizontal integration works, depends on the business

Generally distinguishes between formal and informal organization. How OI is related to these forms

Implications Elements to implement in an organizational

structure Some organizational structures

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• “Formally structured organizations tend to be more bureaucratic and are characterized by institutionalized rules, [..], difficult integration across functions,[..].”

• “an informal organizational structure is characterized by openness in the system which is a necessary precondition for idea initiation in the innovation process“

• “An informal organizational structure is positively related to the creation of open innovation by an organization.”

• ” A formal organizational structure is negatively related to the creation of open innovation by an organization.”

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Processes and structures– Finding 2: Formal and informal structure:

Interactive poll 1What are the three most important general structural elements

for stimulating Open Innovation?

• Centralized OI decision-making

• Flat hierarchy

• Informal way of working/communicating

• Horizontal integration

• Project-based organization

• Cross-functional teams/boundary spanning roles

• Empowerment in OI implementation 10

implications

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Processes and structures for OI:Overview Innovation: OverviewFindings

Implications Key actions to implement in an organizational

structure Some organizational structures

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Processes and structures– Implication 1:

Elements to implement in an organizational structure: OverviewSeven key actions in order to structure open innovation management and organize for OI:

1. Delegation of Decisions to OI Teams.

2. Integration of R&D into the Business Units.

3. Co-Location of OI-Teams and Departments.

4. Central OI Teams.

5. Central OI Funds.

6. External Interface for Open Innovation.

7. Merger & Acquisition Department.

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Processes and structures for OI:Overview Innovation: OverviewFindings

Implications Key actions to implement in an organizational

structure Some organizational structures

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Processes and structures– Implication 2: Some organizational structures

Overview• View of company-wide needs & levrage across businesses

• Brings strategic growth options

• Experts in OI skills & IP

• Central contact point internally & externally

• Need to work to be viewed as a business unit team member

• Acceptance requires support from the top

• OI generalist in each business

• Lack of OI expertise in each skill

• View of business specific needs and markets

• Some leverage across businesses

• Community of Practice for OI skill development

• Central contact point by business

• Viewed as a business unit team member

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• OI generalist in each business

• Lack of OI expertise in each skill

• View of business specific needs and markets

• Lack leverage across businesses

• Different OI practices by business – diffcult to develop a community of practice

• Central contact point by business

• Viewed as a business unit team member

Centralized DecentralizedHybrid form

Current OI management structure at P&G

Bert Grobben – until recently Director Open Innovation Asia-Pacific (Singapore) in P&G’s new Innovation Center

• Global responsibility for particular technologies (Skincare)

• Managing Asia Pacific portfolio of Open Innovation partners and defining landscape and capabilities for building Best in Class Open Innovation and Connect & Develop approaches. cost innovation, strategic alliances & Academic, SME and MNC interactions.

• Businesses in P&G have their local OI-team which can tap into the major OI-centers around the world.

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Interactive poll 2What are the three most important specific structural

elements for stimulating Open Innovation?

• Delegation of Decisions to Innovation Teams

• Integration of R&D into the Business Units

• Co-Location of Teams and Departments

• Central Innovation Teams

• Central Innovation Funds

• External Interface for Open Innovation

• Merger & Acquisition Department 17

References- Blog, http://www.communitech.ca, April 2011

- Dr. Sharan Kaur, International Journal of Business and Social Science, Vol. 2 No. 6; April 2011

- Wentz RC: Die Innovationsmaschine, Springer Berlin-Heidelberg 2007

- Snyder NT, Duarte DL: Strategic Innovation: Embedding Innovation as a Core Competency in Your Organization. Jossey-Bass, Hoboken, 2003

- Lafley AG, Charan R: The Game-Changer, Crown Business, New York 2008

- Blog, Linda Beltz, organizational structures for open innovation, http://www.15inno.com/2011/09/02/organizationalstructures/

- Stephen Lindegaard: http://www.15inno.com/2010/03/12/legovertical/

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Q&A

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