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Abstract
Open innovation is considered to be an idea which companies can follow to bring together both internal and external ideas and generate ways of bringing new and better changes in the organizations by accessing internal and external path while enhancing their existing technologies. The main concept following open innovation is that in this era of largely distributed knowledge, firms cannot take the risk of depending solely on the research of the single individual, thus in such cases it buy inventions such as patents and license processes from other companies. In the recent times, organizations have realized the significant of open innovation. They have become aware of the fact that all acknowledeged ideas can not be implemented within every company, these ideas are implemented upon the basis of the production and management of the company. Consequently, services as well as product manufacturing companies have now shifted their efforts to open innovation. This report is a detailed comparison of open innovation efforts carried out in the leading organizations of the product manufacturing companies i.e. P&G and Unilever, and also provides information based upon the opportunities and challenges of open innovation countenance by the two companies. The research approach applied in this research study is qualitative. The findings of this study provides recommendations for other companies in the product manufacturing industry regarding implementation of open innovation.
Introduction
Background to Context
In todays fast moving world, the competition is fierce. In the wild market economy of the present times, it is trickier and hard for an organization to differentiate itself. To tackle with these issues, experts suggest that there is only one way out, which is to do something that the customers have not seen before, in short innovate . Most organizations fail to look in a new direction for the reason that they keep all their attention centered in one direction in which their business is focused. Such firms remain stuck in their typical method of operation. They make every effort to make the existing model operate in an improved way but donor pay attention to discover a better way of doing things. Many organizations are built for unremitting enhancement, rather than for discontinuous innovation (Chesbrough 2003).
Change is a process of moving from one condition or state to another. Nevertheless, change is not necessarily innovation. An organization which discovers a primarily a new way to approach and serve its buyers has in short attained innovation.
Innovation is the accomplishment of the new processes or products. Innovation suggests the course of thinking of imaginative ideas and turning them into real form, thus eventually executing and employing them. Innovation does not only includes generating new products, but it also includes employing new business procedures, new techniques of performing tasks, major coalitions, implementing new strategies and expanding towards new markets (Chesbrough 2003).
Unreserved resourcefulness devoid of any discipline or course of innovation is at best distracting and at worst detrimental to the company. Innovation implies taking the most capable ideas and trying them for actual. Not all will happen as expected; several will be unsuccessful. Regardless of certain failures, majority of the population within an organization is truly always in search of innovative and entrepreneurial ways of fulfilling their goals (Ebersberger 2010).
Essentially innovation has two types closed innovation and open innovation. The Closed Innovation functions as a catalyst for innovation process, taking into account that most of the greatest inventions, either in the product or services space had its initial stages in the vertically integrated model of closed Innovation (Chesbrough 2003).
However, numerous factors have resulted in the wearing a way of closed innovation. Firstly, the mobility and availability of well-educated individuals has become greater than before over the years. Consequently, great amount of knowledge is present outside the research departments of huge organizations. Knowledge and expertise are taken out of the firm when the staff members switch their jobs which lead to among organizations. In the present era, fine and capable ideas as well as technologies are getting a chance to be more enhanced outside the companies territories due to the rise in venture capital, for example in the form entrepreneurial companies. Companies through establishing new departments or acquiring services through licensing agreements can actually create opportunities in their setup to generate ideas and technologies which are not possible in their routine. Lastly, other organizations in the supply chain, for example suppliers, take part in the innovation process (Chesbrough 2003).
Therefore, businesses have started to seek out additional means to add to the competence and efficacy of their innovation procedures. For example, it helps to search for new ideas and processes that exist outside the firm. Another advantage through innovation is that excels the collaboration with parties involved in the value chain, which helps in creating value for the customers. Moreover, it could also allow companies to sell their knowledge and technology which is found to be unfit for their own strategy (Open Innovation.eu 2006).
Hence, the comprehensive definition of open innovation can be given as: to enhance the development of new technologies by the integration of internal and external ideas and on the other hand exploiting in-house and external networks within the business markets (Chesbrough 2003). This implies that in every organization a change is necessary, as it helps to improve peoples perceptions and companys environment. It also involves other entities when producing new products and implementing new technologies.
Keeping in mind its ever-increasing importance and use, open innovation is being applied by a large number of companies and helping them gain competitive advantage in the market. Companies irrespective of whether they are service or product oriented need to innovate their products as well as processes to sustain themselves in the market.
Company Profile of Procter & Gamble
Procter & Gamble (P&G) was established in 1837 and is an American multinational corporation based in Ohio Cincinnati which has its main business lines in the consumer products. It manufactures a wide variety of consumer goods. Procter and Gamble Hygiene and Health Care Ltd. was formed in the year 1985 under the name Procter and Gamble.The organization is one of the best providers of health care and hygiene goods in the world market which is operating in more than 80 countries and employs more than 140,000 individuals throughout its global chain. Procter & Gamble spends a high amount of money in their innovation processes particularly on their Research and Development department of the business and puts the 4 percent of the global sales in R&D, which has allowed the company to acquire almost 24,000 patents worldwide, and every year it received on average 3,800 patents of new designs and products.
Innovation has facilitated the company to boost its growth; in the year1999 P&G initiated an innovative strategy known as Organization (Dodgson et al. 2006). The Companys Organization Strategy is a building block of the Connect and Develop (C&D) plan that P&G established (Chesbrough 2003, Christensen 1997). The rationale of this program was encouraging innovation by creating P&Gs internal communication processes more focused and interlinked with the external processes (Bons and Daams 2010). As an integral part of this strategy the company adopted an approach which allowed it to bring in external ideas and knowledge within the organization through generating internal seed funds and acquiring innovation entrepreneurial firms and generating (Dodgson et al. 2006). With this approach the company is able to boost innovation within its organization by forming close ties with external partners and working closely with them to improve and develop patents which surely gave the company a competitive advantage (Dodgson et al. 2006). Before the introduction of this program, less than 10% of the innovation Procter& Gamble had were employed in its products (Sakkab 2002).
Company Profile of Unilever
Unilever is a product manufacturing company, which has lately, came forward out as an organization, which is at all the times ready to embrace new ways of reaching out solutions unprejudiced of the fact from where these solutions are being originated. It is imperative to note here that most of the solutions to the firms problems are offered by Unilevers those suppliers, where the company is managing strong innovation relationships and supplier collaborations. Creating and sustaining good relations with suppliers founded on the basis of trust require time and effort; however this is something that Unilever takes critically. Its alliance with the University of Liverpool Centre for Materials Discovery is an illustration of the fact that Unilever also managed to establish various academic research partnerships other than the collaborations with suppliers; it also shares mutual facilities, which are a vital element of the open innovation strategy of the Unilever. The Unilever and Liverpool together form a suitable team; Liverpool has a safe lasting strategic investment and the company has now attained a molecular design capability, which will allow it to develop innovative functional molecules and a provide it with a facility to screen more ingredients and find out the most suitable plan in a shorter time frame (Innovation Europe 2010).
The capability of Unilever to influence IP into and out of Unilever is a big potency, and realizing this, both open innovation and patents are two of Unilever R&Ds critical efficient skills (Innovation Europe 2010).
In managing Unilever capabilities in the region of joint innovation, it is vital to be skilled at making the suitable connections. The company has started by utilizing the compilation of internal talents and skills that cover an exceptional range of product categories plus by defining which collaboration innovation tools work best for them (Graul et al. 2006).
Unilever is the market leader in almost each and every one of the core-product activities. The aim of Unilever is to become the market leader with the help of acquiring national organizations, by expending and investing in a green field areas of every region, or by bringing in from external resources, which is attainable, advantageous and cost effective (Unilever 2011).
In the recent times the Company has acquired approximately 2000 distinctive brands internationally. This is the up-front outcome of the companys history of preeminent strategies. Over the last few decades the company has acquired many local as well as national companies, each one having its own national brands. These acquisitions continued for a long period of time. In the late 1990s, Unilever came up with an innovative strategy to increase the speed of the company growth; its known as Path to Growth. The most preeminent feature of this strategy involves additionally refocusing on its major brands. This strategy helped to minimize its number of brands from approximately 1600 down to 400 major brands (Unilever 2011).
Research Objective
The core objective of the research is to compare and analyze two organizations in the product manufacturing industry i.e. Unilever and Procter & Gamble (P&G) with regard to open innovation, demonstrate the results, and with the help of the findings evaluate the tools they used and the challenges faced by them.
Research Aim
The research aim is to compare open innovation process at Unilever and Procter & Gamble, their efforts to achieve competitive advantage in the service market by the use of open innovation and the benefits gained by them from the process. The research illustrates the findings from both companies, assesses the challenges confronted in implementing open innovation and the tools used for the purpose. The epoch has now changed the world into a place of widely distributed knowledge and technology. In such a situation companies are not in the favor of taking the risk of depending upon the companys own knowledge, technology and research. In order to uphold themselves and stay novel in the market they should rather purchase or license procedures or inventions such as government grants and copyrights from other organizations. The research is a comprehensive study on open innovation at the leading companies in the product manufacturing industry.
Research Questions
The research questions laid out for this research study are to highlight the research aim and objectives emphasized for this particular study, and these research questions will assist in identifying different constituents of open innovation selected for this study:
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In what ways open innovation contribute to innovation and business performance?
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What tools are being used to implement open innovation at Unilever and P&G?
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What were the challenges faced by the two companies in implementing open innovation efforts?
Scope
The scope of the research is specific as it analyses open innovation in the leading product manufacturing companies. It evaluates both the companies effort to implement open innovation and achieve renewal, sustainability and competitive advantage against its rivals in the market and rise ahead, the tools used and the challenges encountered by them. The research provides a detailed theoretical and conceptual framework for such study. However; it also set out that the interpretation of the findings presented in this report is dependent upon the researchers own understanding of the research topic and its presentation in such a way that the objective of the study is achieved in the best possible manner.
Significance of Research
The study carried out in this report contrasts two companies that use open innovation but in different approaches. The research provides in depth assessment of the impact of innovation on product manufacturing companies. This research is of great value to the product manufacturing organizations, which can help in identifying the tools and strategies used by the leading companies with regard to open innovation, and helps other companies in the same industry in directing their strategies consequently to exploit the elements of open innovation. On the other side, the study carried out in this report helps the researcher to learn about important theories that provide reasons and ways for implementing open innovation also allows him to develop and practice research skills that would surely help him in future throughout his professional career.
Literature Review
Introduction
In the recent era, open innovation has turned out to be the most imperative factors for continuous expansion and economic progress that initiates at a solitary organization level, and goes up to the regional and then to the national level, posing an influence upon the country competitiveness in worldwide economy (Fredberg et al. 2008). The importance of open innovation has become increasingly known and realized in the duration of the last two decades by the companies of all the sectors of the economy. Pure Research & Development is any longer believe to be ample for economic expansion of any organization, as new ideas only enhances earnings and employment, but on the other hand, new ideas when commercialized into practice which is called innovation also enables social and economic influence, and for this major fact innovation is considered highly imperative. Open innovation that is a prevailing model for maximizing economy and expansion has changed the approach to innovation in leading organizations.
There has been a significant increase in product and service organizations shifting towards innovation to gain sustainability, renewal and achieve competitive advantage in the market. With the times continuously changing the idea of closed innovation gradually eroded away. At the same time as some businesses that were unable to adapt were faced by significant losses, some have been innovative in the sense they innovate and have shifted to Open Innovation. Therefore, knowledge and know-how that were once carefully guarded within the boundaries of the department of R&D, was now becoming more and more accessible to other firms (Leonard-Barton 1995, Gassmann 2006). Consequently, it became progressively easier for an organization to take advantage from the skills of another by poaching in specific key staff members of the challenger. Increasing number of high quality suppliers that bigger organizations now rely on is also a factor contributing in the erosion of closed innovation. As a result, organizations had to adapt. It was important for them to become skilled tapping outside technologies and also learn how to capture the worth of technologies that were leaving. This marked the start of Open Innovation (Fredberg et al. 2008).
Theoretical Framework
A substantial quantity of coverage has been given to the latest phenomenon of open innovation within the academic literature and outside. (Trott and Hartmann 2009). In order to develop a better understand of shift to open innovation and its need for organizations, various theories have been suggested. These theories provide a deeper knowledge of open innovation in product and service organizations. Some of the theories pertinent to this research study are explained below:
Chesbrough Open Innovation Model
Henry Chesbrough introduced an Open Innovation model in 2003 which was much commended and set a model for innovation management and the joint enterprise. At that time, it was an intrepid and far-reaching notion and it challenged the traditional approach on innovation.
Open innovation is an idea based on the supposition that companies possess the ability and hence should employ external ideas along with the firms internal ideas, and exploit in-house and external roads to the business markets, at the same time when these organizations are seeking to enhance their technology. The development consists of internal and external estimations into architectures and systems, for which the needs are characterized by business model. The business model uses equally the external as well as internal initiatives to create significance, while explaining internal operational procedures to sustain some portion of that significance (Chesbrough, The Era of Open Innovation 2003, West 2006 and Simcoe 2006, ).
On the basis of his research on companies practicing open innovation, Chesbrough deduced that industrial R&D was experiencing a paradigm shift from the closed to the open model.
Open innovation can be considered as a collection of practices for which will earn the company profits from improvement and also a cognitive model for the conception, acceptance and exploration on these activities. For instance, for the period of more than 50 years ago government funding agencies and non-profit foundations have financed scientific research, playing the part, which Chesbrough (2003) named the innovation benefactor . If exercising innovation is changing for the reason that new forms of innovation are economically feasible then this offers opportunities for researching and describing these new practices. The open innovation paradigm offer propositions for how such innovation should work (Chesbrough, The Era of Open Innovation 2003 and Davis 2006).
The main messages of this model are:
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Shift the organization even further away from the linear process, which has subjugated much of the 20th century firms approach.
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Utilize the open iterative process, become more multi-dimensional in collaboration, and assimilate the customer more centrally into the web of collaborators.
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Invention from the R&D bench resulted in market push and an effort to rationalize corporate thinking by forcing it on the market and onto the customers.
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Concentrate on consumers unfulfilled, unspoken or necessary needs by making customers the centre in the web of co-creators and co-creation activities (Chesbrough 2003).
Henry Chesbrough introduced a novel phenomenon of open innovation, which is much different from the conventional closed innovation model. Chesbrough described that this closed model started to alter in the 1990s when companies such as Cisco systems vied very vigorously with the research- endowed businesses like Lucent Technologies (Chesbrough, The Era of Open Innovation 2003).
Trott and Hartmann (2009) in their research suggested how Chesbrough has given a counterfeit dichotomy by giving an argument that open innovation is the only inimitable existing alternative to a closed innovation model. Instead of being held intimately inside the firm, following the idea of open innovation research results are able to cross the companys boundaries. Other businesses which are capable of making use of a technology can license it is generating a win win condition. Likewise an organization can license the technologies manufactured by other companies.
Von Hippel Democratized Innovation
Von Hippel (2005) has observed that lead users at most times create and modify products for themselves and frequently liberally disclose what they have done. He also observed that most users may be interested in taking on to the solutions that lead users have developed. Altogether, these findings enable the basis for user-centered innovation models that may entirely change manufacturer-based innovation models in specific scenarios and counterpart them in other situations. User centered innovation is gradually growing its worth as computing and communication technologies expands. In his theory, Hippel discussed the ongoing democratization of innovation and patterns of user-centered innovation that are rising.
Innovation is swiftly moving towards democratization. Consumers, fully utilizing enhancements in computer and communications technology, increasingly can create their own new products and services. These innovating consumerswhich can be an individual as well as firmssometimes freely reveal their innovations to others, generating user-innovation communities and a highly rational commons. Much discussion is made on user-centered innovation paradigm in Democratizing Innovation by Eric von Hippel. He clarifies why and when consumers deem it gainful to create new products and services for themselves, and why it frequently pays consumers to share their innovations generously for the use of everyone (Hippel 2005 and Kirschbaum 2005).
The software and information itemsmost remarkably in the free of charge and open-source software movement- as well as in bodily items are an example of the shift to democratized innovation. (Hippel 2005).
Von Hippel (2005) further suggests that in order to attain sustainability, organizations must now revamp their innovation processes and that they must methodically look for innovations made by the consumers. Businesses were specifically discussed by Hippelthe custom semiconductor industry is one similar instancewhich has learned to help user-innovators by supplying them with means to create novel and innovative products. The objective of a democratized user-centered innovation system, according to von Hippel, is well worth struggling for (Hippel 2005).
Open innovation Model and the Role of Knowledge Brokers
Milton Correia de Sousa (2008) was the first one who gave the idea of knowledge brokers as a source of making way for innovation in the companies. Sousa observed in the report that the movement from internal R&D to external join and develop unlocks the door for organizations whether they are large or small to go ahead of their core competencies to stay competitive in an increasingly multifaceted, unpredictable and changing environment. Milton has explained the phenomenon and the process and concluded that open innovation is necessary for firms to attain comparative advantage. Open innovation enhances adaptability, and at the same provides various direct benefits to the organization (Sousa 2008).
It is understandable that successful innovation under intricacy, implausibility and variation can only be attained with the help of collaborative approaches that incorporate knowledge inside and exterior the company. Across the globe, firms are now utilizing this model of innovation gradually, and at the same time when this model has become a necessity for small enterprises, which usually are deficient in knowledge of some sort to entirely complete the innovation process, bigger firms are also shifting from their long-established R&D strategy to a joint connect and develop (C&D) process (Sousa 2008).
However, open innovation is never free from risk. It is necessary for the organizations to understand the skills, potentialities, and knowledge that are different in the market. So that they could evidently recognize what is need to be outsourced using processes to bring new ideas (Penin, Caroline and Burger-Helmchen 2011).
It is also imperative to minimize knowledge leak risks by devising suitable protection strategies.
Knowledge brokers have a significant part in open innovation processes. They are aware of the part that individuals can play in brining close the solution seekers and provides which effectively promotes collaborative efforts (Maula, et al. 2006). The appearance of knowledge broker as SPI, in a small country, comparatively far away from the main global decision centers makes obvious the fact that knowledge is invasive. Two outcomes from this are:
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Successful innovation speedily becomes outmoded and therefore, need a constant and sustainable flow of innovation to remain competitive.
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Knowledge can be accessed from anywhere, but if and only you have the correct connections and links to knowledge sources, and the right technical, technological as well as organizational tools. As a result, knowledge brokers can emerge wherever (Sousa 2008).
Keeping these corollary in mind, Sousa says that one can safely establish that knowledge brokers are here to stay and will have, at all the times, an ever-increasing vital part in accelerating innovation through global and interconnected networks of individuals and knowledge. Brokering knowledge for innovation has turned out as the main factor for innovation activity, which could work with itself.
Conceptual Framework
Most of the previous researches and studies regarding open innovation are focused primarily on the firm level of big corporations. However with the changing times, the scope of innovation has been altered enormously. Now, enterprises cannot afford to carry out their innovation processes on their own, owing to the labor mobility, copious venture capitalists and broadly dispersed knowledge across several public and private firms. With growing disintegration, outsourcing, modularization these days the management of open innovation in small organization is becoming equally important. This study fills the gap in the literature of open innovation by giving a comparative evaluation of open innovation processes carried out by two companies in manufacturing industry.
Elements of Open Innovation
For an organization to become capable of implementing open innovation practices, they need to focus on their processes management.
The significance of partnership capabilities has become vivid in open innovation literature. In addition, the formation of an atmosphere for innovation and visionary leadership is deemed to be criteria for the execution of innovative processes. At last, the presence of the right systems, tools and processes seems to be a vital facilitator of open innovation initiatives.
Relational elements are essential in association management studies. Cullen et al and Kauser and Shaw explain the necessity of loyalty and trust among cooperating partners (Kauser and Shaw 2004). Furthermore the institutionalization and repute of working partners as explained by Mora-Valentin et al. and Ireland et al. have an impact on the implementation of cooperation. Organizations, which have the name of being a fine partner, may see themselves in a good situation while seeking new partners. Nevertheless, knowledge management studies also attend to partnership concerns. Absorptive capacity is more centered on the company itself than on the partnership; however it assists a company in making the best of partnerships. This encompasses the integration of the knowledge of the partner but is led by the choice of the partner who has the accurate knowledge. Moreover choosing the right partner, it is also essential for firms to choose the correct form of cooperation for each initiative. This selection should rely on the strategy and abilities of the companies and the objectives of the particular initiative. Firms therefore require some partnership capabilities that will augment their innovative performance (Kauser and Shaw 2004).
One more aspect essential for the success of open innovation is the creation of the surroundings for innovation. This kind of atmosphere can motivate employees to work hard for better performance and encourage them to be innovative and entrepreneurial. In open innovation activities the concentration is not merely on being innovative internally but also when exploiting external paths to market (Chesbrough 2003). The staff should be capable of spotting external knowledge paths for their ideas, which require a definite entrepreneurial spirit. Hence, the formation of an environment for innovation must also include the establishment of an entrepreneurial culture.
Other than partnership capabilities and an atmosphere for innovation, the open innovation activity must be facilitated. This assistance encompasses internal processes, structures, systems and tools set up to make the implementation of open innovation activities possible. Quality and process management researches provide deeper details of various elements, which aid in enhancing the quality and effectiveness of processes. Building up the accurate procedures can have an influence upon the performance of open innovation endeavours.
Types of innovation
Innovation is divided into numerous types depending upon the chosen criteria. According to well-known researcher named Schumpeter, innovation can be categorized into five different kinds including, innovation of new products, introducing new ways of production, adopting latest supply sources, the exploitation of new markets and last but not the least introducing new methods of systemizing the business. Furthermore, Innovation is categorized under two main types known as product innovation and second is process innovation. In product innovation, the alterations are made in the product or service to offer an innovative new thing (Fagerberg and Nelson 2005). Tidd et al. (2005) describes that process innovations are given as changes in the methods with which such new products/services are manufactured and supplied (Savitskaya 2009). Even though this division is extensively accepted it is not supposed to guide us to disregard other central factors of innovation. For instance, in the last few decades majority of the promi
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