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Open Innovation Essay

In light of the trend towards open innovation, inter-organizational technology transfer by means of alliances and licensing has become a key component of the open innovation processes. In this assignment we will discuss how open innovation can be the key of success and open up different opportunities, describe innovation in terms of what managerial consequences it can have on a company and try to find out what can be the driving forces of innovation in a company.

The company We have chosen W. L. Gore & Associates, Inc. as an example of an innovative company. Gore does research in use of its advanced technology in four main areas: electronics, industrial, medical and fabrics. The company is American, founded in 1958 and today it has about 7000 employees and facilities in more than 30 countries. (Gore 1, 2011) W.L. Gore & Associates is a company with a long history of innovation. In the beginning R&D and product development was conducted inside the organizational boundaries and the firms’ critical technological knowledge was primarily developed and applied in-house, in other words they pursued traditional, closed innovation processes. (Lichtenthaler et al. 2010) In recent decades, W.L. Gore & Associates also actively collaborate with external partners throughout the innovation process. They do this in two ways:

Firstly, Gore acquire technology from external sources to complement their internal R&D through strategic alliances which is known as inward technology transfer and requires absorptive capacity to acquire and utilize external knowledge (Lichtenthaler et al. 2010).One example is the strategic alliance with Sefar AG for the Architectural Fabrics Texchtestile 2009 in Frankfurt am Main (Gore 1, 2011). Secondly, they exploit their own technology in outbound open innovation processes through licensing agreements to generate additional income, which requires desorptive capacity to transfer technological capabilities outwards (Lichtenthaler et al. 2010).

One example is the licensing programs for products made with Gore-Tex® fabric and fibers (Gore 1, 2011). Absorptive capacity depends on path dependency because, it requires the ability to recognize, assimilate, and apply external knowledge in the context of innovation and learning processes. On the other hand, desorptive capacity determines the potential volume of technology transfer based on two process stages; identification and transfer of a firm’s technology portfolio (Lichtenthaler et al. 2010). However, outward technology transfer or licensing of a particular technology may not always be permitted by management, especially for the core technologies, because of the competitive threats and risk of losing competitive advantage.

Innovation Virtually all of Gore’s thousands of products are based on just one material, a versatile polymer ePTFE, which the company engineers to perform a wide variety of functions (Carter, 2002). Gore has been granted more than 2,000 patents worldwide in a wide range of fields, including electronics, medical devices, and polymer processing (Gore 1, 2011). Gore uses a type of open innovation strategy, keeping control of its core technology and licenses the use and allows for innovation within a particular field to its licensees.

Baudreau and Lakhani claim that Gore is using product platform innovation, where the control of the platform (ePTFE) is shared between external developers and Gore, as Gore provide the core technology, which the licensees innovate on and then sell the developed products to the final consumer. External innovators (other companies) and customers can transact freely as long as they affiliate with the platform owner. Gore maintains some control through the rules and regulations they impose on their licensees (Boudreau et al. 2009). The platform design theory closely resembles the type of open innovation that Chesbrough names “architect”; the company develop architecture to allow for platform design, where external innovators can further develop the technology (Chesbrough, 2003).

Driving forces An interesting question is what drives Gore to be an innovative company. We have taken a look at what is driving the company to produce innovations and we have found a mix of technology-push and demand-pull.

We have deduced that in the beginning of Gore’s history, they used technology-push. We base this argument on their focus on developing a technology and putting it on the market. Wilbert L. Bill while working at DuPont saw potential in a certain polymer called polytetrafluoroethylene, or PTFE (Gore 1, 2011). In 1969, the discovery of a remarkably versatile new polymer known as expanded polytetrafluoroethylene (or ePTFE), led the enterprise from industrial products into new applications in medical, fabric, and electronics markets. They make medical products which are used in vascular, cardio-thoracic, plastic and orthopedic surgeries, their cables are used in computers and even travelled to the moon, their fibers are used in everything from chemical processing to industrial pumps, their fabrics protects from rain. They have such a big variety of product range that it can be found everywhere and in everything, including automobiles (Deutschman, 2004, Rothwell 1994).

Today, customer preferences are an important part of the innovation process. For Gore the customer needs is a huge driving force for innovation. They use consumer inspired innovation to develop new products, in particular, lead users who help develop products that suit their needs. (Schaldecker B 2011)The next step is to use technology to make the idea into a real product. This “customer focus” shows us that demand-pull is important as well. One hands-on example is the way Gore is using lead users in product development. Although it is productive to use lead-users who know what they want, they don’t need to be loyal to only one company. This can result in companies using the same lead-users which increase the risk for exploiting confidential information. The race to reach the market first becomes even more crucial (Rothwell 1994).

We believe the main driver for technology licensing by Gore is generating revenues. Other strategic drivers are: selling products in addition to licensing technology. “These additional product sales are achieved due to enhanced demand because of a second source of supply/../ or by licensing a technology to a weak rival in order to deter entry of a stronger competitor” (Lichtenthaler, 2007).

“Technology licensing may be motivated by the realization of learning effects, which result in the compression of a firm’s learning curve” (Lichtenthaler, 2007), meaning the licensee transfers knowledge to the licensor, allowing for faster learning. Moreover, the acquisition of external technology or intellectual property gives access to another firm’s technology portfolio; for example Gore acquired intellectual property of NMT Medical, Inc. on October 19, 2011, who has the best medical therapy for the prevention of recurrent stroke and transient attack (Flagstaff, 2011). Besides, Gore can enhance its reputation by licensing out technological knowledge and guarantee its technological leadership by licensing out technology. Finally, a company can license out technology to strengthen its inter-organizational networks. Thus, technology licensing in turn maintain, increase and expand a firm’s networks (Lichtenthaler, 2007).

Managerial Consequences Firms can capture value from technology and with the trend towards open innovation firms actively transfer technology to other organizations. This licensing dilemma could have both negative and positive consequences. Licensing could decrease profits in their product business which could substantially weaken competitive position, on the other hand active technology licensing could increase revenues which are a necessity in order to gain and sustain a competitive advantage. However, “the negative consequences of licensing often seem to be overcompensated by positive effects” (Lichtenthaler, 2007, p 67).

To facilitate the positive effects of licensing, firms need to develop dynamic capabilities of technology licensing by exploring continuous innovation to seize monetary and strategic opportunities while avoiding potential negative effects by process systematization in internal technology exploitation. The strategic licensing opportunities need a completely different management, when the interdependence between internal and external technology exploitation increase they require a relatively integrated approach and assignment of dedicated employees to technology licensing (Lichtenthaler, 2007).

As we stated before Gore concentrate on core competence and they nurture it through the employees, or associates as Gore call them (Gore 2, 2011). To be able to create an innovative atmosphere the organization has an open and informal corporate culture with little hierarchy. There are no formal bosses and they have self-evaluating systems where compensation is decided by teams of colleges evaluating each other (ibid). A quote from an employee: “Your team is your boss, because you don’t want to let them down. Everyone’s your boss, and no one’s your boss” (Deutschman, 2007). In order to give incentives to perform in the best interest of the company, employees also get shares in the company (symbolizing the rising value of the whole company) that they can cash in when they retire or leave (Deutschman, 2007).

The structure of the organization is designed to create innovativeness and focuses on teamwork were employees with mixed roles are put in small teams to collaborate. The facilities never exceed a work force of 150-200 employees, to get a more personal environment where everyone knows each other (Deutschman, 2007). This can be seen as type of networking, which is a contributing factor to the success of innovative organizations (Rothwell, 1994). A part of the employees work time (10%) is set off for free of choice “dabble time”; thinking of new ideas on their own (Harrington, 2003). These are some signs of a flatter and flexible organization structure like those which Rothwell (1994) describes as important success factors for innovative organizations. To sum up we see that the innovative core have a large impact on managerial consequences as how to deal with the employees.

The open innovation gives Gore more options, looking outside the company means that the company doesn’t need to have a lot of resources and capabilities in-house to make money from commercializing a product (Chesbrough, 2003). We have deduced it allows for exploration without complete exploitation, letting Gore build up capabilities in researching and core competences, while still making money out of side-track inventions. Instead of having to be completely ambidextrous, Gore can be specialized in research in some technologies and ambidextrous in others (Gupta, 2006).

Conclusions On the example of W. L. Gore & Associates, Inc we analyzed the open innovation strategy which is perused nowadays by a lot of the most successful and innovative companies with the aim of successful inter-organizational technology transfer. Alliances and licensing happen to be the most common form of technology transfer in the open innovation process. Gore implements a strategy of exploration in its innovation activities as well as exploitation. Although, exploiting your own innovation is important, the Gore example shows us how concentrating on innovation exploration together with open innovation strategy through licensing and alliances can help to win markets which you will never reach by your own.

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