Explain the key ideas behind ‘open innovation’? Critically discuss how open innovation has transformed an industry of your choice.
In a fast-paced world, many industries today are experiencing a rise in competition, and companies are finding many ways to become more effective and efficient. Firms are looking for new ways to create an added value and increase competitive advantage, and one phenomenon that has become increasingly important in the sports industry is ‘Open innovation’ (O.I.).
The sports industry is a growing global market with heavy investments providing high revenues and this has shifted the focus in the industry to open innovation in order to improve both participant and spectator experiences beyond expectations. I will be explaining the key ideas behind ‘open innovation’ and discussing how open innovation has transformed the sports industry as a whole.
The theory of open innovation suggests that it’s a spread out decentralised approach to innovation, which is more distributed and based on the fact that knowledge today is widely spread and no company can innovate effectively and efficient on its own.
As defined by Chesbrough (2003), it is when firms purposely use ‘inflows and outflows of knowledge to boost internal innovation, and expand markets for external use of innovation’. The theory assumes that firms should exploit both external and internal ideas, to markets, as they seek to improve their technology.
It can also be understood as the opposite of normal vertical integration where by rather than distributed products being the result of internal R, they are either ‘outside in’, where external ideas and technology are accepted and used in their own innovation process, or ‘inside out’ where under-utilized ideas are sent out and allowed to be used in others’ innovation processes. (Chesbrough, 2006)
Chesbrough (2003) observed that in many industries, the straightforward innovation process was out-dated due to ‘erosion factors’. He explains that that the increase of available and mobile educated people allows a large volume of knowledge to exist outside the research limits of a firm, and that the steep rise of the venture capital market that’s able to finance a lot of stat-ups trying to develop promising but risky innovations (Chesbrough, 2003). The open innovation model provides a non-linear approach, with the firms’ external environment being important in terms of the collaboration and influence of external sources of technology and innovation to drive internal growth, including the outsourcing of their unused ideas and property (Docherty, 2006). If implemented properly, businesses that employ O.I should be more profitable by obtaining a competitive advantage from producing differentiated products at lower costs, an accelerated time to market, and create new revenue streams for the business.
How companies choose, implement and integrate open innovation
Firms can choose from a number of options to implement open innovation such as; forming a Joint venture or alliance with another firm to source knowledge from outside to commercialise their own innovations, an acquisition in core technologies for their core markets to prevent any risks with collaboration with a third party, Licencing when dealing with non-core activities, Collaborations with universities, contract R&D etc. but how they choose them depends on how the market and technology relate to them (Oecd.org, 2018).
O.I. is linked to diversification in the sense that if technologies and markets are deemed as too unfamiliar, stepping out by selling or spinning off activities may be considered by the company. Scholars have found evidence in the last decade that firms who have external partners benefit from higher revenues, a quicker innovation process, and a boost in their performance (Chesbrough, 2003). Open innovation can either be diffused through the companies practices, (e.g. P&Gs connect and development program), new actors or intermediaries such as NineSigma or by public policies such as open government
Open innovation is linked to diversification. If technologies and markets are considered too unfamiliar, companies may want to step out by selling or spinning off activities to gain knowledge or share their knowledge for a competitive advantage. One successful example is the Phillips science park which used to be monopolized but changed to become the high-tech campus in Eindhoven where a number of firms share scientific knowledge and collaborate with Phillips research and test labs (Hightechcampus.com, 2018). Studies have suggested that adapting public O.I policies and O.I. management makes R&D faster, more valuable, and heterogeneous (Chesbrough et al., 2011) which as a result has driven open innovation into being a fundamental part of many firms strategies.
Today, many firms in many industries are going beyond internal open innovation towards an open business platform which facilitates the sharing of scientific and technological knowledge. An industry experiencing a continuing transformation through open innovation is the sports industry where huge investments in the industry have amped up their focus on using O.I. to push both participant and spectator experiences beyond expectations.
O.I. in Sports industry
Being one of the largest industries in the world, the global sports industry is estimated to be worth 1.3 trillion as of 2016. Forbes reports that the sports industry in north America alone is expected to reach $73.5 billion by 2019 and technological innovation has pushed the limits of sports and athletes higher than ever before, and is shaping business strategies to deliver increased value across the industry (Forbes.com, 2018).
Open innovation has had a major influence in the advances each segment of the industry has made. These segments are sports products and equipment, sports delivery services, and sports requirements products and services which advance the sports e.g. Medicine, trainers etc.).
Sports equipment refer to any technology or good which athletes use to experience sports.
Knowledge flows are a major aspect of open innovation and many sports firms look to upgrade their products by gaining knowledge off other industries or firms research to gain competitive advantage in a highly competitive market. Originally developed for spacecraft’s by NASA, carbon fibre was used by Nike to develop their ”elite” series; a strong and lighter sneaker that will boost basket-ball players performance. This shows an ‘inside-out’ approach (Chesbrough, 2003) taken by NASA because after they discovered carbon fibre, they shared their knowledge, perhaps by joint ventures or venture capital allowing both Nike and NASA to benefit off the knowledge and speeding up Nikes process of developing their lighter sneaker. Another example of this approach to O.I in the sports industry is the European ski resorts who have embraced wireless radio frequency systems by placing chips in ski passes to speed up waiting times for ski lifts and reduce labour costs. These systems were originally created and used by the the US army in world war 2 to track nuclear materials, but have now given these resorts a competitive advantage over American resorts.
Although firms have a main role in the O.I. process, the opening up of innovation also involves consumers and citizens as innovators, instead of using collaborations with other firms , third party firms, or R laps (Laursen and Salter, 2005).
Nike allows customers to completely personalize sneakers on their ‘Nike ID’ website, and more favoured designs are occasionally added into their product range. Moreover, Under armour wanted to improve their performance monitoring system after facing competition from other companies products e.g. (Nike+ fuelband) and they decided to have a multiphase contest online with innovators all around the world to help develop their product.
Sports delivery services consists of professional sports leagues like the English premier league, governing bodies like the FA and FiFA, and outlets for consumers like, fields, sports clubs etc. and it plays a huge part in the industry, being responsible for the growth and engagement of fans and athletes. For example, FiFA is currently in the testing stages of ‘video assisted referees’ to help the on-field referees to make better decisions. The technology which consist of electromagnet antennas was developed by a Sony owned innovation company ‘Hawk-Eye Innovations’, to aid the sport. Using third party intermediaries to innovate is one way to make O.I. successful. The intermediaries help to accelerate the process by providing methods, tools, and access to a large community of innovators by using a range of tools like crowd sourcing, contests, toolkits for innovation and design, social media analysis, and also offer training and consulting services (Howells, 2006).
Sports Requirements This area of the industry introduces athletes and fans to new techniques, education, training methods etc. by produce and enhance sports products and services in areas like medicine, education, coaches etc. This sector has made advancements in technology by using O.I. and they are taking advantage of feedback technology stemmed through social media to continuously adjust fans and athletes preferences. Emoto uses its technology to measure sports enthusiasts’ reaction to players, coaches, commentators, and involved people in the sports. Their results helps commercially to determine and make critical decisions, even to the extent of which athletes to trade or pursue, which commentators to assign to what game, and salary negotiations. E.g. Andy Grey was accused of making sexist comments towards a female lines woman in a premier league match. The negativity on social media forced the FA to fire him off his post with predictions and ratings going lower due to discrimination.
With a growing interest in open source innovation, and the internet as a means of reaching out to consumers, Rifkin (2014) says we are entering an era in which prosumers are producing what they consumer, and share what they have with each other in a collaborative commons (Rifkin, 2014).
‘Dark- Sides’ of Open innovation
In order for Open innovation to be successful, parties involved need to be fully committed, transparent, and clear with everything that is going on. Chesbrough (2006) argued the ‘bright’ sides of open innovation however there are some ‘dark sides’ to open innovation which have been neglected (Ullrich & Vladova, 2016)
Some ‘dark’ sides of open innovation relate to the organization, knowledge management, and legal issues. The organisation will incur added costs through process coordination and implementation costs throughout the innovation timeframe and are likely to achieve more faults in their routine workflows (Ullrich & Vladova, 2016). Sharing confidential sensitive company information also becomes a problem because collaborating with other firms always leads to less control and may lead to a competitive disadvantage if the risk doesn’t pay off.
Chesbrough (2003) argues the benefits of sharing knowledge amongst other firms. However, Knowledge management can become problematic and out of control because they may become strongly dependant on external knowledge and lose key knowledge control to intermediaries or other businesses. It also causes some confusion with the internal R team with mixing their knowledge with the externally obtained knowledge they get. This may lead to erosion of strategic power, and the flexibility to be creative from the internal innovators. (Ullrich & Vladova, 2016). The sharing of knowledge can also lead to confusion between the ownership of intellectual property and careful management is needed to prevent problems.
As the world is rapidly globalising and become smaller, more businesses in many industries are experiencing a boom in global open innovation initiatives. Firms today are definitely benefiting massively and growing rapidly due to O.I. and with the development of strong Asian countries and technology, O.I. is expected to become even more popular because it’s allows firms to achieve competitive advantage and added values quicker and easier.
The universes passion for sports has driven sports organisations towards open innovation to help and enhance sports for everyone involved, leading to a projected rise in the industry in the near future. Open innovation has impacted all sectors of the industry and has allowed people to feel more involved in sporting events, with coverage being broadcasted worldwide, new sporting products to help participants, and it keeps pushing the boundaries to enhance sports and make it healthier and safer for everyone.
Although the benefits of O.I. are obvious, there are some disadvantages that are ignored and could lead to future problems and legal issues for firms if correct measures of control and coordination are ignored.
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