The Operation Mechanism of Open Innovation Community Network –A system
Dynamics Model
1
En-jun Xia, Ming Zhang , Huai-jia Zhu
1
School of Management & Economics, Beijing Institute of Technology, Beijing, China
(mingzhang225@163.com)
Abstract - Environmental changes require that
enterprises should actively seek more innovation
methods and innovation modes. Based on the analysis
of the open innovation community network system
and the characteristics of its structure, from three
aspects which are the knowledge transfer, the flow of
human capital and innovation income growth, this
paper integrates the system dynamics model of
community networks of the open innovation system,
and then analyzes its internal system integration,
diversification of innovation income growth, and open
innovation culture construction, which are the three
key factors in the process of the network operation.
We provide reference to the effective management of
enterprises' value growth to improve the innovation
performance and innovation abilities by the use of
open innovation platform.
Keywords - Network community, open innovation,
operation mechanism, system dynamics
I. INTRODUCTION
Firms should use external as well as internal ideas,
and internal and external paths to market, as they look to
advance their technology, this process is called open
innovation [1]. Existing literature have obtained a lot of
results of research about open innovation from aspects
such as external validity [2, 3], commercial mode [4, 5, 6],
customer [7, 8] and network problem [9, 10]. But as a new
innovation platform, online community network is rarely
studied, also are the causal relationship between the
various nodes and the integration mechanism of various
innovation resources.
The System Dynamics (SD) method finds and
studies various crucial factors within an overall system.
Through the analysis of dynamic changes in the system
and causal relationships, SD could solve complex
problems under the condition of incomplete information.
In the open innovation environment, cooperation, trust
and mutual benefit relations arising in the process of
acquiring internal and external resources, have integrated
all members involved in the open innovation activities
into a complex network system, which contains elements
of all kinds of knowledge and information transmission
loops, forming a lot of non-linear processes. So the
method has sound applicability and predictabilities when
studying open innovation community network.
1
Scholars have used the SD method to study different
innovation networks. Hu Junyan, Zhu Gui long, Ma
Yingying (2011) [11] have discovered the cooperative
interaction between situational factors of research and
production under open innovation environment with SD
method. Wang Guohong, Wu Xiaoming, and Tang Liyan
(2011) [12] established a system dynamics model of
integrated innovation of production, teaching and research
of high-tech cluster. Yang jian, Yang Feng, and Wang
Shuen (2010) [13] established a basic structure of SD
model of regional innovation systems. Wu Chuanrong,
Zeng Deming, and Chen Yingwu (2010) [14] have utilized
SD model to predict key indicators of high-tech firms’
innovation network and provided relevant suggestions to
improve those indicators.
This article’s second part will first analyze the
characteristics of open innovation community network, on
this basis in part III we then construct a SD model to
describe the development and changes of open innovation
community network system, exploring the running
mechanisms within the system, in part IV we’ll provide
relevant recommendations to make effective use of the
open innovation community network and maintain its
healthy and sustainable operation, in order to improve
firms’ open innovation abilities. In the last part, some
important views will be concluded.
II. THE CHARACTERISTICS OF THE OPEN
INNOVATION COMMUNITY NETWORK SYSTEM
1 The number of network members is large and
widely dispersed: Members’ wide distribution and
participants’ relevance in the innovation process will
effectively guarantee so many benefits such as the
concentrated use of both internal and external creative
resources, faster internalization of external knowledge,
faster knowledge integration processes, more dispersed
innovation risks, lower innovation costs and faster
innovation speed. This feature will also result in larger
information sharing scope, more R&D opportunities,
more effective knowledge transfer process and higher
success rate of R&D activities.
In the open innovation process, the diversity of the
participating subjects does not adequately indicate the
attractiveness of the innovation community network.
Meaningful discussion about innovation topics is an
Xia Enjun: professor of School of Management & Economics in Beijing Institute of Technology. Research area: Technology
innovation, regional economic.
important indication of the network attractiveness. Only if
there were enough members involved in the community
construction and the number of member joined in the
solving process of creative problems were maximized,
would the innovation network be really attractive.
2 The number of patents is the manifestation of the
enterprise’s knowledge stock: Open innovation mode
allows enterprises to acquire resources economically and
effectively by transaction forms including but not limited
to technology licensing, research contracting, technology
mergers and acquisitions, strategic alliances or venture
capital. Those ways help to reduce costs and risks of new
R&D activities and improve firms’ operation
performance. The effective management and utilizing of
intellectual property is very important during the trade
activities above.
When studying on the relationship between the
intellectual property system and open innovation,
Chesbrough(2003)[15] believed that enterprises under the
open innovation condition must strive to become the
buyer or seller of the intellectual property compare to the
intellectual property strategy in the mode of closed
innovation. Heap(2010)[16] focused on Professor Henry
Chesbrough's point of "open innovation: creating new
demands, and profiting from technology" and concluded
that open innovation needs to change the culture and also
the attitudes towards intellectual property, which means
that intellectual property assets are traded as valuable
asset, not as a secret which is protected.
3 Income from innovation is an important motivate
of social network economic growth: According to the
economic theories, the output must be greater than the
input to reflect the operate value of the network system.
Otherwise, it won’t survive long. In the open innovation
system, enterprises can benefit from the income of
technology trading through technology licensing,
technology transferring or technology ownership trading
when it has not commercialized all the patents. On the
other side, patents represent results of some R&D stage, if
some patents can better cater to market demands on new
technologies or new products, then those commercialized
patents can bring new products and improve enterprise's
sales income. Therefore, under the condition of open
innovation, enterprises’ income sources are broadened by
various trade objects including not only new products
industrialized from patents like what traditional
innovation model does, but also developed patents whose
commercialization conditions are not so sufficient within
domestic organisation. That is to say, firms are more
flexible in open innovation when doing with R&D
activities.
III. SYSTEM DYNAMICS MODEL FOR THE OPEN
INNOVATION COMMUNITY NETWORK
1. System boundaries
System Dynamics believed that internal factors
determines the system behavior, external factors often
play less decisive roles, so it is a key step to choose
reasonable boundaries for our ideal SD model. In this
paper, we think that the open innovation community
network system is composed of three subsystems
including knowledge transfer and flow subsystem, human
capital flow subsystem and innovation income growth
subsystem. The three subsystems connect with each other
by key variables like number of network members,
number of patents and innovation income. These three
subsystems which are divided from the whole system
determine and maintain the running mechanism of the
community innovation network system, so we’ll analyze
each subsystem’ respectively and then the whole system’s
running mechanism is inferred.
2. Basic assumptions
H1: Community networking system is consisted of a
series of continuous and gradual open innovation
activities.
H2: Changes caused by significant policy changes, natural
disasters and other unforeseen emergencies will not be
taken into account.
H3: Input of open innovation activities include research
and development funds, material rewards for innovative
staff, human capital and intellectual capital, innovation
outputs included patents, innovation income and so on.
3. Causal diagrams
As the fig.1 shows, variables like number of network
member, innovation revenue, number of patents and open
innovation culture are key hubs to maintain the innovation
system’s running processes. They connect with various
nodes influencing and interacting with each other,
forming a healthy dynamical system by knowledge
transfer and flow mechanism, human capital flow
mechanism and innovation income growth mechanism.
Innovation revenue achieved by the network system
guarantees the distribution process of members’ interests
and strengthens incentive effects on network members.
While it can enlarge the reputation of the innovation
network and attract more new members, and more
network members make the network more influential and
show better image to the public. On the other hand, when
network members are more enthusiastic, they are usually
more inclined to practice their expertise, innovation
potential and sense of cooperation. And these factors will
strengthen R&D collaboration effects within the
innovation network.
If the innovation network becomes significantly more
attractive, the innovation related subjects will put more
human and financial resources into the system and
provide more material securities for open innovation
activities. More innovation funding, more participating
network members and enhanced collaboration effect will
function together to product more patents, which are the
most important knowledge form of one firm’s innovation
performance. And if patents are able to adapt to the
complex and rapid changes of market demands, then
enterprises’ new products will create more considerable
revenue, on the basis of which the entire innovation
network system can operate more sustainably.
cooperation degree of +
network members
motivation effects of
network members
amount of new
+
network members
+
+ reputation of
+
number of network
members
+
income from
patent selling
++
number of patents
income from
+ technology assignment
+
+
+
+
innovation
income
+
++
Rate of new product
+
launching +
+ awareness of
network
+
amount of R&D+ +
funding + + +
benefits distribution
among members
+
open innovatin
culture
patent selling
patent authorization
amount of patents
other organisations' +
investing
research institutions' +
investing
+
agencies' investing
government's +
investing
Fig.1: the SD causal diagram of open innovation community network.
4. Knowledge transfer and circulation system
Community network includes a variety of knowledge
flows in forms like patents, technology, experience, ideas
and other things either dominant or hidden. In the process
of open innovation, the rate variable called increasing
number of patents directly affects the number of patents
which is the basis of the commercialization and marketing
of enterprise intellectual property. This means that
enterprises can either transform patents or technologies
into new products through industrialization, or directly
trade with other organizations through ways such as
technology transfer or technology licensing whose trade
objects are intellectual properties. The increasing number
of patents has been directly affected by variables like the
number of experts or research institutions involved in
innovative projects, members’ professional qualities and
comprehensive capacities, and also enterprise's absorptive
capacity for the outside knowledge or ideas. Enterprise's
absorption capacity is primarily determined by the
acquisition abilities of external knowledge and the
abilities that make external knowledge integrated into
independent forms of knowledge for the enterprise. The
number of patent, mainly controlled by the increasing
number of patent, not only increases firms’ revenue by
such transaction ways as technical trading, technology
licensing, technology transfer, but also meets members’
self-worth realization and other high level needs. The
function will stimulate the community innovation power
from the members of the network and improve their
innovation capacities. The auxiliary variable patent
industrialization rate is determined by the level of market
demands for new technologies or new products,
professional and comprehensive abilities of the network
innovation income
increasing amount of
innovation income
technology
assignment
income of new products
ratio of
industrialization
firms' absorbtion capacity
acquisition capacities
+
+
attractiveness
technology licensing
amount of R&D
projects
members' comprehensive
capacities
the degree of cooperation
+
+ amount of new
+
products
firms' investing +
amount of network
members
increasing amount
of patents
innovation network
+
income from patent
authorization
+
income from
+ technology licensing
members and cooperation degree between innovation
subjects.
amount of new
product
integration capacities
demands of new
products or technologies
Fig.2: the SD flow diagram of knowledge transfer and circulation.
5. Mechanism of human capital flow
The human capital flow is an important channel for
the transfer of technology, knowledge and innovation
ideas in open innovation system. The state variable
number of community members is mainly regulated by
two rate variables the number of new members and the
number of quitting members. The number of newly joined
network members is restricted by the innovation network
reputation and the attractiveness of community network.
Community network attractiveness can consolidate open
innovation culture foundation and cause for more widely
concern. It is directly affected by the distribution of
network members’ interests, which is mainly determined
by improving innovation income. Innovation network
reputation is established on the foundation of the
network’s popularity, which increases gradually as the
number of network members expands continually.
On the other hand, the cultivation of open innovation
culture is also an important factor to influence the
network’s popularity. Sound open innovation culture
brings those advantages like creating a good innovative
atmosphere, enhancing the belonging sense among those
network members, expanding the influence of innovation
network and increasing its visibility. The number of
member who quit from the network is mainly affected by
the members’ average community life cycle. Generally
those members who have not sufficiently understood the
innovative activities and those who are not able to make a
positive contribution usually tend to leave the network as
their network life cycles end. Members’ average life cycle
is also under the influence of open innovation culture.
Innovation benefits distribution from the innovation
income and cultivation of open innovation culture are the
key links in the formation process of human capital flow
mechanism, if the number of the network members
continues to increase and maintains relatively stable, then
the patent number and innovation revenue growth will be
better secured. This shows that human capital flow
provides an important impetus for the mobility of the
open innovation community network.
6. Innovative revenue growth mechanism
new members
amount of network
members
Innovation revenue growth mechanism mainly refers
to the comparison between the input to the innovation
systems and economic outputs. In the course of system
input-output, input of funds from various creators is
necessary, but what is more important is the knowledge
flows, technology flows, human capital flows and other
factor flows resulting from the movement of financial
flows. The innovation revenue is largely driven by two
rate variables: the increasing innovation income and
decreasing innovative income. The former is largely
members quiting
awareness of network
attractiveness of
network
average life cycle of
members
reputation of
network
open innovation
culture
members' benefits
innovation income
Fig.3: the SD flow diagram of mechanism of human capital.
agency investing
government investing
attractiveness of
network
amount of R&D
funding
increasing amount of R& D funding
firm’s increasing
amount of investing
amount of new
products
income of new
products
other organisation
investing
research institution
investing
technology
licensing
amount of
patents
innovation income
decreasing
innovation income
product
elimination rate
life cycle of
product
increasing
innovation income
outdated
technologies
ratio of
industrialization
increasing amount
of patents
technology assignment
patent authorization
science and technology
progressing
network structure and
members' capacities
patent selling
Fig.4. the SD flow diagram of innovative revenue growth mechanism.
other organisations
investing
attractiveness of
network
research institution
investing
government
investing
members' benefits
the increasing amount
of firms' investing
agency investing
amount of network members
amount of R & D funding
new members
members quiting
the increasing amount
of R & D funding
awareness
average life cycle of
network members
increasing amount
of patent
amount of
patents
amount of R&D
projects
innovation
income
increasing
innovation income
selling technologies
acquisition
capabilities
comprehensive
capacity of members
technology
assignment
patent authorization
industrialization
rate of patent
integration
capacity of firm
decreasing
innovation income
outdated
technologies
product
elimination rate
technology licensing
cooperation degree
of members
absorbtion
capacity of firm
reputation
open innovation
culture
life cycle of products
scientific and
technological
progress
income of new
production
amount of new
products
demands of new
products or
technologies
network strcture and
members' capacities
driven by the trade of intellectual property and product
resulted
from thenetwork
industrialization
of patents. If auxiliary
Fig. 5: the SD flow diagram of open innovation
community
system.
the demands of intellectual properties and patents
industrialization ratio are relatively stable, then on one
side the opportunities of technology transfer, patent
authorizing, and other ways of intellectual property
trading will increase, on the other side the increasing new
products can bring the improvement of innovation
products income, motivating more inputs into the R&D
projects from all the network members. R&D inputs
include funds and human capital inputs from enterprises
(including competitive enterprises and other enterprises
upstream and downstream, government inputs, and
research institution inputs, intermediate agent’s inputs and
other aspects such as inputs from users and experts).
Increased investment ensures adequate funding of the
R&D system. Under the condition of open innovation
culture and higher comprehensive capacities of the
network members, enterprises’ patents will have a
significant growth, thereby creating more innovative
revenue and bringing more interests to innovation
participants. The reducing innovative revenue is largely
due to obsolete products and outdated technology, which
are usually caused by advanced science and technology
and consumers’ ever-changing demands.
IV. DISCUSSION
1. Focus on the integration of human capital, intellectual
capital and financing.
Human capital is the most important resource in the
innovation community network. The funding capital flows
and intellectual property flows are all the results of the
process of continuous human capital movement and
value-creating.
Intellectual property capital is a key carrier in the open
innovation process. It is the output of human capital and
funding investment, and also the important basis or power
for subsequent financial flows.
Financial flow is the necessary security for the
sustainable operation of the open innovation community
network. On one hand, to accumulate the intellectual
capital needs continuous funding investment, then new
intellectual capital creates more value and also generates
more funds, further promoting the continued growth of
intellectual capital, On the other hand, financial flow is
also an important physical factor to encourage community
members to develop innovative potential and promote
research and development dynamics.
Therefore in the construction and operation process of
open innovation community network, firms should pay
attention to the interactive relations between human
capital, intellectual capital and money capital. Their
managing work should focus on the integration of various
elements within the innovation network system，in order
to ensure the healthy and sustainable running of the open
innovation community network.
2. Expanding various innovative revenue growth forms.
In traditional innovation mode, if a project is found
that could not immediately bring tangible benefits to the
enterprise in its internal inspection process, then the
company wouldn't do more about the project or work, and
there is no reason to doubt that the termination of the
project or work may be caused by the system errors
during the evaluation and estimating processes, such
errors are called "false negative" (false negative) by
scholars. And if a project is predicted to have a very good
market attractiveness in the feasibility analysis process,
and companies put a lot of R&D costs into the project,
and make it commercialized, but actually the results are
proved to be very disappointing, that is the so-called
"false positive" (false positive ）(Chesbrough, 2004)[17].
In the open innovation activities, due to the widely
distributed creators and the timely and effective testing
conducted by the market, firms usually can avoid “false
positive” errors. Through trading forms like patent
authorizing, technology licensing, patent selling and
technology transferring, enterprises make projects or
patent that don’t have application value at first much more
valuable, and create more income opportunities to avoid
"false negative" errors’ occurrence. However, we found
"false positive" and "false negative" errors are mutually
exclusive, that is to say, reducing one kind of error will
inevitably lead to the increasing of occurrence of another
kinds of error. In fact enterprises tend to avoid "false
negative" errors, because increases in the number of
patents cannot bring more innovative products revenue
simultaneously, so we can make more innovation income
as much as possible through the intellectual property
trading market.
3. Fostering open innovation culture.
To increase the attractiveness of the innovation
network, members need to spend more costs on hardware
resources like the community environment and innovative
funding; what needs more attention is the construction
process of innovation atmosphere and open innovation
culture. An open, comprehensive innovation culture is the
result of the cooperation, trust and respect between
various participants. Healthy innovation culture is helpful
for highlighting the value of human capital, increasing the
sharing rate of community network information,
accelerating the transfer and diffusion speed of innovation
knowledge, and enhancing community members’ learning
abilities and their industrialization abilities of scientific
research. When managing and running the open
innovation network community, enterprises need to play a
guiding role in the processes like actively attracting all
possible social capital, taking available measures making
innovative culture rooted in the hearts of all the staff and
community members, intensifying the attractiveness of
community network, and promoting economic growth of
open innovation network.
V. CONCLUSION
Open innovation community network is a higherorder complex social system containing multiple circuits
and large amount of information flows. Through the
analysis on subsystem networks of knowledge transfer
flow, human capital flow and innovation income growth,
we concluded three key measures for improving the
growth of open innovation community network economy.
First, firms should pay attention to the integration of the
interactive relationships between human, material and
financial resources in the internal system. The second is
that firms should try to widen the growth channels of
innovation income and the last is focusing on cultivating
open innovation culture. Then healthy and sustainable
operation of open innovation community network can be
maintained.
As the sense of open innovation has not been adopted
by the most firms in China, we need more studies on the
government and excitation about the open innovation
community network. By the side, related data cannot be
collected easily, so future studies can collect relevant data
to test the reliability of the models.
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