OPEN INNOVATION
- A PARADIGM SHIFT IN
STRATEGIC THINKING
DR PAUL THAMBAR
30 JULY 2015
UTS BUSINESS SCHOOL
UTS CRICOS PROVIDER CODE: 00099F
business.uts.edu.au
AGENDA
1. Definitions
2. Challenge to business strategy
3. Open innovation/strategy model
4. Implications
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DEFINITIONS
Innovation
Creativity
Entrepreneurship
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CREATIVITY: AN IDEA
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INNOVATION
Innovation = Creativity + Delivery
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INNOVATION
1. Product innovation
2. Process innovation
3. Business model innovation
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PRODUCT INNOVATION
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PROCESS INNOVATION
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BUSINESS MODEL INNOVATION
1. Changing the way you do business
2. More than product or process
innovation
3. Will impact others in the VC
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ENTREPRENEURSHIP
Idea
Company
Products
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AGENDA
1. Definitions
2. Challenge to business strategy
3. Open innovation/strategy model
4. Implications
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BUSINESS STRATEGY
1.
Porter’s view of the strategy process dominates
2.
Competitive strategy-basis for securing
•
boundaries, always in competition with other
firms
competitive advantage for firm.
3.
Operational strategy establishes the basis for
•
4.
Unique strategic resources (eg: R&D and
Firm with the ability to manage the external
environment
achieving competitive strategy by orchestrating
the operational activities required (Porter, 1991)
Firm as an entity with non-porous
•
Firm with ownership and control of all
strategic assets required to do strategy
innovation) key to effective operational strategy
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IN REALITY……MANY FIRMS
COLLABORATE………
1. However, a single firm no longer has the
capability to own all strategic resources
required to develop all elements of its
strategy, particularly, operational strategy
(Chesbrough, 2003)
Huston & Sakkab, (2006)
2. Firms have been observed collaborating,
sharing strategic resources (eg: R&D and
innovation) to develop new information to help
shape their firm-level strategies
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OPEN STRATEGY/INNOVATION
1. Open strategy/innovation is a process consisting of strategic activities that
are carried out at the inter-firm level. This involves sharing of strategic
resources to develop new ideas and information that can be brought back
into the firm to improve firm-level operational and competitive strategy
processes
2. Chesbrough and Appleyard (2007) describe two key constructs for open
strategy:
 Open invention - the use of pooled knowledge from different
contributors to generate new ideas for products and operational
activities that firms are able to use to create value, enabling firm-level
strategy processes. Includes open R&D and innovation processes.
 Open coordination - mechanisms that enable collaboration between
firms as they carry out open invention activities. Also ensures that the
value created is captured by individual firms involved in the overall
processes.
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MANAGEMENT CONTROL SYSTEMS
(MCS)
1. Management systems, practices and mechanisms that provide
information which can be used to influence behaviour and decisions
(controlling behaviour)
2. Different ways of categorising these systems:
> Planning systems (eg: strategic plans)
> Administrative systems (eg: org structures, governance mechanisms,
procedures and policies)
> Cultural systems (eg: values, symbols, clans)
> Measurement systems (eg: performance measures, budgets)
> Rewards and compensation systems (eg: share options)
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CONTROLLING OPEN
STRATEGY/INNOVATION PROCESSES
1. Three control problems to be managed: cooperation, coordination and
resource appropriation
• Cooperation: establishing the context for organizations to share
resources and information, to discuss problems, challenges and to
develop approaches to resolve strategic challenges
• Coordination: scheduling and programming strategic activities
• Resource appropriation: equitable sharing of resources and benefits
of collaboration
2. Management control systems enable collaboration within organizations
and can be used to manage these control problems to enable open
strategy processes (Caglio & Ditillo, 2008, Flamholtz, 1996, Flamholtz et
al, 1985, Malmi & Brown, 2008)
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FIELD STUDY: OPEN
STRATEGY/INNOVATION
1. Case setting-Australian cotton industry
2. Field work was based on a preliminary conceptual framework which was
refined and further developed through the field work
3. The case covers a period of 52 years but data was collected over a period
of 2 years (Jan 2012-Dec 2013).
> Semi –structured interviews - 54 interviews, 48 individuals, 59 hours.
> Archival documents. Industry reports (40). Annual reports (1990-2013; 3
key firms). Strategic plans. Governance documents (eg: ACGRA Exco
monthly meeting minutes 1988 to 1997)
> Observational data-33 hours of data. Key meetings such as Cotton
Australia Research panels and General member meetings.
4. Data analysis focused on establishing patterns and explanations to
develop and refine the theoretical model.
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CASE STUDY – AUSTRALIAN COTTON AN
INDUSTRY IN CRISIS!
Cotton chemicals found in Export Beef
“The Queensland Government has been accused of covering up a meat
contamination scare after news emerged yesterday that cattle from 10
properties have been rejected at export abattoirs in the past week. The
northern NSW and southern Queensland produce tested positive for
endosulfan, the main chemical spray for the cotton industry, which today
launches its $1.5 million "good neighbour" policy. Several samples had levels
of endosulfan higher than the maximum allowable of 0.2 mg/kg, sparking a
week of high tension between the beef and cotton industries. Mr Justin
Toohey, the Cattle Council of Australia's director, said producers were
unhappy with the cotton industry. "This is a Christmas present the industry
doesn't really need," he said. Mr Digby Cooper, a grazier from St George in
western Queensland, said pastures on his property had returned endosulfan
levels up to 0.75 mg/kg, while four cows tested recorded levels of up to 0.36
mg/kg”
The Sydney Morning Herald 18 December 1998
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CASE STUDY – AUSTRALIAN COTTON AN
INDUSTRY IN CRISIS!
By 1999 the industry had responded with two new approaches to cotton
growing.
1. Improved cotton growing practices in a system referred to as Best
Management Practices (BMP)
2. Genetically modified cotton varieties which were resistant to cotton pests.
By 2004, the industry was promoting its improved environmental credentials.
Growers had moved from spraying a cotton crop on average 15 times a
season to 1 or none!
How did such a remarkable turnaround occur?
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AGENDA
1. Definitions
2. Challenge to business strategy
3. Open innovation/strategy model
4. Implications
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OPEN STRATEGY/INNOVATION PROCESS
MODEL
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FINDINGS – WHY ORGANISATIONS
ENGAGE IN OPEN
STRATEGY/INNOVATION
Firms are incentivised to engage when:
 External factors exist outside the control of any single organization and
create resource-based dependencies for multiple organizations(such as
the impact of ecological issues related to cotton pests). Organizations
become mutually dependent.
 No single organization has resources to manage these external factors
on their own. An individual organization is resource dependent on other
organizations for strategic resources (R&D and innovation,
commercialisation skills) to help it develop new strategic information.
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THE ROLE OF MCS IN OPEN
STRATEGY/INNOVATION
Industry firms
These have functioned between firms and play four important roles.
 First, they have enabled functional specialisation such as strategy and
policy, R&D direction, R&D funding, and R&D resource and skills
provision, provided scale and a collective forum for raising strategic
issues.
 Second, these industry firms also provided a platform for the distribution of
the strategic information developed through the open strategy process, to
individual firms within the industry.
 Third, industry firms provide a basis for networks and relationships to form
and develop.
 Fourth, they a framework for the governance of activities performed in
these firms by providing authority and accountability for tasks.
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HOW MCS FACILITATES COOPERATION
IN OPEN STRATEGY/INNOVATION –
CULTURAL SYSTEMS
Cultural systems consist of values, symbols-based systems (dress codes,
co-location of managers) and clans (professional groups of managers
organised by functional specialities).
> Values helped to establish this context by developing beliefs which
provided direction and purpose and influenced behaviours. These values
were communicated through mission and vision statements and in
statements of principles.
> Symbols-based systems included co-location of managers from different
firms in the same physical locations which helped to visibly signal to
managers the shared values and culture expected of them.
> Clans formed around professional groups of managers, organized along
functional specialities, which have values and beliefs which are aligned to
broader belief systems.
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HOW MCS FACILITATES COORDINATION
IN OPEN STRATEGY/INNOVATION –
PLANNING SYSTEMS
Planning systems and practices (strategic plans, operational plans) have
been used extensively in the cotton industry by firms and provided a basis for
coordinating activities in three ways.
 Planning practices helped in the coordination of activities through
development and alignment of strategic objectives.
 Planning systems and practices also focused attention of managers on
actions required and the expected behaviours.
 Finally, planning provided a basis for coordinated actions. The formal
strategic objectives and the measurement of current operational
activities of cotton growers provided a basis for managers from different
firms to plan and implement actions required to improve these activities.
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HOW MCS FACILITATES COORDINATION
IN OPEN STRATEGY – MEASUREMENT
SYSTEMS
Measurement systems and practices provided a basis for assessment of
current performance, identification of variances and their causal factors, and
feedback and discussion which enabled managers to identify strategic
options and actions for performance improvements.
 The environmental audit and other measurement systems provided the
formal basis for managers in firms within the cotton industry to assess
and measure performance of their operational activities in relation to
the use of pesticides and other environmental impacts.
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HOW MCS FACILITATES RESOURCE
APPROPRIATION IN OPEN
STRATEGY/INNOVATION – ADMINISTRATIVE
SYSTEMS
Policies and procedures
These have functioned between firms and play two important roles.
 First, new information from R&D projects were developed into best
management practice procedures which allowed for sharing of new
information.
 Second, individual firms and managers were able to access new
information for use in firm-level strategy development and implementation
which included assessment of their operational strategy and operational
activities, to identify gaps for improvement, and assessing and managing
operational risks.
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CONCLUSIONS
1. We also found that the meta capabilities of strategic insight and resource
fluidity were important in the open strategy being delivered.
 Strategic insight (Doz & Kosonen, 2010, 2008) enables managers to
assess strategic issues in non-traditional ways and to develop new and
innovative solutions to manage them. Strategic insight is
operationalized through three actions: setting challenging strategic
objectives, experimenting with new ideas (R&D) and carrying out
strategic dialogue with different managers
 Resource fluidity (Doz & Kosonen, 2010, 2008) enables flexible
allocation of capital funds and people resources to finance and conduct
open strategy activities. Firm-level strategic resources are released
from functional control within the firm to be used to prepare resource
pools that can be shared with other firms in an open strategy process
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AGENDA
1. Definitions
2. Challenge to business strategy
3. Open innovation/strategy model
4. Implications
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IMPLICATIONS
1. New buzz words with relevance-creativity, innovation, E-Ship
2. Closed business models of innovation are challenged due to resource
constraints
3. Open strategy and innovation models exist and are helping to drive new
products, new companies
4. New ways of “controlling” firms are required
5. Management Accountants have far more scope in being the drivers of this
new way of organizing and managing businesses
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