Conceptual framework and current practices

Strengthening innovation-driven inclusive and sustainable developmentStrengthening innovation-driven inclusive and sustainable development

Asia-PacificAsia-Pacific

Tech MonitorVol. 31 No. 2 Apr - Jun 2014

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Open Innovation System

The Asian and Pacific Centre for Transfer of Technology (APCTT), a subsidiary body of ESCAP, was established on 16 July 1977 with the objectives to: assist the members and associate members of ESCAP through strengthening their capabilities to develop and manage national innovation systems; develop, transfer, adapt and apply technology; improve the terms of transfer of technology; and identify and promote the development and transfer of technologies relevant to the region.

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Editorial Advisory BoardDr. Wang Yan, Deputy Director-General, China Science and Technology Exchange Center (CSTEC), Beijing, P.R. China

Dr. Günter Clar, Director, Regional Strategies & Innovation, Steinbeis-Europa-Zentrum, Stuttgart, Germany

Prof. Sushil, Department of Management Studies, Indian Institute of Technology Delhi, New Delhi, India

Dr. Syahrul Aiman, Deputy Chairman for Engineering Sciences, Indonesian Institute of Sciences (LIPI), Jakarta, Indonesia

Prof. Dr. Toshiya Watanabe, Policy Alternatives Research Institute (PARI), and Deputy Director General, Division of University Corporate Relations, University of Tokyo, Japan

Dr. Jeong Hyop Lee, Research Fellow, Science and Technology Policy Institute (STEPI), Seoul, Republic of Korea

Prof. Rajah Rasiah, Chair of Regulatory Studies, Faculty of Economics and Administration, University of Malaya, Kuala Lumpur, Malaysia

Dr. Azeez M Mubarak, Director/CEO, Industrial Technology Institute, Colombo, Sri Lanka

Prof. Sivanappan Kumar, School of Environment, Resources and Development (SERD), Asian Institute of Technology, Pathumthani, Thailand

Dr. Ravi Ratnayake, Director, Trade and Investment Division, United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), Bangkok, Thailand

Editorial BoardAPCTT-ESCAP

Mr. Michael WilliamsonMr. Nanjundappa Srinivasan

Dr. Satyabrata SahuDr. Krishnan Srinivasaraghavan

CONTENTSIntroductory Note 2

Technology Market Scan 3

Technology Scan: Biotechnology 7

Special Feature: Open Innovation System: Conceptual framework and current practices

• “Pushing the boundaries” of open innovation 13Ideas to explore the potential of open innovation researchWim Vanhaverbeke

• Open innovation in SMEs 20Drivers and inhibitorsSharan Kaur Garib Singh, M. Muzamil Naqshbandi and Sharmila Jayasingam

• A strategy to increase Indonesian private sector R&D 25 investmentDouble tax deduction, a fiscal incentive policyWisnu Sardjono Soenarso and Hasmo Sadewo

• Technology strategy of Korean firms and comparative analysis with Japan in display industry and implications for SMEs 32Seonmin Jung, Sunyoung Yun and Joosung J. Lee

Regional Connectivity for Shared Prosperity

• Connectivity in global value chains innovation 37Technological challenges and opportunitiesChristopher Kitano and Akhmad Bayhaqi

Tech Events 44

Tech Ventures & Opportunities 45

Business Coach

•Start-up Venture Creation 46

•Technology Transfer 48

•Venture Financing 51

•Managing Innovation 53

•Green Productivity 56

Tech Opportunities

•Technology Offers 58

•Technology Requests 61

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ISSN: 0256-9957

Asia-Pacific

Tech MonitorVol. 31 No. 2 v Apr - Jun 2014

20 TECH MONITOR • Apr-Jun 2014

with the aim to increase new and repeat sales. For example, von Hippel’s (1986) user-led concept echoes customer involvement in the innovation process. Besides, many previously delineated concepts like absorptive capacity, com-plementary assets, technology explora-tion and technology exploitation have described the open innovation concept (Dahlander and Gann, 2010).

In the recent times, open innovation has gained rapid traction due to the developments that coincided with out-sourcing, networks, core competences, collaboration and the internet. Moreo-ver, by coining a single term, Chesbrough gave a collection of developments a face and a body, which encompassed, connected and integrated a range of activities that were already in exist-ence (Huizingh, 2013). The concept of open innovation further progressed when case studies of large firms like Procter and Gamble, Lego, Cisco Sys-tems, Philips and Siemens depicted success stories from implementation of open innovation as well as the setting up of internal open innovation envi-ronments (Chesbrough, 2003a; Enkel, Gassman and Chesbrough, 2009). The concept received further boost when it was reported that organizations which integrated internal innovators with out-siders like suppliers, customers or users, universities or even competitors in inno-vation activities obtained advantages in terms of gaining varied set of ideas and knowledge and wide-ranging opportu-nities for commercialization (Rass et al., 2013). Due to these and other develop-ments, open innovation has not been restricted to business and management disciplines; instead, interest in open innovation spans various disciplines from economics to cultural anthropol-ogy (Huizingh, 2013).

The ultimate aim of opening up one’s innovation process is to gain competi-tive advantage through being first to

Sharan Kaur Garib Singh, M. Muzamil Naqshbandi and Sharmila JayasingamDepartment of Business Policy and StrategyFaculty of Business and Accountancy University of Malaya 50603 Kuala Lumpur MalaysiaE-mails: sharan@um.edu.my, muzamil@um.edu.my, virkul@gmail.com, sharmila@um.edu.my

OpeN iNNOvatiON iN SMeS drivers and inhibitors

Abstract Open innovation has of late emerged as a popular innovation management concept that advocates opening up of the innovation processes in firms. Despite researchers writing against open innovation being a new concept, research into open innovation activities of firms, as evidenced by the growing number of related research papers and books, has proliferated. In this concept paper, through a scrutiny of published open innovation re-search work, we look at the concept of open innovation in general and then zoom in on the factors that drive and inhibit its implementation especially in SMEs. The analysis shows that the drivers of open innovation include meeting customer demand, while employee resistance in the form of not-invented-here (NIH) and not-shared-here or not-sold-here (NSH) syndromes can inhibit open innovation. The paper, with implications for practice and theory, ends with a summary of open innovation and its drivers and inhibitors.

Introduction

Open innovation has emerged as a popular innovation management

concept after Chesbrough’s (2003a, 2003b, 2003c) publications almost a decade ago. This concept stipulates the shift of innovation from a closed to an open notion that permits a free flow of ideas, knowledge and technology between organizations and individuals to speed up internal innovation and to grow the markets for external use of in-novation (Chesbrough, 2003a). The open innovation model counsels an orienta-tion of openness in terms of drawing on both external and internal exchanges of ideas and paths to market, when firms seek opportunities for discovering and developing innovation (Chesbrough, 2003a). Thus the premise behind open innovation is opening up the innovation processes.

The inclination towards opening up of the innovation process is related to broader changes taking place in the inno-

vation environment that include working pattern changes, wider labor division caused by globalization, improved chances for trading ideas due to bet-ter market institutions and increased new technologies to support across-geographic collaborations (Huizingh, 2013). This predisposed firms to adjust their internal practices to accommodate a network organization and shun a fully closed innovation model.

However, upon careful considera-tion of the concept of open innova-tion, it emerges that open innovation is not a new concept. This is because exploring technology, processes or knowledge from outside or seeking opportunities to commercialize inter-nal processes, ideas or technology have been the pursuits of many organi-zations over many years (Huizingh, 2013). The urge to please customers has for long driven many businesses to gain customer feedback for further enhancement of products and services

TECH MONITOR • Apr-Jun 2014 21

Open innovation in SMEs

market one’s products, increasing one’s internal innovation capability, reducing cost, improving differentiation and many more which depict either a market-related, knowledge-related motive or both. The benefits and practices of open innova-tion have been widely researched among large firms while only limited researches have explored open innovation prac-tices among SMEs. (Lee et al., 2010). Thus studying open innovation as practiced by SMEs is vital; additionally so since SMEs make significant contributions to many economies. For example, in Malaysia, 96.6% of the manufacturing sector comprises of SMEs (Rosli and Sidek, 2013), thus a major contributor to the economy. One can cite similar figures for many other economies.

Within the context of open innova-tion, smaller firms tend to benefit more hence displaying an increasingly vital role of SMEs in the innovation landscape. Although open innovation has been extensively researched in large firms, SMEs are more likely to practice open innova-tion considering their limited assets and capabilities. As such, SMEs tend to explore non-internal innovation more than large firms, in the form of alliances or networks to expand their technological (Edwards et al., 2005; Rothwell, 1991) and knowl-edge competences. Narula (2004) stated that SMEs tend to focus on commercializa-tion as their strengths lie in technology for invention. This is because SMEs are riddled with limitations such as their inadequate capacity for manufacturing facilities and the lack of extensive marketing channels and global contacts. Large firms, on the other hand, focus more on R&D in their open innovation efforts. This implies that external support gained by SMEs at the commercializing stage would greatly accelerate the success rate of SME innova-tion, considering their asset and resource limitation (Lee et al., 2010).

Starting from this background, in this paper we look at the concept of open inno-vation in general and then zoom in on the factors that drive and inhibit implementa-tion of open innovation in SMEs. An exami-nation of the factors that drive and inhibit open innovation in SMEs is expected to help SMEs desirous of adopting open

innovation in such an endeavor. From a theoretical point-of-view, the paper will present a discussion of what does, and does not, drive open innovation in SMEs.

The paper unfolds as follows. Sections 2 and 3 explain the factors that drive and inhibit open innovation, respectively. The final section presents a summary of the paper.

What drives open innovation in firms?A review of several studies on drivers of open innovation revealed three major drivers of open innovation. Firstly, the challenges in the business environment serve as the primary factor that drives businesses to seek alternative strategies to handle these challenges. For example, Chesbrough (2003a) identified several changes in the business environment that compelled firms to engage in open inno-vation. These changes included increased mobility of knowledge workers, increasing availability of venture capital, easily acces-sible knowledge and decreased product lifecycles.

Secondly, firms are driven to engage in open innovation due to the potential benefits expected from open innova-tion. Chesbrough and Crowther’s (2006) interviews with 12 firms in the low-tech industries found that maintaining growth was a critical factor for firms to explore inbound open innovation. This is no sur-prise because both growth and revenues are reasons why entrepreneurs advocate openness in innovation. Likewise, meet-ing customer demands and acquiring new knowledge through venturing drive enter-prises to explore external technology, ideas and processes. In addition, firms engage in open innovation as they try to find ways to reduce time-to-market and improve utilization of internal innovations (van de Vrande et al., 2009). Moreover, research on innovation through collaboration has revealed that firms engage in open inno-vation practices with the objective to gain missing knowledge and complementary assets, spread risks, reduce costs, or expand the organization’s networks (Hoffman and Schlosser, 2001; Mohr and Spekman, 1994). Apart from the aim to access knowledge,

external knowledge exploration has been reported to be used as a means to estab-lish standards within the industry, to earn profits for infringements, to learn and to set cross-licensing agreements with other enterprises in order to ensure freedom to operate (Koruna, 2004). It is however pertinent to note that the strength of col-laboration ties is a crucial aspect of open innovation that makes innovation effec-tive, hence, collaborating alone does not guarantee success (Tomlinson, 2010).

Finally, a change in mindset towards open innovation has also been reported as a potential driver of open innovation. A study of 331 Danish SMEs showed that the effects of not-invented-here (NIH) and not-shared-here or not-sold-here (NSH) syndromes that hinder open inno-vation approaches can be overcome by training (Burchart et al., 2014). Training can help make conditions conducive for open innovation, hence, skills and capac-ity development provide an avenue for employees to increase their knowledge, understand and support the applica-tion of open innovation. Interestingly, Burchart et al. (2014) study showed that the level of adoption of inbound open innovation practices increased with specialized training on innovation and creativity. The same study also showed that outbound open innovation prac-tices increased with leadership training targeted at high potential employees. This research suggests that outbound open innovation, being a less common approach of open innovation, requires new processes, new mindsets and struc-tures within a firm. Thus it would require a leader who can drive such changes within a firm that would most likely see the benefit of outbound innovation and implement it. Alternatively, inbound inno-vation, which is a more common form of open innovation adopted by many firms, is likely to be supported by standard inno-vation training (Burchart et al., 2014).

What inhibits open innovation in firms?There are numerous stumbling blocks for open innovation. Fundamentally, these bar-riers to open innovation can be categorized

22 TECH MONITOR • Apr-Jun 2014

Open innovation in SMEs

In addition to employee mindset, the research done by van de Vrande et al. (2009) showed that the most impor-tant barriers to open innovation exist in the form of organization and corporate culture-related problems especially when two or more SME enterprises collaborate. This refers to open innovation involving venturing, participation in other firms, and the involvement of outsiders like users. Inter-organizational cooperation is needed for open innovation to succeed. Thus problems arise due to the separa-tion of tasks and responsibilities, inability to strike a balance between day-to-day operations and innovation activities as well as inter- and intra-organizational com-munication issues. Besides, administrative problems are common in collaborations. Similarly, receiving government subsidies and grants makes the recipient SMEs highly inflexible as such government funding for-bids them from changing partners during the course of the innovation process.

Being a complicated process, problems that do not get resolved when implement-ing open innovation hinder its effective-ness. For example, in collaborations all SME partners should be able to fulfill each other’s expectations but if these are not met, problems arise. Problems relating to property rights, adoption and customer demands that are too specific usually take place when users are involved in the innovation process. Employee related problems arise in the form of lack of capabilities, skills and motivation that hinder open innovation (van de Vrande et al., 2009).

SummaryOpen innovation coined by Chesbrough in 2003 has gained popularity in the field of innovation management and research. The principle behind open innovation lies in the free inflows and outflows of ideas, knowl-edge and technology between firms and individuals. The notion of open innovation implies that firms do not have to own all the R&D capability in order to be success-ful. Hence, it contrasts with the concept of closed innovation. Two types of open in-novation approaches exist – inbound or ‘outside-in’ and outbound or ‘inside-out’.

into two categories; internal factors and ex-ternal factors. Internal challenges include issues such as employee related problems (e.g., mindset resistant to open innova-tion, manpower shortage), poor planning, lack of R&D capability and so forth. On the contrary, external factors encompass issues such as challenges in collaboration, lack of resources (e.g., funding, market, techno-logical information), and so on.

Lee et al. (2010) conducted a study on 817 Korean SMEs that participated in innovation through active strategic alli-ance and identified barriers to innovation. The SMEs were divided into three groups (i.e. Groups A, B and C) and a comparison analysis was conducted. Group A included all SMEs; Group B consisted of SMEs with at least one innovation between 2002 and 2004; and Group C comprised of SMEs that had at least one strategic alliance for innovation purpose from 2002 and 2004. The analysis revealed that Group A had the least difficulties while Group C reported the most. The researchers con-cluded that SMEs who were more active in innovation activities thus participating in strategic alliances were more conscious of the difficulties involved. Thus the 10 barri-ers most often reported were (p. 296):

1) Difficulties in finding suitable man-power in a labor market;

2) Short of suitable manpower within the firm;

3) Market uncertainty in innovative products;

4) Imitation possibilities of technology innovation;

5) Short of ability in R&D planning and management;

6) Lack of technological information;

7) Funding difficulties due to high risk from technological uncertainty;

8) Funding difficulties due to high innova-tion and commercialization cost;

9) Lack of market information; and

10) Frequent turnover of human resources (usually for R&D)

The study by Lee et al. (2010) showed that barriers to open innovation faced by SMEs were different from large firms. SMEs

highlighted facing difficulties in terms of “lack of labor, information, infrastructure, and financial resources;” however, large firms reported barriers such as “oligopo-lists, needlessness of innovation and R&D department without power” (p. 296). Pertinently, barriers such as labor short-age, lack of information and finance can be overcome by collaboration while lack of infrastructure can be relieved by an intermediary that assists firms in achieving success in their innovation activities.

One major employee-related prob-lem that stops any form of innovation from succeeding is employee resistance. The success of open forms of innovation depends largely on employees’ attitudes (Burcharth et al., 2014). As innovations are created from collaborations with external parties, employee resistance becomes an ever-pressing issue for firms. Past studies have addressed two of the most significant attitudes that have an adverse impact on innovation. The not-invented-here (NIH) syndrome and the not-shared-here or not-sold-here (NSH) syndrome have been shown by researches to negatively affect open innovation (Chesbrough, 2003a; Katz and Allen, 1982; Lichtenthaler and Ernst, 2006). The NIH and NSH attitudes manifest a misalignment between top management’s intentions and the behavior of the employ-ees concerned as they create adverse perceptions of the value of external com-petencies and knowledge while only favor-ing internal development and application of ideas and know-how (Burcharth et al., 2014).

Katz and Allen (1982) first intro-duced the NIH syndrome to describe the decreased R&D team performance over time based on communication data. More recent researches revealed that the manifestations of the NIH syndrome could be seen in the overemphasis of within team relations and communications (Hansen, Mors and Løvås, 2005; Reinholt et al., 2011). The results of a study inves-tigating NIH and NSH in 331 Danish SMEs revealed that NIH prevents the adoption of inbound open innovation practices, while outbound open innovation practice was hindered by employees with the NSH syndrome (Burcharth et al., 2014). These findings support literature on the issue.

TECH MONITOR • Apr-Jun 2014 23

Open innovation in SMEs

Researchers have termed technology ex-ploration as inbound open innovation and technology exploitation as outbound open innovation. Open innovation have benefitted businesses in terms of speed to market, supporting internal R&D capability, increased growth and revenue, lower cost, increased differentiation and many more.

Many factors drive adoption of open innovation among large firms and SMEs. Some of the drivers of open inno-vation include changes in the business environment like increased mobility of workers, enhanced availability of ven-ture capital, decreased product life cycles and widespread knowledge accessibility. Firms venture into open innovation for growth and revenue purposes, while oth-ers embark on open innovation as a means to reduce time-to-market, increased capability of internal R&D and higher firm performance. Turbulence in the business environment is another factor that would encourage open innovation approaches. Human resources practices like training and development activities, too, have been reported to promote open innovation.

Not all open innovation initiatives bear fruit as firms do witness barriers to their open innovation activities. Some of these barriers include employee-related prob-lems like not-invented-here (NIH) and not-shared-here or not-sold-here (NSH) syndromes. This paper lists 10 barriers identified in the context of Korean SMEs that can hinder open innovation practices. Finally, collaboration practices have their own set of issues especially when two or more firms come together to innovate.

In sum, open innovation is a concept that will prevail in business studies and opera-tions in the near future. Sooner or later, it is expected to get fully integrated into the innovation management practices (Huiz-ing, 2013). Like all new tools and practices discovered, open innovation is expected to be an ‘outsider’ concept to innovation man-agement theory for some time. However, as time passes and research into open innova-tion practices proliferates, open innovation is expected to coalesce into the mainstream. Research into open innovation practices of SMEs, in addition to those of large firms, can well expedite that process.

AcknowledgementThis paper coincides with the ongoing re-search of the authors on “The Level of Open In-novation” in Malaysia (ref. no.: FP013/2011A). Funding of this grant was made possible through the Fundamental Research Grant Scheme (FRGS). The funder is the Ministry of Education, Malaysia. This research is be-ing currently managed and monitored by University of Malaya’s Institute of Research Management and Monitoring (IPPP).

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•  a digital library with more than 900 UNESCO documents on STI policies.

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