Inter-company networks for jointly developing

innovative products: Configurations and current

examples from German industry

Seminar Report

Submitted by Team 2 as a part of the requirements for TIM Seminar WS07/08

at the Hamburg University of Technology

Submitted by

Mahipat Ranawat

Paulius Armonaitis

Hamburg, 10 January 2008

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Abstract

Owing to the rapid technological advancement and globalization, the innovation

paradigm has shifted from closed innovation to open innovation. Adopting the open

innovation paradigm, companies increasingly look for external sources of ideas as well as

external paths for in-house technologies. On the other hand, the tendency of firms to

focus on their core competencies has made them to interact on a greater extent with their

suppliers. This increased interaction and collaboration has resulted in formation of

relationships between organizational entities. Organizations, along with their set of

relationships, form a network-type structure. Networks that focus on innovations are

referred as innovation networks. Inter-company networks, a sub-type of innovation

networks, focuses collaborative activities especially between firms among other

organizational entities.

The paper discusses networks in general and considers inter-company networks in

particular. With the growing number of inter-company networks and the need to identify

patterns within them, the concept of network configuration is discussed. At the end of

paper, examples of inter-company networks in Germany are provided and analysed with

reference to the theoretical background provided in preceding parts of the paper.

Keywords: Innovation networks; Inter-firm networks; Inter-company networks; Network

configuration; examples; German industry

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Table of Contents

1 Introduction 1

2 Overview of Networks 2

2.1 Changing business conditions and the need for collaboration 2

2.1.1 Shift to Open Innovation Paradigm

2

2.1.2 Changes in Organizational Structures

3

2.1.3 Collaboration as a Response

4

2.2 Defining Networks 5

3. Inter-Company Networks 6

3.1 Networks of Innovation 6

3.2 Inter-company Networks 7

3.3 Development Process of Inter-Company Networks 8

3.4 Benefits and Barriers 10

4 Concept of Network Configurations 11

5 Examples from the German Industry 14

5.1 Interactive Video Services Stuttgart 14

5.2 Biotech Region Martinsried/Munich (BRM) 15

5.3 Other Examples 17

6 Conclusion 17

References 19

Appendix i

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1 Introduction

In the foreword to Henry Chesbrough′s book on Open Innovation, John Seely Brown,

Director Emeritus of Xerox PARC, emphasizes the need to be innovative in the area of

innovation itself by calling the foreword as "Innovating Innovation". Rapid technological

advancement catalyzed by globalization has resulted in stellar economic growth

worldwide. The chances and challenges posed by these changes are central to the need

expressed by John Seely Brown. In response to this need to find new ways of innovating

products, network form of organizations has appeared encompassing the collaborative

activities between organizations. Academic community, industry and government bodies

have realized the importance of these so-called innovation networks. The initiatives for

inter-company networks are identified by the government as important measures for

regional and national-level economic development. With the increasing number of inter-

company networks, researchers are attempting to find a pattern within them by

performing empirical and statistical methods. This paper in context of the German

industry, tries to explore the theoretical aspects of inter-company networks and their

types (network configurations).

For this purpose, firstly, the paper provides an overview of networks by explaining how

changing business conditions resulted in an increase in collaborative activities between

organizations, which in turn lead to the formation of networks. The focus is then on inter-

company networks - its development process and related aspects. Next, the concept of

network configurations of inter-company networks is explained. Finally, selected

examples from German industry are analyzed against the above mentioned theoretical

aspects.

1

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2 Overview of Networks

2.1 Changing business conditions and the need for collaboration

2.1.1 Shift to Open Innovation Paradigm

Innovations, in simple terms, are inventions implemented and taken to market. They can

be either new products/services or processes aimed at providing the users with better

functionality and/or reduced costs than the existing ones. Successful innovations not only

rejuvenate the revenue streams of a firm, but also ensure that the firm continues to grow

or at least sustains itself. On the other hand, failed innovations or no innovations at all

can question the existence of the firm. With the underlying potential to create, sustain or

disrupt, the occurrence of innovations in a firm could not be left to chance. This demands

systematic planning and implementation of innovations within a firm.

With the embracement of the concept of innovation by the academic community since

early 20th century, the industry depicted a systematic approach to innovation. However, in

the last couple of decades, the impetus for innovation within industry has intensified and

has become more far-reaching than before. This can be attributed to the ongoing

integration of the world economies expressed by the phenomenon of globalization, which

on one hand has opened up an array of business opportunities for the firms and

challenges on the other (Tiwari, 2007:3). Ascribed to the disadvantage faced by the firms

in developed or industrialized nations to compete with the low-cost producers from the

emerging markets, the competitive advantage for these firms has predominantly become

innovation-driven (Tiwari(2), 2007). Additionally, the steeper technological advancement

following the World War II and the ever increasing market competition have led to

reduced life cycles for products and services. This collectively, in turn coerced the

industry and thereby the academic community to come forward with better and faster

ways of innovating.

2

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The process of finding these better ways to innovate resulted in shifting of the innovation

paradigm, ascertained by Henry Chesbrough (Professor at University of California,

Berkeley), and evinced by him as shift from the closed innovation paradigm to open

innovation paradigm. Closed innovation describes the paradigm of innovation persistent

predominantly in the post-war (after World War II) period, wherein the innovative firms

relied entirely on their own ideas and restricted the use of its inventions to a single

internal path to market (Chesbrough, 2003:19). In contrast, open innovation implies that

the source of valuable ideas for a firm can be from both outside or inside the firm′s

boundaries and the firm′s inventions can be taken to market using either internal or

external paths (Chesbrough, 2003:43). The possibilities include licensing, spin-offs, joint

ventures, lead users, involvement of internet communities, etc.

The authors of this paper have found internet communities of particular interest, as this

typically means user involvement in the innovation process. What is more interesting,

however, is that some companies seem to start a new trend in open innovation ­ setting

up internet portals and asking not (only) the users, but particularly companies to join their

innovation efforts

(refer to Siemens Medical Systems example).

In short, in today′s world, the adoption of a more "open" approach to innovation enables

the firms to bring new products and services faster to market and/or remain cost-

competitive, thereby enabling sustenance of the firms′ competitive advantage.

2.1.2 Changes in Organizational Structures

Another important aspect looking back in history is that approximately two decades ago

firms started facing "organizational revolution" (Miles and Snow, 1992:53) - an internal

structure change due to changing business conditions (increasing global competition,

shifting patterns of international trade and rapid technological change) (Miles and Snow,

1986:62-64). As a response, firms tended to be more dynamic and smaller. New

companies, especially in emerging industries, like biotechnology, have from the

beginning been flat and lean. Other companies in so-called mature industries (oil, steel,

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textiles) started downsizing. They tend not to have the departments which are not

performing well, and focus instead on their core competencies (Miles (1989:14-15);

Miles and Snow (1986:64)).

The important notion in discussing organizational changes is that very often, instead of

one complex organization with vertically integrated departments, there appeared a

number of organizations teamed up in a value chain. For example, a product would be

developed by a team comprising of the parent company, suppliers and probably allied

companies in multiple locations. (Miles, 1989:14,17)

2.1.3 Collaboration as a Response

The implication of the above mentioned changes was the need for collaboration with

other firms. Firms desiring superior innovation performance focus their collaboration

efforts on strategy, organization and collaborative capability development instead of

limiting themselves to the outsourcing mindset (MacCormac et al., 2007:1-3,16). Such

collaboration between firms and their partners can occur at different stages of the value

chain. The majority of the research literature is found to discuss collaboration in R&D

stage, which supports the reasoning that firms are increasingly looking for external

source of ideas as mentioned above. They try to focus where they have comparative

advantage and act in a coordinated manner to bring innovations to the market

(MacCormac et al., 2007:3, Perks and Jeffrey, 2006:67-68). Essentially, collaboration in

R&D, or jointly development of new products, suggested some benefits to companies.

However, there also exists literature discussing collaboration in supply chains,

manufacturing (See Krajewski and Wei, 2001; Shi and Gregory, 1998; Ruderg and

Olhager, 2003), and probably other stages in the value chain.

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2.2 Defining Networks

The engagement of firms into collaborative activities with other organizational entities

involves interactions between them. Blois (1972) describes these interactions in terms of

"relationships", since 1) the firms themselves tend to see their interactions as

relationships and 2) that over time the interaction results in a quasi-organization which

can be termed as a relationship. (cit. op. Håkansson and Snehota, 1995:25) Thus,

relationships can be described as "mutually oriented interaction between two reciprocally

committed parties" (Håkansson and Snehota, 1995:25). It is also argued that single

business relationships are part of a larger whole indicating interdependencies between

them. Interdependence between relationships here implies that things happening in one

relationship have effect on other relationships, which highlights the connectedness of

these relationships (Håkansson and Snehota, 1995:17). This suggests an aggregated

structure or a form of organization, which is qualified by Håkansson and Snehota (1995)

as a (business) network. Such understanding of network is also reflected by Lechner and

Dowling (1999:312), where they provided definition of network as: "a specific set of

links between a defined set of actors with the characteristic that the links as a whole may

be used to interpret the social behavior of the actors involved."

The concept of network can be visualized in Figure 1 in Appendix. As shown in the

diagram, a network consists of

actors

connected by

relationships

. Actors can be

individuals/teams/departments within organizations (for the purpose of this work they are

not discussed further), firms, research institutions or universities. Networks often need

facilitators,

which play pivotal role in the formation and sustenance of the network. The

function of facilitator is assumed by either actors themselves

(refer to DHL Innovation

Network and Siemens Medical Systems examples)

or government agencies

(refer to

Biotech Region Martinsried/Munich and Interactive Video Services Stuttgart examples)

.

Relationships are links between the actors and represent the interactions between the

network partners. The complexity of the relationships is best described by Håkansson and

Snehota in their book "Developing Relationships in Business Networks" (1995).

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3. Inter-Company Networks

3.1 Networks of Innovation

The formation of relationships with other firms in the network creates potential for

innovations by providing access to external capabilities and expertise (Bönte and

Keilbach, 2005:1). Naturally, this potential is not always realized. Sometimes companies

are not successful in capturing it, and sometimes networks simply fail before innovation

is generated. Innovations for a network participant can result either as a positive

externality of participation in the network and/or by the attainment of explicit network

objectives.

The term innovation networks is used quite often by the academic community while

referring to networks of organizations, however, it is not clear as to what relation(s)

between the network and innovations allow to qualify it for this term. As mentioned

above, the network′s relation to innovation can be different.

Furthermore, on review of scientific literature a clear and authoritative definition of

innovation networks seems to be non-existent. However, researchers in this field have

made attempts to construct their own definitions. One such definition is provided below:

"Innovation networks can be understood as all organizational forms between market and

hierarchy which serve for information, knowledge and resources exchange and which

help to implement innovations by mutual learning between the network partners".

(Fritsch et al., 1998, cit op., Koschatzky et al., 2001:5)

For the purpose of its own reference, Forfás (2004:1-2) defined "innovation networks" as

independent groups of institutions and/or companies that are:

"Collaborating and competing;

Geographically located in one or several regions nationally;

Specialized in a particular field, linked by common technologies and skills;

Either science-based or business related;

Either formal or informal."

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3.2 Inter-company Networks

Attempts have been made to categorize networks based on the composition of actors. One

such attempt made by Forfás (2004) divides networks into three types:

Academia-academia networks

Industry-academia networks

Industry-industry/inter-firm networks

Academia is referred to as universities and/or research institutes and industry as firms. It

is further suggested that in inter-firm networks all the actors should be firms. However, in

the same report, it is admitted that there is a "lack of a universally accepted definition of

inter-firm networks" (Forfás, 2004:39).

The focus of this work is on inter-company networks, also referred to as inter-firm

networks. According to above classification, all actors of inter-company networks should

be firms. However, authors′ review of existing networks comprising of firms reveals that

the majority of them in some way also include non-profit agencies (universities, research

institutes or government bodies)1. For the purpose of this paper, such networks shall also

be classified as inter-company networks, but firm-academia relationships will be of

limited interest. This approach can be supported by Jones et al. (1997:914) definition of

inter-company network, which is referred to as "a select, persistent, and structured set of

autonomous firms (

as well as nonprofit agencies

) [...]".

Inter-company networks may involve a specific activity or a number of activities between

its network partners, namely: R&D collaboration, joint product development, technology

transfer, technical problem solving, training, joint-marketing, bulk purchasing, and sub-

supply. (Forfás, 2004:12) By the virtues of synergy and organizational learning inherent

to the network arrangement, inter-company networks are increasingly becoming the

source (direct or indirect) of innovations for firms. They can therefore be aptly referred to

as

inter-company innovation networks

. For the purpose of this work, more focus will be

1 Refer to Interactive Video Services Stuttgart example.

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on inter-company networks wherein the network partners engage themselves in joint

development of innovative products.

3.3 Development Process of Inter-Company Networks

Different schools of thought are prevalent in the research community with regards to how

inter-company networks develop (Batonda and Perry, 2003:1). Figure 2 in Appendix

shows the development process proposed by Lechner et al (1999:313).

As described by Lechner et al (1999, p.313), the development of an inter-company

network starts with the firm′s

social network

that embeds its social relationships, both at

personnel and at organization level. The geographically-confined and over-proportional

agglomeration of firms based on their social networks is defined in the first place as an

industrial district

. Increasing collaborative activities and strategic alliances between

relatively small firms in an industrial district leads to a network arrangement, which is

referred as a

regional network

. Late presence of a large firm for benefiting from and/or

guiding the existing regional network or emergence of dominant firms within the existing

regional network, transforms the regional network into a

strategic network

(the word

"strategic" highlights the strategic objectives of large or dominant firms). The early

presence of a large firm, however, could have a negative influence on the formation of

network. Furthermore, strategic networks that are not confined to their regional roots are

alternatively referred to as

strategic non-regional networks

.

It is important to understand that a regional network is constituted of several individual

inter-company networks. These inter-company networks are interconnected with each

other owing to the commonality of participants between them. Inter-company networks

can be static or dynamic, in the sense that in the former the core of network partners do

not change, and in the later the network partners continuously enter or leave the network

(Prasopoulou and Poulymenakou, 2006:293). The longevity of most inter-company

networks (static or dynamic) is medium-term or long-term (Prasopoulou and

Poulymenakou, 2006:293), however, it is also possible that an inter-company network is

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short-lived. This may result either due to earlier accomplishment of the network

objectives or failure of the network

(refer to Interactive Video Services Stuttgart

example)

.

Furthermore, the partners that can support a firm in its innovation activities can be of

different types, namely: suppliers, competitors, distributors, buyers, consultants, co-

suppliers, research and training institutes or government bodies (administration)

(Gemünden et al., 1996:450). An inter-company innovation network formation can

involve

formal

or

informal

co-operation between these partners and the firm. Formal

cooperation implies legally binding contracts or coordination between the network

partners, whereas informal cooperation implies vice versa (Bönte and Keilbach, 2005:1).

Additionally, inter-company networks comprising of suppliers, co-suppliers, distributors

and buyers, embedded strongly in the production and value chain, are distinguished as

vertical networks (Koschatzky et al., 2001:5). In contrast, the horizontal

networks

can

comprise of competitors, consultants and/or research & training institutes (Koschatzky et

al., 2001:5).

Another important aspect in the evolution of inter-company networks is the guidance that

serves the purpose of controlling element for the network. The network may be managed

by the "invisible hand"2 of external context or by a controller that is explicitly a part of

the network (Schuh et al., 2007:503). The networks employing the former may be

referred to as

self-organizing networks

, and the latter as

guided networks

(Schuh et al.,

2007:503). In guided networks the interaction between network partners is explicitly

planned prior to the initiation of network activities. Such a planning is performed by the

controller which can either be a focal company or non-profit institutions like academia

and government agencies. The focal company here implies the firm, which perceives the

collective interest in formation of a network and undertakes the development of network.

2 Refers to the concept of Adam Smith′s "invisible hand", wherein the coordination of production and

consumptive activities in a market is organized by the market itself as an unintended outcome the economic

actors pursuing their own self-interest. On similar lines, a self-organizing network is controlled by the

"invisible hand" which results from the network partners pursuing their own interests.

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Intervention of the State in network formation initiatives has proved to be fruitful. The

first success was witnessed in Italy, wherein the regional government in the north-east

introduced policies in 1970s to foster inter-company networks (Forfás, 2004:4). Most of

the developed countries (including Germany3) today have embedded this kind of

initiatives in their national policies. The involvement of State is especially considered

valuable in the regions where small and medium enterprises form a predominant

component of the enterprise structure (Forfás, 2004:11). Furthermore, the State can foster

the formation of inter-company networks either directly and/or indirectly

(compare

Interactive Video Services Stuttgart and Biotech Region Martinsried/Munich examples)

.

Since small and medium enterprises often lack the necessary know-how of network

arrangements or are constrained by resources, the State can facilitate the process of

network formation via government agencies or provide adequate funding. Additionally,

the State may devise economic policies that provide incentives to firms for participating

in networks and thereby accelerate the formation of inter-company networks.

3.4 Benefits and Barriers

In the changing business environment, inter-company networks are increasingly seen as a

valuable tool for sustaining or developing competitive advantages of firms and thereby

promoting the overall economic development. Some of the benefits for the firms

participating in inter-company innovation networks are presented below:

Improved ability to respond quickly to the changing market conditions by offering

new products. (Forfás, 2004:12)

Sharing of costs and risks of innovations (Forfás, 2004:11)

Organizational learning due to interaction with partner firms.

Extension of the own product range owing to the access to partner firms′

complementary technologies.

3`Kompetenznetze Deutschland′, is an initiative by the German Federal Ministry of Economics and

Technology to foster inter-company innovation networks in Germany. It currently includes 117 regional

inter-company networks, which are the best in Germany. See figure 4 in Appendix for distribution of these

regional networks based on different fields.

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Exploiting the value of in-house technologies by taking them to market through

partner firms′ business models.

Despite of the above listed benefits, often this potential is not realized. Some of the

barriers to formation of inter-company networks are presented below:

Lack of awareness of the benefit of networks (Forfás, 2004:12) and uncertainty

with regards to the activities the firm will have to undertake.

Fear of competitors getting access to the firm′s knowledge (Forfás, 2004:12)

Resources in terms of time and investment discourage the firms from undertaking

network formation initiatives. Managers of small and medium firms are engrossed

with day-to-day transactions, leaving them with little time to think on long-term

basis.

Presence of large firm hinders the cooperation between smaller firms as they

compete with each other for positioning themselves in the larger firm′s value

chain (Lechner et al. 1999:313-314)

Risks of network failure leading to loss of invested time and capital.

4 Concept of Network Configurations

The concept of inter-firm network configuration in this paper is based on works of

Bensaou and Venkatraman (1995) and Gemünden, Ritter and Heydebreck (1996), as they

seem to be the pioneers in reporting the "configurations at the level of inter-

organizational relationships" (Bensaou and Venkatraman, 1995:3).

However, neither these authors (despite writing specifically about configuration), nor

other sources of scientific literature researched provide a definition of network

configuration. This paper suggests that from the two research works mentioned above it

can be understood that (1) networks are referred to as n-dimensional, where n is a discrete

number, (2) dimensions can be described by a number of indicators, and (3) configuration

can be understood as a description of a distinctive type of inter-firm network

arrangement, characterized by a set of indicators with specific values. Furthermore, a set

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of configurations acts as a framework to classify inter-firm networks. This is a very

simplified representation indeed, but it explicitly explains how configuration is

understood in this paper, and this understanding is based on empirical studies of

established researchers.

To proceed with an example of a set of configurations, consider the one proposed by

Gemünden et al. (1996) who analyzed companies from the German high-tech industries.

The set is comprised of seven configurations: the island, the manufacturer, the toddler,

the highway, the visionary, the competence acquirer, and the spider (Gemünden et al.,

1996:453-455). These names do not seem to make much sense when taken out of the

context but referring to the understanding of configuration provided above, each of them

describes a particular type of network arrangement. For example, consider

the

manufacturer

:

"This type of company interacts with suppliers and customers much more intensively

than with universities and consultants. Manufacturers are heavily oriented towards their

upstream and downstream production partners. The overall degree of interaction with

external partners is low." (Gemünden et al., 1996:455)

Following the research based on empirical data, out of 321 German companies from hi-

tech industries categorized in two dimensions, 64 were best characterized by

the

manufacturer

configuration. When referring to the term

dimension

, this paper refers to

Gemünden et al. (1996), since they use specifically this term. However, explicit

definition is not provided for this concept in either of the two papers. On the other hand,

both papers present some viewpoint, based on which a set of configurations is developed.

For example, Gemünden et al. (1996) proposed that different firms need different kinds

of resources to be successful, and that because of this need they would choose different

types of actors as their network partners. Bensaou and Venkatraman (1995:6) argue that

inter-firm relationships in a network can be seen from the information-processing view,

and taking this viewpoint, they see two dimensions ­ information processing needs and

information processing capabilities.

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After deciding on dimensions, as a next step in compiling the set of configurations, both

papers provide a list of indicators. An indicator can be understood as a measurable

variable that can be assigned a value, which can be either of binary (i.e. yes/no), or

discrete (for example, in the scale 1 to 5), or possibly continuous type. The values are

obtained empirically, by sending out questionnaires to companies, and then the data is

analyzed statistically. Statistic techniques applied are very individual and the researcher

has to be proficient in selecting appropriate techniques and methods, as well as in

interpreting the results. To discuss this complexity in detail is beyond the scope of paper,

but it is worth noting that software (such as SPSS) uses statistical methods (such as

Variance Ratio Criterion (VRC)) to determine the number of clusters. This is important

because it means that the number of clusters is chosen in a most possible objective

method. Finally, a cluster, or a configuration4, is given a name (such as

the manufacturer

,

discussed above) and general conclusions are made.

From what has been explained above, the important implication for this paper is that

dimensions are implicit in the viewpoint taken towards inter-firm network arrangements.

The scope of this paper does not allow for own empirical investigation, so no specific

viewpoint has been taken by the authors. Consequently, instead of constructing a

conceptual model and deriving the set of configurations, just some dimensions are

provided for the purpose of exemplification:

Strength of relationships between actors

Relative importance of network partners

Innovation performance of the network

4 The term "cluster" is used in statistics, but when describing networks, researchers tend to use

"configuration" instead.

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5 Examples from the German Industry

5.1 Interactive Video Services Stuttgart

In this example, based on a study by Fuchs and Wolf (1997), government′s role as a

coordinator is discussed, as well as the aspect of horizontal network relationship, as well

as the attention to the risks that could lead to network failure is drawn. The structure of

this network is depicted in Figure 3 in Appendix.

Government has access to a wide range of information which helps its agencies to set up

inter-firm networks. Not all of them are successful, however, and some simply fail due to

various reasons. This example illustrates a failure of inter-firm network.

The government of Baden-Württemberg, a state in South Germany where this project

took place, takes an active role in spreading innovation locally. After discussing with

managers of regional corporations, an idea of a pilot project on interactive video services

in Stuttgart emerged in 1993/1994. The goal was to induce regional actors to cooperate

and jointly develop new interactive video products. The participants were major

corporations, Deutsche Telekom, Alcatel-SEL, Bosch Telecom, Hewlett Packard, and

IBM, while government acted as a facilitator, and network was complemented by

academic institutions. The corporations, even though multinational in general, were

active in that region. For this project they were not competing with each other and took

responsibility for different areas.

The network represents a good example to the discussion of what is an inter-firm

network. The structure shows a number of actors, both public and private. The source

stresses the importance of firms, and point out that their relationships were much more

important looking from the perspective of a network than those with other actors, and this

is why it makes more sense to refer to it as an inter-firm network example, and not

industry-academia network.

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Despite all the good intentions of government, this network failed when firstly IBM, and

then Deutsche Telekom withdrew. As to the reasons of failure, Fuchs and Wolf

(1997:281) cite the problems of selectivity, i.e. the decisions in the very beginning of

network formation. On the other hand, the researchers cast light on the fragility of

networks where competitors try to cooperate. They argue that problems arise due to lack

of commitment from actors in network functioning, especially in network governance

area, as well as due to technical complexity and market uncertainties (Fuchs and Wolf,

1997:282-283).

Even if the multi-nationals were not competing in this network, their out-of-the-network

competition in different areas negatively influenced the collaborative activities within the

network. Conclusively, companies face risks when joining into networks and it is

important that all actors in a network take them into account, do their best to avoid them

and learn from cases like Interactive Video Services Stuttgart.

5.2 Biotech Region Martinsried/Munich (BRM)

Based on the number of regional networks, biotechnology is one of the leading fields

within Germany. This is supported by the fact that biotechnology regional networks are

the highest in number among other networks under "Kompetenznetze Deutschland"

initiative (see Figure 4 in Appendix). The selection of this example for analysis is to

reflect the importance of this field. In addition, here the role of coordinator is discussed

further, the aspect of small and big companies in a network is touched, as well as

reference to network evolution is made.

Powell and Brantley (1992, cit op. Lechner and Dowling, 1999:320) claim that one of the

outcome of network is learning, and therefore in some industries where knowledge is

often renewed and not concentrated (such as biotechnology), the network formation

should be more intensive. The biotech industry is often characterized by small start-up

companies which are dependent on academia for the basic research. However, bigger

pharmaceutical companies seeing industry potentials are more commercialization-

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oriented and do not seek academic contacts so much (Powell, 1998b, cit op. Lechner and

Dowling, 1999:319)

In general, funding of public research institutions is crucial for the development of

biotechnology, as summarized by Trippl et al. (2006:2), and that′s where the government

agencies step in as facilitators, as well as coordinators. Their own results (Trippl et al.,

2006:24) show that "[...] funding and provision of infrastructure are still very important.

They are, however, combined with newer forms of intervention such as brokering, advice

and cluster management services, resulting in a relatively balanced mix [...]".

In this example, government agencies acted exactly in the above mentioned way ­ they

provided funding, as well as organized a competition to create industrial districts for

biotechnology in Germany. The competition was won by Biotech Region

Martinsried/Munich, which was strategically suited best. The established network was a

coordinated one, but instead of a governmental agency, a private company Bio-M AG

undertook the role of coordinator and facilitator. It evolved as an initiative of

representatives from academia, economic institutions, firms and associations, and later on

supervised the distribution of funds. (Lechner and Dowling, 1999:320-325). The

important difference from the previous example is that the actors here are more diverse,

more numerous and such initiative seems to have more advantages in managing the

network.

In this example, other actors are academic institutions, venture capital firms, large

(multinational) firms and small firms and start-ups (Lechner and Dowling, 1999:323) that

have different relationships with each other. This fits well with the viewpoint of

Gemünden et al. (1996:450) where it is recognized that different firms need different

resources, and thus different network partners. For example, the strength of ties between

venture capital firms and small and medium enterprises is probably higher if compared to

large firms, since the latter do not need external funding.

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5.3 Other Examples

The above mentioned examples could be analyzed in more detail, since adequate

references were available. However, not many well-researched case studies of inter-

company networks in German industry are available, at least in English language, and

therefore many interesting examples are awaiting academic attention. Based on the

information from company websites and/or press-releases, we provide a few more

examples that illustrate important aspects of inter-firm networks.

In the examples so far, in one way or another, government agencies have been involved

in network. As mentioned above, however, instead of government agency, a firm itself

can act as a facilitator and coordinator of the network, as a focal firm. Two examples

illustrate this case, DHL Innovation Network and Siemens Innovation Network. DHL has

taken a more traditional approach and has formed a strategic partnership with other large

firms (IBM, Intel, Philips and SAP) for jointly developing new technologies to increase

the efficiency of the supply chains. Siemens Medical Services goes one step further, and

in its Innovation Center section invites firms to join their innovation network. Four types

of possible cooperation is listed on company website: research cooperation, equity

investments, co-development agreements and licensing agreements or acquisitions.

Another interesting example is Clean Energy Partnership between automotive and energy

companies for jointly developing hydrogen fuel technology. There the two actor groups

support each other by complementary technologies, but groups consist of competing

companies.

6 Conclusion

This paper focuses on inter-company networks and provides insight into different aspects

of such collaborative arrangements. The concept of network configurations is then

introduced, followed by analysis of representative examples of inter-company networks

from the German industry. The attempt of complementing theoretical aspects with

examples intends to provide practical understanding of the complex relationships that

exists between firms engaging in joint development of innovative products.

17

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Germany is considered as one of the leading countries in the world in terms of generating

innovations, which is reflected by the large number of innovation networks existing

currently in the country. The increasing interest of government in fostering the economic

development by utilizing inter-company networks as a tool, is seen in one of its initiatives

like "Kompetenznetze Deutschland" that represents 117 leading innovation networks of

Germany.

In the start of the paper, it was discussed how changing business conditions resulted in

emergence of inter-company networks. It will be interesting to see how economical

environment will be affected by this form of quasi-organizations in the future.

18

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Appendix

Actors

Relationship

Figure 1: Representation of a Network Structure

Source: Self-construction

Region

Industrial

Districts

Social

Regional

Strategic

Network

Network

Network

Strategic

Non-regional

Network

Figure 2: The Development process of Networks

Source: Lechner and Dowling, 2000, P. 313

i

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Ministry of Economic

Affairs

Research Institutes

(Trial Evaluation)

Consortium of

Network

Participating

Technology

Provider

Households

Providers

Research Part-

ners (ACTS)

Subcontractors

Content Providers

Subcontractors

Figure 3: Contractual Relationships in the IVSS Network

Source: Fuchs and Wolf, 1997, P. 279

ii

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Distribution of Regional Networks (Kompetenzenetze Deutschland) based on Fields

Biotechnology

Optical Technologies and Laser Technology

Medical Engineering

Mechatronics and Microsystems Engg.

Nanotechnology

Industrial Manufacturing

ks
or

Information and Communication Technology

e
t
w

Materials Science

N

Traffic and Transportation

onal
e
gi

Power Engineering

e
R
h

Genomics

t

Medicine

e
l
d of

Fi

Maritime Technologies

Environmental Technology

Bionics

Agrobusiness

Aerospace Technology

Education and Training

0

2

4

6

8

10

12

14

16

18

No. of Regional Networks

Figure 4: Distribution of Regional Networks (Kompetenznetze Deutschland) based

on Fields

Source: Self-construction modeled after: Federal Ministry of Economics and Technology,

2006, P. 10-11

iii

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