Overall Portfolio Management
According to different studies, it has been observed that even the largest innovation active companies nowadays cannot depend on internal sourcing only but also require knowledge from the outside during innovation development. On top of doing their research, as well as development, diverse organizations have been noted to typically engage in knowledge acquisition on the technology market. In this context, in acquiring this knowledge, these firms apply aspects such as licensing, contracting out R&D, and acquisition of other companies or attraction of experienced researchers with pertinent knowledge.
Transaction costs method observes whether it will be preeminent for a company to develop its own technology or obtain it from the market. In other words, the internal as well as the external activities of innovation are treated as substitutes. Consequently, the joint occurrence of these activities of acquiring knowledge internally or externally at the organizational level remains to be suggestive of complementarity sandwiched between the activities. In other words, as the level of one activity increases, so is the marginal of the other activity (Mortara & Ford, 2012). Therefore, own internal knowledge has been observed to increase the marginal return to external strategies of acquiring knowledge, a concept that is reminiscent of the ‘absorptive capacity’ notion introduced by scholars that stresses on the significance of a preceding know-how stock for scanning, screening and absorbing external knowledge. In unison, external knowledge access can leverage internal R&D activities’ efficiency, especially after the company has exhibited a motivation of taking on external knowledge and ideas.
Even though, most companies have mainly placed their focus on internal processes in innovation management, the propping up of new models, so termed as Open Innovation has forced them to rethink their innovation management (Stucki, 2009). In this sense, ideas and knowledge are no longer obtained only from the inside but also from the outside of the boundaries of the organization. As a result, this purposive inflow and outflow of know-how along with resources results in better innovation performance. In short, several companies from diverse industries all over the world are nowadays changing their innovation approaches from centralized R&D to open-innovation approaches (Fredberg, Elmquist & Ollila, 2008).
It is due to increased competition among firms that numerous companies have engaged in the search for emergent innovation models as a way of gaining competitive advantage on top of escalating their performance. Execution of these novel models requires strict judgments on strategy and even execution from the management of the firm (Stucki, 2009). Strategy here refers to performance of diverse activities from the ones of the rival firms or carrying out similar activities in distinct ways. Strategy is encompassed by several risks including consumer behavior uncertainty, competition alongside technological changes.
On the other side, execution happens exclusively inside the organization and involves carrying out the choices. In this sense, execution portrays the way by which individuals who are working together in a firm’s setting mobilize resources with the aim of supporting the strategy (Stucki, 2009). In spite of the best efforts of the firm, the manner by which individuals and processes work in unison in multifaceted firms remain to be very hard to unravel and transplant somewhere else with the same findings.
It is understood that execution, just like strategy does not present itself to conventional cause and effect relationships. Thus, it always remains to be significant for all management of the company to define the most significant elements of execution through thorough understanding of the fact that since the company is working against several rivals, choosing the best dimension of execution would be highly significant (Lee, 2016). Consequently, the main challenges that face firms, which are in the process of implementing these novel practices such as open innovation models are two-fold. Firstly, the organizations have to scrutinize the features manipulating their decisions as a whole alongside their innovation management: strategy (Stucki, 2009). Secondly, adaption of the models by the individual, in accordance with the influencing factors remains to be highly crucial for every organization: execution.
A likelihood of transforming the innovation management of the company to changed environmental preconditions has been observed to be the execution and dissemination of the aforementioned open innovation models. The perception behind the conventional closed models has been realized that in order for innovation to be successful, control has to be applied. It is thus, proposed that companies have to generate their own thoughts and then extend them, put up, promote, service, fund and even sustain them on their own (Fredberg, Elmquist & Ollila, 2008).
Significantly, closed models have to counsel businesses on the basis of becoming self-reliant since no one can be sure of availability, quality and even capacity of the ideas of others. Even though open innovation models have assumed the fact that enterprises may and have to apply both internal and external ideas along with conduits to market at times when the businesses are aiming at discovering and realizing innovative opportunities alongside generating values (Stucki, 2009). In addition, internal ideas may be taken to markets via external channels, a context that refers to the outside of the current business of the firm, with the aim of generating additional value.
According to research, the ideas involving internal innovation may also originate from the company, although it has been noted that some of these ideas may either seep out in the early and later phases of the innovation process (Stucki, 2009). Several researchers have identified three main processes within the open innovation models that include, outside-in process, inside-out process and coupled process.
In the outside-in process, the interior knowledge of the corporation is joined with the external ideas of customers, suppliers as well as cohorts via a dynamic technologies transfer both from organizations and even institutions of higher education. The opening of the innovation processes along with the integration of the external idea sources through cooperation with customers and suppliers may be the core company’s competency (Chesbrough & Crowther, 2006). Particularly, companies in low-technology industries have portrayed a tendency of concentrating more on outside-in process in spillovers estimation from technology-intensive industries.
On another angle, inside-out processes encourage external commercialization. The time-to-time market gets shorter, not to mention that the technologies are better multiplied via licensing than possible in internal exploitation (Stucki, 2009). Most firms that focus on this process have been seen to be strongly engaged in research, thus, they aim at reducing fixed costs for study along with development, and even share the risks surrounding innovations with other firms.
Coupled process in open innovation connects the integration of ideas for conjoint innovation processes in combined business enterprises, innovation networks and alliances (Chesbrough, 2003). In this case, for the execution of cooperative innovation processes in any firm, two major conditions have to be considered. The first condition is that companies should contain the capacity of adopting external knowledge on top of integrating it into their own knowledge and technology background (JAAG, 2008). The second condition remains to be that the involved company has to externalize the internal ideas so as to make sure that the partners benefit. Consequently, this success relies on the right selection of the partner for a productive collaboration.
Overall Portfolio Management
Evidently, diverse improvement initiatives within a firm take place for distinct technical, strategic as well as operational reasons, not to mention that they are implemented by different teams. Research has it that the alignment of such initiatives remains to be a key competency that is needed by firms in the successful implementation strategy along with achieving strategic goals and objectives (Mortara & Ford, 2012). Aligning certain support functions including Human Resource and Information Technology along with aligning operational business units with business strategy has been widely researched and even documented.
The conventional competitive advantages including market position, production capacities, scale and even delivery models remain to be significantly static competencies in the uncertain business environment today (Chesbrough & Crowther, 2006). Notably, on top of these competencies being highly crucial in gaining competitive advantage, they also take a crucial time in developing, along with quickly becoming irrelevant in today’s fast-changing world. Companies undergo diverse types of change; change may be used in supporting the achievement of the business strategy (doing things better) or it may change the business strategy through doing things differently. As a result, this change in any company can be expressed to range on a continuum from small optimizations of the occurring activities to significantly radical as well as disruptive innovation. In this sense, one can understand that being good at change does not necessarily encompass successful execution of the specific change only, but also the manner by which the rest of the organization is aligned with change (Stucki, 2009). Alignment in this case refers to the desirable or proper relation and coordination of components whereby in strategy context, alignment refers to the fit between the firm’s internal framework alongside its external environment.
Significantly, through intensified companies’ cooperation with research, additional know-how has been observed to move from the outside to the firms. According to this phenomenon, effective and efficient transfer of knowledge and technology makes the companies benefit from marketable products alongside from process technologies, thus, enhancing the profit and substantially reducing costs. For a significant growth of companies in terms of economic interest in ideas and technology transfers, companies need to apply new models of transfer (Stucki, 2009). In other words, companies need not to operate as inactive knowledge recipient, but rather act as information associates, actively involving their requirements into the knowledge transfer processes.
Moreover, competitors remain to be one of the most important benchmarks in defining the degree of innovation. In differentiation relevance, competitors have to be considered for design processes, test, and implementation and even in introduction on the market. Thus, even though innovations with rivals can initially seem to be counterproductive, companies have to realize that strategic relations with such competitors will always be additional possibilities to increasing the company’s innovativeness. There are two major advantages of such collaboration including market growth and increased or defended market share.
On top of doing their research, as well as development, diverse organizations have been noted to typically engage in knowledge acquisition on the technology market. In this context, in acquiring this knowledge, these firms apply aspects such as licensing, contracting out R&D, and acquisition of other companies or attraction of experienced researchers with pertinent knowledge. Transaction costs method observes whether it will be preeminent for a company to develop its own technology or obtain it from the market. In other words, the internal as well as the external activities of innovation are treated as substitutes. Evidently, diverse improvement initiatives within a firm take place for distinct technical, strategic as well as operational reasons, not to mention that they are implemented by different teams. Research has it that the alignment of such initiatives remains to be a key competency that is needed by firms in the successful implementation strategy along with achieving strategic goals and objectives. Even though innovations with rivals can initially seem to be counterproductive, companies have to realize that strategic relations with such competitors will always be additional possibilities to increasing the company’s innovativeness. There are two major advantages of such collaboration including market growth and increased or defended market share.
Chesbrough, H & Crowther, A. (2006). “Beyond High Tech: Early Adopters of Open Innovation in Other Industries”, R&D Management, 36 (3): 229-236.
Chesbrough, H. (2003). Open Innovation. The New Imperative for Creating and Profiting from Technology. Boston: Harvard Business School Publishing.
FREDBERG, T., ELMQUIST, M. & OLLILA, S. (2008). Managing Open Innovation –Present Findings and Future Directions. VINNOVA Report VR 2008 02.
International Journal of Regulation and Governance, 7(2): 147-156.
JAAG, C (2008). “Innovation in the Swiss Mail Sector: Deregulation versus Liberalization”,
Lee, J. (2016). How Does External Knowledge Source Influence Product Innovation In Korean Firms. The Journal of Business Research, Volume 32(2). Retrieved from, file:///C:/Users/admin/Downloads/9588-Article%20Text-36030-2-10-20160218.pdf
Mortara, L. & Ford, S. (2012). Technology acquisitions: A guided approach to technology acquisition and protection decisions. Centre for Technology Management, Institute for Manufacturing, University of Cambridge. Retrieved from, https://www.ifm.eng.cam.ac.uk/uploads/Resources/Reports/technology_acquisitions.pdf
Stucki, A. (2009). Internal and External Factors Influencing the Implementation and Diffusion of the Open Innovation Models: The Case of the Postal Sector. Retrieved from,https://infoscience.epfl.ch/record/142841/files/PaperGPREN_astucki.pdf?versi=1
- Quote paper
- Business Administrator Mutinda Jackson (Author), 2018, The Policy of Internal Innovation and External Acquired Technologies, Munich, GRIN Verlag, https://www.grin.com/document/429525