Entrepreneurship through relationships – navigating from creativity to commercialisation Sigvald J. Harryson Lund University School of Economics and Management, Copenhagen Business School, Innovation and Organizational Economics, Kilevej 14A, DK-2000 Frederiksberg. sh.ino@cbs.dk
This paper explores the role of relationships in the emergence of a network’s value creation structure. The strategic navigation from creative exploration to global exploitation through the use of so-called transformation networks is particularly highlighted. The creativity phase requires a creator with visionary leadership. The commercialisation phase, on the other hand, requires technology integration and global marketing excellence. Realising that this requires more than a bright inventor, the creator of Anoto brought in the right complementary assets at distinct phases of the commercialisation process. Our case illustrates how integrator and marketeer profiles were brought into a networked act of entrepreneurship for joint navigation across an ocean of relationships that gave birth to a global standard for digital writing. By combining theories on open innovation and networking, a theoretical framework is developed to analyse the different nature of the networks (or the value creation structure) in which complementary assets can be accessed, transferred and transformed into commercialised innovation. The analysis suggests that the value of complementary assets are embedded in and unlocked by three distinct types of networks: creativity networks, transformation networks and process networks. It also suggests that the ideal approach to accessing complementary assets shifts over the research and development management process, and happens through these three different types and levels of networks, requiring fundamentally different approaches to leadership and relationship management. Current literature describes open and networked innovation as a continuous – not dynamic – process of exploration and exploitation without any distinction of how types and structures of networks evolve and interact in the process.
1. Introduction
W
hile the entrepreneur often is the driver of creativity and invention at the early organic stages, (s)he may not always have the leadership capability most suited to moving into the more rigid processes of exploitation and commercialisation. (S)he may even be a barrier to outsourcing decisions, or networked solutions, that can be vital for moving from concept creation to business implementation (Holt, 1992; Davidsson et al., 2001; Hill, 2001; Nilsson, 290
2003). As we gain deeper understanding of the drivers of entrepreneurship, we see an opening of innovation processes that are getting increasingly networked. This evolution is partly captured by the literature, in which the ‘ideal’ models of and processes for innovation have experienced a linear evolution from a traditional closed system towards more or less exclusively open and strategically networked systems. It could be argued that the academic analysis of this evolution was initiated by Teece (1986) and his seminal article addressing how integration of specialised comple-
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Entrepreneurship through relationships mentary assets could allow companies to better proďŹ t from innovation. His ideas inspired a number of accounts dealing with the role of external constituents in increasingly open innovation processes. This also triggered an evolution in terms of terminology – reviewed chronologically: Open company development strategy (Nystro¨m, 1990), and extended research and development (R&D) boundaries of the ďŹ rm (Pisano, 1990, 1991); Openness to innovation (Salford, 1995; Baume et al., 1996; Berthon et al., 1999); Know-who based innovation (Harryson, 1996, 1998, 2000; Lundvall, 1998; Hedberg et al., 2000); Outsourced R&D (Howells, 1999; Oswald, 2000), outsourced innovation (Quinn, 2000; Bean, 2001), innovation sourcing strategy (Linder et al., 2003); Innovation networks (Freeman, 1991; Simmie, 1997; Pittaway et al., 2004; Fowles and Clark, 2005; Powell and Grondal, 2005; Perks and Jeffery, 2006); Networked innovation (Powell et al., 1996; Millar et al., 1997; Ahuja, 2000; Hellstro¨m and Malmquist, 2000; Oswald, 2000; Tuomi, 2002; Hardy and Lawrence, 2003; Radjou, 2005; Salman and Saives, 2005; Swan and Scarbrough, 2005); Open market approach to innovation (Rigby and Zook, 2002; Wolpert, 2002); Open innovation through permeable organisational walls (Sawhney and Prandelli, 2000; Sawhney, 2001; Chesbrough, 2003a, b, 2004; Christensen et al., 2005; Kirschbaum, 2005; Chesbrough and Crowther, 2006; West and Gallagher, 2006); Open source innovation (Lakhani and von Hippel, 2003; Feldman et al., 2004; Ulh i, 2004); Co-creation of innovation with customers (von Hippel, 1988; Dolan and Matthews, 1993; Murphy and Kumar, 1997; Ulwick, 2002; Brockhoff, 2003; Luthje and Herstatt, 2004; Abraham, 2005). Although all contributions relate to different forms of networked innovation, no links are drawn to network theories, or to how network structures evolve over time. Nystro¨m (1990) introduced the term open company development strategy to emphasise that companies can achieve a greater innovative potential by opening up to external collaboration and broadening their internal base of technolor 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
gies, skills and competences. Pisano (1990, 1991) noted how established companies and newcomers can co-exist in a sort of symbiotic supplier–buyer relationship. This phenomenon is particularly obvious when established ďŹ rms realise a lack of relevant technological skills to compete with certain new entrants, and take corrective action by establishing collaborative links with other external entrepreneurial ďŹ rms to access their specialised R&D assets. This strategy allows the incumbent to maintain an internal focus on domains where it has developed a distinctive competence (e.g., commercialisation).
1.1. Outsourced R&D and innovation Howells (1999) discusses how the concept of Contract Research & Technology (CRT) relates to the increasing trend of outsourcing corporate R&D activities. He observes that companies are still hesitant to outsource core technologies to external suppliers, but thinks that routine R&D activities will become increasingly outsourced to CRTs. Because Howells made this statement, the trend towards open innovation has progressed well beyond routine R&D activities. According to Quinn (2000), the reason why many companies are outsourcing innovation is that it calls for such complex knowledge that only a broad network of specialists can offer. Based on similar arguments, Bean (2001) holds that companies increasingly need to consider outsourcing and collaboration in increasingly open innovation.1
1.2. Some different understandings of openness to innovation Salford (1995) describes openness to innovation as the willingness and preparedness of an organisation to accept a radical idea capable of transforming the company’s market stand, i.e., its openness and ability to change. He pays less attention to whether the radical idea has an external origin or not. Baume et al. (1996) also talk about openness to innovation without speciďŹ cally linking it to external networking. Instead, they hold that openness to innovation comes with measurability, as it describes the extent to which a ďŹ rm embraces, accepts and measures innovation. They talk about the internal transparency and not the external openness of the innovation process. Berthon et al. (1999) view openness mainly in terms of opportunity recognition, or the ability to link internal or external breakthrough ideas to a R&D Management 38, 3, 2008
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Sigvald J. Harryson need in the marketplace (cf., O’Connor and Rice, 2001). Rigby and Zook (2002, 82) introduced the concept of open-market innovation as ‘an approach that uses tools such as licensing, joint ventures, and strategic alliances to bring the benefits of free trade to the flow of new ideas’ – an early recognition of the new buzz-word.
1.3. Open innovation Sawhney and Prandelli (2000, 25) seem to have been first in introducing and using the specific terms open and closed models for innovation with permeable walls – and defining the ‘community of creation’ in-between the two models: Community of creation is a permeable system, with ever-changing boundaries. It lies between the closed hierarchal model of innovation and the open market-based model. Intellectual Property Rights are owned by the entire community. The community is governed by a central firm that acts as the sponsor and defines the ground rules for participation. Later on, Sawhney (2001, 102) introduced the idea that ‘rather than tear down organizational walls, you can make them permeable to information’. This is echoed by Wolpert (2002) who argues that internally run initiatives must to a greater extent tap the potential of ideas, resources and capabilities of other companies, without losing control over proprietary corporate secrets. One year later, Chesbrough (2003a, b, c, 2004) joins the open innovation debate with the arguments that traditional closed innovation models – characterised by vertical integration with internally controlled R&D labs developing technology in-house to be commercialised by the parent company – are based on the increasingly false belief that successful innovation requires control (cf., Allio, 2005). Chesbrough (2003a, 36–37) defines the open innovation model as one in which ‘firms commercialize external (as well as internal) ideas by deploying outside (as well as inhouse) pathways to the market’. Kirschbaum (2005, 24) describes open innovation as ‘using both internal and external ideas at all stages of new business development’. In short, the concept of open innovation implies that companies can attain competitive advantage both by leveraging the inventions and the ideas of other market players (that are relevant to the core business) to commercial ends as well as 292
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by licensing their own proprietary technologies (that otherwise would not have been exploited to the same extent) to external partners, who have different avenues of commercialisation.2 Another term related to open innovation is open source innovation, which is based on the willingness of users to openly reveal their proprietary information (Lakhani and von Hippel, 2003). It implies that ‘the innovator has waived rights to the critical knowledge component of innovation’ as this is increasingly made ‘generally available to those who are interested’ (Ulh i, 2004, 1095), ‘for anyone to use, to correct and develop’ (Feldman et al., 2004, 5). This leads to the formation of new innovation networks – as outlined below.
1.4. Networked innovation and innovation networks Freeman (1991, 510) made an early prediction that ‘networking between autonomous firms will grow still more important and will become the normal way of conducting product and process development’. Powell et al. (1996) note how the locus of innovation has moved from inside the firms’ boundaries to the networks of inter-organizational relationships. Millar et al. (1997, 399) propose that innovation resulting from a collaboration of a cluster of firms requires a new framework for research. They refer to this kind of innovation as trans-organizational, or networked innovation, and define it as ‘bringing together knowledge from a range of disciplinary and geographically disparate sources’. Moreover, they suggest that this new kind of networked innovation depends on ‘the management of knowledge sharing, technology transfer and learning’. Simmie (1997), Powell and Grondal (2005) and Hellstro¨m and Malmquist (2000, 181–182) discuss the importance of networked innovation and collaboration between people with different knowledge and history in order to create new ideas: The underpinning assumptions behind the idea of Networked Innovation are that entrepreneurial teams, which combine different personalities, knowledges, skills and backgrounds, are more likely to accomplish an innovation than a homogeneous team. Ahuja (2000, 426) views networked innovation in terms of ‘an interfirm collaborative linkage as a voluntary arrangement between independent orr 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
Entrepreneurship through relationships ganizations to share resources’. Oswald (2000, 341) holds that the main drivers of increased networking in innovation include shared risk, market access, complementary access and speed to market. Perks and Jeffery (2006, 70) view networked innovation as ‘the shaping and management of the firm’s position in a network in order to access and mobilise critical knowledge for innovation which resides within the network’. Their mainargument is that innovation is often driven by those firms who configure the network. Pittaway et al. (2004, 144) view innovation networks as a new market ecosystem in which companies collaborate –‘combining the roles of inventors, transformers, financiers and brokers to match collectively global demand for innovation with worldwide supply’. Fowles and Clark (2005, 46) view innovation networks in a broader sense – allowing companies to ‘capture good ideas from anywhere in the world’. They state that by involving partners into the R&D process companies can share both the technological and commercial risk of innovation. However, they make no link to network theory to explain the very different network structures that are used to support technology development (exploration) and technology commercialisation (exploitation). Hardy and Lawrence (2003) argue that networked innovation occurs through relationships negotiated in an ongoing communicative process, which is neither controlled by market nor by hierarchical mechanisms. We now know that both are required, but at different stages of the innovation process. A more detailed and differentiated perspective of networked innovation is required. Swan and Scarbrough (2005) highlight the importance of strengths (shallow, deep) and scope (narrow, broad) of social ties within the overall innovation network, but without neither distinguishing when and why shallow versus deep strength is required, nor when and why narrow versus broad social ties are useful to drive exploration or exploitation in networked innovation. Radjou (2005) claims that firms can revitalise their invention-to-innovation cycles by embracing three principles that underlie networked innovation: 1. Engage customers as partners throughout the invention-to-innovation cycle to harvest customer insights and thereby get the right inr 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
novations to the right customers at the right time. 2. Source the best talent and ideas from anywhere – reaching deep inside their organisations and halfway across the planet; and leverage partnerships to market disruptive innovations anywhere rather than eschewing them. 3. Anticipate and respond proactively to everchanging customer requirements and competitive threats by building flexibility into the invention-to-innovation processes. Indeed, an increasing number of authors have brought the customer into the collaborative network as an integrated partner of the innovation process. Eric von Hippel (1988) pioneered this thinking through his argument that market risks associated with new, or enhanced, product, process or service development can be minimised through specific customer category integration in new product development. Companies can benefit greatly from the insights of lead users who differ from the ordinary users. Lead users face new needs in the marketplace, which will be prevailing in months or years and can, therefore, benefit from an innovation to meet those needs. Von Hippel’s concept has been developed further by a number of authors who claim that direct customer involvement in the innovation process enhances the company’s innovation capabilities and reduces the innovation-related market risk (Dolan and Matthews, 1993; Murphy and Kumar, 1997; Ulwick, 2002; Brockhoff, 2003; Luthje and Herstatt, 2004). In this context, Abraham (2005, 11) introduces the term co-creation and holds that ‘the challenge in strategic thinking is to find innovative ways of co-creating value with customers, a technique for finding unique competitive advantage’. Also in this stream of literature no link is made to networking theory, or to the fact that lead users are more useful in exploitation of innovation than in its exploration. Another gap in this stream of literature is that it pays little attention to the importance of relationships to support transformation of knowledge into innovation and commercialisation. These dimensions seem to have been addressed in know-who based innovation – as outlined below.
1.5. How time-based competition sparked know-who based innovation Time-based competition in innovation received particular attention in Japan in the 1980s and the R&D Management 38, 3, 2008
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Sigvald J. Harryson early 1990s (Abegglen and Stalk, 1985; Stalk and Hout, 1990; Harryson, 1997). Reflections on the highly relationship-driven approach of Sony and other Japanese companies led to conclusions like (Harryson, 1996, 37) ‘ultimately, the knowledge-creating R&D process is no longer limited to individual know-how, but draws instead on know-who – and unlimited global sources of invention that continually nurture internal learning and improve R&D performance’. George Stalk (1998, xiii) endorsed the concept through his argument that ‘moving from know-how to know-who is not just a powerful tool to increase innovation capacity, it is the sine qua non to manage the continuously increasing complexity of most industries’. Whereas know-how is the ability to solve problems efficiently based primarily on internally accumulated knowledge, experience and skills, know-who is the ability to acquire, transform and apply that know-how through personal relationships (Harryson, 1996, 1998). The ‘who’ in know-who based companies knows who has the know-how, has the active empathy to rapidly establish the trustful relationship required to acquire that know-how, and has the multiple competencies required to transform and apply it in a new context so that innovation can occur. Lundvall (1998, 417) confirms that know-who ‘involves the social capability to cooperate and communicate with different kinds of people and experts’. Hedberg et al. (2000) introduce the value-star as a complement to Porters’ value chain and use the analogy of a know-who based company acting as node in a network of knowhow required to cerate new knowledge and customer value. Uzzi and Dunlap (2005, 60) stress the importance of trust, diversity3 and brokerage to build know-who: Research shows that if you create your networks with trust, diversity and brokerage, you can raise your level of information from what you know to who you know. While we view the evolution of terminology and concepts reviewed above as a useful introduction to sharpen the way we think about innovation, we believe that the current thinking on the opening of innovation would benefit significantly from a more detailed and clearly positioned network perspective. This is required to more meaningfully analyse different actors and their know-who based relationships, as well as to understand how the different types and structures of their 294
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surrounding networks contribute, respectively, to exploration for creation, and transformation for commercialisation of innovation. Accordingly, a theoretical framework will be introduced to help us better understand why and how more relationship based approaches can be applied to drive entrepreneurship from creativity to commercialisation.
2. Theoretical framework based on network theory A network approach is well suited to analyse relationships across different levels of innovation networks. A network is simultaneously open and closed, indeterminate and rational, spontaneous and deliberate (Orton and Weick, 1990). In accordance with Brass et al. (2004), we take a multilevel perspective to networks and distinguish between three levels of networks: interpersonal or social networks, interunit networks, and interorganisational networks. These major types of networks interact in the way that activities at one level result in consequences, which become antecedents for another level. For example, the formal organisation structure of an organisation can be seen as a hierarchically determined network, which is seen as an antecedent for the interpersonal network, because it determines how individuals build networks among themselves, inter alia constraining the formation of informal relationships. Similarly, the resulting structure of the informal social network becomes an antecedent to the interunit network, because it influences the pattern of cross-unit connections. Social network relationships take place between individuals and how they form networks influences the formation of organisational networks. These network ties are therefore socially embedded. Actually, the main network theories concern such social networks, e.g., ‘social exchange theory’ (Blau, 1964), ‘weak/strong ties theory’ (Granovetter, 1973) ‘social embeddedness theory’ Granovetter (1985), ‘social capital theory’ (Coleman, 1988) and parts of ‘structural holes theory’ (Burt, 1992). While Granovetter (1973, 1985) primarily devotes attention to transaction costs in the brokering of weak ties between distant others, Burt (1992, 1993) also considers the information benefits in terms of power and control offered by structural holes. None of the authors deal explicitly with how brokering of ties and the closing of structural holes can support organisational ambidexterity to allow for combinations of, r 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
Entrepreneurship through relationships or transitions between, exploration and exploitation.
2.1. How different network structures support exploration versus exploitation of innovation Exploration entails the quest for new knowledge, which can be combined in new constellations, to subsequently develop new organisational capabilities and future innovation, whereas exploitation pertains to the efficient utilisation and development of the existing repository of corporate knowledge (March, 1991; Levinthal and March, 1993; Murray, 2001; Harryson and Lorange, 2005; Harryson et al., 2007). The ability to perform both activities is referred to as organisational ambidexterity (Tushman and O’Reilly, 1997) – a seemingly useful ability to navigate from creativity to commercialisation of innovation. In this context, He and Wong (2004, 492) suggest that the interaction between explorative and exploitative innovation is positively related to sales growth rate, but also conclude that ‘the organizational tension inherent between exploration and exploitation may become unmanageable when both are pursued to extreme limits’. Might it be possible to solve this tension through new forms of networking between exploration and exploitation? If so, what role do relationships play in the emergence of a network’s value creation structure? There are essential questions that need answers for a better understanding of the ideal conditions for creativity and commercialisation, and how to navigate between the two through know-who based entrepreneurship. In this context, a more detailed and clearly positioned network perspective is required to understand the impact of weak and strong ties in open and closed networks.
2.2. Weak and strong ties to support creativity and commercialisation For Kao (1991, 25), who views creativity as a process generating new ideas and approaches, and innovation as a process by which creativity is implemented, entrepreneurship is a ‘human and organizational process by which innovation takes place’. Similarly, Schoonhoven and Romanelli (2002) view the entrepreneur as a networker, who brings creativity and innovation together for comercialisation of the results. To improve our understanding of how to combine these r 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
activities to secure commercialisation in an act of entrepreneurship, we first need to understand in which types of networks they thrive.4 Based on Granovetter (1973), Hansen (1999) uses a network study to explore how weak interunit ties help a new product development team with purposeful knowledge-sharing. His findings are that while weak ties help the team find new knowledge located in other units, they are not useful in supporting the actual transfer of complex knowledge. The more complex the knowledge, the stronger the ties required to support its transfer. Research findings by Uzzi (1996), Rowley et al. (2000) and Van Wijk et al. (2004) confirm that strong ties are positively related to firm performance when the environment demands a relatively high degree of exploitation and weak ties are more beneficial for exploration purposes and to prevent the network’s insulation from market imperatives.5 Based on the arguments outlined above, it seems reasonable to assume that strong and weak ties are complementary from the perspective of time, and that the structure of an ideal network should maximise the yield per primary contact. We also learn that weak ties are likely to accelerate development speed in early phases of exploration when the required knowledge is not complex. Conversely, weak ties may slow down speed in situations of high knowledge complexity where strong ties are required to support exploitation of innovation. Accordingly, it seems that commercialisation of radical innovation requires management of both weak and strong relationships for transfer and transformation of information into innovation across multiple types of networks. Based on these arguments, a distinction can be made between three interrelated network types with different foci (Harryson, 2006): 1. Extracorporate creativity networks – typically small, organically managed organisations with weak ties as primary sources of specialised knowledge and technology focused on exploration through loosely networked collaboration; 2. Intracorporate process networks – typically large, hierarchically managed organisations with strong ties focused on exploitation of innovation through strong linkages between R&D and marketing & sales (M&S) for market alignment, and from R&D to design & manufacturing (D&M) for commercialisation; 3. Transformation networks focused on interlinking the complementary creativity networks R&D Management 38, 3, 2008
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Sigvald J. Harryson and process networks. This is where and how commercialisation of innovation seems to happen – typically based on strong social relationships. While Harryson’s (2005) model serves as a starting point of the theoretical framework, there is still a strong need for further research to understand the role of transformation networks to analyse when and how which types of ties and relationships contribute, respectively, to exploration and exploitation of innovation. Finally, it seems critical to better understand how exploration and exploitation depend on open versus closed networks – as a critical contribution to the wealth of literature on open and networked innovation. As highlighted in the introductory review, this literature seems to have missed the important connection to network theory and how different structures and types of networks need to be interlinked to secure both creation and commercialisation of innovation.
2.3. Open and closed networks Along the connectivity dimension of the social network, a distinction is made between open and closed social networks. Based on the idea that organisations are embedded in social ties (Granovetter, 1985), the characteristics of these networks are also assumed to be valid at the organisational level of the network. In most research on innovation networks, this similarity is taken for granted and is not discussed (e.g., Gulati, 1999; Gulati and Gargulio, 1999; Ahuja, 2000). The open network is mainly about resource exchange of information, while the closed network focuses on social exchange, trust and shared norms. An example of an open network is one in which firms have direct social contacts with all their partners, but these partners do not have any direct contacts with each other. A high number of such non-connected parties, or structural holes, means that the network consists of few redundant contacts and is information rich, because people on either side of the hole have access to different flows of information (Burt, 1992). Burt (1993) also argues that to enhance network efficiency an actor should focus on maintaining only primary contacts and delegate the task of maintaining all (complementary) contacts to these primary contacts. The major selection criterion for such partners then concerns how many contacts they have – similar to the logic of scale free networks (Barabasi and Bonabeau, 2003). This implies that 296
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the structure of an open network is suitable when gathering, processing and screening of information is the primary purpose as well as identifying information sources. This resembles a creativity network, which stresses the indirect linkage, has mainly weak relationships and is loosely coupled. The opposite is the tightly coupled closed network, where all partners have direct and strong ties with each other – much like the process network in Figure 1. This network is centred on social capital, which is built through trust and shared norms and behaviour (Coleman, 1988). The contradiction between open and closed networks is stressed by Ahuja (2000), who proposes that the larger the number of structural holes spanned by a firm, the greater its innovation output. The contradiction between strong and weak ties is studied by Soda et al. (2004) regarding the organisation of project teams. They found that the best performing project teams are those with strong ties among the project members based on past joint-experience, but with a multitude of current weak ties to complementary (non-redundant) resources. Similarly, Bakker et al. (2006) find that long-lived team membership (rather than trust in itself) has a significant effect on the density of knowledge sharing relationships and thus the speed of knowledge transfer. The contradictions between networks for exploration versus exploitation are visualised in Figure 2. Gemser et al. (1996) note that, for hi-tech firms, inter-firm ties seem to transform from quantity to quality in the transformation from exploration to exploitation. In particular, they observe how pharmaceutical firms established vertical linkages with biotechnology firms to enhance innovativeness, while a selection of computer firms reduced quantity and enhanced quality in their inter-firm linkages to enhance the speed of commercialisation. For an organisation to perform creativity, innovation and entrepreneurship, it seems clear that new combinations of these conflicting network structures are required, and the nature of these combinations will change over the innovation life cycle. The main-contribution of this paper is to develop a new relationship-based model for R&D management – illustrated through a detailed case study – to propose new ways to combine the seemingly conflicting network structures required for exploration versus exploitation of innovation. This allows us to answer the research question: what role do relationships play in the emergence of a network’s value creation structure? The case study will focus around the transition point from r 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
Entrepreneurship through relationships
Large
Process Networks for Exploitation of Innovation
• Strong Links Between R&D and M&S • Strong Knowledge Transfer between R&D and D&M
Size of Unit/ Organization Creativity Networks
Transformation Networks interlinking Creativityand Process Networks
for Exploration of Invention
Small
Weak / Organic
Strength of Ties / Managerial Hierarchy
Strong / Mechanistic
Figure 1. Cross-level networks for exploration and exploitation of innovation.
Closed
Exploitation Conflicting Network Structures Required for Exploration vs. Exploitation
Type of Network
Exploration Open
Weak
Strength of Ties
Strong
Figure 2. The conflicting network structures required for exploration and exploitation.
the bottom left corner to the top right of Figure 3. While extant literature describes, respectively and in isolation, the bottom left and the top right corners of Figure 3, little or no literature seems to examine the dynamic link between the two.
3. Methodology The methodological strategy behind this research is mainly abductive, being a mix of deduction and induction (Alvesson and Sko¨ldberg, 1994; Jansson et al., 1995; Dubois and Gadde, 2002). The purpose is theoretical development with a final stage of empirically illustrating a theoretical model rather than theory generation based on grounded theory approaches. The empirical support of the theoretical framework was continuously assessed, or, inversely, a reality’s theoretical support was investigated through the matching of theories with realities. This process has started r 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
from a more preliminary frame of reference, using the case-study approach (e.g., Yin, 1990; Merriam, 1998).
3.1. Using previous research to strengthen the theoretical framework The goal of this paper is to create a solid theoretical framework, while at the same time strengthening the practical validation of the research. An abductive research process either has a deductive or an inductive starting-point. The deductively angled processes are theory-driven, while inductive approaches are characterised by the continuous abstraction of empirical realities. Through the in-depth case study method a large extent of information was collected from a limited number of research units. The goal of our overall research program is to gain a deeper understanding of ‘how’ a selected few companies in Japan6 and R&D Management 38, 3, 2008
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Large Closed
Having Strong Know-Who Links to the Process Networks of Global Partners
Partner Process Networks Exploiting the Technology
• Strong capabilities in product development and D&M • Strong brands, product mgmt. and wide customer reach
Size of Unit/ Type of Network
Small Open
Anoto as Creativity Network driving Exploration of the Anoto Technology
Weak / Organic
Global Marketing & Sales Networks
Strength of Ties / Managerial Hierarchy
Strong / Mechanistic
Figure 3. The know-who and relationship based approach of Anoto – for exploration and exploitation of a new technology.
Europe7 – that can be seen as innovation leaders in their respective businesses – manage relationships across internal and external networks to secure both exploration and exploitation of innovation. The primary instruments in the data collection have been semi-structured interviews with audio recording and transcribing, including several types of documentation. There has been a continuous interchange between empirical data and theory, as empirical findings initiated the search for further theories. Internal validity concern has been addressed through the use of multiple sources for the case studies in terms of number of interviewees and their positions in the organisations. Complementary information has been gathered from corporate publications and from other literature. By having key informants review the case reports in several iterations, the issue of construct validity and reliability have been addressed as well. The initial empirical research (from 1993 until 2005) was mainly focused on large MNCs. Accordingly, the creation and commercialisation processes did not take a born-global perspective, but focused on how process networks (in Figure 3) could identify, internalise and commercialise the results of creativity networks. The theoretical model derived from the large MNCs has some similarities with the model presented in this paper, but makes less use of network theory. The Anoto case has been developed from 2004 until submission of this paper – to pursue the question: what role do relationships play in the emergence of a network’s value creation structure? Both documentation and 22 interviews were used to collect data for the Anoto case. The interviews covered the founder, two (consecutive) CEOs, the CSO, CTO, the Director of Partner Relations and 298
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of IP. In December 2007, two follow-up interviews were made with the founder and the new CEO to update the case in terms of changes in commercialisation partnerships, financial performance and network structure position (in Figure 3). The last point was covered in response to related questions by one of the anonymous reviewers. The information obtained during the interviews was summarised as soon as possible after each interview and sent back for review. In addition, we organised three seminars at which we presented the empirical research to the European benchmarking companies, including Anoto, for a group-wide dialogue on best practices regarding relationship management in cross-level innovation. This has enabled us to get further detail in the feedback process to secure internal validity. Because our full empirical research is based on 10 different companies of different size and industry we believe that a good base for generalisation is offered for the theoretical framework – within reasonable limits. This paper presents the case that best illustrates this framework in terms of born global commercialisation through relationships – first with academic exploration partners and then with global exploitation partners. Based on detailed feedback from the Editor and two anonymous Reviewers, additional empirical research was conducted on two similar born globals – ICEpower8 and Polar Rose9 – for comparison with Anoto and additional illustration of the theoretical model. The choice of Anoto for this paper is based on its strong focus on relationships to combine creativity and commercialisation, coupled with unique access to the company, which has allowed for intimate observations and in-depth interviews over more than half of Anoto’s 9 years of life. r 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
Entrepreneurship through relationships This is our first paper to take a full born global perspective, while one complementary paper using a similar theoretical framework, but with a pure MNC perspective using Volvo as a case, has been submitted and accepted (Harryson et al, 2008). The case will follow the logical flow and progression of the theoretical framework and its three networks focused on, respectively, creation, transformation and commercialisation. Particular focus will be devoted to how the network structures and relationships evolve in the progression from creation to commercialisation.
4. Case study – Anoto 4.1. Initial breakthrough idea by the company founder Christer Fa˚hreaus was in his second year of graduate studies in mathematics and physics when he came up with the first breakthrough idea of Anoto. One late night, as he was going through yet another book from an endless pile to mark and note down the most important insights, he thought: ‘there has to be a better way of doing this’. His idea was as simple in its concept as it was complex in its technology. He wanted to make a digital pen that would read and store the parts of the text that you mark from any kind of printed text, and then download these selected parts on your computer. He turned to the CTO of the Lund-based company Ericsson Mobile and they jointly sold the idea to the Board of Directors of Ericsson Mobile. However, while the BOD was convinced of the commercial viability of the idea, they did not see a strong enough fit to develop this type of technology and product within Ericsson Mobile. Instead, Christer got financial support from Ericsson Mobile and the ‘founder’ of this business unit to start his own company to develop and commercialise the digital pen. Christer founded a company called C-Technologies, which was the starting-point of the Anoto Group.
4.2. Leveraging academic brainpower to create intellectual assets C-Technologies managed to recruit a lot of highly skilled engineers such as the aforementioned CTO, and the Chief Science Officer of Ericsson Mobile, as well as good student friends from Lund University and the Lund Institute of Techr 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
nology and grew very rapidly into a company with brainpower to go far beyond the initial idea of the digital pen – called ‘C-Pen’. Anoto accelerated the exploration of the invention by absorbing skills from the strong university base of Lund in Sweden through 30 joint master theses and three fully integrated PhD thesis projects over the first 3 years of operation. The success of the underlying research was strongly related to highly skilled individuals who were recruited based on personal contact networks. The original Anoto staff recruited people who knew were to find other engineering stars based on previous experiences, such as old co-workers and friends. Several of the engineers at Anoto won national Physic Contests and thereby proved their high skills in the area. A snowball-effect occurred as these newly recruited engineers also brought along their personal contacts. This is how Anoto managed to achieve a rapid recruitment pace while still getting very high quality brainpower. Having coffee with some of his newly recruited old friends, Christer gave birth to a new idea: ‘Let’s make an optical mouse in the shape of a pen for better handling convenience’. In a 3-month effort, Christer and his team came up with something that went far beyond the original idea. They made a new type of digital pen – combined with digital paper to be used the old fashioned way, while simultaneously being connected to the digital world. This was made possible through a miniaturised camera that registers the movement of the pen across the digital paper and stores the information as series of map coordinates. Through this breakthrough, a clear vision emerged:
We see a world where people have access to intuitive tools for digital communication, based on the oldest and most used information technology – paper and pen – and adapted after the natural human pattern of behaviour. (The Anoto vision from www.anotogroup. com, 06.05.04) As the company matured, the overall vision was substantiated through three mission statements (www.anotogroup.com, 07.11.05): 1. To create a global de facto standard for digital pen and paper. Anoto will accomplish this by uniting handwriting with everyday digital communication between people and systems; R&D Management 38, 3, 2008
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Sigvald J. Harryson 2. To enable innovative and leading edge products based on imaging functionality. Anoto will accomplish this by delivering its core competence and technology to leading companies and thereby enabling them to deliver world-class products; 3. To build a world-class partner network. Anoto will develop and own a strong technology platform and commercialise it through partner companies in products, services and licenses.
4.3. Transforming intellectual assets into start-up capital The initial invention and the resulting academic collaboration resulted in more than 40 patent applications within the first year of the innovation cycle. This gave Anoto enough bargaining power to attract significant capital both from company investors and from venture capitalists. For example, Ericsson invested h16.6 mio for 17.9% of the company. Several other global companies and investment funds followed the example at similar or higher evaluations. Christer Fa˚hraeus, defends his strategy: When we had made the breakthrough, we first devoted six months to protect our initial discovery with 40 patent applications before going live with a press-conference in London together with partners like Ericsson, Time Manager and 3M . . . If you develop new technologies and products for a mass market it is very important that you protect them with patents. Once the market grows, the licensing revenues will grow accordingly. (Interview, 17.09.2005)
4.4. Building relationships to global partners for exploitation After 18 months of intensive exploration with some 300 patent applications as a result, Anoto started to establish partnerships with large corporates like Ericsson, Sony-Ericsson, Nokia, Hitachi, HP and Logitech so as to secure commercial exploitation of the technology and promote it into a global de-facto standard. A critical person in developing the new relationships to the combined investors and technology commercialisation partners was Mr. O¨rjan Johansson. In 1996, long before the creation of Anoto, O¨rjan was con300
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tacted by Nils Rydbeck at Ericsson (the ‘father’ of the Ericsson mobile phone, the former CTO of Ericsson and the person who later sponsored the creation of Anoto) who wanted him to work with a new project called MC-Link. This was a new technology that Ericsson wanted to establish as new world standard for short-distance-radio. O¨rjan’s mission was to build an organisation with the purpose to define and globalise the standard. To succeed with this he realised that he needed help from other big companies in the relevant customer segments of mobile communication (Interview, 27.05.2004): Our intention was to establish a global standard and thereby add value to the mobile phone, and drive technology sales. To set a de-facto standard is about finding the ‘big players’ within the areas and segments where the standard will be used; primarily in the industries of mobile phones and lap tops. It is far from trivial to get agreement on a standard among rivals. O¨rjan Johansson established a special interest group (SIG) to set a global de-facto standard called Bluetooth. The background of the name relates back to an important Scandinavian Viking – Harald Bluetooth – who became the symbol of this SIG. This was to highlight the important Viking-principle of never having a dinner-party without first settling any possible tensions among the Viking Kings in an atmosphere of open relationships. Once all frictions had been eliminated, the party could start. In a similar vein, Johansson would always encourage all meeting-participants (the ‘Kings’ of large rivalling companies) to first openly ventilate any possible divergence of opinion, or conflict of interest, and then move into an evening of wining and dining for intensified relationshipbuilding. According to Johansson (Interview, 27.05.2004), ‘this was crucial in order to have a constructive meeting the next morning with an open atmosphere of fair compromise in the name of collective progress’. To highlight the symbolic importance of this Viking-principle, a bestseller10 about the history of Harald Bluetooth and other Vikings was distributed to all the members at an early stage of the SIG, which chose to name the technology ‘Bluetooth’. After this work he became known as ‘Mr Bluetooth’. In year 2000, he had finished this work and became Chairman of the board in Anoto. One and a half years later, O¨rjan and Christer changed chairs to better allow for O¨rjan’s personal network and Bluetooth exr 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
Entrepreneurship through relationships perience to help the company to establish a better market reach through new commercialisation partnerships and thereby enhance the return on the breakthrough technology. Through his former SIG Bluetooth relationships, O¨rjan enjoyed continued top-management access to the big players – also in his new role within Anoto. Several of the partners, such as Hitachi and Logitech, also made significant investments by buying Anoto stock, which gave Anoto a total funding of h200 million. This gave more resources for further recruiting and patenting and, by the end of 2005, Anoto counted o300 employees, but had more than 300 active and 60 additional granted patents in some 180 families. Already in 2001, Anoto entered the top-10 list of Swedish companies with the highest total number of patents – together with companies more than hundred times the size of Anoto like SKF, Ericsson and Volvo. Through his collaboration with Lund University, Christer Fa˚hraeus found a way to reduce the total patenting cost significantly: When filing a patent in close cooperation with Universities you can enjoy university status for the patent filing and thereby reduce the total cost to a fixed fee of 3.000 EUR for professional help with claim construction and a description. This is one of the reasons why it is particularly interesting to work with universities in Sweden. (Interview, 17.09.04)
4.5. Re-focusing position the value chain position Today, the only parts of the value chain that Anoto keeps in-house are the IPRs of the core technology and of the technologies that protect the core. Anoto’s goal is to have the responsibility of only 50% of the value chain and hand over core parts like marketing, sales, distribution, product development and customer support to commercialisation partners. From this point onwards, Anoto’s strategy was not to make and sell pens. Instead, the strategy was to sell technology licenses for the pen and basic component required to develop systems. CEO O¨rjan Johansson holds that: This strategy is about narrowing down our position in the value chain to reduce development costs and at the same time control the core so that no one can threaten us. (Interview, 07.04.2004) r 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
This partnership strategy was a vital condition in order to establish a global de-facto standard. The partners got a larger product responsibility which reduced Anoto’s revenue per partner, but the value altogether increased when the partners’ volumes grew because Anoto got licensing revenues from every unit sold and every pen used in a system. CEO O¨rjan Johansson viewed Anoto’s partnering strategy as one based on critical mass and reward-sharing: The idea with our extensive partner network is that it is better to earn ten per cent of everything then hundred per cent of nothing. There would simply be no market unless we had established a de facto standard by sharing our concept and licensing our technology to the main-players in our industry. (Interview, 07.04.2004)
4.6. Collaboration in exploitation instead of exploration The strong technology portfolio gave Anoto the opportunity to find new avenues of exploitation for their core technology. University collaboration for further exploration of the technology was no longer necessary. Instead, Anoto opened up new avenues of exploitation of the core technology. For example, Dai Nippon Printing (DNP) and Standard licensed the technology for printing applications. DHL in Denmark, the Police in Belgium and a number of medical doctors in several hospitals began to act as lead-users of the Anoto pen. Also in 2004, Anoto signed an agreement with US-based LeapFrog (world-leading developer of technology-based educational toys). Already at the beginning of 2005, LeapFrog introduced an entirely new product category for children and young people based on the proprietary Anoto technology. A new device – a ‘Pentop Computer’ called FLY – enables the child writing on paper to get feedback via speech and sound; provides aids in mathematical calculations; and helps translate foreign languages. This alliance opens up new areas of application such as: education, training and games.
4.7. Leveraging trust to bring competitors into cooperation In order to further grow the business, Anoto encouraged their partners to cooperate by creating an arena for them to meet and establish direct relationships. They wanted them to communicate R&D Management 38, 3, 2008
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Sigvald J. Harryson and connect their networks to each other. From Anoto’s side this required honest and open communication between themselves and the partners. Clearly, if Anoto said something to one company they had to be consistent and tell all the other companies the same thing. At the same time they needed to develop trust and integrity in the relationships, because some of the partners were competitors and information they gave to Anoto should not be spread further. The Director of Partner Relations, Ebba A˚shly Fa˚hraeus, said: Trust-based integrity is key to our partnering process. The information that partners give us is always kept confidential because some of the partners are competitors. We cannot support them if they do not share the information with us. Therefore, it is crucial to have mutual trust. (Interview, 06.05.04)
4.8. Continued focus on exploration, while relying on commercialisation partners for exploitation In 2001 Fa˚hraeus received the Golden Mobile (The Oscar for the mobile telephony industry) and the Golden Mouse. He got the first award for Anoto as the newcomer of the year and the second one for being the IT entrepreneur of the year. During 2002, he was identified by Time Magazine as one of the 25 most successful entrepreneurs in Europe. The motivation was that he had succeeded in creating a global de facto standard for paper-based digital communications. Also when taking recent developments into account, Anoto clearly chose to remain in a creativity and transformation network position – reducing its number of employees to 100 – while establishing a significant number of additional commercialisation partnerships: 1. A h7 million partnership was established with DNP for the development of the next generation pen in Japan (22.12.2005). 2. In 2006, the Italian Company GM Servizi joined as a partner of Anoto to add its many years of experience in the digital pen and paper technology. Possibly as a consequence of this partnership, Novartis Pharma Italy joined Anoto’s partner network in 2007, and received a global IT award for its use of Anoto pens in pharmacy applications. 3. In 2006, Anoto also established a partnership with Unimicron Group in Taiwan to serve the 302
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Taiwan market with Anoto products and solutions (31.03.2006). 4. Later in 2006, Anoto entered the US Military sector, through a USD 3 million contract signed by Anoto partner Natural Interaction Systems (NIS) with the US Defense Advanced Research Projects Agency. NIS conducts research, development, and integration of Anoto digital paper and pen technology into military command and control systems. This allows for Anoto’s functionality to be tested in the harshest conditions, providing important feedback for further development (12.05.2006). 5. The year 2007 started with a partnership with BlackBerry to use the Anoto technology for digital signature capability, and continued with the delivery of Anoto technology for an e-voting system for Hamburg elections, through close cooperation with the new partner Diagramm Halbach (07.03.2007). 6. The perhaps most important partnership in 2007 was that with Livescribe (30-05-2007), an American company launching a new paperbased mobile computing platform that incorporates the use of Anoto’s digital pen and paper technology. Christer Fa˚hraeus views this partnership as particularly important claiming that ‘it will further spur the use of Anoto technologies, which finally reach the consumer market. This also has positive implications on our forms business which doubled during 2007’ (Interview, 14-12-2007).
As a result of the streamlined footprint and additional commercialisation partnerships, Anoto recorded its first operating profit ever in 2007, driven by a 27% increase in sales at sustained costs of operations. Without adding a single employee, the number of active forms users increased by 104% from Q12006 to Q12007. The new CEO, Anders Norling, is equally positive about 2008 while recognising that ‘the challenge is to ensure that our ongoing sales are high enough to maintain profitability without depending on individual license orders’ (Interview, 14.12.07). Both Fa˚hraeus and Norling seem convinced that the expanded partnership base of Anoto will further expose the digital pen and paper technology to the consumer market and shorten sales cycles for their profitable forms solutions. Possibly inspired by another Lund-based company called Tetra Pak, Anoto has turned global sales of patent-protected paper into a highly profitable business. r 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
Entrepreneurship through relationships
5. Analysis and discussion The use of network theory makes a more comprehensive analysis and illustration possible of how open and closed networks jointly ‘work’ together in and between the different stages of the innovation process. The creativity network is mainly an open, diagonal, loosely coupled network encompassing selected external scientists and experts. In the theoretical model (Figure 3), the purpose of the creativity network is to create new scientific knowledge that can be transformed into commercialised innovation by a transformation network. Anoto initially span academic webs consisting mainly of weak ties for further exploration of the emerging technology. For promising inventions and researchers, Anoto selectively transformed certain weak ties into stronger ones to individual, organisational and inter-organisational strategic partners who became deeply involved in the exploitation of radical innovation. In this sense, the balancing act from exploration to exploitation can be seen as an act of transformation from weak to strong ties and from relatively open to more closed networks across different levels. The founder, the CTO and the Chief Science Officer initially maintained open social networks of mainly weak ties to the students at their home university. Strong social ties were developed with those students who were selected to do their thesis in collaboration and co-location with Anoto so as to interlink their knowledgecreating activities with the process network for exploitation. Snowballing led to identification and integration of further complementary brainpower. Compared with the open structure of the creativity network in which Anoto was created, the relationship-based transformation network was gradually closing towards academic partners with a strong focus on strengthening the ties to selected process networks in terms of commercialisation partners. The formation of this social network triggered the creation of the inter-organisational transformation network, thereby being a precedent to it. Much in line with Gulati et al. (2000) Anoto created value through networks of low cost high creativity master and PhD students. The diagonal social network was a precedent to the vertical interorganisational network, because the social capital developed within the student–company network was sometimes used to establish a more formal collaboration with the student’s university institute for joint patent applications to keep patenting costs down. r 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
The nature of innovation at the interpersonal level is described by the social network, while its nature at the work group and organisational and other inter-unit levels are described by the organisational network. Christer Fa˚hraeus approached his old friend, then CTO at Ericsson Mobile, who in turn joined Anoto, while mobilising the financial support of an important Ericsson Board Member. Interaction in social networks led to the inter-unit relationship between Ericsson and Anoto. Later on, the social network from O¨rjan Johansson’s Bluetooth experience supported the relationship building between Anoto and the many new technology commercialisation partners such as IBM, Hitachi, HP, Logitech, Nokia, Novartis Pharma, BlackBerry, US Defence and Livescribe. The founder and his social network were instrumental for the development of the initial creativity network, which resulted into several vertical networks. In other terms, the social network of Christer resulted in the formation of a creativity network, which was an antecedent to the development of the vertical network between Anoto and Ericsson. Our theoretical framework makes it possible to distinguish between theoretical constructs that are valid for only one of the levels (e.g., for the inter-individual level expressed through the social network) and those that are valid for all levels, such as the horizontal vertical and diagonal relationships. Anoto sometimes initiated diagonal relationships with universities and their students as a critical part of the creativity network. The students were brought into the organisation to connect with other persons or units, forming a transformation network. Joint patent applications promote knowledge absorption at mainly the inter-unit level. The social network was the main vehicle of cross-level innovation from exploration to exploitation, being the main antecedent of both the transformation, and process networks.
6. Applying different leadership styles, know-who and structures to optimise both network efficiency and network effectiveness 6.1. Using the theoretical model to analyse Anoto’s navigation from creativity to commercialisation Through its central position into the diagonal academic networks for exploration, and vertical R&D Management 38, 3, 2008
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Sigvald J. Harryson partner networks for exploitation, Anoto seems to have optimised network efficiency on both ends, while the commercialisation partners enjoy higher network effectiveness by using Anoto as primary contact for further exploration of the technology. As suggested by our theoretical framework in Figure 1, moving from creative concept-creation to global business-implementation typically requires a more rigid and process-driven organisation. As we have seen, Anoto’s commercialisation transformation involved a change in leadership, while interlinking selected external process networks to support global commercialisation of the Anoto technology. Our framework suggests that creative invention is more prone to happen in small, organic organisations, managed in absence of hierarchy or strong managerial control, which corresponds to the startup phase of Anoto. The framework also suggests that commercialisation requires more structured process networks in large and resourceful organisations to secure production, M&S, logistics and after sales service. Figure 3 outlines the two organisational extremes as different types of networks: Creativity networks and process networks. In this context, Anoto illustrated the use of know-who based entrepreneurship and relationship building to span the organisational ambidexterity gap between the polarised creativity networks and process networks (as suggested by Figure 2). For Anoto, the whole initial knowledge (and company) creating phase seems to have been driven by a few strong and many weak ties. Fa˚hraeus used his know-who of strong ties into Ericsson to acquire the required know-how – such as the CSO and the CTO – to move from idea to a solid concept. The weak ties came into play when each newly recruited engineer, who gained the trust of Fa˚hraeus through rapidly demonstrated excellence, was asked to leverage his/her knowwho to acquire further engineering excellence through a networked snowballing effect. In addition, a large number of mainly weak ties into university students led to 30 master – and three full PhD thesis projects conducted with the startup company. Anoto was particularly open to academic collaboration in the early exploration phase, while reducing this kind of collaboration as the company gradually closed its network structure to focus more on exploitation through strong relationships to commercialisation partners. As the exploitation oriented commercialisation phase approached, the new CEO (O¨rjan Johansson) leveraged his Bluetooth-based know-who to 304
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establish very strong ties to a selected number of globally leading commercialisation partners – providing global sales and distribution channels, while acting as lead users in ways that helped Anoto fine-tune applications of the technology. Accordingly, strong ties seem to have been critical to drive the exploitation of innovation across the process networks. In this second phase, O¨rjan Johansson’s ‘Viking-approach’ to relationshipbuilding and partner meeting management seems to have played a critical role.
6.2. Linking the Anoto case to further empirical observations Similarly to Christer Fa˚hreaus, the founder of ICEpower, Dr Karsten Nielsen, established a partnership with Bang & Olufsen and brought in a CEO from B&O, which opened doors to quasi-captive business with B&O and, more importantly, led to a very strong commercialisation relationship with Samsung to secure the use of ICEpower technology in more than 100 million mobile phones and HiFi systems. Also very similarly to Anoto, ICEpower started by a PhD researcher who leveraged a significant amount of fellow-PhD – and Master students to make his technology and company grow to 50 people in 5 years. In the first 3 years, ICEpower had about as many academic collaborators as internal employees. Today, the company is more focused on strong and exclusive commercialisation relationships with a selected few companies like Alpine, Audi, B&O, Samsung and Sanyo, while reducing the number of open academic collaborators to 15–20% of the number of internal employees. A third born global in our research is Polar Rose, which provides face recognition services through a browser plug-in – created by a PhD in computer electronics, Dr Jan Erik Solem. Also in this case, the founder made extensive use of academic collaborations during the companycreation phase (2004–2006) and then brought in a professional VP of Business Development, and a new CEO with strong relationship-building skills, Nikolaj Nyholm to formally replace Dr Solem and jointly grow the company into a ‘Scale Free Network’ (Barabasi and Bonabeau, 2003) able to reach and serve an unlimited number of users across the globe. Through personal relationships, Nikolaj very quickly managed to mobilise external funding from Nordic Venture Partners amounting to 4 million Euro dedicated to develop a solid business r 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
Entrepreneurship through relationships model with expected initial revenue streams by the end of 2008. In June 28th 2007, the first b version was launched for 500 selected b users to test and give feedback on the face recognition software. Two months later, the number of b users had expanded to 2000 (still controlled by invitations), which started to stretch the computing power of Polar Rose. Nikolaj, who had already met Jeffery Bezos, the founder and CEO of Amazon, managed to establish an agreement with Bezos to use Amazon’s computing network. Nikolaj (interview, 12.01.08) holds that ‘our partnership with Amazon brings the required computation and storage capacity to move from 2000 test user to 1 million real users by the end of 2008’. In the context of the theoretical framework (Figure 3), the access to Amazon’s highly connected great bandwidth routers can be seen as a commercialisation relationship to a forceful process network. Although all three companies are relying on commercialisation partners for exploitation of their technologies, their transition from pure creativity networks to transformation networks still seems to have triggered a significant closing of their academic networks. Moreover, they seem to develop a multitude (as opposed to only a few) of strong relationships to commercialisation partners. Hence, it seems that the transition from exploration to transformation in no way implies a reduction of the total number of relationships, but rather a gradual closing of the scientific network to allow for a progressive opening of the commercial network. Rather than moving from many weak to a few strong ties, the companies seem to experience a transition from a multitude of mainly weak and a few strong scientific ties to a numerically equally big multitude of mainly strong ties to external commercialisation partners. This transition from many weak to many strong ties intensifies the need for time and calls for an enhanced focus on relationship management – partly supported by the power gained through structural holes (Burt, 1992).
7. Conclusions and contributions to theory An important gap in the literature on open and networked innovation has been identified and addressed through the introduction of a framework based mainly on networking – and partly on innovation theories to better understand the ideal r 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
conditions of exploration and exploitation in the context of open innovation. The relationshipdimension of our theoretical framework suggests that a dominance of weak ties is required for exploration in creativity networks, and a dominance of strong ties is required for exploitation in process networks. In network terms, the process network is therefore the opposite to the creativity network, being closed, tightly coupled, and hierarchical. The transformation network is a mix of both these networks, being semi open or closed, neither loosely or tightly coupled, and bridging the two organisational networks. The creativity network has a relatively open structure. It contains both individual and organisational levels. As illustrated by the case, the creativity networks are mainly social networks, driven by personal relationships. Selected individuals at the universities are more important than the universities themselves. Accordingly, the social networks are dominating the organisational networks and act mainly as antecedents of organisational networks. By only recruiting new researchers who enjoy trust by current employees, Anoto illustrates the suggested model of Soda et al. (2004) in getting project teams with high past closure (strong ties within the team based on prior collaboration) and high current structural holes (weak ties to nonredundant resources at universities and other companies). Our case also illustrates that this principle can be applied beyond the context of project teams – to the recruitment of a new CEO with high past closure to targeted commercialisation partners based on prior collaboration. As a complement to Uzzi’s (1996) argument that a firm’s performance peaks when it is linked by embedded horizontal ties to an integrated network, the Anoto case illustrates diagonal crosslevel phenomena in terms of how social ties at the individual level of analysis interact with institutional and economic ties at the organisational level. Finally, the concept of lead-user innovation does not seem to be particularly related to the early open phases in which the case companies nurture a multitude of weak ties. Rather, all three case observations revealed that the use of leadusers (DHL and medical doctors in the case of Anoto; Bang & Olufsen and Samsung in the case of ICEpower, and a growing number of invitation-only b users in the case of Polar Rose) came in relatively late in the process from creation to commercialisation. In this sense, it would seem that lead users are more related to commercialisation than to creation of innovation. R&D Management 38, 3, 2008
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Sigvald J. Harryson As suggested by the theoretical framework and illustrated by the Anoto case, a change in leadership can be useful to manage the navigation from creation to commercialisation of innovation. This allows for the conicting, but complementary networks (open versus closed) and relationships (from numerous weak versus few strong to the opposite) to be built and leveraged at the appropriate stages across the whole R&D management process.
8. Managerial implications The managerial implications of our study are that managers of R&D and technology innovation can apply a new relationship-based approach – both for sourcing and internalisation of external academic knowledge to accelerate exploration, and to develop commercialisation partnerships to accelerate exploitation. This approach – as illustrated by Anoto, ICEpower and Polar Rose – makes it possible to balance exploration and exploitation for technology innovation. The emerging theoretical framework illustrates the important individual relationship dimension of organisational innovation and shows how the social networks of an agent can be integrated into cross level innovation projects through the migration path from weak to strong ties as the innovation process advances from exploration to exploitation. The implication is that the widespread dilemma of excessive ambidexterity (He and Wong, 2004) can be tackled through crosslevel micro-macro dimensions of relationship management, in which a start-up company can leverage transformation networks to mediate partly academic exploration and fully industrial exploitation through managers with strong relationship building skills and rich social ties (know who) into both domains. A stronger focus on building and maintaining new and existing relationships will drive entrepreneurship across the full R&D management of creating, developing and commercialising innovation. However, to navigate all the way from creativity for exploration to commercialisation for global exploitation of a technology will require highly differentiated, yet strongly integrated, approaches to R&D and relationship management. Exploration requires open R&D management approaches to bring in external creativity in relatively organic forms, possibly based on snowballing. Universities are often useful partners at 306
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this stage, but it may be premature to bring in lead-users into the R&D management process. Exploitation requires more closed and rigid approaches to R&D management. Universities are seldom useful partners at this stage, but strong relationships to a few well-selected leadusers can help deďŹ ne ďŹ nal applications and thereby speed up commercialisation. The relationship building approach illustrated by Anoto can be applied by R&D managers to build new bridges across previously disconnected disciplines and areas of value creating activities to drive creativity, innovation and entrepreneurship.
9. Limitations and possible future research directions Although our theoretical framework draws on extensive theoretical research and empirical research from 10 companies, this paper presents the full theoretical part, but only one in-depth casestudy coupled with complementary observations from two additional born global cases to enhance the generalisability of the ďŹ ndings. Still, building the creation of new knowledge on one in-depth case and two additional brief case analyses is insufďŹ cient. Accordingly an abductive research method was applied to allow for continued deduction from several relevant theory streams so as to enrich and reďŹ ne the theoretical framework – while continuing the inductive testing of the framework against the three case observations. To further enhance generalisability of the theoretical framework, a quantitative study could be conducted with a focus on measuring how the following variables/factors change in the evolution from creation to commercialisation of innovation: Number of external contributors to exploration/creation. Number of external partners supporting exploitation/commercialization. Strength of ties to partners of exploration versus exploitation. Total number of external partners over number of internal employees. We believe this type of quantitative study would add further relevant insight to the current literature on open and networked innovation. Further research will also be required to gain a more robust understanding of how learning both from extracorporate networks like universities, and across internal networks like R&D, M&S r 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd
Entrepreneurship through relationships and D&M, can enhance flexibility and performance in R&D and innovation. In view of the evolution and dynamics of the knowledge transformation mechanism, further research would be needed to examine the evolution of cross-level networks from a longitudinal perspective. Finally it would be worth further research to explore if the mechanisms described in our case are observable also in more established companies and mature industries.
Acknowledgements A previous version of this paper was presented at The R&D Management Conference Taiwan – 8– 11 November 2006, in Taipei and Hsinchu. The author is grateful for constructive comments from the conference participants. I am also grateful to the Editor and two anonymous Reviewers who provided very detailed feedback and constructive suggestion that improved the quality, relevance and robustness of this paper significantly.
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Notes 1. See also Linder et al. (2003), who describe a number of sourcing strategies which can be applied to use the external sources for supporting corporate innovation such as: buying innovation (e.g. sponsored research); investing in innovators (e.g. equity stakes); co-sourcing (teaming up with other companies to share the costs); community sourcing (taking advantage of communities of specialists) and resourcing (contracting with outside suppliers). 2. Teresko (2004, 20) reports that ‘open innovation removes many of the boundaries – geographical, technological and corporate – that stand in the way of new product development and new markets’. Similarly, Gruber and Henkel (2004) argue that by applying a model of open innovation a company can overcome its internal capacity limits. West and Gallagher (2006, 319) suggest three challenges of Open Innovation: (1) finding creative ways to exploit internal innovation, (2) incorporating external innovation into internal development, and (3) motivating outsiders to supply an ongoing stream of external innovations. In a recent publication, Chesbrough and Schwartz (2007) make a shorter definition of open innovation as ‘the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively’. Put differently, ‘Open innovation must be conceived as the practice of leveraging the discoveries of others. Companies need not and indeed should not rely exclusively on their own R&D’ (Chesbrough and Crowther, 2006, 229). 3. In the terminology of Uzzi and Dunlap (2005) the broker connects the specialised pools of knowledge that are clustered into echo chambers. They make a strong call for diversity in the network so that the members of a network provide each other with unique and valuable resources and ideas (cf., complementary assets by Teece, 1986, or bridging structural holes by Burt, 1992, 1993). 4. While creativity stems from the Latin words creo, ‘to bring forth’ and cresco, ‘to spring forth’, innovation stems from innovatio, ‘a renewing, an alteration’ and novus, ‘new, not old’ (Perseus Digital Library). In this context, Kao (1991, 17) holds that ‘creativity implies a vision of what is possible’. As suggested by Kao (1996, 21), ‘Creativity is not like the weather: you can do something about it’. On the other hand, you can only do as much about it as you can influence your own social network: ‘No one is creative alone. You and I are only as creative as our social networks’ (Brass in Ford and Gioia, 1995, 94). 5. Much along the lines of Granovetter, Florida et al. (2002) argue that creativity in a company increases when the ties among its employees are weak. The authors suggest that strong relationships among individuals make the community ‘complacent and insulated from outside information and challenges’, as well as promote a certain type of conformity that also undermines creativity (ibid., 20). While Sethi et al. (2002)
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agree with the well-known fact that diversity breeds idea creation, they also hold that it may have a negative impact on the speed of problem solving within a team. They base their claim on the argument that when team members hold deeply rooted differing views, they do not have a sense of belonging to the team and may not even have a stake in its success. 6. One hundred fifty interviews were made in Japan between 1993 and 2002 – primarily with Canon, Sony, and Toyota to explore how these companies perform cross-level innovation in general, and how they leverage external sources in particular, as the main source of creativity and exploration so as to put the internal focus on exploitation and commercialisation of the externally created invention. 7. Between 2002 and early-2006, we have made approximately 160 interviews on cross-level innovation – with Northern European technology-intensive companies. In addition to Anoto as addressed in this paper, we have also covered Bang & Olufsen, Gambro (medical equipment and biotechnology), Porsche, SIG Combibloc (innovative packaging company), Volvo and leading Finnish and Swiss mobile operators. 8. A total of six interviews were conducted with ICEpower, including the Founder, Dr. Karsten Nielsen, who took the role as CTO after the co-ownership deal with Bang & Olufsen, which assigned a new CEO to the company, whom we also interviewed as well as the head of university collaboration. 9. For the initial empirical research on Polar Rose, I am grateful to five of my Master Students at Copenhagen Business School, who interviewed the CEO, Nikolaj Nyholm, and the VP of Business Development, Mikkel Thagaard, on October 7th and 31st, as well as on November 26th. I also made two interviews with Nikolaj Nyholm (December 6th and 13th). 10. The Long Ships by Frans Bengtsson, first published by Collins in 1954 and reprinted at least 18 times.
Sigvald Harryson is a Visiting Associate Professor at INO, Copenhagen Business School. He is also an Associate Professor at Lund University where he is the Director of International Learning Partnerships. Before his academic career he spent 3 years in development at Tetra Pak and 10 years in general management consulting with the companies Arthur D. Little (as Partner), Booz Allen Hamilton and BCG. He received a magna cum laude doctoral degree in Japanese R&D Management from St Gallen University in 1995, and a PhD in Knowledge & Innovation Management at the Go¨teborg School of Economics. He has published articles in Harvard Business Review, Journal of Management Studies, Journal of Product Innovation Management and The International Journal of Technology Management. r 2008 The Author Journal compilation r 2008 Blackwell Publishing Ltd