Open Innovation in Family Firms

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Theoretical Background

In this part we provide the theoretical background for our master thesis. A funnel approach is applied to identify gaps in the academic literature that lead to the actual subject and research question already identified in the introduction. Thus, the general concept of open innovation, family firms with their unique characteristics and the implementation of an open innovation strategy are discussed in the following.

Open Innovation

The concept of open innovation received more attention by scholars like Ulrich Lichtenthaler, Jasper Brinkerink or Oliver Gassmann in the last decade. The former Harvard professor Henry William Chesbrough introduced the concept of open innovation for the first time in his eponymous published book (2003). The paradigm shift, the change from closed to open innovation, is characterized by the way companies create ideas, and therefore, stay innovative (Chesbrough, 2003). More and more companies are opening up their internal R&D process towards external sources. This is a result of a fast-changing business environment that is characterized by higher competitiveness from direct and indirect competitors. Additionally, market unrelated competitors increasingly enter the market and disrupt entire business models and industries.

Definition – Open Innovation

It is Ulrich Lichtenthaler (2011) that provides the explanation of open innovation and defines the strategy as a “systematically performing knowledge exploration, retention, and exploitation inside and outside an organization’s boundaries throughout the innovation process” (p. 77). This definition is applicable in this paper for three reasons. First, he employs the viewpoints of various scholars (Chesbrough, 2003, Grant & Baden-Fuller, 2004; March, 1991; Santos & Eisenhardt, 2005) with a focus on the knowledge transfer. Second, the aspect of knowledge exploration, retention and exploitation is relevant in context of open innovation in family firms (Lazzarotti & Pellegrini, 2015). This supports the aspect that open innovation is a holistic approach and affects the entire organization (Lambrechts, Voordeckers, Roijakkers & Vanhaverbeke, 2017; Lopes et al., 2017). Third and probably most important, is the actual process he emphasizes. This is coherent with the focus on the implementation of open innovation in this paper as well as the continuity character of discovery in open innovation in general (Lambrechts et al., 2017). Particularly, the knowledge aspect in regard to the implementation plays a central role (Wikhamn & Styhre, 2017). Here, it is linked to aspects like building absorptive capacity (Randhawa, Wilden & Hohberger, 2016), dynamic capabilities (Duran, Kammerlander, Van Essen & Zellweger, 2016) or the organizational culture (Martinez-Conesa, Soto-Acosta & Carayannis, 2017).
To fully apply the concept of open innovation, it is helpful to define the roots of the transition from closed to open innovation in order to understand the drivers and opportunities but also challenges

From Closed to Open Innovation

The shift from closed to open innovation has been characterized by Henry William Chesbrough (2003) as a result of three main reasons: (1) The significant rise and increased mobility of the workforce due to globalization, and therefore, the knowledge and ideas based in them, (2) the easier access to capital through venture capital funds, and therefore, the opportunity for employees to pursue their own ideas and commercialize them individually, (3) new technologies regarding communication and collaboration of people to share ideas and knowledge.
In general, the required capabilities for open innovation are similar to a traditional approach, but with a higher maturity level and more distinct (Chatenier, Verstegen, Biemans, Mulder & Omta, 2010). There are several ways to distinguish these capabilities. For instance, Rosemann and vom Brocke (2015) differentiate six factors: strategic alignment, governance, methods, IT, people and culture. The principles that derive from closed innovation are distinguished by the self-reliance on innovation and a clear idea what market to pursue. In contrast, open innovation is determined by the exploration of new pathways through collaborations and reliance on others, which could lead to new markets (Chesbrough, 2003; Chesbrough, West & Vanhaverbeke, 2006). Compared with closed innovation, Chesbrough (2003, p. 38) identified six principles that induce open innovation:

  1. Smart people do not necessarily work for the company, however their expertise and know-how can be beneficial and vital for the company.
  2. The value from R&D can emerge from outside, not just inside the company.
  3. The discovery of new ideas can emerge from the outside too and companies can profit from it.
  4. The duration to launch innovations to market is not as important as the quality anymore.
  5. Creating the most and best ideas does not solely signify the winner anymore. The usage of internal and external knowledge is the key.
  6. Intellectual property from others can be beneficial too and should be acquired by the

Overall, an effect of this paradigm shift is the demand for change on how companies create new ideas to meet the higher innovativeness required by the market. Prior to this transition, large organizations tended to invest a high share for R&D purposes, but recently they start to walk away from this traditional approach (von Briel & Recker, 2017). According to various scholars, the tendency is clearly to open up the internal R&D processes to the outside in order to design innovations (Brinkerink, Van Gils, Bammens & Carree, 2016; Feranita, Kotlar & De Massis, 2017; Lichtenthaler, 2011). The intention today remains twofold: a commercialization of in-house ideas as well as acquiring outside ideas through collaborations with external sources to produce innovation, and thus, generate profit (Chesbrough, 2003).
As a result of this paradigm shift, the knowledge transfer through the inflow and outflow of know-how of two parties, leads to the creation of new ideas, and thus, innovation internally and externally of companies (Chesbrough et al., 2006). The creation of these new and valuable outputs is often a combination of existing and new knowledge (Felin & Zenger, 2014). Numerous knowledge sources like customers (West & Lakhani, 2008), universities and academics (West & Gallagher, 2006) or even competitors (Faems, De Visser, Andries & Van Looy, 2010) have continuously been added and companies constantly find new ways of generating valuable information through external sources.
Regarding the affected industry, Laursen & Salter (2006) identified that manufacturing firms increasingly rely on external knowledge to stay innovative and record more success. In particular, the technology sector takes advantage of open innovation to advance their technology innovations (Lichtenthaler, 2008). Considering the service industry, firms do not tend to be less innovative than their manufacturing counterparts, but they approach open innovation differently since they heavily rely on information and communication technologies (Mina, Bascavusoglu-Moreau & Hughes, 2014).
The opening of the internal R&D process to external sources is marked by the knowledge transfer to stay innovative as a company (Lichtenthaler, 2011). Further, companies want to respond to the six principles above that induce open innovation (Chesbrough, 2003). As a result, three types of knowledge transfer and information sharing emerged


The knowledge exchange with external partners is the core of open innovation and can be derived from three directions of knowledge flow. The most common dimension, inbound open innovation entails knowledge flow from the outside of the organization (outside-in) to the inside to create new ideas through the leverage (Enkel, Gassmann & Chesbrough, 2009), absorption (Burcharth, Knudsen & Søndergaard, 2014), acquisition and exploration (Lichtenthaler, 2011) of external knowledge. In that regard, this ranges from basic internet searches (Burcharth, Knudsen & Søndergaard, 2017), intricate project based R&D collaborations (Chesbrough et al., 2006) and even mergers & acquisitions (Burcharth et al., 2017).In contrast outbound open innovation is less practiced and also less researched by scholars. It contains the outflow of knowledge from the inside of the organization (inside-out) towards exploitation (Lichtenthaler, 2011), externalization (Enkel et al., 2009) and commercialization (Burcharth et al., 2014) beyond the organizational boundaries. In practice, this could encompass out-licensing agreements or chargeless innovation (Burcharth et al., 2017). In particular, the licensing of technologies is used by companies (Huan-Yong, Jing, Chong-Feng, Dan-Feng & Yong-Sheng, 2016).
As the third dimension, the coupled open innovation approach is a combination of inbound and outbound open innovation through co-creation or collaboration between two parties on an equivalent level (Hosseini, Kees, Manderscheid, Röglinger & Rosemann, 2017).
Lichtenthaler notes that besides the knowledge exploration and exploitation, the retention of knowledge, thus the maintenance of information inside and outside the firm, is another crucial factor (Lichtenthaler & Lichtenthaler, 2009; Lichtenthaler, 2011). It is important to ensure the sustainability of open innovation initiatives and partnerships (Lopes et al., 2017). The decision towards open innovation and the application of one or more types depends on various drivers and motivators that are discussed in the following



As identified before, the main reasons for the paradigm shift have been a result of the increased mobility of the workforce, easier access to capital and new communication technologies (Chesbrough, 2003). However, the effects of this transition and the increased competition affect the management and the overall business strategy. The ability to adapt to environmental changes (Chesbrough, 2003; Van de Vrande, De Jong, Vanhaverbeke & De Rochemont, 2009) with a higher innovativeness (Chesbrough et al., 2006) are still the main motivators.
In general, a specific conclusion to what drives a company to collaborate with external partners cannot be given, since it depends on too many individual company, market and situation aspects. Scholars identified numerous motivators under different circumstances, but the desire to strengthen the innovative performance of the company, and therefore, stay competitive sticks out mostly (Chesbrough, 2017; Lambrecht et al., 2017; Mortara & Minshall, 2011; Pittz & Adler, 2016).
However, with the evolution of open innovation, the motivators are derived differently for large organizations and SMEs. The size of the organization influences the strategic goal that is relevant for open innovation and its expectations (Werner, Schröder & Chlosta, 2018). Predominantly, many scholars focus on large organizations in the high-tech industry only (Chesbrough, 2003; West & Bogers, 2014; Brinkerink et al., 2016). Therefore, the distinction between big firms and SMEs needs to be clarified.
Large organizations – companies that contain at least 500 employees and an annual turnover higher than 50 million Euro according to the Institut für Mittelstandsforschung (IfM) in Bonn (Germany) (IfM Bonn, 2018) – often want to improve their innovation efficiency and performance (Burcharth et al., 2017; Chesbrough, 2017, Laursen & Salter, 2006). Companies can no longer rely on significant investments in their own R&D and rather open up their processes for new innovations (Ozkan, 2015). The sheer size, an inefficient internal system and manifold product portfolio (Ozkan, 2015) can become a problem for large organizations and even lead to downsizing (Wikhamn & Styhre, 2017). In a non-monetary manner, they want to approach problems like the lack of capability, access to information and a lower ability to manage risk associated with innovations (Mortara & Minshall, 2011; Lambrechts et al., 2017). The lack of know-how in a particular area, time constraints or the access to specifically needed and new technologies (Chesbrough, 2017; Howells, Gagliardi & Malik, 2008; Lazzarotti & Pellegrini, 2015) are additional drivers for open innovation. But probably most important to improve the innovation performance is a higher creativity and new ideas to establish the monetary benefit of additional revenue streams (Chesbrough, 2017).
SMEs – opposing to large organizations with less than 500 employees and an annual turnover of lower than 50 million Euro (IfM Bonn, 2018) – are mostly focused on growth (Burcharth et al., 2017; Chesbrough et al., 2006; Van de Vrande, De Jong, Vanhaverbeke & De Rochemont, 2009). Nevertheless, they are also derived by non-monetary benefits (Lichtenthaler, 2011) like a valuable partner to solve business problems and sustain growth as well as shorter market launch time of their innovations (Mina et al., 2014; Wikhamn, Wikhamn, & Styhre, 2016). The desire to establish a stable and long-term relationship with their partner derives the manufacturing industry (Pellegrini, Lazzarotti & Pizzurno, 2012). The collaboration with large organizations in particular is derived by a wider range of scope when launching the new product, increased marketing resources and the access to specific expertise (Alberti, Ferrario, Papa & Pizzurno, 2014). Further, their limited ability to attract and recruit specialized employees as well as their small and little diverse innovation portfolio bear significant risks, they want to overcome (Van de Vrande et al., 2009). In a monetary manner, they want to increase their R&D expenditures (Mina et al., 2014) and financial funding for their innovations (Drechsler & Natter, 2012).
Generally speaking, SMEs contain a much higher open innovation intensity across all dimensions than large organizations (Spithoven, Vanhaverbeke, & Roijakkers, 2013) . In contrast, large organizations are involved in a higher number of open innovation initiatives due to their level of formalization and available resources (Battistella, De Toni & Pessot, 2017). Nevertheless, leaving out the monetary aspects, both organizations simply want to learn from other companies in an interorganizational manner to stay competitive (Pittz & Adler, 2016). Resulting from the drivers and the specific situation a company is in, various challenges emerge


In general, collaborations with external partners entail numerous challenges. Due to the holistic approach, open innovation affects the business strategy of companies and challenges the company’s strategic comfort zone (Wikhamn & Styhre, 2017). Furthermore, it can affect the organizational or cultural background (Battistella et al., 2017; Hosseini et al., 2017) due to the external cultural influences (Mortara & Minshall, 2011). These influences affect all levels of the organization (Lichtenthaler, 2011) as well as processes, structures and internal politics (Wikhamn & Styhre, 2017).
Before even implementing open innovation in the company, an adequate partner needs to be found (Hosseini et al., 2017). This is also linked to the expectations of companies’ open innovation initiative (Burcharth et al., 2017) and the knowledge of the concept itself (Ozkan, 2015) to avoid pitfalls. A different partnership management for science and market-based purposes (Du, Leten, & Vanhaverbeke, 2014) are required to avoid mismanagement. On the one hand, a lack of professionalization and an autocratic management style can hamper open innovation (Bruque & Moyano, 2007). On the other hand, open innovation needs flexibility and experimentation to become successful (Burcharth et al., 2017). Also the leadership style should embrace an organizational culture towards a sustainable internal commitment with a consistent management support for the concept (Chesbrough et al., 2006).
On an individual level, this could lead to challenges regarding external knowledge exploration (or acquisition) like the so-called “not-invented-here” (NIH) attitude, that is repeatedly named by scholars in the context of open innovation (Burcharth et al., 2014; Chesbrough et al., 2006; Chesbrough, 2017; Lichtenthaler, 2011; Mortara & Minshall, 2011; Van de Vrande et al., 2009). This cultural aspect leads to an individual attitude that is inherently against new ideas and has significant influence on the internal innovation process (Chesbrough, 2017), internal commitment (Van de Vrande et al., 2009), organizational routines (Lichtenthaler, 2011) and organizational alignment (Chesbrough et al., 2006) for open innovation. Often, this syndrome is linked to a challenge concerning external knowledge transfer (or exploitation) with the so-called “not-sold-here” (NSH) attitude (Burcharth et al., 2014; Casprini, De Massis, Di Minin, Frattini & Piccaluga, 2017; Lichtenthaler, 2011). This protective character is a result of the anxiety to lose control in the company. Employees perceive a higher uncertainty about the outcome and a higher complexity through collaboration (Madiedo, 2014), and therefore, might develop such syndromes. This could spread to all levels of the organization (Lichtenthaler, 2011)

1 Introduction 
1.1 Research Problem
1.2 Research Purpose
1.3 Pilot Interview
2 Theoretical Background
2.1 Open Innovation
2.2 Open Innovation in Family Firms
2.3 Implementation of Open Innovation
3 Methodology 
3.1 Research Philosophy
3.2 Research Design
3.3 Research Strategy
3.4 Time Horizon
3.5 Research Quality
3.6 Ethical Considerations
4 Empirical Findings
4.1 Role of Open Innovation and Family Influence
4.2 Open Innovation Implementation Components
5 Analysis 
5.1 Classification of Cases
5.2 Family Influence on Open Innovation Implementation
6 Discussion
6.1 Family Firms
6.2 Impact of Family Involvement on Open Innovation .
6.3 Implementation of Open Innovation in Family Firms
7 Conclusion
7.1 Theoretical and Practical Implications
7.2 Limitations
7.3 Future Research
Reference List 

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