THE ANATOMY OF INNOMEDIARY COLLABORATION

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The Promises of a Global Network of Experts

The promises of Open Innovation networks and markets for technologies and ideas (short: MFTI)5, include the potential for a “connected” company to tap a huge global network of experts and leading-edge technology providers of all kinds and the ability to use their knowledge and ideas in problem solving, process improvements and new product development activities6. The potential benefits of having such an ability should be obvious; just imagine what you can do when you are an expert at everything you do.
Using a market instead of new hires to add knowledge and expertise to an organization can also have significant benefits; it can open up for the possibility to only pay for tangible results7, instead of as before, paying in-house researchers for their time and effort; which might result in nothing.
It is also conceivable that outsourcing research and ‘non-core’-problem solving to an external market can reduce the need for having a broad set of competencies and technical skills within an organization and this can free up precious time and resources, letting companies focus more on their core strengths.
The new promises of the Open Innovation era and its new markets for technology and ideas are great indeed. However, as always when things seem too good to be true, they probably are. Technology and knowledge markets are, sadly, not an exception. There are a number of complex challenges that need to be overcome before the above promises can become reality8.

Challenges: Buying knowledge is not simple.

Knowledge, technology and idea markets and transactions are plagued with information asymmetries, trust issues and large differences in bargaining strength between buyer and seller9,10. There are also significant transaction costs associated with the transfer of technology and knowledge, such as costs of articulating tacit knowledge, costs for negotiating terms for a purchase or licensing agreement and costs for transferring and adapting knowledge or technology to fit new, unique situations11,12,13. A technology buyer will also need to have sufficient absorptive capacity to be able to understand, evaluate, adapt and implement new external solutions14.

Open Innovation and MFTIs in practice

About 10 years ago, we could see new marketplaces and networks for technology and ideas being created by a new breed of Open Innovation companies, calling themselves innovation intermediaries (short: innomediaries)15,16. Belonging to their ranks are the companies InnoCentive, NineSigma and YourEncore, among others. These companies make it their mission to help their clients find and connect with outside experts and technology providers.
Although these knowledge and technology markets have existed for quite some time, their use has not been particularly common outside of highly technological fields such as pharmaceutics, bioengineering and electronics17. The markets, the networks, and the volume of technology transactions are, however, growing18 and their use is starting to be seen outside of the ‘high-tech’ industries19. This leads us to believe that somehow the challenges described in chapter 1.2.1 above are being overcome – or at the very least, one can assume that suitable applications for the technology markets and network providers are being figured out. Which of these are true however, remains to be discovered.

Problem Statement, Purpose of Thesis, and Contribution.

It seems that academic literature has not yet had time to catch up with these new trends. While a number of researchers (Chesbrough20, Ashish, Arora and Gambardella21, among others) have delved deeper into the implications of the Open Innovation paradigm and markets for technology and ideas on a larger scale, the economic implications for individual companies using Open Innovation tools in their research and development are, to date, not particularly well understood. Rather “basic” questions such as “What organization design is the best fitted for firms imbued in MFTI’s?“ 22 and “How can firm incentives push members to exploit the opportunities of MFTI fully?”23 are still left to be answered by academia.
Rosenburg and Steinmueller argue that failing to incorporate external R&D can put a company at a severe competitive disadvantage24, which makes finding out how the markets are best used all the more important. Also, it does not seem too far-fetched to believe that the benefits a Seeker can derive from an innovation network will increase as the network grows. Being an early adopter and having a streamlined and efficient process for utilizing the networks to their full potential may therefore prove to be a significant source of competitive advantage.
There is, as we can see, both a need and an urgency to find out more about how the new Open Innovation tools are best used.
With this as background, we set out to learn more about what is “going right” in the market for knowledge and how it can be exploited.
SCA, a consumer goods producer, has reported significant benefits from using the innovation intermediary InnoCentive25. When contacted, SCA through its Innovation and Knowledge manager Bengt Järrehult, agreed to answer our questions about how the collaboration with InnoCentive works and to share what they consider to be the important factors impacting the results of the collaboration. We hope that by looking at the successful use of a knowledge market in the ‘consumer products’-field (a field that has seen little use of knowledge markets26), we have a high chance of finding some evidence that can help explain what is making the market ‘work’.
The purpose of this thesis is thus to examine the collaboration between SCA and the innovation intermediary InnoCentive in order to promote a better understanding of what kind of benefits can be derived from the use of an innovation intermediary, and how these benefits are best utilized. We also set out to identify relevant limitations of innomediary use and to seek a better understanding of how using an innomediary can fit a client company’s ‘higher-order’ activities such as exploration and exploitation (in James G. March’s terms27).
We seek to accomplish this by:
1. Mapping out the theoretical strengths and limitations of innomediary collaboration using previous research and then using this to analyze a “real-world” case.
2. Collecting and presenting “lessons from the field” and other insights which we believe can be of use for a client company (Seeker).
3. We will then try to put the use of an innomediary in a strategic context by discussing how using an innomediary can fit a client company’s ‘exploration’ and ‘exploitation’ efforts.
Besides attempting to promote a better understanding of innomediaries, our secondary aim is to “distill” what we find into useful recommendations for companies who are using, or are considering using an innomediary.

Research Questions

• How can a Seeker benefit from the use of an innomediary?
• Sub-question: How can the use of an innomediary affect a company’s exploration and exploitation capacity?
• What are the limitations and complications of innomediary collaboration?
• How can an organization maximize the returns from innomediary collaboration?

Delimitations

The research is limited to the collaboration between InnoCentive and SCA and the process of them working together. The study is conducted from a “user-perspective”, that is, we study the process of working with InnoCentive from a Seeker’s point of view.
InnoCentive differentiate themselves from other innomediaries by using crowdsourcing as a central tool to find solutions, which means that this is another important delimitation.
As finding the strategic implications of innomediary collaboration is not the main purpose of this thesis we will keep the strategic discussion brief and compact by limiting it to primarily an ‘exploration’/’exploitation’ perspective.

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Structure of Thesis

This thesis starts with an introduction of the background of our thesis, and a brief explanation of the studied phenomenon. Chapter 2 outlines the methodology used to conduct this study in terms of research strategy, research design, selection of interviewees etc. The research strategy is divided into two phases where the first phase includes document studies, working together with innomediary researcher Henry Lopez-Vega and background research to create a better understanding of innomediaries. The result of this is shown in chapter 3 and 4 where chapter 3 describes innomediaries closer and chapter 4 present the theoretical framework used to structure interviews and the analysis.
The second phase of our research is a case study of the collaboration between the Swedish corporation SCA and the innomediary InnoCentive. Chapter 5 presents the results from interviews with high-level employees at SCA, structured around the framework in chapter 4. The same framework is used in chapter 6 where the empirical findings are analysed. In Chapter 7 we discuss the use of innomediaries in more strategic terms and we connect our findings to the exploration and exploitation activities. In chapter 7 we also present the conclusions we can draw from the study. Chapter 6 and 7 is summarized in chapter 8 where we present our answers to the research questions together with recommendations we believe to be applicable for organizations which are considering using an innomediary. Chapter 8 also discusses to what extent our conclusions and findings can be generalized.

Research Methodology

The research methodology used to find answers to our research questions can be described as divided in two phases. First, a study of the phenomenon of innomediaries is done by reading relevant literature and consulting with innomediary researcher Henry Lopez-Vega.
Second, semi-structured interviews based around the framework are held at SCA with high-level employees with close proximity to SCA’s innovation programs.
This chapter serves to make a closer presentation to the methodology used to collect the data in this thesis.

Research Strategy

Having a research strategy is necessary in management and business research since it points out the overall direction and includes mapping of the research process28. This section deals with the research strategy based on the selection between four strategic approaches, the inductive contra the deductive approach and quantitative research contra qualitative research.
The chosen research strategy is based on the time limit for this thesis, the skills of the authors, access to data, existing literature and the research question.

Inductive or Deductive Approach?

One of the choices a researcher has to make is to state whether you want to test an existing theory, being deductive, or seek new theories, being inductive29. A deductive approach means that one tries to show that a conclusion entails from premises and hypothesis, i.e. the conclusions must be true if the premises are true30.
In deductive research literature the researcher uses established theories and ‘truths’ to explain the empirical findings31. An inductive researcher on the other hand, seeks new theories based on the empirical findings, i.e. the other way around. A particularly inductive way of doing a research would be to collect data without any hypothesis or prejudices, and draw conclusions solely based on what you find. Carl von Linné, the Swedish biologist, started collecting flowers and plants without any plan on how he would sort and categorize them. Once he had collected a sample of every kind, he found that they could be sorted by the amount of stamens and pistils32, i.e. he structured and organized a system based solely on his empirical findings.
This thesis is studying the phenomenon of Innomediaries, a new tool for innovations where the frame of literature references is weak. This study has been approached with no specific hypothesis on what will be found and how strong the connection between existing theories and the empirical findings is. Bryman & Bell argues that an inductive approach is appropriate when an apparent relationship between theories and empirical findings is vague33. In the case of innomediaries, there are simply not enough well-founded premises to build a deductive research upon and since one of the identified problems of these markets are that we don’t know enough about how to use them and what value they can add, the approach to this study is to be considered rather inductive than deductive. This does however not mean that we enter this work with no knowledge about innomediaries at all. The collection of data has been preceded by a study of the intermediation process to create an understanding of the context to this case in order to structure the interviews and frame this study.

Quantitative research: Inquiry for making explanations

In quantitative studies a researcher typically seeks to find the relationships between a small number of variables34. The researcher tries to set boundaries for the inquiry, to define variables and to minimize the importance of interpretation of data until after an analysis. A quantitative researcher tries not to let interpretation change the course of a study. The end goal is to find generalizable explanations for the studied phenomena35. In practice, a quantitative research means collecting a significant amount of data enough to support obvious conclusions. Doing a survey with let us say 2000 people is a common strategy to conduct a quantitative research.

Table of contents :

1. INTRODUCTION
1.1 BACKGROUND: OPEN INNOVATION; NEW OPPORTUNITIES AND CHALLENGES
1.1.1 The Promises of a Global Network of Experts
1.1.2 Challenges: Buying knowledge is not simple.
1.1.3 Open Innovation and MFTIs in practice
1.2 PROBLEM STATEMENT, PURPOSE OF THESIS, AND CONTRIBUTION
1.3 RESEARCH QUESTIONS
1.4 DELIMITATIONS
1.5 STRUCTURE OF THESIS
2. RESEARCH METHODOLOGY
2.1 RESEARCH STRATEGY
2.1.1 Inductive or Deductive Approach?
2.1.2 Quantitative research: Inquiry for making explanations
2.1.3 Qualitative research: Inquiry for promoting understanding
2.1.4 Chosen Research Strategy
2.2 RESEARCH DESIGN
2.2.1 Chosen Interview design
2.2.2 Selection of Interviewees
2.2.3 Interviewee Bias
2.3 EPISTEMOLOGY
2.4 CREDIBILITY
2.4.1 Internal Credibility
2.4.2 Triangulation
2.4.3 Transferability
2.5 RELIABILITY
2.5.1 The author’s skills
2.5.2 The Supervisor
2.6 GENERALIZABILITY
3. WHAT ARE INNOMEDIARIES, AND WHAT DO THEY DO?
3.1 INNOMEDIARIES
3.1.1 Defining the Innovation Intermediary
3.2 HOW DO INNOVATION INTERMEDIARIES ADD VALUE?
3.3 WHO ARE THE LARGEST INNOMEDIARIES, AND HOW ARE THEY DIFFERENT FROM ONE ANOTHER?
3.4 USING INNOCENTIVE – A WAY OF USING CROWDSOURCING
4. THEORETICAL FRAMEWORK
4.1 THE ANATOMY OF INNOMEDIARY COLLABORATION
4.1.1 Finding and Selecting Suitable Projects
4.1.2 Project Crafting
4.1.3 Connection
4.1.4 Evaluation
4.1.5 Negotiation and Agreement
4.1.6 Implementation and Technology Development
4.2 EXPLORATION/EXPLOITATION
5. EMPIRICAL FINDINGS
5.1 CASE OVERVIEW
5.1.1 How the Collaboration Began and How it has Developed Since
5.1.2 Who are SCA?
5.1.3 InnoCentive
5.2 THE INNOVATION INTERMEDIATION PROCESS AT SCA
5.2.1 Finding and Selecting Suitable Projects
5.2.2 Crafting the Challenge
5.2.3 Evaluating Provided Solutions
5.2.4 Agreement and Implementation
6. ANALYSIS
6.1 THE INNOCENTIVE INTERMEDIATION PROCESS
6.1.1 Adjusted Framework for Collaboration with InnoCentive
6.2 FINDING AND SELECTING SUITABLE PROJECTS
6.2.1 Knowledge transfer and Solution adaptation
6.3 CRAFTING THE CHALLENGE
6.4 EVALUATION OF PROVIDED SOLUTIONS
6.5 AGREEMENT AND IMPLEMENTATION
7. DISCUSSION & IMPLICATIONS
7.1 THE SOURCE OF INNOVATIONS
7.2 THE NETWORK, THE APPROPRIABILITY PROBLEM AND THEIR EFFECT ON INNOMEDIARY COLLABORATION.
7.3 MODULARITY AND THE NEED FOR BASIC KNOWLEDGE
7.4 RADICAL INNOVATIONS, EXPLORATION AND EXPLOITATION
7.5 CHALLENGE CRAFTING: A PARALLEL TO NINESIGMA
7.6 BENEFITS FROM USING INNOCENTIVE
8. CONCLUSIONS & RECOMMENDATIONS
8.1 ANSWERING THE RESEARCH QUESTIONS
8.2 COMPLETING THE TABLE
9. IDEAS FOR FUTURE RESEARCH
10. BIBLIOGRAPHY

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