1. FELIN, T., ZENGER, T.R.: CLOSED OR OPEN INNOVATION? PROBLEM SOLVING AND THE GOVERNANCE CHOICE Group 9: Reetta Arokoski, Lauri Kokkila, Matilda Akkola, Miikka Laitila “Discuss how the development of information technology has had an effect on the governance forms of innovation”

2. Problem Complexity = How complex is the innovation problem Complex problems usually have many solutions Many parts that have high interdependency To come up with an innovation, the manager has to have an holistic understanding of the problem and required knowledge The solution found by centralized theory-guided search: the search leads to a theory that is then tested and adjusted Simple problems often have one simple solution Easy to understand Can be divided into parts that don’t significantly interact with each other Solutions found with trial and error search, which can be done decentralized 2

3. Hiddenness of Knowledge = How easily the required knowledge can be acquired The knowledge is usually located in many different places If the manager knows the location, he can ask for the knowledge = centralized selection of knowledge Acquiring the knowledge is more difficult if the manager doesn’t know where it is located → knowledge holders have to understand to reveal their knowledge 3 Problem complexity and hiddenness of knowledge affect the choice of the governance form!

4. Classification framework for governance tools 4 SimpleComplex Low High HIDDEN KNOWLEDGE PROBLEM COMPLEXITY Decentralized, trial and error search Theory-guided search Centralized Selection Self-selection

5. Open & Closed innovation Closed innovation Traditional development: the use of internal resources, such as R&D department Knowledge sharing and creation inside the company Low-powered incentives The process is heavily lead by the management Can be divided into two categories: consensus-based and authority-based hierarchies Open innovation “ Using the market to source and commercialize innovations” Non-hierarchical form of innovation Focus on the external actors: users, customers, suppliers, universities, competitors etc. Can be divided into four categories: markets/contracts, partnerships/alliances, contests/competitions/platforms, users/communities 5

6. Closed: Authority-based hierarchy Incentives and property rights are used as governance instruments Easier to combine knowledge, because no need to differ specific contributions of separate actors Search is centrally facilitated by the manager Lower cost to transmit and handle knowledge compared to the consensus-based hierarchy No need to convince actors to perform Effective vehicle to solve moderately complex problems Structuring to sub-problems and guiding the search 6 SimpleComplex Low High HIDDEN KNOWLEDGE PROBLEM COMPLEXITY Communication channels Vertical, socially embedded within firm IncentivesLow-powered (mostly) Property rightsPossessed by firm

7. Closed: Consensus-based hierarchy As in authority-based hierarchy, incentives and property rights are used as governance instruments Easier to combine knowledge, because no need to differ specific contributions of separate actors Costly transmission cost of knowledge Rich horizontal communication channels between peers Widespread knowledge sharing enables to solve complex, non-decomposable problems 7 SimpleComplex Low High HIDDEN KNOWLEDGE PROBLEM COMPLEXITY Communication channels Horizontal, socially embedded within firm IncentivesLow-powered (mostly) Property rightsPossessed by firm

8. Open: Markets / Contracts Firms seek access to externally owned technology or knowledge For example licensing or buying property rights from another company First, the company has to identify their problem explicitly In addition, the potential partners has to be found from the market The sales of completed solutions relatively poor knowledge exchange and communication 8 SimpleComplex Low High HIDDEN KNOWLEDGE PROBLEM COMPLEXITY Communication channels Limited, selective invitations IncentivesHigh-powered Property rightsExternally owned and exchanged

9. Open: Partnerships / Alliances / CVC Partnerships are created in order to openly exchange knowledge Active problem-solving within the partner network Enables access to external resources (to some level) Relatively rich communication channels Support solving problems of intermediate complexity However, in order to find solutions for more complex problems, the problem architecture needs to be clearly defined Requires negotiations over property rights Contracts usually more open-ended than in the market 9 SimpleComplex Low High HIDDEN KNOWLEDGE PROBLEM COMPLEXITY Communication channels Bilateral, socially embedded IncentivesCooperative, high- powered Property rightsNegotiated

10. Open: Contests / Tournaments / Platforms The use of individuals in order to find relevant knowledge or completed solutions The problem of the company doesn’t have to be clearly identified Beneficial both for individuals and companies Different forms: hackathons, design competitions, crowdsourcing Communication channels provided are generally broad, but not deep Suits poorly for finding solutions to complex problems Although complex problem can be divided into easier sub-projects 10 SimpleComplex Low High HIDDEN KNOWLEDGE PROBLEM COMPLEXITY Communication channels Horizontal, broadcast, IT supported IncentivesModerate powered Property rightsVaried (dispersed or focal firm)

11. Open: Users / Communities Users select their own problems to explore Lead users share knowledge with the motivation of high quality products For example, softwares are developed through open source platforms Firms have also developed innovation communities for accessing the dispersed knowledge and expertise of users However, usually the innovation process is not controlled by the firm Communication channels are relatively rich Wide access to hidden knowledge 11 SimpleComplex Low High HIDDEN KNOWLEDGE PROBLEM COMPLEXITY Communication channels Horizontal, socially embedded outside the firm IncentivesLow-powered Property rightsNone

12. IT has diversified the governance of innovation The popularity of open innovation growing rapidly The disruption of possibilities for utilizing open innovation Communication costs have decreased significantly New communication channels have been invented; i.e. instant messaging, Skype, open source platforms Access to a wider range of stakeholders i.e. technology companies are able to communicate with relevant stakeholders globally Enables the use of new platforms i.e. Google Drive, MyCourses, Microsoft 365 → More knowledge sharing? 12

13. The role of users in innovation processes is growing Creating a new culture of interaction (i.e peer communities, user created content) The individuals participate in innovation processes even without any financial incentives i.e. receiving feedback and ideas through company’s Facebook page, Linux open source development The collaboration between companies and users can deepen even more in the future Through the use of different platforms, companies can also recognize different preferences and motivations of users 13

14. IT is changing the structure of innovation processes Technology and platforms have made it easier and more efficient to interact with stakeholders ➔ finding the right individuals with relevant knowledge is easier Crowdsourcing has become cheaper than R&D Deeper and richer communication is enabled by using i.e. 3D-models Problems are being divided to smaller sub-problems High-level innovation architecture has become more important The role of managers become less important as the peer-to- peer platforms can be utilized more efficiently 14