Open innovation in SMEs:

How small companies and start-ups

can benefit from OI strategies?

Prof. dr. Wim Vanhaverbeke

Hasselt University
ESADE Business School
National University of Singapore

“Business Innovation in Latin America”

Cartagena April 12, 2013
How did we define open
innovation for large companies?
“Open innovation is the use of purposive
inflows and outflows of knowledge to
accelerate internal innovation, and expand
the markets for external use of innovation,
respectively.”
Chesbrough, Vanhaverbeke, West
Open Innovation: Researching a New Paradigm
(OUP, 2006)
 Outside in OI: Filling the gaps with external
technology

Internal New
Market
Technology
Base
Current
External Market
Technology
Base Technology in-licensing
External research projects Technology
acquisition
Venture investing
R Technology
D Insourcing
Source: H. Chesbrough, Sloan Management Review, Spring 2003
 Inside out OI: Profiting from others’ use of your
technology
Other Firm’s
Licensing Market

Technology Spin-offs
Internal New
Market
Technology
Base
Current
External Market
Technology
Base
Technology Insourcing
R D
Source: H. Chesbrough, Sloan Management Review, Spring 2003
Some observations
after 10 years OI
Some observations
 Main focus on:
• High-tech industries
• Large manufacturing (and now also services) companies
 What do we know about open innovation in SMEs?
• Few articles published so far (e.g. Van de Vrande et al. 2009,
Technovation)
• A few case studies or some survey based evidence

• No systematic analysis yet of OI in low-tech SMEs

 OI in high high SMEs by CVC

 “OI in SME”- project: conclusions of an in depth study of OI
successes in 10 European SMEs in different industries

12
Managing OI between
a large company and
a high tech start-up?
Philip’s Airfryer
 Airfryer: patented Rapid Air technology of small company
 French fries with up to 80% less fat, yet maintaining a
great taste.
 The Airfryer was launched in September 2010 in several
European markets
 Frying fries and snacks has to be relearned
 Guidelines / recipes

 Partnerships (Mora?)
Philip’s Airfryer
 Philips developed already a technology internally in 2006:
 Too complex and too expensive: Philips could not translate the
technology into a consumer product that fits the Philips promise of
“sense and simplicity”
 “A perfect appliance”: engineers create a perfect application with
latest technology and commercial people express their wishes
leading to more features
 External engineering company developed and patented a
very simple technology allowing Philips to sell it below
€ 200.
 In a market with price ceilings, start innovation from the
perspective of price restrictions (frugal innovation, cheap
innovation, reversed innovation)
Philip’s Airfryer
 Manager of the engineering company has been senior
manager at Gilette.
 NDA / later exclusive licensing deal for the B2C market /
right to buy the technology after 5 years at a predetermined
price.
 Engineering company has the right to sell in the B2B
market and in countries where Philips is not active
 Win-win outcome: Let your partner pursue business
opportunities in areas that do not fit your business model.
Open innovation in
“low tech” SMEs
Main take-aways: don’t copy OI
lessons for large companies
1. Start with the growth strategy or broader
strategic objectives of small firms
 BMI (VC2)

2. The entrepreneur is crucial in driving the

realization of that growth / change
3. OI : key resources to be sourced from external
partners to relaize the growth
4. OI-network management = key process
Curana

34
JAGA

35
DNA INTERACTIVE FASHION

DEVAN
CHEMICALS
Quilts of Denmark: quilts & duvets
with active temperature and humidity control
Dingens
Innovacelli Barometers
Curana

42
 Curana: combining innovation
and industrial design
 The old situation:
 Steel mudguards and fenders

 Belgium as market (10 million inhabitants)

 Family owned business

 Challenge:
 Growing economies of scale and globalization of the industry

 Strategic change:
 differentiation through innovation

 or price competition with low-cost import

Curana:
B"Lite : Mudguard of Curana

16/04/2013 Wim Vanhaverbeke 44

 Curana: innovation combined with
industrial design in low-tech markets
 Advantages:
 Lighter mudguard (25% less weight than plastic mudguards).
 Production cost are low enough to be competitive with standard mudguards
 Installation of the mudguard is easier
 Nice design
 Aluminum separated by plastic can be used as a conductor for electricity (no
more wires required for lights)
 IP
 European patents
 Curana also applied for a patent on the production process

 Innovation:
 combination of internal and external knowledge (external design
company and polymer extrusion manufacturer)
 Lead-users (bicycle manufacturers) promised to buy B”Lite via an
exclusive deal which is limited in time (Batavus and Sparta)
Curana: Spectacular results

16/04/2013 Wim Vanhaverbeke 46

 Curana:
a small company in transformation
1946 1990 1999 2006 2008
Started in 1946 Introduction of design Start of brand extensions
As a family business First cooperation with Co-branding
Producing bicyle parts external design office

Take over of the Start of an internal

company by the 2 sons design office

PRODUCTION
Internal External
MARKET
Local Export

Existing PRODUCT PORTFOLIO New

product product

16/04/2013 Wim Vanhaverbeke 47

 Curana:
a small company in transformation
OEM > ODM > OSM > OBM

Original Original Original Original

Equipment Design Strategic Brand
Manufacturer Manufacturer Management Management

• price pressure • price setting • vision driven • Image driven

• technology driven • design driven • proactive design • Reliability &
• no added value • added value solutions authenticity
• Innovative • Market pull from
customers

16/04/2013 Wim Vanhaverbeke 48

Some JAGA products

56
Jaga
 Differentiation vs. competition through:
 Eco-radiators
 Design-radiators

 The company is not selling products but

experiences, ideas, values, etc….
 Differences:
 radiators as heating machines

 radiators to reduce carbon-footprint

 radiator as a creative part of the house, heating
the "soul"
Open innovation # 1

Jaga Experience Lab : JEL

- Product: test-facility
- Experience: test and develop
your own products
- Jaga invites professors &
engineers worldwide
- Low cost form of publicity: new
projects as Federation Tower /
Telefonica
Open innovation # 2
JAGA products days

• Total number of projects: 119

• Total number of products
created by non professionals:
49
• Number of Jaga Product days
ideas taken into production
within 6 months: 6

61
Example: Play radiator

16/04/2013 Wim Vanhaverbeke 62

Example: The play radiator
A framework for OI in SMEs:
Strategy/Business model as
starting point
THE STRATEGIC DIMENSION
BM as starting point for SMEs
analysis
 Studying open innovation in SMEs makes only
sense within the broader framework of a
business model (innovation)
 How to analyze a BMs?
• Renewed attention among management

scholars for BMs and BM-innovation

• Critical remark: BM(I) models do not pay
enough attention to network partners/ OI
…
85
BM as starting point
for your analysis (after Johnson. 2010)

87
The start: vision of the
entrepreneur
THE ENTREPRENEURIAL DIMENSION

88
 How value creation starts?
 Vision / basic insight of the entrepreneur:
• Diverse: From the obvious to hard to articulate:
• Curana: developing bike accessories with sleek modern design
• QOD: A provider of a healthy sleep
• I styling : virtual shopping for fashion goods
• BM conception: from days to years
• QOD:
• Who can define “what is a healthy sleep?”
• How to translate these insights into technical specs for a functional
quilt?
• Istyling : piecewise development of the BM (body scanner)
• Articulating a BM may take time: A process view on
BM formation
• There is no grand design – discovery driven growth
strategy + experimentation (Rita McGrath)
89
Creating and sharing value with partners:
How open innovation fits into the picture?

THE RELATIONAL DIMENSION

90
 Curana: open innovation essentials
 Combination of internal and external knowledge (external
design company and polymer extrusion manufacturer) KEY
RESOURCES/ COMPETENCIES
 Collaboration with lead-customers (bicycle manufacturers) in
exchange of an exclusive deal limited in time
 Protecting your invention : IPR
 Progressively increasing the ecosystem of partners:
 Locus of innovation is in the network
 External network management at Curana
 Growth economic strength ≠ growth firm size

 Innovation as a tool to shape your company’s destiny and that

of the industry (more control points and higher profitability)
Managing your external
network (partners) as a
key process

92
 Managing your innovation
network (key process)
 Connecting partners (SMEs and other knowledge partners) is based
on strong personal ties between the main partners
 Trust + transparency about the objectives of the partners
 Time and money have to be invested
• Does everybody want to take risk?
• Important that the different firms are prepared to grow together
 Cooperation is easier between companies of the same size
• But cooperation with large ones is possible too (different logic)

 Over time assimilate the knowledge of different partners. Become

smarter by knowing more partners (knowing who) and knowing
more than your partners
• …

93
 Managing your innovation
network (key process)
 Project management (central partner) with partners is quite
different from internal project management
 Each one is busy with a part of the project : costs easily raise
excessively
 Diplomacy and mutual respect
 Same corporate culture
 Tensions will pop up after a while
 Good relationship may become under pressure
 Open innovation? Open communication!
 Organize (mutual) evaluation session with partner(s)
 Open bookkeeping with main partners (their problems will be
yours)
 Set out rules for disloyal behavior
94
 Managing your innovation
network (key process)
 IP?
• Make proper arrangements with your partners
• Who is the owner?
• How partners can make use of the technology?
• Who is going to court (and who pays) in case of patent
infringement?
 Make sure that all partners are better off than
when they would not join / stay in the network
 Open innovation: benefits should be a multiple
of when companies work on their own.
95
 2006 2011

2003

A new wave
of researching
open
innovation

OUP
2011 2013
2006
Exnovate as a network of excellence
for OI-practitioners and scholars?
 www.exnovate.org
 An international network for excellence in managing Open and
Collaborative Innovation
 Projects
 CE and OI Masterclass (9 times Philips / ESADE) – 9-14 June
2013, Barcelona
 PhD course open innovation at ESADE (4th time in January 7-9,
2013)
 Open innovation metrics
 Using best practices to improve OI in SMEs
 Open Innovation Community (OIC) on Facebook
and Linkedin
http://www.exnovate.org/

wim.vanhaverbeke@uhasselt.be