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Topic 5: Recent Developments in Strategy Article Presentation: “Open Innovation and Strategy” (Chesbrough, H.C. & Appleyard, M.M.) Group 7a Erik Bengtson [email_address] Richard Gullberg [email_address] Gustaf Sundlöf [email_address] 2304 Media Management Bibliography: When nothing else is noted the presentation is based on: Chesbrough & Appleyard , Carlifornia Management Review, ”Open Innovation and Strategy”, 2007, vol. 50.

Open Innovation: A new phenomenon Companies are experimenting with new business models based on open innovation Access to expanded, collective, value creation and innovation Capital light – developers do it of their own free will  ” Open Strategy” However, an issue: Sustainable Open strategy must balance value creation and value capture

Emerging Anomalies Traditional business strategy theories/models not sufficient for explaining the new phenomenon. A new shift: ownership & control  Openness Openness = “the pooling of knowledge for innovative purposes where the contributors have access to the inputs of others and cannot exert exclusive rights over the resultant innovation” (p.60) Value enhanced in two ways: Contribution of ideas/content network effect: value increases with the no. of users – attract more companies and users

3 challenges that traditional business strategy faces when applied to open innovation ” the need to have ownership over the resources that are creating value” (p.61) ” the ability to exclude others from copying the product” (p.61) Companies can gain high profitability and advantageous competitive positions irrespective of (very) low entry barriers and switching costs (cf. Google and Porter’s 5-forces) (p.61-62)

Implications for Strategy: Understanding value creation and value capture Two dimensions/manifestations of openness: Open innovation Pooled knowledge > knowledge of individuals on stand alone basis A way of reducing the cost of knowledge generation Open coordination Consensus building – standards emerge Business ecosystem creation – interplay between multiple industries Note: open innovation is not limited to IT

Source: Adapted and edited/changed picture, from Chesbrough & Appleyard, Carlifornia Management Review, ”Open Innovation and Strategy”, 2007, vol. 50. Open and closed innovation

Strategic issue: how to sustainably capture created value in harmony with its developers Example in article: Open Business Models in Open Source Software Category Business Model Deployment Support Subscription Professional Services /Consulting Hybridization Proprietary Extensions Dual License Complements Device Self-Service Community Source

4 issues regarding the business sustainability for open strategy firms ” how to attract the participation of a broad community of contributors, and how to sustain their participation over time” (p.68) ” open-oriented projects must compete for contributors – and most do not succeed”(p.69) ” how the open innovation or coordination project is led, and how its agenda evolves” (p.69) ” How can a company engage in an open source community […] and still profit from technology, which, […] cannot be owned by the company?” (p.69)

Still, return to traditional business strategy in pursuit of sustainability (ex: compete for contributors). Also: consider cost vs. benefit of openness Open strategy: balance traditional business strategy with open innovation

Example: Linden Lab/Second Life Users participate in development Users can create more or less whatever they want Value created is captured by users as well as the company Users can sell their creations in-game To facilitate this: Users retain intellectual property rights Linden Lab earns money on each transaction made (also sale of ”property” in game and subscription etc) Supply and demand in-game (?) Source: http://lindenlab.com/pressroom/general/factsheets/economics Category: Deployment

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