Abstract number: 020-0721
Towards the next generation of innovation process?
Authors:
Michele Esteves Martins
Fundação Getúlio Vargas / EAESP
Cristiane BiazzinVillar
Fundação Getúlio Vargas / EAESP
Guilherme Silveira Martins
Fundação Getúlio Vargas / EAESP
Luiz Carlos Di Serio
Fundação Getúlio Vargas / EAESP
POMS 22nd Annual Conference
Reno, Nevada, U.S.A.
April 29 to May 2, 2011
Abstract
In different fields of business management, it is possible to identify maturity models of management practices, in which the use of such practices evolved from internal perspective to external. For instance, quality studies evolved from mass production concepts, statistics process controls and quality control to an organizational issue. Furthermore,logistics studies evolved from a process focus (internal logistics, warehousing, inventories) to an expanded perception of integrated supply chain. Within the field of innovation, Hobday (2005) and Rothwell (1994) analyzed different evolution stages. And it is based on Rothwell (1994) generations that we aim to verify if open innovation can be considered the nextGeneration of Innovation Process. To do that, two exploratory and descriptive case studieswereconducted based on documentary and secondary data:IPTV Forum and Threadless community. Our results present how the cases studied explore networks into their innovation process and suggest a possible configuration of the next generation of the innovation maturity model.
Introduction
Innovation has been investigated as a competitive advantage to companies since the seminal works of Schumpeter (1934). Innovation models have became more sophisticated as a result of constant focus of academics and professionals due to its vital contribution to industrial development and to decision making processes in organizations.
The key insight of this paper was born from different fields of business management, where it is possible to identify maturity models of management practices, in which the use of such practices evolved from an internal perspective (between departments in one company) to an external (to a network approach involving different companies). In addition, literature and practice have been revealing that business megatrends have features and trajectories in common (Lubin, 2010).
For instance, quality studies (from seminal Deming studies till current days) evolved from mass production concepts, statistics process controls and quality control were in use, focusing on product and process only. During the 50ths, a new concern regardingquality management emerged as a new organizational philosophy. Quality concerns moved then from a product issue to an organizational issue. Therefore, the concept started to cross intra-organization frontiers in order to achieve and to evaluate supplier quality (inter-organizational approach).
A similar trend also can be perceived in other fields, such as Logistics, which evolved from a process focus (internal logistics, warehousing, inventories) to an expanded perception of integrated logistics. At this specific field, it can be noted that this process is boosted simultaneously by the fast IT evolution and by the high demanding on services performance (BOYSON, 1999).
In the field of innovation, Hobday (2005) and Rothwell (1994) analyzed the different evolution stages. However, the network dimension has not been identified in their researches. They described five generations into which innovation processes have developed since Second World War II, in which the concept of open innovation has not been explored. Based on Rothwell (1994) generations of innovation proposal, we aim to verify if open innovation can be considered the 5th Generation of Innovation Process.
To do that, an exploratory, descriptive multiple case study was conducted based on documentary and secondary data. The first case studied was IPTV Forum, the new wave of television service, delivered by Internet Protocol over a broadband network, which provides a personalized and interactive environment. The second one, Threadless, is an online design community where users can score designs. It is also an ongoing open call for tee shirt design submissions. Anyone can sign up, download a tee template and submit ideas, which are then evaluated by the Threadless community. Tee shirt designs are selected from the pool of the most popular designs as scored by the community.
This paper attempts to make two contributions to the literature. The first is to extend previous work of Hobday (2005) and Rothwell (1994) as itadvances the literature by presenting open innovation networks as next generation of innovation maturity. The second contribution is to present a practical example of the positive effects of exploitation of close ties to other disciplines offering interesting insights for the better understanding the research field.
The paper is structured as follows: initially, it presents a background of previous studies. Next, methodology and development of the research is presented, followed by a comparative analysis of the case studies. Further,it isdiscussed the implications of the results and the paper ends with conclusions, limitations and opportunities for future research.
Background
The research of previous studies on innovation maturity modelscontemplatesRothwell(1994)’sdiscussion of the evolution of changing perceptions in the innovation process, due to the growing complexity and the speed of technological change. The author describes this evolution changing into four different generations. The first generation (1950s – mid 1960s) was characterized by a simple series of technology-push models, in which the industrial innovation process is developed in a linear progression from scientific discovery, technological development (internal) and then, to marketplace.The second generation (from mid 1960s to 1970s)was a switch from new product development to an emergent approach to marketing strategies in order to identify demand side factors. At this case, R&D has a reactive role in the process.
In the early 1970s to mid 1980s, a period of severe resource constrains, organizations were forced to start rationalization actions, waste, failures, etc.Due to the increase number of studies focusing innovation process to attend this critical period of time Rothwell (1994)characterized it as 3rd generation of innovation.The fourth generation of innovation process starts when the turbulence of economic and scarcity of resources presents initial stabilization. For the early 1980s to early 1990s, IT-based manufacturing emerges impacting directly on a reframe of operations strategy and communication flow. Two key words are implemented on that phase: integration and development. The organization starts to address in a more aggressive way suppliers relationship management and R&D development.
From the simple series technology-push model of the 1950s to the parallel and integrated model of the 1980s, the author describes only four generations and he foreseesome key characteristics that possibly would shape the 5th Generation, as (i) greater overall organizational and systems integration; (ii) flatter and more flexible organizational structures, including decision making; (iii) fully developed internal databases; (iv) electronically assisted product development; and (v) effective external electronic linkages.
More recently, Hobday (2005) provides a review of innovation models and suggests some implications for firms in Korea and Taiwan.The author criticizes the innovation models, considering the early stages as over-simplified innovation process. He also argues that there were little evidence to demonstrate that firms adopted the fourth and fifth models of innovation. Indeed, he linked the fifth generation model to the adoption of information technology only and he dismissed the fact that Rothwell (1994) considered the aspect of the speed of development, strong inter-firm vertical and external horizontal linkages either. It is not a question of implementing IT tools but addressing strong networking approach.
Finally, the work of other authors such Boyson (1999) on Logistics, Ferdows and Meyer(1990)on Quality and Venkatraman (1994) on IT studiesprovidesadditional insights for the puzzle of structuring a maturity framework for Innovation. As a result, it is possible to identify, amongdifferent fields of business management, maturity models of management practices, in which the use of such practices evolved from an internal perspective to an external, revealing that business megatrends have features and trajectories in common (Lubin, 2010).
Research Method
In order to accomplish the objectives, two exploratory, descriptive case studies were conducted, based on documentary and secondary data. The first case studied was IPTV Forum, the new wave of television service, delivered by Internet Protocol over a broadband network, which provides a personalized and interactive environment. The second one, Threadless, is an online design community where users can score designs. It is also an ongoing open call for tee shirt design submissions. Anyone can sign up, download a tee template and submit ideas, which are then evaluated by the Threadless community. Tee shirt designs are selected from the pool of the most popular designs as scored by the community.
The techniques and data collection instruments were determined and used according to the needs of each phase. At first, researchers conducted a literature review on the main themes relevant to this study using scientific articles, books, seminars proceedings, newspaper and magazine articles, and other publications aiming to: (a) obtain relevant and updated data on the research cases; and (b) search on the Operations Management and Innovation literature for theoretical models about maturity level and competitiveness that could be used to guide the analysis of the cases studied.
After this phase, a qualitative data analysis was performed to verify the adherence of the cases to the theoretical models used in this study.
Case Studies
- IPTV Forum
The Open IPTV Forum (OIPF) was founded in March 2007 by Ericsson, France Telecom, Nokia-Siemens, Panasonic, Philips, Samsung, Sony and Telecom Italia. Currently, the Forum has 64 members engaged in producing open specifications E2E (end-to-end) for IPTV, in order to lead the next generation of IPTV ( to mass. The Forum aims to define specifications that will ensure interoperability between equipment and services, meeting both network / cable as open Internet.
According to Sakamoto et al. (2011), OIPF recognizes the existence of several areas within the E2E IPTV value chain that have different owners and management controls. Thus, the architecture proposed by the Forum supports the existence of multiple entities with different regions of control and distinct ownership interests. Behind these entities there are a variety of factors, including regulatory regimes, the competitiveness of business environments and strategies. The areas recognized by the IPTV architecture are:
a)Consumer Domain: where IPTV services are consumed.
b)Provider Network Domain: connects the platform of service to the customer. The delivery network is transparent to the IPTV content, although there may be problems with timing and packet loss for IPTV content transmitted over IP.
c)Provider PlatformDomain: the domain of providing common services (eg, user authentication, billing, IPTV and personalized services for communication etc.).
d)Service Provider Domain: the domain providing IPTV services to the Consumer domain. The members of this field are those who buy licenses content from its suppliers and package them into a service, as required by the consumer.
e)Content Provider Domain: the domain that contains the content owners or those authorized to sell them. Specifications concerning the process of developing content from the content provider are not being considered in the current scope of the Forum.
According to the authors, the value chain for IPTV content was created by the Open Forum with the intention of specifying common and open architectures to provide the wide variety of multimedia services and the Internet to the IPTV equipment based on consumer retail. The two major IPTV services currently include: Scheduled Content (equivalent via IP to transmit conventional TV) and on-demand content. The value chain of content is composed of the following functions:
a) Content Production: to produce and to edit the actual content (movies, drama series, sports events, news, etc.)
b) Content Aggregation: aggregation of content in a catalog to offer the consumer;
c) Content Delivery: to carry aggregated content to consumers and;
d) Content Reconstitution: to convert the content into a format suitable for processing the electronic device the end user.
Each task in the value chain has been historically linked to a type of partner or technical function. Content production, for example, is linked to TV production companies and teams for TV.
The joint sponsorship and initial OIPF was conducted by large multinational telecommunications and generation of content (TV stations). The frame allowed the active participation of firms, including smaller firms. It could be noticed that the association of OIPF with IPTV World Forum provided the disclosure, international exposure and visibility, enabling them to display their innovative products and seeking alliances to generate value and to expand the options of innovation, both for complementarities and for novelty.
The years of combined action of OIPF has enabled not only to generate concrete results, but also has gained market recognition, expanding the number of members, increasing partnerships with regulators and promoting events in the field. OIPF has been counting on the relationship and support between its members in order to develop standards that assure a world-wide applicability. Each member does not have to start projects from the zero. On the contrary, members connected explore and synchronize work already done individually.
This study shows evidences that open innovation and collaborative network can be considered as a strategic competitive advantage, when adopted systematically. If it is a high clockspeed sector with high technological risk, this approach may be considered relevant, because there is no way to work alone in R&D. Besides the prohibitive cost there is also a need to leverage a global platform solution, which is not trivial and not viable both in a competitive marketplace and in a closed context of innovation. It also highlights the possible integration of developed countries and emerging economies, building effectively an innovative network.
- Threadless
Innovation in the apparel industry is closely related to design. Traditionally, designers are the “owners” of the innovation process. Talent and market knowledge are prerequisites for developing models that will attract consumers on a large scale. Especially when focusing on hot fashion item, it is typical to have a hit-or-miss product. Each design ends up being a bet. Some companies have excelled in mitigating this risk internally, such as the Spanish Zara, who developed a responsive supply chain (Ferdows, Lewis, Machuca, 2005).
If designers are crucial for innovating, why not have thousands of designers, with different profiles and styles? What if consumers could express which are the designs and designers that they like most?
Threadless is a young Chicago-based fashion company with an innovative business model that allows it to produce a high variety of products without risk and without heavy investments in market research to know customer preferences before production starts. In order to do that, Threadless ran design competitions on an online social network. Anyone who pleases can design a T-shirt, submit his/her ideas – hundreds each week – and then vote on which ones they liked best. Hundreds of thousands of people were using the site as a kind of community center, where they blogged, chatted about designs, socialized with their fellow enthusiasts – and bought a ton of shirts at $15 each. Revenue have grown500% a year, despite the fact that the company had never advertised, employed professional designers, used modeling agency or fashion photographers, constitutedsales force, and enjoyed retail distribution. As a result, costs were low, margins were above 30%, and – because community members told them precisely which shirts to make – every product eventually sold out. (Malone et al., 2010).
Threadless’business concepthave beenagainst a basic principle that has been taught in business schools since the invention of mass production: that employees make stuff and that customers buy it. However, this notion seems anachronistic in a marketplace of ever-narrowing niches and nearly unlimited consumer choices.
The company have hadover one million registered users and have receivedapproximately 800 submissions per week, six of these are offered every week. Threadless exploits the commitment of users to screen, evaluate and score new designs as a powerful mechanism to reduce flops of new products. The capabilities of costumers and users are used for the innovation process. The firm has just 20 employees, but sells more than fifty thousand t-shirts and earns profits that adds to over one hundred thousand dollars per month.
The costumers are crucial to Threadless’ process. They take responsibility for advertising, supply models and photographers for catalogues, and solicit new costumers. The process starts when an idea for a colorful T-shirt is posted on a dedicated web site by a potential customer or the developers of a manufacturer. Internet threads of and opinion polls are used to stimulate other customers’ evaluation. Users can evaluate new designs on a scale from zero (“I don’t like this design”) to five (“I love this design”). In average, 1,500 people score each design. Additionally, users express their willingness to purchase the T-shirt by checking the box “I’d buy it”. From this information, Threadless decides what it isthe minimum amount of purchasers necessary to produce the item for a given sales price, covering its initial development, manufacturing costs and desired margin. Only if the number of interested buyers exceeds the minimum necessary lot size, investments in final product development are made, merchandising is settled and sales are commenced. In fact, Threadless follows a strategy that turns market research and product development expenditures into quick sales.