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Open Innovation

Updated on June 22, 2016

Executive Summary

Open innovation is a process, a cognitive paradigm and a set of inter-firm relationships. Open Innovation is a model that assumes that communities can and should use both internal and external ideas and external and internal paths to market in order to advance their technology. An industry that supports the use of an internally oriented and centralized approach to research and development (R&D) has not been successful in the end. Useful knowledge has been developing into extensive and ideas will have to use with enthusiasm. Such issues create a new logic to open innovation that accepts external knowledge and ideas in concurrence with internal R&D, which offers ways to create value. Nevertheless, corporations must still carry out the hard and laborious work necessary to translate promising research outcomes into products and services that are required by their immediate customers.

Company’s innovators must incorporate their expertise, ideas and skills with external factors in order to help in delivering the results needed and for the systems used to be as effective as possible. In the past organization were only considered financial and human resources as the most important in improving the organization effectiveness and innovation. However, the scholars and economist through social; capital and social network theories have proved the relationships with society crucial. Since organization cannot work only with the internal research they have conducted, it is important to outsource it to other players in the industry. This is also facilitated by the fact that the market is becoming more competitive and there is need for organization to embrace innovativeness to asset themselves in the market. The ideas that the organization can gather from the society is crucial for its effectiveness and therefore good relationship must always be explained. Scholars who advocates for social capital and social network theories states that it is only through fostering good relationship with other players in the industry that will help an organization in becoming a dominant force in the market. On the other hand, value creation theories emphasize on adding value to a society. In the past businesses used to use capital theories where they were only, concerned with the returns they received instead on focusing on the adding value to the society. This paper indicates the importance of improving the relationship with the society and its impact in improving innovativeness to the company.

Introduction

Companies in the past have been using research and developments to crate a barrier to entry in the market, which has worked effectively since they have been able to produce superior products. Only companies with huge capital base and could be able to fund research projects are able to compete in the market due to ever changing competitive dimension in the market. However, these days’ organizations have been paying more attention to open innovation by incorporating the knowledge and experience generated outside the organization in the innovation process and vice versa. This has made organization to increase their reliance on the complementary knowledge mostly in knowledge intensive networks. Organization policy makers usually emphasize on importance of the organization in adopting knowledge exhaustive networks for innovation. Importance of networks for innovation has been advocated by a number of scholars who have stresses the importance of adopting it like the Dutch Scientific Council for Government Policy.

Innovation is mostly influenced by the strength of the relation between the employees, structure of the organization and the network nature that an organization has in place. Another important aspect in open innovation is the use of business models. Organization use business models to realize underlying economic value of technologies and ideas in the market. Most of these organizations usually use their business models to filter information that supports business models and discounting any information that does not fit in their systems.

Application of social capital theory to open innovation communities

Social capital is the anticipated economic benefits resulting from the better treatment and collaboration between individuals and groups. Experiments and studies have been conducted in trying to find out the importance and the role of social capital. Social capital is used by most organization as alternative assets. Therefore, the productivity of social capital greatly helps organization in improving its performance.

Social capital can be regarded as connection between different individuals in the organization. It has also been regarded as norms and relationship that shapes the quantity and quality of society social interactions. In the past economist have been using capital as tools and machines but with the evolution of social capital theory more emphasis has been but on relationship between people in the organization. One of the scholars who have tried to explain social capital theory indicated that it revolves around people relationship in institutions. Coleman’s notion of social capital includes trustworthiness of structures, expectations obligations information channels and standards and effective sanctions. These social structures involve mental images and cognition (Eng Huang Chua et al, 2012).

The notion of open innovation sponsor that, in today’s progressively more boundary free world, companies should seek to utilize inflows and outflows of information to hasten internal innovation, and enlarge the markets for exterior use of innovation. Open innovation challenges the traditional view in which its invention and design was restricted to the organization internal resources. Economists and organization have tried different experiments by using different models of open innovation in areas such as semi conductors, diverse consumer goods, software engineering and automotive engineering. However, information technology has played a key role in generating necessity for realization of open innovation models. For instance, the junction of cheap personal computers, powerful workflow software and fiber optic cable can be attributed to use of both internal and external information. Challenges are facing open innovation and the use of social capital theory can help in solving the problems that organization have been facing in dealing with It is only when there is good relationship between people in the organization that there will be a likelihood of open innovativeness in the organization. Organizations can use good relationship between employees or people that contribute too the organization goals and help in increasing organization innovativeness. Most successful companies such as Boeing, IBM, Proctor and Gamble and GE have incorporated online crowd sourcing as an ingredient of their open innovation programs (Dodgson, 2011).

Social capital theory entails the use of group characteristics, generalized norms, and togetherness in the group, everyday sociability, neighborhood connections, volunteerism and trust. All these are important when using open innovation model in improving the effectiveness of an organization use of both internal and external information. Since companies cannot rely only on the research, they have conducted there in need to use external knowledge and research that have been conducted by other companies and research organization. Only by the good relationship advocated by the social capital theory can help in getting the additional knowledge that a company require in increasing its innovativeness. Everyday sociability is crucial to different organization because it helps in maintain good relationship in the company and outside world.

External environment is crucial if operations of the organization are to be considered successful. Neighborhood connection is important because it helps organization in fostering relationship between the organizations in the same of different fields. Information transfer between the organizations possible if there is good connection between the organizations. A fundamental principle of social capital indicates that the larger community that an organization is entrenched in is a source of capital. However, capital, that comes from socials norms, networks and trust is equally important as human and financial forms of capital which helps in improving value creation in organizations like organizational innovation performance. Since innovation is considered by organizations and other stakeholders as the main strategy for the growth and survival since competition is gradually increasing, dynamism and turbulence. Through innovation, organizations are able to become accustomed to, as well as control its wider surroundings by mounting and sustaining their competitive advantage in diverse forms to drive the organization for survival and growth. Therefore, there is a growing necessity for organization to ensure the social capital of the community which

SMEs are entrenched can contribute to SME's innovation performance. In spite of the surplus of literature on social capital, there is still critical gaps remain to be analyzed. On the theoretical level, social capital has not been clearly understood by organization and stakeholders in this field. Scholars have not been able to agree whether social capital can be regarded as one of the already accessible concept like institutions or community. One of the main problems that social capital have been facing is determining how the effectiveness and contribution of social capital to an organization or communities. Social capital theory focuses its attention on embeddedness and usually assumes that it is easier to predict the behaviors and actions of individuals in the society.

Dimensions of Social Capital

Relationship with local community and the players in the industry is important in improving organization effectiveness. Therefore, participating in activities that help the local population will help in improving ties with them and help in solving problems and seeking other opportunities. When an organization participates in activities, communities becomes a major contributor of knowledge and new information and this can increase the innovativeness, exposure to different skills, ideas, or proficiency in a non-threatening and unofficial way, and gives diverse and exclusive sources of information, political support and financial funding in the company.

Social Agency

Social agency that is also regarded as social proactively can be regarded as the way in which individuals in the society are practical and time after time affirm themselves in their contact with others. A society with well-built social agency has a propensity to have positive creators and agents and of their worlds since they are well armed with knowledge of social rules and well-meaning intentions that describes a person propensity to take action. A society elevated on social agency promotes vigorous participation and has open communication channels between members of the society. With open communication channels, it becomes possible to communicate in the community and this helps in sharing of ideas, expertise and skills that helps in solving problems that an organization might be facing. This contributes to the evolution of new knowledge and helps in increasing the innovativeness in the community and in the organization at large which is valuable to a business.



Feelings of trust and safety

This deals with trust between individuals and safety in the neighborhood and the business environment. A feeling of safety in the society helps in gathering courage that helps in being creative that will help an organization in developing strategies that help in increasing its effectiveness. Feelings of trust entail expectations that occur within a society of regular, cooperative behavior and honest based on common norms of the community. In this situation, reciprocity is of most important as it builds trust in the community by a sense of self-confidence. Various studies have indicated that even if organization effectiveness in increased by better knowledge, establishing stable networks in the organization and continuous contact but the feeling of trust turn out to be vital as it reduces the necessity for rigid control structure that are usually established to guard a person or organization from grasping or opportunistic behavior. Therefore, the feeling of safety and trust help in greater frankness to the possible value creation throughout the exchange and grouping of resources involving business partners and the society. This helps in greater contribution to innovativeness both in the society and by the organization.

Family and Friends Connections

The family and friends are effective sources of social capital. Family socialization motivates autonomy and transfer of personal networks that help in providing valuable resources. In most cases, family and close friends are sources of support to the most business owners. Previous surveys that have been conducted shows that personal relationship plays a crucial role in an organization product development and they are usually described by longevity that mot projects lasts and the resulting project cycles. Personal relationships are guided by respect, trust, common background and experience, loyalty and in some cases social contexts. Family members and friends usually give advice or information pertaining the running of an organization depending on the experiences, financial support and psycho-emotional support that an organization needs. Therefore, family and close friends greatly contribute to the innovativeness of the organization band therefore their help must be valued.

Tolerance for diversity

Diversity refers to the intensity of broadmindedness for multiculturalism and diversity in people’s lifestyles in the society. Social capital allows for diversity in order to create room for more experimentation. Recognition and value for cultural and individual disparities is important in the organization since it develops a feeling of acceptance of individuals and this can encourage innovativeness. This helps an organization or a society in getting ideals and knowledge that is contributed to people from different backgrounds in the organization. It also helps communities in sharing ideas that help in generating new knowledge that is important to an organization. Most of the knowledge shared is usually tacit that cannot be transferred by is essential in increasing innovativeness. Diverse culture opens up communication in the society and this encourages sharing of ideas and skills which is useful to both the organization and community in general (Muhdi & Boutellier, 2011).

Application of social network theory to open innovation communities

Social network theory involves close understanding the relationship between people and individuals instead of focusing on their given characteristics. In the past business were mostly concerned with returns receive from all their transactions. With the dimension of business transaction changing it has become importance for different organizations to try to come up with ways of fostering good relationship with employees and outside world in general. Understanding the relationship between employees and networking in the right way with the society is beneficial in increasing the effectiveness of an organization. For employees and the society to connect in the right way, there must be a good relationship between them and this is the key in increasing innovativeness.

Social network theory is guided by the communication network between the groups in the organization, society and the organization management. Both the formal and informal communication structures must be taken in to consideration while coming up with ways of improving the relationship in the organization. Since the models of relationships bring workers into contact with feelings and behaviors of other members in the organization and the society, their relationship helps in explaining the reason why employees develop specific feelings toward organizational events. To completely understand this, an organization needs to establish and understand a network that will help in greater coordination between the organization, society and employees. For a network to exist good relationship that is built on trust and safety is important. The way an organization connects with employees and the society will dictate its success in future (Petraitė & Janiūnaitė, 2010).

Maintaining good relationship with the society and employees will effectively lead to innovation. Social network theory explains the relationship that connects individual through financial matters, friends’ connections and family relationships among others. Some of these factors may not affect the organization effectiveness directly but may be crucial if the organization is to improve its innovativeness. Communication is important in sharing of ideas, skills and knowledge in the society. This is only possible if the organization maintains effective communication network with the society. An organization is not only likely to financial assistance but also sharing of problems will simpler with good relationship with all stakeholders maintained. Organization should first ensure that there is good relationship with employees since its network with employees will play a key role in fostering good communication society. This will help in sharing of ideas and knowledge that an organization and community will require in improving its operations and in uplifting the well-being of the society (Peña, 2012).

Importance of Connections

Friends, family and other members in the society should be involved in this networking. The more the trust between the organization and the strength of the network the more information is likely to be shared. It is only through mutual trust that connections are likely to work. Family members, friends and other stakeholders are likely to share their experiences that will help in open innovation. Most successful organization also relies on external help and always maintains proper networking with all the major players in the market. Industries require research in trying to eradicate the main problems that may be facing them. Even if organization has capable and skilled employees, they are not enough in ensuring that they eliminate all the challenges that may be it. Therefore, connection is crucial as it will help in gathering ideas and will help an organization in improving its innovativeness. Since society has people from different cultural backgrounds who brings different level of experience. Given that exposure of employees differs, a variety of skills will, be provided for the company to choose from that will enhance open innovativeness (Dodgson, 2011).

The diagram below shows the relationship that fosters good communication and fosters networking between an organization and other player in the industry. Every group in dependant on the other but the functioning on the organization in question is crucial if the network is to be deemed effective. It is the work of the organization to ensure that employees are to stay united and they will in turn help the organization in gaining more insight from the society at large. The arrows indicate communication and connection between the stakeholders in a business process. Communication is the most essential factor if open innovation is to take place. This is the only way that information can be shared.








Application of value creation theory to open innovation communities

Capitalist system that was used by business in the past has come under siege. Businesses have been accused of contributing to the environmental, social and economic problems that are facing our society today. This is because they have been increasing their revenues in expense of the societies around them. This has caused the trust that existed between businesses to decline causing the governments to intervene by setting up policies that are meant to control business environment. Value creation has been a major problem which the businesses have not been able to iron out in the past years. Research shows that value creation is important in organization effectiveness in the long run and capitalist policies have been considered at short run and also outdated (Agnihotri et al, 2012).

Value creation has been regarded as the main initiative that an organization can undertake in ensuring that it remains successful in the long run. Researchers indicate that a business should consider well-being of their customers and society, the diminution of natural resources fundamental to their operations, the feasibility of suppliers and other stakeholders and economic distress of the society. Creating additional value to society and other stakeholders in the industry will help the company to put its concentration in research that will help it in upgrading the lives of the society. For instance, participating in activities that help to conserve the environment will enable an organization to gather information that will he helpful in improving peoples livelihood and conserving the environment. Through these activities, businesses will learn more on the issues that they are involved in and on concerning value creation but pertaining business activities. While participating in issues relating to value creation, it is possible for an organization to learn more from other companies that are participating in the same activities and this will increase the flow of information in the industry. Those against capitalist theories claims that value creation will help in ensuring that the trust that was once shared between the society and the company (Awa et al, 2012).

Value creation increases the interaction between the society and the company and this helps in improving the relationship between the company and organization. This is important if the organization it to increase its effectiveness and improve the welfare of the society. It is only after the company improves the relationship with the society that society can help in providing knowledge and information that is the key to success of the company. Societies will only be concerned with the companies that help in improving their values and this will help in sharing of knowledge and ideas between them. This will improve in the realization of the organization goals and retention of the market competitive nature. Businesses should be responsible and should not only be involved in activities that help them in improving their returns (Woiceshyn & Falkenberg, 2008).

Conclusion

Businesses have not yet learnt on how to deal with the needs of the employees and most of them are still following the capitalist model in their operations. Relationship between the business and the society is crucial not only in marketing business products but also in sharing of knowledge and ideas that affect the business. Since a business cannot only rely on the information they have to improve its effectiveness, it must involve the organization in its dealings. This is by controlling the factors that it can directly control and making sure it adds value to the society. Innovation is only possible if parties involved are satisfied with the conduct of the organization and their needs are catered for. This will make them develop trust toward the organization and this can greatly helps in improving the flow of knowledge and network between the organization and the society. Therefore, it is important for an organization to ensure that it maintains contact with all the stakeholders to ensure that communication is maintained to the latter.

References:

Agnihotri, R., Kothandaraman, P., Kashyap, R & Singh, R. (2012). Bringing "Social" into Sales: The Impact of Salespeople's Social Media Use on Service Behaviors and Value Creation. Journal of Personal Selling & Sales Management, 32(2), 333-348.

Ahmadi, A., Eskandari, E & Ahmadi, F. (2011). Social capital for knowledge management. Interdisciplinary Journal of Contemporary Research in Business, 3(7), 957-972.

Awa, H. O., Eze, S. C., Maclayton, D. W. & Okoye, J. C. (2012). User Voice and Democracy in Value Creation: Integrating Competences with Innovation Development. International Journal Of Management, 29(1), 228-246.

Dodgson, M. (2011). Exploring new combinations in innovation and entrepreneurship: social networks, Schumpeter, and the case of Josiah Wedgwood (1730–1795). Industrial & Corporate Change, 20(4), 1119-1151.

Dodgson, M. (2011). Exploring new combinations in innovation and entrepreneurship: social networks, Schumpeter, and the case of Josiah Wedgwood (1730–1795). Industrial & Corporate Change, 20(4), 1119-1151.

Eng Huang Chua, C., Lim, W., Soh, C & Kien Sia, S. (2012). Enacting Clan Control In Complex It Projects: A Social Capital Perspective. MIS Quarterly, 36(2), 577-600.

Muhdi, L & Boutellier, R. (2011). Motivational Factors Affecting Participation and Contribution of Members In Two Different Swiss Innovation Communities. International Journal of Innovation Management, 15(3), 543-562.

Peña, V. (2012). Investigating the Increasing Role of Public Social Networks within the Innovation Process of Large, Multi-National Corporations. Business Studies Journal, 41-16.

Petraitė, M., & Janiūnaitė, B. (2010). Networks of Interorganisational Knowledge Development within the Open Innovation Context: The Case of R&D Intensive Start-ups. Proceedings Of The International Conference On Intellectual Capital, Knowledge Management & Organizational Learning, 351-359.

Woiceshyn, J. & Falkenberg, L. (2008). Value Creation in Knowledge-Based Firms: Aligning Problems and Resources. Academy Of Management Perspectives, 22(2), 85-99.

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