Open Innovation Business Models

Guidelines for designing value-creating open innovation practices

Master thesis Joost Cornelissen

(S 1579347), October 2010

Technology Management Faculty of Management &

Organization Rijksuniversiteit Groningen

I

Abstract

Innovation has been identified on many occasions, as the main driver for companies to prosper, grow and sustain profitable (e.g. Drucker, 1988; Christensen, 1997; Thomke, 2001). One way to innovate is by open innovation (OI). OI is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology: OI practices use purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively (Chesbrough 2003). When developing OI practices, one per definition needs to incorporate external knowledge delivering and/or receiving parties. These parties always want to capture a portion of the value created by their participation in which ever form of value they perceive as being worth the effort. How to create such open value-creating practices is not at all clear to organizations. This leads to the following problem statement: how can organizations design valuable OI practices? To innovate openly, organizations need to innovate their business models; the way that they create value, and capture a portion of that value for themselves (Chesbrough, 2006). A business model describes the rationale of how an organization creates, delivers and captures value (Osterwalder, 2009). In effect, to design OI practices, one should first develop open innovation business models (OIBM’s). This report elaborates on how organizations can develop OIBM’s (main research question), by creating guidelines to help managers of ‘OI initiating organizations’ in designing value creating OI practices by developing OIBM’s (objective). This is done by dividing the research question into two sub questions: what are open innovation business models (sub question 1) and how can one develop such models (sub-question 2). To answer the sub questions, first existing literature is reviewed. This leads to a definition and categorization of OIBM’s: an OIBM describes the rationale of how organizations participate in open innovation practices - that create, deliver and capture value - together, and how value of the innovation, in whichever form, flows back to the participating parties. The most common types for OIBM’s are: co-development partnerships, co-creation practices and spin-off open innovation practices. The literature review also leads to the following propositions on how to develop OIBM’s: • Key in developing OI practices, is transferring a portion of the value added by the innovation, over

organizational boundaries, back to the ‘knowledge delivering’ party. • OI practices can be described by taking (key) elements from (potentially) participating parties and using

them as epicenter(s) to design a (new) OIBM. This model can be developed based on one of the three proposed taxonomies for OIBM’s and includes the flow of value back to (knowledge) delivering parties.

A case research is conducted aimed at verifying the propositions as well as creating more specific guidelines for developing the different taxonomies of OIBM’s. To do this, one case per type of OIBM is investigated based on statements about open innovation and business modeling as found in literature. Also, OIBM’s are developed for all the cases. This is done by interviewing the person responsible for the development of the open innovation practice and by studying documentations about the case. The main finding of the research is that the value for the ‘knowledge delivering parties’ is key to the development and successful execution of the OI practice, thus verifying the first proposition. The second proposition is also verified, however the research shows that every type of OIBM needs to be developed in a specific way. These differences are elaborated on in the conclusion by giving a description per type of OIBM which elaborates on its development. Also, sub-meta models are given per OIBM that can be used as basic principles for development. Finally, vital factors to be taken into account when developing specific types of OIBM’s are pointed out, based on the case research. The descriptions, sub-meta models and vital factors together can serve as guidelines for developing different types of OIBM’s. Keywords: innovation, open innovation, business models, business model generation, design, development, value creation, guidelines

II

Preface

This is the final thesis for the completion of my MSc Technology Management at the University of Groningen. After having finished two bachelor degrees and all the courses of the final master year, I decided I wanted to research the topic of open innovation to complete my studies, as I found both innovation and collaboration between organizations very interesting. I decided I wanted to write the thesis whilst conducting ‘one last internship’, to ‘look into’ a possible career path at the same time. For conducting the internship, my heart wanted to find a company in the ‘creative industry’, as I am intrigued by the creative process. I thought however, that my studies did not qualify me enough to find a position in such a company at the level I aspired. Therefore, I focused on strategy consulting companies as I felt this would be the best first step towards working in the ‘real’ creative industry at a strategy level. Squarewise was my first choice for such a company. Marcel Heskes (partner at Squarewise) had the perfect opportunity for me: to participate in the startup of a new organization; foundation Creative City Lab, which also happened to be an open innovation practice. Win-win-win; I started full of energy and confidence – in April 2008. I have only now finished my thesis – in October 2010. There are many reasons why it took me a bit longer then anticipated but it pretty much all comes down to the fact that I bit off more than I could chew. I ran my own company (Mean Bean), kept working for Creative City Lab after having finished the internship-period and I started to work for another founding partner of Creative City Lab; Createtoday, taking on more projects. Next to that I also started organizing events (Weekbreek). In all – too much. It made it hard to find time to pick up that ‘other project’: L’Alpe d’Huez. However, I finished it. And I look back on the time as being the greatest learning experience I had, in many respects, ever. I would very much like to thank everyone who stood by me the last couple of years, especially my parents, Ruud and Joke, who supported me in many ways – all the way. Also my girlfriend Anke, who made me forget about my stress when needed the most and gave me the will to finish. And my best friend Michiel, who was always there and with whom I could always share everything. Also I would like to thank Marcel Heskes of Squarewise and Ellen Mensink of Createtoday for giving me the opportunity to end my studies with the best possible assignment I could wish for at the time – even though at times I wished I had decided different up front. I also want to thank Niels Faber, who ‘let me be’ but gave me constructive feedback and help whenever I asked. Finally, I would like to thank everyone who was kind enough to make time for the interviews: Ellen (again), Raymond Cloosterman (Rituals) and Tommi Vilkamo (Nokia). Over and out! Joost Cornelissen, October 2010 Ps.: what’s next?

III

Index

Abstract .................................................................................................................................................................................................................................I  Preface ................................................................................................................................................................................................................................. II  Index ....................................................................................................................................................................................................................................III  Figures  &  tables ............................................................................................................................................................................................................... V  

List of figures....................................................................................................................................................................................................V  List of tables .....................................................................................................................................................................................................V  

Abbreviations.................................................................................................................................................................................................................... V  1   Motivation  &  objective  research ..............................................................................................................1  1.1   Introduction...........................................................................................................................................................................................................1  1.2   Problem  statement .............................................................................................................................................................................................2  1.3   Objective  &  research  questions.....................................................................................................................................................................3  1.4   Meta-­‐methodology  &  outline  report...........................................................................................................................................................3  1.5   Scope  and  limitations ........................................................................................................................................................................................4  2   Literature  review......................................................................................................................................5  2.1   Open  innovation  (OI).........................................................................................................................................................................................5  

2.1.1   History, definition & stages................................................................................................................................................................ 5  2.1.2   Trends & motives: increasing value creation .................................................................................................................................... 5  2.1.3   Stages to use open innovation in development process...................................................................................................................... 6  2.1.4   Types & competences: core processes ............................................................................................................................................... 7  2.1.5   Types & competences: partners ......................................................................................................................................................... 8  

2.2   Designing  business  models.............................................................................................................................................................................9  2.2.1   History, definition & purpose............................................................................................................................................................. 9  2.2.2   Levels for using business models...................................................................................................................................................... 10  2.2.3   Business model canvas; building blocks & elements ....................................................................................................................... 11  2.2.4   Epicenters for business model innovation........................................................................................................................................ 13  

2.3   Connecting  business  models  &  open  innovation:  OIBM’s .............................................................................................................. 13  2.3.1   Defining OIBM’s (proposition #1) ................................................................................................................................................... 13  2.3.2   Categorization of OIBM’s: three taxonomies .................................................................................................................................. 14  2.3.3   Developing OIBM’s (proposition #2)............................................................................................................................................... 15  

2.4   Conclusion  &  theoretical  framework....................................................................................................................................................... 15  3   Research  methodology........................................................................................................................... 17  3.1   Research  Method.............................................................................................................................................................................................. 17  

3.1.1   Case study research.......................................................................................................................................................................... 17  3.1.2   Number of cases ............................................................................................................................................................................... 17  3.1.3   Case selection................................................................................................................................................................................... 17  

3.2   Objective  case  study........................................................................................................................................................................................ 18  3.3   Data  collection  methods................................................................................................................................................................................ 18  

3.3.1   Interviews ......................................................................................................................................................................................... 19  3.3.2   Documentations................................................................................................................................................................................ 19  

3.4   Structure  case  research ................................................................................................................................................................................. 19  4   Case  research  &  results .......................................................................................................................... 20  4.1   Case  Creative  City  Lab:  co-­‐development  partnership  by  Createtoday ..................................................................................... 20  

4.1.1   Case introduction ............................................................................................................................................................................. 20  4.1.2   Case description based on theoretical framework ........................................................................................................................... 21  4.1.3   Results related to propositions ......................................................................................................................................................... 23  4.1.4   Case related conclusions .................................................................................................................................................................. 25  

4.2   Case  Beta  Labs:  co-­‐creation  by  Nokia...................................................................................................................................................... 27  4.2.1   Case introduction ............................................................................................................................................................................. 27  4.2.2   Case description based on theoretical framework ........................................................................................................................... 28  4.2.3   Results related to propositions ......................................................................................................................................................... 29  4.2.4   Case related conclusions .................................................................................................................................................................. 32  

4.3   Case  Rituals:  open  innovation  spin-­‐off  by  Unilever .......................................................................................................................... 33  4.3.1   Case introduction ............................................................................................................................................................................. 33  4.3.2   Case description based on theoretical framework ........................................................................................................................... 34  4.3.3   Results related to propositions ......................................................................................................................................................... 35  4.3.4   Case related conclusions .................................................................................................................................................................. 38  

4.4   Summary  case  results..................................................................................................................................................................................... 39  

IV

 

5   Conclusion  &  discussion ......................................................................................................................... 41  5.1   Main  conclusions .............................................................................................................................................................................................. 41  5.2   Guidelines  for  developing  OIBM’s............................................................................................................................................................. 41  

5.2.1   Co-development partnerships........................................................................................................................................................... 42  5.2.2   Co-creation practices ....................................................................................................................................................................... 43  5.2.3   Open innovation spin-off practices .................................................................................................................................................. 43  

5.3   Other  findings .................................................................................................................................................................................................... 44  5.4   Limitations  &  discussion............................................................................................................................................................................... 45  References ................................................................................................................................................... 46  Books,  articles  &  publications ................................................................................................................................................................................. 46  Websites............................................................................................................................................................................................................................ 48  Appendices................................................................................................................................................... 49  Appendix  1:  Open  vs.  closed  innovation ............................................................................................................................................................. 49  Appendix  2:  Core  competences  for  open  innovation .................................................................................................................................... 50  Appendix  3:  Requirements  for  co-­‐development  partnerships.................................................................................................................. 51  Appendix  4:  History  of  business  model  concept ............................................................................................................................................. 52  Appendix  5:  Business  model  canvas  poster ...................................................................................................................................................... 54  Appendix  6:  5  phase  design  process  for  designing  business  models ..................................................................................................... 55  Appendix  7:  Framework  for  statements  &  propositions ............................................................................................................................. 56  Appendix  8:  Guiding  questionnaire  for  interviews  in  case  study  research ......................................................................................... 57  Appendix  9:  Case  interviews.................................................................................................................................................................................... 59  

Interview Ellen Mensink, June 2010 .............................................................................................................................................................. 59  Interview Tommi Vilkamo, August 2010 ........................................................................................................................................................ 64  Interview Raymond Cloosterman, may 2010.................................................................................................................................................. 68  

V

Figures & tables

List of figures figure 1: open innovation principle figure 2: economics of open innovation figure 3: open innovation in different stages figure 4: process archetypes of open innovation figure 5: levels for using business models figure 6: business model canvas visualized figure 7: business model Createtoday figure 8: contribution founding partners Creative City Lab figure 9: OIBM Creative City Lab figure 10: organizational structure Nokia figure 11: business model Nokia figure 12: co-creation practice related to 'main' business model Nokia figure 13: OIBM Beta Labs embedded in Nokia figure 14: business model Unilever figure 15: initial contribution of Unilever in Rituals figure 16: OIBM Rituals figure 17: example of 'extra' business model Unilever, supporting OI spin-off practices figure 18: sub-meta model co-development OIBM figure 19: sub-meta model co-creation OIBM figure 20: sub-meta model spin-off OIBM List of tables table 1: characteristics, core processes and critical capabilities related to archetypes of open innovation table 2: business model building blocks table 3: case related conclusions CCL table 4: case related conclusions Beta Labs table 5: case related conclusions Rituals table 6: combined findings of case research

Abbreviations

B2B: business-to-business BM: business model CCL: Creative City lab CT: Createtoday FMCG’s: fast moving consumer goods IP: intellectual property IPR: intellectual property rights NGO’s: non-governmental organization NPD: new product development NSN: Nokia Siemens Networks OI: open innovation OIBM: open innovation business model

1

1 Motivation & objective research

1.1 Introduction

Organizations want to deliver value to customers and other stakeholders. It is the reason they exist. To ensure continuity, these organizations need to make sure they can keep on creating and delivering value. This can be done by improving the way they currently create value, or by finding new ways to create value. In other words: they need to innovate.

“Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.” Drucker, 1985.

Innovation has been identified on many occasions, as the main driver for companies to prosper, grow and sustain profitable (e.g. Drucker, 1988, Christensen, 1997 & Thomke, 2001). One could even argue that innovation is a prerequisite for doing business. Whilst competitive advantage can come from size, or possession of assets, etc. the pattern is increasingly coming to favor those organizations that can mobilize knowledge and technological skills and experience to create novelty in their offerings (product/service) and the ways in which they create and deliver those offerings (Kay, 1993 & Tidd, 2005). Schumpeter (1934) explains the importance of innovation by the notion of creative destruction. He states that the value from the old is destroyed by the new. In capitalist reality, it is not price competition that counts, but the competition from a new commodity, technology, source of supply or type of organization, which strikes existing firms at their foundations. This kind of competition is much more effective than the other and is the powerful lever that in the long run expands output (adopted from Schumpeter, 1934). So to find new or improved ways to create value, organizations need to innovate. It is not why to innovate however, but how to innovate that remains the subject of much research and discussions. Increased competition, shorter innovation cycles, research and development’s increasing costs, as well as the scarcity of resources are some of the reasons for companies to look for new ways to innovate (Chesbrough, 2003). A fairly recent view on the subject is the one of open innovation (OI).

“Open innovation practices use purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.” (Chesbrough 2003)

Open Innovation is based on the need for companies to open up their innovation processes by deliberately using both internal and external ideas, knowledge and markets to innovate – to create value. OI is defined as the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. OI is a paradigm [within the broader concept of innovation] that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology (Chesbrough, 2003). When a firm applies practices based on the OI paradigm, one speaks of (applied) open innovation practices. The main objective of OI is to create value (as with ‘normal’, or closed innovation). Whether or not to engage in open forms of innovation depends on whether OI practices can increase the creation of value in relation to closed innovation. A problem with this is that value cannot always be quantified easily (eg. by economical measures). Reasons for companies to look into OI as first distinguished by Chesbrough (2003) are to increase innovative capacity and/or time to market of innovation, and/or to decrease uncertainty of innovation, and/or costs of innovation. These reasons indirectly come forth out of the desire to create value, but how much more value does an organization create when increasing time to market of an innovation? And how much value can be created with a higher innovative capacity? Questions like these are not easy answerable as (economic) quantification of these subjects is difficult. However, those questions should be answered by organizations before implementing OI practices. Advantages of OI should be clear to organizations before participating in OI practices: how will OI practices create value, what kinds of value and how can we capture (a portion of) that value? A framework is needed to guide the design of such practices.

2

Chesbrough (2003a) distinguished between two types of OI: outside-in and inside-out. Outside-in OI exploits external ideas within an organization, inside-out OI provides external parties with ideas or assets lying idle within an organization. So when developing OI practices (from the perspective of an initiating organization/party), one per definition needs to incorporate external knowledge delivering and/or receiving parties into the OI practice. These delivering/receiving parties might want to participate in the OI practices for different reasons then the initiating party, but they always want a portion of the value created by their participation in which ever form of value they perceive as being worth the effort, for the same reasons as the initiating party (if there is one such party). This is congruent with the definition of De Sousa (2006): [open] innovation can be defined as the outcome of a set of activities that use knowledge to create new value to those benefiting from its use. Thus, key in developing OI practices from the perspective of an OI initiating organization, is to make sure a portion of the value added by OI is transferred over organizational boundaries, back to the ‘knowledge delivering’ party. This is true for all forms of open innovation; parties will only engage in open practices if they can capture a portion of the value created for themselves.

1.2 Problem statement

How to develop such open innovation practices however, is not at all clear. A problem these organizations often have is that they know the direction where to look (OI), but do not know exactly what it is they are looking for: “how can we design such open practices to be valuable for our organization”? This leads to the main problem statement of this research:

How can organizations design valuable open innovation practices? These organizations need the right set of glasses – a means, framework or tool to guide them in the design of new and successful OI practices, to create new (open) businesses to create value: “To innovate openly, [organizations] need to innovate their business models; the way that they create value, and capture a portion of that value for themselves” (Chesbrough, 2006). Business model design (or generation) is one such set to stimulate successful innovation

“A business model describes the rationale of how an organization creates, delivers and captures value.” (Osterwalder, 2009)

To innovate openly, you must do more than search externally for new ideas or license out more of your own ideas. You also must innovate your business model, the way that you create value, and capture a portion of that value for yourself (Chesbrough, 2006). Also, to fully exploit (newly) developed technologies, organizations should focus on innovating underlying business models (Chesbrough 2009, interviewed by Moore, 2009). Osterwalder (2009) describes a business model as a framework for creating and capturing economic, social, and/or other forms of value. A business model describes the rationale of how an organization creates, delivers and captures value, or the logic of how a company intends to make money (Osterwalder, 2009). Chesbrough (2006) has a similar definition: A business model performs two important functions: it creates value and it captures a portion of that value. To this, he adds that [a business model] creates value by defining a series of activities from raw materials through to the final customer that will yield a new product or service with value being added throughout the various activities. The business model captures value [for an organization] by establishing a unique resource, asset or position within that series of activities, where [the organization] enjoys a competitive advantage (Chesbrough, 2006). In this report, business model theory will be used for the purpose of answering the research question. Business models that describe OI practices will be labeled open innovation business models (OIBM’s).

An open innovation business model (OIBM) describes the rationale of how organizations

participate in open innovation practices - that create, deliver and capture value - together. A viable OIBM thus describes the rational of how participating organizations or parties create, deliver and capture new or extra value by innovating together, and how value of the innovation, in whichever form, flows back to the participating parties. In short; OIBM’s describe (applied) OI practices.

3

1.3 Objective & research questions

When an organization wants to design open innovation practices that create value (goal); it should first develop the open innovation business model (means). This report is written for ‘open innovation initiating organizations’ to help them in developing viable OIBM’s that describe the rational of how participating organizations or parties create, deliver and capture new or extra value by innovating together, and how value of the innovation, in whichever form, flows back to the participating parties. This leads to the following objective:

The objective of this research is to create guidelines to help managers of ‘open innovation initiating organizations’ in designing value-creating open innovation practices by developing open innovation

business models (OIBM’s). This objective leads to the following main research question:

How can organizations develop open innovation business models? To answer this question, I will take a two-step approach. These two steps translate into the following two sub questions. First, business model theory has to be connected with OI to fully explain what OIBM’s are and get a deeper understanding on the matter. Therefore, the two concepts need to be elaborated on, explaining and connecting the goals, domains and central issues. This leads the first sub question:

What are open innovation business models? After the first sub question has been answered, it still needs to be investigated how one can come to such OIBM’s, what road to take. This leads to the following sub question:

How can one develop open innovation business models? Answering the sub questions will lead to guidelines on how to develop OIBM’s to design OI practices, relating to the objective of the research. Summarizing: this report should guide the development of OIBM’s, which is the road to designing OI practices.

1.4 Meta-methodology & outline report

To answer the sub-questions, I will first investigate existing literature. From the literature review I will distill general statements that contribute to answering the research question. These statements will be given in the following chapter as ‘statement #n’ and will be used for the theoretical framework. This will lead to two propositions on what OIBM’s are, and how one can develop such models. After that, I will conduct a case research to check my findings and verify propositions, which will lead to guidelines for developing OIBM’s. In chapter 3, I will go further into the methodology of this last part of the research. The report is outlined/structured in the following way. In chapter 1 (motivation & objective research), the motivation of the research is given (1.1), followed by the problem statement (1.2). This leads to the objective, research questions and sub questions as given in the previous section (1.3). In section 1.5, the scope is clarified and some limitations to the research are given. After that, existing literature on open innovation and business modeling is investigated in chapter 2 (literature review; 2.1 & 2.2). This results in propositions that connect the two concepts (2.3) and a theoretical framework (2.4). The remainder of the research focuses on verifying the propositions. Chapter 3 (methodology) describes the methodology for this further research (case studies) and elaborates on how the case studies will contribute to answering the research question. Chapter 4 (case research & results) consists of 3 cases which are used to verify the propositions as given in section 2.3. Case related conclusions are given in the concluding sections per case (4.1.4, 4.2.4 & 4.3.4), which are summarized in section 4.4. Chapter 5 (conclusion & discussion) concludes the report with main conclusions (5.1), specific guidelines for developing OIBM’s (5.2) and other findings (5.3). Finally, section 5.4 discusses the research and elaborates on some limitations. Following points summarize the outline of the report for clarification:

4

Motivation (1.1) & problem statement (1.2) Objective, research questions & sub questions (1.3) Research: literature review (2.1 & 2.2) Propositions based on literature review & research questions (2.3) Theoretical framework (2.4) Methodology for further (case) research (3)

Research: case research to verify propositions (4) Conclusion related to objective & research question (5.1, 5.2 & 5.3) Limitations and discussion (5.4)

1.5 Scope and limitations

As stated in the introduction, innovation has been identified on many occasions as the main driver for companies to prosper, grow and sustain profitable (e.g. Drucker, 1988, Christensen, 1997 & Thomke, 2001). One could even argue that innovation is a prerequisite for doing business. Whilst competitive advantage can come from size, or possession of assets, etc. the pattern is increasingly coming to favor those organizations that can mobilize knowledge and technological skills and experience to create novelty in their offerings (product/service) and the ways in which they create and deliver those offerings (Kay, 1993 & Tidd, 2005). This research will focus on developing guidelines for designing OI practices by developing OIBM’s. Even though I will elaborate on OI in general and motives for OI in the next chapter, it is assumed that organizations for which this report is written, have already decided on wanting to innovate for (one of the) reasons as described above and implement (or at least explore) OI practices into their organization. Because of this, the report is primarily written for commercial (for profit) organizations. In most cases this means that the ‘final goal’ of these organizations is to increase economic value for its shareholders. Even though the ‘final goal’ of commercial organizations might be to increase economic value, this does not mean that all value is or can be measured in monetary terms. On the contrary, many (business) decisions are based on the fact that they are of some form of value to the company (which eventually should result in increased economic value). For this reason, I define value not just as the material or monetary worth of something, but as the usefulness of something considered in respect of a particular purpose (source: Oxford American Dictionaries). This means that many things might be of value to an organization even though they cannot (directly) be quantified in monetary terms, because they serve a particular non-economical purpose which is valued by the organization. When designing the new OI practices, obviously the implementation of the practices must be taken into account as one can assume that the business models are developed with actual implementation in mind. However, this thesis will not specifically go into the actual process of implementing the ‘designed to be successful’ OI practices, but will be limited to designing such practices. Initially, the research questions will be limited only by the scope of the research mentioned above. However, after having elaborated on the theory (see chapter 2: theoretical framework), some more limitations might be added to further specialize the research. Also, the statements given in the next chapter will ‘channelize’ the research. This is reflected in the conceptual model at the end of the theoretical framework. Finally, As this research is my graduation thesis for the study Technology Management at the Faculty of Management and Organization of the University of Groningen, I am also limited by some conditions related to the research process as outlined by the faculty. These conditions are outlined in the Manual Master Project Technology Management. The main limitations that relate to this research are the fact that the research has to be conducted by me alone; I am not allowed to conduct the research together with others. Also, the research should reflect at least 20 European Credits (EC’s). One European Credit formally consist of 28 study hours; this means the research should reflect at least 560 hours (or 70 days) of work.

5

2 Literature review This chapter is a literature review, which will conclude with a theoretical framework on what open innovation and business models are, and how they can be combined to describe OIBM’s. This framework will lead to propositions related to the sub-questions and will guide the remainder of the (case) research. I will start with an elaboration on open innovation (2.1) and business models (2.2), after which I will connect the two concepts (2.3 that will lead to a theoretical framework (2.4).

2.1 Open innovation (OI)

In the introduction I explained that to create value (goal), one should innovate (means). One way to innovate is that of open innovation (paradigm). OI is about creating value together with other parties and making sure a portion of that value is delivered to all participating parties. When applying OI principles in practice, we speak of OI practices. This section will go further into the concept of OI, and how the creation of value can be increased by OI. I will start with elaborating shortly on its history, definition and stages. After that, I will go into the trends of- and motives for OI. After that, different types and competences needed for OI will be identified; core processes and partners. 2.1.1 History, definition & stages The notion of open innovation was first proposed by Chesbrough in 2003. He states that organizations need to open up their innovation processes, deliberately using both internal and external ideas, knowledge and markets to innovate – to create value. He defines OI as: “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. OI is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology”. The principle of OI is shown in figure 1. OI means that a company needs to open up its solid boundaries to let valuable knowledge flow in from the outside in order to create opportunities for cooperative innovation processes with partners, customers and/or suppliers. It also includes the exploitation of ideas and IP in order to bring them to market faster than competitors can. OI principles therefore describe how to deal best with strategic assets in order to meet market demands and company requirements. The OI approach is about gaining strategic flexibility in the strategic process and creating a critical momentum in innovation diffusion in order to generate customer acceptance and create industry standards (Enkel & Gassmann, 2004). Since the introduction of the concept, OI quickly gained the interest of both researchers and practitioners, illustrated by the number of publications, dedicated conferences and a rapidly growing body of literature (Fredberg, Elmquist & Ollila, 2008). The reason for OI to attract so much attention is that it is not ‘just another management fad’; Chesbrough merely distinguished a trend in innovation practices – and gave it a name. Chesbrough (2003a, 2003b) distinguished this new model of innovation in relation to the former one: the closed innovation model, in which firms adhered to the following philosophy: successful innovation requires control. In other words, companies must generate their own ideas that they would then develop, manufacture, market, distribute and service themselves. This approach calls for self-reliance: If you want something done right, you've got to do it yourself (Chesbrough, 2003a, 2003b). Appendix 1 elaborates further on the difference between open en closed innovation. 2.1.2 Trends & motives: increasing value creation Chesbrough (2003b, 2006) explains the rise of OI practices by the changing economics of innovation. He argues that useful knowledge and technology has become increasingly widespread, distributed across companies both large and small, in many parts of the world. He distinguishes two main forces in the economics of innovation that are forcing companies to open up their innovation process (see figure 2: step 1, Chesbrough, 2006):

figure 1: open innovation principle

6

figure 2: economics of open innovation

• Rising costs of technology development; • Shorter product life cycles.

According to Chesbrough (2006), OI business models address both issues (see figure 2: step 2): • Open innovation business models attack the cost side of the problem by leveraging external R&D

resources to save time and money in the innovation process; • Open innovation business models attack the revenue side by broadening the number of markets

addressable by the innovation.

The main objective of OI is to create value (as with ‘normal’, or closed innovation). Whether or not to engage in open forms of innovation depends on whether OI practices can increase the creation of value in relation to closed innovation. This leads to the following statement (#1, Chesbrough 2006):

Motives for companies to look for open innovation practices are: - to increase innovative capacity and/or

- to decrease time to market of innovation, and/or - to decrease uncertainty of innovation, and/or

- to decrease costs of innovation, for the purpose of creating (extra) value.

2.1.3 Stages to use open innovation in development process Figure 3 is a diagram illustrating an OI process and the different stages at which OI can be implemented: research, development and commercialization of ideas and technologies. The boundaries of the firm, represented by the dashed lines of the funnel, are permeable and allow ideas and technologies (the mauve and green circles) to pass in and out of the firm. The R&D funnel is mostly associated with the innovation of new products or services, however, also other (core, critical or contextual) business functions or processes can be subjected to the innovation process illustrated by the OI funnel, like marketing, finance, procurement, etc. The model shows that OI can happen at different stages in the development of businesses, from research into an idea/technology to the commercialization of fully developed products or services. This leads to the following statement (#2):

figure 3: open innovation in different stages

7

figure 4: process archetypes of open innovation

Any (sub)function of an organization is a possible candidate for open innovation practices, in which value can be created with external ideas as well as internal ideas,

and internal and external paths to market, in all stages of the innovation process.

For the purpose of this research, I will make a distinction between OI in general, and (applied) open innovation practices. OI (in general) is a concept or a paradigm. OI practices are (applied) ‘real-life’ practices (or projects, processes) based on the general concept of OI. The reason for this distinction is that it is one thing to believe in the power of OI and create a culture/processes for finding such opportunities, it is another to actually develop such practices in real life; “We have heard a lot about the potential of open innovation communities, but when it comes to actual execution there is a significant gap” (Nambisan 2007, cited in Gwynne, 2007). I will not go into how to make an organization ‘ready’ for OI (eg. culture), but I assume organizations to already have chosen- and be ready for this new way of innovating (also see section 1.5). I will thus focus on how to design real-life OI practices, when organizations are ready for and open to such practices. 2.1.4 Types & competences: core processes Chesbrough (2003a) distinguished between two types of OI: outside-in and inside-out. Outside-in OI exploits external ideas within an organization, inside-out OI provides external parties with ideas or assets lying idle within an organization. Enkel & Gassmann (2004) also recognized these two forms of OI, however they distinguished three different core process archetypes of OI: (1) The outside-in process: enriching a company’s own knowledge base through the integration of suppliers, customers, and external knowledge sourcing can increase a company’s innovativeness. (2) The inside-out process: The external exploitation of ideas in different markets, selling IP and multiplying technology by channeling ideas to the external environment. (3) The coupled process: Linking outside-in and inside-out by working in alliances with complementary companies during which give and take are crucial for success. Consequent thinking along the whole value chain and new business models enable this core process. Enkel & Gassmann (2004) state that the OI approach is about gaining strategic flexibility in the strategic process and creating a critical momentum in innovation diffusion in order to generate customer acceptance and create industry standards. Based on their research on the different areas of OI, Enkel & Gassmann (2004) found that not all companies choose the same core OI process, or have integrated all three processes to the same degree. Most companies choose one primary process, but also integrate some elements of the others. These process archetypes are summarized in figure 4.

Enkel & Gassmann (2004) studied companies that used one of the three archetypes of OI. Table 1 shows the most important characteristics of companies focusing on one of the three archetypes, as well as providing examples of core processes (key activities) related to the archetypes. Also, the core competences related to OI are given for the different archetypes: besides implementing core processes to enable integration of external knowledge, to exploit ideas outside the firm or to co-operate within joined innovation processes, the company needs certain capabilities to apply the OI approach effectively. For each of the core processes a different capability is needed: developing the absorptive capacity has to be complemented with developing multiplicative capability and relational capacity.

8

Outside-in process Inside-out process Coupled process Characteristics - low tech industry for similar

technology acquisition - act as knowledge brokers and/or knowledge creators - highly modular products - high knowledge intensity

- (basic) research-driven company - objectives like decreasing the fixed costs of R&D, branding, setting standards via spillovers

- standard setting (pre dominant design) - increasing returns (mobile industry through multiplying technology - alliance with complementary partners - complementary products with critical interfaces - relational view of the firm

Core processes - earlier supplier integration - customer co-development - external knowledge sourcing and integration - in-licensing and buying patents

- bringing ideas to market - out-licensing and/or selling IP - multiplying technology through different applications

- combining outside-in and inside-out processes - integrating external knowledge and competencies and externalizing own knowledge and competencies

Core competence related to OI

Absorptive capacity Multiplicative capability Relational capacity

table 1: characteristics, core processes and critical capabilities related to archetypes of open innovation Appendix 2 elaborates further on the core competences needed per type of open innovation. As the coupled process is basically a mixed form of the other practices, I will focus my research on the outside-in and inside-out process, taking into account that in some cases they can be used simultaneously (coupled). Summarized, the above leads to the following statement (#3):

There are two major types of open innovation practices; outside-in and inside-out open innovation practices,

which each entail specific processes and require different competences.

2.1.5 Types & competences: partners Another way of categorizing OI is by defining different sorts of partners. As OI is a broad concept, so are the groups of possible participants in open practices. And one should look beyond the ‘normal’ supply chain (suppliers, customers, consumers, etc.), into different technologies, supply chains and sectors to see whether other parties/technologies/chains/pathways to market can also create additional value to the company. For the purpose of this research I will distinguish two forms of OI, both with a different view of its partners: co-development partnerships and co-creation practices. Co-creation is about jointly creating value in exchange with stakeholders, customers or consumers (Prahalad & Ramaswamy, 2004). In the traditional system, where firms decide on products and services they will manufacture, by implication they decide what is of value to the customer. In this system, customers have little or no role in value creation. During the last two decades, organizations found ways to partition part of the work done by the firm and pass it on to their customers. These practices range from engagement at the end of the product-manufacturing cycle (eg. letting customers decide a custom color for their product purchased) to letting customers engage in product development in early stages of the new product development (NPD) process (also called user innovation by von Hippel, 2005). Co-creation can be applied to all products/services and supplier/client relationships (collaboration between developers and stakeholders, companies and customers, managers and employees, etc.). The locus of value creation is on the customer-company interaction. This process is depicted by its key building blocks: dialogue, access, risk assessment and transparency (DART, Prahalad & Ramaswamy, 2004). Dialogue implies interactivity from both sides: the company and the customer. It means that both parties should be active in the interaction. In order to sustain an interactive, thriving dialogue, and to reach mutually satisfying and rewarding results, it is suggested that both parties should become equal in the dialogue. This means that the company and the customer should value each other as equal, and treat each other accordingly in the dialogue. In order for the dialogue to be motivating, is has to center around the issues of interest to both (Prahalad & Ramaswamy, 2004). It is noted that dialogue is difficult if the transparency of the situation, and access to information differs between parties. Therefore, it is important to realize that withholding information from the

9

customers has negative effects on co-creation. The claim that transparency and access is crucial for a meaningful dialogue is greatly emphasized (Prahalad & Ramaswamy, 2004). Dialogue, access, and transparency can be seen to lead to a higher understanding for the customer. Based on the three building blocks, the customer is better able to understand the risk-benefits of a course of action or a decision relating a product. This personalized understanding of risk-benefits implies that customers are less dependent on external information concerning their actions and decisions. This is also suggested as being an important part of successful co-creation (Prahalad & Ramaswamy, 2004). The second category, co-development partnerships, is about embodying a mutual working relationship between two or more parties aimed at creating and delivering a new product, technology or service (Chesbrough & Schwartz, 2007). Obviously, as with co-creation, the objective of such an endeavor is to create value for its participants. The difference between co-creation and co-development is the focus on participants. Co-creation focuses on supplier/client collaboration within the supply-chain – initiated by the supplier. Co-development focuses on different organizations, jointly creating value in partnerships for a new or existing target group/customer segment. Chesbrough and Schwartz (2007) state that such partnerships can increase the return from internal R&D, by leveraging the capabilities of a partner firm. However, they can also impose significant hazards and may doom a business model to failure if they are poorly designed or implemented. Four requirements for designing a business model that leverages co-development partnerships are (Chesbrough & Schwartz, 2007):

• Define your business objective, • Assess the capabilities you require, • Determine the degree of business model alignment with partner, • In managing the partnership, think of future collaborations – not just the current needed.

Appendix 3 elaborates further on the requirements for co-development partnerships. The second method of categorizing OI practices as described above leads to the following statement (#4):

There are two different types of open innovation practices from a partner point-of-view: - Co-creation practices focus on supplier/client collaboration within the supply-chain – initiated by the supplier,

- Co-development partnerships focus on different organizations, jointly creating value for a new or existing customer segment.

2.2 Designing business models

So far, I have elaborated on OI, how OI practices can create value (motives), how it can be categorized, and what competences are needed for different types of OI. This seems quite straightforward, however, how to develop such OI practices in real life is not at all clear: “We have heard a lot about the potential of open innovation communities, but when it comes to actual execution there is a significant gap” (Nambisan, 2007 cited in Gwynne, 2007). A problem these organizations face is that they know the direction where to look (open innovation), but do not know exactly what it is they are looking for: “how can we design such open practices to be valuable for our organization? Which external technologies should we use? And why and how should we use them? How can we create value with unused internal technologies? Which markets can we penetrate? And how?” These organizations need the right set of ‘glasses’ - a means, framework or tool to guide them in the design of new and successful OI practices, to create (new) value. Business model design (or generation) is one such set to stimulate successful innovation: To innovate openly, [organizations] need to innovate their business models; the way that they create value, and capture a portion of that value for themselves” (Chesbrough, 2006). In this section I will give an introduction in- and elaborate on- designing business models, after which I will connect the two concepts. 2.2.1 History, definition & purpose Descriptions of businesses and/or business processes are called business models. In recent years, much has been written about business models. Although the term ‘business model’ received first attention in academic literature in 1957 (Bellman, Clark, et al. 1957) and in the title and abstract of a paper in 1960 (Jones, 1960), business models as a concept only became popular when the Internet emerged as an enabling information technology (Osterwalder, 2005). The rise of cheap information technology fueled thinking in ‘new ways of creating and capturing value’ – and thus in business models. Appendix 4 goes further into the history of the concept. Many different definitions on business models exist. A couple of those definitions are:

10

• Business models are models of organizations, with the purpose to determine the unique conformation of elements, which create value for customers and ‘revenue’ for the company (Jansen, Jägers & Steenbakkers, 2007).

• A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams (Osterwalder, 2005).

Even though many purposes for the use of business models exist, most authors use similar descriptions of the function(s) of a business model. According to Osterwalder (2009), a business model describes the rationale of how an organization creates, delivers and captures value. Chesbrough (2006) has a similar definition: A business model performs two important functions: it creates value and it captures a portion of that value. To this, he adds that [a business model] creates value by defining a series of activities from raw materials through to the final customer that will yield a new product or service with value being added throughout the various activities. The business model captures value by establishing a unique resource, asset or position within that series of activities, where the firm enjoys a competitive advantage (Chesbrough, 2006). Business models are used for different purposes. Different functions of business models exist for different purposes; different authors/organizations have a different usage for the concept. In his research, Osterwalder (2005) clarified the usage of business models according to a categorization of its different purposes, distinguished from literature:

• Understanding and sharing: business models help to capture, visualize, understand, communicate and share the business logic.

• Analyzing: the business model concept can contribute in analyzing the business logic of a company. The business model becomes a new unit of analysis (Stähler, 2002). Business models can improve measuring, observing, and comparing the business logic of a company.

• Managing: business models improve the management of the business logic of the firm. The business model concept helps ameliorate the design, planning, changing and implementation of business models. In addition, with a business model approach companies can react faster to changes in the business environment. Finally, the business model concept improves the alignment of strategy, business organization and technology.

• Prospects: business models describe possible futures for a company. The business model concept can foster innovation and increase readiness for the future through business model portfolios and simulation.

• Patenting of business models: Increasingly entrepreneurs and companies in e-business can patent e-business processes and even entire aspects of their business model (Beresford, 2001). Therefore business modeling may potentially play an important role in this legal domain. It remains to be seen in what direction patenting business models and business processes moves.

During this research, business models are used in different ways. Relating to the objective of the research, business models will be used for the purpose of designing future OI practices. This is in line with Osterwalder’s prospects categorization. Within this categorization, understanding and sharing and analyzing are also relevant during the design process, be it for future ‘hypothetical’ business models. For the case research (see chapter 4), I will also use business models to describe and clarify real-life OI cases. For this purpose, understanding (and sharing) and analyzing will be relevant during the case-research. 2.2.2 Levels for using business models In his research on business models, Osterwalder (2005) found three levels on how business models are used/defined in literature (figure 5): 1. Overarching Business Model Concept: This first level consists of definitions of what a business model is

and what belongs in them and meta-models that conceptualize them. On this level the business model is seen as an abstract concept that allows describing what a business does for a living.

2. Taxonomies: This level consists of several types or sub-meta business models (taxonomies) that are generic but contain common characteristics.

3. Instance Level: This level consists of either concrete real world business models or of conceptualization, representations, and descriptions of real world business models.

11

figure 5: levels for using business models

In this research all three levels are used. The business model canvas as developed by Osterwalder (2009) is used to outline the overarching business model concept. I will elaborate on this business model canvas and why I chose it for the research further in the next section. After connecting business models with OI, I will study some OI cases (real world companies/practices) and develop their open innovation business models at an instance level (OIBM’s) to verify the propositions (section 2.3). From the results of the case research combined with the literature review, sub-meta models are developed that can guide in the design of open innovation practices.

2.2.3 Business model canvas; building blocks & elements When investigating business model literature by different authors, most descriptions of conceptualizations of business models present elements which are fairly similar. Osterwalder (2005) compared many different conceptualizations of business models and compared the elements of business models described by different authors. He compared the models mentioned most often and studied their components. From this synthesis, nine building blocks emerged that cover all the business model components mentioned by at least two authors. The nine building blocks are outlined in Table 2 (Osterwalder and Pigneur, 2005 & 2009). These building blocks will be used throughout the remainder of this report as an overarching business model concept to understand, describe and design OIBM’s at the taxonomy and instance level. I chose the business model canvas as it incorporates most other conceptualizations, making it the most comprehensive and up-to-date model presently available. When developing the specific business model of an organization, different (key) elements should be appointed (filled-in) per building block, to create the particular (real-life) business model: “specifying a set of business model elements and building blocks, as well as their relationships to one another, is like giving a business model designer a box of Lego blocks” (Burgi, Victor, et al. 2004). Osterwalder (2005) adds: “[one] can experiment with these blocks and create completely new business models, limited only by imagination and the pieces supplied”. Table 2 shows and describes the business model building blocks and gives some key questions, which help in determining the elements per building block (Osterwalder & Pigneur, 2005 & 2009). Osterwalder modeled the building blocks and their relations in relation to each other (figure 6; appendix 5 shows a more elaborate version of the canvas). This model (figure 6) shows that the value proposition is delivered to customer segments, by a specific relationship and certain channels (arrows). This illustrates that customers comprise the heart of any business model (Osterwalder, 2009). The ‘left-side’ of the canvas serves the purpose of making the value proposition possible; the key resources, activities and partners. The ‘lower-side’ of the model (revenue streams and cost structure) are no ‘variable’ building blocks – they come forth out of (the mix of) the other building blocks (they can however be the starting point for business model innovation; see section 2.2.4). The ‘bottom-side’ of the model reflects whether a business model is viable: a (commercial) business model can only exist on its own if revenue flows ≥ cost structure.

12

Business model building block

Description Key questions for determining elements per building block.

Value propositions Describes the bundle of products and/or services that create value for a specific customer segment.

What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? What bundles of products and services are we offering to each customer segment? Which customer needs are we satisfying?

Customer segments Describes the segments of customers that a company wants to reach and serve (offer value to).

For whom are we creating value? Who are our most important customers?

Customer relationships

Describes the types of relationships/links a company establishes with specific customer segments.

What type of relationship does each of our customer segments expect us to establish and maintain with them? Which ones have we established? How are they integrated with the rest of our business model? How costly are they?

Channels Describes how a company communicates with and reaches its customer segments to deliver a value proposition.

Through which channels do our customer segments want to be reached? How are we reaching them now? How are our channels integrated? Which ones work best? Which ones are most cost-efficient? How are we integrating them with customer routines?

Key activities Describes the most important things a company must do to make its business model work (the arrangement of activities and resources that create value).

What key activities do our value propositions require? Our distribution channels? Customer relationships? Revenue streams?

Key resources Describes the most important assets required to make a business model work (outlines the competencies (repeatable pattern of actions) necessary to execute the company’s business model).

What key resources do our value propositions require? Our distribution channels? Customer relationships? Revenue streams?

Key partnerships Describes the network suppliers and partners that make the business model work (cooperative agreements with other companies necessary to efficiently offer and commercialize value).

Who are our key partners? Who are our key suppliers? Which key resources are we acquiring from partners? Which key activities do partners perform?

Cost structure Describes (sums up) all costs incurred to operate a business model (monetary consequences of all the means employed in the business model).

What are the most important costs inherent in our business model? Which key resources are most expensive? Which key activities are most expensive?

Revenue streams Represents the cash a company generates from each customer segment (describes the way a company makes money).

For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each revenue stream contribute to overall revenues?

table 2: business model building blocks

figure 6: business model canvas visualized

13

Summarizing: the main purpose of any business model is to create, deliver and capture value. Value is created by key activities and resources, which can be supported by key partners. The created value proposition – value a customer (segment) is willing to pay for (product/service) – is then delivered to the customer (segment) through relationships and channels. As customers pay for this delivered value, revenue streams are created. The delivered value is captured by revenue streams. A business model is viable if the revenue streams are larger then the total costs of creating the value. All of the above leads to the following statement (#5):

The business model canvas can be used to structurally describe & design business models, using key elements for the different building blocks.

2.2.4 Epicenters for business model innovation Business model innovation is about taking an idea (or knowledge), or technology (or invention), and designing and implementing a business model by structuring its elements in such a way that the idea or technology adds in creating, delivering and/or capturing value. Osterwalder and Pigneur (2009) state that every business model design project is unique and presents its own challenges, obstacles and critical success factors. Ideas for business model innovation can come from anywhere, and each of the 9 building blocks can be a starting point (Osterwalder & Pigneur, 2009). Osterwalder and Pigneur (2009) distinguish between four epicenters of business model innovation: resource-driven, offer driven, customer driven and finance driven, as shown in figure 6. Each of the four epicenters can serve as the starting point for major business model change, and each can have a powerful impact on the other eight building blocks. Also, business model innovation sometimes emerges from several epicenters at the same time.

Resource-driven innovations originate from an organization’s existing infrastructure or partnership to expand or transform the business model. Offer driven innovations create new value propositions that affect other business model building blocks. Customer-driven innovations are based on customer needs, facilitated access or increased convenience. Like all innovations emerging from a single epicenter, they affect other business model building blocks. Finally, Finance-driven innovations are innovations driven by new revenue streams, pricing mechanisms, or reduced cost structures that affect other business model building blocks (Osterwalder & Pigneur, 2009). This leads to statement #6:

Business model innovation can have different epicenters:

resource-, offer-, finance and/or customer driven, and each of the four epicenters can serve as the starting point for major business model change.

Next to their framework for describing business models; the BM canvas, Osterwalder & Pigneur (2009) also go into the process of designing such models. Such a process requires a ‘design attitude’, which they tried to capture in a five-phase design process for designing business models. Appendix 6 further elaborates on the design process.

2.3 Connecting business models & open innovation: OIBM’s In the two sections above, I explained the notions of open innovation and business models. In this section I will connect business model theory to the open innovation paradigm. I will do this by firstly defining what OIBM’s are (related to proposition #1). After that, I will use the literature from the past two sections to develop a categorization of OIBM’s (taxonomies), which will guide the remainder of the research. Finally, I will propose how OIBM’s can be developed (proposition #2). 2.3.1 Defining OIBM’s (proposition #1) As explained before, business model innovation is about taking an idea (or knowledge), or technology (or invention), and designing and implementing a business model by structuring the building blocks in such a way that the idea or technology adds in creating, delivering and/or capturing value. To innovate openly, you must do more than search externally for new ideas or license out more of your own ideas. You also must innovate your business model, the way that you create value, and capture a portion of that value for yourself (Chesbrough,

figure 6: epicenters for business model innovation

14

2006). Key in developing OI practices (from the perspective of an OI initiating organization), is to make sure a portion of the value added by OI is transferred over organizational boundaries, back to the ‘knowledge delivering’ party. This is true for all forms of OI – parties will only engage in open practices if they can capture a portion of the value created for themselves. This leads to the following definition for OIBM’s:

An open innovation business model describes the rationale of how organizations participate in open innovation practices - that create, deliver and capture value - together, and how value of the innovation, in

whichever form, flows back to the participating parties. This flow of value (value transfer) is indirectly mentioned by many authors on open innovation (see section 2.1) and business modeling (see section 2.2), however it is never specifically addressed for the purpose of designing open innovation business models. This leads to the first proposition of this research:

Key in developing open innovation practices, is transferring a portion of the value added by the innovation, over organizational boundaries, back to the ‘knowledge delivering’ party.

As stated earlier (section 1.5), value is not just defined as the material or monetary worth of something, but as the usefulness of something considered in respect of a particular purpose. Related to the first proposition this means that the knowledge delivering party should get some form of value in return for contributing to the (value adding) innovation, making it worth the effort to participate. Summarizing, the value to be received is the reason to participate, but does not have to be economical. 2.3.2 Categorization of OIBM’s: three taxonomies Now OIBM’s are defined, I need to scope the remainder of the research. In my literature review I elaborated on the concepts of open innovation and business modeling. I have shown that OI practices can be categorized based on core processes; the outside-in and the inside-out process. I also categorized based on types of partners; co-development partnerships and co-creation practices. Combining these categorizations and other literature, I developed a categorization for OIBM’s based on the most common forms of OI. This categorization will focus (scope) the remainder of my research; I intend to create guidelines for developing such OIBM’s. The categorization consists of the following main taxonomies:

• Co-development partnerships (or buy innovation, outside-in OI) • Co-creation practices (outside in OI) • Spin-off open innovation practices (or sell innovation, inside-out OI)

The first category (taxonomy) for OIBM’s describes co-development partnerships or buy innovation (outside-in OI). This form of OI uses external knowledge, ideas, technologies and/or inventions to innovate one or multiple elements of the business model, to create (more) value for ‘normal’ customer segments (existing or new but similar). Both the exploitation of the (technological) innovation and the locus of the business model innovation lie within the organization. Absorptive capacity is a core competence required for this kind of OI. Examples are integrating external knowledge, technologies from suppliers, complementary organizations and buying IP. The OI results in (higher) added value in the value proposition for customers. A portion of this added value should flow back to the delivering party (or parties) outside of the organization. The second category (taxonomy) for OIBM’s describes co-creation (outside-in OI). This form of OI uses external knowledge and/or ideas from existing customer segments to add value to one or multiple elements of the business model, to create (more) value for customers (existing or new but similar segments). Both the exploitation of the (technological) innovation and the locus of the business model innovation lie within the organization. Absorptive capacity and the DART principles are core competences required for this kind of OI. The OI results in (higher) added value in the value proposition for customers. This value will naturally flow back to the customers, however a portion of this added value should flow back to the specific customers contributing to the innovation – outside of the organization. The last category (taxonomy) for OIBM’s describes spin-off open innovation practices or sell innovation (inside-out OI). This form of OI uses internal knowledge, ideas, technologies and/or inventions for external innovations to create value in- and outside the organization. The locus of the business model innovation lies within and outside the organization. A (new) business model is build around a new value proposition/customer segment, which ‘sells’ unused elements; knowledge, technologies, ideas or inventions – which are of value to an outside party. That outside party can also be a spin-off organization which captures value of the innovation outside the

15

existing business model/organization and delivers a portion of that value back to the ‘mother organization’. This means that two business models have to be created; one inside the ‘mother organization’ and one for the spin-off practice. A Multiplicative capability is a core competence required for this kind of OI. Examples are bringing ideas to (new) market(s), selling/licensing IP and multiplying technology to create additional revenue streams. A portion of the value added by the innovation outside the organization should flow back to the delivering party (the ‘mother organization’). A new business model (in relation to the old/usual business model) should be created by the delivering party to capture that value. The categorization as shown above has been chosen because they are the most common forms of open innovation and also because they have the most distinct characteristics. They depict all major categories of open innovation practices as described in my research. As described earlier, Enkel & Gassmann (2004) also elaborated on a ‘coupled process’ (next to inside-out and outside-in open innovation). They state that OI practices are never purely either outside-in or inside-out, but that that the focus is either on the one or the other, or on both, which they categorize as ‘coupled’. The ‘coupled’ form of OI uses both internal and external knowledge, ideas, technologies and inventions to create value both in- and outside the organization. The coupled process combines/integrates inside-out OI and outside-in OI into one practice. I have chosen not to use this category for the remainder of my research, as it is basically a mixed form of the other practices; the coupled process can be explained/modeled/implemented by combining two or more of the categories as described above:

• at the same time, or parallel to each other, • one by one (after each other), or serial to each other.

2.3.3 Developing OIBM’s (proposition #2) After having defined and categorized OIBM’s, I will now propose how one can develop such models. OI is a paradigm [within the broader concept of innovation] that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology (Chesbrough, 2003a, 2003b). When a firm applies practices based on the OI paradigm, one speaks of (applied) OI practices. A business model describes the rationale of how an organization creates, delivers and captures value (Osterwalder 2009). Next to describing this rational, I propose that business models can also be used to describe and design specific real-life OI practices; one can design OI practices by developing open innovation business models (OIBM’s). This can be done by taking key elements (also idea’s, technologies, knowledge, IPR’s, etc.) from the initiating and/or (potentially) participating parties and using them to design a new open innovation business model. This model is based on one of the three taxonomies for OIBM’s and includes the flow of value back to (knowledge) delivering parties as proposed in proposition #1. Summarizing, the above leads to the following proposition (#2):

Open innovation practices can be described by taking (key) elements from (potentially) participating parties and using them as epicenter(s) to design a (new) open innovation business model.

This model can be developed based on one of the three proposed taxonomies for OIBM’s and includes the flow of value back to (knowledge) delivering parties.

2.4 Conclusion & theoretical framework

In the past sections I have elaborated on OI and why organizations want to implement OI practices. I also elaborated on business modeling as a tool, and explained how OIBM’s can be used to design real-life OI practices. The following statements (also given in the previous sections) summarize the literature review and outline the theoretical framework. Statements 1-4 are about OI; they can be viewed as main points that have to be taken into account when developing OI practices:

1. Motives for companies to look for open innovation practices are; to increase innovative capacity, and/or to decrease time to market of innovation, and/or to decrease uncertainty of innovation, and/or to decrease costs of innovation - for the purpose of creating (extra) value.

2. Any (sub)function of an organization is a possible candidate for open innovation practices, in which value can be created with external ideas as well as internal ideas, and internal and external paths to market, in all stages of the innovation process.

3. There are two major types of open innovation practices; outside-in and inside-out open innovation practices, which each entail specific processes and require different competences.

4. There are two different types of open innovation practices from a partner point-of-view: co-creation practices which focus on supplier/client collaboration within the supply-chain - initiated by the supplier,

16

and co-development partnerships, which focus on different organizations, jointly creating value for a new or existing customer segment.

There is not one ‘paved road’ to OI; many organizations struggle to design/develop such practices. Statements 5 and 6 are about a tool/framework to come to such OI practices: business modeling. Business models can be used for (the purpose of) designing (future) OI practices. Following statements guide the design of business models based on statements as given in the text:

5. The business model canvas can be used to structurally describe & design business models, using key elements for the different building blocks.

6. Business model innovation can have different epicenters: resource-, offer-, finance and/or customer driven. Each of the four epicenters can serve as the starting point for major business model change.

Following the statements from the literature review, I defined open innovation business models and three taxonomies for OIBM’s. I respectively created two propositions on the development of OIBM’s, which I will try to verify with further research. This research has the objective of creating guidelines for developing OIBM’s, based on one of the three OIBM taxonomies. This results in the following definition and propositions: Definition OIBM’s: An open innovation business model describes the rationale of how organizations participate in open innovation practices - that create, deliver and capture value - together, and how value of the innovation, in whichever form, flows back to the participating parties. Proposition #1: Key in developing open innovation practices, is transferring a portion of the value added by the innovation, over organizational boundaries, back to the ‘knowledge delivering’ party. Three major taxonomies for OIBM’s are:

• Co-development partnerships or buy innovation (outside-in open innovation) • Co-creation practices (outside in open innovation) • Spin-off open innovation practices or sell innovation (inside-out open innovation)

Proposition #2: Open innovation practices can be described by taking (key) elements from (potentially) participating parties and using them as epicenter(s) to design an OIBM. This model can be developed based on one of the three proposed taxonomies for OIBM’s and includes the flow of value back to (knowledge) delivering parties. Research is needed to verify the propositions as described above. The next chapter will go into the research methodology for further research, trying to validate the propositions and answer the research question by creating guidelines for developing OIBM’s.

17

3 Research methodology This chapter describes how my further research finds answers to the main research question and the sub question described in section 1.3, by validating the propositions as stated in section 2.4. Methodological choices for research are being justified and methods are being explained. The chapter provides information on the chosen research method, data collection method and data-analyzing methods.

3.1 Research Method The research design one chooses depends on the research question, the matter of control over the actual behavior of events and the focus on contemporary as opposed to historical phenomena (Yin, 2003). This study is a typical empirical study: research that bases its findings on direct or indirect observation as its test of reality (Swanborn, 1996). Empirical research occurs in many forms, e.g. experiments, case studies and questionnaires. The researcher has to choose the right kind of research for his or her research question by comparing characteristics of research strategies available (Yin, 2003). I will conduct a case-study research to validate the propositions and answer the research question. 3.1.1 Case study research For my research, a case study seems the most logical choice for the following (general) reasons. The research question of a case study is characterized by a focus on ‘how’ or ‘why’. Also, a case study research is preferred when the investigator has little control over events, and when the focus is on a contemporary phenomenon within a real-life context (Yin, 2003). The case study method serves investigators to find holistic and meaningful characteristics of real-life events, and focuses on understanding the dynamics present within single settings (Eisenhardt, 1989). Since the research question of this study is a ‘how’ question, case study research seems appropriate. Other conditions related to case studies are met as well; I do not need to have control over behavioral aspects of the objects and the focus is on contemporary phenomena. In case study research, theory development as part of the design phase is essential, whether the case study’s purpose is to develop or test theory (Yin, 2003). According to Yin (2003), the mode of generalization for case studies is ‘analytic generalization’, in which a previously developed theory is used as a template with which to compare the empirical results of the case study. Evidence used in case studies may be qualitative, quantitative, or both (Eisenhardt, 1989); qualitative data is useful for understanding the rationale or theory underlying relationships revealed in the quantitative data or may suggest theory directly which can be strengthened by quantitative support (Eisenhardt, 1989). For my research I will test and possibly develop theory regarding the propositions using qualitative data. Case studies typically combine data collection methods such as archives, interviews, questionnaires, and observations. This combination is the unique strength of case study research (Yin, 2003). For my research I will interview key persons and use (online) documentations about the cases. 3.1.2 Number of cases For my research I will study 3 cases; one per developed taxonomy for OIBM’s as given in section 2.3.2. These cases will be used to explain and extend the theory as developed in the previous chapter, by verifying the propositions for this research (section 2.3). I will use one case per OIBM taxonomy because a specific set of circumstances is tested per model; my theoretical framework clearly identifies different conditions for the 3 proposed taxonomies. The 3 cases will be used at two levels; at a general level I will test theory on OI practices and value-transfer in general and draw conclusions on common characteristics. At the taxonomy level I will draw conclusions on the value transfer based on the specific cases (single-case level). To confirm, challenge, or extend theory, a single case may meet all of the conditions for testing theory (Yin, 2003). 3.1.3 Case selection Taking into account the specific tools of research, not many cases qualify for potential selection. Many cases can possibly be used, but criteria for my research left only a few options. Case selection often occurs based on simple criteria like distance to residence, interest or accidental contacts or relations of the researcher or his direct network. This kind of selection is known as ‘convenience selection’ (Swanborn, 1996). A ‘convenience’ selection criterion for this study is that I chose cases of which I knew I could speak to the necessary persons of

18

the cases’ organizations that could inform me of those specific cases. Since I did my internship for Squarewise and Createtoday, I used their extensive network next to my own to find suitable cases. Next to ‘convenience selection’, researchers select cases on characteristics of the case. This kind of selection is called ‘content selection’ (Swanborn, 1996). Since I developed 3 taxonomies for different kinds of OI practices; these serve as input for the selection based on content. Adding the two selection criteria; I found the following cases for my research, which will be elaborated on further in chapter 4: • Co-development partnership / buy innovation: Createtoday & Creative City Lab • Co-creation practice: Nokia & Beta Labs • Spin-off open innovation practice / sell innovation: Unilever & Rituals

3.2 Objective case study Recapitulating; the main objective of this research is to develop guidelines to help managers of ‘open innovation initiating organizations’ in designing open innovation practices by developing open innovation business models. This objective led to the following main research question: how can organizations develop OIBM’s? Combining theory on open innovation and business models, I answered the first sub-question: (what are open innovation business models?) by defining OIBM’s. To answer the second sub question (how can one develop open innovation business models?) I categorized OIBM’s into three taxonomies and defined two propositions, which need verification. I will do this by means of case research. The results of this research, together with the literature review performed earlier, will serve as input to answer the sub questions and the main research question. As the transferring of value over organizational boundaries is not explicated in existing literature on designing OIBM’s, it needs to be investigated how one can design for such value transfer. This leads to the first objective of my case studies: investigate how value transfer over organizational boundaries can be taken into account when designing OIBM’s (exploratory). I will do this by:

• Exploring how the specific, single-case instances designed value transfer over organizational boundaries, back to knowledge-delivering parties (in the development-phase).

The second objective of my case studies (related to proposition #2) is to validate whether business models can be used to explain or design real-life open innovation practices based on the three taxonomies for OIBM’s, by combining (key) elements of (potentially) participating parties, taking the flow of value back to (knowledge) delivering parties into account (explanatory). I will do this by:

• Developing & visualizing the business models of the open innovation initiating parties and relate them to the creation of value in the developed OIBM's.

• Developing & visualizing the OIBM’s from elements of the business models of participating parties, using the taxonomies as starting points/basic principles.

• Visualizing/explaining the value transfer (on real-life, single-case level), back to knowledge delivering parties in the OIBM’s.

In the conclusion (chapter 5), I will generalize the findings to draw conclusions on how to develop the specific taxonomies of OIBM’s, in effect creating guidelines for developing such models. These will consist of: • Descriptions on how specific OIBM’s can be developed, • Specific factors that are vital to the development of specific OIBM’s, • Sub-meta models (see levels for using business models, section 2.2.2), which can be used as starting point

and/or basic principles when developing OIBM’s.

3.3 Data collection methods

A major strength of a case study is the fact that it provides the opportunity to use many different sources of evidence: “Any finding or conclusion in a case study is likely to be much more convincing and accurate if it is based on several different sources of information, following a corroboratory mode” (Yin, 2003). In this study, the data collection methods interviewing and analyzing documents are applied, which means I will cross-examine the cases using data- and methodological triangulation;

• I will interview a key person about the case in question, • I will look for available relevant on- and offline documentations about the case.

19

3.3.1 Interviews Interviews are described by Yin (2003) as one of the most important sources of case study information. The interviews in case studies are guided conversations rather than structured queries. Although it is expected that the researcher will be pursuing a consistent line inquiry, the actual stream of questions in a case study interview is likely to be fluid rather than rigid (Yin, 2003). Yin also states that during the interview process the researcher has two jobs. First, the researcher has to follow the line of inquiry, as reflected by the studies propositions and research questions. Second, the researcher has to ask the actual (conversational) questions in an unbiased manner: Thus, case study interviews require the researcher to operate on two levels at the same time: satisfying the needs of the line of inquiry while simultaneously putting forth ‘friendly’ and ‘non-threatening’ questions in the open-ended interviews. Most commonly, case study interviews are of an open-ended nature, in which you can ask key respondents about the facts of a matter, as well as, their opinions about events (Yin, 2003). The possibility to apply interviews with an open-ended character is one of the main reasons why this study selects the case-study research strategy. During these guided conversations much information can be shared and surprising findings can be explored. Since the knowledge of the researcher about the topic is limited, questions can only be prepared until a certain limit. In addition, the interviewees may also help to identify other relevant sources of evidence. However, the interviews should always be considered verbal reports only. As such, they are subject to the common problems of bias, poor recall, and poor or inaccurate articulation. Therefore, a reasonable approach is to corroborate interview data with information from other sources (Yin, 2003). Appendix 8 includes the interview scheme that lists the guiding interview questions used. 3.3.2 Documentations As mentioned in the former section, interview evidence should be combined with evidence from other data collection methods, and documentation appears to be an appropriate method for this. The most important use of documents, in case studies, is to corroborate and augment evidence from other sources (Yin, 2003). Because of their overall value, documents play an explicit role in any data collection in doing case studies. However, at the same time, many people have been critical of the potential over-reliance on documents in case study research (Yin, 2003). It is important that the researcher follows certain rules when using evidence from documentation. The researcher, for example, should always keep the background of the documents’ author in mind, since this might create bias. In this study, external documents (publications and articles found on the Internet) have been used to prepare for the interviews and to compare them with information from the interviewees.

3.4 Structure case research

To structure the research, I combined the statements related to OI, business modeling and the propositions from previous research (given in section 2.4), resulting in a framework. This framework (appendix 7) is structured by dividing the statements related to OI (goal) under the statements related to business modeling (tool). I used this framework to create a questionnaire (appendix 8) that guided the different interviews, thereby making sure all the important topics would be covered. Resulting from the research, I will first give an introduction into the case. Next, I will describe the specific OI practices, covering all the important assets of the case as found in the literature review related to the statements. I will then give the case specific results regarding the propositions, based on the objective of the case study (section 3.2). I will conclude the cases with a table outlining the results related to the statements and propositions. Doing this I will try to show how the cases were designed including value transfer and can be modeled. Thereby, I will verify or refute the propositions and conclude with the OIBM per specific case, including the value transfer. In effect, the statements from the literature review followed by the propositions structure the research/validation process, outlining the results. The results will be summarized at the end of chapter 4 and will be generalized in the conclusion (chapter 5).

20

4 Case research & results This chapter will elaborate on the cases linked to the developed taxonomies for OIBM’s and give the results of the case-research. I will start with explaining the cases from the perspective of the initiating organization, also giving the business model canvas of the organization. After this I will describe the OI practice, based on statements from the literature review. I will conclude the cases with results related to the propositions illustrating the cases as an OIBM. I will conclude the chapter with a summary of the results, combining results from different cases.

4.1 Case Creative City Lab: co-development partnership by Createtoday

The first case is an outside-in OI, a co-development/buy innovation practice called Creative City Lab. For this case I studied on- and offline documentations on the practice and interviewed Ms Ellen Mensink, owner of the initiating party Createtoday and chairman of the board of Foundation Creative City Lab. The entire interview is included in appendix 9. The findings were reviewed and verified. 4.1.1 Case introduction Createtoday (CT) is a small consultancy firm based in the Netherlands. It specializes in advice and interim/project management on creativity and sustainable innovation in the fields of analysis and strategy, new business development and innovation management. CT’s clients come from many different sectors like energy, creative industry, non-governmental organizations (NGO’s), fast moving consumer goods (FMCG’s), technology and (financial) services. CT targets its clients by ventilating its achievements in its network to create a pull-strategy and by pitching its services to potential clients after market research. CT’s philosophy is that true sustainable innovation comes from developing new business models in which different people and/or organizations truly connect to create and innovate together. According to CT open innovation is unavoidable: “We live in an age in which finding creative solutions together with partners becomes increasingly important. Different factors are to blame: industrialization, just-in-time management, climate change, globalization and the Internet… There is no escaping it, open innovation just happens” (Mensink, 2010). CT also believes that communication is key in this process. Because of its philosophy and way of generating business, its network is one of the most important assets. Next to innovation-assignments for clients, CT also strives to innovate on its own behalf, by developing new sustainable (spin-off) businesses. Figure 7 shows CT’s main business model. Foundation Creative City Lab (CCL) was thought of and initiated by Ellen Mensink, owner of Createtoday and is the first business innovation (spin-off) of CT. CCL is aimed at creating a better world by combining innovative forces from ‘regular’ business, the creative industry, government and universities. It is based on the philosophy that true sustainability should be created together, with partners with multiple disciplines and from different sectors. Together with several other founding partners and based on the philosophy as described above, Ellen Mensink developed the main activity of CCL; the Innovation Lab (or Lab). In this Lab, students and young professionals were for 6 months given the freedom to connect knowledge from many different organizations and industries/sectors in a think-tank formula, free from business-interests, centered around one theme/problem to create new innovations. These innovations ware aimed at transcending industry boundaries. The customers of CCL are organizations looking for sustainable innovation. The organizations are targeted/pitched, based on an urgent and complex general problem that is chosen for the Innovation Lab by the founding partners to focus on; to develop sustainable solutions for. The customer organizations are looking to contribute to a sustainable society, by adding value to their own business models by (knowledge for) sustainable innovations. Different from regular consultancies, the Innovation Lab does not work directly for its customers (organizations), but takes its combined knowledge and looks for innovation without the direct goals of the customers in mind. The Lab went even further by agreeing with its customers that there were no result-obligations; the advice/innovations could well be un-implementable to one or more customers. Because of this, the customers do not only pay for this result, but also contribute to the process for other value-adding reasons. Next to the (knowledge about) sustainable innovations they aim to get, they also get sustainable brand exposure & communication, they increase their (sustainable) network, they can recruit from a talented pool of young sustainability experts and

21

they contribute to a sustainable society in general by supporting the initiative. One could also turn the value proposition around and say that a possible implementable sustainable innovation would be a ‘bonus’ for participating organizations.

figure 7: business model Createtoday

The creation of CCL and with it its main activity the Innovation Lab was an open innovation; Ellen Mensink sought other founding partners to develop and implement the business model based on her philosophy and initial ideas. Four other founding partners were attracted which were all asked to contribute to the innovation by combing their knowledge to develop the business model of the foundation and the activities/value proposition. Also, they were asked to contribute to the execution of the innovative business model, by ‘delivering’ activities (key elements) to make the business model work. The knowledge and activities of the founding partners were (in most part) complementary; they all fulfilled their role in developing and executing the business model. The main contributions of the founding partners to the development and execution of the open innovation were in line with their main business activities:

• Createtoday: knowledge on creative processes and sustainable innovation • Squarewise: knowledge on strategy, knowledge and innovation management • Mattmo: on- and offline publications • Innovation Factory: online innovation software • Peper Office: publicity and public relations

Next to these main activities, all founding partners also contributed to the foundation by linking their network/contacts when opportune. To ‘fill the gaps’ in the execution/facilitation of the business model of CCL, sponsors were sought (eg. an organization that facilitated direct e-mailings and an organization that could host events). Finally, to make the business model viable, the remainder of the ‘costs’ would have to be covered by ‘customer organizations’ that were willing to contribute in money for the reasons (value) described above. As CCL is a foundation, it did not have to make profits, however CCL does intends to create commercial value for its customers by delivering sustainable innovations. For my case on co-development I will describe the process in which the foundation with its activities came to exist. 4.1.2 Case description based on theoretical framework For the case CCL, CT had several motives to make it an open innovation; to look for other participating organizations. The main reason was to increase innovative capacity; other parties were needed to finalize the development of the Lab and to execute the designed business model. Without these parties the Lab could not operate (exist). Also, by innovating together, the costs of innovation were shared (by contributing in different activities); it was impossible for CT to run such an operation with only own resources/funds. One other motive to start an OI practice for the Lab was to decrease uncertainty of innovation. This, however, was only partly

22

realized. The following reasons should have decreased the uncertainty of the innovation, however the last point did not work out for reasons explained below:

1. Multiple partners were needed to gain thrust to attract customers; 2. More partners means a bigger network (key resource); 3. More partners means shared responsibility which means that the innovation can continue, even if one

partner backs out (decreasing risk of innovation). The first two points mentioned above were necessary and decreased uncertainty, however, the shared responsibility made the partnership much harder, increasing uncertainty. The reason for this is that the value that different founding partners would capture from the partnership was only loosely agreed upon and was not referred to in partnership agreements (which were hardly present at all). In the interview (appendix 9) Ellen explains that the partnership between founding partners was tough and at points uncertain when the individual reasons of founding partners to participate (values to be captured from practice) began to fluctuate in different directions. Because clear partnership agreements were not present, founding partners tried steering the activities towards individually defined objectives related to the capture of their own individual value. This led to multiple perceived goals and definitions of success, which meant even more perceived possible roads to those goals/paths to success for the partners to agree upon during the execution of the practice. Because they did have shared responsibility, the decision-making process was slow and mostly based on consensus - which did not always have the success of the foundation in mind, but (short-time) costs/value for individual founding partners. During the process, this increased uncertainty of the survival of the foundation, as well as the time to market & ‘roll-out’ of the innovation. In effect, the first Lab (6 month project) was a greater success for the customers of CCL than for its founding partners. Because the customers could not steer the process towards their own objectives (the foundation did not even have a result-obligation), they had to take the value that was offered to them as it came – they all valued it highly. Future collaborations should include strict partnership agreements based on a common objective taking business model alignment into account. These agreements should include decision-making protocols, ensuring that decisions about activities are always made with the objectives of the foundation in mind (excluding the possibility for founding partners to individually steer activities towards their own value-adding reasons). Also the values to be gotten out of the partnership for individual partners should be addressed in the agreements to eliminate the possibility of individual fluctuations leading to multiple goals, making the partnership difficult and/or unworkable. CCL demonstrates that OI practices can be supported by different functions (elements) from one organization, together with multiple functions of other organizations. Createtoday used its philosophy and knowledge to develop an idea (the Lab) together with other organizations into a functional business model. When the business model was designed, CT and the other founding partners also contributed to the execution/operation of the business model. However, even though the development and execution required different activities of the founding partners’ organizations, all activities were based on elements central to the main business activities of the different founding partners. These elements were chosen to be complementary to each other. When CT started with the OI practice, it was well aware about the importance of the outside world in the initiative; the importance of absorptive capacity was present in CT’s general philosophy. This stimulated the search for complementary partners, which were found and persuaded to participate pretty easily. For this reason, the development of the foundation went relatively easy. However, as the business model was implemented, competence relational capacity began to be more important as the characteristics of the partnership began to move to a coupled process (in which ‘give and take’ are more important). The reason for this was that value created and knowledge developed inside the foundation, began to flow back to the founding partners, outside the foundation (inside-out). The relational capacity of the foundation was not as integrated with its philosophy as the absorptive capacity, which led to the relational difficulties as explained above when perceived values to be captured began to fluctuate. The problem above can be illustrated and explained by literature about co-development partnerships specifically. According to Chesbrough & Schwartz (2007) and as described in the theoretical framework, there are four requirements for designing a business model that leverages co-development partnerships:

• Define your business objective, • Assess the capabilities you require, • Determine the degree of business model alignment with partner,

23

• In managing the partnership, think of future collaborations – not just the current needed. As explained, CT could quite easily determine and acquire the required elements by getting complementary founding partners to participate. The other points however were not as well thought through, which led to relational difficulties. The reason for this is that the partners were sought before the objectives/specific goals of the foundation were determined; they were developed together with the partners. This can be done, however when following that path it is extra important to account for differences in the business models of the partners; business model alignment between partners and the open innovation practice is key. Because partnership agreements (regarding business model alignment) were hardly present in CCL, the founding partners began to adjust the objective/definition of success of the foundation based on their own agenda and individual value to be captured out of the practice. For any organization, and even more so for alliances with complementary partners with different needs/goals, it is important to have a clear set of objectives and a predefined path (strategy) towards that objective. The lacking thereof is partly displayed in CCL’s insufficient relational capacity, which worked against the partnership in later stages during the execution of the business model; partners had room to adjust activities towards getting more value for themselves. This led to different opinions about the objectives of the partnership/foundation, which led to a blurry path/process and a difficult collaboration. This in result makes future collaborations harder. It could have been avoided by agreeing on foundations’ objectives and the decision-making process – taking the business models of and values to be gotten out of the initiative by the different partners into account (business model alignment). 4.1.3 Results related to propositions All founding partners participated in the initiative for different reasons: “All founding partners had different reasons to participate that were of value to them” (Mensink, 2010). They ‘received’ the value in exchange for contributing knowledge and other elements to the practice (see figure 8 & 9). The reasons to participate were generally the same as the value proposition for customer organizations; every (founding) partner balanced and valued the different value propositions to make it worth the investment(s) of contributions to activities/elements. This verifies proposition #1. The case Creative City Lab was chosen for being an open innovation co-development. I will now describe the case based on the taxonomy for such practices as proposed in proposition #2. The starting point or epicenter of the OI practice for the case was an idea about an activity; the Innovation Lab (concept) and about a business model to support it (mainly resource driven). These were both based on a philosophy embracing OI. Some ideas about facilitating activities, possible customer segments and value propositions related to the concept were present from the beginning, however these were developed/finalized together with other in the OI practice participating organizations; the founding partners. This main activity; the Lab, would be responsible for the main value proposition; (knowledge for) sustainable innovations. Because customers had to agree on a ‘no-result obligation’, more value propositions were added to make the product valuable enough; exposure, increased (sustainable) network and the possibility to recruit young sustainability experts. Finally, the concept also contained the value proposition ‘contribution to a sustainable society’, which is (or should be) incorporated into the heart of all activities of the foundation. Besides contributing in knowledge to develop the foundation, founding partners also contributed to the developed business model with activities, resources and channels – to support the main activity (innovation) and create value for the customer segments. Some sponsors were sought to fill the gaps; financing was done with customer ‘revenues’. The initial creation of the OI case is shown in figure 8. This model shows which elements of the business model were contributed by the founding partners. Combining the key resources and activities, the OI practice developed a new service-activity (innovation); the Innovation Lab (blue element). As shown in the model, CT contributed in three major elements; its network, knowledge and project management & facilitation. This last element consists of people/man hours that CT contributed to the business model (key resource ‘people’ in CT’s business model, see figure 7). In the early stages of the development, the founding partners already incorporated another key partner to be included later on; universities to ‘deliver’ students as ‘young sustainability experts.

24

figure 8: contribution founding partners Creative City Lab

The innovation lab was developed to create and deliver value for organizations seeking (knowledge on) sustainable innovations (around a chosen theme). Other value-creating elements were included in the design to make the value proposition valuable enough to attract customers (see figure 9). An interesting element of the business model is the fact that customers can increase value by a co-creation relationship (element: co-creation of value). During the process they were asked to contribute with knowledge, so that outcomes of the Innovation Lab would take their views/knowledge into account. This relationship was designed to increased possible adaptation of the innovations by the customer segments, thus increasing value. In effect, even as Creative City Lab was a co-development practice from the start, it became a ‘coupled process’ when a co-creation element was designed in the OIBM. The fact that a co-creation relationship was chosen to enhance the value-creation process of the Innovation Lab did not effect the development of CCL – the relationship could have been left out. As I chose case Creative City Lab for being a co-development practice, I will not go further into the co-creation element of the practice; co-creation is elaborated upon in section 4.2. To be able to execute the open innovation business model, certain gaps had to be filled. These gaps could not be executed by the participating parties, thus they had to be ‘bought’; costs had to be made to facilitate the organization. Examples are the wages for the students in the Innovation Lab, rent, facilities for events and the project team (see figure 9). To finance the costs made by the execution of the business model, customers were needed to create revenue – either by financing or by sponsoring certain facilitating costs. Which and to what extend certain elements of the value proposition are delivered to customers depends on the revenue (or decreased costs) they generate. Different customers can ‘buy’ a different mix of elements of the value proposition, delivered through different channels. What is especially inventive about this model is that the ‘main’ element from the value proposition, the (knowledge for) sustainable innovation, is ‘free’ to non-paying customers also. Paying customers get that same product, however more tailored and through different channels. Paying customers also get other elements from the value proposition, to make it worth the costs. Because of this ‘open’ philosophy and the goal to contribute to a more sustainable world, the foundation was able to get a grant/subsidy to fill the final gaps in its financing. If this would not have been the case, more customers would have been needed for the duration of the project. As stated in the first proposition, the different parties only participate in such an OI practice if they can capture a portion of the value for themselves. In this case, the participating parties partly capture the same value for themselves as they jointly deliver to the customers of the foundation. However, next to the (pro deo) contribution, they also were paid for some facilitating activities regarding the execution practice. Because of this, the founding partners also capture (some) monetary value (revenue). Figure 9 shows the OIBM for CCL, incorporating the value to be captured by the founding partners.

25

figure 9: OIBM Creative City Lab

4.1.4 Case related conclusions Concluding this case/section, the case research shows that the co-development partnership CCL can be designed by developing an OIBM of the practice, which is shown in figure 9. Research shows that it is important to make clear agreements on the elements that different parties contribute to the partnership, and the value they get for it in return. Table 3 shows the case related conclusions, summarized from the results as described above.

Statements & propositions Summary description Type of OI Co-development. #1: Motives for OI Increase innovative capacity, decrease uncertainty of innovation and decrease costs of innovation.

Uncertainty however increased, due to the fact that during the execution, different partners tried steering the practice towards gaining more value for themselves.

#2: sub function organization subject to OI

Different functions per participating organization; all key activities/resources for OIBM (see figure 8). Some key elements of the OIBM are ‘delivered’ by multiple participants. This means that the different participants must ‘team-up’ per element to make it whole. This can be done, however it is important that the different parts of elements that the parties contribute are made clear and agreed upon in partnership agreements, just like the elements they contribute in full.

#3: specific competences needed First mainly absorptive capacity, at later stage relational capacity. The relational capacity was hardly taken into account/present, which increased uncertainty of the partnership.

#4: important requirements for type of OI from partner perspective

Good assessment of required capabilities. The business objective, business model alignment and possible future collaborations were hardly taken into account and agreed upon.

#5: BM canvas can be used to describe OIBM

See figure 9.

#6: epicenter of BM innovation Mainly resource driven; the epicenter was the Innovation Lab (key activity), around which the OIBM was constructed.

#1: transferring portion of value back to participants

Verified; value proposition & monetary value from revenues. The case shows that value for participants was key to the development and execution of the business model. Because partnership agreements about what value could be captured by participants were hardly present, participants tried steering the practice during its execution to be able to capture more (individual) value. This lead to relational difficulties and a hard (uncertain) partnership.

#2: OIBM’s can be developed based on taxonomy for such OIBM’s

Verified, see figure 9. The model displays the essential core of the OI practice. In the OIBM, different elements that different parties contribute all are key resources and activities. The model is finalized by filling in the gaps with other elements, and the participating parties are named as ‘key partners’. Value that participating parties get out of the OIBM is shown by the green arrows.

table 3: case related conclusions CCL

As explained, the value proposition delivered to the customers is partly the same as the value for the founding partners of CCL. This however, does not have to be the case. Value for participants in co-development practices can differ greatly and all participants must decide (up front) whether the value gotten from the co-development is worth the investment. In many cases, combining knowledge leads to new knowledge for the participants, however in most cases this will not be part of the value proposition (for ‘regular’ customers). In commercial OI business cases; a share of revenues looks like the most obvious choice for parties to participate in such an endeavor.

26

Also, the case illustrates that multiple forms of OI can be incorporated into one practice. The case was chosen for being a co-development OI practice, but also has a co-creation relationship with its customers, making it a coupled process as described in section 2.1.4. The fact that this co-creation practice was embedded in the OIBM does not interfere with the co-development characteristics of the case; this relationship could have been left out.

27

figure 10: organizational structure Nokia

4.2 Case Beta Labs: co-creation by Nokia

This second case is a co-creation case, an outside-in open innovation practice, which creates value together with users. For this case, I studied online documentations on the practice and interviewed Mr. Tommi Vilkamo, the founder and current manager of the co-creation practice. The entire interview is included in appendix 9. The findings were reviewed and verified. 4.2.1 Case introduction Nokia is one of the leading players in the mobile technology, taking the 10th place in the top technology brands of the world. Nokia is committed to connecting people and is a world leader in mobility, driving the transformation and growth of the converging Internet and communications industries. Nokia is best know for its phones and surrounding services, but also develops network products for operators and service providers (Nokia Siemens Networks) and has a separate organizational unit for navigation equipment and software (Navteq). Nokia sees innovation as a key activity to keep its position amongst the top brands of the world and acknowledges OI as an important means: “we are confident that in order to survive and to prosper we need to innovate; we need to be one of the most innovative companies on this planet just to survive. Also, we recognize that we cannot be successful alone, that we need to work with different outside players” (Vilkamo, 2010). The organizational structure of Nokia is shown in figure 10. In general, Nokia has five main business units; Mobile Solutions, Mobile Phones, Markets, Nokia Siemens Networks and Navteq. Mobile Solutions is responsible for developing and managing Nokia’s smartphones and mobile computers. Mobile Solutions also develops Internet services with a strong focus on maps and navigation, music, messaging and media. Mobile Phones is responsible for developing and managing affordable mobile phones, as well as a range of services that people can access with them, mainly for emerging markets. Markets is a facilitating organizational unit which manages Nokia’s supply chains, sales channels, brand and marketing activities, and is responsible for delivering Nokia’s mobile solutions and mobile phones to the market. Nokia Siemens Networks (NSN), jointly owned by Nokia and Siemens, provides wireless and fixed network infrastructure, communications and networks service platforms, as well as professional services to operators and service providers. The last main organizational unit, Navteq, is a provider of comprehensive digital map data and related location-based content and services for automotive navigation systems, mobile navigation devices, Internet-based mapping applications, and government and business solutions. The units Mobile Solutions, Mobile Phones, NSN and Navteq all have different business models, ways that they create, deliver and capture value. Markets is a facilitating unit which facilitates the other units (business models) in their operation. Figure 11 shows the business model for the Mobile Solutions and Mobile Phones divisions (organizational units) of Nokia. I have chosen to only model these units for clarification purposes, as the OI practice Beta Labs around which this case revolves is mainly connected to these two. The main difference in the two units is the customers segment. The Mobile Solutions customer segment wants ‘more high-end value’ which translates in (high-end) smartphones for which that segment is willing to pay. The Mobile Phones customer segment seeks ‘value for money’ and does not need the ‘high-end gizmo’s’; low prizes are a main selling argument for that segment. I have chosen not to differentiate between the customers as the main value proposition is the same; both customer segments seek ‘mobile connectivity with a seamless user experience’; how they define that and what they are willing to pay is irrelevant for the purpose of my research. The value proposition is ‘ventilated’ to the customers by media and Nokia’s (mobile) website and the product is mainly sold by third-party (web)shops and operators/service providers, which are therefore also key partners. Nokia’s relationship with its customers is for a large part based on retention; making sure that previous customers stay with Nokia. Also, they expose their brand and products through media to attract new customers. To create and deliver the products and services that make the value (proposition), Nokia’s key activities are the following: marketing to create awareness about the brand and products, production to produce the (smart)phones, account management to manage the different channels through which Nokia sells its phones and R&D which must ensure that products are always up to date and in line with the value that customers expect. Besides the production facilities and its employees, the main key resources of Nokia are its brand, intellectual property surrounding hard- and software of mobile phones, the

28

(mobile) website through which information is ventilated to (potential) customers (also trough personal ‘My Nokia’ account) and lastly Nokia’s huge user-base, which Nokia seeks to retain as customers.

figure 11: business model Nokia

In 2007 Nokia made a strategic and organizational change; Nokia was going to focus on the mobile Internet services business. In order to survive in the Internet services game, Nokia recognized that conventional practices that served them well in the operational businesses would not help in the development of new services. Nokia looked at other Internet services companies and decided it would need a beta-testing program to co-create value of the services together with users; Nokia Beta Labs was born. Beta Labs was first started by Tommi Vilkamo, who was in charge of developing the practice. Currently, Mr. Vilkamo is still heading Beta Labs. Beta Labs is an online portal that serves as a link between Nokia’s R&D and users. In this portal, Nokia pilots newly developed software for mobile phones (mostly for smartphones from Mobile Solutions, but also for ‘regular’ phones). Users can get the new innovations at an early stage and for free, and may comment or give feedback for enhancements. This way, Nokia seeks to get valuable feedback, which they can use to enhance the future user-value (proposition) of the innovation for all users. Beta Labs is run by a team of three people but as an innovation and communication facilitator it facilitates Nokia’s co-creation practice for hundreds of people within Nokia (mainly R&D) and has a user base of around 100.000 registered user accounts: “we are a spider in a web that covers the whole company and a huge public audience” (Vilkamo, 2010). 4.2.2 Case description based on theoretical framework Nokia takes open innovation seriously and integrates different kinds of OI in different ways and at different levels throughout its organization. One example is Beta Labs, which incorporates Nokia users in innovation, research and development. Also, Nokia is also quite active in acquiring companies that build innovations in areas that are of interest to Nokia. In some other cases Nokia spins out in-house innovations from its portfolio that do not fit the strategy. Then there are some business-level OI practices, in which Nokia’s research centre has laboratories that are closely linked with universities across the planet and which have close working relationships together (Vilkamo, 2010). For this research however, I will focus on one specific OI practice; the co-creation practice Beta Labs. The motives to implement co-creation into the R&D function and to start with Beta Labs behind the ‘initiating motive’ as described above are all common reasons for organizations to start with OI for the purpose of creating (extra) value (for both Nokia and its customers):

• increase innovative capacity by having more people think along to enhance the eventual product, • decrease time to market of innovation by releasing prototypes before they are commercially exploited, • decrease uncertainty of innovation as user feedback is gathered before commercial exploitation,

29

• decrease costs of innovation because R&D needs less people to filter bugs (users will do that for free) and because innovations will be made known by the users, in effect decreasing marketing efforts/costs to make the innovation known/introduce them in the market.

In the second statement related to the literature review I described that any (sub)function of an organization is a possible candidate for OI practices, in which value can be created with external ideas as well as internal ideas, and internal and external paths to market, in all stages of the innovation process. For the co-creation case at Nokia, the practice was initiated because Nokia made strategic and structural changes towards becoming a player in the Internet services game. In other words, Nokia was creating a ‘new’ value proposition and had to develop a (new) business model in order to create, deliver and capture value surrounding this proposition (offer-driven business model innovation). In order to survive in the Internet services game, Nokia recognized that conventional practices that served them well in the operational businesses would not help them in the development of new services. And because this was such a new game for Nokia to play, they needed an environment where they could experiment with new innovations with more freedom to innovate then with the conventional practices. Therefore, Nokia looked at other companies like Google, Microsoft and Adobe for inspiration. Nokia recognized that because all their competitors in this new domain of Internet services had places to test beta trials and experiment with innovations, it was obvious that to be competitive Nokia needed something similar as well. Because of that, Nokia studied its competitors, literature and studied its own business context – and came up with something unique: “Nokia believed in the practice of co-creation with your most passionate customers and believed that that would be one way for Nokia to create better innovations and services… [after studying competitors, literature and our own business context], I think we have pushed the envelope of co-creation a few steps further than our benchmarks ever did” (Vilkamo, 2010). This meant Nokia had to change the R&D culture into one that was more suitable for open innovation and co-creation. The idea for co-creation thus originated in the corporate strategy department, however the organizational function which was the obvious candidate for the practice was R&D. An important competence for a co-creation practice is the absorptive capacity; the “ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities” (Cohen & Levinthal, 1990). Nokia designed the co-creation portal Beta Labs to be able to recognize the most valuable contributions and to ‘channel incoming knowledge’ so the R&D teams would have the best input without losing itself in information. Due to this design, it currently takes a team of only three people to facilitate such absorption of knowledge for hundreds of employees working on the piloted innovations: “the core facilitating team is very small, it consists of only three people. But in the whole community, hundreds of people from Nokia are somehow involved” (Vilkamo, 2010). When designing the practice, Nokia paid good attention to the four building blocks of interactions for co-creation practices as proposed by Prahalad and Ramaswamy (2004). Dialogue between users and R&D is stimulated by organizational culture. Also, the facilitators of Beta Labs make sure that replies to users questions are always answered or at least replied to. The forum structure of Beta Labs makes the dialogue quite transparent and easily accessible for anyone taking the effort to create an account. Risks (/costs) for users only consist of time to download the (free) application(s) and to give feedback only if they want and thus are transparent and reduced to a minimum. 4.2.3 Results related to propositions The first proposition regarding the development of OIBM’s is verified by Beta Labs. The ‘knowledge delivering parties’ in this case are the customers that have created an account in the co-creation portal Beta Labs. The value Beta Labs creates for its users in the community twofold: firstly the participants are the kind of users that always want the latest technical innovations; they are technical lead users. For them, getting early access to Nokia innovations is a very attractive proposition, even if the quality is not mature enough for commercial release they are very excited to get early access. Secondly, the opportunity to make a difference is of value to the user. There are thousands of people who are burning with the desire to tell Nokia how to create better products. Just by listening to them and showing Nokia’s appreciation and in best case improving a product based on customers’ wishes is enough of a reason for them to contribute. “To sum up the value [for users] is twofold: one is getting cool stuff for free and secondly the opportunity to contribute is of value” (Tommi Vilkamo, 2010). Next to creating value for users, Beta Labs creates value for Nokia in the following ways. Mainly, Beta Labs creates value for the R&D teams who pilot their innovations in Beta Labs by making it easier to create better suited applications. Beta Labs also creates value for Nokia’s decision makers and portfolio managers, as

30

decisions about which innovations to pursue/invest in can be made with more knowledge on customer needs in mind. Finally, Beta Labs creates value for Nokia’s brand by showcasing how open minded and innovative the company is. Value for the brand and portfolio management are side benefits, the main value is created for users and R&D (Tommi Vilkamo, 2010). The different kinds of value that Beta Labs creates result in a ‘better’ value proposition. This in effect makes the ‘general proposition’ of Nokia more valuable for its ‘regular’ customers, increasing the competiveness of Nokia as a whole in the Internet services sector. As this was the objective of Beta Labs in the first place, it can be regarded as a great success and ‘best practice’ in the field of co-creation. The case Beta Labs was chosen for being a co-creation practice. I will now describe the case based on the taxonomy for such practices, as proposed in proposition #2. The starting point or epicenter of the OI practice for the case was an idea that originated in Nokia about how innovations from R&D could be developed better, working together with customers in a co-creation portal to increase the creation of value, thus enhancing the value proposition for customers. This idea was based on OI principles, which were already woven throughout the organization. The idea was developed further by thoroughly studying competitors, literature on such co-creation practices and Nokia’s own business context. The co-creation practice Beta Labs in essence is a customer relationship, which connects customers with R&D to increase value created by the value proposition. The practice was implemented when Nokia decided to make some strategic and organizational changes towards mobile services, focusing on the Internet services ‘game’. This meant that even though the co-creation practice was ‘embedded in’ the existing business model, some elements were subject to change in order to facilitate the new strategy and structure best. This process of organizational change that Nokia was in helped the start-up of Beta Labs, as it most likely would have been harder to implement such a practice in a rigid, ‘settled’ business model; elements related to Beta Labs could easily be added as they were driven by the strategy-change. OIBM’s that use co-creation cannot be described exactly as suggested in proposition #2. The reason for this is that co-creation as a practice is implemented or embedded as an element; a customer relationship, ín a business model. In contrast to the other forms of OIBM’s in which value is created together by jointly innovating by bringing in other complementary elements of the business model in return for some form of value, in co-creation practices value is jointly created (added) by users that support a key element of the business model, thereby enhancing the value proposition. This means that, only key (sub)functions of the initiating organization that contribute to the value proposition are possible subjects to such practices. In Nokia’s case, the main function for which the practice created value was R&D, some other key functions were loosely involved. Through the portal, R&D was able to be in direct contact with thousands of users, giving them insights and new ideas on how to (further) develop applications. R&D is the most obvious function of an organization to be subjected to co-creation practices, however other key activities are also possible. One other example is production, which if flexible enough can define boundaries in which customers can ‘co-design’ their own product which will then be produced and delivered according customer-defined specs, creating a sense of more ownership thus value for the product. Obviously, R&D and marketing will also be involved, but in this example production will be the main function for co-creation from the perspective of the organization. In the co-creation case of Nokia Beta Labs, lead users jointly create value together with Nokia’s R&D. In other words, the users deliver knowledge that R&D uses to create better, more valuable innovations. This in effect leads to a better value proposition, which is of value to all customers of Nokia. The knowledge that the users deliver can be seen as a form of revenue, even though it has no direct monetary value. This co-creation relationship is facilitated by a portal and some ‘portal managers’ that facilitate the conversations and monitor the health of the dialogues. Next to the better value proposition in general that applies to all customers, participants in the co-creation also gain other forms of value; they get new cool applications for free and they actually have the opportunity to contribute, which is valued by that specific group of customers. The co-creation practice related to the ‘regular’ business model of Nokia is shown in figure 12.

31

figure 12: co-creation practice related to 'main' business model Nokia

As said, the co-creation practice is not developed as other OI practices as proposed in proposition #2. However, when implementing or embedding the practice in a business model; this does create value for the specific participants that contribute with knowledge or ideas. This flow of value back to ‘participating parties’ (users) is shown in figure 13, in which the co-creation practice as described above has been embedded in the business model. The ‘extra revenues’ of Beta Labs are knowledge and ideas of users that are mainly used for Nokia’s R&D. As explained before, Beta Labs also creates value for its brand (marketing) and decision makers at Nokia. Those values are not explicated in the OIBM (figure 13), as they are side benefits (Tommi Vilkamo, 2010). The extra channel that Beta Labs brings (the portal) also creates marketing value by increasing the ways Nokia reaches its customers, thereby strengthening the value of the brand by showcasing Nokia’s openness.

32

figure 13: OIBM Beta Labs embedded in Nokia

4.2.4 Case related conclusions Concluding this case/section, the case research shows that the co-creation practice Beta Labs can be designed by developing an OIBM, which is shown in figure 13. Case research shows that the co-creation practice is embedded in Nokia’s main business model practice. It also shows that in essence, co-creation is a customer relationship, supported by a customer channel and other elements. Table 4 shows the case related conclusions, summarized from the results as described above.

Statements & propositions Summary description Type of OI Co-creation #1: Motives for OI Increase innovative capacity, decrease time to market of innovation, decrease uncertainty of

innovation, decrease costs of innovation. #2: sub function organization subject to OI

Mainly R&D with support from marketing, IP & portfolio management (all existing (key) activities in Nokia’s main business model).

#3: specific competences needed Absorptive and relational capabilities both well taken into account. #4: important requirements for type of OI from partner perspective

All DART principles taken into account for OIBM.

#5: BM canvas can be used to describe OIBM

See figure 13.

#6: epicenter of BM innovation Customer & offer driven; customers co-create value with R&D, in effect enhancing the main value proposition (objective).

#1: transferring portion of value back to participants

Verified, getting cool stuff for free and the possibility to contribute to innovations. The fact that this was thoroughly taken into account during the development of the practice is the main reason for Beta Labs to become such a success and can be considered as a ‘best practice’ in the field of co-creation.

#2: OIBM’s can be developed based on taxonomy for such OIBM’s

Verified, however the co-creation practice is embedded in Nokia’s main business model (see figure 13). The model displays the essential core of the OI practice; a co-creation practice in essence is a customer relationship, supported by other elements. The practice includes a channel through which the co-creation takes place (portal Beta Labs), and involves (non monetary) value for a key activity of the main business model (knowledge & ideas for R&D) and ‘extra’ value for users of the practice (see added value propositions & green arrows). Next to creating value for its users, the co-creation practice also creates extra value for ‘regular customers’ by supporting the key activity ‘R&D’, which in effect can develop more valuable innovations, enhancing (or adding value to) the main value proposition.

table 4: case related conclusions Beta Labs

33

4.3 Case Rituals: open innovation spin-off by Unilever

The last case is an inside-out open innovation, a spin-off/sell innovation practice called Rituals. For this case I studied online documentations on the practice and interviewed Mr. Raymond Cloosterman, creator of the Rituals-concept/brand in his previous function of vice president new product development at Unilever and current owner/director of the company. The entire interview is included in appendix 9. 4.3.1 Case introduction Unilever is a global player in the fast moving consumer goods (FMCG) sector, producing (in own production facilities) and delivering many FMCG products with different food, home care and personal care brands to the consumer. Examples are Becel, Glorix and Dove. Unilever’s product development is based on innovations in its own laboratories. New formulas and/or recipes are developed. Products are then designed around those innovations, aimed at specific market segments. Packaging is designed, commercials are made, and then the products are marketed and commercialized. Its products are delivered to the consumer through multiple external sales channels (not owned by Unilever); retail stores, supermarkets, wholesale, etc. Unilever’s production is cost driven and build around economies of scale. Unilever’s marketing strategy is based on a pull-strategy: Unilever creates the need for its brands and products by exposure through commercials on different sorts of media. Unilever’s ‘sales partners’ (Unilever’s sales channels; external points of sales: supermarkets eg.) want to buy and sell Unilever’s brands and products because their clients have a need for those products. In effect, Unilever does not have a ‘personal relationship’ with its customers. Unilever’s relationship is based on continuous brand and product exposure, which creates a lovemark for its brands at the customers. Figure 14 shows Unilever’s main business model on the business model canvas.

figure 14: business model Unilever

Rituals is a spin-off of Unilever. In 1999, in his function at the time, vice president new product development Raymond Cloosterman thought of and developed a new product concept/brand. This new concept/brand; Rituals, was based on a ‘new’ innovation & marketing philosophy, other then applied by Unilever regularly: “I think that controlling the place where your product is sold, is more important then the place where it is produced… [For Rituals] I also reversed the creation-pyramid, first creating a philosophy (ritual) and finding appropriate products around that philosophy later. This, In stead of developing new molecular formula’s and developing products around those” (Cloosterman, 2010). These were two of the reasons that Rituals did not fit Unilever’s portfolio as one of its brands. Because of his believe and love for the concept, Mr. Cloosterman decided he still wanted to give Rituals a try, be it outside of Unilever. He pitched his idea to Unilever, asking them to invest in the new spin-off company he was founding together with some partners. Unilever agreed, spun-out the concept and became a venture capitalist and large stockowner of Rituals. Since then, Rituals grew from being a newcomer in the Dutch retail sector (home & body care; FMCG’s) to being a global player, being one of the first organizations combining home & body cosmetics. Rituals’ product

34

portfolio consists of affordable and aesthetically appealing quality products (mainly body care/cosmetics, but also home fragrance, tea, home textiles, apparel, etc.) designed around everyday rituals. Rituals develops and markets/commercializes its products around this concept itself, but uses external laboratories to develop formula’s for its products and external factories for production (in contrast to Unilever). Rituals controls its points of sale/sales channels (also in great contrast to Unilever) by own retail stores/points, and by franchising-licenses for franchise stores. Rituals’ relationship with the customer is a direct one; by personal assistance in stores and by dedicated B2B sales personnel. These ‘controlled’ points of sale are designed to create a lovemark for the brand at consumers by its sheer presence and ‘feel’, thus creating real life exposure. Rituals does not expose itself or its products to (potential) customers by commercials in media. 4.3.2 Case description based on theoretical framework There were multiple motives for Unilever to initiate/participate in the OI exercise. First; the idea/concept of Rituals was not suited for the Unilever portfolio. This had multiple reasons:

• Size of operation; this was to small to fit Unilever’s production processes • Risk involved; as the idea was new to Unilever and it had a different philosophy, the risks were

relatively high (compared to ‘normal’ innovations/ideas) • The philosophy of the concept was based on other key elements then that of Unilever:

o Developing products around consumers’ experiences (Rituals) vs. developing products around new formula’s/laboratory innovations.

o Controlling points of sale (Rituals) vs. using external partners (Unilever) Even though the concept did not fit Unilever’s portfolio, Mr. Cloosterman decided he wanted to follow up on the idea anyway. This meant he was quitting his job at Unilever to pursue his dream, with or without their consent. Even though he was going through with it, he gave Unilever the opportunity to still gain some ownership over the concept, and the value (profit) it could bring about in the future, by asking Unilever to participate in the spin-off as a venture capitalist (large stockholder). He pitched his business plan and asked Unilever to participate, based on ROI figures. The sheer believe in the concept (even though it didn’t fit Unilever’s internal organization), combined with the ROI figures made Unilever decide to participate in the OI practice. This way Unilever could still benefit from the innovation, increasing its innovative capacity. The objectives of Unilever for the OI practice were a calculated ROI. Because of their role of venture capitalist and their one-time investment, the risk of the venture was limited, decreasing uncertainty for Unilever of the innovation. The case Rituals shows that ideas for OI spin-offs can happen anywhere. Mr. Cloosterman had an idea he wanted to pursue, but it could have been anyone else, in another (sub)function of the organization. His position, function and exercise at the time were designed around finding new ideas and insights (for Unilever), so he did have an advantage, although the exercise was not destined to bring about an OI spin-off but useable knowledge for Unilever itself. Unilever at the time did not have processes in place for such an open innovation exercise; Mr. Cloosterman did not know the concept of open innovation when pitching his (open innovation spin-off) idea to Unilever (Cloosterman, 2010). The new business model that emerged which became Rituals as it is today is mostly resource and offer-driven, as Rituals is a brand/concept (resource) build around a philosophy about what customers value (offer): enjoying the little things in life. This was the epicenter of the business model innovation. This ‘offer-philosophy’ however was very strongly connected to the customer perspective through the points of sale; the (sales) channels and the customer relationships. All of these points are alien to Unilever’s normal lines of work. The organization of the key activities, key resources and key partners have been designed to support the two main epicenters that create value in Rituals’ business model; the value proposition, (sales)channels and customer relationship. Next to financing and Mr. Cloosterman himself (who brought the concept, philosophy and knowledge regarding Rituals outside the organization of Unilever), Unilever initially also helped the open innovation practice by producing some of Rituals’ products in its factories. This practice however was ended soon, as Unilever’s production facilities are designed for larger order quantities, and Rituals wanted to be more flexible in its product design: “initially, I also brought some formula’s from Unilever to Rituals, from our first 175 products, about 10 were produced by rituals. We stopped this practice however after one to two years and found different production partners… Unilever was glad this practice ended because we disturbed their normal production with relatively small order quantities, we were glad as we were more flexible with the other partners” (Cloosterman, 2010). One of the interesting aspects of the Unilever/Rituals case is that open innovation ‘just happened’; it was not thought of as being an option in advance. The sequence of events and Mr. Cloosterman’s passion for the idea

35

made the spin-off unavoidable (with or without Unilever’s participation). Because of this, no other forms of OI were considered; and specific critical capabilities were not taken into account. The core competences as described for inside-out open innovations in general do not really apply to this case, because not only the idea or knowledge was transferred out of the initiating organization, but also the ‘champion’/the inventor of the concept was spun-out. This made it unnecessary in this ‘one-off’ case to multiply and transfer the knowledge to other (external) organizations. 4.3.3 Results related to propositions The first proposition is verified by the Rituals case as Unilever surely intended to make a valuable return on its investment with risks that could be calculated beforehand. The value that Unilever wanted to capture from the OI practice was purely monetary (based on ROI) and is shown by the green arrow in figure 16. Even though this defined value-capture might be worth the effort, it would have paid to investigate other value creating/generating possibilities. In this case, Unilever could have defined other forms of value to be captured from the OI practice, such as documented knowledge about such an effort; usable sales-channels (eg. retail stores) for complementary brands/products, etc. This would have made the partnership agreements more complex, but also would have increased (chances for) value capture. Due to several circumstances (Cloosterman, 2010), Unilever decided not to participate in Rituals anymore after two years, allowing Rituals to buy-out Unilever, leaving Unilever with a loss (read more on this decision in the interview with Mr. Cloosterman in appendix 9). Returns until then had not been what they had been pre-calculated to be; after two years Rituals was still losing money. In effect, Unilever did not capture a portion of the value created by Rituals at a later stage for themselves. The case Rituals was chosen for being an open innovation spin-off. I will now describe the case based on the taxonomy for such practices, as proposed in proposition #2. The starting point or epicenter of the OI practice was a resource of Unilever; a brand/concept developed by and for Unilever (resource driven business model innovation from the perspective of Unilever). This concept contained not only a value proposition (affordable and aesthetically appealing quality products designed around everyday rituals), it also described and was dependent on some channel and customer relationship elements; to control the points of sales. The concept/innovation consisted out of this combination and all the elements were needed for it to be whole. As this philosophy was new to Unilever, and as this new philosophy and related elements had to be build from the ground up, product turnover would be marginal and the risk too big. Hence, the concept did not fit Unilever’s business model. For reasons described above, Rituals was then spun out of Unilever (resource and offer driven business model innovation from the perspective of Rituals). Next, other elements were filled in; build ‘around’ the elements related to the spun-out concept. People were hired for designing products and stores, later (B2B) sales personnel and people were hired for facilitating and organizing the key activities and partners. Partners were sought for production and laboratory work, so that designed products could be developed and produced. Relating to the business model of rituals, Unilever became a key partner. Figure 15 describes the initial OI practice from a business model perspective. The figure shows which elements of the business model are contributed by the OI initiating party (Unilever). A newly developed brand/concept was the main element to spin out of Unilever, together with a philosophy on sales channels and customer relationships. Unilever ‘serviced’ the OI spin-off with capital (as a venture capitalist) and some other key resources (products, people, etc.).

36

figure 15: initial contribution of Unilever in Rituals

To execute the OI practice, other elements were then filled in to complete the development of the new business model. The key resources that were initially serviced by Unilever were downsized until they had ‘own sourcing partners’ that better suited the needs of Rituals (elements ‘production’ and ‘laboratories’). Unilever’s capital was used to create ‘own’ key resources, such as retail stores and a personnel base to perform the key activities needed to execute the business model. The business model that evolved also included its own cost-elements and revenue streams, totally other than Unilever’s. This further development of the OIBM is shown in figure 16. The green arrow in the model shows the value that Unilever wanted to capture from the practice; a portion of the revenue streams.

37

figure 16: OIBM Rituals

As described above, the Rituals case was a ‘one-off’ open innovation practice, driven by one person. Unilever’s role in the practice was marginal, as Unilever merely functioned as a venture capitalist, becoming a large stockholder of Rituals. In other words; Unilever ‘sold’ its innovation without having a ‘store’; someone just came along – and wanted to ‘buy’ it. If Unilever wants to be open to such practices for the future, it is important to create a business model next to its regular model, which is build around the practice of spinning out unused ideas (for example brands and concepts). This second business model should clarify how such a practice should be executed and how value should be captured from Unilever’s perspective. Figure 17 shows such an ‘extra’ business model which could be developed next to the main business model as an example of how Unilever could handle such practices, creating possibilities for such practices in the future.

figure 17: example of 'extra' business model Unilever, supporting OI spin-off practices

The model above (figure 17) is fairly basic and is mainly based on the spin-off practice Rituals. However, when looking at such practices in this light, one could easily add some elements for Unilever to be able to capture more (kinds of) value. If Unilever for example would add the revenue stream ‘knowledge on the development and exploitation of ideas’ and they would capture the knowledge of the spun-out ideas properly (eg. by documentations), this would add to the key resource ‘knowledge on exploitation of brands and ideas’. This

38

knowledge could then be added to the value proposition, ‘sold’ individually as a service, or add value to for example the marketing element of Unilever’s main business model. Another idea would be to add points of sales to the revenue streams, agreeing with ‘spin-off customers’ for them to also market Unilever’s brands, adding value to the ‘points of sale’ and ‘marketing’ element (channel) in Unilever’s main business model. In other words: the opportunities are endless and limited by the creativity of the business model design only. 4.3.4 Case related conclusions Concluding this case/section, the case research shows that the open innovation spin-off practice Rituals can be designed by developing an OIBM of the practice, which is shown in figure 16. Research shows that value captured from the OI by the initiating (delivering) organization should be thoroughly investigated to increase the chances of success for the spin-off practice and capturing value for the initiating organization. This should be done by creating and aligning two (new) business models; the OIBM of the spin-off practice and a second business model for the initiating organization to clarify how the value can be captured from such practices. Table 5 shows the case related conclusions, summarized from the results as described above.

Statements & propositions Summary description Type of OI Open innovation spin-off practice. #1: Motives for OI Increase innovative capacity, decrease uncertainty of innovation. #2: sub function organization subject to OI

Product development (innovation) with key resources: brands & concepts.

#3: specific competences needed Multiplicative capability, which was driven by one person. #4: important requirements for type of OI from partner perspective

Business model alignment was not considered as no second business model was created in Unilever. From the perspective of Unilever some objectives were determined, other capabilities were not taken into account. From the perspective of Rituals, its objective and the capabilities it required were taken into account. Other capabilities not taken into account.

#5: BM canvas can be used to describe OIBM

See figure 16.

#6: epicenter of BM innovation Resource & offer driven; an ‘unused’ resource of Unilever was spun-out to become a key resource and main offer (value proposition) for Rituals.

#1: transferring portion of value back to participants

Verified, monetary value based on ROI. Even though this monetary value alone might have been worth the effort, it should have been investigated how the practice could have generated other forms of value for Unilever, increasing chances of value capture.

#2: OIBMs can be developed based on taxonomy for such OIBM’s

Verified, see figure 16. Next to the OIBM for the spin-off practice, a second business model for the initiating organization should have been developed to clarify what is (possibly) contributed (elements) by the initiating organization and what value should be captured in return (revenue). Figure 17 is an example of such a second business model. When developing the OIBM for the spin-off practice, the initiating organization is named as ‘key partner’. Value that the initiating partner gets out of the OIBM is shown by the green arrow, and should be aligned with the second business model of the initiating organization.

table 5: case related conclusions Rituals

By designing the OIBM and the proposed second business model beforehand, better predictions could have been be made about operations and revenues, which result in more realistic goals for the venture capitalist practice. Unilever might be able to use that information to better assess opportunities for OI spin-offs in the future. The inexperience and lacking of this practice/model might well have been the reason that Unilever did not make return on its investment as intended. Practice makes perfect!

39

4.4 Summary case results

In the sections above (4.1, 4.2 & 4.3), I have explained the different individual open innovation cases per OIBM taxonomy. I did this by describing the cases based on statements from literature. This in effect fully exposed the OI practices and its creation. In the table below (table 6), findings from the research are summarized and combined. The table shows an overview of how and why the OI initiatives were initiated, how they resulted in open innovation practices and which elements played an important role in the process. The results as described in the previous sections go deeper into these factors, also elaborating on factors that were missing for the specific kind of OI based on literature.

Statement CCL BETA LABS RITUALS Type of OI Co-development Co-creation Spin-off Statements related to OI

#1: Motives for OI Increase innovative capacity, decrease uncertainty of innovation, decrease costs of innovation. Uncertainty increased due to lack of agreements on value-capture for individual partners.

Increase innovative capacity, decrease time to market of innovation, decrease uncertainty of innovation, decrease costs of innovation.

Increase innovative capacity, decrease uncertainty of innovation.

#2: sub function organization subject to OI

Different functions per participating organization; all key activities/resources for OIBM. Some elements were shared by partners.

Mainly R&D, with support from Marketing, IP & portfolio management; all existing (key) activities in Nokia’s main business model.

Product development with key resources: brands & concepts.

#3: specific competences needed

First mainly absorptive capacity, at later stage relational capacity, which was hardly present in CCL.

Absorptive capacity and relational capacity both well taken into account by Nokia.

Multiplicative capability, which was driven by one person.

#4: important requirements for type of OI from partner perspective

Good assessment of required capabilities, other requirements hardly taken into account.

All DART principles taken into account for OIBM.

Business model alignment was not considered (no second business model). Some objectives and capabilities required taken into account. Other capabilities not taken into account.

Statements related to BMs

#5: BM canvas can be used to describe OIBM

See figure 9. See figure 13. See figure 16.

#6: epicenter of BM innovation

Mainly resource driven; the Innovation Lab.

Customer & offer driven; customers co-create value with R&D, in effect enhancing the main value proposition (objective).

Resource & offer driven; an ‘unused’ resource was spun-out to become a key resource and main offer (value proposition).

Propositions #1: transferring portion of value back to participants

Verified; value proposition & monetary value from revenues. Participants tried steering the practice during its execution to be able to capture more (individual) value.

Verified, getting cool stuff for free and the possibility to contribute to innovations. Having taken this into account when developing lead to success of practice.

Verified, monetary value based on ROI. It should have been investigated how the practice could have generated other forms of value for Unilever.

#2: OIBM’s can be developed based on taxonomy for such OIBM’s

Verified, see figure 9. The participating parties can be named as ‘key partners’.

Verified, however the co-creation practice (customer relationship with supporting elements) is embedded in Nokia’s main business model (see figure 13).

Verified, see figure 16. A second business model (as shown in figure 17) should have been developed for Unilever for more value-capture. The initiating organization can be named as ‘key partner’.

table 6: combined findings of case research

40

One of the most important findings (regarding proposition #1), is that all cases showed that the value for the initiating organization, participants or users were key to the development and (successful) execution of the OI practice:

• The main reason for the at times difficult relationship of founding partners of Creative City Lab, was that value to be captured in exchange for contributed elements was not agreed upon in clear partnership agreements. This led to problems during the execution of the practice as the partners all tried to ‘steer’ the practice to be able to capture as much individual value as possible, which was not always with the best interest for the OI practice. In other words, the objective of the OI practice was at times ‘lost out of sight’ in favor of the individual objectives of partners.

• In beta labs, the value for users was thoroughly investigated and taken into account at the development. This can be seen as the main reason for the practice to become such a success, having a user-base of over 100.000.

• Even tough (monetary) value to be captured was taken into account at Unilever when spinning out Rituals, Unilever did not have an organization to fully investigate opportunities regarding the practice. If they would have had such a second business model, other value generation and capture possibilities could have been developed, increasing the chance of success of – or value capture for – such a spin-off practice for Unilever.

Another important finding (related to proposition #2) is that even though all practices could be described as proposed in proposition #2, they all had different nuances related to the type of OIBM: • Initiating or participating parties could be named ‘key partner’ in co-development & spin-off practice as

shown in the cases of CCL and Rituals, • Co-creation is embedded in the main business model as shown by case Beta Labs, • A second business model next to the main business model should have been developed for Unilever to

increase chances for capturing value as shown by case Rituals. In the next chapter, I will draw conclusions from the results, as well as the findings regarding the proposition. I will aggregate the findings to make them applicable to the different taxonomies for OIBM’s in general, resulting in guidelines for developing such OIBM’s to design real-life OI practices.

41

5 Conclusion & discussion This chapter will draw conclusions from the literature review combined with the case research, answering to the main research question: how can organizations develop OIBM’s? This will be done by giving guidelines to help managers of ‘open innovation initiating organizations’ in designing value-creating OI practices by developing OIBM’s; developing OIBM’s are the road to creating OI practices.

5.1 Main conclusions The literature review led to a definition for OIBM’s, answering the first sub question about what OIBM’s are: An open innovation business model describes the rationale of how organizations participate in open innovation practices - that create, deliver and capture value - together, and how value of the innovation, in whichever form, flows back to the participating parties. Based on literature, OIBM’s were categorized into three taxonomies (types). The different taxonomies have been chosen because they are the most common forms of OI and because they have the most distinct characteristics. This leads to the following conclusion: OIBM’s can be categorized by the following taxonomies:

• Co-development partnerships / buy innovation (outside-in OI) • Co-creation practices (outside in OI) • Spin-off open innovation practices / sell innovation (inside-out OI)

To answer the second sub question, two propositions on how the develop such OIBM’s were drawn-up from literature and investigated by case-research. This research verified both propositions, leading to the following conclusions: Key in developing open innovation practices, is transferring a portion of the value added by the innovation, over organizational boundaries, back to the ‘knowledge delivering’ party. Open innovation practices can be described by taking (key) elements from (potentially) participating parties and using them as epicenter(s) to design a (new) open innovation business model. This model can be developed based on one of the three proposed taxonomies for OIBM’s and includes the flow of value back to (knowledge) delivering parties. Even though the second proposition was verified, research shows that different elements have to be taken into for the development of the different types of OIBM’s these will be elaborated on in the next section.

5.2 Guidelines for developing OIBM’s

In this section, findings from the case research are generalized and used to create guidelines for developing OIBM’s per taxonomy. These guidelines for developing OIBM’s are based on the propositions as given above and also answer to the main research question related to the objective of the thesis. The guidelines consist of descriptions of the different taxonomies, descriptions on how the specific OIBM’s can be developed using sub-meta models as starting point and/or basic principles and vital factors that should be central to the development of such specific OIBM’s. The sub-meta models that are given in the following sections are based on the business model canvas as described in the literature review and the case research. To visualize the models I used several recurring elements:

• The source of innovation / ‘delivering party’ of element: knowledge, ideas, technologies and inventions, • The source of value creation: innovation,

42

• The reason for business models to exist: deliverable value (to customer segments) to be captured by organizations (revenue),

• The locus of the innovation: within or outside of the organization (boundary), • The flow of a portion of the value created, back to the delivering party.

5.2.1 Co-development partnerships Co-development partnerships (or buy innovation) use external knowledge, ideas, technologies and/or inventions (elements) from organizations to jointly innovate one or multiple elements of a business model. Examples are integrating external knowledge or technologies from suppliers or other complementary organizations and buying IP. The OI practice results in (higher) added value in the value proposition for customers. A portion of this added value should flow back to the delivering party outside of the organization. Organizations can design valuable co-development practices by developing a co-development OIBM, using the sub-meta model as shown in figure 18 as a basic principle. The co-development OIBM displays the essential core of the OI practice. Different partners contribute different (parts of) key elements (resources and/or activities) to create value (innovate) by adding to the main value proposition. The participating parties get some form of value (monetary or non-monetary value) in return to make it worth the effort. The model is finalized by filling in the gaps with other elements and naming the participating parties as ‘key partners’. The OIBM can be used to clarify the different contributions (key elements) and how they relate to each other. Also, value created by the practice for participating parties can be made clear by arrows (see figure 9). Research shows that it is important to make clear agreements on the elements that different parties contribute to the partnership, and the value they get for it in return. These partnership agreements can be drawn-up based on the developed OIBM. One example of the creation of a co-development partnership can be seen in section 4.1.

figure 18: sub-meta model co-development OIBM

Next to the elements as given in literature, following factors are vital to the development of a co-development OIBM:

o Elements that different participating parties contribute should be key to the execution of the OIBM thereby contributing to its main value proposition, complementary to each other and clarified and agreed upon in partnership agreements.

o Value that participating parties get in return should be valuable enough for the individual parties to participate in the OIBM and clarified and agreed upon in partnership agreements.

o Partnership agreements should include consequences for either not delivering elements as agreed upon or not receiving value as agreed upon.

o Partnership agreements should include a decision-making protocol for decisions regarding the execution of the business model, taking the OIBM’s objectives into account.

!""#$%&#"'()*+*",-.'

/"#0)*12*'3',*45"#)#26*-'3'

61*%-'3'6"$*"&#"-'

7%)8*'

9*$*"8*-':#-,-'

7%)8*'

43

5.2.2 Co-creation practices Co-creation practices use external knowledge and/or ideas from existing customer segments to create value for one or multiple key elements of the business model, which in effect should add value to the main value proposition. The specific contributing (or co-creating) customers should get some form of extra value in return. Organizations can design valuable co-creation practices by developing a co-creation OIBM, using the sub-meta model as shown in figure 19 as a basic principle. The OIBM in essence is created by taking an existing business model and adding a co-creation relationship and other supporting elements; embedding the co-creation practice in the ‘main’ business model. The practice includes a channel through which the co-creation takes place, and involves (non monetary) revenue for the main business model (revenue streams) and ‘extra’ value for users of the practice. Next to creating value for its users, the co-creation practice should also create value for ‘regular customers’ by supporting a key activity, which in effect can create extra value, enhancing the main value proposition. One example of the development of a co-creation practice can be seen in section 4.2.

figure 19: sub-meta model co-creation OIBM

Next to the elements as given in literature, following factors are vital to the development of a co-creation OIBM:

o The practice should be added as a customer relationship and always has a facilitating customer channel. o The practice should create (extra) value for its users, which adds to the value proposition for those users. o The practice should create value for a key activity or resource of the main business model, which in effect

can create more value for the ‘general’ value proposition, enhancing it for ‘regular’ customers that do not necessarily participate in the co-creation practice.

5.2.3 Open innovation spin-off practices Spin-off open innovation practices (or sell innovation) use internal knowledge, ideas, technologies and/or inventions (elements) that are unused for external innovations to contribute to value creation outside the organization. Examples are bringing unused elements or ideas to (new) market(s), selling/licensing IP and multiplying technology to create additional revenue streams. A portion of the value added by the innovation in the spin-off practice should flow back to the delivering party (or ‘mother organization’). A new business model should be created by the delivering party next to its main business model to capture that value. In effect, two business models have to be developed: one for the spin-off practice and one for the ‘delivering’ (or initiating) mother organization. Organizations can design valuable OI spin-off practices by developing a OIBM, using the sub-meta model as shown in figure 20 as basic principle. The OIBM consists of two combined business models; one for the spin-off practice (or knowledge-receiving/buying party) and one which is added as a second ‘side’ business model for the (initiating) mother organization. The combined business models make up the OIBM, displaying the essential core of the OI practice. The mother organization delivers one or more key elements to the spin-off practice/receiving party (often like participating organizations in co-development practices). This model is

!"#$%#&'()$*"&'+()$*,-./"

!"#$%#&'()$*"#-(**'+"0/$&1(+2"

3**$4()$*"5*$6+'78'"9""

.7'(,"

:(+;'"

:(+;'"

44

finalized by filling in the gaps with other elements and naming the mother organization as ‘key partner’. In exchange for the contribution to the spin-off business model (for its ‘sold’ element/innovation), the delivering organization gets some form of value (monetary or non-monetary value) in return to make it worth the effort (arrow). To best design this OI practice regarding value for the mother organization, a second business model should be created which operates next to the main business model (as shown in the developed sub-meta model). This business model always has some (unused) key resource or activity, which it ‘sells’ to one or more customers by creating a value proposition related to the element. This business model should clarify all the resources and activities that the delivering organization has to contribute to create the ‘new’ value proposition, as well as the relationship the mother organization seeks with its ‘customer(s)’ and the channels through which it delivers the value. The value that the mother organization wants in return can be seen as revenue of that second model. The mother organization and the spin-off business/receiving party should make clear agreements on what is contributed and what value is generated for the delivering organization in return, based on the developed OIBM (like in co-development practices). This means that the mother organization can be named as ‘key partner’ in the model of the spin-off practice/receiving party and value transfer can be made clear by arrows (see figure 16). One example of the creation of an open innovation spin-off practice can be seen in section 4.3.

figure 20: sub-meta model spin-off OIBM

Next to the elements as given in literature, following factors are vital to the development of a spin-off OIBM:

o Elements that are possible subjects to spin-offs should be translated into a value proposition for which a new ‘second’ business model in the (initiating) mother organization is created, designed around key elements of the main business model that are unused or redundant to that model.

o Elements that are spun-out of the mother organization should be key to the spin-off business model, creating value by contributing to its main value proposition.

o Value that the mother organization wants in return should be explicated as revenue streams in a second model.

o Agreements made between the mother organization and the spin-off organization, based on the developed OIBM should include both the objectives of the mother organization and the receiving/spin-off organization.

5.3 Other findings

Much has been written about open innovation practices in general. When developing such practices, these theories should be taken well into account. The statements as given the literature review can be used as a ‘checklist’ to see whether all main elements as described in literature have been taken into account. The questionnaire as given in appendix 8 can serve as such a checklist for organizations. My research adds to this field of research by creating guidelines on how to design such practices.

!"#$#%&'()*%+,"#-.#)/)&#01%+"+.2#')/)

2-#3')/)2%4#%5+%')

6%%+435+%)

73"8#)

73"8#)

73"8#)

2%2535%./-#"24#92%.):39&;()<$+&1#9)+9.3%2=35+%>)

9#0#242%.):39&;()<':2%?+@):93050#>)

45

One of the most important findings of my research is that when developing OIBM’s, value that participants get in return for their contribution needs to be central to the design. This is incorporated in all the cases (see section 4.4) and in effect in all the guidelines for developing the different OIBM’s. Furthermore, when developing OIBM’s, one should focus on the key elements which define the business model to keep the model ‘as clean as possible’, so it can be easily understood, and is thus useable for explaining, clarifying and/or further development of open innovation practices. It is an iterative process; every model needs to be ‘fine-tuned’ until it is most likely to succeed. Also, not everything can be explicated with the model alone. As shown in the case-research, the different elements of the model need explanation to be totally clear/transparent. In other words, the OIBM should always be accompanied by a story or presentation, elaborating on its operation and elements. This research was primarily conducted for organizations that already chose to investigate open innovation as a way of creating commercial value (see section 1.5). However, as stated before, value created does not necessarily have to be economical in nature (see section 1.5). Therefore, the outcomes of the research can also be of use to organizations that do not have a commercial goal, for example charities or foundations without the goal to create economical value. The case Creative City Lab illustrates such a foundation; an OI practice without the goal to generate profit. By applying the OI principle, the constraints for innovating that many organizations feel they have because of current (internal) operations, knowledge, markets, etc., are virtually gone. When applying the OI principle, all elements and/or markets needed for whichever innovation are in reach. As long as enough value for external parties can be generated and this can be translated into a valuable value proposition, opportunities for (business model) innovation are limited only by the creativity of the designer/developer. This comparison with Lego was given earlier: “specifying a set of business model elements and building blocks, as well as their relationships to one another, is like giving a business model designer a box of Lego blocks” (Burgi, Victor, et al. 2004). Osterwalder (2005) adds: “[one] can experiment with these blocks and create completely new business models, limited only by imagination and the pieces supplied”. Adding open innovation to the equation; it is like giving the designer free access to all the different Lego boxes available! Finally, as explained earlier, many different combinations between the proposed taxonomies with their sub-meta models can be made. This form of OI was explained earlier as the ‘coupled process’. The different taxonomies have been chosen because they are the most common forms of OI and because they have the most distinct characteristics. By combining different taxonomies (creating a ‘coupled process OI practice) either parallel or serial to each other, one can design even more innovative business models.

5.4 Limitations & discussion Even though according to Yin (2003) these three cases can be enough to validate my theory on a general level, I feel that Yin’s statement on the claim of replication applies to the 3 different taxonomies separately. This means that even though the research questions have been answered and the propositions were verified, the OIBM’s should be investigated separately to claim replication. In effect, more research is needed focusing on one type of OIBM at the time; if two or more cases are shown to support the same theory per taxonomy or sub-meta model, replication may be claimed (Yin, 2003). Furthermore, the research is very broad in nature and tries to cover the development of OIBM’s for (almost) all different kinds of open innovation practices. This means that specific success factors for other (more specific) kinds of OI practices might have been disregarded. Therefore, as stated in 5.3, when developing open innovation practices, one should investigate specific literature on specific kinds of OI practices into more detail. Finally, the three cases as given in the research can serve as inspiration for developing other OI practices. However, organizations that want to develop open innovation practices should take their own specific environment, organizational context and objectives as centers to design the practice around. The reason for this is that not one such practice is identical; the number of possible open innovations practices is only limited by an organizations’ ability or one’s creativity to develop such practices. Trying to hard to copy an open innovation practice that proved valuable for another company might leave organizations lose their own objectives out of sight, in effect possibly decreasing opportunities to capture value.

46

References

Books, articles & publications

Afuah, A. & Tucci, C., 2003. Internet Business Models and Strategies. Boston: McGraw Hill.

Amit, R. & Zott, C., 2001. Value Creation in E-Business. Strategic Management Journal, 22(4).

Bellman, R., Clark, C. et al., 1957. On the Construction of a Multi-Stage, Multi-Person Business Game. Operations Research, 5(4), pp. 469-503.

Beresford, K., 2001. European Patents for Software, E-commerce and Business Model Inventions. World Patent Information, 23(3), pp. 253-263.

Brandz top100, 2010. [online] Available at: <http://www.millwardbrown.com/Libraries/Optimor_BrandZ_Files/ 2010_BrandZ_Top100_Report.sflb.ashx> [Accessed 15 August 2010]

Burgi, P. Victor, B. et al., 2004. Case Study: Modeling How Their Business Really Works Prepares Managers for Sudden Change. Strategy & Leadership, 32(2), p. 28.

Chesbrough, H. & Rosenbloom, R., 2000. The Role of the Business Model in Capturing Value from Innovation: Evidence from XEROX Corporation’s Technology Spinoff Companies. Boston: Harvard Business School.

Chesbrough, H. & Schwartz, K., 2007. Innovating business models with co-development partnerships. Research-Technology Management, 50(1), pp. 55-59.

Chesbrough, H., 2003a. The era of open innovation. MIT Sloan Management Review, 44(3), pp. 35-41.

Chesbrough, H., 2003b. Open Innovation: The New Imperative for Creating and Profiting from Technology. Boston: Harvard Business School Press.

Chesbrough, H., 2006. Open Business Models: How to Thrive in the New Innovation Landscape. Cambridge: Harvard Business School Publishing.

Chesbrough, H. Vanhaverbeke, W. & West, J., 2006. Open Innovation: Researching a New Paradigm. Oxford University Press.

Christensen, C., 1997. The innovator’s dilemma. Boston: Harvard Business Review Press.

Cohen, W., & Levinthal, D., 1990. Absorptive Capacity: A new perspective on learning and Innovation. Administrative Science Quarterly, 35, pp. 128-152.

Cornelissen, J. & Mensink, E., 2008. Creative City Lab Amsterdam Area 2009: Projectplan.

De Sousa, M., 2006. The Sustainable Innovation Engine. VINE: The journal of information and knowledge management systems, 36(4).

Drucker, P., 1985. Innovation and Entrepreneurship. New York: HarperBusiness.

Drucker, P., 1988. The Coming of the New Organization. Harvard Business Review, 66(1), pp. 45-53.

Dyer, J. & Singh, H., 1998. Strategic supplier segmentation: The next "best practice" in supply chain management. California Management Review, 40(4), pp. 660-679.

Eisenhardt, K., 1989. Building Theories from Case Study Research. The Academy of Management Review, 14(4), pp. 532-550.

Enkel, E. & Gassmann, O., 2004. Towards a theory of open innovation: three core process archetypes. Proceedings of the R&D Management Conference, Lisbon, Portugal, July 6–9.

Fredberg, T. Elmquist, M. & Ollila, 2008. Managing Open Innovation: Present Findings and Future Directions. Vinnova Report, Available: http://www.vinnova.se/In-English/Publications/Products-hidden/15915/ [8 August 2009]

Gordijn, J., 2002. Value-based Requirements Engineering - Exploring Innovative e-Commerce Ideas. Doctoral Dissertation. Amsterdam, Vrije Universiteit.

Gwynne, P., 2007. Open innovation's promise and perils. Research-Technology Management, Nov.-Dec.

47

Hamel, G., 2000. Leading the revolution. Boston: Harvard Business School Press.

Jansen, W. Jägers, H. & Steenbakkers, G., 2007. New business models for the knowledge economy. Hampshire: Gower Publishing Limited.

Johnson, J. & Sohi, Ravipreet, S., 2003. The development of interfirm partnering competence: Platforms for learning, learning activities, and consequences of learning. Journal of Business Research, 56(9), pp. 757-766.

Jones, G., 1960. Educators, Electrons, and Business Models: A Problem in Synthesis. Accounting Review, 35(4), pp. 619-626.

Kay, J., 1993. The structure of strategy. Business Strategy Review, 4, pp. 17-37.

Linder, J. & Cantrell, S., 2000. Changing Business Models: Surveying the Landscape. Accenture Institute for Strategic Change.

Magretta, J., 2002. Why Business Models Matter. Harvard Business Review, 80(5), pp. 86-92.

Moore, K., 2007. Haas' Henry Chesbrough Innovation interviewed by McGill's Karl Moore. [online] Available at: <http://www.youtube.com/watch?v=B6L3f6qpOjQ> [Accessed 15 December 2009].

Nokia’s vision of the future, 2010. [online] available at: < http://www.nokia.com/NOKIA_COM_1/ About_Nokia/Company/Vision_and_Strategy/pdf/NokiaStrategy10.pdf> [Accessed 10 July 2010].

Osterwalder, A., Pigneur, Y. & Smith, A., 2009. Business Model Generation. Self published.

Osterwalder, A., Pigneur, Y. & Tucci, C., 2005. Clarifying business models: origins, present, and future of the concept. Communications of the Association for Information Systems, 16, pp. 1-25.

Peltola, I., 2008. Online co-creation and beta trialling of mobile sotware and services. Tampere University of Technology: Master of Science Thesis.

Petrovic, O. Kittl, C., et al., 2001. Developing Business Models for eBusiness. Proceedings of the International Conference on Electronic Commerce.

Prahalad, C. & Ramaswamy, V., 2004. The Future of Competition: Co-Creating Value with Customers. Boston: Harvard Business School Press.

Rappa, M., 2001. Managing the Digital Enterprise - Business Models on the Web. North Carolina State University.

Schumpeter, J., 1934. The Theory of Economic Development: An inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Cambridge: Harvard University Press.

Stähler, P., 2002. Business Models as a Unit of Analysis for Strategizing. Proceedings of the 1st International Workshop on Business Models.

Swanborn, P., 1996. Case Study’s; Wat, wanneer en hoe? Amsterdam: Boom.

Tapscott, D. Ticoll, D. et al., 2000. Digital Capital – Harnessing the Power of Business Webs. Boston: Harvard Business School Press.

Thomke, S., 2001. Enlightened experimentation – the new imperative for innovation. Harvard Business Review, 79(2), pp. 66-75.

Tidd, J. Bessant, J. & Pavitt, K., 2005. Managing innovation integrating technological, market and organizational change. Hoboken: Wiley.

Timmers, P., 1998. Business models for electronic markets. Electronic Markets, 8(2).

Von Hippel, E., 2005. Democratizing Innovation. Cambridge: MIT Press.

Weill, P. & Vitale, M., 2001. Place to space: Migrating to eBusiness Models. Boston: Harvard Business School Press.

Yin, R., 2003. Case Study Research, Design and Methods. London: Sage Publications, Inc.

48

Websites

Createtoday, 2010. [online] Available at: < http://www.createtoday.nl/> [Accessed 20 July 2010].

Creative City Lab, 2010. [online] Available at: <http://www.creativecitylab.nl/> [Accessed 20 July 2010].

Nokia Beta Labs, 2010. [online] Available at < http://betalabs.nokia.com/> [Accessed 5 July, 2010].

Nokia corporate website, 2010. [online] Available at: http://www.nokia.com/about-nokia/company [Accessed 10 July 2010].

Rituals, 2010. [online] Available at: <http://www.rituals.nl/default2.jsp?country=nl> [Accessed 13 May, 2010].

Unilever company website, 2010. [online] Available at: <http://www.unilever.nl/>. [Accessed 20 May, 2010].

49

Appendices

Appendix 1: Open vs. closed innovation

This appendix elaborates further on the difference between open en closed innovation. In this old model of closed innovation, firms adhered to the following philosophy: Successful innovation requires control. In other words, companies must generate their own ideas that they would then develop, manufacture, market, distribute and service themselves (see figure below). This approach calls for self-reliance: If you want something done right, you've got to do it yourself (Chesbrough, 2003). This reasoning makes sense from a historical perspective; in the beginning of the 20th century universities and government were not involved in the commercial application of science. Companies therefore decided to create their own research and development (R&D) departments to be able to control the whole new product development (NPD) cycle inside the company. Companies did not have the time to wait for the scientific community to become more involved in the practical application of science, or for other companies to start producing some of the components that were required in their final product. These companies became relatively self-sufficient ‘castles’, with little communication directed outwards to other companies or universities (Chesbrough, 2003a). Throughout the years several factors emerged that eroded the closed innovation paradigm (Chesbrough, 2003a):

• The increasing availability and mobility of skilled workers • The growth of the venture capital market • External options for ideas sitting on the shelf • The increasing capability of external suppliers

These four factors have resulted in a new market of knowledge. Knowledge is not anymore proprietary to the company. It resides in employees, suppliers, customers, competitors, and universities. If companies do not use the knowledge they have inside, someone else will. For further clarification of closed and open innovation, the following figures and table shows the main differences between the two forms:

Closed Innovation Principles Open Innovation Principles The smart people in our field work for us. Not all of the smart people work for us, so we must find and tap

into the knowledge and expertise of bright individuals outside our company.

To profit from R&D, we must discover, develop and ship it ourselves.

External R&D can create significant value; internal R&D is needed to claim some portion of that value.

If we discover it ourselves, we will get it to market first. We don't have to originate the research in order to profit from it. If we are the first to commercialize an innovation, we will win.

Building a better business model is better than getting to market first.

If we create the most and best ideas in the Industry, we will win.

If we make the best use of internal and external ideas, we will win.

We should control our intellectual property (IP) so that our competitors don't profit from our ideas.

We should profit from others' use of our IP, and we should buy others' IP whenever it advances our own business model.

50

Appendix 2: Core competences for open innovation

Following descriptions of absorptive capacity, multiplicative capability and relational capacity will clarify the concepts further (Enkel & Gassmann, 2004). Absorptive Capacity is related to the outside-in Process. Technology knowledge generation and application processes are increasingly sophisticated, broad and expensive. Furthermore, the “ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities” (Cohen & Levinthal, 1990), since many organizations lack the ability to listen to their external world and efficiently process the signals received. The efficiency of both knowledge generation and application is contingent on the concept of “absorptive capacity”. Multiplicative Capability is related to inside-out Process. The exploitation of knowledge outside the company is related to the company’s capability to multiply and transfer its knowledge to the outside environment. The capability to multiply innovation by external exploitation is strongly connected to firm’s knowledge transfer capacity and the selection of appropriate partners. Only if the company is able to codify and share its knowledge with the external entity, will the commercialization of ideas be successful. But also the strategic selection of partners that are willing and able to multiply the new technology is an important element of the multiplicative capacity of the firm. Relational Capacity related to coupled Process. The notion of “relational capacity” as a source of competitive advantage relates to Singh’s idea that a company’s value is strongly related to its capacity to build and maintain relationships with partners in order to enable joint development in strategic alliances (Dyer & Singh, 1998; Johnson & Sohi, 2003). A company can be differentiated by the networks to which it is connected and the alliances and joint ventures that it can undertake. Therefore, the relationships with other companies, complementary companies and competitors can be a firm’s major assets and a necessary precondition for the linked process within an open innovation strategy.

51

Appendix 3: Requirements for co-development partnerships

Co-development focuses on different organizations, jointly creating value in partnerships for a new or existing target group. Chesbrough and Schwartz (2007) state that such partnerships can increase the return from internal R&D, by leveraging the capabilities of a partner firm. However, they can also impose significant hazards and may doom a business model to failure if they are poorly designed or implemented. Four requirements for designing a business model that leverages co-development partnerships are (Chesbrough & Schwartz, 2007):

• Define your business objective, • Assess the capabilities you require, • Determine the degree of business model alignment with partner, • In managing the partnership, think of future collaborations – not just the current needed.

The first requirement is to define the business objectives for partnering. The following table lists five possible objectives, and then shows some potential implications of those objectives for the initial design of how to utilize co-dev partners.

Objective Business requirement Implications for co-dev design Increase profitability Lower cost Increase volume to spread fixed costs; partner for less-critical

components Shorten time to market

Incorporate already-developed components or subsystems

Seek partners with proven capabilities

Enhance innovation capability

Increase the number and variety of front-end technologies

Create strategic research partnerships with universities, research labs

Create greater flexibility in R&D

Share risks with partners Develop research partnerships in bottleneck area’s

Expand market access Broaden the pathway to market for products and services

Leverage partner’s complementary R&D to tailor offerings for new markets

The second requirement for developing co-dev partnerships is to categorize the different technologies / R&D capabilities of the organization(s). Chesbrough & Schwartz (2007) distinguish three different categories: core capabilities, critical capabilities and contextual capabilities. They state that core capabilities are the key sources of a company’s distinctive advantages and value added. These core capabilities are the competencies that need to be leveraged in any co-dev partnership. Creating a business model that involves co-development of core elements of a companies’ product or service can be a risky venture, and should generally be undertaken only after an extensive strategic analysis. Critical capabilities are those that are vital to the success of the complete product or service, but are not core capabilities of the firm. These capabilities lend themselves most easily to co-dev arrangements. Contextual capabilities are capabilities needed to complete the offering, but provide little of the differentiation or value added for the business. However, what is contextual for one firm may be core for a possible co-dev partner. The following table shows how these different types of capabilities influence the co-dev design that a company should create.

Type of R&D Partnership attributes Core Critical Contextual Partner role Vital; utilize in-house R&D or

very select strategic partners Important, but not core to overall business (may be core to partner)

Necessary but not value adding; develop multiple sources of capability

Number of partners None or very few Small number Safety in numbers Depth of co-dev relationship Deep Medium Low Contingency plan (if things don’t go as planned)

Best to develop yourself; recruit strategic R&D suppliers if needed

Partner on a win-win basis; align business models; go in-house only as last resort

Switch to another partner in one partner is not performing

The third requirement for developing co-dev partnerships is the proper alignment of the different business models of the parties in the partnership. Business model alignment increases the chances that the co-dev partnership can be sustained over time and perhaps even expanded (Chesbrough & Schwartz, 2007). Aligned business models are complementary; if you execute your model well, your partner(s) will benefit and vice versa. The last requirement, according to Chesbrough & Schwartz (2007) is that in developing or managing the partnership(s), one should think of future collaborations – not just the current needed. At the heart of this fourth requirement lays Moore’s law: The second deal takes 1/2 the time of the first deal. The third deal takes 1/3 of the time, and so on. And the subsequent deals are not only faster, they tend to be more profitable (Chesbrough, Vanhaverbeke & West, 2006). An implication of this observation is that you do not get a second or third deal unless you have done the first one.

52

Appendix 4: History of business model concept

Although the term ‘business model’ received first attention in academic literature in 1957 (Bellman, Clark, et al. 1957) and in the title and abstract of a paper in 1960 (Jones, 1960), business models as a concept only became popular when the Internet emerged as an enabling information technology (Osterwalder, 2005). The rise of cheap information technology fueled thinking in ‘new ways of creating and capturing value’ – and thus in business models. According to Osterwalder, the business model concept is a candidate to replace the industry [within its boundaries] as a unit of analysis. He explains evolution of the business model concept and the relationship of the rise of Internet and the usage of business models as concepts by the concept of transaction cost economics (TCE): “The sharp rise in cheap information technology, bandwidth, and communication possibilities made it much easier for companies to work in so-called value webs because coordination and transaction costs fell substantially (Tapscott, Ticoll et al., 2000; Amit & Zott, 2001). Companies, in some cases even competitors, jointly offer and commercialize value to their customers. That is, the business design choices for managers increased substantially based on cheap and available information technology. This cost decrease led to industry boundaries becoming increasingly blurred. The business model concept is a candidate to replace the industry as a unit of analysis” (Osterwalder, 2005). In other words, even though business models are as old as business itself and business model theory is not only applicable to Internet-based companies/technologies – the rise of cheap information technology fueled thinking in ‘new ways of creating and capturing value’ – and thus in business models. In his comprehensive research on business models (Clarifying business models: origins, present and future of the concept (Osterwalder, 2005)), Osterwalder divided the literature about business models into three categories (levels) – how are business models used (relations are shown in figure below):

1. Overarching Business Model Concept: This first level consists of definitions of what a business model is and what belongs in them and meta-models that conceptualize them. On this level the business model is seen as an abstract concept that allows describing what a business does for a living.

2. Taxonomies: This level consists of several types or sub-meta business models (taxonomies) that are generic but contain common characteristics.

3. Instance Level: This level consist of either concrete real world business models or of conceptualization, representations, and descriptions of real world business models.

Besides categorizing business models, Osterwader (2005) also described the evolution of the concept. He distinguishes 5 stages of evolution so far, also shown in the figure below:

1. During the first phase, when the term business model started to become prominent, a number of authors suggested business model definitions and classifications (Timmers, 1998; Rappa, 2001).

2. In the second phase, authors started to complete the definitions by proposing what elements belong into a business models. At first, these propositions were simple "shopping lists", just mentioning the components of a business model (Chesbrough & Rosenbloom, 2000; Linder & Cantrell, 2000; Petrovic, Kittl et al., 2001; Magretta, 2002).

53

3. Only in the third phase did detailed descriptions of these components become available (Hamel, 2000; Weill & Vitale, 2001; Afuah & Tucci, 2003).

4. In a fourth phase researchers started to model the components conceptually. This work led to the proposition of business model meta-models in the form of reference models and ontology’s (Gordijn, 2002; Osterwalder, 2005). In this phase models also started to be evaluated or tested more rigorously.

5. Finally, in the ongoing fifth phase, the reference models are being applied in management and in Information System applications.

54

Appendix 5: Business model canvas poster

55

Appendix 6: 5 phase design process for designing business models

So now we know what business models are, and why we should use them to innovate the way we create, deliver and capture value. But how does one design such a model? Where to start? How to structure the process? According to Osterwalder & Pigneur (2009) state that business model innovation is a timely, messy and unpredictable process. It requires the ability to deal with ambiguity and uncertainty until a good solution emerges. Participants must be willing to invest significant in time, and energy exploring many possibilities without jumping too quickly to adopt one solution. They call this approach design attitude. Osterwalder and Pigneur propose a five-phase design process for designing business models; mobilize, understand, design, implement and manage. In their book Business Model Generation, Osterwalder and Pigneur (2009) explain not only business models, but also a lot of different techniques to be used in the design process they suggest. The following table summarizes and outlines their process. In my research I add to their existing work by elaborating further on designing OIBM’s; what to focus on – besides the techniques mentioned in their book – when designing OIBM’s.

Objective Focus Description Mobilize; prepare for a successful business model design project

Setting the stage Assemble all the elements for successful business model design. Create awareness of the need for a new business model, describe the motivation behind the project, and establish a common language to describe, design and analyze and discuss business models.

Understand; research and analyze elements needed for the business model design effort

Immersion You and the business model design team immerse yourselves in relevant knowledge: customers, technology and environment. You collect information, interview experts, study potential customers and identify needs and problems.

Design; generate and test viable business model options, and select the best

Inquiry Transform the information and ideas from the previous phase into business model prototypes that can be explored and tested. After an intensive business model inquiry, select the most satisfactory business model design.

Implement; implement the business model prototype in the field

Execution Implement the selected business model design.

Manage; adapt and modify the business model in response to market reaction

Evolution Set up the management structures to continuously monitor, evaluate and adapt or transform your business model.

56

Appendix 7: Framework for statements & propositions

To structure the research, I combined the statements related to OI, business modeling and the propositions from previous research (given in section 2.4 of the report), resulting in a framework. This framework is structured by dividing the statements related to OI (goal) under the statements related to business modeling (tool). I used this framework to create a questionnaire that guided the different interviews, thereby making sure all the important topics would be covered. Statement no. Related to: Step derived from statement/proposition 1 Open innovation Define and describe organizations’ motive(s) for open innovation. 2 Open innovation Define and describe (sub)functions of an organization that are

candidates for open innovation practices. 3 Open innovation Choose type of open innovation per defined (sub)function and

describe related open innovation core-processes. Take specific critical capabilities into account.

4 Open innovation Choose type of partnerships (co-creation or co-development) & preferred partners per defined (sub)function. Also describe objective and way of value-creation with partner(s).

5 Business modelling Describe the open innovation practice as an open innovation business model using the business model canvas and building blocks.

6 Business modelling Determine the objectives and epicentre of the business model innovation to develop open innovation practices.

proposition no. 1 Designing OI BM's Describe the kind of value and way of value transfer back to the

(knowledge) delivering party 2 Designing OI BM's Choose one open innovation taxonomy/meta-model as a starting point

and describe the open innovation practice. Business modelling

Determine the objectives and epicentre of the business model innovation to develop open innovation practices.

Open innovation Define and describe organizations’ motive(s) for open innovation. Open innovation Define and describe (sub)functions of an organization that are

candidates for open innovation practices. Business modelling

Describe the open innovation practice as an open innovation business model using the business model canvas and building blocks.

Open innovation Choose type of open innovation per defined (sub)function and describe related open innovation core-processes. Take specific critical capabilities into account.

Open innovation Choose type of partnerships (co-creation or co-development) & preferred partners per defined (sub)function. Also describe objective and way of value-creation with partner(s).

Proposition Describe the (different kinds of) value for the participating parties and way of value transfer back to the (knowledge) delivering party

Proposition Choose one open innovation taxonomy/meta-model as a starting point and describe the open innovation practice.

57

Appendix 8: Guiding questionnaire for interviews in case study research

To structure the research, I combined the statements related to OI, business modeling and the propositions from previous research (given in section 2.4 of the report), resulting in a framework (see appendix 7). I used this framework to create the questionnaire that guided the different interviews, thereby making sure all the important topics would be covered. The questions as shown below served as a ‘guiding questionnaire’. Questions related to the statements and propositions (based on literature/previous research)

Business modeling

Open innovation

Proposition Questions

Determine the objectives and epicenter of the business model innovation to develop open innovation practices.

Define and describe organizations’ motive(s) for open innovation.

Define and describe (sub)functions of an organization that are candidates for open innovation practices.

What were the reasons (/motivations) for <NAME INITIATING ORGANIZATION> to start the OI-practice?

How does <NAME INIT ORG> define OI? Was this the same before implementing the specific OI practice?

Was there a specific (initiating) idea around which the OI practice formed? What was that idea?

Was there an alternative for the knowledge/ideas which resulted in OI? If yes; what was it and why did <NAME INIT ORG> choose OI?

What was the epicenter of the BM innovation?

What were the objectives as first distinguished for the OI?

Was the specific (sub)function of the organization determined as a candidate for OI - before OI-practices were initiated?

Which different (sub)functions of <NAME INITIATING ORGANIZATION> were involved in the OI-practice? When were they involved? Were the different (sub)functions jointly regarded as one OI-practice, or were they viewed separately?

Were the motives, objectives and chosen (sub)functions for OI the right ones in retrospect? What could have been defined better?

Were the objectives met by the OI practice?

Could a better guided BM design have helped in developing the OI practice?

Describe the open innovation practice as an open innovation business model using the business model canvas and building blocks.

Choose type of open innovation per defined (sub)function and describe related open innovation core-processes. Take specific critical capabilities into account.

Choose type of partnerships (co-creation or co-development) & preferred partners per defined (sub)function. Also describe objective and way of value-creation with partner(s).

Which type(s) of open innovation was used for the specific practice? When was this decided?

How did <NAME INITIATING ORGANIZATION> take the core competences needed for that type of OI into account? What actions were undertaken at what time related to the specific critical capability?

Were other types of OI considered?

How did <NAME INIT ORG> decide on type of partnership?

58

What was the objective of the partnerships?

How is value created with the partner(s)? How does the eventual 'value-creation process' related to the 'value-creation' that was designed beforehand?

Were there any preferred partners? How did <NAME INIT ORG> come to the eventual partner(s)?

What were the reasons (/motivations) for the partner(s) to participate in the OI-practice?

What objectives were defined for the partner(s) to participate in the OI practice? When did that happen?

Did the partner(s) define their own objectives, or together with <NAME INIT ORG>?

Were the motives & objectives of the partner(s) for OI the right ones in retrospect? What could have been defined better?

Were the objectives for partners met by the OI practice?

How did the partner(s) take the core competence needed for that type of OI into account? What actions were undertaken at what time related to the specific critical capability?

What were the different elements (business model building blocks) for the new BM and how did they relate to each other (using BM Canvas)?

Describe the (different kinds of) value for the participating parties and way of value transfer back to the (knowledge) delivering party

Describe the (different kinds of) value for the participating parties and way of value transfer back to the (knowledge) delivering party

To what extend are the different kinds of value related to the objectives?

Choose one open innovation meta-model as a starting point and describe the open innovation practice.

Can the value-transfer be depicted, using the specific meta-model as a starting point?

Describe the OI practice, using <SPECIFIC META-MODEL> as a starting point.

59

Appendix 9: Case interviews

Interview Ellen Mensink, June 2010 Ik kan de intro overslaan, je weet namelijk al veel van waar ik mee bezig ben. Ik interview je vanuit je rol binnen Createtoday, als eigenaar van een organisatie waarmee je een open innovatie-initiatief bent gestart. Daarvoor heb je partijen bij elkaar gezocht. Ik focus mij in mijn onderzoek op hoe jullie als founding partners samen de stichting hebben opgestart en hebben neergezet, wat het product is van die stichting, wat de klanten zijn en hoe jullie waarde creëren voor die klanten. Hoe jullie dat samen hebben gedaan; wat jullie hier hebben ‘ingestopt’, en welke waarde jullie er weer ‘uithalen’. Hoe definieer jij open innovatie? Open innovatie betekend voor mij de mate van vernieuwing, de impact en de waarde van innovatie vergroten, door samen te innoveren met verschillende partijen uit verschillende disciplines en sectoren. Open innovatie kun je smal en breed toepassen, maar er zijn in ieder geval 2 of meer partijen met verschillende disciplines of uit verschillende sectoren bij betrokken, waarbij partijen dus innoveren met ‘niet vak-eigen kennis’. Dit kan binnen een specifieke keten gebeuren door met verschillende disciplines samen te innoveren, maar ook door partijen, al dan niet met verschillende disciplines, uit verschillende sectoren; transsectoraal. Hierdoor vergroot je in de eerste instantie de creativiteit, omdat je als je vanuit je eigen vakgebied gaat meedenken in een nieuw vakgebied, je tot nieuwe inzichten kan komen. Die inzichten kunnen de waarde en impact van een innovatie vele malen groter maken. Wat was de reden van Createtoday om met open innovatie te starten? Ik geloof dat we in een nieuwe fase zitten vanuit een bedrijfseconomisch oogpunt. Vroeger had je het over grond, arbeid & kapitaal. Daarna kwam kennis. Uiteindelijk werd ook creativiteit als laatste productiefactor gedefinieerd. Ik geloof dat je creativiteit kunt verhogen door multidisciplinair of transsectoraal te innoveren. Ook is er een trend richting een duurzamere samenleving. En echt verduurzamen gaat over sectoren en ketens heen. Hierdoor wordt het extra belangrijk om dat samen met meerdere partijen op te pakken. We zitten dus in een fase waarin creatieve oplossingen vinden samen met andere partijen steeds belangrijker wordt. Aan de oorsprong van deze fase liggen verschillende fenomenen; de industrialisatiefase met ‘just in time management’, de klimaatverandering, globalisering, en het Internettijdperk. Het wordt door al die zaken alleen maar belangrijker om samen te innoveren. Het Internet is een enabler in deze want je kunt nu op een hele makkelijke manier met een hele grote groep mensen samen innoveren. Je ontkomt er eigenlijk bijna niet aan, open innovatie ‘gebeurt gewoon’. Nu enkele vragen over hoe de open innovatie case; de Stichting Creative City Lab tot stand is gekomen en de doelen van de stichting. Was er een specifiek idee, of specifieke kennis die ten grondslag lag aan de stichting? Dit staat deels ook beschreven op de website in de eindpublicatie van het Innovatielab 2009. Het begon met mijn frustratie, en daaruit voordkomend mijn ambitie en wens, dat er heel veel kennis aanwezig is om de wereld een betere plek te maken voor ons allemaal, maar dat die kennis niet goed gebruikt wordt. Er is ongelofelijk veel innovatiekracht, maar door marktwerking en concurrentie worden deze meestal niet samengevoegd en bereiken deze nooit haar potentieel. Terwijl de kennis en de creativiteit er dus wél zijn. Vanuit daar ben ik gaan zoeken naar een formule, een breekijzer, die het wél lukt om dat bij elkaar te brengen en samen te voegen. Het huidige speelveld van bedrijven is gericht op financieel gewin en concurrentie. Dit leidt tot gesloten innovatie waarbij bedrijven kennis voor zichzelf houden. Open innovatie initiatieven moeten dus creatief genoeg zijn, dat het écht vernieuwingspotentie heeft. Zodat de partijen de gok durven te wagen. Om te realiseren dat partijen hun kennis samenvoegen in een open innovatie traject, moet je de participerende partijen heel veel bieden. De reden hiervoor is dat je van tevoren nooit weet wat eruit komt; het resultaat in termen van innovatiewaarde is niet van tevoren te definiëren. Dergelijke partijen mogen dus ook geen echte ‘opdrachtgevers’ zijn. Daarom moet je ze, los van de mogelijke innovaties die eruit komen, ook andere zaken

60

bieden die van waarde zijn om te participeren, om de onzekerheid te compenseren. Denk bijvoorbeeld aan het opdoen van kennis, het creëren van een netwerk of exposure door (gezamenlijke) communicatie activiteiten. Verder moeten de partners complementair zijn aan elkaar en verder moet je in het proces ook zoeken naar andere factoren die de creativiteit kunnen verhogen, zodat het niet alleen uit het groepje met partners hoeft te komen. Vanuit die filosofie had ik het idee voor een Innovatielab. Om dat te realiseren heb ik óók vanuit die filosofie de partners uitgezocht. Samen met die partners hebben wij het idee uitontwikkeld en hebben we gekeken hoe iedere partner in het product; het Innovatielab zijn inbreng kon leveren. Met andere woorden: de grove outlines van het breekijzer waren al bepaald, maar het uitwerken en de invulling van het product hebben wij samen gedaan, met de kennis van alle founding partners. Kan ik dan stellen dat het product, het Innovatielab, welke voortkwam uit jouw filosofie, de kern was van de open innovatie; het epicenter waar de overige elementen van het concept bij zijn gezocht? Als je het zo stelt wel, maar het is maar de vraag of je het Lab het product noemt. Het is een van onze diensten, maar in principe is het een proces welke een paar producten en diensten oplevert. Het Innovatielab is een formule die voor verschillende partners verschillende dingen inhoudt. Voor sommige partners is het Lab zelf een dienst, maar voor andere partners is het product de eindpublicatie en de kennis die voortkomen uit het lab. Voor sommige partners is de communicatie eromheen weer een dienst. Je kunt je dus afvragen of het lab een dienst is of een aanpak; een proces om te komen tot producten en diensten. Maar dat hangt er maar net vanaf hoe je hem aanvliegt. Verder klopt je stelling: het Innovatielab was de kern, en daaromheen hebben we de andere elementen ingevuld en activiteiten ontworpen. Ons product, waardepropositie of oplossing ís een innovatieproces. Wie zijn de klanten of klantensegmenten van de stichting? Dat zijn verschillende partners, de cofinanciers, maar ook de deelnemers. Die hadden ook verwachtingen en doen mee om kennis te vergaren en zichzelf als duurzaamheidexpert te ontwikkelen. De partners zijn ook onze klanten omdat ze ook financier zijn, en bepaalde verwachtingen op het gebied van kennis en communicatie hebben. Hetzelfde met de sponsoren, al zitten die meer op communicatie dan op kennis. Bij onze cofinanciers gaat het meer om kennis. Daarnaast zijn het publiek en de maatschappij ook klanten. En ook de creatieve experts die worden betrokken in het innovatieproces. Maar het betrekken van bepaalde partijen in een proces maakt ze toch niet per definitie een klant? Een van de speerpunten van onze filosofie is, dat we denken dat creatieve professionals uit de creatieve industrie van grote waarde kunnen zijn voor innovatie als ze direct en gedurende het hele proces betrokken worden. Om dat te bewerkstelligen proberen we hen te servicen, uit te nodigen om aanwezig te zijn, zodat als er iets leuk uit het proces komt, dit ook op een prikkelende manier gecommuniceerd kan worden en dit dus ook al vanaf het begin van het proces word meegenomen. Daarom zou ik ook de creatieve industrie als klant willen benoemen, omdat wij met onze formule de gouden handdruk tussen de creatieve industrie en de business juist bewerkstelligen. Eigenlijk zijn al onze partners dus klanten. Het mooie aan open innovatie is dat je ook wisselende rollen kunt hebben. Een partner kan ook klant zijn. Wat is het doel van Stichting Creative City Lab? Werken aan een betere, duurzame wereld. Dit kan via adviezen, producten, diensten, nieuwe bedrijfjes of spin-offs, wat er maar uitkomt. Maar wel zo concreet mogelijk als het enigszins kan. Wat ik heel jammer vind is dat er van de ideeën van het Lab van afgelopen jaar nog geen ideeën zijn gerealiseerd. Bijvoorbeeld een waterspeeltuin, dat had ik ontzettend leuk gevonden. Dat lag vooral aan een tekort aan mankracht. Want je moet wel doorpakken. Soms liepen we het afgelopen jaar een beetje achter de feiten aan. Maar er liggen nog steeds wel heel veel leuke ideeën op de plank. En voor sommige ideeën is wel degelijk animo vanuit de markt om er iets mee te doen, zoals de renovatiebus. Want dat is een heel leuk uitgewerkt concept voor een energieloket, waar niemand op tegen is, maar waar wel leuke formats omheen bedacht moeten worden. De renovatiebus is

61

zo’n format. Een mooi concreet uitgewerkt voorbeeld van een stukje creatief toegepaste kennis. We hebben veel geleerd van het afgelopen Lab, een volgende keer willen we nog sterker sturen op de realisatie van de ideeën. Kun je de partnership of samenwerking tussen de founding partners beschrijven? Die was moeizaam. Het is een stichting met een moeilijke structuur. Er zijn afspraken gemaakt dat iedereen een stukje kennis en competentie inbrengt in ruil voor exposure via communicatie-uitingen, netwerk en andere zaken die ze eruit krijgen. Via de stichting droeg ook iedereen bij aan MVO, een betere wereld. Ook is aan de founding partners aangeboden om, of in de vorm van creatieve adviesraad lid, of in de vorm van bestuurslid mee te doen binnen de stichting en tijdens het eerste Lab. Ze hebben hier allemaal iets van opgepakt. Ze hebben dus allemaal ook een organisatorische rol gekregen. Of wel in het bestuur, of in een adviesrol. In ruil daarvoor hebben de founding partners tijd en aandacht besteed aan het Lab. De structuur gaat niet veel verder dan die afspraken. Dat is niet verder geformaliseerd dan wat er in de statuten van de stichting staat. Hierbij moet wel aangetekend worden dat er in het bestuur bestuursleden zitten, en geen founding partners. Bestuursleden kunnen dus van founding partner organisaties komen. Van elke founding partner mocht iemand persoonlijk in het bestuur. In principe blijf je wel altijd founding partner, maar of we de logo’s in alles altijd gaan vermelden hangt af van een langdurigere comittment. Het is niet zo heel makkelijk om dat allemaal echt te formaliseren. Samengevat kun je het dus zo omschrijven dat de founding partners eerst samen het product, het concept hebben uitgedacht en uitgewerkt. En vervolgens hebben ze tijdens het eerste lab allemaal een bepaalde competentie bijgedragen, aan tijd, moeite, misschien wat geld, dus allemaal wat effort erin gestoken. Daarvoor mochten ze ook tijdens het eerste lab meesturen of adviseren als ze daarvoor kozen. En hebben ze met alle communicatiemogelijkheden mogen meedraaien als zijnde partner van het eerste lab, onder dezelfde voorwaarden. Het is al een paar keer een beetje ter sprake gekomen, maar wat hebben de founding partners eruit gehaald? Welke waarde hebben ze er voor zichzelf aan over gehouden? Netwerk, communicatie & exposure; ze hebben zichzelf heel erg in de kijker gezet als MVO/duurzame partij, en een stukje kennisontwikkeling, zowel inhoudelijk als procesmatig. Ze hadden ook de mogelijkheid om mensen te werven vanuit het lab. Verder zullen de deelnemers als het nú niet is, later nog wel eens terugkomen. Deze young professionals zullen altijd een bepaalde link met de stichting en dus de founding partners houden. Daar kunnen nog jaren leads uit ontstaan. Want Nederland is zo klein, zo’n netwerk bestaat uit een klein groepje mensen die elkaar telkens weer tegenkomen en vinden. Kun je daar een concrete waarde aan koppelen of kwantificeren? En deze relateren aan de waarde die je erin hebt geïnvesteerd? Niet alles, communicatie is wel deels te kwantificeren. En het aantal mensen die je aanneemt ook. Je kunt zo zien hoe vaak en waar je logo allemaal staat. Verder hebben alle founding partners ook binnen de begroting als toeleverancier zaken geleverd waarvoor ze betaald zijn; daar hebben ze dus ècht concreet iets voor terug gekregen. Iedereen heeft er dus een totaal aantal uren ingestoken, die deels betaald zijn en deels hebben bijgedragen aan een proces waar weer andere waarde uit voortkwam voor de partners. Communicatie kwantificeren blijft natuurlijk lastig; hoe waardevol is een campagne? Voor advieskantoren is een televisie of radiocommercial bijvoorbeeld niet echt te betalen en je bereikt ook niet echt je doelgroep. De communicatie vanuit advieskantoren wordt vaak ‘mysterymarketing’ genoemd. Daarbij gaat het om het bouwen van een relatie en te tonen dat je ‘iets’ doet, iets bijzonders hebt. En reken er maar op dat de founding partners het concept CCL in al hun aquisitiegesprekken naar voren hebben gebracht en welke kennis ze daar hebben opgedaan. Squarewise doet nu bijvoorbeeld een project voor een grote woningbouwcorporatie rondom het verduurzamen van hun woningvoorraad. En Peperoffice heeft ook opdrachten met betrekking tot duurzaamheid gekregen door CCL. Hoe concreet zijn de doelen gedefinieerd met betrekking tot de te waarde voor de founding partners? Qua communicatie is er alleen gezegd dat de founding partners overal met logo genoemd worden. Mattmo heeft het nog wel eens geprobeerd om het verder te concretiseren, maar in het algemeen is het niet echt concreet.

62

Ben je als foudning partner tevreden met wat je ervoor terug hebt gekregen in relatie tot wat je erin hebt gestopt? Waarde voor je investering? Alle founding partners hadden andere redenen om te participeren die voor hen van waarde waren. En ik denk dat ze, één: deze allemaal niet genoeg gedefinieerd hadden, en twee; dat ze allemaal af en toe hebben gedacht dat het niet meer genoeg opleverde qua waarde, op basis van onderbuikgevoelens. Later deed dat het weer wel. Dat had dan bijvoorbeeld te maken met netwerken, kennis, of de ontwikkeling van de eigen medewerkers omdat ze meeliepen in het lab. Ook met mensen werven. Zo heeft Squarewise zichzelf als hip en cool bedrijf geprofileerd en hebben met dat imago mensen kunnen werven. Die doelen zijn niet of nauwelijks geëxpliciteerd, maar ze waren er wel degelijk. En voor iedereen zijn die ‘meters’ tijdens het lab veranderd, waardoor de optelsom positief of negatief doorsloegen. Maar die doelen zijn er altijd , vooral op basis van onderbuikgevoelens geweest, en waren het hele lab bepalend Voor Peperoffice was het bijvoorbeeld voor hen zelf niet echt duidelijk waar ze het voor deden. Of dat het om geld ging, of netwerkcontacten. Die konden ze bijvoorbeeld in de eerste instantie niet genoeg herleiden, en zodoende leek het participeren niet de moeite waard. Nu achteraf zijn ze weer heel blij met het Lab, omdat er verschillende opdrachten uit voort zijn gekomen die direct te relateren zijn. Dus qua waarde die je creëert lopen de kosten dus soms op de baten vooruit, en iedereen is continu met die wisselwerking, dat spel, bezig geweest. Zelf wilde ik bijvoorbeeld op een gegeven moment al toeleverancier geld kunnen verdienen aan de stichting, omdat ik vond dat ik er voor de rest niet genoeg uithaalde. Ik verwachtte dat ik meer netwerkcontacten en nieuwe projecten eruit zou halen, maar ik had daar door de drukte omtrent het Lab de tijd niet voor. Dus moest ik zorgen dat ik er voldoende geld uit haalde als toeleverancier, om er toch waarde uit te halen; mij van inkomsten te voorzien. Tot slot, als ik voor mezelf kijk of het waardevol genoeg was, dan is het voor een groot deel ook intrinsieke waarde die het voor mij de moeite waard heeft gemaakt. Omdat ik graag mijn steentje bij wil dragen aan een duurzame wereld en daar waarde aan toeken. Als een soort van slagroom over de Maslov piramide. Het gaat voor mij over in het moment van nu staan, de waardering van het leven, en dat gaat een stapje verder dan status, of je ego. Ondanks dat ik er weinig concreets uit heb gehaald, heb ik wel het gevoel dat ik wat toe heb gevoegd daar wat wij hebben gedaan, dat we hebben geïnspireerd. Daar zit voor Createtoday ook waarde in. Slaat de wijzer van de meters die dus fluctueerden achteraf positief, neutraal of negatief uit? Voor Createtoday fluctueerde deze tussen neutraal en positief. Maar innoveren brengt altijd een risico met zich mee, en als het je lukt de investering die je doet gelijk te laten zijn aan de opbrengsten, dan heb je eigenlijk de moeilijkste stap al gemaakt. Je innoveert 10 keer, en na de tiende keer komt er iets uit wat de rest allemaal overvleugeld. En dan heb je misschien een winner die ineens wél zijn vruchten afwerpt. En dat kan dan ook in netwerkcontacten zijn, bekendheid, of nieuwe projecten, dat weet je niet. Verder moet je het in ons geval eigenlijk hebben over open duurzame innovatie. Want het gaat om resultaten die ook pas op de langere termijn zichtbaar zijn. Dat is bij innovatie altijd wel zo, maar met duurzame nog meer. Dat is heel erg lange termijn gericht. Zowel in wat er intrinsiek in de oplossing zit, dat die op lange termijn gericht moet zijn, als ook waarin je de waarde van de innovaties ziet; welke waarde je er op de lange termijn uithaalt. In dat geval moet je als founding partner ook wel echt de commitment hebben om bij te willen dragen aan een betere wereld op lange termijn. Want als founding partners korte termijn denken in zaken als netwerk, opbrengsten, of exposure voorop stellen, dan dragen ze daarmee misschien niet direct bij aan dat hogere doel, namelijk die betere wereld; nieuwe ideeën die uiteindelijk geïmplementeerd moeten worden. Dat klopt, duurzaam innoveren vraagt altijd om een lange adem. En daarom gaan er ook wel eens mensen uit het bestuur, omdat die niet perse de lange termijn duurzaamheid nastreven maar teveel korte termijn denken. Voor hen lijken de baten niet, of niet genoeg, te komen. Dus iedereen die voor de korte termijn winst gaat heeft het soms moeilijk, want maar een klein percentage innovaties wordt uiteindelijk succesvol. En dat duurt in de meeste gevallen langer dan dat men wil. Dus als je niet echt voor de innovatie gaat, maar meer voor bepaalde waardetoevoegende onderdelen uit het proces, dan zul je ook snel weer vertrokken zijn denk ik, namelijk zodra het korte termijn voordeel niet meer zichtbaar is.

63

Hoe dragen de partners, ook Createtoday aan het waardecreatie-proces? Aan het product? Je zei eerder al dat ze allemaal hun eigen kennis en competenties hebben waarmee ze bijdragen. Alle founding partners dragen in verschillende zaken bij. Iedereen behalve Innovation Factory dragen bij in geld, kennis, competentie en mankracht. De specifieke competenties en activiteiten kun je vinden op de website of in de eindpublicatie. Voor Mattmo hangt dat bijvoorbeeld samen met creativiteit, Createtoday focust zich op creativiteit en duurzame kennis, dus ook inhoudelijke kennis over het specifieke thema van dat jaar, kennis over innovatiemanagement, kennis over analyse en adviestrajecten. Ook de eindverantwoordelijkheid en deels de projectcoördinatie lag bij Createtoday. Squarewise richtte zich meer op het ontwerp en het ondersteunen van het proces en het adviesstuk. Innovation Factory heeft bijgedragen via hun innovatieportaal waarin werd samengewerkt. Het is bij iedereen dus verschillend; iedereen heeft andere faciliterende en ondersteunende rollen. Createtoday was de initiating party; er zijn vervolgens andere partners gezocht voor andere competenties. Waren er preferred parters en waarop zijn die geselecteerd? Wij hebben gezocht naar partners waarvan we wisten dat ze inhoudelijk goed waren qua competenties. Ik heb bijvoorbeeld dus gezocht naar communicatiebureaus die leuk en inspirerend waren, maar ook qua inhoud goed waren. Mattmo staat bijvoorbeeld op de preferred list van bijvoorbeeld Philips, dat wist ik. En ik wist ook dat zij social jaarverslagen maakten en dat MVO ondernemen bij hun een thema was, omdat dat ook op hun website terug kwam. Bij Squarewise wist ik dat ze dat heel graag wilden participeren in een dergelijk duurzaamtraject. En ik wist dat Marcel Heskes, een partner van Squarewise, zaken altijd kwalitatief hoogwaardig wil uitvoeren vanuit hun filosofie en advieswerk. En bij Innovation Factory kende ik Han Gerrits uit eerdere contacten. Ik wist dat hij ook docent aan de VU was en professor, en hij een bedrijfje had in Innovatiesoftware. Ik wist dus dat hij een goede was. Toen ik met hem ging praten lagen we direct op één lijn. Hoe het Innovatieportaal dat zij hebben geleverd uiteindelijk heeft gewerkt kun je achteraf je vraagtekens bij zetten, maar daar hebben we allebei van geleerd. Samengevat heb ik vooral binnen mijn netwerk naar de beste en meest inhoudelijke partners gezocht met bepaalde voorgedefinieerde competenties. En ook sowieso in deze regio. Omdat ik geloof in regionale betrokkenheid. Je kunt het lab ook wel op andere plekken inzetten, maar de eerste keer wil je het zo uitvoeren dat het ook klopt. Tot slot nog even terugkomend op de motieven; denk je dat alle partners het gevoel hebben dat ze er genoeg uit hebben gehaald? Ik kan daar moeilijk voor alle partners iets over zeggen, maar ik denk dat voor iedereen de balans in ieder geval goed is geweest, of misschien zelfs meer dan dat. Mattmo wil bijvoorbeeld niet meer uit het bestuur, terwijl ze toch meerdere malen hun vraagtekens bij het lab hebben gehad.

64

Interview Tommi Vilkamo, August 2010 What was your function or role in Nokia before Beta Labs? I have had several roles inside Nokia but I have been mostly involved in strategy and portfolio management. Just before starting with Beta Labs I did an industry analysis for half a year for a software development site for Symbian in the function of business and industry analist. I was trying to follow and analyze what was happening in our business environment to be able to make strategic decisions on what to do, which roads to take and not to take within Nokia. The background I have from my studies is management; I am a business and strategy person in nature. I connected that to innovation for my career at Nokia. What was your function or role during the startup of Beta Labs? At the beginning I was a one-man army. I was appointed to carry the whole thing, heading the Beta Labs initiative and taking care of all the practicalities regarding the start-up as well. I have been managing Beta Labs for the past 3 years. Do you know the term open innovation and how would you describe it? I am very familiar with the term and it is also something that is very close to Nokia’s heart; we take open innovation seriously. Different people define open innovation in different ways, but I believe it always has to do with the recognition that there are more talented and creative people outside the company then inside. By tapping into this outside creativity you can achieve much more then with closed innovation models. So Nokia integrates open innovation into a lot of its functions. What motivation does Nokia have for that and are there specific functions or departments of Nokia in which open innovation practices are most common? First about why Nokia integrates open innovation into its business. The reason for this is that we are confident that in order to survive and to prosper we need to innovate; we need to be one of the most innovative companies on this planet just to survive. Also, we recognize that we cannot be successful alone, that we need to work with different outside players. For these reasons, Nokia uses open innovation in multiple ways. For example my own initiative: Beta Labs, which incorporates Nokia users in innovation, research and development. But there are also some other open innovation means. For example, Nokia is also quite active in acquiring companies that build innovations in areas that are of interest to Nokia. Also, in some cases Nokia spins out in-house innovations from its portfolio which do not fit the strategy. Then there are some business-level open innovation practices, in which our research centre has laboratories that are closely linked with universities across the planet and which have close working relationships together. I am not really familiar with the sales and marketing functions and whether they use open innovation, but as I am mostly familiar with the R&D side of the company, I know that they use open innovation practices extensively, in multiple ways. Can you describe Nokia’s main business structure? [On Nokia and its business structure in general, Tommi advised me to get my information from Nokia’s website. Nokia just had a major (also structural) reorganization on july 1st.] About Nokia company and structure, in general we have 2 units that actually develop and create stuff. One is mobile solutions, the other is mobile phones. I am simplifying a lot here. The first one is developing smartphones, computers and services. So basically all the high end solutions provided by Nokia. The second one, mobile phones, handles the more traditional-phones business, especially cheap phones for emerging markets. Beta Labs is a corporate-wide function that serves both units. Another major unit or function in Nokia is the market unit, which is responsible for the manufacturing and sales of Nokia devices. Then we have the Nokia Siemens Networks, which builds network structures that are sold to operators. Finally we have Navteq as a separate unit, which is an outside company that Nokia acquired. Things that are piloted in Beta Labs are mostly created by the mobile solutions unit.

65

I will focus on mobile solutions and phones as Beta Labs mostly serves those two units. How would you describe the customer segment of that organizational unit? The answer to this question can also be found on the corporate website, but to simplify, the customers are mobile phone users and potential mobile phone users. The unit mobile phones specifies specifically to emerging markets like India, China, Brasil and so forth. Mobile solutions builds high-end devices which are Symbian and Migo based devices and services. Their customers have more requirements for their phones and got more money to spent. It’s a very broad segmentation. I will skip the other questions on the main business model and structure of Nokia, I will try to find the answers on the website first, I might get back to you on that. Now, my questions will focus on the startup and objectives of the innovation Beta Labs from the perspective of Nokia, the open innovation initiating organization. In other words; how and why did Beta Labs come to be. The first question regarding that is: was there any initiating idea, knowledge or intellectual property around which Beta labs evolved? Basically, Beta Labs was formed early 2007 and back then Nokia was making a strategy and organizational change. We made the explicit decision that Nokia was going to focus on the services business. In order to survive in the Internet services game, we recognized that conventional practices that served us well in the operational businesses would not help us in the development of new services. And because this was such a new game for Nokia to play, we needed an environment where we could experiment with new innovations with more freedom to innovate then with the conventional practices. So we looked at other companies. Google had Google Labs for example, Microsoft also had extensive beta testing programs, Adobe had Adobe labs, Yahoo had similar initiatives and so forth. We recognized that because all our competitors in this new domain of Internet services had places to test beta trials and experiment with innovations, it was obvious that we needed something similar as well. When reviewing the interview and findings, Tommi Vilkamo added to this answer: About theoretical foundation for Beta Labs, I think the strongest influencers were Henry Chesbrough’s writings about open Innovation and Eric von Hippel’s writings about lead-user innovation. Of course, lots of easy-reading business books like Wisdom of Crowds, Naked Conversations, Cluetrain Manifesto, Seth Godin’s books, Herd, etc. had their influence as well, but these are probably not suitable to mention in your thesis work. I guess my point here is that we were not trying to copy competitors, but we studied them, we studied the literature, we studied our own business context – and came up with something unique. Ultimately, I think we have pushed the envelope of co-creation a few steps further than our benchmarks ever did. So that was the motive to start with Beta Labs. What was the objective or were the objectives of Beta Labs at the start of the initiative? In the past few years we had several objectives, we update them every 6 months or so. The general underlining objective was to be competitive in the services game. We were new to the services game and this initiative had to help in this new domain. Next to this very broad strategy goal, we had some smaller practical goals as well. We believed in the practice of co-creation with your most passionate customers and thought that that would be one way for Nokia to create better innovations and services. So the background thinking was to make Nokia succeed in the services game and the means was to change the R&D culture into more open innovation and co-creation. Of course we had some practical goals as well, for example we said we had to have 20 cool prototypes in public and we needed to attract at least 100.000 users in the community. Did the objectives change over time? How and why? It is standard practice for Nokia to set targets for six months in advance for operational plans and 3 years in advance for business strategy planning. So any initiative within Nokia has a three year strategy roadmap and a 6 months short-term plan. This is the way Nokia operates. The reason for this is that the world constantly changes and thus, plans and targets have to be adjusted on regular basis.

66

You already said that Beta Labs is connected to the R&D department. Is the initiative also connected to other departments? The funny thing about Beta Labs is that it seems to be connected to everywhere. What we have here is a community of 100.000 users, a publishing channel for Nokia R&D projects and some marketing activities. So basically we seem to be connected to all departments of this company. It is partly R&D, partly corporate communications when you publish something and partly marketing. Also, it is partly customer care when you respond to customer questions. It is partly IPR, about who owns the IPR created in open innovation because there are a lot of legal and brand questions, how we brand different things and so forth. You see, we are a spider in a web that covers the whole company and a huge public audience. Could you explain a little bit more of how IPR and marketing are integrated in Beta Labs? Were those functions involved in the creation of Beta Labs, or were they involved later? They have been always loosely integrated, but we try to limit their exposure. Nokia has a very large and extremely powerful marketing machinery, but with Beta Labs we intentionally don’t want to use them that much. When we are creating beta prototypes and experimenting with new things we don’t want too much publicity. So we intentionally do not promote a lot. Marketing is actually mostly involved to make sure that we do not do anything counterproductive. It is mostly a sanity check to see if we are not harming Nokia’s existing business. IPR is something that is usually very tricky in co-creation; who owns the innovation in such practices? We have tried to simplify and solve that issue by basically stating in the terms of service that if you send feedback to Nokia, Nokia is free to do anything it wants with the feedback. So IPR is also mostly involved to check if we do not do anything stupid. Were other participants, third parties, also involved in the creation of Beta Labs? Not in the creation. Obviously we used some subcontractors, for example to build the website and so forth, but we didn’t have any partners at the beginning. Just recently we are expanding the scope. So far it has been to pilot Nokia’s own prototypes in Beta Labs, but now we want to give the opportunity to Nokia’s partners and other companies in Nokia development practices to use the tool. In April we piloted Microsoft Silverlight in Beta Labs and in the coming months we plan to pilot a few partner innovations in Beta Labs as well. Did Nokia define key success factors at the start-up of Beta Labs? In the beginning the key success factors were quite crude, like we need at least 20 prototypes that pilot in public, and we need at least 100.000 people who try-out applications and we need at least 2000 feedback post in this specific area, and so forth. But nowadays we have more sophisticated means to measure our own success. For example, we have created a community-health framework for measuring how healthy the actual co-creation ecosystem is. About how many people are actually participating and check responses to their questions and so forth. The following questions are more specifically related to the business model of Beta Labs. The first question regarding that is: what is the added value of Beta Labs for its users? In other words: why do users use Beta Labs? We have defined that Beta Labs creates value in 4 different ways. The first way is to create value for the users of Beta Labs. Secondly we create value for the R&D teams who pilot their innovations in Beta Labs. Thirdly we create value for Nokia’s decision makers and portfolio managers. Fourthly we create value for Nokia’s brand. The value we create for the user community of Beta Labs is twofold: firstly the users are the kind of users that always want the latest technical innovations; they are technical lead users. For them, getting early access to Nokia innovations is a very attractive proposition, even if the quality is not mature enough for commercial release they are very excited to get early access. Secondly, the opportunity to make a difference is of value to the user. There are thousands of people who are burning with the desire to tell Nokia how to create better products. Just by listening to them and showing our appreciation and in best case improving a product based on their wishes is enough of a reason for them to contribute. To sum up it is twofold: getting cool stuff for free and secondly opportunity to contribute.

67

How does Beta Labs add value to the brand? That’s a harder question to answer because that value is much harder t measure. Nokia has been estimated to be in the top 50 or so brands in the world and Beta Labs creates value for the brand by showcasing how open minded and innovative the company is. There used to be quite a lot of articles online and in the press discussing and showcasing Beta Labs. Most were like: “look how cool Nokia innovates and creates new stuff and how friendly Nokia is to take users into account when they develop new things”. For example, we were interviewed for an article in Newsweek regarding Beta Labs. But the main value of Beta Labs is about the first two points; value for users and value for R&D teams. Value for the brand and portfolio management are side benefits. Could you elaborate a bit further on value for R&D? How does it translate into (measurable) value for Nokia? The value for R&D teams if I simplify it is twofold: the first part is by getting feedback early in the development enables them to build better products. The earlier you get valuable feedback the better advantage you have to react and to build a better product. Secondly it is the marketing benefit and this was a bit of an unexpected benefit for us, but when you release something early and take users as co developers you easily create fans, or ambassadors in that communities who spread the word on your behalf. Getting these kinds of early adaptor communities trying your innovation and spreading the word online in social networks and so forth. That is a surprisingly powerful benefit for the R&D teams. That was about the value that Nokia gets out of Beta Labs. What about the value Nokia puts in? Are those two measured and balanced? The benefits are so intangible that they are very difficult to quantify. We have tried to calculate the benefits, but unfortunately I am not allowed to show you the calculations. To give you a rough estimation about what we think within our team, is that we make ten times the value compared to the value Nokia puts in. Our own Beta Labs team is only the spider in a web like I said; we only provide the website and the community and so forth. We are the middle-man, the facilitator between Nokia R&D teams and the user community. The effort we put in is definitely a good investment for Nokia; Nokia has been increasing the investments in our activity every year. How many people work in the Beta Labs team? The core facilitating team is very small, it consists of only three people. But in the whole community, hundreds of people from Nokia are somehow involved. How do you reach the users you want to connect to, the lead users? How do they find Beta Labs? We do not use active marketing, only viral marketing. The reason for this is that we do not want to get everybody involved in Beta Labs. We only want to reach people we call lead users. We just want 1% of the most passionate customers; we do not want everybody. We learned pretty quickly that even without marketing at all, the most passionate users will find Beta Labs using social media and getting recommended to us by others and so forth. It is a self-selecting community. If you are passionate enough about the latest innovations in the mobile field, then you will know about Nokia Beta Labs. If you are not, it is likely you never hear about it. And we are happy with this because we only want to target the most passionate customers. How would you describe the main activity of the Beta Labs team? The first is providing the infrastructure; the website and the technical tools for the community. The second function is the managing the publishing process; finding the best innovations from Nokia and outside to showcase and acting as a gatekeeper to make sure that we promote and pilot right things. Our third activity is community management; we have one dedicated person who is looking out for the health of the community by interacting with the users and making sure that the dialogues between R&D teams and the users are healthy. Which quantifiable measures have been defined to monitor the success of the practice? We tried to do quantify business value in monetary terms in four parts: value for users, value for R&D, value for decision makers and value for the brand as explained earlier. But because it is so hard to put a monetary value on our efforts, the practical measurement and target setting for our team is more qualitative in nature.

68

Interview Raymond Cloosterman, may 2010 Kent u de term open innovatie en wat houdt deze voor u in? Nee, die term zegt me niets. Wat was uw rol nu binnen Unilever, en wat is deze nu binnen Rituals. Ik heb verschillende rollen gehad binnen Unilever, van trainee tot general manager. Eerst marketing, toen sales, toen verkoop directeur, toen algemeen directeur. Voor mijn laatste baan ben ik naar het Europese hoofdkantoor gegaan als senior vice president new business development. Mijn opdracht voor die laatste baan was een soort free-wheel opdracht om op zoek te gaan naar nieuwe inzichten die we op het gebied van merken, distributie en new business konden gebruiken binnen Unilever. Die laatste baan was voor mij het meest boeiend, want aan de hand van die inzichten heb ik besloten om ontslag te nemen. Om iets te gaan creëren vanuit die nieuwe principes. Dat creëren is in de eerste instantie met hulp van Unilever als investeerder gebeurt. Daarna, twee jaar later zijn ze uitgekocht. Mijn rol binnen Rituals is CEO; ik zou het omschrijven als algemeen- en creatief directeur. En uw rol binnen de start-up van Rituals? Ik heb het verzonnen. Al werkt het natuurlijk niet helemaal zo; je verzamelt een club mensen om je heen die inspireren en helpen en waarmee je samen het bedrijf opbouwt. U heeft ontslag genomen. Was het feit dat zij uw werkgever zijn geweest en ze mee hebben geïnvesteerd en startkapitaal hebben geleverd de enige link tussen Unilever en Rituals? Na mijn laatste opdracht ben ik teruggekomen met het idee van Rituals. Voor die opdracht ben ik gaan reizen, op zoek gegaan naar inspirerende mensen en plekken waar nieuw denken plaatsvond. In die tijd was ik vooral op zoek naar nieuwe inzichten die ik persoonlijk ook boeiend vond, en hoe we daar wat mee konden binnen Unilever. Die inzichten heb ik gedocumenteerd en gedeeld met het topmanagement van Unilever. Dit was voor mij echter niet bevredigend, dit kan iedereen. Ik kreeg de smaak zo te pakken, dat ik naast de analyse en het ontwikkelde theoretisch framework ook daadwerkelijk iets wilde doen met die nieuwe inzichten; iets te creëren dat mensen raakt. Dat vond ik ècht mijn uitdaging. Dat was allemaal nog binnen Unilever. Toen heb ik aan mijn baas nog 3 maanden extra gevraagd om echt iets te gaan creeeren. Toen is het idee Rituals geboren. Dat idee heb ik toen uitgeschreven; een soort opstel. Daarna heb ik een aantal goede mensen om mij heen verzameld in Parijs; onder andere een goede designer, een antropologe en twee top parfumeurs. Die hebben mij geholpen om die acht pagina’s opstel verder uit te werken om tot een compleet beeld te komen. Met dat beeld als uitgangspunt heb ik toen een businessplan geschreven. Tijdens dit proces kwam ik tot de conclusie dat het idee zo goed, uniek, en risicovol was, en zo kleinschalig in de start, dat het binnen een grote multinational als Unilever nooit de kans zou krijgen. Maar daar kun je iedere grote multinational invullen. De reden hiervoor is dat wat wij doen haaks staat op wat een grote onderneming zoekt, namelijk schaal. Ze beslissen met consensus. Terwijl ik wil juist klein wilde beginnen en al doende wilde ontdekken en leren welke besluiten de beste waren. Hoe begon het idee Rituals in de kern? Was het een formule of product, of was het direct het hele concept? Nee, het is echt vanuit het concept gestart. Dat was ook één van mijn innovatie-inzichten, welke ik in de eerste instantie ook heb gedeeld met Unilever. Eigenlijk heb ik twee inzichten ontwikkeld met betrekking tot het nieuwe merkdenken, welke ik ook heb gebruikt voor het concept Rituals. Eén; het inzicht dat het controleren van de plek waar je product gekocht wordt belangrijker is dan de plek waar het product gemaakt wordt. Met andere woorden; controle op de retail-omgeving vind ik belangrijker dan het hebben van die fabrieken zelf. Een beetje zoals Nike en Dell dat ook doen. Dát heb ik toegepast op cosmetica en persoonlijke verzorging. Dat werkt binnen Unilever heel anders. Wij maken dus gebruik van externe laboratoria en fabrieken, waardoor je veel meer mensen kunt mobiliseren die voor je kunnen en willen werken en waardoor je nieuwe en betere technologie sneller kunt hebben en toepassen. Hierdoor kun je beter inspelen op ontwikkelingen. Het tweede belangrijke inzicht is de manier van innoveren, waarbij ik heb gekozen om de innovatie- of creatie-piramide om te draaien. En dus niet te starten zoals dat gebruikelijk is vanuit bijvoorbeeld een laboratorium met een doorbraak op het

69

gebied van moleculen, waar dan een formule omheen gemaakt wordt, en een parfum, en een verpakking, waar dan reclame bij gemaakt wordt en waarmee we dan naar bijvoorbeeld Albert Heijn gaan zodat zij het kunnen gaan verkopen. Ik heb dit proces juist omgedraaid. Het inzicht was dat je beter kan starten vanuit de filosofie. Ik ga eerst op zoek naar een filosofie die mensen raakt. Zodra ik die heb ga ik daar producten bij zoeken. En zodra ik de producten verzonnen heb, zoek ik daar fabrieken bij. Een andere manier van innoveren, totaal anders dan dat Unilever doet. U geeft aan dat u van uw baas een free-wheel opdracht heeft gekregen om tot nieuwe inzichten te komen. Uiteindelijk hebben dezelfde inzichten u ertoe doen bewegen om te stoppen voor diezelfde baas die u die vrijheid gaf, omdat ze niet binnen Unilever uitgevoerd konden worden. Hoe ging Unilever daarmee om? Stonden ze daar open voor? Hebben ze u hierin ondersteund? In de praktijk ging het iets anders. Ik ben toen op reis gegaan en ben met een groot aantal nieuwe inzichten teruggekomen. Deze heb ik eerlijk gedeeld met de hele organisatie. Op die manier hebben ze daar in de eerste instantie dus wel wat voor terug gekregen. Daarna ben ik doorgegaan met creëren. Ik kwam tot de conclusie dat mijn concept, Rituals, buiten het grote bedrijf hoort omdat het haaks staat op hun filosofie; het concept heeft een hoog risico, het is kleinschalig, en ik wilde niet opereren onder het cynisme van grote bedrijven. Je hebt mensen nodig die er met alle plezier in geloven, alleen dan maakt een goed idee een kans. Toen ben ik naar Unilever gegaan en heb ik hen een voorstel gedaan. Ik heb hen verteld dat ik ontslag zou nemen om door te kunnen gaan met het idee. Ik wilde mijn eigen spaargeld investeren en heb gevraagd of dat Unilever mee wilde doen als venture capitalist. Zij stonden daarvoor open en zijn toen als investeerder meegegaan. Zo is het begonnen. Zij waren in de eerste periode grootaandeelhouder. Het was voor hun toen een heel interessant model. zo heb ik het toen ook gepitcht; “jullie hebben heel veel ideeën, en ondernemende mensen in dienst die niet in het standaard patroon passen. Door je op een nieuwe manier te organiseren, als een soort venture capitalist, kun je die ideeën en mensen een eerlijke kans geven, waarmee je en innovatie en ondernemerschap aan een gouden touwtje hebt. Daar zijn zij toen mee akkoord gegaan; ze vonden het een interessante benadering. Als ik het goed heb hebben zij zich ondertussen uit laten kopen. Zij zijn geen grootaandeelhouder meer? Inderdaad, twee jaar later zijn zij uitgekocht. Het was een heel interessant en nieuw model toen wij startten. Naar aanleiding daarvan is Unilever een venture capital programma begonnen, om op die manier meer dingen te doen. Dat hebben ze echter daarna ook weer opgedoekt, ze waren er toch niet goed in. Het zit niet in de genen van Unilever om start-ups te begeleiden, het zijn geen pioniers. Ze zijn als bedrijf vooral heel goed in bestaande ideeën te optimaliseren en heel groot te maken. Misschien bent u niet de juiste persoon om dit te vragen, maar met hun investering als venture capitalist had Unilever een bepaald rendement voor ogen. Hebben zij deze behaald? Was het voor hen een goede investering, of hebben ze er spijt van gehad? Ja en nee. Zakelijk gezien hebben ze het na twee jaar teruggekocht en toen maakten we veel verlies. Wat van belang is in deze is de reden dat we uit elkaar zijn gegaan. Op de eerste plaats had Unilever het namelijk op dat moment wat lastiger op zakelijk vlak. Wat er dan gebeurt is dat alle nieuwe ideeën of doorbraakinnovaties die complexer zijn als eerste afgestoten of stopgezet worden. Die kosten alleen maar geld en leveren op de korte termijn niets op. Gelukkig stonden wij buiten Unilever en hadden we een heel duidelijk investeringscontract. Daarom konden wij doorgaan, ondanks dat het klimaat veranderde. De andere reden was dat wij gingen retailen, met eigen winkels starten, terwijl ze bij Unilever absoluut niets met retail te maken willen hebben. Unilever ging ook Calvin Klein en de prestigebusiness verkopen op dat moment, terwijl wij juist de weg van een prestigebusiness ingeslagen waren. En belangrijker nog, ze waren toen strategisch aan het kiezen voor 400 merken, uit een portfolio van 1600 merken (‘Path to growth’ strategie). Daar past zo’n klein merk, met relatief nauwelijks omzet, helemaal niet tussen. Er waren dus een aantal aanleidingen waardoor het niet meer zo goed paste. Wij hebben toen besloten en gezegd dat we wèl compleet en honderd procent gecommitteerd waren en dat wij wilden dat onze partners dat ook zouden zijn. Toen zijn we uit elkaar gegaan; hebben we ons uitgekocht. Dat is de achtergrond. En dat is verder goed gebeurt. Wat ook meespeelde voor Unilever is dat in die tijd de kans ook nog steeds groot was dat het niet zou lukken met Rituals, groter dan dat we er wel zouden komen. We hadden een bepaalde omzet en daar schoot het maar niet mee op, er moest zelfs nog veel geld bij. Al die zaken bij elkaar deden hen besluiten de investering te willen stoppen. Daarna hebben we er zelf nog geld bij in gestopt.

70

En achteraf, je vroeg of ze er spijt van hebben gehad, denk ik dat nog steeds een groot aantal mensen binnen Unilever er helemaal geen spijt van hebben gehad; voor Unilever begrippen zijn we nog steeds een heel klein kliekje. Ze hadden toch wel meer rendement uit hun investering kunnen halen als ik het zo hoor? Inderdaad, maar dan hadden ze meer moeten investeren, langer moeten blijven zitten, en moeten hopen dat het aan zou slaan; meer risico nemen. Op het moment dat we uit elkaar gingen hadden ze nooit door geïnvesteerd. Dus toen hebben wij dat risico overgenomen en daar zijn we achteraf gelukkig voor beloond. Unilever heeft in de tijd dat ze investeerder waren inderdaad geen rendement gehaald; het heeft hen zelf geld gekost. Maar op een bepaalde manier kosten merken altijd veel geld. In de cosmetica en parfumwereld haalt maar een paar procent van de smaken en geuren die worden geïntroduceerd het; worden uiteindelijk succesvol. De rest is weggegooid geld. Zo werkt dat. Nu over Rituals zelf. Hoe zou u de waardepropositie van Rituals voor haar klanten omschrijven? In het kort is de toegevoegde waarde van ons bedrijf: mensen weer leren en laten genieten van de kleine momenten in het leven door van routines rituelen te maken. Dat is onze filosofie. Zakelijk gezien proberen wij een nieuw wereldmerk te bouwen, dus een nieuwe Chanel of Estée Lauder, maar dan wel tegen een bodyshop prijs. Dus wij brengen de wereld van prestige voor een betaalbare prijs. Met betrekking tot die tweede, wat zijn de kern resources en/of activiteiten van Rituals om dat te bewerkstelligen. U zegt dat het bij Unilever via eigen laboratoria en eigen productieomgevingen gaat en dat Rituals dat niet doet, maar met partners werkt. Wat zijn de key resources die Rituals tot Rituals maakt? Ik weet eigenlijk niet wat Rituals tot Rituals maakt. Ik denk dat wij een bijzondere visie hebben, zeer creatief zijn en dat we heel goed kunnen organiseren. Wat bedoelt u met organiseren? Daar bedoel ik mee; als we een idee hebben hoe we dat realiseren. Stel, de visie is; we willen de wereld van wellness naar de hoofdstraat brengen, boven onze winkels (city-spa’s). Waar beginnen we, hoe doen we dat? Dat noem ik organiseren. Wie haal ik erbij, en wat besteed ik uit? Hoe maken we van een idee iets echts, hoe realiseren we dat? Daar zijn we goed in. Terug naar de start-up. Heeft u toen u net begon met Rituals bepaalde concrete doelen gedefinieerd? In de eerste instantie begin je natuurlijk vanuit een business plan en een bedrijfsmodel. Een van de dingen die we vanaf het begin hebben aangehouden in overleg met Unilever, is dat we deels nog moeten ontdekken hoe we van een bijzonder idee een gezond bedrijf maken. Dus hoewel er een bedrijfsplan lag hebben we er altijd bij gezegd; wij nemen de vrijheid om het bedrijfsmodel bij te stellen. Omdat we moeten gaan ontdekken wat en waar het aanslaat en wat of waar niet. Een voorbeeld hiervan is de combinatie van distributie-elementen die ons verder helpen in ons doel. We zijn dus wel degelijk met doelstellingen gestart, maar we zijn er ook flexibel mee omgegaan. Heel anders dan in grote bedrijven waar heel analytisch naar dit soort zaken worden gekeken. Waar vooral vanuit return on investment wordt gedacht en alles vanuit cijfers en staatjes verklaard moet kunnen worden. Wij hebben het juist heel organisch aangepakt. We definieerden een doel, we keken waar we begonnen, dan gaan we kijken hoe we daar komen. Er ligt dus een model, maar dat hebben we op een gegeven moment wel bijgeschaafd. En er was natuurlijk een budget waar niet aan te tornen viel, meer geld was er gewoon niet. Met betrekking tot onze initiële doelstellingen hebben we zakelijk gezien van de eerste vijf jaar van wat er in het businessplan stond niets gerealiseerd. De resultaten vielen ieder jaar behoorlijk lager uit. Maar dat is als je naar de cijfers kijkt; conceptueel hebben we die jaren wel het concept verder bijgeslepen en verder gebouwd, waardoor we daarna konden versnellen. In onze tak van sport zet je de doelstellingen anders per fase waar het bedrijf in zit. Het eerste jaar ben je blij dat je de kerst haalt, het tweede jaar ben je blij als je kiet draait, áls je dat al kan halen. Nu zetten we onszelf heel andere doelstellingen dan een paar jaar geleden. Je mag dus ook best je plannen herzien. Je kunt beter vanuit een visie werken, vanuit een droom, met een realistische aanpak en een realistisch concept en dan ieder jaar kijken

71

van hoe je moet bijsturen. Dat is heel lastig voor mensen om mee om te gaan, helemaal voor investeerders, want die willen toch wel een soort van zekerheid hebben. En dat is ons geluk geweest met Unilver aan het begin. Ons eigen bedrijf zijn we met eigen geld èn Unilever geld gestart. Omdat zij in de eerste instantie akkoord gingen met onze lange termijn aanpak, en omdat ze dat konden laten lopen, hadden wij veel vrijhaid in het begin. We zagen hen twee keer per jaar op de aandeelhoudersvergadering, en daar waren ze kritisch opbouwend, niet beperkend. U heeft het over ‘ons’ eigen bedrijf. Wanneer is ‘uw’ idee, ‘jullie’ idee geworden? Is dat nog binnen Unilever gebeurt of bij de spin-off, op het moment van de start-up? Dat was op het moment toen we een BV zijn begonnen, met Unilever als grootaandeelhouder. Toen heb ik er een paar partners bijgezocht die ook mee-investeerden en ook een inkomen door drie wilden delen. Zo zijn we toen gestart. Nog een vraag over de samenwerking met Unilever. Want het idee is binnen Unilever ontstaan, dat is duidelijk. Zijn er ook nog andere zaken van Unilever meegegaan; eerste producten of formules of iets dergelijks? In de eerste instantie een beperkt aantal formules. En van de 175 producten hebben we er in de eerste instantie een stuk of 10 door Unilever laten produceren, bij hun fabrieken. Daar zijn we binnen één à twee jaar mee gestopt. We hadden een aantal producten daar hebben we fabrieken bijgezocht. En een beperkt aantal producten die we initieel bij Unilever lieten produceren hebben we verschoven naar andere fabrieken. De reden hiervoor was dat we met ons relatief kleine volume, alle processen binnen hun productieomgevingen verstoorden. Dat is logisch in het begin; daar zitten zij helemaal niet op te wachten, en zelf eigenlijk ook niet; ze zijn niet gewend om in het klein te denken. Vandaar dat wij op een gegeven moment helemaal naar buiten zijn gegaan en met exclusievere fabrieken zijn gaan werken. Dat werkte prima. Unilever blij omdat de bestaande processen niet meer verstoord werden, wij blij omdat we flexibeler werden. Nog een laatste algemene vraag. Unilever had de rol van Venture Capitalist. In hoeverre werkte dat, of in hoeverre was dat toch geen fijne constructie? Het was een uitstekende constructie. Je bent namelijk ook afhankelijk van de mensen die de investering begeleiden. Het gaat over pure pioniers en ondernemers die een dergelijke spin-off moeten opstarten. Als daar reguliere standaard managers boven komen te zitten van een groot bedrijf, die zelf die ervaring niet hebben, dan kunnen die als je niet uitkijkt net de verkeerde knoppen indrukken. Ik heb een belangrijk deel van het project gewerkt onder mijn voormalige baas, die zat in de raad van bestuur. Hij controleerde op hoofdlijnen en gaf ons de ruimte. Dan is het perfect, dat werkte heel goed. Je hebt namelijk ook venture capitalists die bemoeien zich met alles wat scheef gaat; die continu willen bijsturen. Unilever stuurde ons op grote lijnen aan. We moesten hen alleen op de hoogte houden en een paar keer per jaar op de aandeelhoudersvergadering keken ze serieus mee.