Demand and Design Choices in an Open Innovation system: The case for CoPS and B2B Virginia Acha CoPS Centre, SPRU & CENTRIM (Us of Sussex &Brighton) Presentation to the CIS User Group DTI Innovation Economics Conference November 17, 2006 Work in Progress

Project Team Centre for Complex Products and Systems (CoPS) - Virginia Acha - Mike Hobday - Howard Rush CENTRIM, University of Brighton

Overview Demand and Design Choices in an Open Innovation System Research Aims Project Methodology Descriptive findings - B2B and CoPS Characteristics in the UK population Innovative profile Open Innovation in CIS4 Through the B2B and CoPS lenses Drivers for Open Innovation patterns Role of design and market dynamics Models and preliminary results Limitations and Conclusions

Demand and Design Choices in an Open Innovation system Research Aims Open innovation models used to describe increasingly complex and distributed patterns of innovation (Chesbrough, 2003; von Hippel and von Krogh, 2003; Coombs, Harvey and Tether, 2001) Pattern that has been core to the development of Complex Products and Systems (CoPS) o Emergence of systems integration and integrated solutions in response o Core role of design and customer engagement in these responses Complex Products and Systems (CoPS) High value, engineering-intensive customised capital goods Produced in one-off projects or small batches (Hobday, 1998) Decade of empirical, largely case study research (ESRC Centre, Economic impact and classification (Acha et al, 2004)

Extend to B2B CoPS as a leading sector of B2B innovation Can open innovation patterns be found in both o CoPS o B2B Drivers for Open Innovation Characteristics of CoPS innovation and production patterns lend themselves to open structures Design, customer engagement, undefined markets as drivers Test these questions using the CIS4 Define B2B (Q3) Define CoPS o Classification system (Acha et al, 2004) o CoPS-based Services classification also done in previous study, now applicable Demand and Design Choices in an Open Innovation system

Overview Demand and Design Choices in an Open Innovation System Research Aims Project Methodology Descriptive findings - B2B and CoPS Characteristics in the UK population Innovative profile Open Innovation in CIS4 Through the B2B and CoPS lenses Drivers for Open Innovation patterns Role of design and market dynamics Models and preliminary results Limitations and Conclusions

Key Descriptives: B2B Firms by main customers - B2B* 71% of all respondents B2B or B2G B2C Both B2B & B2G Both B2B & B2C All Question 3 is open to some interpretation, as some firms recorded mixed markets.

Key Descriptives: CoPS are B2B By definition, CoPS are B2B, arent they? Based on established classification (Industrial and Corporate Change, 2004) Addition of CoPS-based services CoPS classified respondents cross-checked by main customers 356 firms identified as CoPS but with B2C markets, of which o 17 o 17 also have B2B customers, and o 11 o 11 have B2G customers Seven SIC codes account for 78% of this crossover o In services and construction o 3 dropped from the CoPS filter - ambiguous o 4 retained: queried share small in comparison, clear CoPS relevance (e.g. telecommunications, engineering consultancy)

Key Descriptives : CoPS Manufacturing & Construction Services CoPS CoPS firms represent 14% of the survey population.

Patterns in Innovation B2B - greater innovators CoPS even more so Product, Process Innovation in CoPS Services -Integrated Solutions CoPS Services leading in service innovations

Degree of novelty in Innovation Greater novelty in B2B and CoPS

Overview Demand and Design Choices in an Open Innovation System Research Aims Project Methodology Descriptive findings - B2B and CoPS Characteristics in the UK population Innovative profile Open Innovation in CIS4 Through the B2B and CoPS lenses Drivers for Open Innovation patterns Role of design and market dynamics Models and preliminary results Limitations and Conclusions

Relative openness in Product Innovation B2C relatively more open to external sources CoPS more collaborative But 2/3rds still mainly done in- house

Relative openness in Process Innovation Again B2C relatively more open to external sources CoPS do more in-house

Openness in Innovation Activities ** significance, except for CoPS production, Acquisition of External Knowledge B2B more open in unlinked innovation activities CoPS more open and do more in- house Design features prominently

Breadth and Depth of Information Sources ** significance for all Laursen & Salter (2006) All sources - count Breadth & Depth - count where Medium or High B2B and CoPS more intensive users of sources of information

Overview Demand and Design Choices in an Open Innovation System Research Aims Project Methodology Descriptive findings - B2B and CoPS Characteristics in the UK population Innovative profile Open Innovation in CIS4 Through the B2B and CoPS lenses Drivers for Open Innovation patterns Role of design and market dynamics Models and preliminary results Limitations and Conclusions

What leads to Open Innovation? Descriptive evidence shows B2B and CoPS firms as relatively open innovation systems Collaboration Drawing externally for innovation o More for CoPS than B2B for innovations o Both in innovation activities More intensive users of information o Breadth and Depth (Laursen & Salter, 2006) What drives the process to open innovation? Chesbrough (2003) reflects upon o Markets for ideas and technology o Availability and mobility of human capital o Distributed and enhanced capability across the value chain

What leads to Open Innovation? Tendency to open innovation patterns may also be related to: Nature of innovation in the firm Market dynamics for the firm Nature of innovation in the firm Partitioning of the innovation process Design as a translator, bridge across stages, sectors, specialisations o Role of design (Tether, DTI Presentation, 2006; Whyte, Bessant and Neely, 2005) o In partitioning (von Hippel, 1990) Market dynamics for the firm Uncertainty, unknown markets Engagement with the consumer

Testing for Open Characteristics Openness How to construct a variable? Characteristics of openness across questionnaire o How innovations are developed (Q6, Q10) Innovation through collaboration Innovation through others o Innovation activities (Q13) and values (Q14) Acquisition of R&D or Acquisition of External Knowledge o Sources of information (Q16) Breadth and depth o Co-operation (Q17, Q18) Correlations show interesting distinctions Open Activities - selected as a proxy

Measures of Openness

Testing the sources: Design Openness = ƒ(importance of design) Proxies Design activities (Q13) Registration of design (Q21) Complexity of design (Q21) Predicted positive relationships with open activities Logistic regression 15,699 used in analysis Size (employment), B2B, CoPS

Design model results Proxies are positively related, as predicted. Design activities and Design complexity influential and positively correlated with open activities. Registration less influential CoPS and size weakly positive; B2B weakly negative

Testing the sources: Market Dynamics Openness = ƒ(Importance of customer engagement, cloudy markets) Proxies Clients as a source of information (Q16) Clients as collaborators (Q18) Lack of information on markets (Q19) Uncertain demand (Q19) Predicted positive relationships with open activities Logistic regression 15,684 used in analysis Size (employment), B2B, CoPS

Market Dynamics model results Proxies are positively related, as predicted. Client engagement positive and influential Cloudy markets positive but only weakly influential CoPS and size weakly positive; B2B weakly negative

Limitations and To Do Fine tune the individual models Some noise in the results Comparison of B2B, CoPS, CoPS production, CoPS services sub-groups Link the models Only a partial answer to the question, What drives open innovation processes? Design, Market dynamics +… Proxies are limited o Time dimension to demonstrate dynamics Causality cannot be proven Only correlation Other research methods needed to establish direction of link

Conclusions CoPS are relatively more open in innovation B2B show more open innovation practices (activities, practices) B2C innovations acquired more externally Measures of openness show interesting distinctions o Choice is meaningful Features that have contributed to open structures in CoPS may be drivers in all sectors Evidence from design and market models Needs confirmation of a linked, more fully specified model Needs further qualitative search to establish process, causality

Conclusions Policy implications Systems Integrators, design play important connecting roles in an open innovation environment Drivers for openness beyond opportunity o Beyond availability of resources and markets for knowledge o Perhaps more structural features which will shape the degree to which innovation systems become open Role for policy

Questions and Discussion