IUBH – Berlin
Summer Semester – 2018
Professor: Dr. Dominique Pascal Gross
Written and Presented by,
Anish Vyas – MBA (90ECTS)- 3180847
Humaira Khan – MBA (60ECTS)- 3180735
Virendra Bhalani – MLM (60ECTS) –
To what extent do you consider a patenting of the inventions in the two mentioned fields of technology as recommendable?
Explain the concept of patenting and possible motives for the companies involved
Do you see any specific features in the fields of application, which make patenting appear particularly interesting – or less interesting?
Patents are a form of intellectual property. The word patent originates from the Latin patere, which means “to lay open” (i.e., to make available for public inspection). More directly, it is a shortened version of the term letters patent, which was an open document or instrument issued by a monarch or government granting exclusive rights to a person, predating the modern patent system. Similar grants included land patents, which were land grants by early state governments in the USA, and printing patents, a precursor of modern copyright.
In simple words, A Patent is a set of exclusive rights granted by a sovereign state or intergovernmental organization to an inventor or assignee for a limited period of time in exchange for detailed public disclosure of an invention. An invention is a solution to a specific technological problem and is a product or a process.
Only an inventor may apply for a patent on his or her idea. If two or more people participate in the creation of an invention, the law requires that all participants apply for a patent as joint inventors. A person applying for a patent on an idea he or she did not directly invent is subject to criminal penalties and invalidation of the patent, if one was issued. A person making only a financial contribution to an invention can’t be named as a joint inventor.
The procedure for granting patents, requirements placed on the patentee, and the extent of the exclusive rights vary widely between countries according to national laws and international agreements. Typically, however, a granted patent application must include one or more claims that define the invention. A patent may include many claims, each of which defines a specific property right. These claims must meet relevant patentability requirements, such as novelty, usefulness, and non-obviousness. The exclusive right granted to a patentee in most countries is the right to prevent others, or at least to try to prevent others, from commercially making, using, selling, importing, or distributing a patented invention without permission.
Companies general opt for patent for various reasons, which are,
If the company is planning to manufacture and sell its product itself–as opposed to licensing it to another company–a patent can help the company better justify its investment in design, production and marketing. That’s because they will have the comfort of lead time over those who might “knock off” its product, and the peace of mind that the invention is protected by law and that this protection can be enforced if someone infringes on their rights.
If they are planning to license their product to another company, a patent can be a valuable asset during negotiations. Because they have reduced the prospective company’s upfront legal costs–and risks–a patent can provide leverage to ask for a higher royalty payment. Companies patent also gives a them the confidence that they won’t be infringing on another patent if they license their idea. (In fact, many companies I might want to sell my invention to are only willing to consider licensing patented or patent-pending inventions.)
There is specific organisation form for the intellectual property right which is (WIPO) WORLD INTELLACTUAL PROPERTY ORGANISATION.
WIPO is an intergovernmental organisation was sign on July 14. 1967 with respect to the 13 state. And come into enforce in 1970 amended in 1979. in 1974 WIPO become specialised agencies of the united national system of organisation. Now till date 152 state has sign the (PCT) patent cooperation treaty. WIPO works and giving grant to application for the following things
International patient cooperation treaty (PCT)
International trademark system
International design system
International system of application of origin
As of today, following success of the WIPO
6,97,10,000 international and national document
3,60,70,000 records of trademark, application of origin and emblems from multiple national and international sources
29,10,000 industrial design registrations from the huge system and participating national collection.
The role of WIPO in the PCT?
WIPO administers the PCT. It also organizes the PCT Assembly, the PCT Working Group and the Meeting of International Authorities. Further, for each PCT application filed, WIPO is responsible for:
– receiving and storing all application documents;– performing a formality examination;– publishing the international application on WIPO’s online database PATENTSCOPE;– publishing data about the PCT application as prescribed in the Treaty and Regulations;– translating various portions of the PCT application and certain associated documents into English and/or French, where necessary;– communicating documents to Offices and third parties; and– providing legal advice on request to Offices and users.
– provides overall coordination of the PCT System;– provides assistance to existing, new and potential Contracting States and their Offices;– provides advice on implementing the PCT in the national legislation and on setting up internal procedures in the Contracting States’ patent Offices;– publishes the PCT Applicant’s Guide and the PCT Newsletter; – creates and disseminates PCT information via the PCT website, webinars, and through telephone and e-mail assistance; and– organizes and gives PCT seminars and training courses.
Examination by a regional patent office:
Many countries in the world created regional patent office for the filing application for patent, search and examination of reginal patent they are as follows :
European patent organisation (EPO)
Eurasia patent organisation (EAPO)
African intellectual property organisation (OAPI)
African regional intellectual property organisation (ARIPO)
Patent office of the cooperation council for the Arab State of the Gulf (GCC patent office)
Apart of regional office every country having their own patent office it is country specific and patent is valid in the specific country only.
-17145378579Process of patent :
filing an application: Filing: you file an international application with a national or regional patent Office or WIPO, complying with the PCT formality requirements, in one language, and you pay one set of fees.
International Search: an “International Searching Authority” (ISA) (one of the world’s major patent Offices) identifies the published patent documents and technical literature (“prior art”) which may have an influence on whether your invention is patentable, and establishes a written opinion on your invention’s potential patentability.
International Publication: as soon as possible after the expiration of 18 months from the earliest filing date, the content of your international application is disclosed to the world.
Supplementary International Search (optional): a second ISA identifies, at your request, published documents which may not have been found by the first ISA which carried out the main search because of the diversity of prior art in different languages and different technical fields.
International Preliminary Examination (optional): one of the ISAs at your request, carries out an additional patentability analysis, usually on an amended version of your application.
National Phase: after the end of the PCT procedure, usually at 30 months from the earliest filing date of your initial application, from which you claim priority, you start to pursue the grant of your patents directly before the national (or regional) patent Offices of the countries in which you want to obtain them.
How do I protect my invention in several countries?
Patents are territorially limited. In order to protect your invention in multiple countries you have a few options:
Direct or Paris route: you can directly file separate patent applications at the same time in all of the countries in which you would like to protect your invention (for some countries, regional patents may be available) or, having filed in a Paris Convention country (one of the Member States of the Paris Convention for the Protection of Industrial Property), then file separate patent applications in other Paris Convention countries within 12 months from the filing date of that first patent application, giving you the benefit in all those countries of claiming the filing date of the first application (see Question 11);
PCT route: you can file an application under the PCT, directly or within the 12-month period provided for by the Paris Convention from the filing date of a first application, which is valid in all Contracting States of the PCT and, therefore, simpler, easier and more cost-effective than both, direct or Paris route filings.
Cost of patent
Application at EPO:*
•Filing fee: 90 € / 160 € (online/ paper)
•Search fee, international search: 1550 €
•Designation fee, per state:75 €
•Translations: 2,500€ approx. perstate•Renewalfee, per year: increasing from 380€ (3rd yr) to1,020 € (10th and subsequentyr)
•Averagecost (8designatedstates, 10 yrs):approx. 30,000 €**
•Patent attorney: 3,000 € approx.
•notneededfor German patent application(atDPA)
•required for international patent application
In the case of Sony, which is amongst world leaders in consumer electronics, is working together with Sharp and Samsung to manufacture LCD TV’s. As Sony doesn’t have a strong research in LCD technology, it operated as a joint venture 1st with Samsung and now as the case mentions with Sharp. Samsung has patented the LCD technology which gave him competitive advantage and was one of the reason forced Sony to come up with a joint venture.
However, Sharp has come up with an advanced technology to produce LCD for 40 to 60 inch TV’s and Sony is in talks with Sharp to sign a Joint venture and Sony would be investing with Sharp for the project coming up in Sakai near Osaka region which symbolises absorptive capacity Sony has.Samsung is ranked number 1, which is closely followed by Sony and Sharp with Second and third place respectively. Sony and Sharp joining hands means to have a technological as well as to reap economies of scale and together they would have a market share more than Samsung. Sony having more market share than Sharp, is forced to have a joint venture with sharp is only because Sony is not having resources to come up with such an advance technology. However, other reason for not have its own technology is the huge losses faced by Sony and also the dismissing of Labour. However, LCD is a technology used in TV sets currently, and such technology is only good till the time other technologies come in. Like currently its LED, Full HD LED technologies etc which are used by TV set manufactures. Sony made a good decision to have joint ventures with Samsung and then with Sharp. This helped Sony to buy time to come up with a research and also seeing it’s financial situation, I preferred the move of Sony.
Talking about LCD technology, it was 1st introduced in 1880 and since then there have been various improvements and developments in the modern LCD TV sets we use today. As mentioned such technologies need time to evolve and most of the technologies evolve as a mistake or accidents. So it is in inventors interest to come up with a patent.
If we discuss about LCD patent, the history is quite old and companies such as Sharp and Samsung have invested heavily to come up with such technology and it is in their commercial interest to get the LCD technology patented. So, if the company has patents, no competitor would be in a position to develop such technology but it would be forced to buy it from the inventor. In our case stud, Sony is applying the same thing, as Sharp is the inventor of LCD TV’s which Sony needs it for it Bravia TV sets it has decided to invest jointly in the infrastructure at Osaka with Sharp.
To conclude with, It would be in the interest of the Inventor of such technology to get it patented if such inventor is 1st to invent it. If he isn’t, then it would be wise to buy such patent’s and produce similar goods to enjoy economies of scale or to some up with a Joint venture to produce such products like the Sony did (to pump in cash).
Talking about BigPoint, which is an online gaming company incorporated in Hamburg – Germany. It’s Business Model is unique. The user/Gamer has to log in to the gaming portal via any Internet browser and can play the game. While its competitors like Sony (play station), EA sports and Nintendo are behind in such technologies. Coming up with patents for games is unique as bigpoint own its Domain (www.de.bigpoint.com) and none of its competitors would be able to use this domain. However, what’s important is to patent the characters and its game models (like Mafia simulation game, Rising Cities game etc).
Let’s discuss the concept in respect to Video games and how the concept is shifting towards Online gaming and Mobile gaming being the future,
The video game business is no game: it’s a business, and a large one at that. In 2004, the video game industry sold over $6.9 billion worth of games for game consoles, portable devices, and personal computers.2 Throw in the additional amounts spent on the consoles themselves, extra game controllers, and other peripherals, and it becomes easy to see that the stakes are enormous. Not surprisingly, competition is fierce. Companies spend millions of dollars developing new and innovative games, and everyone is looking for an angle to secure a larger portion of the video game market. In the video game industry the slightest edge can translate into serious dollars. For example, industry giant Electronic Arts recently secured an exclusive license from the National Football League, making EA the only supplier of authentic NFL football games for the near future. As another example, film director John Woo (Mission Impossible 2), who made popular the slow motion movie special effect turned video game resource, recently started his own video game development company, Tiger Hill Entertainment, and immediately teamed up with video game publisher Sega. With all this money being invested in video games, why haven’t more video game developers been turning to patents to help give them a competitive edge?
On reviewing of the records at the U.S. Patent and Trademark Office (PTO) revealed a relative dearth of patent applications for the video game industry, especially considering how technology-dependent the video game industry is, and given its size in terms of annual sales. Why is that? As stated earlier Patents, by their very nature, grant the right to exclude your competitors from stealing the fruits of your labour, and yet this powerful tool appears to be overlooked by the majority of the industry. In an effort to answer this question, we set out below to dispel what we see as the top myths surrounding patent protection of video games and Online games, and hope to encourage innovative game developers to take steps to protect their valuable innovations.
Video Games are Computer games and Online games are played online
Taking an extract from US grant, it is observed that video game companies (like Sony and Nintendo) are in the practice to obtain patents for its video games (like US 6935954B2, i.e the character, Game plot, features etc.) similarly, it would be in the interest of Bigpoint to get it game’s and characters patented not just to get competitive advantage but also they are the 1st to come up with such online web based gaming and their games are successful among young games and also they can earn profits by leasing it games to its competitors to use in their portal as consumers would like to pay their games in Xbox(in Sony) or with Nintendo.
Ok, even if we can patent computer and Web based programs, my game is based on old stuff, and is nothing new.
Considering how Video game Industry work, all inventions nowadays build on the work of others, and this myth is just a classic example of selling yourself short. Inventions come in all shapes and sizes, and if your game does nothing more than add one novel concept to a mountain of old game concepts, that novel concept may be patentable. So, for example, if your video game is an automobile racing game, you might use familiar concepts such as turbo boosting your car, damaging your car when collisions occur, and displaying a racer’s progress on a map of the race track. However, maybe your particular racing game has a novel way of granting or implementing the boost; maybe your game has a unique way of handling or showing damage; or maybe your game uses a novel approach to displaying the race track progress. Whatever novel aspect you’ve added, if that aspect is something that will help set your game apart from others, and help sell your game in the marketplace, then that novel aspect may be protectable by a patent.
Indeed, if your game is different from other games in any way, then you have possibilities for a patent covering those differences as inventions. The invention need not even be something immediately apparent to the player. Perhaps your software algorithm takes an approach that maximizes the available resources of a game console, or performs certain functions faster. Maybe your game uses a novel method of loading and discarding content to avoid load times during gameplay, or has a novel control scheme. If it will help you sell the game, it is probably worth protecting by patent.
The “spirit of innovation” works best when there is a free market of ideas, and consumers are better off if video games are not patented.
The patent system is here now, and it’s here to stay. Most important to the game developer whether Video game or Online developers, the fact that there are others in the industry who will inevitably seek more and more patent protection on their own game ideas. The annals of patent history are full of examples of individuals who lost out, in some cases losing out big, to others in the business who took advantage of patent protection. Indeed, the history of video games bears this out. Ralph Baer is largely credited as the father of video games, having conceived of creating video games in 1966, and making millions for the game Pong. Baer was meticulous in his recordkeeping, and took advantage of the patent system to help develop his fledgling business. However, four years earlier, another individual named Steve Russell finished work on his own computer game: Spacewar. Unfortunately for him, Russell did not seek patent protection on his concept, and did not document his development efforts as well as Baer. We will never know how history may have been rewritten had Russell sought patent protection on Spacewar. The moral of the story is simple: you should act to protect your inventions. And Bigpoint being 1st in its Industry and becoming popular with its games, should consider it’s games getting patented.
The global media and entertainment market has consistently been on the rise. The entire worldwide market is projected to grow from an estimated 1.72 trillion U.S. dollars in 2015 to 2.2 trillion U.S. dollars by 2021. Gaming is an integral and ever-developing segment of this market. The two largest gaming regions, Asia Pacific and North America, are predicted to account for 78 percent of global revenues in 2017. Online gaming in particular is one of the branches that has evolved over the past decades. It includes social gaming, mobile gaming, as well as free-to-play and pay-to-play massively multiplayer gaming, otherwise known as MMO gaming. The latter two segments combined generated revenue of roughly 19.9 billion U.S. dollars in 2016 and, judging by the data volume of global online gaming traffic alone, which is forecast to grow from 126 petabytes in 2016 to 568 petabytes in 2020, it is safe to assume online gaming is here to stay. The number of online console gamers is expected to grow to over 57 million by 2020 and the market for PC online games alone is projected to reach a value of around 33.6 billion U.S. dollars by 2019. In a 2016 survey, 25 percent of respondents claimed to have spent on average between 41 to 60 percent of their time playing multiplayer online games using a handheld console. That year, the world’s leading F2P and P2P massively multiplayer online games include: League of Legends, Crossfire, Dungeon Fighter Online, World of Warcraft, World of Tanks and DOTA 2. In fact, DOTA 2 was the most played game on steam by hourly average number of players. Industry leaders include already established video game developers such as Electronic Arts , Ubisoft, and Activision Blizzard, all of whom have recognized the opportunity presented by the rising online gaming segment. There are also major players in the market whose primary focus is social gaming. These developers include, but are not limited to, Supercell, Zynga, and King.com. In fact, as of mid-2017, each of these three developers had two games on a ranking of the ten most popular Facebook games.Social gaming is tightly bound with mobile gaming, as the majority of social games are developed in the form of apps for iOS and Android devices. In the United States, the social app-based market largely exceeds browser-based social gaming. This trend has been apparent at least since 2010. That year, app-based gaming accounted for 70 percent of the social online market value, with the remaining 30 percent of the value attributed to browser social games. Allowing for constant growth, by 2020 those categories are expected to account for 84 percent and 16 percent of the social online gaming market, respectively. If Bigpoint didn’t come up with an Patent for its online games, there might be a possibility that its competitors come up with the same game for an Mobile app based gaming and Bigpoint end’s up losing its Customer base.
https://www.reuters.com/article/us-sony-sharp/sony-to-own-one-third-of-sharps-3-5-billin-lcd-plant-idUSTFA00300220080226https://www.forbes.com/2008/02/26/sony-sharp-lcd-markets-equity-cx_jc_0226markets08.html#7aeddd1036ffhttps://patents.google.com/patent/US6935954https://patents.google.com/patent/US9630093B2/enhttps://www.quora.com/Can-a-game-be-patentedhttp://www.european-patent-office.org/epo/fees1.htm•**Sourcehttp://www.patentamt.at/Texte/Infoblatt2003/KostetJuni10.htmhttp://www.wipo.int/treaties/en/notifications/pct/treaty_pct_14.htmlhttps://www.statista.com/topics/1551/online-gaming/https://www.gamasutra.com/view/feature/130727/its_just_a_game_right_top_.php2.Like Chesbrough, others enthuse about the great potential of open innovation. What is the potential of open Innovation in these fields?
A. Explain your understanding of “Open Innovation” and address in particular the question of whether the corporation of Sony is a form of Open Innovation or whether this term describes new aspects beyond the classical corporation.
B. In these two cases of technology, where do you see special potentials for the inclusion of external Ideas? Describe relevant forms of Open Innovation beyond the corporation for the two field of technology. Explain why do you consider them particularly appropriate.
C. Concerning the additional reading uploaded. Which of the abilities of capabilities (Ambidexterity, Dynamic Capabilities, Absorptive Capacity etc) do you concern as necessary in the two cases? Why? Describe your solution.
As per Professor Henry Chesbrough, Open innovation is a concept originated that falls directly in that gap between business and academe. Conceptually, it is a more distributed, more participatory, more decentralized approach to innovation, based on the observed fact that useful knowledge today is widely distributed, and no company, no matter how capable or how big, could innovate effectively on its own. Yet at the same time there is a critical role for an overarching architecture that connects these seemingly disparate activities together. And the business model (which itself can be innovated) determines what companies look to bring inside the firm and allow to go outside the firm. So open innovation supplies a lot for academics to study, and there have been literally hundreds of academic papers written now on this topic in the past 8 years. For business, open innovation is a more profitable way to innovate, because it can reduce costs, accelerate time to market, increase differentiation in the market, and create new revenue streams for the company. So there’s a lot of opportunity for business to profit from open innovation. Hundreds of companies around the world now have executives with the job title, Manager of Open Innovation. And there are now dozens of software companies, intermediaries, and consultants providing products and services in open innovation. If nothing else, the presence of these newly-founded open innovation providers suggests that the concept has met a market test.
As per the definition given my professor Chesbrough, Open Innovation is more nuanced than that of many people. Open innovation is “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.” Open innovation can be understood as the antithesis of the traditional vertical integration approach where internal R;D activities lead to internally developed products that are then distributed by the firm. As my definition suggests, there are two facets to open innovation. One is the “outside in” aspect, where external ideas and technologies are brought into the firm’s own innovation process. This is the most commonly recognized feature of open innovation. The other, less commonly recognized aspect is the “inside out” part, where un- and under-utilized ideas and technologies in the firm are allowed to go outside to be incorporated into others’ innovation processes.
The important thing is how do we know what to look for outside, and what to let go to the outside? As per our understanding, the business model determines the answer to these questions. We look for ideas and technologies that fit with in your business model. And our internal ideas and technologies that don’t fit are logical candidates to go to the outside. So the business model is another key element of the open innovation concept. There are other ways some people define open innovation, just as Eskimos have dozens of words for “snow”. Some claim it works just like open source software. It doesn’t. The business model for innovation is a key part of open innovation. Others think that it is just supply chain management, which It isn’t. Open innovation involves many other actors that fall far outside traditional supply chains, and these participants in open innovation can be influenced, but often are not actually directed or managed. Some claim it is user innovation. It’s not. The user is certainly very important to open innovation, but so are universities, startups, corporate R;D and venture capital.
Considering Sony, we are of the opinion that, Sony follow’s Open Innovation. They are coming up with Joint ventures and contributing finance in the venture. They are buying the technology, making couple of changes as per their needs and distributing the product in their name. As they see the technology is evolving, they are not focusing more on Research and Development as much as the revivals are focusing. They are more towards selling Quality products and maintaining their Market share. Which helps them get the competitive edge in terms of Cash availability and also in terms of New and improved Technology.
Open Innovation which can be summed up as the opposite of doing everything yourself, we also get the sense that open innovation is actually much more about mindset than processes. We understand that almost every company already applies some kind of open innovation today. Considering Sony, they can apply Open Innovation in their Play station as the trend is focusing more towards online line gaming and mobile App based gaming. While Bigpoint has already realised that they are not in a position to develop games as per the needs, they are concentrating more on the integration of new, purchased games. They translate such games in 28 different language and has designed as per the need of the spot/current gamers. To further prove this point, let’s take a look at these quite different examples from GE Capital/Hyundai, Coca-Cola and LG.
GE Capital and Hyundai learn new skills in Korea
In reference to an interesting article in BusinessWeek – GE Brings A New Strategy To Life – gives us an example on how companies can get involved with open innovation in the financial industry. The background is a merger of activities between GE Capital and Hyundai in which Hyundai originally sought an investor to make up for losses in it’s credit card business while GE Capital entered the joint venture to break out of a period of zero growth in market share.
In the article, Hyundai acknowledges that the capital injection was the smallest of the benefits as it turned out that the risk-management and financial knowhow skills brought to the table by GE Capital really made a difference. On the other hand, GE Capital learned from Hyundai’s marketing skills, which included involving top designers to work on the look of their credit cards and the design consultancy IDEO to revamp and simply the bills and the website.
The result has not only given great financial results to both companies; they have also opened up to learning even more from each other – and in the long run probably also from other companies.
Coca-Cola brings us an unlimited choice of pop
In another example, Coca-Cola brings micro-dosing technology used to measure precise amounts of dialysis and cancer drugs, a smart phone operating system from Microsoft Corporation and style tips from Italian auto designers together in its latest attempt to revive falling sales of fountain drinks.
This new self-serve beverage dispenser can pour as many as 120 drinks while using 40 percent less storage space than traditional six- or eight-tap fountains. The development team grew from seven full-time employees to 50, with another 50 employees contributing time so it is fair to say that Coca-Cola spent significant resources on this project. Besides having their own big budget and bringing different components together in the machine itself, Coca-Cola also worked closely with existing customers such as McDonalds, which helped guide and test the fountain.
However, some analysts and experts argue that this investment might be difficult to bring home as Coca-Cola needs to convert Pepsi-exclusive restaurants through this new offering, we should bear in mind that the dispenser could also work as a marketing machine helping Coca-Cola expose new soft-drinks to customers. After all, Coca-Cola holds trademarks for more than 450 sparkling and still brands globally.
We are unable to find much background information on how Coca-Cola worked with partners to bring this together, but it shows how complex our world has become and that open innovation-like initiatives are needed to bring out the full potential in your business.
LG designs with consumers
Marketplaces such as Innocentive and NineSigma are becoming increasingly important players in the open innovation community. LG has just initiated a partnership with a related player called CrowdSpring which is a marketplace for creative services. They have developed a competition in which consumers have the chance to design their vision of the next LG phone and compete for more than US$80,000.
You can argue this initiative only brings external input to the early idea- and design phase rather than the entire innovation process and it is also most likely that such a competition works best on the marketing front. However, it is interesting to see how large companies begin to partner up with the online marketplaces. It should also be noted that LG recently did some interesting projects with Netflix and I look forward to follow future open innovation initiatives of LG.
We think these examples although being quite different in terms of industries show that open innovation work sell when you apply a holistic approach to innovation.
This also takes us back to the LEGO case factory, where in we had suggested that company should come up with an competition to come up with their own Design for the Future Toy they would like.
Also, on visiting the Audit City in Berlin, they started to follow the concept of open innovation where in they interact with prospective buyers, help them customise their car and get them the feel of virtual reality of the how their car they would be feel when delivered.
Faced with slow growth, commoditization and global competition, many CEOs view innovation as critical to corporate success. William Ford Jr., chairman and CEO of Ford Motor Co., recently announced that, “from this point onward, innovation will be the compass by which the company sets its direction” and that Ford “will adopt innovation as its core business strategy going forward.” Echoing those comments, Jeffrey Immelt, chairman and CEO of General Electric Co., has talked about the “Innovation Imperative,” a belief that innovation is central to the success of a company and the only reason to invest in its future. Thus GE is pursuing around 10 “imagination breakthrough” projects to drive growth though innovation. And Steve Ballmer, Microsoft Corp.’s CEO, stated recently that “innovation is the only way that Microsoft can keep customers happy and competitors at bay.” Although the subject has risen to the top of the CEO agenda, many companies have a mistakenly narrow view of it. They might see innovation only as synonymous with new product development or traditional research and development. But such myopia can lead to the systematic erosion of competitive advantage, resulting in firms with in an industry looking more similar to each other over time. Best practices get copied, encouraged by benchmarking. Consequently, companies within an industry tend to pursue the same customers with similar offerings, using undifferentiated capabilities and processes. And they tend to innovate along the same dimensions. In technology-based industries, for example, most firms focus on product R&D. In the chemical or oil and gas industries, the emphasis is on process innovations. And consumer packaged-goods manufacturers tend to concentrate on branding and distribution. But if all firms in an industry are seeking opportunities in the same places, they tend to come up with the same innovations. Thus, viewing innovation too narrowly blinds companies to opportunities and leaves them vulnerable to competitors with broader perspectives. In actuality, “business innovation” is far broader in scope than product or technological innovation, as evidenced by some of the most successful.
Let’s Focusing on Business Model Innovation.
Business model innovation is a wonderful thing. At its simplest, it demands neither new technologies nor the creation of brand-new markets: It’s about delivering existing products that are produced by existing technologies to existing markets. And because it often involves changes invisible to the outside world, it can bring advantages that are hard to copy.
The challenge is defining what business model innovation actually entails. Without a framework for identifying opportunities, it is hard to be systematic about the process, which explains why it is generally done on an ad hoc basis. As a result, many companies miss out on inexpensive ways to improve their profitability and productivity.
Below we present a framework to help decision makers take business model innovation to the level of a reliable and improvable discipline. Drawing on the idea that any business model is essentially a set of key decisions that collectively determine how a business earns its revenue, incurs its costs, and manages its risks, we view innovations to the model as changes to those decisions: what your offerings will be, when decisions are made, who makes them, and why. Successful changes along these dimensions improve the company’s combination of revenue, costs, and risks.
What Mix of Products or Services Should You Offer?
Uncertain demand is a challenge all businesses face and is in most cases their major source of risk. One way to reduce that risk is to make changes to your company’s mix of products or services. In finance, if you have two portfolios offering a 20% return, you choose the less risky one, because it will create more value over time. The same is true with product portfolios. That’s what Sony Corporation followed in the case study. It sold/liquidated some portfolios t its competitors which Sony found to be risky and less profit making.
Companies looking to recalibrate their product or service mix have essentially three options:
Focus narrowly (something what Sony and Bigpoint really does).
In October 2010 Bloomberg Businessweek ran a cover story with the sensationalist title “What Amazon Fears Most.” The article profiled Quidsi, a relatively small New Jersey–based internet start-up cofounded by Marc Lore (a former student of ours) and best known for its main venture, the online retailer Diapers.com.
Diapers would appear to be a terrible product to sell on the internet. They are bulky and expensive to ship, and they have low margins because everyone—from convenience stores to Costco—sells them. But diapers have one thing going for them: Demand is highly predictable—birth rates are stable, and infants pee and poop constantly over an extended period of time. Also, product variety is limited, because there are only three or four major diaper manufacturers, and diapers come in just a few sizes. Given that every newly acquired customer will use the product repeatedly for two years or more, the company can count on a steady revenue stream with little or no risk for a long time to come.
Focused business models are most effective when they appeal to distinct market segments with clearly differentiated needs. So if your business currently serves multiple segments, it may be best to subdivide into focused units rather than try to apply one model. Amazon, which bought both Quidsi and the online shoe and apparel retailer Zappos, allows its focused acquisitions considerable autonomy in serving their segments.
Sony had various products in its range, but it is focusing mainly on TV segment for which they are know for a long time. As they have understood the market and its technology, they are focusing more on selling the product then on the Research ; Development. Sony is known for its Class leading Technology in Bravia Television sets.
Bigpoint started its market penetration keeping its customers at focus. The strategy was clear, they wanted to form an online gaming company where in the user/gamer just needs internet connection and a password to log in to the site and start with the game where as those days, video game had the leading market share.
Dynamic capabilities have been defined as “the capacity to renew competencies so as to achieve congruence with the changing business environment” by “adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competencies”. More recently, Helfat have defined a dynamic capability as “the capacity of an organization to purposefully create, extend or modify its resource base”. It is this definition that we have adopted to facilitate the development of our argument. In line with Helfat we use the term resource? in its broad sense and hence it includes activities, capabilities, etc., which allow the firm to generate rents.
Dynamic capabilities are built rather than bought in the market. They are organizational processes in the most general sense or routines which may have become embedded in the firm over time, and are employed to reconfigure the firm’s resource base by deleting decaying resources or recombining old resources in new ways. This means that dynamic capabilities are viewed to be essentially path dependent, as they are shaped by the decisions the firm 7 has made throughout its history, and the stock of assets that it holds. Path dependency “not only defines what choices are open to the firm today, but also puts bounds around what its internal repertoire is likely to be in the future”. Path dependency could be grounded in knowledge, resources familiar to the firm, or influenced by the social and collective nature of learning. This suggests that learning plays a significant role in the creation and development of dynamic capabilities. This is illustrated, for instance, by Eisenhardt and Martin and Zollo and Winter who explain that learning is at the base of dynamic capabilities, and guides their evolution. Learning is also considered as a dynamic capability itself, rather than an antecedent of it. As such, learning as a dynamic capability has been identified as “a process by which repetition and experimentation enable tasks to be performed better and quicker”. Zollo and Winter attempted to meld these two positions by explaining that “dynamic capabilities are shaped by the co-evolution of learning mechanisms”.
Helfat and Peteraf emphasise that to qualify as a dynamic capability, a capability not only needs to change the resource base, but it also needs to be embedded in the firm, and ultimately be repeatable. Those are key issues in the dynamic capability conversation, and we have addressed these criteria in our following theoretical development of the dynamic capability construct. Dynamic capabilities are argued to comprise of four main processes: reconfiguration, leveraging, learning and integration. Reconfiguration refers to the transformation and recombination of assets and resources, e.g. the consolidation of manufacturing resources that often occurs as a result of an acquisition. Leveraging refers to the replication of a process or system that is operating in one area of a firm into another area, or extending a resource by deploying it into a new domain, for instance applying an existing brand to a new set of products. As a dynamic capability, learning allows tasks to be performed more effectively and efficiently, often as an outcome of experimentation, and permits reflection on failure and success. Finally, integration refers to the ability of the firm to integrate and coordinate its assets and resources, resulting in the emergence of a new resource base.
Incremental dynamic capabilities
Where an essentially stable environment is perceived there would still be some requirement to adapt the resource stock of the firm. Although the pace of change is slow and the extent of change is limited, requirement for incremental adjustments and improvements to the resource stock of the firm would remain. Thus, even in stable environments there is likely to be a need for continuous improvement, but the resource stock would not be transformed through these change processes, it would be incrementally adjusted and adapted. Continuous improvement is sufficient to ensure that the resource stock maintains its value in this relatively stable context. Continuous improvement relates to the continual and often small adjustments that a firm makes to its products or operations. This form of dynamic capability describes processes that effect changes, albeit incremental changes, to the resource base of the firm. Thus we label this first level of dynamic capability as incremental. An example might be that of e2v, and the company’s 15 constant improvement of their waste management and energy use. To ensure maximum energy usage they keep reconfiguring their processes and systems so that they reduce energy consumption; they work on being able to recycle more and more waste in terms of quantity e.g. tonnes of cardboard and types e.g. paper, oils, solvents, etc. This suggests that dynamic capabilities do not only happen in a „rapidly changing environment?, but that our argument is in line with Eisenhardt and Martin who explain that in more stable market contexts dynamic capabilities are simple and iterative, and rely on the incremental and continuous improvement of extant resources. Moreover, these incremental dynamic capabilities are likely to be repeatable and embedded in the firm. Thus these processes of continual improvement would be stable patterns of the firm. Hence although this type of dynamic capability brings an adaptive change to the resource base, the ways these changes are effected do not change. Renewing dynamic capabilities These dynamic capabilities are utilised to sustain a rent stream in changing environments, they refresh and renew the nature of the resource stock, rather than incrementally adapt it. They are needed as resource-based advantages in dynamic environments may well be rapidly eroded.
Examples of such dynamic capabilities would, for instance, include brand extension such as those undertaken by Virgin, or process replication as performed by Sony. Virgin has generated new resources by deploying its valuable brand into new 16 domains e.g. airlines, mobile phones, cosmetics, bridal wear, cola, railways. As far as Sony is concerned they have applied their know-how in miniaturization to all their products e.g. radio, hi-fi, computers or personal navigation.
Absorptive capacities – the ability of firms to recognize, assimilate and apply new knowledge for the benefit of their business performance – are key to a firm’s ability to innovate. The nature of the concept involves three basic capacities in relation to new knowledge: recognition of its value, its assimilation and its application for commercial purposes. Successful innovators have the ability to learn and connect this learning to their current knowledge basis. The central premise is that knowledge is cumulative, so the more an individual or an organization knows, the easier it is to acquire new knowledge. Prior knowledge is considered crucial to the assimilation of new knowledge, which means to say that the learning capacity of individuals and organizations is path dependent, i.e., a result from the previous learning efforts and capabilities. It is a dynamic and cumulative process, in the sense that the knowledge gained in the present will be more efficiently accessed in the future.
The absorptive capacity of an organization is more than the sum of the capacities of all individuals within it. These capacities also comprise the organizational ability to exploit the acquired knowledge, to foster communication and to establish relationships between its members. This stresses the contribution of organizational mechanisms for knowledge accumulation and learning.
Whereas the concept of absorptive capacity is mostly used to refer to organizational learning and innovation, a nation’s absorptive capacity is linked to the ability of its economic units to acquire and internalize knowledge, and is considered a precondition for catching-up with more advanced nations. The national absorptive capacity is more than the sum of the capacities of single firms. There are some multiplicative factors that act at the national level but are insignificant at the firm level – the fact that countries follow a trajectory of technological accumulation is one of them. In this sense, the more a country develops in a specific industry, the more knowledge is accumulated at the national level (research infrastructure, institutions) that will be the source of learning and knowledge spillovers by firms in that industry.
Studies have linked the occurrence of knowledge spillovers from foreign direct investments (FDI) to the existence of absorptive capacities of firms. Absorptive capacities are also used to explain technology transfer among nations and the success of strategic alliances for innovation. Technology transfers (country and firm- wise) are more effective when firms possess previous accumulated knowledge and innovative capacities. Similarly, firms have more to benefit from cooperation with other firms.
Among the factors contributing to the accumulation of absorptive capacity is research and development is central to the generation as well as absorption of knowledge by firms and for the same reasoning is also crucial for firms to be able to benefit from spillovers. The quality of the human resources working at the organization also influences positively and strongly to the enhancement of absorptive capacities. Moreover, the establishment of cooperative arrangements for innovation is also considered to play a positive impact in the absorptive capacity of firms – access of external sources of knowledge is another important way of accumulating capacities.
Another aspect to impact the absorptive capacity of firms relates to institutional aspects that give rise to so called absorption barriers – the costs of implementing new technologies faced by firms depend on the institutional setting. For instance, monopoly rights may represent a barrier to the adoption of technologies in the sense that industry insiders with monopoly rights to the current technology will resist the adoption of better production techniques. This suggests that more competitive economies are likely to be characterized by higher absorptive capacity.
Absorptive capacities are strongly linked to the innovative propensity of organizations (and nations). General policies aiming to improve the innovative behaviour of firms can positively influence its outcome by stimulating the occurrence of R;D and the establishment of innovation networks, as well as the engagement of skilled human capital in the organization’s activities. Industrial development policies need to attain to the fact that firms need to have the capacity to absorb knowledge and innovate, and that such capacity is strongly embodied in people. From this perspective, educational policies should be one of the cornerstones of innovative capacities. Policies promoting a competitive environment for firms also contribute to a broader dissemination of knowledge, an important aspect for knowledge absorption to take place.