Open innovation: Long term objectives and experiences

Alpe Adria Initiative (ALADIN)Budapest

21 of March 2010

József VeressMember of the Hungarian Parliament

Committee for European Affaires

Visiting Researcher - Aalto University Helsinki Centre for Knowledge and Innovation Research

Visiting lecturer - King Sigismund College Budapest

Major topics

• Openness: a new hype or a paradigm shift? • Knowledge driven society – self-organizing

mass collaboration – quality led (r)evolution of the civil society (?)

• „Modernization” efforts of the EU• The case of Living Laboratories – systemic

(micro-)regional innovation for global reach • Hungary – modernization: „dual” regionalization

in development and innovation policy

Openness: a new hype or a paradigm shift?

.

Openness, peer production, co-creation, Wikinomics,…

• Open innovation – Chesbrough

• Peer production or social production of peers –Benkler

• Self-organizing to manage abundance in post-scarcity economy - Jarvis

• Self-organizing mass co-creation (Wikinomics) –Tapscott and Williamson

• Knowledge-driven society as Open society (?!)

open innovation - open access - open society• From (post-)industrial mass production

• Through open and systemic innovation

• Toward personalized (complex / systemic) solutions – delivered through self-organizing mass collaboration– Liberation of mass co-creativity

• Open – un-interrupted and free - access to social knowledge resources

• Open society - Knowledge-driven society as systemic– emancipation of the civil society and– overcome of social mass alienation

Chesbrough: Open Innovation: The new imperative for creating and profiting from technology (2003)

• Innovating Innovation –Foreword by John Selly Brown

• “By innovation I mean something quite different from invention. To me, innovation means invention implemented and taken to the market. And beyond the innovation lies disruptive innovation, which actually changes social practices – the way we live, work, and learn.”

closed innovation = “successful innovation requires control”

• “If you want something done right, you’ve got to do it yourself.”– Internally focused logic of innovation– IP prevented others to exploit these ideas for

their own profit• Consequences

– Stage gate process– Chain link (linear) model– Product development funnel

Chesbrough, 2003

Open Innovation• “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. Open innovation combines internal and external ideas into architectures and systems whose requirements are defined by a business model. The business model utilizes both external and internal ideas to create value, while defining internal mechanism to claim some portion of that value. Open Innovation assumes that internal ideas can also taken to market through external channels, outside the current businesses of the firm, to generate additional value.”

Chesbrough, 2003

A paradigm shift triggered by abundance of „systemic” knowledge• “At root, the logic of Open Innovation is based

on a landscape of abundant knowledge, which must be used readily if it is to provide value to the company that created it. The knowledge that a company uncovers in its research cannot be restricted to its internal pathways to market.”

• we are now looking for innovations in the interstices between different disciplines – for example, between bio- and nanotechnologies.

There is always more knowledge outside the firm /organization!

• “…there are now powerful ways to reach beyond the conventional boundaries of the firm an tap the ideas of customers and users. Indeed, the networked world allows us essentially to bring the customers into the lab as coproducers. We can tap not only the customers’explicit knowledge, but also their tacit knowledge made manifest as they start to use a prototype. Prototypes used by real customers who are at work on their own problems afford a kind of reflection in practice that helps to flush out serious flaws, misleading instructions, and missing functionality before the product is brought to market.”

John Selly Brown: Innovating Innovation, 2003:x

User as pre-market test agent

• „With the power of today’s computers to simulate massively complex and nonlinear systems coupled to phenomenal visualization techniques, the customer can be brought ever closer to the design process.”

Innovating Innovation – Foreword by John Selly Brown

• “The open innovation model that Chesbrough describes shows the necessity of letting ideas flow both out of the corporation in order to find better sites for the monetization, and flow into the corporation as new offerings and newbusiness model.”

Business model innovation

• “Rapid business model prototyping is therefore critically important to the future of technological innovation…”

• “These are financial tools that build bridges between the flexibilities of the venture world and the predictable financial constraints of a public company.

• Replace static net present value (NPV) calculations with the dynamic „real options”

Learning while making business decisions

• These options provide a way to fold into the decision processes two sources of learning, one involving learning by doing (what is learned about the technology while developing the product), the other involving learning while waiting (what is discovered from the market as the product is being developed.) At each stage for potentially scaling or exiting the project, both sources of information come into play.

• as buying a possibility for the future while still delaying substantial cash flow.”

.• “If you want something done right, you’ve got to do it yourself.”– Internally focused logic

of innovation– IP prevented others to

exploit these ideas for their own profit

• Consequences– Stage gate process

– Chain link model– Product development

funnel– Single standardized

business model

– Pre-programmed implementation

• If you want something done right, you can’t miss the knowledge of others’– Externally focused logic

of innovation– Let others to exploit

ideas in exchange for shared profit

• Consequences– Multiple entrance and

path systemic management

– Ecosystem model– Move toward

personalized solutions– Orchestrated exploitation

of multiple and flexible business models

– Learning while making business decisions

Innovating Innovation – Foreword by John Selly Brown

• “…It may be relatively easy to predict the potential capabilities of a technological breakthrough in terms of the products it enables, it is nearly impossible to predictthe way that these products or offerings will shape social practices.”

Managing abundance

• Clay Shirky argues that self-organization is a key to understanding the internet’s impact on society. We can now organize without organization. That is his law.

• “Google has found a business model based on creating, exploiting, and managing abundance.The more content there is for it to organize and the more places there are for it to place its ads, the better.”– Jarvis 2009

Join the open-source, gift economy• .” People will contribute their intelligence and

time if they know they can build something, have influence, gain control, help a fellow customer (more than a company), and claim ownership.”

• “We are entering a post-scarcity economy in which Google is teaching us to manage abundance, challenging the bedrock rule of economics, first written in 1767: The law of supply and demand.”

Jarvis, 2009

Knowledge driven society as civil self-organizing mass collaboration (?)

Post-industrial and knowledge-driven approaches:

• „Zero sum game”• Resource redistribution • Dominance approach• Power struggle• Static, hierarchical

pyramid • Closed, “separative”

organisation • Manipulation of the

information• Competition of profit

driven groups

• „win-win approach”• Resource multiplication• Coalition oriented • Service and co-creation • „Flat” network-type,

flexible horizontal • Open, co-operative

organisation• Knowledge sharing,

communication oriented• Networking of self-

organizing communities

Third wave: knowledge based society

“A new civilization is created in our life, but blind meneverywhere are trying to suppress it. This new civilization brings with it new family styles, changed ways of working, loving, and living, a new economy, new political conflicts, and beyond all this an altered consciousness as well.Humanity faces a quantum leap forward. It faces the deepest social upheaval and creative restructuring of all time. Without clearly recognizing it, we are engaged in building a remarkable new civilization from the ground up. This is the meaning of the Third Wave.”

(Creating a new civilization – The politics of the thirdwave,

Turner Publishing, Inc. Atlanta, 1995. p. 19.)

Stages of (economic) modernization – national

competitiveness• Resource driven• Investment driven• Innovation driven• Welfare driven

(Michael Porter,1990)

Social competitiveness• The competitiveness of single companies

and national economies depends more and more on the efficiency of social service systems, like training and education, R & D, healthcare and socialwelfare, public administration and of the emancipated civil society (network of civil, professional, non-profit, organisations, interest groups, etc.)

Social productivity – EU 2020• Social productivity includes all types of

continued activities generating goods and services that are socially and economically valued by recipients.

• Paid work, whether or not based on an employment contract, volunteering or charity work, providing help to family, friends or neighbours, or caring for a sick or disabledperson are major examples of socially productive activities in 'third age' populations.

( Siegrist and Wahrendorf,2006)

Pillars of a knowledge based society:

• “Traditional” infrastructure:– highways, rail roads, port networks, logistic centres,

etc.• Information super-highway

– Internet II +Grid +European content production• Business (service-)infrastructure

• information and training centres, consultation services, (risk capital funds,) etc.

• “Civil” infrastructure– highly developed, “self-teaching” networks of civil,

professional, non-profit, NGO organisations

Knowledge-driven society• The mobilization of the unique capacities

and capabilities of (human) knowledge through self-organizing mass collaboration– Usage and recombination „empowers”– Capacity of „ultimate substitute

• The emancipation of the civil society in its relation toward the public sphere and the market /economic sphere– „last continent of the social landscape”

(Salamon et al.,2006)

„Global associative revolution”• Considerable economic force in 35 countries

– 5,1 % of combined GDP– 4,4 % of economically active population

• 39,5 million full-time equivalent of workers– 20 million job missing in the OECD countries comparing

wiht end 2007 level– (Salamon et al. 2003)

• UK 1991-2001 260 % increase in contribution to GDP (Nicholls 2006)

• US – 7 % of GDP represented by not for profits (Emerson, 2006)

„Modernization” efforts of the EU

.

The past: R&D expenditure (GDP %)

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

1988

1990

1992

1994

1996

1998

2002

2004

Japan: 3.1

USA: 2.7

EU-15: 1.9

EU target for 2010: 3 %

EU-25: 1.5

60

65

70

75

80

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

Permanent Delay: EU’s productivity is lagging behind of the USA’s

EU’s GNP (%) of USA’s GNP

GNP in market prices per capita

ICT – permanent underinvestment

• ICT investments €/head– Europe 80– Japan 350– US 400

• ICT account for– 40 % of Europe’s productivity growth– 25 % of EU GDP growth

• Missing / weak process reengineering weakening the ICT efficiency

Do we have alternative solutions?

Business as usual!

…But the consequences:

EU funding

What does the EU concentrate for by dividing resources ?

• Competitiveness and employment (Lisbon 2000, renewed in 2005)

• Sustainable development (Göteborg, 2001)

Preconditions:• Macroeconomic stability• Structural reforms

The reform of the EU Cohesion Policy

• Priorities:– Convergence (growth, employment) 81,5 %

(GDP/capita < 75% of the EU average)– Regional competitiveness and employment 16,0 %

(Central/Hungary)– Territorial cooperation 2,5 %

(Interreg)• More simple, and strategy oriented planning

bigger responsibility of the member states– Strategic document in the bigger member states– Checking with EU only till Uniós OP priority level

At the end of the XX. century

the US - the only super-power

Japan – the global workhouse

Europe - …a (technology) museum.

Lisbon strategy - to overcome:

Possible standard EU services:• Infrastructure

– standard highway and railroad network +• high speed railroad network

– standard information super highway network• (EU Internet II backbone / access network +

content+Grid)• standard business support service networks

• network of incubator houses, new economy training centres, ISO certification and training centres, etc.

• civil service (regional) standards• e-Democracy - e-Governance – e-Participation• standard support network for civil infrastructure

– network of public accesses to the Internet, Telehouses

• “…Europe can lead the world in to the world of wireless Internet.”

B 2 B - or not to Be

Lisbon – shift to innovation driven phase of modernization

– Adaptive innovation – access of everybody and every organization

• SME technology and product innovation!!!– Facilitation of „cutting edge” high knowledge

content / high added value products and services

• Differentiation of measures supporting SME’s and „Big players”

The renewed Lisbon strategy

• Europe and regions to become suitable to promote investments and facilitate work (favorable location)

• Engine of growth: knowledge and innovation

• Business environment facilitating the creation of more and better job

• EU 2020 …

OECD „green growth”

• A dynamic equilibrium among the– Economic / Financial– Social– Environmental approaches

• Stieglietz and Amartia Sen coordinate the 25 work-committees promising to deliver– Main frame - May 2010– Detailed model – May 2011

Living Laboratories -method and „frame”for open innovation

There is always more knowledge outside the firm!

• “…there are now powerful ways to reach beyond the conventional boundaries of the firm an tap the ideas of customers and users. Indeed, the networked world allows us essentially to bring the customers into the lab as coproducers. We can tap not only the customers’explicit knowledge, but also their tacit knowledge made manifest as they start to use a prototype. Prototypes used by real customers who are at work on their own problems afford a kind of reflection in practice that helps to flush out serious flaws, misleading instructions, and missing functionality before the product is brought to market.”

John Selly Brown: Innovating Innovation, 2003:x

Enabling Technology Platforms

Technological Innovation

Systemic Innovation(Common Innovation

Platformsin ERA)

Enabling Institutional Infrastructure

Social InnovationPublic

Environment:Regulatory and

PolicyComponents

Business Environment:

Management and Business

Models

Systemic Innovation for Global Reach

Policies, strategies, unding

Profit mechanisms for:-early pick up-sustainability

European Network of LivingLaboratories

„user driven innovation”

From User as ConsumerTo user as co-creator and innovator

Liberate (networked co-)creativity

Corporate research networks

Technological Platforms

European chain ofLiving Lab’s

Civil society

Research Commons (AMI@)

Living Lab EcosystemCIVI

L

SERVICES/EU

REGIONS/STATES/

EU

B EU XS PI EN RE TS SS //MANAGERS

CORPORATE

SECTOR/MARKET

Living Laboratories

• Method and physical space facilitate and catalyze self-organizing human co-creativity the individual and collective capacity to innovate

• Combine and orchestrate all the (micro-)regional players and factors of an innovation eco-system

• Enschede

• Lulea

• Turku

• Bremen

• Helsinki

• Copenhagen

• Barcelona

• Göteborg

• Oulu

• Dublin

• Budapest

I circleEnscedeLulea,Turku,Bremen,Helsinki

II circleCopenhagen,BarcelonaGothenburg,Oulu,Dublin,Szeged-MórahalomGyőrKecskemét…

LL – as user driven systemic innovation

• From - need exploration and articulation

• To - complex solution elaboration

• Self-organizing and resource multiplying co-creation

• (Micro-regional) orchestration at systemic level of players and resources

LL as method and environment

• Collaborative and user driven methods of– „Need mining”– Complex solution co-creation– Joining, combining and multiplying resources– Facilitating mass self-organization– Mobilizing and orchestrating micro-regional players– …

• Collaborative networks of physical and virtual spaces, locations

ENOLL after the 3d wave of network enlargement

Future Internet and Living Labs networkingENoLL 4th wave launchValencia, Spain, 13-14 April 2010

Hungary – modernization as „dual” regionalization in

development and innovation policy .

Change of system

`A political change of system takes 6 month, An economic change of system takes 6

years,A cultural change of system takes 6

decades`(Dahrendorf)

The „major waves” of the change of system and structure

• Change of political system / `rule of law`• Basic institutions of the market economy• Privatization – `structuration` of the national

economy (and market) • EU accession / approximation of law• EU/NATO accession formal accession• Development policy = modernization of socio

-economic structure

Development policy

Main task:

–Shorten the period of (socio-) cultural change

Development policy = modernization of socio-economic

structure• Facilitation of the efficient utilization of

resources in the market (and public) sectors– “Nesting” into networks of developed

market economies• Production of added value / profit in the SME

sector too– Overcome of “dualization” in the economy

The most important tools of the development policy

• Legal environment• Investment promotion – “cleaning” of

administrative obstacles– Institutional system– Training– Resource (re-)distribution

• Primacy to refundable grants

Types / stages of (economic) modernization

• Resource driven• Investment driven• Innovation driven• Welfare driven

(Michael Porter,1990)

Services and Products

„Hard Currency”Energy

Food-products(grain and meat industry products) Oil and

raw materials

Third world

„hard currency”

Agrarian- and food industry technology

Technology

Reexportation of oil and raw materials

Resource driven modernization in Hungary – till 1990

Services and ProductsFDIEnergy

1≥ bn. USD

Energy

1,5-2 bn. USD / year

Automotive, Electronic and Machine building industries

Investment driven modernization in Hungary 1990-1995-2000-

Hungary:FDI driven „fragmented”

modernization

–High - finance, trade

–Partial - infrastructure

–Low - technology, innovation

The case of HungaryThe XX. century ended in

1990While the XXI. century

starts in 2004…

…a successful accession to ourselves!!!

Change of strategic priorities

• I phase of transformation / integration– Adaptation mostly with „customized” copying of the

market economies and parliamentary democracies• II. phase – adjustment process in modernization

– Transition from market economy to knowledge-based society

• PARALLEL both in CEE and (post-)industrialised member countries

• Policy priority for supporting innovation and technological change

II. Phase of transition• Diffusion of knowledge – capacity creation –

„social empowerment”

– Wide dissemination of technological capabilities and education, vocational training, networks of co-operative research and technology transfer

– Understanding, adapting and disseminating knowledge

Hungary at the beginning of the third millennium :

• Budgetary reform– Education– Health-care– Pensions and social care– Administrative reform

• Public administration• Local administration

• Regionalization• Strengthening of the civil society

1.Switzerland 2.Sweden3.United States4.Ireland5.Netherlands6.Hungary7.Belgium8.Canada9.UK

10.Finland11.South Korea12.Germany

Global competitiveness of the knowledge based economies

13.Japan14.Luxembourg15.Austria16. Australia17. France18. Denmark19. Norway20. Italy21. Czech Republic22. Iceland23. Poland24. New Zealand25. Portugal

Source: FINANCIAL TIMES, 2001

ServicesProductsFDIEnergyEU transfers

Innovation driven modernization: Dual transition – EU membership / Knowledge based economy and society

Energypayments :

±2 bn USD??

FDI

Knowledge clusters

EU: 1-3 bn €

2007-2013 22,4 Bn €

A knowledge based Hungary• Wellbeing society

– Long, healthy and active life to everyone– Sustainable management of the natural, social and

knowledge resources• Switch toward a high added value / knowledge

content economy• „User centric” and efficient public services• Strong social network of self-regulating and self

developing civic networks• „Access for everyone from everywhere” to any

sources of the digital and the „traditional” culture and knowledge

LL – potential tools of the self-organizing adaptive innovation

• Accessibility:– Physical access

• Accessibility to the (broad band) networks

• Knowledge economy – Low ICT investments– Low level of the copyright based activities, sectors

• Shortage of the knowledge transfer – training– „School-net” network

• Shortage in content production (and consumption)

• Living laboratories as catalysers of civil self-organization

R&D AND CENTRES OF R&D AND CENTRES OF KNOWLEDGE INDUSTRYKNOWLEDGE INDUSTRYGyGyőőrrDebrecenDebrecenMiskolcMiskolcSzegedSzegedPPéécscsGGööddööllllőő

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AIRPORTSAIRPORTSBudapestBudapest--FerihegyFerihegyDebrecenDebrecenSSáármellrmelléékk

HUNGARY’S FUTURE COMPETITIVENESS POLES

SzombathelySzombathely

LJUBJANA FELLJUBJANA FELÉÉADRIA FELADRIA FELÉÉ

SZEGEDSZEGED

DEBRECENDEBRECEN

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SzSzéékesfehkesfehéérvrváárr

DunaDunaúújvjváárosros

KecskemKecskeméétt

BUDAPESTBUDAPEST

VeszprVeszpréémm

POZSONYPOZSONY

KASSA FELKASSA FELÉÉ

BEREGSZBEREGSZÁÁSZSZFELFELÉÉ

BUKARESTBUKARESTFELFELÉÉ

BUKARESTBUKARESTFELFELÉÉ

BELGRBELGRÁÁD FELD FELÉÉATHATHÉÉN FELN FELÉÉ

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GRAZGRAZFELFELÉÉ

NAGYVNAGYVÁÁRADRAD

ARADARAD

ZalaegerszegZalaegerszeg

NagykanizsaNagykanizsaKaposvKaposváárr

BBéékkééscsabascsaba

SzekszSzekszáárdrd

SopronSopron

EgerEger

GGööddööllllőő

SalgSalgóótarjtarjáánn

ZZááhonyhony

SSáármellrmelléékk

Expected spatial consequences of the NDP 2Expected spatial consequences of the NDP 2

Broader spatial links of the NDPBroader spatial links of the NDP

BUKA

REST

FEL

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ATHÉN FELÉ

UKRAJNA FELÉ

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BUKAREST

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Resource allocation of the NDP 2Resource allocation of the NDP 2MODELL OF THE CLUSTER CONSTRUCTION

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FINANCING THE DEVELOPMENT OF R&D (creative) INDUSTRY

INFROMATION AND COMMUNICATION TECHNOLOGY

KNOWLEDGE CLUSTER (education, culture)

HEALTH CLUSTER

ENVIRONMENT CLUSTER

TRANSPORT CLUSTER

Expected changes in the resource allocation of the NDP 2Expected changes in the resource allocation of the NDP 2

FINANCING THE DEVELOPMENT OF R&D (creative) INDUSTRY

INFROMATION AND COMMUNICATION TECHNOLOGY

KNOWLEDGE INDUSTRY (education, culture)

HEALTH INDUSTRY

ENVIRONMENT INDUSTRY

TRANSPORT INDUSTRY

„Outward looking” university cooperation networks

– Miskolc – Kosice - Krakow– Debrecen – Oradea– Szeged - Subotica– Pécs – Zagreb - Fiume– Győr – Bratislava - Vienna– …

Regional Business Service (Knowledge cluster) model

1.Network of Hungarian Universities and scientific parks

2. Universities and knowledge parks across the border

3. External networks (EU)

Knowledge-base

Regional contentindustrialcooperation

Assembling and supplying regional circleSouth-East European Region

.

Cross-border network of Universities and scientific parks

BratislavaVienna

Euro-regions – with the participation od Hungary

What comes next…?

Innovating Innovation – Foreword by John Selly Brown

• “…It may be relatively easy to predict the potential capabilities of a technological breakthrough in terms of the products it enables, it is nearly impossible to predictthe way that these products or offerings will shape social practices.”

A long term view…

„[The Kantian “perpetual pace”]… would come about either by human foresight or by a series of catastrophes that leave no

other choice.”

Interview with …(Newsweek 8 of November 2004)

A long term view…

– „[The Kantian “perpetual pace”]… would come about either by human foresight or by a series of catastrophes that leave no other choice.” –

– Interview with Henry Kissinger (Newsweek 8 of November 2004)

A statesman does think about the next generation.

A politician about the next election.

(Churchill)

?

How to combine the self-organizing co-creativity of the mass and the capacity for long-term vision of

statesmen?