LIU-IEI-FIL-A--11/01015--SE Open innovation: What to open? What to close? by Mooyoung Son & Dan Zou Supervisor. Andrea Fried A thesis submitted in partial fulfillment of the requirements for the degree of Master of Science in Business Administration (Strategy and Management in International Organizations) Linköping University 2011 Linköping University ii Open Innovation: What to open? What to close? ABSTRACT Open innovation: What to open? What to close? Faculty Arts and Sciences Authors. Mooyoung Son ([email protected]) Department of Management and Engineering Dan Zou ([email protected]) Linköping University Supervisor. Andrea Fried SE-581 83 Linköping, Sweden Business management Paradigm is Changing. We used to have big, best, and fast and now it seems that we are having one more paradigm of “Open”. Chesbrough (2003) argued for cooperating between competitors or allies in his article “The era of open innovation”. (ChesbroughH.W, 2003) This research is about open innovation with customer participation. Many organizations built platform to motivate customers to participate the product development process. Hence, we selected three different types of platforms which are full-open, semi-open and closed platform for case study. To compare different perspective from organizations and customers, we will use both of case study of the organizations who opened competencies to the customers and survey of the customers who are creating derivative products. From that case-study and survey result, we aim to figure out what to open and what to close for the organizations that are implementing open innovation strategy. We will suggest a competency pyramid model that helps organizations to divide their competencies into two different sectors: open competency and closed competency. And finally, we will find out what factors are important to make a platform successful. Keywords: Open Innovation, Business Paradigm, Customer Participation, Platform Strategy, Semi-open, Competency Pyramid Specially thanks to Advisory. Andrea Fried, Fredrik Tell, Ramsin Yakob, Soonheum Ko, Miwon Seo, Saltanat Zhazykpayeva, Ralf Gomers. Interview. Dong-Hyung Lee (CEO of Now Profile, Founder of Cyworld) Linköping University Table of Contents ABSTRACT ......................................................................................................................................................... III TABLE LIST ....................................................................................................................................................... VI FIGURE LIST ..................................................................................................................................................... VI 1 RESEARCH BACKGROUND..................................................................................................................... 1 1.1 OBSERVATION OF BUSINESS ENVIRONMENT ......................................................................................... 1 1.1.1 Prevalence in Openness .............................................................................................................. 2 1.1.2 Platform Wars ............................................................................................................................ 3 1.2 RESEARCH QUESTION ........................................................................................................................... 4 1.3 RESEARCH DELIMITATION .................................................................................................................... 7 1.4 RESEARCH CONTRIBUTION ................................................................................................................... 8 1.5 GENERAL OUTLINE OF THE STUDY ....................................................................................................... 9 2 LITERATURE REVIEW ........................................................................................................................... 11 2.1 HISTORY OF BUSINESS PARADIGM ...................................................................................................... 11 2.2 HEADING TOWARDS “OPEN” ............................................................................................................... 14 2.3 OPEN INNOVATION FROM CUSTOMER SIDE ......................................................................................... 16 2.4 FROM FULL-OPEN TO SEMI-OPEN ....................................................................................................... 18 3 EMPIRICAL STUDY ................................................................................................................................. 21 3.1 METHODOLOGY .................................................................................................................................. 21 3.1.1 Research Model ........................................................................................................................ 22 3.1.2 Research Target Selection ........................................................................................................ 22 3.1.3 Research Method Selection....................................................................................................... 25 3.1.4 Specific Research Question & Hypothesis ................................................................................ 29 3.2 ORGANIZATION RESEARCH ................................................................................................................. 32 3.2.1 Research Model ........................................................................................................................ 32 3.2.2 Data Collection ........................................................................................................................ 32 3.2.3 Data Analysis ............................................................................................................................ 33 3.2.4 Organization Research Result .................................................................................................. 38 3.3 CUSTOMER RESEARCH ........................................................................................................................ 39 3.3.1 Research Model ........................................................................................................................ 39 3.3.2 Data Collection ........................................................................................................................ 40 iv Open Innovation: What to open? What to close? 3.3.3 Data Analysis ............................................................................................................................ 41 3.3.4 Customer Research Result ........................................................................................................ 53 4 DISCUSSIONS AND FINDINGS.............................................................................................................. 54 4.1 COMPETENCY PYRAMID ...................................................................................................................... 55 4.1.1 Standard Platform .................................................................................................................... 57 4.1.2 Diversified Application ............................................................................................................. 57 4.1.3 Derivative Products .................................................................................................................. 58 4.1.4 Cases and Competency Pyramid .............................................................................................. 59 4.2 “WHAT TO OPEN?” AND “WHAT TO CLOSE?” ...................................................................................... 61 4.3 BENEFITS AND RISKS ........................................................................................................................... 63 4.4 CUSTOMER PARTICIPATION PROCESS ................................................................................................. 66 4.5 BALANCE BETWEEN OPENNESS AND STABILITY ................................................................................. 67 4.6 SUCCESSFUL PLATFORM ..................................................................................................................... 70 5 OVERALL CONCLUSION AND IMPLICATIONS ................................................................................. 71 5.1 OVERALL CONCLUSION ...................................................................................................................... 71 5.2 LIMITATIONS....................................................................................................................................... 72 5.3 SUGGESTIONS FOR FUTURE RESEARCH ................................................................................................ 72 6 BIBLIOGRAPHY ....................................................................................................................................... 74 7 APPENDIX ................................................................................................................................................. 82 7.1 INTERVIEW DATA ............................................................................................................................... 82 7.2 QUESTIONS FOR DATA COLLECTION ..................................................................................................