272 Int. J. Technology Management, Vol. 49, Nos.

1/2/3, 2010

Developing innovation strategies for

convergence – is ‘open innovation’ imperative?

Stefanie Bröring
Rölfspartner Management Consultants GmbH,
40237 Düsseldorf, Germany
Email: stefanie.broering@gmx.de
and
Wageningen University and Research Centre,
Management Studies Group, PO Box 8130,
6700 EW Wageningen, The Netherlands
Abstract: Industrial change leading to industry convergence can be observed
in many industries. This is provoked by the application of new technologies
across industry boundaries, changing customer structures and regulations.
Convergence presents a particular context for innovation and technology
management, as firms face new bodies of technological and market knowledge
which may create competence gaps. This paper asks the following question:
what kind of innovation strategies do players with different industry
backgrounds employ to address new industry segments resulting from industry
convergence? By analysing three different industry cases of convergence,
this paper explores how firms in different industries address competence
gaps they face by positioning themselves in a newly emerging value chain.
Empirical findings indicate that the innovation strategies which firms follow in
converging industries may create conflicts with existing path-dependencies.
Hence, to overcome these conflicts, open innovation built on dynamic
capabilities (like alliance building) plays a major role in industry convergence.

Keywords: industry convergence; innovation strategy; open innovation;

path-dependencies; resource-based view; technology management.

Reference to this paper should be as follows: Bröring, S. (2010) ‘Developing

innovation strategies for convergence – is “open innovation” imperative?’,
Int. J. Technology Management, Vol. 49, Nos. 1/2/3, pp.272–294.

Biographical notes: Stefanie Bröring is a Senior-Consultant with Rölfspartner

Management Consultants and holds a lecturing position with the Wageningen
University and Research Centre in the Netherlands. She obtained her PhD on the
front end of innovation in converging industries at the University of Münster
including a research stay at the University of Quebec at Montreal in Canada. Her
research interests involve innovation management and new business development
in a context of convergence, and the influence of path-dependencies on
organisational development. She has published several papers in technology and
innovation management journals.

Copyright © 2010 Inderscience Enterprises Ltd.

 Developing innovation strategies for convergence 273

1 Introduction

Convergence is a phenomenon observed in many industries such as telecommunications,

computing and consumer electronics or cosmetics, food and pharmaceuticals (Bröring,
2005; Duysters and Haagedorn, 1997; Katz, 1996; Prahalad, 1998). New technologies and
their rapid diffusion across industry boundaries are main drivers for industry convergence
leading to inter-industry segments. Convergence can be defined as the blurring of
boundaries between industries by converging value propositions, technologies and
markets (Choi and Valikangas, 2001). On the one hand, industry convergence seems
to be technology-driven, since a new technological development (e.g. nanotechnology)
is applied across conventional industry boundaries. This sharing of technologies creates,
not only new technology-intense industry segments, but it also increases environmental
dynamics and new interfaces of formerly distinct industries (Bierly and Chakrabarti,
1999). On the other hand, convergence can also be induced by the fusion of demand
structures and the combination of previously distinct product features into one hybrid
product (Pennings and Puranam, 2001; Sääksjärvi, 2004). Moreover, convergence leads
to a merger of standards and regulations, imposing additional uncertainty on innovating
firms (Katz, 1996).
Firms that find themselves in converging industries, face new competitors that
produce substitute products for the same market. Thus, firms require many critical
knowledge areas for engaging in innovation. These necessary areas of knowledge and
the accompanying capabilities are traditionally owned by firms in different industries
(Bierly and Chakrabarti, 1999). Therefore, it appears that a firm’s innovation strategy as
‘a plan for technology and product/market-combination’ (Clark and Weelwright, 1993,
p.92) has to be adapted to the fact that relevant knowledge develops outside the firm,
or even outside its industry. At the same time, the degree to which it can be tailored to
a changing environment is limited, since a firm’s innovation strategy is influenced by its
resources and the industry in which a firm competes, as well as its past history and present
strategy (Gilbert, 1994). This leads to questions like ‘what innovation and technology
management strategies do firms from different industry backgrounds develop in this ‘new
competitive landscape’ of convergence?’ (Bettis and Hitt, 1995) and ‘how do companies
open up their innovation process?’ (Chesbrough, 2003). Hence, this paper addresses two
research questions:

To what extent is a firm’s innovation strategy influenced by trends of industry
convergence?

What is the role of open vs closed innovation designs in convergence?
The theoretical basis used to examine this question is the resource based view (RBV)
of the firm as it explains how competences and resources influence firm differences
and behaviour. The RBV looks at industries as groups of organisations with similar
competences and resources (Barney, 1991; Penrose, 1959; Wernerfeld, 1984). It explains
that there are industry specific competencies (Fai and von Tunzelmann, 2001) and
industry specific ‘recipes’ for innovation (Spender, 1989).
Industry convergence, so far, has received limited attention in the strategic
management literature (Kim et al. 2006; Pennings and Puranam, 2001). If investigated,
it has predominantly been analysed focussing on computing, communication and
274 S. Bröring

consumer electronics (Dong et al., 2004; Duysters and Hagedoorn, 1997; Greenstein
and Khanna, 1997; Katz, 1996; Lee et al., 2005; Rockenhäuser, 1999; Stieglitz, 2004;
Wirtz, 2001). To date no study has compared different cases of industry convergence and
looked at the influence of path-dependencies on a firm’s ability to adapt to trends of
convergence and the role of open vs. closed innovation strategies in converging industries.
To fill this gap, this paper compares industry cases of digital convergence with other
examples of convergence in the chemical and electronics and in the pharmaceutical and
food sectors. Thus, by analysing different cases of convergence, the paper strives to extract
managerial implications regarding the development of innovation strategies and their
implementation. After providing practical implications for technology management in
the context of convergence, this paper seeks to contribute to management research by
linking the relatively unexplored context of industry convergence to the development
of innovation strategies and their implementation.
The remainder of this paper is organised as follows. Section 2 looks at industry
convergence to give an overview on drivers and patterns of industry convergence.
Subsequently, in Section 3, general implications of convergence for innovation
management are described and a reflection on existing literature on innovation strategy
building is provided. This literature review provides an overview of current research on
innovation and technology management in industry convergence to describe industry
convergence in general, and the development of innovation strategies more specifically.
In Section 4, a depiction of the sample of projects analysed to obtain the empirical
evidence follows, as well as a description of the chosen research method and the
conducted analyses. Section 5 presents the empirical part by a description of three
different case studies. Consequently, Section 6 discusses results based on a comparison
of the three cases and derives a typology of innovation strategies. On the basis of
this discussion, conclusions and implications for theory and practice are highlighted
in Section 7.

2 Patterns and sources of industry convergence

There are different levels and sources of convergence, occurring in almost any
combination. Convergence can take place at the product-market, at the firm or at the
industry levels. The latter is the most profound level, and thus, is the object of this paper.
Regarding types, convergence can be induced by inter-industry networks or new
technology platforms, which are invisible from a consumer standpoint, or convergence
can emerge from customer demand, regulation and industry standards. In most cases
market or technological drivers of industry convergence present an interwoven
development, but they can also occur separately (Gambardella and Torrisi, 1998; Stieglitz,
2004). This means that forces driving technological convergence do not always initially
lead to a convergence in end-markets. Gambardella and Torrisi (1998) argue that
the reason why technological convergence does not always lead to convergence in
end-markets is that competencies for commercialisation are too different.
On the other hand, market convergence can occur separately, but in most cases
it appears to be triggered by converging technological platforms. For example, the
convergence of telecommunication, computing and consumer electronics has been
induced by the emergence of the digital era. Here, the technological advancements
 Developing innovation strategies for convergence 275

which have led to the possibilities of digital transmission did not distinguish between bits
reflecting videos, voices or texts. The statement ‘a bit is a bit’ expresses the convergence
of technology platforms which has initially led to the occurrence of convergence of these
sectors. The same phenomenon can be seen in the revolution of biotechnology with the
DNA as a common code, which likewise resembles a common technology platform
applied to different markets.
In general, there exist different types of industry convergence which differ with
regard to their consequences to the involved firms. This paper follows Malhorta and
Gupta (2001) in distinguishing industry convergence into input-side and output-side
convergence, as detailed in Figure 1.

Figure 1 Input-side and output-side convergence and resulting industry convergence

2.1 Technology-driven input-side convergence

Before any trends of convergence emerge, patterns of technological developments,
as well as technological competencies, vary significantly between industries (Cantwell
and Paniccia, 1998). This situation may change when new technology areas arise and
are applied across industries (Bierly and Chakrabarti, 1999). In this context, input-side
refers to the converging trends of technologies and technology-platforms (Malhorta and
Gupta, 2001; Pennings and Puranam, 2001). Hence, technology platforms grow together
and fuse (Kodama, 1992). This process occurs since technological platforms have an
integrative character, linking formerly discrete functions and product features into a
single system (Lei, 2000). Depending on whether this merger creates new functionalities,
in addition to the two previous technologies, or whether it substitutes two previously
existing ones, technology convergence can be differentiated for being substitutive or
complementary (Greenstein and Khanna, 1997; Lei, 2000; Stieglitz, 2004).

2.2 Market-driven output-side convergence

Output-side convergence, on the other hand, is triggered by converging demand structures
of different industries. It occurs if customers treat products of different industries in the
same way, i.e. products which originally do not stand in any competition to each other
start to become substitutes (Malhorta and Gupta, 2001; Pennings and Puranam, 2001).
276 S. Bröring

An example of such a market-driven convergence, which was initially triggered by

technological convergence, can be seen in personal computers and televisions.
Both products get gradually more used as substitutes for one another. Laptop computers
with a DVD-player, for instance, combine the classical functions of a data processing
computer with consumer electronics and entertainment. They get increasingly
popular to be used for watching DVDs or even TV programmes – product functions
traditionally not served by the computer industry but by the consumer electronics
sector (Rockenhäuser, 1999). Therefore, market convergence can be seen as a result
of the consumer trend towards convenience and one-stop-shopping (Graack, 1996), where
consumers try to satisfy different needs in one transaction (Pennings and Puranam, 2001).
Similar to input-side convergence, one has to distinguish between substitutive and
complementary forms in market-related convergence situations (Greenstein and Khanna,
1997; Lei, 2000; Stieglitz, 2004).
Moreover, it has to be noted, that in most cases, technology convergence is the
ultimate trigger for industry convergence, whereas market convergence is reinforcing it
but in most cases not driving convergence in the first place. However, this paper follows
Pennings and Puranam (2001, p.6) in viewing market-related convergence resulting from
a ‘growing similarity of needs’ as a separate force driving the process of convergence.
Furthermore, a third dimension of convergence can be seen in the convergence of
regulations, which can be resulting from industry convergence, or even triggering it.
In the telecommunication sector, regulation has initially blocked convergence. It is only
with deregulation and privatisation that convergence has been possible (Lei, 2000).
In other cases, rapid technological developments lag behind, due to regulation. This is the
case in modern biotechnology, where product technologies had been developed years
prior to the emergence of any legal classification (Castle et al., 2006). Because of
missing industry standards, regulation only evolves over time. On the one hand, this
may cause a broader set of options, but on the other hand it may also lead to confusion
and a decisive decrease in planning reliability. This is due to the fact that innovations
placed on the market in times of lacking regulation later on might have to be adapted,
in order to comply with the emerging legislation (Bröring, 2005).
To conclude, the occurrence of both technology-driven input-side convergence and
market-driven output-side convergence leads to the development of a new inter-industry
segment. Due to convergence of the input- and the output-side, a new value chain emerges
(Dong et al., 2004). An important question in this context is the degree to which a new
industry segment leads to substitution of the old segments. According to Greenstein and
Khanna (1997), convergence can either lead to a total phasing out of the two formerly
separate industries (1 + 1 = 1) or it can also trigger the emergence of a new industry
segment, which complements the two formerly existing ones (1 + 1 = 3). Regarding
Figure 1, the question is whether the newly emerged value chain (C) replaces (A) and
(B), or just emerges as complimentary. One explanation for the different outcome of
convergence being either substitutive or complimentary can be seen in the respective
combination of technology and market convergence: only if both technology and market
convergence can be characterised as substitutive, then industry convergence as such is
substitutive. This means that two value chains are merging, leading to a total phasing out
of the two hitherto separate ones. Another explanation might be seen in the distance of the
two merging markets, as market convergence is a precondition for the convergence of
two industry sectors. However, current research in the field of convergence suggests
 Developing innovation strategies for convergence 277

that, in most cases, there are rather a number of many small sub-segments than one large
merged industry (Stieglitz, 2004). Furthermore, substitutive convergence may change
the importance of single industries; value creation may be shifted to a sub-segment,
which only gradually substitutes the ex ante segments (Lind, 2005).

3 Particularities of innovation management in convergence

3.1 Innovation and technology management in industry convergence

Industry convergence presents a particular context for innovation and technology
management and the development of innovation strategies in particular. Successful
innovation requires organisations to combine many critical knowledge areas (Bierly
and Chakrabarti, 2001). These necessary areas of knowledge and accompanying
competencies are traditionally found in different industries. That these needed
knowledge and competence sources are industry specific (Fai and von Tunzelmann, 2001)
can be explained by the fact that they are cumulative and path-dependent. This is
because competencies only develop over time following specific development paths
(Dierickx and Cool, 1989; Greener, 2002; Teece et al., 1997). Hence, it seems that
no player – notwithstanding from which industry it originates – possesses all the
competencies needed for innovating successfully at times of convergence. The question
becomes whether firms design their innovation strategies in order to cope with
particularities of converging industries. If so, what are these particularities in detail?
As the preceding discussion indicated, there are many dynamic characteristics of
industry convergence influencing innovation. To summarise, these can be classified
as illustrated in Table 1.

Table 1 Industry convergence as a special situation for innovation

Convergence of technologies Convergence of markets Regulation and standards

Application of new technologies Demand structures Missing industry standards

across industry boundaries
Fusion of existing technologies
owned in different industries
to form a common one
New areas of technological
knowledge become relevant
for innovation
converge
Substitute products arise
from another industry
New areas of market
knowledge become
relevant for innovation
Regulation for the new
‘converged’ sector is only
about to emerge
Legal uncertainty in defining
the options for innovation

The characteristics shown in Table 1 are contingent upon the pattern of convergence.
With respect to innovation management, the differentiation into substitutive and
complementary convergence seems necessary to specify how pressing trends of
convergence are. In the case of total substitution of previous sectors, innovation seems
to be imperative to keep up with trends of convergence. However, in the case of
complementary convergence, firms may seize the opportunities of industry convergence,
or may choose to focus on an existing ‘historical’ sector, not requiring any adaptation.
278 S. Bröring

Another important characteristic in analysing industry convergence, and its impact

on innovation and technology management, is the similarity of the previously separate
sectors. This can be seen in the extent to which the two converging sectors have
been alike, in terms of their competence bases, prior to convergence. In this connection
Kim et al. (2006) refer to conventional convergence phenomena and heterogeneous
inter-industry convergence. The latter indicates a greater distance between the two
converging sectors, which is due to the different qualifications of the two sectors.
Being theoretically anchored in the RBV, this paper looks at heterogeneity in terms of
differences in resources and competences of the two converging industries. The greater the
difference between competences and experiences, hence, the more the industry specific
development path differs, the bigger are the problems firms have in realising their
opportunities in an emerging inter-industry segment (Bröring et al., 2006). This raises
the question of how firms can successfully develop innovation strategies and secondly
how firms will implement these.

3.2 Developing innovation strategies and the particularities of convergence

A sound innovation strategy is key for the successful commercialisation of innovations
(Afuah, 2002; Tschirky, 2003) – it is especially relevant at times of environmental change
(Sanchez, 1996) such as convergence. As discussed, firms face changing technological
and market developments in converging industries. New areas of knowledge may become
relevant for engaging in innovation. Concerning regulation and industry standards,
Day and Schoemaker (2000) state that there are different rules in emerging industries,
since neither industry standards, nor a regulation have yet been developed. Following the
classification of Sanchez (1996), this paper defines inter-industry segments arising from
convergence as evolving markets. Evolving markets can be characterised with a higher
degree of uncertainty. Uncertainty is due to two reasons. First of all, the evolving market
itself is far from clear preferences and defined technological designs. Secondly, firms
involved in this market may struggle, since they lack the necessary competences and are
sometimes insecure about the competences to develop, because the specific competences
and resources cannot be identified with precision. As a result, firms are insecure about
their position in an emerging value chain.
One reason for the inability to identify opportunities resulting from industry
convergence can be seen in limited absorptive capacity. Cohen and Levinthal (1990) claim
that, for most external knowledge areas to be used effectively, an organisation must
already possess a considerable level of competence in the area so that it is able to
‘recognise the value of new, external information, assimilate it, and apply it to commercial
ends’ (Cohen and Levinthal, 1990, p.128). They refer to this notion as absorptive capacity
which only evolves over time and is path-dependent. The reasoning for path-dependency
originates from the influence of past activities on future ones, because cognitive processes
are cumulative and idiosyncratic, as past and accumulated experiences determine the
capability of a firm to absorb the external knowledge needed for idea generation.
For example, firms that build a distinct technological competence are more likely to build
on existing resources (compare e.g. Dosi, 1982; Dierickx and Cool, 1989; Helfat, 1994).
In the case of industry convergence which is based on both convergence of
technologies as well as convergence of markets, firms face knowledge, capability
and resource gaps. This calls for a constant scanning of the firm’s immediate and
 Developing innovation strategies for convergence 279

neighbouring environment (Lei, 2000) to avoid being overrun by trends of convergence,

but rather to actively shape and influence them (Bröring, 2005). Hence, as argued
previously, firms facing trends of convergence may have to adapt their innovation
strategy. In this context, a firm’s innovation strategy needs not only to account for the
plan for market and technology (Clark and Weelwright, 1993) but it also needs to take
into consideration the organisational implications to execute the innovation strategy
(Sauber and Tschirky, 2004). The recent literature offers different approaches about
how to implement innovation strategies and carry out innovation management.
Chesbrough (2003) has coined the term ‘open innovation’ to indicate the interactive
and open nature of innovation and technology management which allows for an
active exchange of knowledge between the innovating company and its environment.
This means that different steps, from idea generation to product launch, are not
necessarily taken care of by the company on its own, but also through specific
partnerships, including licensing in and licensing out. The opposite of this open
approach can be seen in a closed innovation design, where a company carries out every
step from idea generation to development and commercialisation internally, using its
own resources and competencies (Chesbrough, 2006; Herzog and Niedergassel, 2007).

4 Research design: grounded theory-based case study research

The novelty of the research on industry convergence and its impact on innovation
strategies motivated an explorative approach involving a qualitative case study analysis.
The application of this method is favourable in terms of practicability and research design
which can be explained by the following citation of Yin (1994, p.6) ‘In general case
studies are the preferred strategy when ‘how’ or ‘why’ questions are being posed, . . .,
and when the focus is on a contemporary phenomenon within some real life context’.
According to Glaser and Strauss (1967), the aim of case study research is to discover
‘grounded theory’ by comparing different cases. This enables the exploration of the
emerging market and consequently explains the different paths companies have chosen
regarding their innovation strategies. The analysis of qualitative information is then
followed by a critical review of existing contributions to ‘enfold the literature and
identify conflicting and similar contributions’, (Eisenhardt, 1989, p.544).
This paper combines secondary data collected from companies, regulatory institutions,
and industry associations, as well as primary data collected by the author directly. The unit
of analysis is the R&D project level. Three different examples of industry convergence
are presented. As shown in Table 2, these include the well-researched convergence of the
telecommunication, media and consumer electronics (TMC) sector; the emerging sector
of nutraceuticals as a result of converging trends between foods and pharmaceuticals;
and the sector of printed electronics, which presents the convergence between chemistry
and electronics induced by nanotechnology.
Choosing only three industry cases of convergence represents a deliberate trade-off
between width and depth (Glaser and Strauss, 1967). However, given the explorative
nature of the study, in-depth analysis of three cases is sufficient for an initial insight
into the relation of industry convergence and innovation strategy.
280 S. Bröring

Table 2 Data collection of the three cases

TMC Printable electronics Nutraceuticals

Consumer electronic trade
fairs to study hybrid
products, desk research
and analysis of existing
cases of convergence.
Ten expert interviews
with innovation and
technology managers of
telecommunication,
media and consumer
electronics companies
during 2005.
In-depth insights into the
emerging printed electronics
area by the author leading a
new business development
project at the interface between
chemistry and electronics,
together with different
technologists at Degussa
during 2005 and 2006.
Data stem from a larger
study on the converging food
and pharmaceutical sector,
including 54 in-depth
interviews with project
managers of the relevant
industries conducted during
winter 2003/04 (Bröring,
2005; Bröring et al., 2006).

5 Three cases of industry convergence

In the following, three cases of industry convergence are presented. The cases represent
different examples of industry convergence. The intent is firstly to describe the sources and
the nature of convergence of each of the cases presented and secondly, to look at different
innovation strategies followed by firms, which are affected by convergence. This is done
by looking at the value chain position of firms before and after convergence, as well as
the degree to which competence gaps are encountered and whether or not firms have adopted
an open innovation approach. This procedure allows the identification of different types
of innovation strategies to be observed in the context of industry convergence.

5.1 Convergence of telecommunications, media and consumer electronics

Since the beginning of the 1990s the digitalisation of data has opened up vast opportunities
for innovation (Lee et al., 2005). It has built the basis for the technological integration
of telecommunications, media and consumer electronics (TMC). This industry case
covers not only a structural merger of different technologies and distribution
platforms, but also a convergence of markets. However, there is no total substitution
of hitherto separate sectors, but rather a fragmentation into different sub-segments and
value chains. Another increasingly important driver can be seen in the adoption of the
internet protocol (IP) as the main network standard integrating personal computers
and phones. Hence, convergence in this sector can be observed at three different levels:

end-user devices, e.g. smart phones like the widespread ‘BlackBerry’ as the
integration of a PDA (Personal Digital Assistant) and a mobile phone

convergence of media and applications, e.g. interactive television connecting gaming
and television

convergence of the infrastructures in telecommunications, e.g. the convergence of
fixed and mobile telephone systems.
 Developing innovation strategies for convergence 281

These three directions also merge with one another, such as, for example, the use of the
IP for the transmission of different media contents, including broadcasting. Examples
such as watching television or listening to the radio using mobile phones and the use
of a desktop computer as a phone, a radio, a TV and a DVD-player illustrate the
development possibilities of convergence. This form of technological integration is
also found in regulation. In Germany, all end-user systems which can directly receive
broadcasting signals or that can be connected to the web are, in future, subject to a
common broadcasting fee.
As illustrated in Figure 2, the TMC case is shaped through both input-side
convergence of the technology platforms and output-side convergence, expressing itself
in merging product functions. This form of multilayered convergence on the technology,
and on the product side, offers immense potential for innovations, which attracts various
players from different industries.

Figure 2 The convergence of telecommunications, media and consumer-electronics

A very prominent example of convergence in the TMC realm can be seen in the
emergence of PDAs in the early 1990s. PDAs combine microprocessors of the
computer hardware industry, fax and pager functions from the telecommunication
industry and a device, including a small LCD screen, from the consumer electronics
industry. Accordingly, different players from the sectors of computer hardware
(e.g. Atari), telecommunications (e.g. AT&T) and consumer electronics (e.g. Casio,
Hewlett-Packard) tried to enter the emerging market for PDAs and increasingly became
competitors (Stieglitz, 2004). Since the PDA is sold in the consumer market, companies
from the computer hardware and telecommunications sectors, which aimed at moving
down the value chain, lacked business-to-consumer market competencies. Accordingly,
innovation strategies were often not adjusted to the requirements of end-consumer
markets and, as a result, innovation projects failed at the stage of commercialisation.
For instance, the US company AT&T, traditionally very strong in telecommunications
and in supplying IP-based communication services to enterprises, as well as high-speed
DSL connections, tried to profit from the tendencies of convergence and developed a
PDA. The product, EO 440, marketed as the ‘personal communicator’ combined e-mail,
fax and online services. By forward integration into the consumer electronics sector,
AT&T intended to be profitable by not only selling the end-user device, but also by
offering additional communication services. This strategy was not successful – the product
was withdrawn after only 4000 devices were sold (Halfhill, 1993). AT&T had no
consumer insights regarding marketing and design. Functions of the PDAs were too
282 S. Bröring

complex and user-unfriendly. The lack of focus on the PDA as a consumer product
sold on the end-consumer market may be explained by the strong technology focus of
AT&T having its roots in telecommunications technology, rather than in consumer
understanding. The case of AT&T indicates that just using the existing innovation
strategy, without any adaptation to the requirements of a consumer-market, is not
a viable option in converging industries.
At the beginning of the 1990s the breakthrough on the market for PDAs was reached
by Palm, not because of a strong, well-established competence in either technology or
market, but rather due to its partnering competencies. Based on different technology and
market partnerships the product ‘Palm OS’ was developed, not as a substitute, but as a
complementary product to the desktop computer. The early focus on consumer-friendly
designs together with the Palo Alto Design Group, was crucial for its success (Butter and
Pogue, 2002). Consumer trends and technological trends are pushing the convergence
process further, so that one can assume an increasing substitution of PDAs by
smartphones, combining organiser and data storage as well as cell phone and e-mail, or
even GPS functionalities. This trend has also been realised by Palm, who launched the
smartphone ‘Palm Treo’. This hybrid product integrates a cell phone and a PDA device.
‘Palm Treo’, and the first mover ‘BlackBerry’ launched by the Canadian
company Research in Motion (RIM) already in 1999, are two examples of successful
hybrid products, which have not been developed by established large companies, but by
newly founded companies, benefiting from the absence of any strong technological
path-dependencies. Emerging from a service and consumer orientation, both, Palm and
RIM can be characterised by a very open approach to innovation, since both innovate
as part of a larger value network. Most importantly, these value networks do not
only focus on working with partners in the area of technology development.
This is like AT&T’s network developing the EO 440, but their networks also encompass
partners with distinct consumer electronic market competencies to help define the
customer value of hybrid products.

5.2 Convergence of chemistry and electronics to form ‘printable electronics’

Printable electronics based on ‘nanotronics’, are examples of technological integration,
which do not go hand-in-hand with market convergence on the output-side of the value
chain. Nanotronics refers to the convergence of chemistry and electronics induced by
nanotechnology. Here, nanotechnology can be viewed as the driver applied across
different industries. Nanotechnology can be defined as materials and/or structures
developed on a nanoscale with certain value-adding functions. In this context, printable
electronics describe the use of nanotechnology-based materials, e.g. inks for printed
OLEDs (organic light emitting diodes), transparent conductive layers or printed sensors
and antennae for printed RFID (radio frequency identification) tags. Thus, the term
‘printable electronics’ refers to conducting (or semi-conducting) modules, manufactured
by printing conductive (or semi-conductive) inks. Even though many of the applications
of ‘printable electronics’ are still in a pre-commercial phase, market studies (e.g.
Nanomarkets, 2005) predict a strong growth. This is based on the assumption, that
the new printing processes will substitute the existing manufacturing technologies such
as etching processes. Structures (e.g. circuit boards) can be manufactured by printing
directly on a substrate, so that the steps of surface coating and extracting the desired
 Developing innovation strategies for convergence 283

structures with etching techniques can be omitted. Thus, ‘printable electronics’ have a
large potential for mass production and allow for more flexible designs. Altogether, the
merger of chemistry and electronics through the printing of conductive inks presents
a technological integration, which is carried out at the very front-end of the value chain
(see Figure 3).

Figure 3 The convergence of chemistry and electronics induced by nanotechnology

The case of ‘printable electronics’ resembles a classical case of substitutive technological

convergence, where different technologies of different industries grow together and form
a new platform, while simultaneously substituting existing platforms. Since only the
mode of production changes and the product functions remain the same, the substitution
of existing processes does not have direct implications for the market side. However,
‘printable electronics’ necessitate material competencies from the chemical industry and
expertise in electronics held by the electronics industry. The two industries, chemistry and
electronics, meet one another in ink development and the production of conductive
modules: the electronics industry lacks technological know-how regarding the production
of printable inks, whereas the chemical industry has limited insights into electronic
designs, needed for the printing of e.g. antennae, so that each individual module fits
together into an entire electronic system. There are well-established chemical companies
(e.g. Cabot, Dupont, Dow) and electronics companies (e.g. Philips, Motorola), as well as
small emerging companies such as Plastic Logic, which have different R&D programmes
in the area of ‘printable electronics’. Innovation processes of the chemical companies
often run in cooperation with those companies from the electronics industry.
Degussa, a multinational speciality chemicals company, is a prominent example of
these more open approaches to R&D in convergence (Gutsch et al., 2005). The company
is traditionally positioned at the very front-end of the value chain as a materials supplier.
With the advent of nanotechnology, it has realised that moving downwards is necessary
to develop a sustainable share of the evolving ‘printable electronics’ market, which
does have the potential to substitute existing Degussa products, such as carbon black.
To implement its open innovation approach, the company set up a centre in 2004 which
allows for the physical integration of different partners from different industries to put
together the necessary competences from chemistry and electronics. Hence, the so-called
‘science-to-business centre for nanotronics’ fosters knowledge exchange between
chemistry and electronics. This also includes academic research in the field of material
sciences. It has to be noted that these partnerships are not only focussing on technology
284 S. Bröring

development, but also on getting insights into the market side to learn about an
evolving value chain. Thus, Degussa – traditionally a materials supplier ‘tossing
the product over the fence’ and focusing on its own internal R&D competencies – has
adapted its innovation strategy to the requirements of industry convergence.
Even though convergence in the case of ‘printable electronics’ is induced by
technological developments, market and regulatory aspects are also important.
With respect to regulation, Degussa is active in inter-industry workshops on
subjects like technology-roadmapping and emerging regulation. These inter-industry
forums build a platform to coordinate relevant knowledge areas which influence
technological specifications and industry standards, and thus, provide a basis for
regulation. For instance, the electronic product code network aims to develop
industry standards in the evolving RFID-sector, together with representatives from
the electronics and the chemical industries, as well as at the consumer level.
To sum up, the case of Degussa shows that the need for integrating knowledge
from outside one’s own industry into one’s R&D programme is essential and requires a
shift in the innovation strategy itself. Due to a high degree of interdependencies between
the two merging streams of technology, open innovation seems to be the only way to
integrate both bodies of knowledge. This open strategy allows the company to take a step
forward in the value chain, from pure materials supplies to integrated ink printing systems.

5.3 Convergence of pharmaceuticals and food to form ‘nutraceuticals’

The term ‘nutraceutical’ denotes the coalescence of the food and the pharmaceutical
industries. This segment which, has been developing since the beginning of the 1990s at
the border of these two industries, shows input as well as output-side convergence
(Bröring, 2005). As a result, the new inter-industry segment of nutraceuticals and
functional foods has developed between foods and pharmaceutical products. It integrates
different technologies and consumer trends but does not lead to a phasing out of the two
formerly distinct industries. Therefore, nutraceuticals present a case of complementary
industry convergence driven by complementary technological and market convergence.
For instance, the progress of biotechnology plays a special role in the development of
bioactive compounds. Furthermore, ‘nutrigenomics’, as the connection of nutritional
sciences and genomics, represents a new area with huge potential for innovation:
Scientific knowledge from the fields of genomics, crop science and genetic engineering,
as well as modern medicine, is combined with the goal to develop nutritional products for
medical prevention and treatment. This form of complementary technological integration
is accompanied by the convergence of product functions (e.g. nutritive and preventive
functions). The driver for market-related output-side convergence can be seen in a
growing health trend, which provides constantly growing sales of hybrid products like
cholesterol-lowering foods. Thus, the emerging segment of nutraceuticals and functional
foods offers room for a variety of products. They range from the simple enrichment of
food with functional ingredients, to products for personalised nutrition, based on the
scientific knowledge of genomics. Therefore, the emerging value chain is an attractive
target for companies in the food (e.g. Unilever, Nestlé) and pharmaceutical or chemical
(e.g.. Novartis, Abbot Labs, DSM, BASF) industries.
 Developing innovation strategies for convergence 285

Figure 4 Convergence of nutrition and pharmaceuticals: nutraceuticals

Products of the nutraceutical sector, such as cholesterol-lowering food products,

require technological competencies from the pharmaceutical and chemical industries
and strong consumer market competencies, including consumer insights and
preferably strong assets like well-known brand names. It seems that both sectors with
their specific competence profiles are complementary to each other. But like the other
two examples of convergence, the value chain positioning remains unclear at the
beginning: on the one hand, food companies produce functional food products
without having undergone any clinical trial to substantiate their claimed health
benefits. On the other hand, there are pharmaceutical companies trying to apply
their technological knowledge to the emerging sector but which fail, due to the limited
adaptation of the product to the consumer market. An interesting case is the Swiss
pharmaceutical company Novartis, that has been very actively promoting its functional
food range, AVIVA, but failed and withdrew the whole product range after only
three years. The pharmaceutical company – traditionally very strong in the over the
counter (OTC) market for pharmaceutical products – was missing business-to-consumer
market competencies needed in the fast moving consumer goods (FMCG) market
for food products.
Although health benefits from supplements are based on technological innovations,
a consumer product should not be positioned in a way that is too scientific and
technical. The Dutch speciality chemicals company DSM realised that it had no consumer
market competencies during the innovation process of its sports nutrition Peptopro – a
whey protein which improves the utilisation of glucose by muscle cells. It, therefore,
collaborated with a consumer goods company specialising in sports nutrition, rather
than commercialising the product on its own. By contrast to Novartis, DSM
changed its innovation strategy towards a more open approach. Looking at the value
chain, it becomes clear that existing competencies somewhat hamper companies to
move forward in the value chain. DSM, therefore, established a close cooperation with
a consumer goods company. It has adapted its innovation strategy to account for
competency gaps.
There are more innovation strategies to be observed (Bröring et al., 2006). A study
of 54 innovation projects has led to two generic types of innovation strategies in
the nutraceutical and functional foods sector. These can be differentiated by the degree
to which firms leave their existing path and engage in path-breaking innovations.
286 S. Bröring

The majority of firms (63% in the study) entered into path-breaking innovations by
targeting the new segment with so-called hybrid products requiring both technological
competencies from the pharmaceutical industry and consumer market competencies
from the food industry. These innovation projects have been conducted in inter-industry
partnerships to benefit from complementary competencies. Here, the firms involved
adapted their innovation strategies and implemented an open innovation concept.
The remaining firms (37%) did not change their way to innovate and continued to
follow their existing paths. These firms did not encounter any competence gaps, since
they just intended to participate in the emerging value chain by conducting those
projects, which could be handled with existing competencies. For instance, a speciality
chemicals company traditionally offering ingredient technologies to the pharmaceutical
company now stretched its competencies to be offered to the food industry. The value
chain positioning remained unchanged. This was also the case for a food company
which only focused on enhancing its existing brands by a line extension through
simple fortification of an existing food product. However, at this point one might ask,
how do both (speciality chemicals and food) come together, since they may not
realise the value, due to lack of prior knowledge expressed by missing absorptive
capacity. Here, one can observe so-called info-brokers (Herzog and Niedergassel, 2007)
like Evaluserve or Ninesigma, which act as matchmakers in helping to link both
parties together that would not have, on their own, been able to identify the fit. To
summarise, most technology-driven companies which perceive the benefits of integrating
themselves forward into the consumer goods. To summarise, most technology-driven
companies which perceive the benefits of forward integration into consumer goods
markets by, for example, launching a supplement with existing B2B competences, fail.
This is because technology-driven companies often lack necessary market competences,
due to limited experience in the consumer goods market.

6 Case comparison and resulting typology of innovation strategies

6.1 Comparison of the three cases of industry convergence

These three cases illustrate that industry convergence can occur in different contexts.
They can be compared as follows. The ‘TMC’ together with the case of ‘nutraceuticals’
can be characterised by convergence on the input-side and output-side. By contrast, the
case of ‘printed electronics’ focuses merely on the input-side. The latter case, therefore,
does not involve any changes at the end of the consumer-side. Table 3 provides a
comparison of the three cases.
As the examples of AT&T and Novartis have indicated, inter-industry segments
arising from simultaneous market and technology convergence are not a carte blanche for
forward integration. Even though the emerging value chain offers vast opportunities for
innovation, many companies fail in realising them. From these preliminary observations,
it seems that missing market competencies are often underestimated. Innovation strategies
have to be adapted to target market opportunities arising from convergence.
 Developing innovation strategies for convergence 287

Table 3 Comparison of the three cases and implications for innovation strategy

Converging TMC = Printable electronics = Nutraceuticals =

sectors Telecommunication, media Chemicals and Food and
and consumer electronics electronics pharmaceuticals

Input-side Digitalisation of data Chemicals and Biotechnology and

is creating a common electronics grow genomics create a
technology platform together due to common technology
across different nanotechnology being platform being applied
industries. applied across industries. across different industries.
Output-side Consumer trend of Technological Consumer trend of
using ‘hybrid products’ integration of chemistry health and wellbeing
integrating different and electronics does develops across
functions fosters not have direct impact markets and, thus,
market convergence. on end-markets. fosters convergence.
Examples AT&T, which deviated Degussa, which deviated Novartis, which
from its market path- from its technological deviated from
dependencies and did and application market
not adapt its innovation path-dependencies, path-dependencies
strategy, failed in the realised its competence without adapting
business-to-consumer gaps and adopted an its innovation
market of PDAs. open innovation approach. strategy, failed.
Palm profitably DSM deviated but
operated in an open realised market
innovation modus. competence gaps, thus,
successfully adopted an
open innovation strategy.
Implications Due to Technological Due to
for path-dependencies, knowledge of two path-dependencies,
innovation technology-intense different industries technology-intense
strategy firms face difficulties grows together firms face difficulties
in applying their and requires a high in crossing over to
technological degree of coordination. the FMCG-market
knowledge to the New areas of knowledge of food products.
emerging industry are relevant for the area Successful
segment.
of ‘printable electronics’, technology-intense
Consumer insight is which affects existing firms partner with the
needed to identify technology strategies. food industry if they
customer value of
A more open approach intend to move forward
hybrid products.
is needed; this has to in the value chain.
Crossing over into the
emerging inter-industry be reflected by a new The further a firm leaves
segment requires new organisational design. its existing positioning
competencies, thus, in the value chain, the
innovation strategy has greater is the need for
to be adapted. partners.
288 S. Bröring

The comparison illustrates that specific competence requirements for companies

which face market and technological convergence are relatively high. While the chemical
industry in the case of ‘printable electronics’ must worry only about the technological
requirements for an ink fitting into an electronic system, the requirements of the cases ‘TMC’
and ‘nutraceuticals’ are more complex. Even though chemical firms, such as Degussa,
increase their share of value creation by supplying a whole system, they remain to be a
supplier of industrial goods commercialised on a business-to-business-market.
In the other two cases, AT&T and Novartis tried to move much further down the value
chain and aimed at a new positioning involving a change in their business models from
business-to-business to business-to-consumer. Although the idea to become a consumer
products company supplying hybrid products sounds promising, it is hampered by lack of
competencies and resources, such as well-known brand names. Following Leonard-Barton
(1992), core capabilities can turn into core rigidities, as in the case of a pharmaceutical
company trying to market a consumer product with its existing sales and marketing forces.
These findings support earlier studies indicating that business-to-business firms are less
market orientated than business-to-consumer firms (Avlontis and Gounaris, 1997; Beverland
and Lindgreen, 2007; Weerawardena and O’Cass, 2004). These differences are rooted in
different industry-specific competence profiles and call for inter-industry collaboration.

6.2 Ideal types of innovation strategies as a guideline for managers

in convergence
In the context of industry convergence firms, may be trapped by their past development
resulting from an industry-specific set of competencies and resources. The farther a firm
leaves its traditional positioning in the value chain in convergence, the higher the extent
to which it deviates from its existing market and technology-related path-dependencies.
As a consequence, the company faces severe competence gaps and may fail. These gaps
may be either on the technology side or on the market side. Thus, taking into account the
degree to which a company deviates from its existing market or technology development
path, this paper identifies different ideal types of innovation strategies. As illustrated
in Figure 5, innovation strategies and organisational implications can be understood as
a function of relatedness to a previous market and/or development path.
Figure 5 Ideal types of innovation strategies in convergence and organisational designs
 Developing innovation strategies for convergence 289

Ideal type I, ‘technology-based open innovation strategy’, describes an innovation

strategy, which is in accordance with the previous development of a firms’ market
positioning, but deviates from the existing technological path. Accordingly, the firm
faces technological competence gaps and therefore needs to have a more open approach
regarding the technology part of its innovation strategy. This type can be illustrated by
the case of ‘printable electronics’, since it can be characterised by the convergence of
technologies without a direct implication for the end markets. As the example of Degussa
shows, there is a high need for coordination on the technology management side, calling
for an open approach to share evolving technological competencies across different
industries.
By contrast, type II – labelled as ‘technology and market-based open innovation
strategy’ – describes the case of simultaneous technological and market convergence.
If firms really want to engage in this type of innovation, they need to open up their
innovation processes and combine needed technological and market competencies from both
industries. This has been demonstrated by Palm in the ‘TMC’ case of convergence. Here,
successful innovation has required technology development and marketing partnerships.
In general, market partnerships seem especially important for technology-driven companies
who aim at forward-integration into the business-to-consumer segment. As the examples
of Novartis and AT&T have shown, gaps in market resources and competencies are less
obvious and can easily be underestimated. Hence, inter-industry alliances, as demonstrated
by Palm, to integrate competencies from different industries in an open innovation concept
seem to be needed for the successful implementation of endeavours which deviate from
a firm’s existing market and technology development path.
Ideal type III, called ‘closed innovation strategy’, describes a rather inward-looking
innovation strategy. Companies have chosen not to adapt to convergence. This strategy
should only be chosen in a context of complementary convergence, which does not
lead to the total phasing out of the two previous sectors. Thus, this strategy focuses
on the industry of origin as, for instance, many pharmaceutical and speciality
chemical companies do. They have rather specialised technological competencies
and, thus, follow their existing path of innovation and do not move into nutraceuticals
but stretch their existing competencies to the sector, or simply ignore the trends of
convergence.
In contrast, ideal type IV – labelled as ‘market-based open innovation strategy’ – deviates
from its existing market path-dependencies and at the same time follows its existing
technological positioning. A firm employing this strategy, thus, tries to apply existing
technologies to the emerging inter-industry segment. For instance, DSM employed its
know-how in protein hydrolisation to develop sports nutrition. The leap into the
consumer market was successful, since DSM did not commercialise the product on its own
but did so in a marketing alliance with a consumer-driven firm from the food industry.
However, there are many unsuccessful examples of companies not recognising the need
for open innovation. They fail, due to missing competencies in market understanding.
In this study, it appears to be that gaps in market understanding are not as obvious as the
lack of understanding of certain technologies. This may be because market understanding
is somewhat intangible and thus difficult to measure and to recognise.
290 S. Bröring

7 Conclusion

From this case study research and the resulting ideal types of innovation strategies, some
lessons can be learned for developing innovation strategies in the context of convergence.
Firstly, before deciding on any innovation strategy development, innovation managers
need to carefully evaluate whether the industry they are operating in may be affected by
trends of convergence which call for an effective monitoring of external developments
across industry boundaries. Companies that may be affected by trends of convergence then
need to identify whether convergence is of a substitutive (1 + 1 = 1) or a complementary
(1 + 1 = 3) nature. In the case of substitutive convergence, where two value chains merge,
innovation seems to be imperative for the survival of the company since this case of
convergence will lead to a phasing out of the two hitherto distinctly operating industries.
Hence, firms ought to anticipate trends of convergence; otherwise they may vanish, since
the old industry sector is fading away. On the contrary, in the case of complementary
convergence, a firm has the choice to either pursue an active role in the emerging segment
or rather concentrate on the existing ‘old’ industry.
Secondly, assuming the firm finds itself in a case of complementary convergence, and
decides to participate and produce hybrid products, the company has to carefully develop
its innovation strategy. In terms of the ideal types, this implies that type III, ‘closed
innovation’ of not actively pursuing any activity regarding the emerging inter-industry
segment is not an option. Accordingly, a first step in developing an innovation strategy is
to decide whether one can, and wants to, stretch existing competencies to the emerging
segment. In case the firm commits itself to pursue an active role in the emerging sector it
has three options. As illustrated by the typology shown in Figure 5, these encompass
type I standing for a ‘technology-based open innovation strategy’, which is appropriate
if the firm only deviates from its technological-path and leaves its market positioning
unchanged. Here, the firm needs to source in missing technological competences.
Inversely, if a firm decides to apply its existing technological know-how to a new
market positioning, type IV labelled as ‘market-based open innovation’ represents a
viable innovation strategy. Hence, this type requires new market competences owned in
the industry it is fusing with, so that an inter-industry market alliance is needed. If a firm
now decides to deviate from both its market and its technological path-dependencies,
competence gaps are increasingly high. Then, type II ‘technology- and market-based open
innovation’ is the appropriate option.
Therefore, the more a firm deviates from its path-dependencies, the more competence
gaps it will encounter, and the higher will be the need to open up the innovation process
and implement an open innovation design (see type II) with partners from different
industries bringing together complementary competencies. It has to be noted, that from
these cases it seems that it is easier to source in missing technological competencies from
a network, than missing marketing competencies and resources, such as brands. Products,
which can be commercialised under established brand names, have a clear advantage by
profiting from brand awareness and loyalty. The market part of an innovation strategy
needs to explicitly address these points.
The proposed typology may help firms assess whether the aimed value chain position
creates any deviation from its existing path dependencies and core competencies regarding
market and technology. For the innovation and technology manager, this means that a
careful comparison of the firm’s past developments and experiences with the technology
 Developing innovation strategies for convergence 291

required and market competence (especially with regard to business-to-consumer

markets), and the intended value chain positioning and resulting innovation strategy
to get there, is essential to determine market and technology-related competence
gaps as soon as possible. So called idea-brokers (Herzog and Niedergassel, 2007)
may be of help to find the right partners to close competence gaps in an open innovation
approach.
So, what is the answer to the question in the title of this paper? Open innovation is
imperative for innovation in industry convergence! The strategy of open innovation is
crucial whenever capability requirements change, due to external developments. Firms
need to achieve a dynamic fit with a changing environment. Since companies may be
trapped by their past, they need a more dynamic and flexible set up calling for ‘dynamic
capabilities’ – defined as ‘the firm’s ability to integrate, build and reconfigure internal and
external competencies to address rapidly changing environments’ (Teece et al., 1997,
p.516). As demonstrated, open innovation is the only way to go if a firm strives to capture
maximum value and aims at a new value chain positioning which involves competence
gaps. In order to employ such an open innovation approach, firms require distinct network
competencies to be able to form alliances (Kogut and Zander, 1992).
Concluding, innovation strategies in industry convergence are rather built on dynamic
capabilities than on core competencies. The typology may help companies to decide on
their innovation strategy and the degree to which they should open up the innovation
process. This contribution has introduced a typology for different innovation strategies;
however, it has emerged from the case studies and has not yet been empirically tested.
Therefore, future studies could test the ideal types in a larger empirical study of innovation
projects, in order to statistically establish the relation between the degree to which an
innovation project in convergence deviates from existing competencies and the need for
open innovation. Moreover, this study has stressed the need for inter-industry
collaborations, but it remains unclear how these can be successfully implemented,
given the industry differences. Thus, it would be interesting to see more research on
inter-industry collaborations and how potential barriers caused by different, industry
specific assumptions of innovation may be overcome.

Acknowledgements

This paper would have not been possible without help from different organisations.
I would especially like to thank the Institute for Nutraceuticals and Functional
Foods, as well as Degussa for relevant insights. Moreover, I would like to thank
Prof L. Martin Cloutier for language editing and his support during my stay at the
University of Quebec at Montreal, Canada. Furthermore, I would like to thank the
editors, as well as two anonymous reviewers, for their constructive comments on earlier
drafts of this paper.
292 S. Bröring

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