Professional Documents
Culture Documents
www.emeraldinsight.com/1741-0398.htm
Cooperative
Cooperative innovation: innovation
a value chain approach
David Walters
University of Sydney, Sydney, Australia, and 595
Mark Rainbird
Sydney Graduate School of Management, Sydney, Australia
Abstract
Purpose – The purpose of this paper is to briefly review earlier contributions to partner/cooperative
innovation with the aim of evaluating the application of the concept to the increasingly popular
virtual/value chain business model.
Design/methodology/approach – A number of example cases of partner/cooperative innovation
are examined and, although these are limited in number, it would appear that a classification of types
of partner/cooperative innovation is possible.
Findings – Partner/cooperative innovation combines elements of process and product innovation
management within a “network structure” to create a product-service response that neither partner
could create using its own resources. They extend in both directions of the supply chain (upstream and
down stream) and include supplier relationship management such as that demonstrated between Dell
and its myriad of suppliers, and examples of customer relationship management such as the
relationship that Caterpillar has built with its distributor/service network.
Research limitations/implications – The findings need further validation through empirical data
analysis in appropriate industrial settings.
Practical implications – The paper includes a model that facilitates the evaluation of the “total
efficacy” of partner/cooperative innovation alternatives. As such, the paper offers a viewpoint to be
considered by management.
Originality/value – The paper describes partnership/cooperative innovation that combines
elements of process innovation management and product innovation management within a network
structure. Neither partner can independently create this network using its own resources to meet
customer/market determined expectations for product and/or service performance at an economic
(viable) cost. Third party involvement is typical.
Keywords Process management, Functional management, Virtual organizations, Economic cooperation,
Value chain, Innovation
Paper type Conceptual paper
Introduction
Changes in the business environment have resulted in consumer demand for increased
product-service innovation, product variety, high quality products, support services,
and immediacy for order satisfaction. The need for agile responses to meet these
expectations has resulted in creating virtual structures that network with each other,
using (or leveraging) the capital investments made by their partners and the distinctive
capabilities and processes that the virtual business model makes available.
Magretta (2002) suggests, using the example of American Express in the nineteenth
Journal of Enterprise Information
century, that: Management
Vol. 20 No. 5, 2007
. . . a successful business model represents a better way than the existing alternatives. It may pp. 595-607
q Emerald Group Publishing Limited
offer more value to a discrete group of customers. Or it may completely replace the old way of 1741-0398
doing things and become the standard for the next generation of entrepreneurs to beat. DOI 10.1108/17410390710823725
JEIM Further:
20,5 . . . all new business models are variations on the generic value chain underlying all
businesses. Broadly speaking, this chain has two parts. Part one includes all the activities
associated with making something: designing it purchasing raw materials, manufacturing
and so on. Part two includes all the activities associated with selling something: finding and
reaching customers, transacting a sale, distributing the product or delivering the service. A
596 new business model’s plot may turn on designing a new product for an unmet need . . . Or it
may turn on a process innovation, a better way of making or selling or distributing an already
proven product or service.
Magretta cites Dell as a company that has created a powerful business model by
identifying value chain processes that it would like to undertake, and has sought
partners, complementors, to undertake those it will not. In this way Dell, by selling
directly to end-users, has the vital information necessary to manage inventory better
than its competitors and avoids the high costs of holding inventory and the very high
cost of obsolescence due to the rapid application of technology. Magretta identifies the
notion that there are supplier and customer relationship management issues here that,
while they may appear as separate and distinct entities, they do in fact require
contiguous solutions. Another question is “Is there a generic approach or model that
may be used to understand the successes of Dell, Wal-Mart and others?”
If one of the key success factors for firms operating in a New Economy context is to
minimise actual ownership of assets and instead access resources by collaborating
with others in value chains, then the dynamics of that collaboration is critical. Being
able to supply part of the picture through a focused product capability and competency
is useless, if there are not other partners willing and capable of filling in the other bits
of the picture to offer a coherent whole to the end customer. Notions of business
“partnerships” have been around a long time, but this paper seeks to explore what are
the factors that drive true partnership innovations and therefore competitive
advantage. What makes a “willing partner” and a “capable partner”?
Effective organisations now work together to identify core assets, processes, and
capabilities and having done so work together at optimising their use and the “returns
to the assets managed”. Indeed we have begun to see new concepts appearing in the
management vocabulary. Co-productivity is a more operational role by suppliers,
distributors and customers in which they undertake tasks that hitherto were the role of
other channel/chain participants. These can and do involve aspects of cooperative
product and service innovation. Co-opetition (often known as co-ompetition) describes
the situation in which competitors work together to meet individual objectives using
mutual facilities. Co-destiny is used to ascertain the extent to which members of a
business coalition share the same objectives, strategies and values, thereby ensuring
that all aspects of cooperation are likely to be successful.
Cooperative innovation
It was apparent to Teece (1992) in the early 1990s that the understanding of innovation
required some revision as partnership arrangements became increasingly
commonplace. Tether (2002) investigated these trends and suggested a definition of
“innovation cooperation” within the context of research aimed at exploring the status
of collaborative innovation within UK industry:
Innovation cooperation means active participation in joint R&D and other technological Cooperative
innovation projects with other organisations. It does not necessarily imply that both partners
derive immediate commercial benefits from the venture. Pure contracting out work (e.g. innovation
outsourcing to achieve lower costs) where there is no active participation, is not regarded as
cooperation (Tether, 2002).
This research identified patterns and motives for the approaches to partnership
innovation relationships. A significant proportion of the companies approached 597
cooperated with suppliers, customers and competitors, suggesting that cooperation
within the supply chain was by no means new.
Reasons for partnered innovation were reported as a matching of resources that
were not available in the one organisation, risk reduction and product-market
development, i.e. by working with a customer on a development project there is the
possibility that other customers will accept an innovation. Of particular relevance to
customers within the supply chain, a number of motives were identified:
.
providing complementary knowledge and user know-how;
.
providing a balance between performance and price;
.
providing an insight into user behaviour that may modify or refine the
innovation; and
.
create an awareness of the innovation among other potential users.
Concluding comments
One question remains: how are decisions made and what information inputs are
required? Clearly there are a number of issues relating to the overall value delivery
decision. They include investment decisions about facilities and staff skills, and
Cooperative
innovation
605
Figure 1.
Exploring the scope of
co-operative/partnership
evaluation in value
systems
returns that these need to achieve, and whether the volume of activity will be sufficient
to justify the investment. Other major questions concern control and coordination
criteria; in a customer centric industry not only are customers “demanding” but
competition is intense, as response is seen as an important component of customer
satisfaction. Given such circumstances the cost of providing service may become very
high and may be disproportionate to the benefits realised from direct customer contact.
This can be the case with servicing complex equipment where managing very short
response times requires not only specialist staff but also requires specialist data
management systems (the AWA example explores this issue). If we are to be able to
make both cost effective and cost efficient decisions there is a need for an approach that
can manage this complex mix of qualitative and quantitative decisions.
Figure 2 identifies this “mix” of decisions. It suggests that the structure of the value
chain is first established; of particular importance is the identification of the target
customers and their value drivers. Having clearly determined these characteristics, the
optional approaches to deliver and service the customer value can then be identified,
and the important question concerning how customer satisfaction may be increased by
partnership/cooperative innovation. It is likely that a number of alternatives exist and
these need to be evaluated. Often the up stream/down stream options resolve
themselves because of specific customer expectations, but options do exist to influence
the decision at the product-service design process stage. However, there remains the
need to consider the implications that partnership activities involving assets, processes
and capabilities present for control and coordination.
Some examples may help. Among the decisions to be reached are those of which
“whose brand?” and “whose customer?” are among the most significant. These raise
JEIM
20,5
606
Figure 2.
Evaluating the
partnership/cooperative
innovation decision
questions concerning the extent to which control and coordination are important, and
the costs of the optional positions that are available. In the example of AWA the
computer manufacturers use AWA as a service supplier but their relationships vary,
depending upon the overall relationship they have with customers and the implications
of successful service delivery on the brand image they are attempting to maintain. For
this reason the considerations of cost structures (operational gearing) and financing the
corporate entity (financial gearing) become significant inputs. Both considerations
have market and financial risk implications that can be evaluated. Given the
alternatives and the qualitative control and coordination implications, the use of cash
flow analysis can be used to evaluate their financial efficacy.
References
Bartholomew, D. (2005), “Sleeping with the enemy”, available at: Industry Week.com
Coombs, R., Richards, A., Saviotti, P. and Walsh, V. (1996), “Introduction: technological
collaboration and networks of alliances in the innovation process”, in Coombs, R.,
Richards, A., Saviotti, P. and Walsh, V. (Eds), Technological Collaboration: The Dynamics
of Co-operation in Industrial Innovation, Elgar, Cheltenham.
Crowe, D. (2004), “Metcash feeds suppliers data”, The Australian Financial Review, 30 November.
Inkpen, A.C. (1996), “Rethinking the virtual organisation”, in Jackson, P.J. and Van der Wielen, J.
(Eds), Teleworking: International Perspectives: From Telecommuting to the Virtual
Organisation, Routledge, London.
Johns, R., Crute, V. and Craves, A. (2005), “Improving value delivery: challenges in establishing
value chain delivery”, paper presented at the 2nd European Forum on Market-Driven
Supply Chains, “From Supply Chains to Demand Chains”, Milan, 5/6 April, EIASM,
Brussels.
Kay, J. (1993), Foundation of Corporate Success, OUP, Oxford.
Lindgren, M. and Bandhold, H. (2003), Scenario Planning, Palgrave Macmillan, Basingstoke.
McLoughlin, I. (1999), Creative Technological Change, Routledge, London. Cooperative
Magretta, J. (2002), “Why business models matter”, Harvard Business Review, May. innovation
Sutton, C. (1998), Strategic Concepts, Macmillan Business, Basingstoke.
Teece, D.J. (1992), “Competition, cooperation and innovation: organisational arrangements for
regimes of rapid technological progress”, Journal of Economic Behaviour and
Organisation, Vol. 18.
Tether, B. (2002), “Who co-operates for innovation, and why. An empirical analysis”, Research 607
Policy, Vol. 31.
Further reading
Schumpeter, J. (1934), The Theory of Economic Development, Harvard University Press,
Cambridge, MA.
Schumpeter, J. (1939), Business Cycles, McGraw Hill, New York, NY.