Managing Collaborative Innovation in Complex Networks: Findings from Exploratory Interviews

This paper discusses why companies should consider collaboration with customers and suppliers for innovation and identifies a set of activities that appear to be critical to managing collaborative innovation. It conceptualises how these activities may be affected when performed in complex networks, thus complicating the task of trying to manage them effectively. The paper reports on findings from a small set of exploratory interviews and discusses some possible explanations for apparent cross-case differences. A note on methodological and theoretical lessons completes the paper. Introduction Concepts such as ‘supply chain management’, ‘partnerships’, and ‘networking’ are becoming established as best practice across a variety of sectors. Whereas these primarily concern how companies should manage their operations in some form of partnership along the supply chain they also have profound effects on the way in which companies innovate; concepts such as ‘early supplier involvement in product development’ and ‘innovation networks’ are the latest buzz words. The majority of these concepts, however, adopt a rather isolated view of partnerships, largely ignoring the embeddedness of such dyadic relationships in complex networks. As discussed by IMP (e.g. Håkansson 1987; Håkansson and Snehota 1995) any relationship, and thus innovation performed within relationships, is heavily dependent on developments in a large range of both direct and indirect relationships. On the one hand this dependency means that innovation performed in individual partnerships is constrained by what happens elsewhere in the network. On the other hand the very same network may also permit companies to gain access to and deploy technologies located in the network. Whereas IMP have traditionally described why this may be the case, little attention has been paid to developing proactive ways of how to better cope with the problems of networks whilst at the same time explore and exploit the pool of technologies potentially available in the network. Collaborative Innovation Innovation is increasingly recognised as being the result of the combination of different knowledge and expertise that exist within different organisations i.e. relationships may have interactive and complementary effects on technological innovation. Hence, it is not surprising that there has been a strong upsurge of various forms of inter-organisational collaborative ventures for innovation (Freeman 1991; Hagedoorn 1995; Hagedoorn and Schakenraad 1990). Our primary focus is on vertical collaboration that takes place within buyer-supplier relationships, but which in reality is affected by a myriad of what can only simplistically be conceived as ‘vertical’ and ‘horizontal’ relationships. The following section briefly examines the literature of customer and supplier collaboration, explaining the reasons why companies should collaborate and identifying the key activities of managing these two forms of collaboration. Manufacturer-Customer Collaboration Marketing focuses on the needs and demands of the customer. Thus analysis of customer requirements has been the natural starting point of new product development in marketing. Such analysis traditionally includes initial identification of customer needs, evaluation of product potential, and eventual testing of products (using for example Quality Function Deployment techniques). However, when companies seek to develop novel or complex products and technologies and to market these into markets that are either not well defined or do not exist, traditional marketing tools are of limited use (Tidd et al 1997). Moreover, in business markets companies are less likely to conduct large scale surveys of customer needs; collaboration with individual customers or users is often a way to increase the chances of developing successful new products and technologies. Von Hippel’s seminal research on user-initiated (novel) innovation from the 1970s pointed out the dominant role of users in idea generation (1988), and his studies are now supported by a large number of empirical studies (e.g. Foxall and Tierney 1984; Shaw 1985; Biemans 1989; Voss 1985; Parkinson 1982; Gemünden et al 1996). These studies also contributed to an extension and refinement of Von Hippel’s early concept of CAP, extending the role of users to include not only idea generation, but in some cases all stages of product innovation. Also Håkansson’s research on supplier-customer interaction during technological development (1987;1989) has conceptualised and provided further empirical evidence for this stream of research. Von Hippel’s research has led to one particularly influential framework: the concept of ‘lead users’ (1986). These were defined as those users who a) face needs that will be general in a marketplace, but do so months or years before the bulk of the market and b) are positioned to benefit significantly by obtaining a solution to those needs. The research on manufacturercustomer interaction in innovation by Von Hippel and his peers, which started in the mid 1970s and continued into the 1980s, was seminal in that it blurred the picture of the initiator of innovation. It explored how the source of innovation can vary between industries and specific cases, but that one important source in many industries was the customer, or user, who took an active part in the whole innovation process. In the 1990s various attempts have been made to try to provide some form of guidelines for industry on how to manage interaction with customers. Biemans (1995) has identified a series of potential disadvantages of collaborative product development that are often ignored. These include increased dependency, increased cost of co-ordination, requirements of new management skills (most notably the ‘boundary spanner’), changed management of personnel (need to ensure co-operative behaviours), access to confidential information and proprietary skills, dominance by the partner, lack of commitment and loss of critical knowledge and skills. Biemans, however, asserted that a successful co-operation strategy can minimise most of these disadvantages, consisting of four key activities: partner selection, identifying and motivating the right person(s), formulating clear-cut agreements, and managing the on-going relationship. Biemans’ focus within these activities is on similarity of the parties involved balanced by complementarity to ensure compatibility. He also promoted the explicit clarification of the basis of the collaboration, including division of tasks, link with responsibilities, reasons for entering the partnership, goals, project life, contributions, divisions of costs and benefits etc. Clear communication appeared to be Biemans’ main success factor. Apart from Von Hippel’s very specific concept and Biemans work, which tended to generalise on industry and situation specific findings, the research on manufacturer-user innovation to date has been largely descriptive. The presumed advantage of collaborating with customers for innovation relates to the generation of product ideas, information about user requirements, comments on new product concepts, assistance on development and testing of prototypes, and assistance in diffusion (Biemans 1989). However, it is not wellestablished whether and when those advantages pay off. Manufacturer-Supplier Collaboration Manufacturers are increasingly seeking to involve their suppliers in product and process development in an attempt to reduce development cost and time and increase product quality and value (Wynstra 1998). Development costs may be reduced by manufacturers pushing cost and responsibility towards the suppliers and, perhaps more importantly, by suppliers having superior knowledge of the components they supply i.e. specialised product and process technologies (Birou and Fawcett 1993). A range of studies have also shown how this (along with ‘concurrent engineering’ (O’Neal 1993)) may explain shorter development times and also improved quality (see for example Womack et al 1990; Clark et al 1987; Clark and Fujimoto 1991). Whereas the potential benefits are therefore plentiful it has been suggested and shown that involvement of suppliers in innovation may not always be advantageous (Birou 1994; Wynstra 1998). This indicates that whereas there are potential benefits of involving suppliers in innovation, companies are also likely to encounter problems. Håkansson and Eriksson (1993) (partly based on Håkansson 1989) presented four key issues in “getting innovations out of supplier networks”, relating to combining and integrating 145 It is not entirely clear whether these four activities relate to customer relationships only or whether there are also relevant for managing relationships with other parties such as suppliers and universities. different supplier relationships: Prioritising, Synchronising, Timing, and Mobilising. Wynstra (1998) later examined the same set of issues, translated them into ‘purchasing activities’, and added another key process: Informing. The problem of timing has been the subject of Bonaccorsi and Lipparini’s work on strategic partnerships in new product development (1994). Their work indicated that different activities may be performed differently at different stages of the innovation project. However, the assumptions that ‘the earlier the better’ is questionable; ‘timely’ involvement may be more appropriate (Wynstra 1998). Takeuchi and Nonaka (1986) and Imai et al (1985) elaborated on the challenge of learning but also indicated that some (mainly Japanese) companies co-ordinate and manage a large group of both first and second tier supplier during the development process; they argue that suppliers need to be run like a rugby team, maintaining cohesiveness and balance (like the internal development team). Their findings also highlighted the importance of information sharing (similar to Wynstra’s findings 1998), but seemed to place