Information
Society and
Media
Open Innovation
2012
Open Innovation
2012
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Contents
FOREWORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
CHAPTER I
POLICY DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.1 Services innovation: complexity, openness, modularity, and structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.2 The drivers for new societal fabric: why active measures for the new societal dialogue are needed for creativity and
growth in the wisdom society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
1.3 Unlocking the digital future through open innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
1.4 Re?ections on policy, regulation and governance for open innovation: towards a research and policy
?enabling framework? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
1.5 Rights or limitations: an autopsy of business-model based copyright regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
1.6 Socio-economic impact of open service innovation supporting the Digital Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
1.7 Pioneering regions and societal innovations as enablers for the Europe 2020 strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
1.8 New governance models towards a open Internet ecosystem for smart connected European cities and regions . . . . . . . . .62
CHAPTER II
TRENDS AND COUNTRY REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
2.1 Innovative cross-border eSolutions and eServices development in the Danube eRegion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
2.2? lrom?service?innovation?to?service?engineering???results?from?the?Service?lnnovation?and?lCJ?programme . . . . . . . . . . . . .80
2.3 Managing innovation in the public sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
2.4 Innovation partnerships for next generation public services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94
CHAPTER III
INTERESTING CASES AND EXAMPLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
3.1 Idea Crowdsourcing at Nokia ? 12 months wiser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98
3.2 How cloud computing can take service innovation to the next level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
3.3 SAP Research Living Labs ? a perfect infrastructure to drive open innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
3.4 Promoting serendipity in research: semantic keyword analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
3.5 The application of Open Innovation 2.0, engaged scholarship and
design science research in the Innovation Value Institute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114
3.6 Navigating intellectual capital of nations for service Innovation in the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
3.7 Mapping the intellectual capital of post-Soviet states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
3.8 Dialogues Incubator: open service innovation in the ?nancial sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
ANNEX
OPEN INNOVATION STRATEGY AND POLICY GROUP OISPG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
4
O P E N I N N O V A T I O N 2 0 1 2
Dear colleagues and partners in service innovation!
It is a great pleasure for me to introduce you the
third edition of Open Innovation 2012. The year-
books have gained a good reputation describing
new developments and emerging ideas of open
innovation in services domain.
The ?rst articles illustrate the most recent policy
developments and highlight some emerging trends.
Moving forward in the yearbook, you can ?nd a
good collection of insights to service innovation
based on studies, real-world cases and practical
experience ranging from the national to regional
and company level.
The term ?open innovation? is used in many strat-
egy documents in relation to the contribution of
openness to growth and jobs, and for sustainable
societal development. The experience leads to a
re?ection on how new entrepreneurial forms of
open innovation ecosystems can be fostered as
well as user engagement as creators giving value to
open community-based innovation and user-centric
service development.
The new entrepreneurship ranging from micro-
multinationals, new knowledge-intense local ser-
vice providers and, for example, social enterprises,
all taking advantage of next generation Internet
and the societal transformation, are examples on
how new service innovation can contribute to the
growth, jobs and well-being. It is about creating a
favourable environment for letting ideas turn into
products and services in real-world settings.
Experimentation (EAR, Experimental and Applica-
tion-oriented Research) has increasing importance
for achieving scalable results more rapidly, as faster
innovation cycles are key success factors on which
Europe needs to build its future competitiveness.
Co-creativity and user involvement are ingredients
in professional services development in the new
Internet era. We need to move from PPP (Public-
Private Partnership) to PPPP (Public-Private-People
partnership) where scalability, reuse and functional
and semantic standardisation of the solutions are
essential. The open data concept is emerging with
its natural progress towards open standardised
information, enabling mash-up of the data to
meaningful applications and new services. Stand-
ardisation of information will be as important
for the creation of the new web-based services
industry in Europe as was the standardisation of
communications for the creation of a strong Euro-
pean mobile communications industry some
20 years ago.
Welcome to the community of service innovation!
I wish you an interesting and inspiring read!
Bror Salmelin
Adviser to the Directorate H
European Commission
Directorate-General for the Information
Society and Media
loreword
5
Welcome to a very exciting issue of the OISPG Open
Innovation Yearbook 2012. Globally, we are seeing
increasingly more frequent and deeper levels of net-
working and interaction between di?erent organisa-
tions and new virtual innovation ecosystems being
established. Open Innovation 2.0 could be de?ned
as the fusion of Henry Chesbrough?s open innova-
tion concept and Henry Etzkowitz?s triple helix in-
novation concept. Triple helix innovation is about
achieving structural innovation improvements
through proactive collaborations between industry,
academia and government. We are seeing more and
more open innovation increasingly based on a ?triple
helix? arrangement of industry, government and uni-
versity interaction. The impact of this collaborative
innovation goes well beyond the scope of what any
organisation could achieve on their own. Intel?s an-
nouncement of collaboration with Imperial College
London and University College London to create a
sustainable and connected cities research institute
in London will go beyond this to include broader so-
ciety in a quadruple helix innovation arrangement.
Collaborating with citizens to understand what they
might want in a future sustainable and connected
city maps very well to the idea of user-centric and
driven innovation which we discussed in previous
OISPG reports.
In a generative knowledge economy, industry is
seen as the locus of production (product or ser-
vices), governments provide a stable and de?ned
regulatory environment, oen as well as invest-
ments and investment incentives, whilst the role
of universities is changing from primarily providing
a supply of trained people and education to also
providing primary knowledge for the innovation
process. One example of triple helix innovation is
Intel?s network of Exascale Computing labs which
have been established in Belgium, Germany, Spain
and?lrance?in?con|unction?with?various?luropean?
universities and national agencies to jointly perform
the research which will inform the design of the
Exascale computer of the future as well as under-
standing how best to take advantage of Exascale
capabilities.
As the information or knowledge intensity of prod-
ucts and services increases, the creation, di?usion
and utilisation of knowledge in industry and
governments has become more and more impor-
tant. In the 21st century, mastery of and improving
productivity of knowledge assets will be at least as
important as mastery and improvement of physical
assets and resources. EU Digital Agenda Commis-
sioner Neelie Kroes recently said that ?Data is the
new gold,? as she spoke about the EU open data
strategy meaning that public data, generated by
many administrations can become the feedstock
for many new services and applications. Similarly,
EU Research Commissioner Maire Geoghegan Quinn
said at her EU hearing prior to her appointment that
?knowledge is the crude oil of the 21st century,? and
thus our ability in Europe to leverage the collective
intelligence of the entire community can create
great opportunities in our future knowledge society.
Two of the flagship initiatives of Europe 2020,
Digit al Agenda and Innovation Union, have gained
increasing traction and are accelerating in progress.
In parallel, there is a growing case for speci?c focus
on, and enablement of, open innovation. The exist-
ing seventh framework programmes and the fu-
ture Horizon 2020 programme are key supporting
mechanisms for open innovation but we need more
research and education around open innovation.
The numerous research publications of the OISPG
in the past year have made important contributions
to this area. Bruno Hoyer?s report, ?Unlocking the
0igital?luture?through?0pen?lnnovation???An?lntel-
lectual Capital Approach?, provides a critical analy-
sis of open innovation as structural capital. In addi-
tion, the report OSI: Socio-Economic Impact of Open
Service Innovation, led by Logica in the Netherlands
is an important contribution to de?ning the value
from open service innovation.
In Europe, we need to emphasise high expectation
entrepreneurship as a mechanism for stimulat-
ing jobs and sustainable growth. High expectation
entre preneurship occurs when an emerging disrup-
tive technology collides with high ambition and is
especially important as, according to the Global En-
trepreneurship Monitor, high expectation entrepre-
neurs contribute up to 80 % of all jobs. Knowledge-
based service industries are especially suitable as
candidates for high expectation entrepreneurship.
We should consider what we need to do to help the
next?uoogle?or?lacebook?emerge?from?lurope.
Introduction
6
O P E N I N N O V A T I O N 2 0 1 2
We should consider how Europe can be a leader in
harnessing and creating value from the three mega
trends I discussed in last year?s foreword (i.e. digital
transformations, sustainability and mass collab-
oration). With the accelerating con?uence of these
three trends, I think, for Europe, opportunity knocks.
Happy innovating!
Prof. Martin Curley,
Director, Intel Labs Europe
Chair, EU Open Innovation Strategy and Policy Group
7
Acknowledgements
Last name First name Company/organisation E-mail
Almirall Esteve ESADE Business School esteve.almirall@esade.edu
Ayvazyan Naira Center for Scienti?c Information Analysis
and Monitoring, Yerevan, Armenia
taipan@ysu.am
Bakici Tuba ESADE Business School tuba.bakici@alumni.esade.edu
Bla?ina Igor Cave Postojnska jama Igor.Blazina@Postojnska-jama.si
Bratkovi? lranci? Chamber of Commerce of Dolenjska and Bela Krajina lranci.8ratkovicCuI08k.si
Bria lrancesca Imperial College London f.bria@imperial.ac.uk
Chesbrough Henry Garwood Center for Corporate Innovation and
Haas School of Business, UC Berkeley and ESADE
Business School, Ramon Llul University, Spain
chesbrou@haas.berkeley.edu
Curley Martin Intel Labs Europe and National
University of Ireland Maynooth
Martin.G.Curley@Intel.com
Damaskopoulos Takis The European Institute of
Interdisciplinary Research (EIIR)
takis.damaskopoulos@eiir.org
de Vos Henny Novay Henny.deVos@novay.nl
Donnellan Brian Innovation Value Institute Brian.Donnellan@nuim.ie
Edvinsson Leif Universal Networking, Intellectual
Capital, Norrtalje, Sweden
leif.edvinsson@unic.net
Erkinheimo Pia Nokia pia.erkinheimo@nokia.com
Gri?ar Jo?e University of Maribor uricarCl0v.uni-Mb.si
Gzoyan Edita Center for Scienti?c Information Analysis
and Monitoring, Yerevan, Armenia
edita.gzoyan@edu.aua.am
Haaker Timber Novay Timber.Haaker@novay.nl
Harjanne Karoliina Nokia karoliina.harjanne@nokia.?
Hoyer Bruno European Commission, Directorate-General for
the Information Society and Media (2010?11)
brunohoyer15@googlemail.com
Huuskonen Mikko Hinistry?of?lmployment?and?the?lconomy,?linland,?
Directorate-General for the Information Society and
Media, European Commission (10.2011?2.2012)
Mikko.Huuskonen@tem.?
Janssen Wil Novay Wil.Janssen@novay.nl
Kova?i? Iztok Municipality of ?entrupert Iztok.Kovacic@Sentrupert.si
Krauchenberg Georg Danube Region Strategy Georg.Krauchenberg@WKO.at
Kune Hank Educore hankkune@educore.nl
Lankhorts Marc Novay Marc.Lankhorst@novay.nl
Lee Melissa ESADE Business School melissajo.lee@alumni.esade.edu
Markkula Markku Aalto?university?linland,?Committee?of?the?Regions markku.markkula@aalto.?
Meijer Geleyn Amsterdam University of Applied Sciences (HvA) g.r.meijer@hva.nl
Musacchio Saman Hypios sam@hypios.com
Puschke Carsten SAP AG carsten.puschke@sap.com
Roos Jaspar Dialogues Incubator Corporate
Venturing of ABN AMRO Bank
jaspar.roos@dialoguesincubator.nl
Sadowska Anna The European Institute of
Interdisciplinary Research (EIIR)
anna.sadowska@eiir.org
Salmelin Bror European Commission, Directorate-General
for the Information Society and Media
bror.salmelin@ec.europa.eu
Sargsyan Gohar Logica gohar.sargsyan@logica.com
Stankovic Milan Hypios milstan@hypios.com
Turkama Petra Aalto University, Center for Knowledge
and Innovation Research (CKIR)
petra.turkama@aalto.?
van Dorenmalen Harry IBM Europe http://www.ibm.com
Wareham Jonathan ESADE Business School jonathan.wareham@esade.edu
Yeh-Yun Lin Carol National Chengchi University, Taipei, Taiwan yehyunln@nccu.edu.tw
Edited by:
Honka Anni European Commission, Directorate-General
for the Information Society and Media
anni.honka@ec.europa.eu
8
O P E N I N N O V A T I O N 2 0 1 2
Executive summary
The Open Innovation 2012 follows the Service
Innov ation Yearbook 2009?10 and the Service
Innovation Yearbook 2010?11. All these yearbooks
have three complementary parts: the ?rst on policy
development, the second on trends and weak sig-
nals in service innovation, and the third on cases
and open innovation development in countries and
regions.
In the ?rst part, new societal drives for service
in novation merging from Maslow?s hierarchies of
needs and from Schwarz?s universal values are
highlighted. The ?rst part also covers the creation
of innovation-friendly environments and the links
between the Digital Agenda and open innovation
creating societal and structural capital for competi-
tiveness and sustainable development. In addition,
discussions on the need for embedding open inno-
vation into policy measures, including new openings
in the legislation to foster fair sharing as a basis for
wealth creation, have arisen.
The ?rst part re?ects also the ?ndings of the study
OSI: Socio-Economic Impact of Open Service Inno-
vation. This study was published earlier in the
OISPG publication series, but its key ?ndings are
also available in this yearbook.
The second part interlinks regional innovation with
the overall concept of open innovation ecosystems
leading to new policy measures for the regions.
To have a holistic range of actions supporting the
emerging innovation processes and ecosystems,
discussion on the governance models of the future
Internet and its implementation to service society
has arisen. Issues like privacy and trust are very
important in the open development processes.
They ensure the business potential and, at the
same time, the fair share of the developed value
spills over back to the initiators. This, together with
increased societal capital, enables better value
propositions for all stakeholders.
In the third part, the case descriptions and coun-
try reports follow the recent development of open
innovation practices through cases, for example,
in the context of Dutch or Danube region or in
the cases presented by, for example, Nokia. Col-
laboration partnerships between public and private
sectors are illustrated as well. In this context, it
is important to analyse the di?erent roles of the
stakeholders. Cloud computing seems to be one
important tool which enables new types of interac-
tions needed for co-creativity and innovation. This
is illustrated in the articles by IBM and SAP. Articles
about interesting approaches to semantic keyword
analysis and open innovation models in practise
show both the problematics and the power of Open
Innovation 2.0.
The third part of the yearbook contains also inter-
esting follow-up to the last year?s edition: Intel-
lectual and structural capital trends in several
countries are analysed, with an interesting new
approach focusing on service innovation potential.
lrom?this?very?rich?content?of?the?innovation?year-
book, one can clearly see that open innovation is
knowledge society?s approach to well-being and
sustainable development, both societally and eco-
nomically. Open innovation can be very relevant
when seeking and verifying the applicability of dis-
ruptive innovation outcomes in the society. These
insights from a variety of views to service inno-
vation are hopefully very stimulating to the reader
who wishes to enter the new mainstream.
9
1.1 Services innovation: complexity, openness, modularity, and structure
As is evidenced by volume, it is now well known that
most leading economies in the world are increas-
ingly dominated by services businesses. Yet we
know surprisingly little about how such businesses
advance and improve over time. Most of what we
know about innovation comes from decades of
research into the creation of new products and
technologies. But services are not the same thing
as products and technologies. They are not phys-
ically tangible, they are usually consumed when
delivered, they cannot be inventoried, and they
oen require close interaction between the provider
of the service and the consumer. If we are to con-
tinue to advance innovation in the 21st century, we
must learn how to advance innovation in services
businesses [1].
Understanding services innovation requires us to
rethink business in fundamental ways. Product-
based businesses utilise artefacts to convey cus-
tomer requirements to suppliers and those same
artefacts help customers determine whether or not
the supplier has met their needs. In services busi-
nesses without those artefacts, the relationship
with customers and suppliers changes. The com-
pany cannot fully specify its needs in advance to
the supplier, while the company cannot describe
fully its capabilities to meet the needs of its
customers.
A services perspective also changes the competitive
landscape. Customers can become partners, as can
suppliers. Competitors become collaborators. Stran-
gers become important, even vital, to competitive
success. Integrating these disparate inputs into new,
coherent systems and architectures becomes a key
source of value in a world dominated by services.
Adopting a services innovation perspective requires
making significant changes, and such drastic
changes are costly, and time-consuming for comp a-
nies. Yet many companies have pro?ted from mak-
ing the change. Consider IBM in enterprise comput-
ing. Or Rolls-Royce and GE in aircra engines. Or
Xerox in copiers and printers. Or Philips in electronics
and (now) healthcare. Each of these companies used
to treat services as peripheral to their core business.
Now services are at the core of a new, larger, faster
growing business for each of them.
Services can also strengthen a company?s competi-
tive position, making it harder to attack. Consider the
iPod, iPhone and iPad. Companies like Dell, Microso,
and Google have tried valiantly to unseat Apple in
the cell phone and personal music player markets. To
date, though, their e?orts have been unavailing, and
services?are?the?reason?why.?lor?the?Apple?ilod?and?
iPhone are no longer merely products. Instead, they
are platforms for the distribution and delivery of a
range of services that make Apple?s devices far more
valuable for their customers. So a competitor cannot
succeed in an attack against Apple on the basis of a
better product alone. Instead, that competitor must
orchestrate an alternative array of services on the
competitor?s device (a capability we explore below in
Modularity and systems integration) that collectively
deliver a superior experience for users.
Here are four considerations that are vital to
successful services innovation:
1. Complexity
2. Openness
3. Modularity and Systems Structure
4. Organisational Structure.
Complexity
The lack of a tangible product means that each
party in a transaction needs the other?s knowledge
in negotiating the exchange. On the one hand, the
provider lacks the contextual knowledge of the cus-
tomer?s business and how the customer is going to
leverage the o?ering to compete more e?ectively
in the market. At the same time, the customer does
not know the full capabilities of the provider?s tech-
nologies or its experience from other transactions
in assessing what will work best.
This contextual di?culty should not be carried too
far. The prevalence of services in advanced indus-
trial economies shows that suppliers and customers
usually are able to exchange enough information
CHAPTER I
Policy development
10
O P E N I N N O V A T I O N 2 0 1 2
to accomplish the exchange. When the service
provided is modest in complexity and repeatedly
provided over time (think of a haircut in a salon,
for example), the provider and customer need to
exchange only limited amounts of information, and
can do so over many repeated attempts, so that
errors at one exchange can be corrected in the next.
When the complexity of the exchange becomes
very large, and when the exchange is repeated only
seldom or not at all (think of installing and operat-
ing an enterprise resource planning system for your
company), the technical complexity and the lack of
repeated experiences between the parties makes
the full exchange of information vitally important
to achieve, yet daunting to accomplish.
As technical complexity rises, the services cus-
tomer becomes a co-producer of a service innova-
tion, in timately involved in de?ning, shaping and
integrating the service into his organisation. The
supplier of the service can extend an o?er of what
is to be provided but, as we shall see below, it can-
not entirely specify the requirements of the service.
Instead, the supplier designs its processes to elicit
this information from its customers, and modi?es
the o?ering in response to customers? needs before
sale. In turn, customers select their service provider
on the basis of the capabilities they o?er, and the
extent to which the customer is able to shape those
capabilities to serve their particular needs.
Openness
In an open model of innovation [2], ?rms use in-
ternal and external sources of knowledge to turn
new ideas into commercial products and services
that can have internal and external routes to mar-
ket.?lor?example,?traditional?broadcasting?compa-
nies like the BBC face the challenge of successfully
responding to the proliferation of new digital media
technologies and markets [3]. The BBC set up a kind
of open source community to engage with numer-
ous external individuals and ?rms through a pro-
cess of open innovation experiments called ?BBC
Backstage?. External developers were encouraged
to use its website established in May 2005 ? of-
fering live news feeds, weather and TV listings ? to
create innovative applications.
Openness allows organisations like the BBC to
focus on combining its internally generated con-
tent with externally sourced content, to simulta-
neously create greater economies of scope for
its audience, and economies of scale for its con-
tent producers. A related bene?t comes from the
participation of many more ?rms in the market.
With the diffusion of more knowledge to more
participants in the industry, more companies can
experiment in parallel with possible ways of utilis-
ing and combining knowledge [4]. No single com-
pany can hope to compete with this external explo-
sion of potential o?erings by relying entirely on its
own internal knowledge. While internal knowledge
and resources may be deep, they are necessarily
limited in scope. Combination and experimentation
proceeds in series within the ?rm, rather than in
parallel in the market. The only way forward is for
?rms to become integrators of both internal and
external knowledge.
Performing the integration function effectively
requires a high degree of systems knowledge, of
how the various elements of a system work, and
how they might be combined together in useful
ways.? lirms? that? focus? only? on? particular? parts?
of the system without regard to the overarching
system (and its further development), are at risk
of falling into a ?modularity trap? [5]. In this trap,
the design rules and interfaces that connect the
speci?c part of the system to the overall system
evolve over time in ways that disadvantage ?rms
who have lost essential knowledge of the system?s
architectural evolution.
Modularity and systems integration
By developing a standardised product design based
on modular components that can easily be con?g-
ured and recon?gured for a variety of customers
needs, ?rms can combine the cost advantages of
high-volume production (components) with high
flexibility or customisation of final product. The
interfaces linking components into a system can be
made compatible so that multiple components can
be speci?ed, adjusted and integrated in various pre-
determined ways to the varying customer or mar-
ket demand. Modularity provides a resolution to the
trade-o? between price and customisation: o?er-
ing the cost advantages of economies of scale and
scope in standardised component production, while
providing a higher degree customisation of the ?nal
product.
Although the literature on modularity and plat-
forms is almost exclusively concerned with manu-
factured products, the industrial marketing litera-
ture suggests that such approaches can be applied
to combinations of product-service o?erings [6].
The hardware or ?product components? are the
physical pieces of technology that form a speci?c
function in the overall system; and the soware or
?service components? are the knowledge or intan-
gible human e?orts to solve customer?s problems
by performing activities to design, build, operate
and maintain a product.
11
Like product components, services can be developed
into standardised, simpli?ed and routinised methods
of operation. Rather than being o?ered on an ad hoc
basis at the request of a each customer, services
can be developed and ?packaged? into routines and
performed as repeatable processes. However, as
with products, there are limits to standardisation
in highly complex service situations, because ser-
vices are oen individually designed and tailored
to a speci?c customer?s needs ? such as an air-
line, telecoms operator or railroad company ? and
uniquely provided to address phases in life of a spe-
ci?c product, such maintaining and support a ?eet
of trains.
Given the potential value in identifying, assem-
bling, connecting, integrating and testing complex
services, the evolution towards services is usher-
ing in a new kind of value-added activity: systems
integration. Those who provide this capability are
responsible for the overall system design, selection
and coordination of product and service compo-
nents supplied by a network of external suppliers,
the integration of components into a functioning
system, and the continuing development of know-
ledge to keep pace with future generations of
technology and system upgrades [7].
In an industry characterised by outsourcing and
?open innovation?, systems integrators are uniquely
positioned to link or couple upstream develop-
ments in technology and products with down-
stream requirements of customers and rapidly
changing markets. The systems integrator model of
industrial organisation emphasises the advantages
of specialisation at the systems and component
levels, based on modular components supplied by
many external companies, standardised interfaces,
and an ability to integrate multi-vendor sources of
technology, products and services [8].
An example of the emergence of a systems inte-
gration capability comes from IBM. The IBM
System/360 was based on a modular design, but
the soware components and interfaces were pro-
prietary. Once a customer had purchased an IBM
computer, the complex operating system made it
di?cult to switch to another vendor?s system. The
customer was locked in to IBM?s hardware, soware
and service support. By the 1980s, a new organisa-
tional model challenged the traditional advantages
of vertical integration. Many specialised suppliers
of modular components began to challenge IBM?s
dominant position. Rather than mirror the structure
of the industry by breaking up IBM to create a num-
ber of specialised suppliers, Louis Gerstner, IBM?s
CEO, executed a strategy to move into services,
while reducing its dependence on in-house tech-
nology by o?ering to design, integrate and support
a competing vendor?s products (e.g. HP, Microso
and Sun) if this was required to provide integrated
solution to customer needs [9].
As noted above, the customer must interact with
the supplier at various points in the services process
without recourse to tangible artefacts like products.
Product-based businesses leave it to the customer
to perform the ?nal installation and integration of
the item into the customer?s process. Service busi-
nesses deliver the bene?t to the customer by taking
over the integration of the item.
Organisational structure
The above elements of services innovation that
we have identi?ed, including the role of complex-
ity, the value of openness, and the importance of
systems integration, all have powerful implications
for organising services innovation. On the one hand,
organisations need to provide intimacy with the cus-
tomer, to enable the customer to co-create solutions
to their speci?c needs. The organisation likely will
want to o?er a broad services integration capability
to its customers, enabling access for the customer
to a vast array of o?erings through the organisa-
tion. In this sense, the organisation will need to gen-
erate substantial economies of scope in serving the
many and diverse needs of its customers.
New organisational structures are emerging to
provide customer-focused services and solutions
based on a range of standardised and customised
o?erings. These new structures are designed to
resolve the trade-o? between standardisation and
customisation. They are responsible for developing
standardised ?solutions-ready? components, that
can be combined and recombined at much less
cost than solutions comprised of entirely custom-
ised components [10]. Each solution can be tailored
to a customer?s unique requirements using stand-
ardised, reusable and easy-to-deploy modular
products and components.
Some large companies that have developed growing
services businesses ? such as IBM, Sun Microsys-
tems, ABB, Nokia and Ericsson ? have reorganised
to form ?front-back? structures designed for e?cient
and repeatable solutions provision [11]. These busi-
nesses have formed ?front-end? customer-facing
units to develop, package and deliver customised
solutions for individual clients across product and
geographic lines. The traditional product-based divi-
sions have been reorganised into ?back-end? provid-
ers of standardised solutions-ready components,
oen developed as common technology and product
12
O P E N I N N O V A T I O N 2 0 1 2
platforms that can easily be con?gured for individ-
ual customers. In addition, some companies have
set up service divisions ? such as IBM Global Ser-
vices and Ericsson Global Services ? as back-end
providers of services, capabilities, processes, guar-
antees for service reliability, pricing and resources.
Both types of back-end units provide solutions-
ready components that can be mixed and matched
in di?erent combinations by the front-end units.
A ?strategic centre? manages the interfaces and
?ows of knowledge and resources between the two
operational units. This ?recon?gurable organisation?
can adapt and respond to continuous changes in
technology, sources of component supply and cus-
tomer?needs.?lor?example,?since?l999?lricsson?(the?
world?s largest supplier of cellular phone networks)
has created back-end units ? Ericsson Gobal Ser-
vices and Ericsson Systems ? and formed 28 mar-
ket units and individual front-end units ? such as
Ericsson Vodafone ? dedicated to the requirements
of its large cellular network customers [1].
Companies like Amazon now o?er their back-end
transaction processing services over the Web
through the Elastic Cloud computing service. Utilis-
ing Amazon?s Elastic Cloud service gives companies
access to world-class IT processes, and saves them
the cost and headaches of developing and main-
taining such an infrastructure. Amazon also clearly
bene?ts, both from the additional revenue that
comes from opening its infrastructure to others,
and also from sharing its infrastructure costs with
a larger base of volume. So Amazon?s internal costs
go down, even as its revenues go up [12].
Conclusion
This volume clearly establishes the growing impor-
t ance of services ? and services innovation ? in
an advanced economy. We can learn much about
innovating services from the product management
literature. Yet important departures from the world
of products are necessary in order to grasp the
challenges and opportunities inherent in innovating
services businesses.
Innovative service organisations must be mindful
of the underlying systems knowledge required to
identify, access, and leverage the wealth of external
knowledge surrounding them. They must be open,
and strive to avoid the ?not invented here? syn-
drome that neglects the external as they develop
the internal. And they would do well to consider
both the customer-facing side of their business and
the back-end transactional side of their business, in
order to achieve both economies of scale and scope
in their markets.
Contact
Henry Chesbrough
laculty?0irector?of?the?uarwood?Center?
for Corporate Innovation
Heyer?laculty?lellow,?laas?School?of?8usiness,?
UC Berkeley
Information Systems Professor, ESADE Business
School
Ramon Llul University, Spain
chesbrou@haas.berkeley.edu
References
[1] Chesbrough, H. and Davies, A. (2010), ?Advancing
Services?lnnovation.?live?key?Concepts',?in?Haglio,?l.,?
Kieliszewski, C. and Spohrer, J. (eds), Handbook of Service
Science, Springer, New York, NY.
[2] Chesbrough, H. (2003), Open Innovation: The New
Imperative for Creating and Pro?ting from Technology,
Harvard Business School Press, Boston, MA.
[3] Bessant, J. and Davies, A. (2007), ?Managing Service
Innovation?, DTI Occasional Paper, No 9, Innovation in
Services, 65?94.
[4] Baldwin, C. Y. and Clark, K. B. (2000), Design Rules:
The Power of Modularity, MIT Press, Cambridge, MA.
[5] Chesbrough, H. and Kusunoki, K. (2001), ?The
Modularity Trap: Innovation, Technology Phase-Shis
and the Resulting Limits of Virtual Organizations?,
in Ikujiro N. and Teece, D. (eds), Managing Industrial
Knowledge, Sage Publications.
[6] Davies, A., Brady, T. and Hobday, M. (2007),
?Organizing for solutions: systems seller vs systems
integrator?, Industrial Marketing Management, Special
Issue, Project marketing and marketing solutions,
36: 183?193.
[7] Brusoni, S., Prencipe, A. and Pavitt, K. (2001),
?Knowledge specialization and the boundaries of
the ?rm: Why do ?rms know more than they make??,
Administrative Science Quarterly, Vol. 46, 597?621.
[8] Prencipe, A., Davies, A. and Hobday, M. (eds) (2003),
The Business of Systems Integration, Oxford University
Press, Oxford.
[9] Gerstner, L. V. (2002), Who Said Elephants Can?t
Dance? Inside IBM?s Historic Turnaround, Harper Collins
Publishers, London.
[10] Galbraith, J. R. (2002b), Designing Organizations:
An Executive Guide to Strategy, Structure, and Process,
Jossey-Bass, Wiley, San?lrancisco.
[11] Davies, A., Brady, T. and Hobday, M. (2006),
?Charting a path toward integrated solutions?, MIT Sloan
Management Review, Spring 2006, 39?48.
[12] Chesbrough, H. (2011), Open Services Innov ation:
Rethinking Your Business to Grow and Compete in a New
Era,?!ossey?8ass,?San?lrancisco.
13
1.2 The drivers for new societal fabric: why active measures for the new
societal dialogue are needed for creativity and growth in the wisdom
society
This article represents one perspective of the need
to create a new societal fabric for user-centric
innovation, especially for the services sector. The
knowledge-intense services will be the key for the
creation of new growth beyond the economical and
partly societal turmoil we are currently in.
The knowledge society is in transformation to the
wisdom society, where information and knowledge
is not only seen as a raw material for normal activi-
ties, but where the structural use (mash-up) of
societal and technology innovation is based on new
types of connectivity and value aggregation.
In this article, possible new drivers for growth are
elaborated, as well as the possible enablers for new
types of entrepreneurship and sustainable soci-
etal and economic development. We need to see
how to build the new societal fabric for innovation
and sustainable development both societally and
economically.
Background
We are in a bigger societal change than ever before
in mankind?s history. The information and commu-
nication technologies have already a?ected human
behaviour fundamentally, by enabling wide demo-
cratic connectivity and easy information availability
at our ?ngertips.
However, when we look at the current eDrivers
(eCommerce, eGovernment, eServices, etc.), we still
see that there is a strong trend to do things as we
did before, just ?better? and ?more e?ectively?, very
much based on those paradigms we were familiar
with in the industrialised society.
Jhe?keywords?(ligure?l)?are?frequently?in?use,?with-
out putting enough thought into the fundamen-
tal change we are in. It is not about transforming
something into an electronic format. The change is
much more profound. Society is moving from a hier-
archical and controlled to something where citizen
empowerment together with value-based commu-
nities will have a profound role. This is already seen
around us in people?s behaviour, but also in the new
innovation processes where connectivity of skills
and values are increasingly important.
What has changed? When we look at the technology
revolutions and the following industrial and societal
revolutions a hundred, two hundred years ago we
need to have a focus on the transformative nature
and?the?drivers?of?the?revolutions?(ligure?2).?Jhe?
most recent revolution, the ICT revolution, has its
transformative power in the fact that, for the ?rst
time in mankind?s history, our society is moving to
less hierarchical one, simultaneously both in time
and space.
What does that mean? Now, more than 10 years
aer the beginning of this revolution we see the
power of crowds, and also new business models
seriously conquering the old ?dinosaur? models
which were valid in the industrialised era. We are
now in the hype of the ?knowledge society? where
Figure 1. A lot of keywords ? what is behind them ? the real world in change!
14
O P E N I N N O V A T I O N 2 0 1 2
information and knowledge is accessible and being
a part of the competitiveness of organisations
and also individuals. But, the biggest issue is still
how to create the societal fabric which will take
us to the wisdom society, following the enablers
and also drivers ICT is creating, for connectiv-
ity, for leadership leading to a both societally and
environmentally sustainable society.
The drivers of individuals and society
The change is inevitable. However, we need to see in
this new context some of the time-invariant drivers
over the various revolutions. Can we, for example,
assume that Maslow?s hierarchies of needs are
valid?for?the?modern?society?(ligure?3)?
Largely, in the Western world, the basic physiologi-
cal and safety needs are in policy focus and, there-
fore, we also can say that those are not necessary
the main issues for new policy actions, enabled by
societal connectivity.
When looking at the changes in societal behaviour,
we see that the levels of esteem and self-actuali-
sation start to grow both in ICT applications (social
media) and the o?erings enabled by (modern) ICT.
Figure 2.?lundamental?change???a?revolution!??l]?
Fundamental change ? a revolution!
1800 1850 1900 1950 1980 2000
Handicraft Industrial E-business
E-life + e-work
Inherently global
Parallel
Win-win Win-lose
Multi-skill
Communication
Multinational
Capacity
Materials Transportation Energy Individual
mobility
Information
processing
Skills
Local Space
Operation Sequential
Strategy
Innovation
Competitive
factor
Figure 3. Upper levels of Maslow?s hierarchy drives change enabled by ICT [2]
Self-actualization
Esteem
Love/belonging
Safety
Physiological
Upper IeveIs of MasIow's hierarchy drives change
enabIed by ICT
breathing, food, water, sleep, homeostasis, excretion
security of: body, employment, resources,
morality, the family, health, property
friendship, family, sexual intimacy
self-esteem, condence,
achievement, respect of others,
respect by others
morality,
creativity,
spontaneity,
problem solving,
lack of prejudice,
acceptance of facts
15
We need to be much more active in focusing policy
measures towards the new societal fabric, which
is clearly built on the upper levels of the Maslow
hierarchy.
What does that mean for innovation? The focus of
successful innovation will be driving towards satis-
fying the upper-level needs, those factors increas-
ingly being the differentiation factors between
successful and non-successful innovation. Hence,
user-centricity, and even user-driven innovation
paradigms, should be our new (European) approach.
Open innovation environments enable the wide
interaction necessary for success. What is even
more important is to understand the role of proto-
typing, because then the various drivers are inter-
acting in a concrete way, not only conceptually. Our
research and development actions should build on
creating a strong, open innovation culture based
on prototyping (not piloting, as innovation is a true
mash-up, no longer sequential).
The same change can be seen in enterprises/
organisations. In the industrial era, the drivers were
cost-oriented, focused on the basic, predictable
and calculable value of the company or company
clusters.
However, when we see the new operati ng
environment for knowledge-intense companies
we see the transformation from tangible products
to intangible ones, or products and services with
embedded knowledge. The ?Maslow pyramid for
enterprises'? (ligure? 4)? can? be? re?sketched? form?
this perspective. The most critical levels of success
are cross-organisational issues, innovation culture
(open, experimental, sharing) and the organisa-
tional agility to position the competencies of the
company in the society, vis-?-vis other organisa-
tions, but also among the citizens. Citizens are in
the new understanding not ?objects? for innova-
tion, but due to the societal fabric and nature of
inno vation active players, ?subjects?.
The challenge is to support the move towards
higher level in the Maslow hierarchy to satisfy
societal needs for sustainable society. It requires
an infrastructural change and also experimentation
and prototyping to see how we can match the soci-
etal drivers, organisational drivers and individual
needs in a robust way. To achieve a robust society,
a strong leadership is needed. A leadership enabling
new societal contract between individuals and the
society, the inclusive wisdom society is the critical
asset for the future.
Groups, especially value groups are driven by
agglomerated values. How to transform the
described needs towards values is one of the
key questions when we try to see new openings
for growth and entrepreneurship in the field of
citizen-close services.
The universal value theory of Schwarz creates
an interesting approach in the strategic thinking
Figure 4. The innovation culture and agility are the drivers for future enterprises and organisations [3]
The innovatio culture and agility
are the drivers for future enterprises
and organizations
organizational
agility
innovation culture
cross-org collaboration
employee satisfaction
customer satisfaction
revenue generation
cost-savings
soft
hard
m
e
a
s
u
r
a
b
i
l
i
t
y
o
f
b
e
b
e
?
t
s
i
m
p
a
c
t
o
n
o
r
g
a
n
i
z
a
t
i
o
n
a
l
s
u
c
c
e
s
s
16
O P E N I N N O V A T I O N 2 0 1 2
of how to transfer the individual needs described
by Maslow to a more group and society-oriented
perspective?(ligure?5).?
Based on interesting study results, we see new
types of values emerging, supporting the openness
to change, self-direction and also self-enhance-
ment. A good in-depth analysis is found, for exam-
ple, in the discussion papers of the Selusi project
[5] funded by the European Commission. The project
focuses on social enterprises and entrepreneurs,
widening the de?nition also to pro?t making com-
panies operating in the societal fabric, creating it,
and also with usually large well-established com-
panies. These new enterprise ecosystems seem to
be more stable than the traditional ones compris-
ing of old type of businesses and also, remarkably,
the innovation capability of these new generation of
entrepreneurs is signi?cantly higher than those in
traditional sectors.
As shown in the study, the traditional entrepreneurs
focus very much on values like power and tradition
whilst the new generation of entrepreneurship is
much more based on universalism and stimulation
(ligure?6).?Jhis?is?seen?also?in?very?many?companies?
based on creativity, for example those micro-multina-
tionals in gaming. Micro-multinationals, that is small
companies operating on global platforms, should be
also in special focus when looking at new entrepre-
neurship: how to create platforms for global develop-
ment and experimentation for the ideas to be veri-
?ed in real-world settings, without too much risk, and
providing a fair share of the return to the creators.
Necessity of new approach
When speaking about the creation of new societal
fabric, new entrepreneurial forms and new extra-
preneurship, co-creativity of services is important.
The need to create knowledge-intense services
based on open platforms enabling new service
o?erings also combining the cyber world with real-
world o?erings is increasingly important.
Jhe?innovation?pyramid?is?reversed?(ligure?7).?Jhe?
ICT enabled platforms, the new business models,
and the increased personi?cation of services put
the end-user in the driver?s seat for the new ser-
vice society. Knowledge per se is no longer seen as
an asset, but rather a raw material only, as only
increasingly combined with human experience and
societal values can we create sustainable develop-
ment, in the wisdom society, where the new societal
fabric for well-being is created.
Growth in well-being can increasingly be achieved
by intangible actions and services, provided that
the basic needs are ful?lled. Hence, the drivers
Figure 5. The universal values by Schwarz create an interesting framework to look at the values of new
types of entrepreneurs and enterprises [4]
Self-
Transcendence
Self-
Enhancement
Conservation
Organized by motivational
similarities and dissimilarities
Openness to
Change
Benevolence
Helfulness
Security
Social Order Power
Authority,
Wealth
Achievement
Success,
Ambition
Stimulation
Exciting Life
Self-
Direction
Creativity,
Freedom
Universalism
Social Justice,
Equality
Conformity
Obedience
Tradition
Humility
Devoutness
Hedonism
Pleasure
Source: http://www.yourmorals.org/schwartz_graph.jpg
17
from the Maslow and Schwarz theories are worth
being taken into closer consideration when develop-
ing new European citizen-centric innovation policies.
This should also stimulate new entrepreneurship
and new forms of wealth in the economy.
The traditional innovation pyramid is reversed, and
there is no return.
Conclusion
The next generation of Internet is emerging, with
mobility, true broadband, active interactivity and
highly personalised services. However, we are cur-
rently relatively weak in driving the applications
forward following the paradigm shis in society,
setting the user in the centre (user equals citizens,
?rms, etc.) We need to have a deeper look at the
new societal fabric for innovation, building on the
Figure 6. What does the average value pro?le of a social entrepreneur look like? [6]
Universalism*
Self-direction#
Stimulation*
Hedonism*
Power*
Security*
Conformity*
Tradition*
Benevolence
Achievement
Social
entrepreneurs
appears to be
much less
conformist
and radically
more
universalist
than
mainstream
entrepreneurs
Employees(ESS) Entrepreneur(ESS) Social entrepreneurs(SELUSI)
Figure 7. Reverse innovation pyramid [7]
innovation
by service
providers
service/
technology
development
- user as a customer
- service provision and adoption
- innovation ecosystem partner
dissemination and uptake
- costs
S
e
r
v
i
c
e
t
o
t
h
e
c
u
s
t
o
m
e
r
m
a
r
k
e
t
-
n
o
u
s
e
r
i
n
v
o
l
v
m
e
n
t
W
e
a
l
t
h
g
e
n
e
r
a
t
i
o
n
b
y
t
h
e
s
e
r
v
i
c
e
p
r
o
v
i
d
e
r
-
n
o
u
s
e
r
i
n
v
o
l
v
m
e
n
t
service/
technology
development
- innovation
adoption by
service providers
- fair exploitation
- upscaling
- costs
- innovation ecosystem
(including users, business partners,
individual App developers, etc.)
- users as innovators / participants
in new services creation
- service providers capturing
ideas from the users
Users as
participants of
new services
creation by
innovating
Users as
participants of
new services
creation by
innovating
Wealth
generations:
Share prot
users
and service
providers
Wealth
generations:
Share prot
users
and service
providers
Traditional approach New open innovation models
18
O P E N I N N O V A T I O N 2 0 1 2
mash-up of societal drivers, value drivers and
technological (mainly ICT) enablers.
Moving to user-centricity and co-creativity enabling
the fair and safe trial of new services on open plat-
forms also requires new thinking of the legal and
policy approaches for the wisdom society, captur-
ing the societal dimension of the knowledge society.
Can we build new practices and principles based
on the rights and the roles of the citizens in the
society? Can we create a set of fundamental rights
in the digital context which cannot be violated in
any situation, thus enabling more freedom to make
prototypes and trials on new business and service
models in the real-world settings?
However, when we look at the real issues, we need
to be very active on the political level to create
rules, principles and practices on how the new
society is shaped. What are the rules of the game
regarding privacy, commercial v citizen rights? What
do we want the future societal fabric to look like?
Can we move into a development paradigm based
on real-world prototypes and trials, encompass-
ing the technology, society and policy frameworks,
integrating them in experimental way, developing
simultaneously the various components of the
future society? It is right time to think about a new
approach seriously, and lead the way by courageous
pan-European actions.
Now is the time to initialise the debate on the
future wisdom society, its values and principles.
What is the new contract between citizens and the
society, in the new era?
Contact
Bror Salmelin
Adviser to the Directorate H
Directorate-General for the
Information Society and Media
European Commission
bror.salmelin@ec.europa.eu
References
[1] Salmelin, B. (1999), Presentation materials.
[2] http.||en.wikipedia.org|wiki|lile.Haslow?27s_
lierarchy_of_leeds.svg
[3] http://www.cloudave.com/631/
maslow-s-hierarchy-of-enterprise-2-0-roi/
[4] http.||www.yourmorals.org|schwartz_graph.|pg
[5] http://www.selusi.eu
[6] Stephan U. (2011), Creativity and Innovation of
Social?lntrepreneurs,?lresentation?at?Selusi?linal?lro|ect?
Conference, Brussels, 6 October 2011.
[7] OSI Consortium (2011), Socio-Eonomic Impact
of Open Service Innovation,?linal?report?for?the?
Directorate-General for the Information Society
and Media (SMART 2009-0077) (http://ec.europa.
eu|information_society|newsroom|cf|document.
cfm?action?display&doc_id?859).
19
1.3 Unlocking the digital future through open innovation
Neelie Kroes, Vice-President of the European
Commission and EU Commissioner for the Digital
Agenda for Europe (DAE), argues, ?key to achieving
many of our competitiveness and innovation ambi-
tions in the coming years (?) i
Source: http://www.crowdsourcing.org/document/open-innovation-2012/23277
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