Networks for innovation - Principal attributes for their formation and optimization

Gestão da Inovação

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Networks for innovation: Principal attributes for
their formation and optimization
This paper offers a framework for optimizing a companies’ innovation network architecture and
the composition of individual networks, so to maximize value creation for its stakeholders. It is the
result of a research project conducted by and for Companhia Paulista de Força e Luz in Brazil in
2009.

Caspar Bart van Rijnbach, Suzana Leonardi,
Gustavo de Boer e Marcelo Corsini

. INTRoduCTIoN characteristics of the network’s participants. We
will show in this article how Brazilian companies
With open innovation concept becoming more in general have not yet implemented ample
common, Brazilian companies, encouraged by innovation network management and argue for the
governmental laws and tax benefits, are focusing implementation of such framework to be applied
increasingly on the creation and maintenance of not only in Brazil, but also in other countries.
external networks for innovation [1]. Much has
been written about innovation networks and their
management. Most of these studies though focus 2. INNovaTIoN NeTwoRkS
on managing and measuring the performance
of either internal knowledge networks, social Traditionally, Research and Development at large
networks and formal alliances [2],[3],[4],[5]. organizations have been handled internally. Large
Some look at how management of external RD organizations were seen as important assets
networks differs from the more traditional way to their companies and focused on discovering,
of managing strategic alliances, where others developing and commercializing technologies
search to measure the effectiveness of specific and products internally. This type of RD is called
networks. Little has been written, however, “closed innovation”[6].
about the organization of innovation networks
and partnerships in an integrated and strategic However, the complexity of current Research,
perspective. A need exists to link the different Development and Innovation activities, ever
types of networks to organizational strategic goals increasing cost of these activities, more
and define methodologies to optimize network sophisticated customer demands, shorter product
composition and architecture. It requires a portfolio life cycles, have raised the gap between the need
view of networks and its compositions. for innovation and what companies can deliver
internally [7],[8],[9].
The goal of this research is to define the
principal attributes that impact the formation and This situation has stimulated companies to create
optimization of innovation networks, based on the innovation models based on collaboration with
networks objectives and the combination of the external sources, such as universities, clients,

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Gestão da Inovação Networks for innovation: Principal attributes for their formation and optimization

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This situation has stimulated companies to create
innovation models based on collaboration with
external sources.

companies from other sectors, or even competitors, searching to improve their innovative capacity and
performance. This new framework is being referred to as “Open Innovation” [7].

External collaboration can be used in different parts of the innovative process, from the generation of ideas
through the development of solutions and commercialization of products and technologies, as shown in the
following model.

Figure 1 Framework for Open Innovation

Source: adapted from CHESBROUGH, 2003 [10].

The definition of the type of relationship and its focus should be determined by strategic innovation
objectives. Five main business objectives are common in the development of partner networks for
technological collaboration, as shown in the table 1 [11].

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Table 1 Objectives for external collaboration in Research, Development and Innovation

Objectives Business Requirement
Increase profitability Lower cost

Shorten time to market Incorporate already-developed component

Enhance innovation capability Increase the number and variety of front-end technologies

Create greater flexibility in RD Share risks with partners

Expand market access Broaden the pathways to market for products and services

Source: adapted from Chesbrough e Schwartz (2007) [11].

Combining the objectives for external collaboration and the type of competence the company is searching
for, helps determine which type of partner should be searched for, [11],[12],[13], such as shown in table 2.

Table 2 RD stages and type of partners

Stage of research Description of activity and output Entities and skill requirements

Research for the pursuit of Universities (scientific expertise
Pure science knowledge. needed)
Outputs usually in scientific journals
and possibly patents.

Basic research Similar outputs as pure science Corporate laboratory (scientific
approach, but conducted with expertise needed)
specific long-term corporate
objectives in mind
Applied research Medium-term research on known Corporate laboratory (less
technologies; involves transforming scientific, more engineering
or localizing existing product expertise needed)
knowledge, or reapplying known
research results to other areas
Exploratory development Development and prototyping of Corporate product development
design and other systems departments (product
development expertise)
Advanced development Addressing of manufacturing Manufacturers (manufacturing and
considerations for products product development expertise)

Source: adapted from Koh, Koh e Tshang (2005) [13].



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There is a positive relationship between high
innovative companies and the existence of a
partnership portfolio which contains different
types of partners.
Although companies depend more and more on There is also a need to look at the interactions and
partnerships for collaboration to achieve their relationships between the members of the network,
objectives, management of partners is very each of them offering distinct and complementary
challenging, demonstrated by the fact that around capabilities that work together to create value and
50% of alliances have failed to meet expectations synergies [5].
[5].
There is a positive relationship between high
The success of a collaborative alliance starts with innovative companies and the existence of a
its formation [4]. According to this view, some partnership portfolio which contains different types
critical factors and strategies need to be present to of partners. The portfolio complexity can allow a
form a successful partnership, as shown: firm to broaden their technological opportunities
and information advantages [14].
• Compatible partners
• Clear terms for collaboration The list below shows the main challenges to
• Appropriate incentives for all parts to behave manage a collaboration network with a partner
accordingly to expectations portfolio vision [5].
• Adequate governance procedures
• Favourable economic conditions • Understand the collaborative and competitive
dynamics between partners
Although valid, this approach aims at the • Monitor and understand changes in the business
attainment of specific objectives and the allocation environment that might change those dynamics
of resources and structures based on the strategic • Establish different strategies for each type of
importance of dyadic relationship between collaboration within the network
partners. • Understand in which manner the selection of
each partner and its position within the network
However, typically, a company will be involved might effect both the individual relationship
in various partnerships and this requires another as well as the performance as a whole of the
approach, more focused on the composition of network
the network and the interrelationship between its
members. The company should be searching for Hence, the portfolio vision allows minimizing and
the optimized combination of partners with respect diversification of risks and leverages the synergies
to its overall objectives. This requires a portfolio between partners and measuring its performance
view of partnerships. and results as a whole, reflecting the potential
future needs for partners [15].



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. a ModeL FoR INNovaTIoN NeTwoRk MaNaGeMeNT
The knowledge of methods used for the effective management of specific inter-organizational networks is
still scarce [12],[15],[16]. In this study, we search to integrate the various views of partnership management
into one more integrated methodology.

As demonstrated, the management of networks involves different processes, related between them, that
happen in different moments and require different measures.

• Partnership portfolio management, looking at the ideal composition of the network and the
interrelationship between partners [14],[15].
• Individual partner management with the objective of building the ideal partnership portfolio through the
decision of improve the capabilities of actual partners, search and attraction of new partners or even
partnership termination [17].
• The choice and evaluation of individual partners in specific projects [2],[3].

The following figure shows how the relationship between these different processes composes our view of
innovation network management.

Figure 2 Innovation network management model

Source: Authors



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We argue here that the external collaboration Partner engagement and selection focuses on
model in P, D I should be primarily lead by the finding the adequate partner for specific projects
strategic objectives for the network, derived from or activities, which demand different type of
organizational strategic objectives and the specific innovative capacities. The aspects that need to be
objectives for external collaboration (see table taken into consideration when choosing partners
1). This should determine the preferred portfolio for specific projects are related to complementary
of partners, through the definition of the following capacities the partner can offer, such as technical
aspects: know-how, financial resources and experienced
management. During and at the end of project
• For which part of the innovation process to find execution and activities, partners should be
partners evaluated on all the aspects discussed within the
• Which type of partners would be ideal to obtain model. The compilation of evaluations is then
the companies objectives within the specific part again an input to the portfolio, so that the company
of the innovation process can take actions to improve its overall innovation
• Which combination of partners and commercial network management.
type of relationships will optimize knowledge
exchange and results
The innovation network management framework
Based on the evaluation of the ideal portfolio of discussed above, served as the basis for a
partners versus the actual portfolio in place at the case study amongst Brazilian based companies
organization, the organization should generate an from various sectors with innovation partnership
action plan for the individual partners as well as networks. Research was conducted through in
the network as a whole (network management of depth interviews with managers responsible for the
partners in innovation).
innovation networks studied.
Individual management of partners should lead
to improving the partners’ capabilities to deliver
results and optimize its position within the network. . ReSuLTS oF BRazILIaN
Its focus is on actions with individual partners, BeNChMaRk STudy
to improve specific aspects of their innovative
capabilities, related to knowledge, resources,
Sample profile
management, culture, team composition and infra-
structure. It can include the request for corrective Our study involved 12 companies, of which 3
actions as well as offering of support by the were Brazilian companies and 9 Brazilian based
organization through investments or delivering of foreign multinationals. All of them where large
services and infra-structure. It also includes actions companies and they invested between 1,5 % and
to improve portfolio performance through attraction 6,5% of their revenue in R, D I. Various sectors
and selection of new partners and revision or were represented in the research, such as the
termination of relationships with existing partners. energy, automotive, computer, chemical, electronic
consumer goods and telecommunications
These choices should be made, not only based on sectors. Although our selection process focused
technical competencies, but also on managerial on companies with research facilities and large
capabilities, cultural aspects, values and networks, very few companies in Brazil have a
contribution to the innovation network, which are long history of extensive and intensive external
just as important as technological capabilities. collaboration. All companies showed a tendency
towards more investment in research and more
intensive external collaboration along the various



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phases of the innovation process, even outside Partnership Portfolio Management
Brazil within the near future. Our findings about the use of the diverse methods
of partnership management showed us that
Network objectives and focus partnerships management, as expected, is mainly
In relationship with the objectives for open focused on the dyadic approach.
innovation, one can clearly differentiate between
Brazilian companies and multinationals. While Only one of the companies showed a more
Brazilian companies objectives are bolder, structured approach for network management, using
orientated to the expansion of innovative capacity, a portfolio view to improve the overall composition of
the objectives of foreign multinationals are the network and the knowledge exchange between
often related to improvement of profitability and partners. Although some were located in technology
reduction of cost, with limitation to the use of parks, the focus for learning and knowledge
resources for more radical innovation. exchange was mainly between the leader and the
individual partners.
Related to this, the study clearly identified that the
focus of multinationals is more towards applied As the firms in this study do not use the partnership
research and development, while Brazilian parties portfolio approach, they miss the opportunity to
also search for partnerships for Basic Research. take advantage of possible synergies among their
partners and to draw on knowledge and capabilities
created through these interactions.
Network partnership types
Amongst the companies researched, the more Individual Partner Management
frequently used partnership is that with universities. A few companies used standard procedures to
According to the interviewees, this focus on search their partners but most based their search
university partnerships is for a large part the result and selection on recommendations of specialists
of governmental tax incentives which stimulate the or partner interaction before the selection (visits,
use of universities for research activities. However, presentations, events).
the use of universities as a partner in PDI has
not always resulted in the expected results. Issues The mechanisms for the attraction of partners are
that where mentioned by interviewees hampering incipient. The main mechanisms used are sharing
results where market timing, bureaucracy, of laboratories and equipment, the investment in
negotiation of intellectual property and relationship physical structures and partner equipment. Sharing
problems. Also, using universities for development, of patent titles is only used in a few cases. Some
instead of purely for research can be seen as companies use awards for partners with the best
somehow problematic. projects.
We also observed that the more comprehensive We only encountered one case of a company that
the innovation collaboration objectives, the larger consistently utilised structured mechanisms to
the diversity in partners found in the companies develop its partners, not only technically, but also in
network. Companies focused on advanced management.
development and commercialization search various
types of partners, such as, suppliers, producers No formal mechanisms where stated to terminate
and clients. Companies with collaboration partner relationship.
across the whole innovation value chain, search
for a variety of partners, from companies with
specific knowledge to partners for licensing and
commercialization of technology and products.



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Partners Engagement and Evaluation ReFeReNCeS aNd NoTeS
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articles, technical and scientific reports, etc.). portfolios: designing and managing your network
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to innovation network management, including WEST, J. (2006) Open innovation: researching
individual, portfolio and partner engagement a new paradigm. New York: Oxford University
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technology. Boston: Harvard Business School ***
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(2007) Innovating business models with
co-development partnerships. Research Caspar Bart van Rijnbach é sócio da TerraForum
Technology Management, v. 50, n. 1, p. 55-59. Consultores. E-mail: caspar@terraforum.com.br

12. VANHAVERBEKE, W. et al. (2009) The role Suzana Leonardi é consultora da TerraForum.
of alliance network redundancy in the creation E-mail: suzana@terraforum.com.br
of core and non-core technologies. Journal of
Management Studies, v. 46, n. 2, p. 215-243. Gustavo de Boer é consultor da TerraForum.
E-mail: gustavo.boer@terraforum.com.br
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