Radical innovation and Open innovation

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1 Khanh Pham-Gia Radical innovation and Open innovation Creating new growth opportunities for business Illumination with a case study in the LED industry Diplomica Verlag

2 Khanh Pham-Gia Radical innovation and Open innovation: Creating new growth opportunities for business Illumination with a case study in the LED industry ISBN: Herstellung: Diplomica Verlag GmbH, Hamburg, 2011 Dieses Werk ist urheberrechtlich geschützt. Die dadurch begründeten Rechte, insbesondere die der Übersetzung, des Nachdrucks, des Vortrags, der Entnahme von Abbildungen und Tabellen, der Funksendung, der Mikroverfilmung oder der Vervielfältigung auf anderen Wegen und der Speicherung in Datenverarbeitungsanlagen, bleiben, auch bei nur auszugsweiser Verwertung, vorbehalten. Eine Vervielfältigung dieses Werkes oder von Teilen dieses Werkes ist auch im Einzelfall nur in den Grenzen der gesetzlichen Bestimmungen des Urheberrechtsgesetzes der Bundesrepublik Deutschland in der jeweils geltenden Fassung zulässig. Sie ist grundsätzlich vergütungspflichtig. Zuwiderhandlungen unterliegen den Strafbestimmungen des Urheberrechtes. Die Wiedergabe von Gebrauchsnamen, Handelsnamen, Warenbezeichnungen usw. in diesem Werk berechtigt auch ohne besondere Kennzeichnung nicht zu der Annahme, dass solche Namen im Sinne der Warenzeichen- und Markenschutz-Gesetzgebung als frei zu betrachten wären und daher von jedermann benutzt werden dürften. Die Informationen in diesem Werk wurden mit Sorgfalt erarbeitet. Dennoch können Fehler nicht vollständig ausgeschlossen werden und der Verlag, die Autoren oder Übersetzer übernehmen keine juristische Verantwortung oder irgendeine Haftung für evtl. verbliebene fehlerhafte Angaben und deren Folgen. Diplomica Verlag GmbH Hamburg 2011

3 Executive Summary Henry Chesbrough the Harvard professor and a worldwide expert for Open Innovation has stated that most innovations fail. And companies that don t innovate die. In Germany only less than 0.5 % ideas pursued by industrial companies have led to a success. The question being addressed is how can companies drive innovations effectively and efficiently to create new growth opportunities, particularly in this difficult time due to the global economic crisis. These challenges could be captured by driving radical innovations using open innovation methodology. Radical innovations can create new markets and huge growth potential for the business and they can be developed faster and cheaper via an open innovation approach. The aim of this study is to provide a deep insight into radical innovation and open innovation management based on a thorough literature review. Thereby basic concepts of both innovation models are explored and compared with other innovation types, e.g. incremental and closed innovations. Moreover, the CHRISTENSEN s model of disruptive innovation and CHESBROUGH s theory about open innovation are explained in detail. In addition, opportunities and challenges as well as managing a concept of radical and open innovations are analyzed and illuminated with concrete examples and cases, amongst others the eco-friendly Light Emitting Diode (LED). Beside technology and market breakthroughs, other aspects like future trends, key success factors and strategies for capturing sustainable growth of disruptive LED technologies in the lighting industry are studied. It could be stated that companies should drive intensively open innovation and boost the outside-in and inside-out processes for creating new breakthroughs in LED technologies. The increase of involving customers, suppliers and the outside scientific world into internal R&D, strengthened collaboration within the LED supply chain and intensified out-licensing of own technologies help companies to accelerate the innovation process and create new markets. Besides driving forceful innovation management, companies should boost their new product development by exploitation of government supports which have been increased strongly due to the current global climate change problems. 1

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5 The best way for upstarts to attack established competitors is to disrupt them. Clayton M. Christensen The Innovator s Dilemma (1997) Most innovations fail. And companies that don t innovate die. Today not-invented-here means that companies need not reinvent the wheel, since they can rely on external sources to do the job effectively. Henry Chesbrough Open Innovation (2006) 3

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7 Acknowledgement I would like to express my gratitude to all those who gave me the possibility to complete this study. I am deeply indebted to Prof. Dr. Thomas Peisl from Munich University of Applied Science who inspired me to choose this exciting topic and supported me with his stimulating suggestions and encouragement. Especially, I would like to give my special thanks to my loving wife Anh Van and my daughter Khanh Linh who stood beside me and encouraged me constantly at all times. My great thanks to my family for their patient love, enabling me to complete this study. 5

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9 Table of Contents Executive Summary... 1 Acknowledgement... 5 Table of Contents... 7 List of Abbreviations... 9 List of Figures...11 List of Tables Introduction Problem definition Objective Methodology Basics of innovation management Types of innovations Classification of innovation types Examples of the most important innovation types Radical innovation versus incremental innovation General differences Technical and market dimensions of innovations Technical dimension Innovation framework of technology and market Uncertainties and management of radical innovations Disruptive innovations CHRISTENSEN s model of disruptive innovation Managing disruptive innovations Difficulties and limitations Realization of disruptive innovations in practice Methodology for capturing disruption opportunities

10 2.3 Open innovation versus closed innovation Shift in innovation paradigms Open and closed innovation the main differences The core open innovation processes Managing open innovation Analysis of innovation models for the lighting industry Radical and open innovations for LED LED as a radical innovation in the lighting industry LED market breakthroughs LED market history LED future market trend Competitive landscape Open innovation for LED breakthroughs Future trend in LED development Managing open innovation for LED The outside-in process The inside-out process Managing future growth in LED business Conclusion Integrated Total Management Aspects Bibliography

11 List of Abbreviations ASP AT&T ATM BCG BMBF BMW CAGR CAPEX CCFL CEO CNN DOE DP DVD EU EUR GaAs GaP GDP GE GM HB LED IBM InGaN IP IRC IRR ITM KPI KSF Average Selling Price American Telephone and Telegraph Automated Teller Machine Boston Consulting Group Federal Ministry of Education and Research Bayerische Motoren Werke Compound Annual Growth Rate Capital Expenditure Cold Cathode Fluorescent Lamp Chief Executive Officer Cable News Network Department of Energy Discounted Payback Digital Versatile Disc European Union Euro Gallium-Arsenide Gallium-Phosphide Gross Domestic Product General Electrics General Motors High-Brightness Light Emitting Diode International Business Machines Indium-Gallium-Nitride Intellectual Property Infrared Reflective Coating Internal Rate of Return Integrated Total Management Key Performance Indicator Key Success Factor 9

12 LCD LED Lm/W MEMS MSNBC NGLI NPD NPV OEM OIDA OLED P&G PARC PC PEST R&D RGB ROI SAP SiC SSL SWOT UMTS UPS US USD USP Liquid Crystal Display Light Emitting Diode Lumens per Watt Micro Electro Mechanical System Microsoft National Broadcasting Company Next Generation Lighting Initiative New Product Development Net Present Value Original Equipment Manufacturer Optoelectronics Industry Development Association Organic Light Emitting Diode Procter & Gamble Palo Alto Research Centre Personal Computer Political, Economical, Socio-Cultural and Technological Research and Development Red, Green, Blue Return on Investment Systeme, Anwendungen, Produkte in der Datenverarbeitung Silicon Carbide Solid State Lighting Strengths, Weaknesses, Opportunities and Threats Universal Mobile Telecommunications System United Parcel Service United States US Dollar Unique Selling Proposition 10

13 List of Figures Figure 2-1: Impact of incremental and radical innovations on business 28 Figure 2-2: Innovation types according to HENDERSON and CLARK 30 Figure 2-3: Innovations from customer-need and technology aspects 30 Figure 2-4: Technology and market innovation framework of KROY 31 Figure 2-5: Technology-based evolutionary and revolutionary innovations 32 Figure 2-6: CHRISTENSEN s model of disruptive innovation 37 Figure 2-7: The most important capabilities of companies 47 Figure 2-8: Shift from invention to innovation and customer value 49 Figure 2-9: CHESBROUGH s model of closed and open innovation 52 Figure 2-10: Model of the dynamics of innovation 62 Figure 3-1: Working principle of the Light Emitting Diode (LED) 67 Figure 3-2: Evolution of lighting technologies 68 Figure 3-3: Evolution of LED efficiency 69 Figure 3-4: HAITZ s law to LED s performance and cost history 70 Figure 3-5: Market breakthroughs for LED applications 72 Figure 3-6: Market growth driven by efficiency and cost improvements 73 Figure 3-7: LED market segments in Figure 3-8: High-brightness LED market history Figure 3-9: Market segments for high-brightness LEDs Figure 3-10: Market forecast for high-brightness LEDs Figure 3-11: Market forecast for LED lighting segment 81 Figure 3-12: Roadmaps for white LED 87 Figure 3-13: Increasing trend of worldwide R&D collaboration of Nichia 90 Figure 3-14: Global leading companies with patents in SSL technologies 93 Figure 3-15: The key patent relationships in the white LED industry in

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