Innovation environment today: covid-19 pandemic as a factor in the intensification of the development and implementation of digital technologies & services via "open innovation".

Introduction

In this post, I will argue how the recent Covid 19 pandemic has reshaped and accelerated the open innovation field worldwide. During the past year, in the context of the pandemic, we have seen what an enormous response the field of science and technology has been able to give to the challenges of the Covid 19 pandemic. Past year has become a global stress test not only for the world's population and health systems worldwide but also for businesses of any scale-from multinational corporations to small private enterprises. It has destroyed the supply chains of raw materials and finished products and shaken confidence in the predictability of business processes. Furthermore, it has also become a new challenge for those who have already coped with the severe crises of the late twentieth and early twenty-first centuries, such as the financial crises in late 2008. However, unlike before, universal self-isolation has become a unique phenomenon in the worldwide economy, on the one hand, manifesting itself as a global economic downturn, and on the other – acting as a reason for the accelerated scaling and industrial application of digital technologies and services.

The "black swan" of 2019

The recent coronavirus pandemic is a classic example of a "black swan", Nassim Nicholas Taleb theory of extremely unlikely events that lead to severe consequences for the entire economy, society and people. According to his theory, the most effective way to mitigate the adverse events of an unexpected crisis in the economy is to build a stable but yet flexible structure within the company.

Structural flexibility and the capability to quickly adapt to the new conditions became one of the critical factors for survival during the pandemic. Those who can react promptly to changes have a better chance of overcoming the economic downturns with minimal losses. Quite often, flexibility required to adapt to newly developed technologies, restructuring existing business models and even complete diversification of the core products or services. According to the recent survey conducted by McKinsey, a flexible business model helped many MNCs during the pandemic. Structural flexibility allowed foreign banks and telecommunications companies to digitalise channels and increase sales via the internet by up to 400%, organise employees' work remotely and overcome psychological tension within the teams.

The rise of Open Innovation and why it is important

Let's first take a step back. Towards the end of the 17th century, Europe's six marine giants, including England and Spain, identified a need for a more accurate way to navigate the seas and the oceans. The aim was to invent a device that would help find the correct longitude more efficiently than previously. Numerous attempts were made by great minds from all over Europe, but English clockmaker found the ultimate solution in the early 18th century. Yet, the nature of innovation was much different from what it is today, but back in the days, this was a clear case when external contributors helped achieve the desired result, which was of interest to numerous parties. Even so, the popularisation of the term "open innovation" associates with Henry Chesbrough book from 2003, the ideas behind it were around for many years before.

In my opinion, the best way of defining "open innovation" today is by contrasting it to the well known "closed innovation". Until recently, many big corporations in more traditional industries utilised a closed innovation concept primarily where all the innovation activities rely on the internal resources and ideas developed within those businesses. Not only all the information and ideas produced within those businesses, but also most of those innovations typically are not shared with any external parties. In contrast, open innovation is utilised by businesses that strongly believe in contribution from the external participants and that sharing of various intellectual property can be done both ways for the mutual benefit of the entire community or economy in general.

Despite open innovation becoming more popular over the past years, particularly in the fields such as AI, machine learning, big data and etc., closed innovation was still much more common since many companies were and still prioritise their profits before the broader value creation. However, the recent Covid-19 crisis triggered a surprising trend, which boosted the concept of open collaborative innovation. As an example, Siemens offered their Additive Manufacturing Network to anyone who required any help with the design of the medical devices, while Scania partnered up with a few University Hospitals to convert trailers into the mobile covid-19 testing stations. At the same time, companies such as Ford partnered up with 3M and GE and started to produce ventilators to avoid shortage of such a vital component in the fight against the recent pandemic. This process required a completely new production line, setting up of a new digital operational system and engineering of a new product that Ford never specialised in before, and the success was only possible due to an open innovation, where knowledge and ideas were shared among different parties freely.

Notwithstanding this trend of becoming more open to innovation and starting to be less IntraCompany focused, most of it is directly related to the covid-19 crisis and to a desperate need to overcome this downturn as soon as possible. While before late 2019, the open innovation field was predominantly InterComapny or Professionals focused, rather than fully Publicly Open. Things like hackathons rarely managed to help develop new products and most often were used for headhunting purposes within the IT industry as an example. Yet, many companies speak of open innovation as a way forward, while for most of them, these remain as ambitions that are only yet to come true.

Recent growth in the utilisation of open innovation is driven via a demand for non-rival goods/services that society needs in the light of the current crisis. This well reflects Baldwin and Hippel thoughts of a need for a non-rival environment to achieve open collaborative innovation, stating: "each participant in a collaborative effort gets the value of the whole design but incurs only a fraction of the design cost". However, I strongly believe that the current burst of open innovation has a massive potential to continue this trend beyond the recent crisis. Many have realised how much of a hidden potential there is and how much extra value could be created via such a form of collaboration. Numerous companies have established new relationships with partners worldwide and increased their reputation, which builds trust from partners and consumers perspective. In the meantime, apprehension about things like intellectual property and smaller returns on investment has its place in relation to open innovation, but the past year showed many of us that there are ways of overcoming some of those common concerns.

In most cases, intellectual property departments within the companies are the biggest obstacle for a successful open innovation strategy, and it is pretty common to see a "no patent, no talk" policy within such organisations. Many companies see leaking of intellectual property as the biggest concern to their business as it could depreciate the value of their products or services. However, those who are smart find ways of preventing value capturing, particularly at challenging times like now. As an example, an earlier mentioned Swedish truck manufacturer Scania, sent some of their top engineers to another Swedish company Getinge, who required help in the production of the medical ventilators. While contributing to combating the virus and helping other companies ramp up their production through innovation within manufacturing processes, Scania doesn't lose any of its foundational technological assets. Still, it will only benefit from the worldwide economy bouncing back as sooner as possible. Furthermore, it can be argued that with such an approach to innovation, we are essentially starting to see more "boundary spanners" since due to the increased number of collaborations, more and more people from within different organizations are involved in the knowledge sharing, what is the perfect environment for "boundary spanners" to function as argued by Cross and Parker in their earlier study of Hidden Power of Social Networks. Despite "boundary spanners" being an essential bridge in knowledge transfer, unfortunately, there is no conclusive empirical evidence on how significant the positive effect on promotion open innovation is, and therefore it is essential not to exaggerate it.

Moreover, the management of intellectual property within the innovation field changes its shape and sets a promising trend for the future. Over the past year, there have been several promising initiatives, such as the Open Covid Pledge, that encourages different parties such as MNCs and research-based Universities to at least partly publish their intellectual property that could help to battle the current crisis. Initially, this initiative was primarily focused on healthcare-related innovation. However, surprisingly, many tech companies started to participate in it and opening up some of their patents that could be used after the pandemic finishes. For example, Intel released their touch-less password authentication system of people based on their gestures which is particularly important during the covid-19 times when shared computer systems with a no-touch feature are essential. While Uber opened up their safe routing for navigation systems patent that helps to identify routes based not on the standard indicators such as journey time/mile/cost, instead it chooses the safest route based on multiple other factors, including how crowded some areas are. Mitsubishi Electric released a whole pack of patents that together enable a wireless localisation system that helps for contact tracing, and in fact, many retailers worldwide already started to work with that patents to adapt that technology for their future use in enabling casher free shopping experience. Those innovators who choose to open up their innovations (fully or partly) start to gain notable individual benefits and avoid some private costs what has been studied long before the current crisis by Raymond in 1999. Concerning individual benefits, those companies that freely share their innovative breakthroughs often benefit from a flow of suggestions and improvements made by the different companies worldwide and individual contributors who are often referred to as cosmopolitans, according to Dahlander and Frederiksen who are arguably another type of the earlier mentioned "boundary spanners".

It is important to realise that the concept of open innovation does require initial intensive research and development (R&D) activities that lead to an initial innovation itself. Therefore, many multinationals are constantly increasing their R&D contributions as a proportion of their sales. However, there is an argument raised by Rosenberg back in the early 90s which seems to be applicable today, that many MNCs use their R&D capabilities as a 'ticket of admission' for cooperation with partners on the same level as they are, which eventually creates an exclusive innovation bubbles, where innovation stays within the hands of the dominant players in the market. This, of course, limits the whole concept of publicly open innovation and leads to intercompany innovation. Meanwhile, even from this perspective, there are some positive tendencies with big MNCs such as Procter & Gamble (P&G) with their Connect & Develop a strategy which replaces the standard R&D slogan, with an emphasis on allowing contributors of any size literally to suggest any modifications to P&Gs products and services or to submit entirely new ideas!

On the other hand, there are "product platforms" such as an iPhone. To a certain extent, things like AppStore are an example of open innovation paradigm since any individual contributor of any scale can develop a piece of software for various types of digital services which will be accessible by anyone through this platform. With the popularisation of open APIs and the emergence of more and more different digital platforms, we are likely to see more cases of this type of open innovation, particularly in the field of Digital Services.

Digital services as a new normality

As part of government-imposed travel restrictions and social distancing measures, businesses and consumers actively embrace digital solutions to continue operating remotely. Digitalisation contributes to the transition to the online environment of medicine, work, education, allows you to make online purchases, participate in online classes, get more data on the spread of the virus and share research information. The development of this trend speaks about the urgent need and the material base created for the widespread use of digital technologies in the service orientated sectors. Digital service, in its nature, is any digital transactional activity or benefit that one party gains from another party via digital networks as stated in the European Journal of Information Systems. Usually, those transactions are intangible as they don't result in the ownership of anything, and quite often, those transactions are not even tied to a physical product.

The digital service age has arrived, and coincidently covid-19 pandemic only ramped it up: more and more services are available online, and digital services are becoming more convenient. While writing this blog, I had an illumination: what if this pandemic happened ten years ago? How different would the consequences be? How quickly would healthcare systems adapt? How efficient would online education be? How easy would it be for people to work from home? All of those questions made me think that maybe we are in a much better place today to confront the challenges which we are currently facing. Back in 2008, the number of internet users worldwide was just above 1.6 billion people, while today, this number exceeds 4.1 billion with over 3.2 billion people using smartphones. These numbers are important in light of the popularisation of digital services. Predominantly due to widespread access to the internet and advances in the web 2.0, digital services innovation accelerated at such enormous rates during the last year.

When it comes to digital service innovation, there are generally four different dimensions where it can take place. Those dimensions commonly include changing a service concept, innovating the client interface, changing the service delivery system, and building novel technology that transforms your initial service. During the last year, the two most common forms of innovation within the digital services field were in: changing the service delivery system and the development of novel technologies that redefined the initial service completely. This was particularly noticeable in e-commerce, new contactless payment systems, numerous work from home software, distant learning technologies, the rapid growth of telemedicine, and the list goes on. The important thing is that many of those services are built on a number of core technologies that more or less duplicate each other in a different format depending on the field of their use. This brings me to a conclusion that in the field of digital services, unknowingly, earlier mentioned cosmopolitans are one of the biggest contributors to open innovation. Places like silicone valley are an example of hubs where people move from one big tech company (i.e. Facebook) to another big tech company (i.e. Google) while being the main contributors to any innovation accrued within the other company, and in this way, knowledge flows from one corporation to another.