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Journal of Innovation Economics & Management

2014/3 (n°15)


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Despite the “fuzziness” of the concept of business models (Porter, 2001) among the community of management and economics scholars, it seems to be in increasing use in daily business practices. The emergence of this concept is often associated with the e-business start-up boom in the 1990s, underscoring the connection between business model, new industry, and innovation. Even if scholars are not in complete agreement about its definition, since the focus falls on different and sometimes contradictory aspects of the firm’s business, and despite its lack of theoretical grounding (Teece, 2010), the business model concept is viewed as a device with which to articulate the constituent parts of a business. It provides information about the way such a system generates and captures value and pieces the different components of the value chain together as a whole (Amit, Zott, 2001; Chesbrough, 2006a; Chesbrough, Rosenbloom, 2002; Demil, Lecocq, 2010; Magretta, 2002; McGrath, 2010; Osterwalder, Pigneur, 2010, Teece, 2010). A common denominator lies in how to create and capture value (Björkdahl, 2009). As Chesbrough (2006a, p. 2) points out: “A business model creates value by defining a series of activities from raw materials through to the final consumer that will yield a new product or service with value being added throughout the various activities. The business model captures value by establishing a unique resource, asset, or position within that series of activities, where the firm enjoys a competitive advantage.” Therein business models relate to every aspect of running a business or a network of businesses, including the process of innovation. In fact, innovation may be considered as one of the major sources of value creation for firms. Following the seminal paper on profiting from innovation by Teece (1986), scholars underline the necessity of investigating how business models capture innovation value (Chanal, 2011).

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This contribution points out how the literature on business models conceptualizes the process of innovation. It will thus highlight how the nature and the relationships between science and technology in the innovation process are reconsidered and explain the primary role of the business model in innovation. In a nutshell, this paper will address the following issues: how does the business model literature challenge the linear model of innovation and contribute to a better understanding of current innovation processes?

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Based on a literature review, our analysis will take three directions. First of all, it will show how widespread the linear model of innovation was (and still is) in corporations and why there is no need for a business model approach in such a vision of innovation. Moreover, it will underline that the linear model of innovation supports a very simplistic conception of science, technology, and their relationships. Secondly, it will present and comment on a core contribution for business model authors (and beyond), namely Chesbrough’s work on the open vs. the closed innovation paradigm. Our analysis will throw light on the model(s) of innovation which is (are) increasingly used by companies and will explain how open innovation has shattered the linear model of innovation. Finally, we will discuss how the business model literature appropriates Chesbrough’s legacy and how it contributes to the renewal of the vision of innovation and to a better understanding of the nature of science, technology, and their relationships with business.

The linear model of innovation: no need for business model considerations

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The linear model of innovation was considered explicitly or implicitly by scholars and managers as the model of corporate innovation processes, at least until Kline (1985) and Kline and Rosenberg (1986) introduced the chain-linked model, which is still widespread. The linear model of innovation, which is often associated with Bush’s work (1945) “Science: the endless frontier” (Godin, 2006) but also with Price and Bass (1969), as observed by Kline (1985), postulates that public funding of basic academic research is necessary and sufficient for promoting innovation. Moreover, innovation results from an orderly and sequential process (research, development, production, marketing), starting with the new knowledge creation and followed by the development aimed at industrial production and sales on a market. This science-push approach has been enhanced by a demand-pull version, without challenging it.

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The linear model of innovation is the typical conception of innovation that developed within the context of the “closed innovation paradigm” (Chesbrough, 2003). This part will present the closed innovation paradigm, describe how it matches the linear model of innovation, and explain why designing an appropriate business model is not necessary in this context. Finally, the conception of technology, science, and their relationships with business supported by the linear model of innovation will be highlighted.

The closed innovation paradigm and its typical model of corporate innovation

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According to Chesbrough (2003), the golden age of the closed innovation paradigm [1][1] Chesbrough used the term paradigm following Thomas... was the early 20th century. At that time, the knowledge environment was specific: universities produced basic scientific knowledge and were mainly concerned with understanding the world and its regularities, with scientific discoveries, and neglected practical inventions, which were an engineering activity. Indeed, developing technologies from the application of those scientific breakthroughs lay beyond the remit of academic researchers and was even considered as a degrading task. Consequently industrial companies came to the conclusion that they had to internally organize their own production of knowledge so as to nurture their subsequent commercial applications. This explains the development of centrally organized research laboratories which accompanied internal product development within industrial firms, together resulting in “a series of fortified castles located in an otherwise impoverished [knowledge] landscape (…) [castles which appear] relatively self-sufficient (…)” (Chesbrough, 2003, p. 24). This logic led to a deep vertical integration from the upstream stages of the value chain (research and development) to downstream stages: “in order to do anything, one must do everything internally (…)” (Chesbrough, 2003, p. 29).

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Within this framework, the innovation process follows a sequential (step by step), linear (without feedbacks), closed (internalized) path of development: “Companies must generate their own ideas and then [2][2] Emphasis added. develop them, build them, market them, distribute them, service them, finance them and support them on their own” (Chesbrough, 2003, p. xx). First of all, the corporate internal research laboratory comes up with ideas, creates opportunities in a very independent way, without constraints other than to stay within budget (cost center). These ideas are put “on the shelf”. Then the development team takes some of the outputs of the research laboratory to transform them into products and services. As the development team acts as a profit center, the selection of ideas that will be further developed or the order in which they will be dealt with depends on the assessment realized by the development team which chooses the research ideas that would be the most suitable to lead to profitable products or services. This often results in minimizing risk through the development of research ideas that resemble current ones rather than very new ones. However, the mission of the development team remains complex as it has to integrate new research ideas with existing technologies to produce consistent systems. Within the closed innovation paradigm, research laboratories are then the primary vehicles for innovation and are relatively independent of the whole process: this corresponds to a typical linear science push model of innovation. In this model, market issues appear late in the process: “companies chose to wait until the technology was ‘ready’ to ship to customers. The mind-set was ‘we know what they want, and they’ll wait until we say it’s ready.’” (Chesbrough, 2003, p. 56)

The inherent economic potential of inventions

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Chesbrough (2003) does not describe further stages of the innovation process (following the development one) in detail but he assumes that the downstream stages naturally follow from the invention stage in the framework of the closed innovation paradigm, due to the vertical integration of industrial companies and their control over the whole process. Industrial companies are the only ones that are able to benefit from research ideas and the subsequent product development they funded: they enjoy a kind of research and technological monopoly in their field of activity, from which they are able to capture a large part of the resulting value. This research and technological monopoly results in “significant downstream market positions” (Chesbrough, 2003, p. 34). This explains why the innovation model within the closed innovation paradigm was sustainable: the value created and captured through this vertical organization could be reinvested, at least in part, in the research laboratory in order to maintain a virtuous cycle.

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Other researchers have highlighted that in the linear model of innovation, which is still widespread in many companies adopting a closed innovation model, each technology is able to find its market, and downstream stages of the innovation process are not problematic (Teece, 2010). Thus there is no place for explicit business approaches because value creation and capture from innovation are automatic and do not require any specific managerial intervention. According to Chesbrough (2003), this model of innovation was widespread in most major US companies for most of the 20th century and it “worked well” (Chesbrough, 2003, p. xxi). It is still used in some industries. However, it encompasses a narrow vision of technology, science, and their relationships with business.

A simplistic approach to the nature of and the relationships among science, technology, and business

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Within the framework of the linear model of innovation (the four steps described above), the “black box” of technology (Rosenberg, 1976) cannot be opened. Technology is not a specific activity which could be characterized by idiosyncratic functions, but it results from an application of scientific knowledge leading to the development of new products. This conception is far from the approach to innovation proposed by Kline and Rosenberg (1986), in which technology is conceived of as a specific research activity [3][3] Nowadays we speak of technological research. concerning systems and process and composed by analytical design, detailed designing and testing, and redesign. According to these authors, technological innovation is rooted more in technology (the heart of the central chain of innovation) than in science.

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To the contrary, science (discoveries, new knowledge) remains the main source of innovation in the linear model. This activity is developed in separate spheres of business: “By and large, businesses did not engage in basic science, and scientific institutions did not try to do business” (Pisano, 2006, p. 2). This separation is physical, institutional, and cultural (Merton, 1973): science, which is the domain of academic researchers, focuses on first principles and methods and business (the domain of managers, industrial scientists, and engineers) deals with commercially feasible products and processes (Pisano, 2010). Except for very few firms such as AT&T (Bell labs), IBM, Xerox (Palo Alto Research Center), DuPont, Westinghouse, Kodak, Corning, Dow Chemical, or GE (Pisano, 2006, 2010), corporate investments in basic research or science remain an exception. Since the seminal papers of Nelson (1959) and Arrow (1962), economists have relatively well documented this situation linked to the difficulty of capturing spillover effects or positive externalities and to the non-appropriability of knowledge: “These spillovers were regarded as a cost of doing business in the prior paradigm [of closed innovation]” (Chesbrough, 2006b, p. 4). The response of the linear model of innovation to these market failures is that public funding of basic academic research is necessary and sufficient to promote innovation.

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According to Teece (2010), innovators often use a traditional revenue model to capture value from scientific discoveries. In other words, considering the existence of knowledge spillover effects as inevitable and reinforced by the poor capacity of intellectual property rights to protect the results of basic science, companies develop a traditional revenue model where knowledge value is embedded in a product sold in a market: knowledge is given value by the product and cannot be given value separately. In this case, the majority of intellectual property rights are never used and a large proportion of patents are not exploited by firms even through licenses because they are not incorporated in products.

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Even though many firms continue to develop innovation according to a linear model, the decline of the closed innovation paradigm paves the way for new models of innovation. Chesbrough deserves our attention for having initiated the analysis of what he calls the “open innovation paradigm”.

A renewed conception of innovation within the open innovation paradigm? Chesbrough’s contribution

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Even though the linear model of innovation continues to inspire many corporations, Chesbrough observes that for many industries, it has becomefundamentally obsolete” due to “erosion factors” (Chesbrough, 2003, p. 34). He mentions four of them that are mainly exogenous to corporate strategy. The first is the increasing availability and mobility among companies of skilled workers, which contribute to diffusing knowledge and so break down the former fortified towers of knowledge. The second is the skyrocketing development of the venture capital market able to finance start-ups willing to develop promising but risky technological innovations. The third is the emergence of an outside path to market for research outputs of industrial laboratories sitting on the shelves of large companies. The fourth is the increasing capability of suppliers which may enhance the ability of large firms to benefit from their R&D investments in making faster use of the whole array of ideas and technologies that were previously left on the shelf. These erosion factors contributed to a shift in the innovation paradigm over the 20th century, according to Chesbrough. The closed innovation paradigm lost ground to the open innovation paradigm. What is interesting in Chesbrough’s approach is the fact that he develops his theory in its historical context. His theory of open innovation cannot be understood without taking into account the evolution of companies’ innovation strategy over time, even though some detractors refuted the relevance of such an historical perspective as shown below. This section will present Chesbrough’s position in the academic sphere, his theory related to the open innovation paradigm as well as models of innovation it supports, and finally further developments and critiques of this theory.

Research at the interface between many schools of thought

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Chesbrough is the author of several reference books and papers. However Open Innovation (2003) is certainly the book in which he develops his main arguments related to the innovation process in industrial companies and the shift in the innovation paradigm over the last decades of the 20th century. His work appears as a reference in many disciplines [4][4] As Huizingh (2010, p. 1) observed: “Henry Chesbrough’s.... According to Huizingh (2010), Chesbrough’s success among scholars and practitioners alike lies in several factors: first of all, he gathered under a single label several previous developments and existing activities; second, he met current concerns about outsourcing, networks, core competences, collaboration, and the internet: in other words, Dahlander and Gann (2010) consider that he reflects huge changes within globalization; third, he proposed a basis from which many further developments, both theoretical and pragmatic, were possible; fourth, he successfully connected internal and external ways of acquiring and exploiting knowledge. We propose a fifth reason: the simplicity of his reasoning, which makes it accessible to everyone in the academic sphere (regardless of discipline) and the business world. In academic management and economics, the open innovation notion has been adopted by several groups of researchers interested in different issues, some of which are recorded by Trott and Hartmann (2009) [5][5] For example, a research group on open innovation itself,.... These include authors developing works on business models, who frequently consider Chesbrough’s work (2003) as a founding element upon which the business model approach further develops, as is evidenced by Chesbrough being frequently cited in the business model literature (e.g. Gassmann, Enkel, 2004; Gassmann, 2006; Doganova, Eyquem-Renault, 2009; Lee et al., 2010; Van der Meer, 2007; as well as the numerous publications Chesbrough authored or co-authored).

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After a short description of the open innovation paradigm, we propose to analyze the conception of the innovation process it encompasses and its similarities and differences with the linear model of innovation.

The open innovation paradigm and its typical model(s) of innovation

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Chesbrough claims that the erosion factors contributed to the emergence of a new knowledge environment. Ideas and technologies are much more widely distributed among stakeholders (as the literature on innovation systems has confirmed). Knowledge created within firms may be used outside its borders and external knowledge may be captured and absorbed by these firms, as Cohen and Levinthal (1990) showed. At the same time, the divide between basic research and development, that is between science and engineering, has tended to disappear. Relationships between universities and industry have developed. These changes set the scene for a new innovation paradigm: “The Open innovation paradigm can be understood as the antithesis of the traditional vertical integration model (…) Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation respectively” (Chesbrough, 2006b, p. 1). The open innovation paradigm redefines the role of actors or groups of actors, the delimitation and the hierarchy of activities in the innovation process. The internal R&D, far from disappearing, remains of primary importance but its function evolves. The internal research laboratory still has to create new knowledge but not in isolation, throwing out the ‘Not Invented Here’ syndrome of Katz and Allen (1982). Besides, the internal R&D laboratory combines internal and external knowledge, this combination resulting in innovations as well, and it should even move knowledge outside the firm. Moreover, internal R&D is given a new but critical function: defining the architecture of the new complex technological system and managing the interconnections between component technologies, in order to be able to master the whole process. Notwithstanding the primary role of internal R&D services and the importance of external knowledge and technology providers, they are not the exclusive paths to knowledge generation. Customers also have become innovators themselves through their specific use of the technology provided. Chesbrough takes up a feature already mentioned by Von Hippel (1988) when he spoke of lead users. A form of feedback process with customers is then introduced. This means that internal R&D has also to take into account other external actors than companies or universities in its knowledge combination process.

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Consequently — and contrary to Trott and Hartmann’s position (2009) on this point — within the open innovation paradigm, we consider that the linear model of innovation has been shattered [6][6] More specifically, we will show below that while it.... This implies that the architecture which the internal R&D service has to build to organize technology blocks “extends far beyond the traditional boundaries of technical management to encompass marketing, sales, support and even finance” (Chesbrough, 2003, p. 88). Therefore this internal R&D service takes on an important part in the building and running of the related business model. Within the model(s) of open innovation, close ties are created between each activity within companies and with external actors, none of them being solely responsible for any stage of the innovation process. Managers of any stage have to incorporate issues outside their traditional area of responsibility. Chesbrough (2003) does not further develop this point but it seems that there are no more precisely defined stages in the open innovation process. Each activity in the innovation process is called at least in part simultaneously, with some of them being leaders at some points along the path of innovation within companies.

Further developments on open models of innovation and weaknesses of Chesbrough’s thought

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In further writings, scholars interested in open innovation give some more detail on the typical model(s) of innovation linked to the open innovation paradigm. This is the case for example of Gassmann et al. (2010) who speak of “more iterative and interactive probe-and-learn processes”, referring to Lynn et al. (1996), which are far removed from the linear and top-down models. However, in their literature review of open innovation, Dahlander and Gann (2010, p. 707) consider that this domain within the open innovation literature remains relatively unexplored and that further research would be needed “to elaborate on the conceptual frame for open innovation from the perspective of product/technology lifecycles and the different phases through which an innovation evolves from conceptualization to commercialization”. Koziol-Nadolna and Swiadek (2011) could be considered as a step in this direction as they identified six generations of innovation models, from the linear one to the open-innovation self-learning system. In the latter, knowledge and learning processes are given a high priority within all corporate activities and this open innovation model leads to different kinds of boundaries being crossed. Unfortunately, the authors do not describe in detail the pathway of innovation within this model and do not account for the differences with the previous five models they brought to light.

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If the comprehensive architecture of the innovation process linked to open innovation is not fully understood, it may be due to multiple innovation pathways developing simultaneously. In other words, Chesbrough (2003) shows that a single research project or technology may be developed and combined in several ways within the company that first spawns it, or outside it, or even both. Integrating external knowledge in the internal corporate pathway of innovation is the first way. Besides, if the output of the internal R&D services cannot be fully used within the company, it may be transferred to outside companies for the benefit both of partners and of society as a whole [7][7] Start-up companies are an example of such an outside.... Important conditions for the development of these outside pathways of innovation include the availability of venture capital and a clear policy for management of intellectual property. Gassmann and Enkel (2004) elaborate on these multiple pathways of innovation and distinguish three core processes in open innovation: the outside-in process, the inside-out process, and the coupled process. Alongside these typical models of open innovation, other traditional models, such as the linear and closed one, may subsist within the open innovation paradigm.

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Despite its interest, Chesbrough’s analysis comes in for criticism mainly within the field of research on open innovation. Critics focus on the novelty, method, content, and historical proof of Chesbrough’s thesis. As regards the novelty of his contribution, it is broadly acknowledged that Chesbrough draws on several seminal works to build his own theory of open innovation [8][8] We referred to some of these previous works when reviewing...: as Trott and Hartmann (2009, p. 715) put it abruptly, “it is old wine in new bottles”. As regards the method, Dalhander and Gann (2008) are concerned by the fact that Chesbrough’s arguments rest entirely on case studies of very specific companies (large US companies in high-tech industries). They conclude that this is not enough to gain external validity: using large-scale data sets over a variety of industries appears to be necessary to examine how widespread open innovation is. As regards the content, Dalhander and Gann (2008) regret that core concepts are too roughly defined: in particular, the dichotomy between “closed” and “open” innovation is too simplistic and avoids focusing on more relevant issues (such as the different kinds of openness, or in other words the qualitative evolution of openness). Moreover, the historical relevance of the open innovation paradigm shift is challenged by several critics: Dahlander and Gann (2008) as well as Mowery (2009) or Trott and Hartmann (2009) provide evidence that open innovation processes have existed since the late 19th century. More radically, Trott and Hartmann (2009) refute the very existence of a closed innovation paradigm, which results in the open innovation thesis being shattered. However, to the best of our knowledge, such criticisms do not come from the business model literature. In their great majority, business model researchers do not comment on Chesbrough’s conception of the innovation process and take Chesbrough’s work as an input for their own contributions.

Business models approaches to innovation and Chesbrough’s 2003 contribution legacy

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This part will point out how the business model literature contributes to a renewal of the conception of innovation. It will also show that some of these authors do not fully take into account the legacy of Chesbrough’s 2003 contribution and that Chesbrough himself develops a comprehensive framework of analysis of current business and innovation models linking all dimensions of innovation.

A new vision of technology, science and their relationships to business

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Outside of a closed innovation model, how to create and capture value from technologies becomes a real issue. And this is precisely the core issue of the business model literature because “technological innovation does not guarantee business success” (Teece 2010, p. 183). In other words, the economic value of a technology remains latent until it is somehow commercialized via a business model which unlocks the value potential embedded in technologies and converts them into market outcomes (Chesbrough, Rosenbloom, 2002; Chesbrough, 2006a; Teece, 2010). Put another way, without a business model, the commercial success of a technical invention happens as a result of serendipity. Consequently, “a mediocre technology pursued within a great business model may be more valuable than a great technology in a mediocre business model” (Chesbrough, 2003, p. 64). By revealing the core role of the business model, the business model literature contributes to re-balancing the innovation process in which upstream stages were overemphasized and thus challenges the linear model of innovation.

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Moreover, it leads to a more complex vision of technology, basic research, and their relationships with business. Many business model authors do not investigate the technology issue much and consider technology as given and as an input for business model design. Indeed, the purpose of the business model literature is to understand the factors that impact success at the commercialization stage. It deals with business models as a means to unlock the potential value embedded in technologies, to select the appropriate technologies, to explain which technologies and features are to be embedded in the product and service, and to build their market image (Chesbrough, Rosenbloom, 2002; Chesbrough, 2006a; Teece, 2006, 2010). There arises from such an analysis a fuller conception of technology which encompasses both technical and economic features, the latter waiting to be revealed (by business models).

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However, the business model literature is more prolix on science. It has also disrupted the vision of the exclusively public nature and the place of basic research supported by the linear model of innovation. It considers that the absence of good private business models for scientific research explains the lack of private investment in basic research and contributes to market failures (Teece, 2010). Consequently, developing business models for science may be viewed as a way to reinforce the links between science and business. Introducing an open business model approach may highlight new ways to create and capture value from science.

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Firstly, authors propose a new vision of intellectual property rights. Chesbrough (2006b) argues that managing intellectual property in connection with the company’s business model is necessary not only to capture value of innovation, but also to create value from innovation (Chesbrough, 2006b). Patents are not only a way to create a monopoly on scientific findings and to capture their entire value. They are themselves a source of value creation in particular through licensing. That is why companies need strong intellectual property so as to capture value through intellectual property licensing (Teece, 2010). Moreover, in the open innovation paradigm, when a patent does not fit in with the corporate business model, it is possible to capture value by selling it to another company or by licensing. External intellectual property rights complement the business model and these assets become attractive for the outside.

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Secondly, next to the management of intellectual property rights, in an open innovation model, one way to impart value to scientific discoveries is to push this activity outside the firm in order to create spin-offs. A major contribution of the business model approach regarding knowledge is that knowledge spillovers may be viewed as a consequence of the firm’s business model and not as a cost (Chesbrough, 2006b). Cases of spin-off creation coming from private firm research laboratories (Chesbrough, Rosenbloom, 2002) are often cited as a result of a misalignment between the inventions developed by the laboratory and the firm’s business model. However spin-off creation comes not only from private companies but also from universities.

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The development of new entrepreneurial science-based activities which generate new business models is a specific case that is worth emphasizing. These new science-based business models emerge in a new entrepreneurial class of firms deeply immersed in science. Pisano (2010) speaks about science-based businesses defined as “entities that both participate in the creation and advancement of science and attempt to capture financial returns from this participation. They are not simply ‘users’ of science, but contributors to it as well”. These relatively new businesses are at the frontier of knowledge and the firms are not only science-based, but also market-oriented and play a critical role in the commercialization of new technologies. This is particularly the case in the biotechnology and nanotechnology sectors. In these sectors, the link between universities’ scientific advances and industrial innovation is stronger and more direct than in other sectors sheltering more traditional high technology start-ups (Mowery, Sampat, 2005). In these fields, scientific feasibility is not a problem because the reasonably well-established scientific basis allows companies to launch commercial products relatively quickly. According to Pisano (2006), science-based business models (especially in the biotechnology sector) need to be improved in order to support the development of start-up companies. He observes that the lack of a good business model will induce a lack of economic performance from these starts-ups.

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All these elements are consistent with the evolution of the nature of the connections between the worlds of science, technology and business. These changes are accompanied by changes at university level (e.g. changes in university governance). We assume that this may be linked not only to the decline in public funding for universities and their subsequent need to find new financial resources, but also to the openness of the innovation process which fosters relationships between academic research and industry at all levels. In the current open innovation paradigm, universities have become central in the business of science and have developed aggressive approaches to intellectual property in order to capture monetary returns (Pisano, 2010). The way in which the outputs of university research are diffused toward society and commercial spheres can take different forms, varying across industries and over time (licensing, spin-off…). Consequently, they have developed a specific organization aiming to capture financial returns on intellectual property and this is particularly the case in the US. In fact, the US Congress passed the Patent and Trademark Amendments (1980) in order to reinforce academic research. This Bayh-Dole Act gave universities and non-profit-institutions the right to retain the property rights to inventions deriving from federally funded research. This Act is based on the assumption that the economic efficiency of R&D projects is linked to the appropriability of R&D results. Mowery and Sampat consider that “the Bayh-Dole Act is the ultimate expression of faith in the ‘linear model of innovation’ – if basic research results can be purchased by would-be developers, commercial innovation will be accelerated” (Mowery, Sampat, 2005, p. 229). Scholars mention the risks associated with this approach and the incentive for universities to perform research that could be expected to produce important commercial inventions to the detriment of more basic science. Moreover, focus on patents may mask the other channels of scientific knowledge diffusion and interactions between industries and universities.

From an ambiguous conception of the process of innovation to an adaptive platform of innovation

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The business model literature thus contributes to a better understanding of science, technology, and their relationships to business in an open innovation context and insists on the downstream stages of the innovation process. However, it does not seem to elaborate on the legacy of Chesbrough related to his conception of the typical open innovation process. Indeed, business model authors frequently omit to analyze interconnections and feedback loops between each activity along the pathway of innovation, or in other words they do not seem to have realized that porous borders exist between these activities, whether they are internal or external ones. By focusing exclusively on business models and by considering that technological innovation is given and that the company only needs to create and capture value from it through an appropriate business model that has to be designed, most business model authors partially reintroduce the linear model of innovation. This is more explicitly the case of van der Meer’s contribution (2007), for example, who suggests breaking the innovation process down into three basic stages: the concept stage, the development stage, and the business stage, without any feedback loops, thereby introducing a kind of open system stage-gate model for innovation of a linear type.

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Nevertheless, more accurate visions of the innovation process are built within the business model literature. Chesbrough himself, whose further works after his 2003 book could be categorized as belonging to this literature, proposes a business model framework connecting the business model, the innovation process (originally considered as the process of technology creation), and the intellectual property rights management system (Chesbrough, 2006a). He thus goes further into the analysis of the relationships between the process of technology creation and the process of economic value creation and capture from technology, giving at least a first answer to further writings that Dahlander and Gann (2010) called for [9][9] See section “Further developments on open models of.... It is not astonishing that Chesbrough is one of the most active contributors to the understanding of how a business model perspective may change the vision of the innovation process, given his specific position in-between the research field of open innovation and of business models.

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Chesbrough (2006a) constructs a framework aiming to encompass different types of business models that currently coexist in the open innovation paradigm. He considers that business models vary in two dimensions: first, depth of investment made to support the business model and, second, openness of the business model. Six types of corporate business models are arranged sequentially from very basic (not open and not very valuable) models to far more advanced ones (open and very valuable). We propose to focus our attention on the underlying process of innovation that each type encompasses. Unlike type 1 (an undifferentiated business model which does not incorporate any innovation process either), type 2 (a differentiated business model with an ad hoc innovation process) and type 3 (a segmented business model with a planned innovation process) are based on what resembles the linear model of innovation. However, with type 3 there is an evolution towards a more market pull innovation process and the participation of suppliers is requested. Type 3 is similar to the closed innovation model (within the open innovation paradigm, where value creation and capture are more problematic than before). Even though there is a nascent porosity between the innovation process and the business model at the company level with type 3, type 4 (an externally aware business model coupled with an externally supportive innovation process) contributes to blur internal as well as external boundaries of the innovation process; moreover the business model increasingly acquires as much attention as the innovation process with innovation becoming “a cross-functional activity”.

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Technology creation (or external acquisition) becomes a part of the innovative process which is no longer limited to it. But the real shift in the conception of the innovation process comes with type 5 (integration of the innovation process with the business model). In this type, the business model “plays a key integrative role within the company” (Chesbrough, 2006a, p. 123) and for joining internal and external innovation activities as well. The business model is considered as a “platform to connect and coordinate innovative activities(ib.), whether they originate from internal or external sources. Technology creation is no longer separated from the rest of the innovation process, but innovation itself becomes a business function and is supported by “cross-functional innovation teams”. It is as if there are no longer upstream and downstream activities, all of them interacting at each moment of the process through the business model as a basis for these interactions. With type 6 (an innovation in the business model in the course of the innovation process or the adaptive model), a dynamic view is introduced within the process. Beyond a deeper integration of the business models of each partner in the business network (the company, suppliers, customers), the innovation process finally requires a change of the business model(s) that support this very innovation process. In particular, Chesbrough insists on the fact that open innovation involves opening up the business model as well: “Companies must develop more open business models if they are to make the most of the opportunities offered by Open Innovation” (Chesbrough, 2006a, p. 107). A kind of virtuous circle of innovation is set in motion, with the current business model supporting the innovation process, from its technological to its economic features, which in turn results in an innovation in the corporate and associated network business model [10][10] Even if it was beyond the scope of this section to....

34

Like Chesbrough, some business model authors point out that the capacity of a firm to capture value from innovations will be seriously jeopardized without the capacity to create new business models, that is, unless there is innovation in the business model too (Teece, 2010, Chesbrough, 2010). Business model innovation may help to establish another source of competitive differentiation, “as some firms develop superior capabilities at experimentation and consequently can build better models more quickly than their slower counterparts” (McGrath, 2010, p. 260). However, as mentioned by Frankenberger et al. (2013), innovation in the business model is a new subject matter in research and even though its importance is now acknowledged, little research is available to account for the business model innovation process itself. Frankenberger et al. (2013) try to overcome this weakness and propose an integrative framework describing the steps in business model innovation [11][11] This initiative is worth highlighting as it is one.... Their analysis is interesting because it shows a similarity between the technological innovation process and the business model innovation process and also that the innovation process is not of a linear type. However technological innovation is left outside the innovation process of business models. Unfortunately, the dialectic process outlined by Chesbrough is not further developed in this approach.

Conclusion

35

While the business model literature questions the process of value creation and capture related to innovation, most authors remain discreet about their vision of the innovation process. Filling this gap, this survey of the business model literature has analyzed the vision of the innovation process underlying business model approaches. Thus it contributes to furthering our understanding of an increasingly complex innovation process in a context of more open innovation, within companies as well as at their borders, and to our understanding of the nature and the relationships between science, technology and the business model.

36

Chesbrough’s analysis of open innovation in 2003 was a first step, which challenged the linear model of innovation: in the open innovation paradigm, borders between innovative activities within firms and outside them become porous and technical features of technology creation is not the sole issue that needs to be dealt with. Even though the business model literature did not seem to have fully taken up the legacy of Chesbrough’s early work, it nevertheless appears as an important next step to renew the vision of the innovation process.

37

As we see it, one of the main results of the analysis provided by the business model approach is to insist on the core importance of the downstream stages of the innovation process, which reveal and exploit the economic value of new technologies, and to enlarge the possibilities for value creation and capture (inside and outside the firm), including in the scientific sphere. In other words, without a reflection on the business model, technical innovations are likely to fail. Moreover, the shift in the innovation paradigm may give the business model a more central function in the innovation process. Chesbrough (2006a) showed that in some types of business models which fully exploit the possibilities provided by the open innovation paradigm (open business models), the business model is given an integrative role in the innovation process as a platform which connects and coordinates innovation activities within and outside the company. We may even observe a dialectic relationship between technology creation and the business model: the business model is the vehicle for technology creation as well as value creation and capture from technology and conversely may be (should be) transformed in the course of the innovation process: the process is referred to as business model innovation and seems to be a promising field for further research. This dialectic relationship is supported by the information and communication technologies which increase the range of imaginable business models (Osterwalder, Pigneur 2003; Osterwalder et al., 2005).

38

Finally, Chesbrough together with the open innovation and the business model literatures have shown the co-existence of multiple pathways of innovation, suggesting that alongside the linear model of innovation which is still in use, a wide variety of models of innovation have developed within the open innovation paradigm.


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Notes

[1]

Chesbrough used the term paradigm following Thomas Kuhn “to refer to a widely accepted model for how a group of professionals pursue a complex activity, here industrial R&D” (Chesbrough, 2003, note 1, p. 197). The paradigm is a common thought that is historically situated whereas a model (here a way to organize activities) could survive after the shift in paradigm. This is the case of the linear model of innovation which has survived after the decline of the closed innovation paradigm.

[2]

Emphasis added.

[3]

Nowadays we speak of technological research.

[4]

As Huizingh (2010, p. 1) observed: “Henry Chesbrough’s 2003 book has gathered more than 1,800 citations in just seven years (Google Scholar, July 2010), and surprisingly a wide range of disciplines, including economics, psychology, sociology, and even cultural anthropology (…) have shown interest in it.”

[5]

For example, a research group on open innovation itself, another on business models, another on organizational design and boundaries of the firm, another on leadership and culture, etc.

[6]

More specifically, we will show below that while it does not completely disappear, it is no longer the most appropriate model of innovation within the open innovation paradigm.

[7]

Start-up companies are an example of such an outside pathway of innovation especially to make use of high-risk scientific discoveries.

[8]

We referred to some of these previous works when reviewing Chesbrough’s 2003 book.

[9]

See section “Further developments on open models of innovation and weaknesses of Chesbrough’s thought.”

[10]

Even if it was beyond the scope of this section to further develop intellectual property rights issues, it has to be noticed that in close association with the shift in the innovation process towards greater openness, there are huge changes in the management of intellectual property rights, which has become more complex and increasingly supportive of the entire process and thus part of it.

[11]

This initiative is worth highlighting as it is one of the rare contributions to the business model literature which rests on the discipline of innovation management (that is to say outside the boundaries of the research community to which authors belong).

Résumé

English

As the business model approach gains empirical and theoretical ground, it is worth analyzing the vision of the innovation process it conveys. Does the business model literature challenge the linear model of innovation? Does it contribute to a better understanding of current innovation processes? In this paper, we show that the linear model of innovation does not require any explicit reflection on the business model and supports a narrow conception of the innovation process. However, new insight is provided by Chesbrough within the framework of the open innovation paradigm. The business model literature appropriates Chesbrough’s legacy in an ambiguous way but nevertheless contributes to better conceiving the role of science, technology, and their relationships with business models in value creating innovation processes.
JEL codes: O30, M21

Key words

  • process of innovation
  • open innovation
  • business model
  • technology
  • science

Plan de l'article

  1. The linear model of innovation: no need for business model considerations
    1. The closed innovation paradigm and its typical model of corporate innovation
    2. The inherent economic potential of inventions
    3. A simplistic approach to the nature of and the relationships among science, technology, and business
    4. A renewed conception of innovation within the open innovation paradigm? Chesbrough’s contribution
    5. Research at the interface between many schools of thought
    6. The open innovation paradigm and its typical model(s) of innovation
    7. Further developments on open models of innovation and weaknesses of Chesbrough’s thought
  2. Business models approaches to innovation and Chesbrough’s 2003 contribution legacy
    1. A new vision of technology, science and their relationships to business
    2. From an ambiguous conception of the process of innovation to an adaptive platform of innovation
  3. Conclusion

Pour citer cet article

Rodet-Kroichvili Nathalie, Cabaret Katy, Picard Fabienne, « New Insights into Innovation: The Business Model Approach and Chesbrough's Seminal Contribution to Open Innovation », Journal of Innovation Economics & Management, 3/2014 (n°15), p. 79-99.

URL : http://www.cairn.info/revue-journal-of-innovation-economics-2014-3-page-79.htm
DOI : 10.3917/jie.015.0079


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