Emergence of Innovation-As-A-Service in Modern Value Chains.

• Author: Bhatia, Satinder

EMERGENCE OF INNOVATION-AS-A-SERVICE IN MODERN VALUE CHAINS

Value chains are driving international trade today with each country striving to be part of the value chain of different products and services. A value chain is usually described as the full range of activities performed to bring a product from conception to end-use and final recycling. In agriculture, for example, it has created inter--firm linkages in global agribusiness, placing production and processing in developing countries in the context of global agribusiness systems and pushing out the arguments of import substitution and infant industry protection that long ruled the world. An outward look, therefore, has become imperative forcing all countries to adopt global business practices that include sustainability of the production process. This emphasis on sustainability, in fact, is said to differentiate a value chain from a supply chain.

Moving ahead from the present scenario, is it possible that we can conceptualize of an innovation chain whereby innovators from different countries collaborate for different segments of value chain and innovation in each subsequent stage of value chain drawing inputs from innovations in preceding stages? Today, there is immense pressure on companies to innovate to cut costs and find new markets and each company has to go beyond focusing on only its own products and services. For long, though, each in-house innovation lab has been working in silos, keeping its work as secret as possible, so as to be able to finally obtain a product/process patent for the same. Even when there was collaboration for innovation, that collaboration was restricted to that between the supplier and the customer or financier or the technology provider. Rarely was innovation open to unrelated parties as secrecy was the key parameter in those collaborations. For long, patenting has been the sole means by which collaborating firms try to recover costs incurred on developing the innovation. Protection of intellectual property, therefore, has consumed a lot of resources. Is it possible that when innovators work on innovation relating to a value chain of a product/service (could be on request or innovators' own marketing) and when that innovation is adopted by the user firms, the user firms themselves pay the innovators on terms agreed between them? If that process is common to many firms, then the industry association could itself enter into a comprehensive agreement with those who respond to what may be called Expression of Interest to Lead the Innovation/Innovate for a specified process. This concept is similar to practices followed in syndicated lending where there is a lead banker who leads formation of the consortium of lenders. In that consortium of lenders, there may be partners who do not lend but contribute in other ways, for example, through offer of management services. Similarly, in the consortium of innovators, there may be parties who do not carry out any research but contribute in other ways such as provision of finance or technology or even a well-equipped innovation laboratory. The innovators may be shortlisted on the basis of criteria like research and innovation experience, qualifications of researchers/innovators and more importantly, recent innovations on which work has been / is being executed by the firm. What may differentiate a Consortium of Innovators from a Consortium of Lenders is the level of risk perception. Though banking is a risky business, innovations are likely to be riskier, even though limited to a specified process. Formation of consortiums in which the risk quotient is high, especially in the case of development of new products or new drugs, will usually be a difficult, arduous task. That is why, it may be better to include some institutional risk takers in the consortium; i.e., in the event that the innovation does not succeed, the risk takers bear majority of the costs of innovation. These are financiers who may be looking for equity ownership or agreed share of cash flows in case of success of the innovation. In a value chain, both suppliers and customers, even without the risk partners or the financiers can agree to bear the costs as both parties' businesses, stands to benefit if the innovation succeeds. These costs for them may be manageable as they relate to a single process only. Even then, if there are risk partners in the consortium, the cost sharing between the value chain partners can be drastically reduced. In case of development of new products such as new drugs, the costs of innovation magnify considerably. The risk partners of the consortium in such cases are likely to be institutions that have placed their bets on a number of products such that they have a reasonably high probability of at least one of these products becoming a commercial success. And in case of commercial success, their interests will be protected through special agreements on revenue-sharing (after meeting other partners' costs) or equity ownership. Multiple financiers bring down the overall risk considerably encouraging more partnership into the consortium. Even in the case of drug discovery/development, it may be possible for different organizations to collaborate in different stages of the discovery/development process. Drug discovery, as is widely practised, begins with formulation of therapeutic hypotheses. So, once the hypotheses are formulated (that would typically imply that compounds likely to lead to potential drug discovery have been identified), expressions of interest can be invited from those interested and qualified to work on the process. Governments, due to their large buying power, are particularly well placed to drive innovations that benefit the masses. Industry has also risen to the occasion by embracing the concept of open innovation.

GROWTH OF INNOVATION-AS-A-SERVICE

The world is, therefore, witnessing something new today--a disruption in innovation itself. Innovation-as-a-service is becoming a new norm in the market and helping both small and large firms to accelerate the process of innovation. Innovation endeavors are being increasingly hosted outside the company in accelerators or tech company premises. Companies like Paris & Co, Numa and Player are leading the open innovation process and organizing unique events like Innovation Datings between start-ups and large companies. At such events, start-ups pitch their concept in front of large companies who may be seeking innovation in a segment of their value chains. Player and other tech companies like Google, IBM, GE, etc. are trying to make collective innovation possible by enabling diverse experts such as scientists, researchers, artists, social entrepreneurs, start-ups etc. to all come together in a very creative journey. Outcubation is a term that has gained currency now especially for disruptive innovations that generally happen outside the company. Learning expeditions, co-creation on common platforms, corporate accelerators for start-ups, corporate capital ventures, Incubation is getting increasingly restricted to in-process innovations only. The shift from products to platforms and from ownership to access has widely expanded the participation to usher in innovation. The view of products as platforms for further customization and personalization has been embraced by manufacturers. Products are designed from the start as bases for third-party extensions from partners and others. Furniture maker Ikea, thus, allows users to post instructions, photos, labels, etc. on websites like thisismykea.com and ikeahackers.net and also connects artists and designers to remodel standard Ikea furniture. Today, products are being made IoT-enabled not just through in-built software but through third-party platforms. CEO A. G. Lafley of Proctor & Gamble (P&G) was the first one to introduce the concept of open innovation. IoT-enabled devices have enabled manufacturers to discover and correct errors from remote locations and have served to save time and costs. The 'Connect & Develop' model which was a result of this thinking worked well for the company. This kind of model may also be referred to as inbound open innovation in which the objective is to scan the environment for sourcing ideas or expertise in aparticular segment of the value chain. Outbound innovation, on the other hand, is commercialization of an internally or co-developed idea/expertise and helps in the participation in value chains of other producers. Both inbound and outbound innovations help build the intrapreneurship climate within an organization and, thereby, elevate the organization to one capable of both providing and receiving innovation-as-a service. Different types of innovation are possible with collaboration and this includes market innovation in which a company rents out its technologies to other companies in a bid to find new applications of its technologies in new markets. Thus, car companies may begin car hailing services or even food delivery services like Uber. Innovation is not left to chance these days; it is being managed actively and innovation-as-a-service has come in handy for many companies. SMEs that do not have explicit innovation processes and roles are expected to benefit greatly and accessing markets decisively.

LITERATURE REVIEW ON COLLABORATIVE INNOVATIONS

Powell, Koput and Smith-Doerr (1996) argue in their paper that the locus of innovation is found in networks of learning and that collaborations in innovations are closely linked to research and development alliances. When firms are able to transfer knowledge across alliances and locate themselves in network positions that enable them to keep pace with the most promising scientific or technological developments, it sets the ground for collaborative innovations...