Collaborative Innovations Sri Lankan Small Companies

Introduction

Most countries depend on innovation as a method for social and economic growth. The Global Innovation Index is considered as the main indicator of a country’s level of innovativeness. Investors are making business decisions based on a country’s rank in this index. Countries that are in the top of innovation index are high income countries and countries that are lower in the innovation index is low income countries. Sri Lanka is ranked 91 of the global innovation index of 128 countries in 2017.

This position is considered as lower in the table and it indicates that Sri Lanka has no strong innovation practices thereby may not attract investments for businesses.

Innovation is considered one of the key interests of research and business. There are many related sub disciplines of innovation, such as innovation management or front end innovation, back end innovation, closed innovation and open innovation. Innovation management is the process that determines what to innovate, how to innovate and when to innovate. Back end innovation is the internal process that deals with how the identified innovation is created inside the organization. Close innovation is the process of an organization carry out planned innovation with the resources they own or with acquisitions. Open innovation is the process of collaboration by a company with external parties to meet innovation objectives.

Traditionally innovations were done by companies with internal resources for innovation of new products, processes or business models. That kind of innovation is known as closed innovation open innovation considers firms should utilize both internal and external resources to carry out innovations (Chesbrough, 2006). Open innovation is defined as purposive inflow and outflow of knowledge to accelerate internal growth (Chesbrough, 2006). This approach is also named as outside in and inside out movements of technologies and ideas. Sometimes this approach is referred as technology acquisition and technology exploitation (Lichtenthaler, 2008).

Literature Review

In open innovation, external partnerships are good for the company, but there are challenges associated (Naqshbadi & Kaur, 2014). The challenges and the impact from the challenges may vary depending on the industry, size of the company and culture of the company.

New practices should be developed to benefit from open innovation (Dahlar & Gann, 2010). Traditional innovations are done in-house with no collaborations with outsiders. The motive for traditional innovation practices was to conserve the innovation successes. Since changes in business environment have become much faster, firms have understood the importance of innovating faster. To make innovations take place faster, collaborative innovations have become popular. In most cases, collaborative outsiders have to work with internal staff. Existing practice may not support outside partners to work with the company effectively. So changes may be required to the company practices. Successful commercialization efforts of company must be aligned to the business model of the company (Cherbourg & Rosenbloom, 2002). For Alignment of business model may require matching some aspects of the business models of partners. To match the business models of partnering companies, an understanding of how much each element is valued in that business model. If certain steps of the business model of the company are considered more important, it will be hard to carry out any compromise to match the business model of the collaborating partner. If other elements of the business model are considered not so important, matching that step with the other partner may be much easier. Deal with such challenges, may require a greater understanding of the changes that are required in the business model and the possible value to be created by the open innovation program.

In a study that was done to understand the objective of the partners, mismatch of objectives of partners is identified as potential hazard for partnerships (Chesbrough, & Kevin, 2007). Business objectives may vary broadly depending upon situation, various targets and goals to achieve. Many companies set objectives based on business plans, budgets and marketing objectives. In collaboration the two entities may not always have identical objectives that enhances outcome. In such situations the challenge is to see how to make sure those non matching objectives not to hinder the quality of collaboration. Also it is important to understand what causes these challengers, what are the underlines disciplines that help find answers to these challengers.

Firms benefit from the use of external knowledge integration and use of divers set of external partners during innovation process (Faems et.2010; Laurse & Salter, 2006). Use of external knowledge, as internal knowledge, is commonly known as diversity. When external partners collaborate with a company there may be conflicts and confrontations with the internal stake holders. But the objectives of use of such external parties are to optimize the open innovation outcome. Such possible conflicts need to be identified to deal with such issues in collaborations. Outcome of team behaviour is influenced by the contribution and interaction of each member in the group. Each member’s contribution to group behaviour is influenced by the cultural background of the each member. Group behaviour is influenced by the social identity of the member. Social identity of the group members depends on the social identity of the group (Tajfel & Tuerner, 1979).

Past studies found were mainly on management of open innovation. Those studies have discovered many aspects for management of open innovation. But it was hard to find any study with a purpose to study why open innovation is not popular. Other studies done on the global setting were with main objectives to know what are the open innovation practices, alignment of business models, adoption of new practices. Two studies done on open innovation in Sri Lanka were found. Study by Jayewardene and Surangi in 2010 had objectives to study the open innovation practices adapted by women business owners within SMEs, to evaluate the most famous modes used by the ventures for promoting open innovation practices within the ventures, to diagnose the trends that the SMEs are having in adapting open innovation practices and to assess the correlation between open innovation practices.

There are many advantages for companies when adopting open innovation such as (i) benefits from early involvement in new technologies or business opportunities; (ii) delayed financial commitment; (iii) early exits reducing the downward losses; and (iv) delayed exit in case it spins off a venture (Vanhaverbeke, W., Van de Vrande, V. and Chesbrough, H. 2008).

Research Problem

Sri Lanka government has established an entity “Sri Lanka inventor’s commission” in 1979 with the view of popularising inventions. Inventions are new developments of technology or use of technology in a novel way than before. Inventions can be registered as patented or industrial designs to protect the copyright of the applicant. Innovations are new ways of commercialization of either new or old technologies, processes or business models. Innovations do not necessarily be on new inventions. The term open innovation is not used commonly in Sri Lankan businesses. Also it is hard to find similar terms such as collaborative innovation, joint innovation and co development in Sri Lankan business environment. University of Moratuwa has several research laboratories established jointly with private companies. University of Colombo has one research laboratory established in collaboration with a private company. Except for these two universities, it is hard to find any other continual collaboration on innovations. Industrial Technology Institute, Arthur C Clark Institute, Sri Lanka Standards Institution are some of the organizations with capabilities of engineering some new technologies. Yet it is hard to find Sri Lankan companies get in to collaborations with these institutes. Therefore we can assume that open innovation is not very popular in Sri Lanka. Non popularity of open innovation is a reason for innovations to be lesser in Sri Lanka and also a reason why Sri Lanka is not higher in the global innovation index

Globally Most companies understand the advantages of open innovation such as lower cost, ability to make results faster and higher success rate. Despite this new trend, Sri Lankan companies don’t try to adopt open innovation practices. This study is expected to find out why open innovation is not popular in Sri Lanka.

It was hard to find any journal articles on innovations in Sri Lanka. It was also hard to find articles on open innovations in Sri Lanka. One of the few studies found was done on large companies. There were no studies to find on open innovation practices of small or medium size companies. Also there were no studies on the reason why firms don’t adopt open innovation. Thereby this study is expected to be significantly different from those of before.

Shanghai is the city of innovation for China. There are many innovation parks, technology parks in most cities of China, India and other countries. But Sri Lanka has no dedicated innovation cities .This indicate that innovation practices are not so popular in Sri Lanka.

The finding of this study can be used by all Sri Lankan companies. Despite the samples is from small and medium companies, finding may be applied to all companies. The companies can address the issues those prevent adopting open innovation practices. Addressing of such practices will help increase collaboration efforts and to have more arrangements will more parties who can enhance innovation efforts. More of such events will have more opportunities for successful innovations.

According to the, Behavioral theory of the firms (Cyert & March, 1963) firms set performance thresholds that the firms should meet. If performance is within acceptable limits, firms do business-as-usual. If aspirations are not met, firms initiate costly external search processes to remedy the situation (Greve, 2003). If the Sri Lankan firms are performing well, Sri Lanka should have achieved higher economic growth. But as per the web site of Asian Development Bank in 2017, since 2013 economic growth of Sri Lanka was less than 5%. This indicates that the firms are not doing well. Yet, firms are not found to be using external source of knowledge for advancement which is known as open innovation.

Past studies have identified that there are challenges in open innovation collaborations, (Naqshbadi & Kaur, 2014). Another study finds that new practices should be developed to benefit from open innovation (Dahlar & Gann, 2010). Mismatch of objectives of partners, is identified as potential hazard for partnerships (Chesbrough, & Kevin, 2007). One study tried to identify culture types those support open innovation in IT and financial companies in Sri Lanka (Kariyapperuma, 2015). Though behavioural theory of firms explains that firms seek external resources when they are not doing well. None of the studies explain why firms don not seek external help when it is needed to find answers to business problems. Having a lower innovation capabilities and competing with counties those have high innovation capabilities, Sri Lankan firms still don’t adopt open innovation practices. This phenomena is not explained in prior studies, thereby create knowledge gap as to what are the reasons for Sri Lankan companies to not to adopt open innovation.

Methodology

Some companies obtain services from technology and test provisioning entities under the control of the government of Sri Lanka. A few private testing laboratories work with foreign buyers. Those private testing laboratories have no capabilities for any new developments due to scope of their business. Only the state controlled research and development entities can do new developments. Companies seek services from these testing laboratories for new product developments. Some products such as water, construction material and electrical accessories must be tested and certified by these labs to qualify for selling in Sri Lanka. Thereby these institutes gain technological and financial capabilities for testing of products and material.
A sample about 50 companies, who obtain services for most development works from the technology development entities of Sri Lanka, will be developed. Top officials who manage these companies will be interviewed to obtain data related to any open innovation project done or why they don’t implement open innovation practices.

References

1. Chesbrough, H., Schwartz, K. (2007), Innovating Business Models with Co-development Partnerships: Research technology management Jan/ Feb 2007, pg. 55.
2. Chesbrough, H. (2004), Managing open innovation: Research Technology Management 2004, pg 23.
3. Gawer, A., Cusumano, M. (2014), Industry Platforms and Ecosystem Innovation, Journal of product innovation management, pg. 417-433.
4. Hossain, M., Kauranen, I., (2009), Open innovation in SMEs: a systematic literature review, Journal of Strategy and Management pg. 58.
5. Jayawardana, A., Surangi, H. (2010), Open innovation practices of woman owned handicrafts manufacturing SMEs. International research conference on research and business information.
6. Kariyapperuama, K., (2016) K., Role of organizational culture in open innovations, Vidyodaya Journal of Management, pg55.
7. Oliver, A., Bascavusoglu,E., Salter, A. (2016) ,Toward an aspiration-level theory of open innovation, Industrial and Corporate Change, Vol. 25, No. 2, pg 289–306
8. Richard Allan Collins, R, Kriz, A. (2013), Cultural intelligence (CQ) and its role in advancing open innovation alliances (OIA) between China and the West Journal of Chinese Entrepreneurship, Vol. 5 No. 3, 2013
9. West, J., Bogers, M., (2014), leveraging external sources of innovation: A review of research on open innovation, Journal of product innovation management, pg 814.
10. Van, V., Jeroen, J., Vanhavebeke, W., Rachemont, M., (2009), Open innovation in SMEs, Technovation, pg 427.
11. Vanhaverbeke, W., Van de Vrande, V. and Chesbrough, H. (2008), Understanding the Advantages of Open Innovation Practices in Corporate Venturing in Terms of Real Options. Creativity and Innovation Management, 17: 251–258.
12. Xie, X., Wu, Y., Zeng, S. (2016) A theory of multi-dimensional organizational innovation cultures and innovation performance in transitional economies, Chinese Management Studies, Vol. 10 No. 3, pg. 458-479.

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