Two common perspectives of openness in relation to innovation
Singapore Finance industry is strongest in the world. The finance sector of Singapore is engaged in wide range of financial services like, traditional lending, investment banking activities and deposit-taking functions. There were approx. 14 merchant banks, 3 financial companies and, 110 commercial banks in the financial sector, with total assets of S$413 billion. The country has the fourth leading foreign exchange market in the world after New York, Tokyo, and London (Lim, 2010). This report is designed to comprehend the perception of open innovation model and to know the importance of model for the Finance industry of Singapore. To know the importance of the model the three theories is been discussed in this report and in the end the report contain the recommendations related to open innovation model.
Open innovation Definition
Open innovation defined by Henry Chesbrough, according to him open innovation refers as a model, which is been used with a purpose of outflow and inflow of knowledge to hasten core innovation and enlarge the market for external use of innovation. Once the organisation adapts the open innovation, its confines become permeable and it will allow merging of the company resources with external co-operators (Chesbrough, 2012).
Open innovation model is developed to opening up the innovation process beyond company boundaries in order to increase innovation potential through active strategic use of the environment. Innovation therefore arise through the interaction of external and internal ideas, sales channels, processes, technologies with the aim of the company to develop promising innovative products, and services (Gassmann, Enkel & Chesbrough, 2010).
The open innovation model is designed and develops by the Henry Chesbrough in the model he defines how open innovation model will help the various industries in getting new ideas, and knowledge. In that particular model the Henry Chesbrough describe that in close innovation model the company can utilise only its internal strength and knowledge for activities of the company, but open innovation model will help the company in accruing the knowledge, ideas technology and other related aspects from different companies. The other companies, which the company is going to select for with the purpose of setting open innovation, will be those who are specialised in their specific field (Lee, Park, Yoon & Park, 2010). In open innovation the company can utilise the knowledge and ideas generated externally as well as they will use the knowledge and idea develop within the company (Lichtenthaler, 2011).
Open innovation model helps employees and business owners by pushing them and evolve the company. The model is the important driver of business achievement. The model is not very important aspect of any industry but if industry considers the open innovation while doing business activities it can provide competitive advantage to them.
One reason why open innovation model is essential is, it helps business owners push their business and themselves to grow. Open innovation model will make them better businessperson, better manager and a better people as innovation constantly challenges. The open innovation also motivates employees to think strongly about how they can fulfil their tasks related to job.
Chesbrough’s version of open innovation
Open innovation is important because it induces consumers to purchase more services and goods from the industry. By having conversation or by conducting surveys with the clients, the company can understand their problems and needs, and by using that information, the company can solve the problems of their customers. Finally, the open innovation model will take the business of the company to the next level (Gronlund, Sjodin, & Frishammar, 2010).
The open innovation model will help the company by creating the new services and products. The Finance industry is already in existence and its services are already available in market. The open innovation model will help the industry in focusing on selling the services rather than thinking about what else the industry can provide to their customers.
When the company want to create new and innovative services to their clients the open innovation model will very beneficial because the model of open innovation is the process, which is never ending.
The open innovation model will build up a relationship with the consumers and fans. With the help of open innovation model, the company get to know about what the particular community wants and then fulfil their desire requirement (West & Bogers, 2014).
The open innovation model will keep the employees of the company engaged. One of the main reasons behind employee’s disappointment is lack of feeling of ownership. By bringing open innovation model, the feeling of ownership will rise among employees.
- Strategic alliance
- National R&D for companies
- Market Pull
A strategic alliance (SA) is a written agreement between two businesses, which are ready to portion their resources to undertake an explicit equally benefits project. SA is less binding and less involved than a joint venture, in joint venture two businesses usually pool resources to generate a separate business entity. In SA, each business maintains its self-sufficiency while earning new opportunity (Hess & Rothaermel, 2011).
Transaction cost Theory
Transaction cost refers to the cost of service or product that is paid by the business through market, rather than paying within the business. In order to carry out a transactions it is essential for the business to discover the parties available to conduct negotiations, one who to deals with the company, one who to draw up the contract, to undertake the review needed to make sure that the terms of the contract are being observed (Joshi &Nerkar, 2011).
Resource based theory
It is an administrative framework used to regulate the strategic resources, which have the ability to bring comparative advantage to the industry. The firm can exploit these resources in order to attain maintainable advantage over their competitors. The RBV focuses administrative attention on the internal resources of business to identify assets, capabilities and competencies with the potential to bring superior competitive advantage (Gedajlovicv& Carney, 2010).
Knowledge based view
The knowledge-based theory of the business considers knowledge as the most tactically significant resource of a firm. Its exponents argues that because of knowledge based resources are typically become problematic to socially and imitate complex, varied knowledge bases and capacities among firms are the major factors of sustained superior corporate performance and competitive advantage (Czarnitzki & Delanote, 2012).
The benefits of open innovation model for Finance industry
To apply the abovementioned theories of strategic alliance in the industry the following steps are required to follow:
Select the proper partners for the intended goal: the first step which company need to apply the theories in the company need to select the best partner for a particular business. The partner should be the company or firm which is best in the market.
Share the right information: while entering into a contract, it is not important to trust the other party in order to share material information, the industry have to decide which information needs to be share and which not. An association could include complex interlacing of intellectual property form different research and development labs maintained by multiple partners.
Negotiate a deal that includes risk and benefits analysis for all sides: while entering into a contract it is important for the company to negotiate with the partners in relation to the risk and benefits associate with the business activity.
Mutual, flexible commitment: the collaborating with the small companies, individual scientists and academics, individual academics and scientists, where results of trials do not always seem flexibility and right on time is needed to reshape the analysis and searching for other outcomes requiring customised solutions.
The main issues which is been face by the Finance Sector of Singapore is managing the relationship with the alliance. The parties get into the agreement but still there are many issues rise between both the parties. Mainly the issues rise at the time when the company suffer from loss or work with high risk.
When the companies decide to enter into a strategic alliance with other company they need to first draft the agreement which is been sign by both the parties. At the time of signing the agreement the point of loss and risk, sharing need to be pre decided among the parties. By pre-deciding loses and risk sharing percentage the company can prevent itself from getting into trouble and the relation between the parties will remain good.
Research and development refer to a creative work assumed on the bases of systematic approach in order to increase the stock of knowledge and the use of this knowledge to device new applications. R&D is the assurance of resources by a business to do scientific research and the modification and alteration of research prototypes and idea aimed at the decisive growth of commercially feasible procedures and product. R&D is the process of discovering what services and goods are best for the company needs and developing those products in order to sell them (Rosenberg, 2010).
Basic research: It is a theoretical or experimental work, which is started initially to obtain new knowledge of the underlying foundation of observable facts and phenomena, deprived of any use in view, or particular application (Guinee, 2010).
Applied research: It is also innovative examination assumed in order to attain new knowledge. It is however, absorbed mainly towards a detailed practical aim or impartial.
Experimental Development: Experimental development is organised work, drawing on prevailing knowledge expanded from practical and research knowledge, which is directed to constructing new resources, products or plans, to installing new processes, systems and services, or to improving considerably those already installed or produced (Wang, 2010).
Transaction cost Theory
How are these theories applied to a firm in open innovation?
Foster ideas: the research team of the company or the hired company will sit down for brainstorming. The discussion related to the R&D may start with an itemisation and understanding of the concerns faced by the industry.
Focus ideas: when from brainstorming the company get the pool of ideas now it is a time to select one best idea to solve the issues and need to focus on the particular idea.
Develop ideas: when the idea has been systematically researched, it may conglomerate with a market survey to evaluate market readiness.
Prototypes and trials: Research may work carefully with product creators to understand and decide on how an idea may be turned into a practical product.
Launch: the service or product that started, as a research question will here at this stage is ready for its biggest test, the introduction to the market (Avio, Gorbi, &Regoli, 2015).
In Finance Industry, when it comes to the R&D the experts and employees are not aware about the process the partner country or company is going to follow. This will create the problem in the industry as the process of R&D is very complex and assess them the experts are not aware enough. Due to lack of knowledge, the industry can face many problems and the other company or country can easily take advantage over the Finance Industry of Singapore.
To solve the problem face by the Finance industry is, hiring employees who are aware about the technical aspect related to R&D process. The hiring of a particular employee can take a follow up from the partner company or country how much work is been done and how much work is left, what next they are going to use in R&D. Hiring of a employees is one of the way to solve the problem of research and development.
The term Market pull is developed to fulfil the needs of new product or for a solution to a problem at market place. A ranges of products or product are developed, to resolve the innovative need. Market pull start with questioning about product related questions to customers and then accordingly brings improvement to the product. Focus groups are often central to market pull, when testing a concept design is taken place (Lubik, Lim, Platts & Minshall, 2012).
Segmentation: the product or service that companies offers is designed to solve problems related to clients and to meet the requirements of customers. Market division is a skilled job which makes available the products of company at various segments as per the requirement of the clients. The market segmentation is based on various factors like behaviours, demographics, and desires. The factors can essence their marketing efforts on the clients who are most likely to buy (Girshick, et.al. 2014).
Marketing mix: the concept of marketing mix is to organise all characteristics of the promotion plan around the desires, habits, and psychology of the selected market. This orientation considers promotion theory of 4 P’s. The 4 P’s are product, place, promotion and pricing.
Strategic alliance
Life cycle: the product life cycle model proclaims that promotion strategies must progress along with a product from inception through undesirability. During the growth phase, the efforts moves to secure a wider audience by building brand loyalty, a stable supply chain, and surplus distribution channels as defences against competitors entre the market.
How are these theories applied to a firm in open innovation?
The above maintained theories can be applied into a company by involving three basic steps in the Market pull process, these steps are:
R&D: the first step which is been used in the process is the research and development of market. The company first need to identify the particular market in which they want to introduce their service of providing loan and other financial service. In that particular market they will conduct R&D in relation to the demand and needs of the customers presented in that particular market.
Production: production in relation to the company is the finalising the process of services in which they deals in, at this stage the company will make sure that the requirement of the selected market and target audience will be fulfil on the bases of standards set by the R&D conduct by the company.
Marketing: this is the last stage at which the company become ready to selling their said developed products and services in the market here the product which company is dealing is banking activities financial loans, gold loans and many more. The industry will find out the best method to promote product or service in the desired market (Huang & Sarigollu, 2014).
The main problem which industry is facing is targeting the wrong market. It is been identify that after conducting research still there is a chance that the industry may target the wrong market for business. Most of the time it is been noticed the industry may target the market which is not best suitable for the company.
While selecting the partners for market pull the industry need to be careful about the few aspects that are the company should have full knowledge of the field, while selecting the market they will share their plans with the company. The while selecting target market they should consider size of the segment, required market share to break even, competition in the segment, predictable profits margins in the segment, sales potential, and brand loyalty of present customers in the segment.
- Partner selection: it is important for the Finance industry to select the right partner because open innovation involve share knowledge, risk, time and investment in new concept.
- Constant activity: the knowledge of importance and constant progress are strong motivators of open innovation and the Finance industry of the Singapore need to follow that by introducing new ideas and concepts.
- Leadership: network of open innovation requires that the finance industry of Singapore will take initiatives to develop service or products and will ensure the collaboration among partners by implementing leadership.
- Openness in transparency and communication: The model in financial industry is all about network-wide understanding and trusts among partners.
- Balance among external and internal administration: Every partner of open innovation strategy need to maintain balance between external and internal management by availing effective communication.
- Finances: In finance industry, cost control is considered as extra-complicated task. In open innovation, it is important for fellow companies to establish their priorities.
- Managing tension proactively: Collaboration through open innovation is tough. Failures and problems put the association under pressure, it is essential for companies to meet and converse the problems (Allfoodexperts, 2018).
Conclusion
To conclude, the Finance Industry of Singapore can use the open innovation model to improve the present conditions. The open innovation model contains various theories but the three best theories, which the company can use to improve their working, are Strategic alliance, National R&D for companies, and Market Pull. With the help of these three strategies, the industry can attain their desired goals. The open innovation model will help the company in managing their business and employees effectively and efficiently. Beside these three theories, the company can use other theories also as per the requirement of the condition the area is not fixed to these three theories.
References
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