Respecting the Deal: Economically Sustainable Management of Open Innovation Among Co-Opeting Companies

Respecting the Deal: Economically Sustainable Management of Open Innovation Among Co-Opeting Companies

Riccardo Bonazzi (University of Lausanne, Switzerland), Arash Golnam (Ecole Politechnique Fédérale de Lausanne (EPFL), Switzerland), Yves Pigneur (University of Lausanne, Switzerland) and Alain Wegmann (Ecole Politechnique Fédérale de Lausanne (EPFL), Switzerland)
Copyright: © 2012 |Pages: 19
DOI: 10.4018/jesma.2012010102
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Abstract

Platforms like eBay allow product seekers and providers to meet and exchange goods. On eBay, consumers can return a product if it does not correspond to expectations; eBay is the third-party firm in charge of assuring that the agreement among seekers and providers will be respected. Who provides the same service for what concerns open innovation, where specifications might not be fully defined? This paper describes the business model of an organizational structure to support the elicitation and respect of agreements among agents, who have conflicting interests but that gain from cooperating together. Extending previous studies, the business model takes into account the economic dimensions concerning the needs of knowledge share and mutual control to allow a third-party to sustainably reinforce trust among untrusted partners and to lower their overall relational risk.
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Introduction

This paper deals with co-opetition in open innovation. Open innovation is innovation done outside the company (Chesbrough, 2003), whereas co-opetition occurs when two competitors cooperate on a specific project. Co-opetition can be defined by means of five components: players, added values, rules, tactics and scope (Brandenburger & Nalebuff, 1997).

Companies trying to align their strategic intents for cooperation usually face problems of coordination. It is important that each partner’s promises will be honoured, i.e., that partners are self-committing. If those companies are competing their lack of common knowledge leads to asymmetry of information and that does not allow for complete trust among them. When that happens, the promise done by one partner needs to be honoured, i.e., it is self-committing, and hoped to be believed by the other partner, i.e., it is self-signalling (Van Rooy, 2003). A trivial example taken from Urs and Bütler (2007, p. 174) could illustrate this situation: a person bringing wine to a dinner (red or white) with a second person cooking the meal (meat or fish). There are two suitable options exploiting the complementarities of the two assets (red wine-meat and white wine-fish), and players are assumed to be neutral in respect to them. Hence, the first person can propose to eat meat and drink red wine, knowing that if the second person agrees to cook meat that he will have no reason to cheat and to bring white wine. Let us assume that the first person prefers red wine, whereas the second person likes fish. Thus the players' assets are substitutes, meaning that either they drink red wine (and they should eat meat) or they eat fish (and drink white wine). In this case, the first person can propose that they eat meat and drink red wine for dinner and that they eat fish and drink white wine on the following dinner; however, that will work only if the second person believes that the first one will honour the promises (i.e., there will be compliance).

Our contention is that co-opetition works for projects where there is a high risk of failure, which a single company is not ready to stand, and where there is a promise of high potential returns for the company to be satisfied even if it receives only a part of it. According to Wagner and Layton (2007), there are two kinds of risk: unrewarded, which is a cost to be paid in advance to enter the game, and rewarded, which is the promise of potential returns. On the one hand, co-opetition aims at share the unrewarded risk among partners. On the other hand, this form of partnership requires high efforts for coordination that lead to costs of communication among partners and of control against cheating. Such costs are also known as transaction costs and are reduced when there is trust among allied companies. This can be achieved by giving proof of compliance, which it is here defined in a broader sense as the definition of the objectives of the partnership, the assessment of the failure risk and the enforcement of a set of controls.

According to what said so far this study proposes a framework to achieve the best trade-off between trust and control in order to achieve confidence at a minimum cost. A large amount of literature has focused on information technologies automatically negotiating among enterprises; hence, the focus here is on risk management and compliance. A viable tactic should be to define rules that would shape the alliance in a way that does not reward cheating (Laffont & Martimort, 2002). In this sense, Hagel (2002) suggests using the shared platform to shape the information exchanges among companies. Such a platform can be considered as a critical resource for a third-party enterprise in charge of the coordination among co-opeting companies. Thus, our goal is to sketch the business model of such third-party enterprises, answering the following research question:

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