Risk and Models of Innovation Hubs: MIT and Fraunhofer Society

Risk and Models of Innovation Hubs: MIT and Fraunhofer Society

Mohammad Baydoun (Millennium Development, Beirut, Lebanon)
Copyright: © 2015 |Pages: 10
DOI: 10.4018/IJRCM.2015100102
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The purpose of this article is to compare two innovation hubs with two different models each of which was able to foster innovation in its context and understand impact of these models on risk in innovation research. They both closed the distance between academia and industries through establishing partnerships with these industries in order to find solutions for their problems through practical research. These two innovation hubs are Massachusetts Institute of Technology and Fraunhofer Society for the Advancement of Applied Research. Analysis of these two successful case studies shall help in revealing learned lessons that could benefit other research institutions in the future.
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Literature Review

In the following, we will discuss the two principal theory bases used by scholars to explain the outsourcing decision: transaction cost economics (TCE) and the resource-based view (RBV).

In the context of logistics and IT outsourcing in addition to innovation governance, TCE has been the central model in the discourse of buying verses making research (Geyskens et al., 2006). TCE perceives firms and outsourcing as alternate arrangements. Internal R&D will be preferred where outsourcing costs are excessive; conversely, outsourcing will be selected when its costs are low (Williamson, 1975; Williamson, 1985). When outsourcing costs are high, internal R&D is preferred due to three main reasons (Williamson, 1985; Rindfleisch and Heide, 1997). First, under internal organization, firms have the ability to measure outputs of research as well as behavior of people, whereas in the case of outsourcing, it is only possible to measure output. Second, internal organization allows for longer term rewards like promotions than contracting typically does. Finally, the process of social interaction in organizations would better help in fostering analogy of reaching research goals.

The RBV has also been used to explain the outsourcing behavior of firms. The RBV views resource heterogeneity as a predecessor to performance and diversification. Resources can be rare, precious and not substitutable (Barney, 1991) and include different assets, capabilities, organizational processes and knowledge controlled by a firm. Firms possess diverse resources and it is both costly and time demanding to develop these resources. RBV promotes outsourcing activities that are not central to their resources, while shielding the resources that are critical to competitive advantage (Odagiri, 2003). On the long run, complete reliance on outsourcing can erode a firm’s resources (Cavusgil et al., 2003).

Despite the fact that literature on research outsourcing has progressed in relation to the reasons for outsourcing as illustrated above, little was done to reveal lessons to be learned from case studies that were able to successfully establish a link between research and industries. Therefore, in this article we will analyze the cases of MIT and Faunhofer; especially that each of these cases is following a different research approach.

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