Chapter 4. Innovation Networks: The Players and the Plays
Think about the last big home remodeling project you undertook. The project probably involved a number of actors—the general contractor, the subcontractors, the architect, the mortgage company or bank, the workers, and the material suppliers. Each of these actors, including you, played a clearly defined role in the project. And to manage the project, you needed to figure out how to coordinate and communicate with everyone. This might have included defining the contract terms, setting out the rules of engagement, and making sure the project stayed on track. A remodeling project, like any collaborative activity, brings together a set of independent players with clearly defined roles, who operate within a supporting system to manage the project.
Similarly, network-centric innovation requires participants in the network to play specific roles. These innovation roles are characterized by the types of activities involved or the type of innovative contributions that are required. Understanding the nature of these different innovation roles is important because they define the capabilities that players need to bring to the innovation project.
A collaborative project also requires a system to facilitate and coordinate the activities in the network. Someone needs to decide how the project will be managed or governed. And someone needs to manage the knowledge that is created and decide who owns what intellectual property.
In this chapter, we consider the different types of players in an innovation network, and the different types of activities that need to be performed to manage the network. We identify three distinct roles that network members can play—architects, agents, and adapters. And we highlight the three key elements of network management—network governance, knowledge management, and intellectual property management. We reflect upon the differences in these roles and activities based on the type of network-centric innovation model.
Players in Network-Centric Innovation
Even though an innovation network can be complex, there are only three key categories of roles that members (firms, individuals, and so on) can play in the network: architects, adapters, and agents (see Table 4.1).
Table 4.1. Types of Innovation Players
Architects
To construct a house, the first person you need to hire is an architect. He envisions the blueprint for the house and defines the key elements of how the rooms fit together into a logical design. And so it is with innovation networks. The architect is the central member (or set of members) who designs and influences the evolution of an innovation network. The architect has a ring-side seat at the innovation game because it carries out or influences activities that are central to the innovation agenda of the network. These include defining the innovation architecture and standards, and deciding how to commercialize the creative outputs of the innovation network. In other words, the architect envisions and implements the “architecture of participation” in the network.
The members playing the role of an architect typically tend to be positioned in or near the central part of the network with direct linkages to the other key players in the network. Due to the nature of their activities and contributions, typically, the architects assume greater innovation risks than other members in the network and also derive greater returns from their participation than other members.
Architects perform three sets of activities: trigger and catalyze innovation, envision and direct innovation activity, and “tend” the innovation network.
The first set of activities, “trigger and catalyze innovation,” relates to providing the initial impetus to create the innovation network and to define the innovation agenda. It also includes supporting and playing a catalytic role to build momentum and ensure success of the innovation project. For example, when the Human Genome Project (HGP) was launched, apart from the involvement of the U.S. government and scientific agencies such as the DoE and the NIH, a key entity was the U.K.-based Wellcome Trust. During the early 1990s, Welcome Trust played a central role in triggering the genomic research activities in the U.K. In October 1993, the Welcome Trust funded and co-sponsored the Sanger Institute (at Hinxton, south of Cambridge, U.K.)—the center later became one of the major sequencing labs in the international consortium. As the project progressed, Welcome Trust continued to play a catalytic role in the project by funding, bringing together, and facilitating the interactions of other key partners in the project, particularly in the U.K.
The second set of activities, “envision and direct innovation,” relates to providing structure and bringing coherence to the activities of participants in the innovation network. This might range from establishing and maintaining the innovation architecture to making the crucial decisions related to the evolution or the commercialization of the innovation. For example, IBM and Microsoft play this role in many of the innovation networks that they lead—whether it is IBM’s Power chip architecture or Microsoft’s .NET architecture. In the consumer product sector, companies such as P&G and J&J play a similar role through their commercialization capabilities—in effect, offering their commercialization infrastructure as a portal for bringing to market external innovative ideas and technologies.
The third set of activities, “tending the innovation network,” involves maintaining and supporting the innovation network as a whole. Consider the activities performed by a gardener. He or she decides which plants to seed in the garden and what position or place they should occupy in the garden. The gardener also nurtures and fosters the growth of the plants and makes sure that the weeds and other plants that might inhibit the overall health of the garden are identified and promptly removed. Further, a good gardener will also know the merits of companion planting—plants that complement one another should be planted close to each other. For example, in a vegetable garden, basil and tomatoes should be planted together. Basil acts as a fungicide and can slow the growth of or repel milkweed bugs, aphids, mites, and so on—thereby improving the growth and flavor of the tomatoes.
Similarly, the “gardening” role played by an architect in an innovation network involves managing the membership of the network and providing a nurturing environment for the network to flourish. Duties include promoting a shared set of norms and value in the network, communicating a common “world view” to network members, weeding out members who are detrimental to the health of the network, and bringing together members whose capabilities and resources complement one another. These gardening activities shape the overall success of the innovation project.
Some of the activities that underlie the preceding themes might overlap and some of the activities might appear in different forms in different networks. Furthermore, some of the players might carry out activities that relate to more than one of the preceding themes. Thus, we can identify different types of architects based on the nature of activities they assume in a given model of network-centric innovation. While we provide a few examples of these players in Table 4.1, we will identify and describe specific types of architects later on in the book (Chapters 5 to 8) when we discuss each of the four models of network-centric innovation in detail.
Adapters
Every queen bee needs a number of worker bees who take direction from her and perform a specific task in making a bee colony work. Similarly, every architect needs a set of firms who take direction and contribute to the network. We call these players adapters because they adapt to the direction of the architect and play a supporting role that is less central, but nonetheless important, in the network. Adapters are typically located away from the core of the network and maintain a limited number of ties or relationships with other members of the network.
The activities of adapters can be grouped into two broad themes: provide specialized knowledge or services and provide infrastructure services.
Some adapters bring highly specialized knowledge and expertise to innovation programs to solve unique R&D problems or to create novel components and services that complement, extend, or enhance the innovation. For example, Intacct Corp. plays such a role in Salesforce.com’s CRM platform network; it has developed and published a financial management add-on component that works on the CRM platform. Similarly, a scientist who taps into his/her specialized knowledge to provide a solution to a critical R&D problem posed by a company in an electronic R&D marketplace also plays such a role. Or, in an Open Source Software community, an individual might play the role of adapter by writing code that addresses a specific feature or requirement of the software product.
Adapters can also offer other support services in the network. Consider innovation networks in the semiconductor industry. In such networks, often, a member firm might assemble and offer design and testing libraries as infrastructure services to support the design and development activities of other member firms. For example, TSMC (Taiwan Semiconductor Manufacturing Company), the world’s largest foundry for semiconductor components, offers such a Web-based library of third-party circuit designs to the other firms—the fabless chip design firms—in its network.1 Similarly, in a network of individual inventors, companies such as Eureka Ranch play such a supportive role by offering market validation services for new product concepts.
Table 4.1 provides a few examples of the adapter role. We will describe these and other types of adapter roles in more detail in Chapters 5 to 8.
Agents
Innovation networks require very different sets of actors to come together. Instead of relying on serendipity and chance to bring these actors together, hiring a broker or an intermediary makes sense. We call these entities agents.
An agent is an innovation intermediary that mediates the interactions and innovation activities in an innovation network.2 Agents serve as brokers, bridges, or go-betweens in innovation networks. However, they can also play more subtle roles that go beyond simple brokering.
Agents perform three sets of activities in network-centric innovation: linking members or mediating interactions, technology brokering or mediating knowledge transfer, and innovation transformation or mediating the innovation.
The first set of activities relates to the traditional role of an intermediary—linking two network members who are not otherwise connected to one another. As in the case of brokering a real estate transaction or executive recruiting, agents also help to “search and filter” in the innovation landscape. For example, idea scouts are agents who troll inventor communities to seek out and filter new product concepts that might be of interest to a large client firm. When they find a promising idea, they bring together or connect the inventor and the client firm.
Agents can also facilitate or mediate the transfer of innovation-related knowledge from one member to another; that is, they can play the role of a knowledge or technology broker. This activity involves not just making connections between two members but also making connections between the different types of knowledge (or technologies) held by those two members, and thereby promoting an innovation that capitalizes on that connection.
A well-known knowledge broker is IDEO, a leading design-consulting firm. Consider IDEO’s work as an agent in transferring a “smart fabric” technology developed by a company called ElekSen to a new application area.3 ElekSen is the world leader in touch-sensitive interactive textiles, which are built around the combination of conductive fabric and microchip technologies. The company’s core technology is ElekTex, a unique electro-conductive, flexible, durable, and rugged “smart-fabric.” While the technology has diverse applications, its entry into the computer market was brokered by IDEO. IDEO brought together ElekSen and Logitech (the developer of computer mice, keyboard, and other accessories) and facilitated the transfer of the ElekTex technology to Logitech for application in the computer accessory market. Using ElekTex technology, Logitech developed KeyCase, a fabric case for PDAs that unfolds into a keyboard. Thus, in this case, IDEO’s role as an agent was not just to bridge two members, but also to serve as a conduit for the technology transfer.
The third set of activities, “mediating the innovation,” relates to the innomediary not just mediating the interactions or mediating the knowledge transfer, but mediating the innovation itself. For example, consider an agent that acquires an innovative idea from one member, builds on the idea, and then passes the transformed idea to another member for further development. Compared to the earlier activities, in carrying out this activity, the agent takes a position that is much closer to the innovation—and, in part becomes the innovator, too, rather than just an intermediary. We will identify such an agent role called the innovation capitalist in Chapter 6, “The Creative Bazaar Model.”
Implications of Innovation Roles
“What’s in a role?” you might ask. Or, “Why is it important to understand the nature of the different innovation roles in network-centric innovation?” An innovation role is an opportunity to participate in network-centric innovation. So, understanding different innovation roles allows firms to assess two questions: First, do we have what it takes to play this role? Second, what role should we play to maximize our gains from the innovation network?
To answer the first question, firms need to understand the important resources and capabilities needed to perform the role. As we will discuss in Chapter 10, “Preparing the Organization,” preparing the company for network-centric innovation involves identifying and developing these role-related organizational capabilities and competencies.
To address the second question, firms need to assess the risks and returns associated with the role. Understanding the nature of risks and returns is critical for a company to evaluate whether a network-centric innovation opportunity is worth pursuing even if it has the requisite capabilities to be a player.
In addition to these questions, there is a third reason why firms need to understand the innovation roles. Sometimes, firms might play different roles in different networks. Take the example of IBM. In the Power chip alliance network (power.org)—a network that is based on promoting and enhancing Power architecture—IBM plays a leading role. On the other hand, in the Linux open source community, IBM plays a more secondary and supportive role. Such multiple roles lead to the questions, “Do we need the same set of organizational capabilities for the different roles?” “Are there synergies between the roles that we can exploit?”
In Chapters 5 through 8, when we discuss each of the four models or archetypes of network-centric innovation, we will identify the set of roles that apply to each of the models and discuss their implications. This discussion allows us to analyze later in Chapter 9, “Deciding Where and How to Play,” an individual firm’s network-centric innovation strategy vis-à-vis the types of roles possible in that space.
Elements of Network Management
To run a network, the players need a set of systems and mechanisms to support and facilitate collaborative innovation. The three elements of network management are network governance, knowledge management, and IP rights management (see Table 4.2).
Table 4.2. Elements of Innovation Network Management
Network Governance
The word governance is often associated with policing or control. Network governance does involve monitoring and controlling potentially deceptive or opportunistic behavior of individual members that might be detrimental to the other members and the overall network agenda. But governance is more than just policing. It also involves creating an environment that is conducive to interacting and exchanging information and resources. The systems and mechanisms for governance shape the pattern of interactions between members, as well as the flow of resources between the members.4
Consider your personal network at the workplace—the network of colleagues and business partners. Your relationships, interactions, and exchanges in such a network are governed both by formal and informal mechanisms. For example, the organizational structure might specify or shape the nature of your relationships with other members in your organization. Your employment contract, any confidentiality agreements that you have signed, and the rules and procedures in your department might also govern your interactions with employees in the company and beyond.
On the other hand, the widely accepted but implicit “do’s and don’ts” might also shape your relationships and exchanges in the network. Remember the scene from the TV series Seinfeld when the character George Costanza is caught having sex with the office cleaning lady? When asked about his questionable tête-à-tête, George’s reply was, “Was that wrong? Should I not have done that? I tell you, I gotta plead ignorance on this thing, because if anyone had said anything to me at all when I first started here that that sort of thing is frowned upon. . . .” Well, as George soon found out when he got fired, some things are not written down or made explicit, but still guide the nature of the relationships and exchanges among members of an organization or a network. So would the potential threat of sanctions or losing credibility for pursuing activities that are beneficial to you but not necessarily beneficial for the overall organization. These constitute the more informal or social mechanisms of governance.
In innovation networks, both formal and informal mechanisms are relevant, though their relative importance depends on the specific model of network-centric innovation. Formal mechanisms for governance include legal contracts, partnership agreements, agreements on exchange rules and procedures, shared set of standards, and so on. For example, innovation networks led by companies such as Intel and Cisco often have a charter of member rights and responsibilities that a potential partner has to sign before being accepted into the network. Similarly, in the software industry, the standards and metrics specified by the Capability Maturity Model—developed and promoted by the Software Engineering Institute—has been used as a mechanism to coordinate and govern large-scale co-development projects. Formal mechanisms not only define what is acceptable but also provide a framework to coordinate interactions and exchanges.
When it comes to informal or social mechanisms for network governance, there are several choices. These include restricting access to the network, developing and establishing a macro-culture, imposing collective sanctions, and using other reputational mechanisms. One option is to restrict membership to players who have demonstrated their competence through past associations with existing members or their broader status in the industry or sector. For example, many country clubs use such a “gated network” approach. They restrict club membership to those people who are well-known to the existing members of the club (or who are influential members of the broader society). If network membership is based on such criteria, typically the members will have more commonalities in their expectations and attributes. Thus, monitoring and/or coordinating each and every exchange in the network will be much easier and less frequently required. In other words, the nature of membership itself serves as a governance mechanism.
Another alternative is to establish and promote a culture that reflects the overall innovation agenda of the network. This might range from shared business/innovation assumptions to norms and values that can bring about a level of coherence in the actions and decisions of individual members in the network. For example, how should members critique one another’s contributions in an open source community? The culture of a network gets defined over time through repeated interactions among the network, leading to a definition of “acceptable” behaviors and norms in the innovation network.
Collective sanctions and reputational systems form another set of governance mechanisms. Consider eBay. The ability of eBay merchants (that is, members) to rate one another based on the nature and the quality of the exchanges they have had with one another serve as the mechanism to govern future interactions in the network. Ratings that lower the credibility and reputation of the member can prove to be very costly in the longer run. Further, sanctions might also be imposed on eBay members who operate contradictory to the commonly accepted norms and values. Such collective sanctions can range from temporary exclusion from the eBay boards to outright ejection and loss of privileges to buy and sell on the network.
The threat of collective sanctions encourages members to adhere to acceptable behaviors. The more efficient the information flow about member behavior, the more costly it becomes for individual members to destroy their reputation in the network through deceptive behavior.
Which of the preceding possible governance mechanisms are appropriate for a specific innovation network? This depends on the type of interdependencies between members in the network—in other words, on the nature of the network-centric innovation model. Further, most networks require a portfolio of formal and informal mechanisms. In Chapters 5 to 8, we identify the appropriate portfolio of governance mechanisms for each of the four models of network-centric innovation.
Knowledge Management
Consider the case of Ducati Motor and its innovative customer community, which we described in Chapter 2. When Ducati engages its customer community to innovate in the design and development of new motorcycles, it does so by ensuring three basic aspects related to innovation and knowledge creation:
• First, Ducati realizes that interactions and dialogue in the customer community form the basis for new knowledge creation. Therefore, it facilitates such dialogue among the customers by establishing different types of online and offline forums that bring together the customers and by hosting their interactions.
• Second, Ducati also realizes that for such customer dialogue to be effective—for such dialogue to lead to a coherent set of innovative ideas—customers have to “understand” one another’s ideas. This requires a common vocabulary. To achieve this coherence, Ducati provides a set of design templates and standards for the customer community.
• Ducati also understands that, in order to convert customer ideas into products, customer knowledge has to be transferred into the organization and interpreted and integrated with other design knowledge. For this, Ducati has established new organizational roles as well as created new programs staffed by product engineers to enable effective and appropriate utilization of customer innovation.
Three knowledge management themes underlie Ducati’s customer-based network-centric innovation initiative: dialogue, common vocabulary, and transfer and interpretation.
The preceding three themes are not, however, unique to Ducati’s innovation context. They apply equally well to all other network-centric innovation contexts. In fact, the three themes reflect the three broad knowledge management activities that must be supported in any innovation network: knowledge generation, knowledge codification, and knowledge utilization.5
The systems and mechanisms established in the innovation network for managing knowledge have to support these three activities. For example, as interactions among network members increasingly form the avenue for knowledge generation, systems and mechanisms that “connect” members and facilitate rapid and frequent interactions assume importance. These need not always be online or information technology–enabled communication. For example, Intel conducts compliance workshops (called PlugFests) that bring together vendors of different hardware products and components that are based on Intel’s technology platform.6 These workshops provide the context for the dialogue to occur among these companies (that is, Intel’s network members) to ensure that the different products (or prototypes) are compatible with one another and interoperable. The knowledge generated through these interactions is taken back to individual companies and incorporated as design modifications.
Similarly, the need to codify (or make explicit) the knowledge that is generated allows sharing and building on such knowledge. Such codification is enabled by a common vocabulary ranging from technology standards and technology architecture to common market metrics.
Finally, for members to utilize the knowledge generated, systems and mechanisms for transferring such knowledge to appropriate members in the network need to exist—that is, members have to know where the knowledge is located and how to access such knowledge. Further, after the knowledge is transferred by a member, it has to be interpreted and integrated within the member’s own context. For example, in the case of Staples we discussed in Chapter 2, the company acquires new product concepts from individual inventors through a range of mechanisms, including product scouts and idea contests. And after the idea is acquired, Staples has to interpret and integrate it within its own context—a context that is defined by its target market, existing brand portfolio, and its commercialization infrastructure.
Facilitating the generation and flow of knowledge is a critical role in managing network-centric innovation. As the number of members in the network and the diversity of their expertise (or knowledge base) increase, so does the complexity and importance of the systems and mechanisms to facilitate knowledge management in the network.7
There are different types of knowledge management systems and mechanisms, and their appropriateness depends on several factors, including the “distance” between members, the nature and extent of overlap of the knowledge transacted, and the nature of the innovation. In Chapters 5 to 8, we identify and discuss specific knowledge-management mechanisms that apply to each of the four models of network-centric innovation.
IP Rights Management
The history of intellectual property (IP) can be traced back to ancient Greece in 700 B.C., when the chefs in Sybarites (a Greek colony in what is now Sicily) were granted one-year monopolies on the preparation of a “new or delicious dish.”8 Other elements of modern IP rights such as patents, trademarks, and trade secrets were evident in ancient Rome as well as during the Renaissance period. For example, laws were enacted in Rome in 100 B.C. to protect trademarks on cloth, lamps, glass, and livestock. Similarly, the first patent ever for a technical invention was granted in 1421 to Filippo Brunelleschi, the architect of Florence’s cathedral, for a new and efficient way to transport marble by riverboat.9 These and other examples indicate that the economic and societal motives to protect and manage rights associated with creativity and invention has a long history.
Although these systems and mechanisms for managing IP rights have evolved considerably in form as well as format over the centuries, their fundamental basis has perhaps remained largely unquestioned—that is, until very recently. With the emergence of “free software” and “Open Source Software” in the 1980s and 1990s have come fresh and radically new perspectives and interpretations regarding IP rights management. And the primary motivation for these new perspectives has been the increasing level of collaboration in innovation.
Indeed, one of the most vexing issues that companies face in collaborative innovation projects is that of partitioning the rights to the innovation. In other words, who will own what? Or who gets what share of the profits from the innovation? As the numerous patent-related and other IP law suits and cases have shown, issues related to IP rights management is tricky even with two collaborators. If we throw in a few more collaborators, the issue becomes much more challenging. Thus, systems and mechanisms to support and facilitate IP rights management are of utmost importance for all participating members in network-centric innovation.
The extent to which a company (or network member) can capture the returns from its innovative contributions is a function of the appropriability regime—the term economists use to indicate the ways and means of protecting the innovation and its profitability. The legal IP regime is comprised of four instruments: trade secrets, patents, copyrights, and trademarks. Patents offer the lowest duration of protection for the innovation, followed by copyrights, trade secrets, and trademarks. In addition, IP contracts form another avenue for companies to derive returns. For example, IP licenses specify the terms of IP use between two or more entities.
In certain contexts, such legal instruments might have limited effect; instead, the nature of the technology or the knowledge that underlies the innovation might serve as a more practical appropriability regime. For example, in the surfing equipment industry, a key knowledge in the manufacturing of surfboards relates to the rigid polyurethane foam cores, or the “blanks” as it is known in the industry. The dominant player in this market until very recently was Clark Foams. The company was highly innovative and had perfected the creation of blanks to the extent that most other surfboard makers depended exclusively on Clark Foams. Indeed, Clark Foams had 80% to 90% of the U.S. blanks business for custom-shaped surfboards. Clark Foams was led by Gordon “Grubby” Clark, often referred to as the “Howard Hughes of surfing.” The success of Clark Foams was not due to the protection of its intellectual assets by legal instruments such as patents or trade secrets; instead, it was the highly tacit knowledge involved in the very process of making the blanks. As one surfing industry commentator noted, “Blowing foam is a black art.”10 In other words, in the case of Clark Foams, the nature of the technology (knowledge base) served as the main element of its appropriability regime. In short, the availability, strength, and effectiveness of the appropriability mechanisms—whether legal instruments or otherwise—can vary across industries and sectors.
Another limitation of the traditional IP regime became obvious with the emergence of collaborative innovation structures and the emergence of new digital technologies to acquire, access, modify, and distribute innovative knowledge. Such radical changes in innovation contexts brought about by new technologies tend to weaken the controls that can be exercised through traditional legal instruments.
The Open Source Software community took the lead in addressing the demand for new IP regimes and introduced several innovative licensing schemes that enable software developers to publish the source of their product and allow others to use it or modify it on flexible terms. For example, the GNU General Public License (or GPL) is an early and perhaps the dominant licensing scheme in the Open Source Software arena. A GPL license grants the recipient the rights to use, modify, improve, and redistribute the product. And, importantly, GPL seeks to ensure that the aforementioned rights are preserved in the derivatives, too; that is, it is a “copyleft” license. Unlike this license, the more permissive “free software” licensing schemes such as the BSD license not only grant the rights to use, modify, and/or distribute the software product, it also allows derivative works to be redistributed as proprietary software (that is, it is a “copycenter” license). Apart from these two broad licensing schemes, numerous other “open” licenses have been developed—for example, Mozilla Public license, Common Public license, Open Source license, OpenSSL license, and Eclipse Public license—either pertaining to particular products or to particular parts of the open source community.
These alternative licensing schemes have paved the path for the development of innovative IP regimes in domains outside the software industry. Most notable in this regard are the Creative Commons and the Science Commons initiatives that have extended many of these IP rights management concepts to the domain of arts, entertainment, sciences, and so on. For example, Creative Commons has taken the notion of copyleft and introduced six different licensing schemes that vary on the nature of the attribution and the rights granted to the recipient for derivative works and commercial use.11
As the application of the Creative Commons license and other such emerging licensing schemes is rapidly expanding into other domains—from music and arts to journalism, academic curricula, and medicine—the options for managing IP rights in different network-centric innovation contexts are also expanding. Accordingly, in this book, we consider a range of IP rights management systems—from traditional legal instruments to the newer and more flexible licensing schemes—and, identify and describe the appropriate portfolio of mechanisms for the different models of network-centric innovation.
Conclusion
In this chapter and the previous chapter, we presented a framework for analyzing the structure and the opportunities in the emerging network-centric innovation landscape. We first defined the two dimensions of network-centric innovation and identified four archetypical models of network-centric innovation. Next, we offered a typology of innovation roles and also identified the three elements of the network management infrastructure—network governance, knowledge management, and IP rights management. In subsequent chapters, we apply this framework to delve deeper into the different models of network-centric innovation.