PNR Paper

Coopetition for radical innovation

Paavo Ritala & Liisa-Maija Sainio (2014) Coopetition for radical innovation: technology, market and business model perspectives, Technology Analysis & Strategic Management, 26:2, 155–169, DOI: 10.1080/09537325.2013.850476

In the last 40 years, the financial value of tangible and intangible assets have completely reversed. Tangible assets are physical things (e.g.: machinery, buildings, inventory), whereas intangible assets are the results of intellectual work (e.g.: patents, trademarks, goodwill, brand recognition). As intangible assets become increasingly important, the costs of R&D rise and technological synergies become more common across industries, it is not surprising to see coopetition: competing firms collaborating in creating and bringing innovations to market.Source: Annual Study of Intangible Asset Market Value, Ocean Tomo

Bottom line: Coopetition is linked to technological incrementalism, to business model radicalness and has no effect on market radicalness. Radical innovations is more easily achieved with other types of partners that are further away from the technology domains of direct competitors.

How they did it: The data was collected in 2008–2009 by distributing a survey to R&D-intensive firms operating in Finland. 209 companies in different industries, such as manufacturing, IT and electronics, wholesale, retail and logistics, construction and infrastructure and services, answered the survey.

Theoretical background: Radical innovations have the potential for Schumpeterian “creative destruction”. As we saw in the paper, “Schumpeter’s Ghost: Is Hypercompetition Making the Best of Times Shorter?”, creative destruction is defined as “incessant product and process innovation mechanism by which new production units replace outdated ones” andthis mechanism creates new profit pool, which is the premium put upon successful innovation. Creative destruction is not only technological, but is also related to the market and business model perspective.

  • Technological radicalness tends to be what companies strive to achieve in the classical model of creative destruction. It is a clear advance in the state-of-the-art of the current technological level, offering better functionality and/or performance;
  • Market radicalness refers to the uncertainty related to customer acceptance of the new innovation;
  • Business-model radicalness has the potential to change industry landscapes, requiring adjustment efforts and large investments from companies.

These kinds of radical innovations are large in scope and strategically important for the renewal of the company, but also risky and uncertain. In order to create radical innovations, firms need to use a wider range of information sources and need to leverage different types of collaborative networks and partners. Firms tend to collaborate together in the process of innovation because it allows them to create more value than if the relationship did not exist. Furthermore, firms can integrate similar and complementary resources to create joint value.

Final words: Coopetition and innovation radicalness depend on the dimension: technology, markets, or business model. The authors found that that coopetition is negatively related to technological radicalness and positively related to business model radicalness. Because technological collaboration among competitors is removed from the customer, it is more likely to lead to incremental innovation. On the other hand, marketing and business model collaboration relate more to value capture and differentiation which is likely to lead to radical innovation. In summary, business leaders need to have an ecosystem view of their business and be open to collaborate with businesses outside of their domain.