Flying high? The role of coopetition for radical
innovation in established aerospace firms
H.H.S. Kroon – S2497859
Master Thesis – Final Version – MSc BA – Strategic Innovation Management Supervisor: prof. dr. D.L.M. Faems
Co-assessor: asst. prof. P.J. Steinberg
Faculty of Economics and Business – University of Groningen Date: 25 June 2018
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ACKNOWLEDGEMENTS
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ABSTRACT
This paper examines how established aerospace firms organize their coopetition activities for radical innovation. This research angle was chosen due to the current ambivalence in the coopetition for innovation literature, as well as a specific lack of insights with regard to the role of coopetition for innovation in established firms. By means of a multiple case study taken from the aerospace industry, I uncovered the industry specifics, innovation characteristics, and their relation to how coopetition is organized for innovation in aerospace. The main finding is that coopetition in aerospace is dominantly present in the precompetitive domain, mostly geared towards incremental innovation. By engaging in coopetition precompetitively, specific technologies are jointly developed at low technological readiness, which saves costs, builds critical mass and does not bring along negative side effects associated with intellectual property. Despite deviating findings, this research adds to the literature by providing an in-depth analysis of precompetitive coopetition and how this relates to industry and innovation characteristics. This research supports managers by demonstrating the strategic potential of precompetitive coopetition in a high technology industry.
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1. INTRODUCTION
Over the last six months, both aerospace industry giants Airbus and Boeing announced the intention to collaborate with smaller rivals Bombardier and Embraer respectively. Reportedly, both aerospace firms primarily aim for these collaborations to add sales to the smaller plane segment, ranging from 70 to 130 seats. However, analysts believe these competitive collaborations do not stop at sales. Technical overlap could be created among the players, in turn improving their strategic position. Furthermore, with competitive pressures from China and Russia growing until 2030, it is expected that these alliances can help spread risk (Brito, 2018; Hepher and Haynes, 2017).
The type of collaborations explicated above concern “simultaneous cooperation and competition between firms”, also known as “coopetition” (Bengtsson and Kock, 2014, p. 180). Coopetition has been of increased academic interest since the seminal work of Brandenburger and Nalebuff (1996), which led to a growing body of literature on the topic (Bouncken et al., 2015). As the collaboration announcements by Airbus and Boeing reflect, coopetition is executed for various reasons. In addition to gaining market power, increasing sales, or improving supply chain relations, coopetition has also been practiced for innovation purposes (Bouncken et al., 2015). This is no surprise, since coopetition helps to “overcome knowledge asymmetries” concerned with innovation (Bouncken et al., 2015, p. 585). This paper attempts to provide insights to the field of coopetition for innovation. More specifically, the role of coopetition for the development of radical innovation in established firms will be examined. Radical innovation concerns “the development of new products which incorporate a substantially different core technology and provide substantially higher customer benefits relative to existing products in the industry” (Chandy and Tellis, 2000, p.2). The majority of established firms struggle to develop radical innovations, despite the fact that established firms usually have the possibility to invest a significant amount of resources into their innovation activities. This struggle was posed the “incumbent`s curse” by Chandy and Tellis (2000).
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development of radical innovation (Cassiman, di Guardo and Valentini, 2009; in Bouncken et al., 2015). All in all, the influence of coopetition on radical innovation is not yet completely understood. The ambivalence in this relationship is suggested to arise from the contradictory relationship which is inherent to coopetition (Vanyushyn et al., 2017).
Interestingly, when considering both current literature on coopetition for radical innovation and the incumbent`s curse as posed by Chandy and Tellis (2000), currently no in-depth insights exist about the role of coopetition in established firms with regard to radical innovation. An attempt to deliver these insights may enlighten the ambivalent relationship as currently posed in the literature. Therefore, this study attempts to further deepen the research stream on coopetition for innovation, as it examines the role of coopetition for established firms on radical innovation. Keeping previous literature in mind (e.g. Yami and Nemeh, 2014), coopetition in established firms for radical innovation could vary, since established firms may for instance bring along more bureaucracy (Chandy and Tellis, 2000), potentially needing organizational measures. Therefore, the following research question is developed:
“How do established firms organize their coopetition activities in order to develop radical innovation?”
By examining the role of coopetition in established firms, it is approached more specifically, leading to a more detailed understanding of how coopetition influences innovation outcomes within firms. As the research question seeks for in-depth insights regarding the relationship between coopetition and radical innovation, a multiple case study design was opted for (Eisenhardt, 1989). Both semi-structured interviews and secondary data are data sources for these cases. The research is set in the aerospace industry, which, as shown earlier, displays coopetitive relationships and is very dependent on innovation (Varga and Allen, 2006). Additional insights may be expected from this industry, as secrecy is considered an essential protection mechanism for aerospace firms (Niosi and Zhegu, 2005), while coopetition implies “opening up” to some extent.
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2. OVERVIEW OF EXISTING LITERATURE
As discussed in the previous section, coopetition can be engaged in for various objectives (Bengtsson and Kock, 2014). As a consequence, various streams of research on coopetition have emerged. This section will however specifically focus on the stream of coopetition for innovation. Coopetition, which concerns “simultaneous cooperation and competition between firms” (Bengtsson and Kock, 2014, p.180), has frequently been characterized as having a paradoxical nature (e.g. Ritala and Hurmelinna-Laukkanen, 2013). This nature leads to tensions natural to the coopetitive relationship (Tidström, 2014). Consequently, coopetition carries its implications for innovation outcomes. The following section explicates both positive and negative implications of coopetition for innovation, along with recently identified contingency factors. Similarly, literature on coopetition and radical innovation in specific will be addressed. Please consult Table 1 for a graphic overview.
2.1 COOPETITION AND INNOVATION
Throughout the last decade, various researchers investigated the influence of coopetition on innovation. Many researchers observed positive effects on innovation (Gnyawali and Park, 2011; Park, Srivastava and Gnywali, 2013; Park, Srivastava and Gnyawali, 2014; Pereira and Leitao, 2016; Ritala and Hurmelinna-Laukkanen, 2013; Velu, 2015; Wu, 2013). Despite many suggesting a positive impact, evidence up to this point has been marked inconclusive (e.g. Ritala, 2012; Rodriguez, Nieto and Santamaria, 2017). This inconclusiveness is represented by other researchers stating that coopetitive relationships are very risky and often fail (Park and Russo, 1996; in Ritala, 2012). Some researchers even observed opposing, negative influences of coopetition on innovation (e.g. Mention, 2011; Nieto and Santamaria, 2007). Due to this ambiguity, an in-depth breakdown of the positive and negative implications from coopetition for innovation is pivotal for understanding this field of research.
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coopetition, firms can better deal with external pressures such as technological change and high R&D costs.
On the other side of the spectrum, coopetition has been argued to potentially be detrimental for innovation. Most of these negative arguments originate from the discussion of a “race to learn”, as described by Hamel (1991, p. 85). In this ‘race’, firms in the coopetitive relationship attempt to balance the degrees of knowledge sharing and knowledge protection towards their end. In other words: firms attempt to learn as much as possible from their alliance partner while protecting their core knowledge from that same alliance partner. Consequently, opportunism and knowledge leakage are frequently documented hazards related to coopetition (e.g. Cassiman, di Guardo and Valentini, 2009; Park, Srivastava and Gnyawali, 2014). Even though opportunism and knowledge leakage are commonly desribed in the general alliance literature, authors have argued that these hazards are particularly salient in coopetitive relationships (Oxley and Sampson, 2004,). In order to safeguard investments from those hazards, Luo, Rindfleisch and Tse (2007, in Wu, 2014) state that substantial resources need to be dedicated to the collaboration. These protective safeguards do however make the focal firm more rigid (Kang & Kang, 2010).
2.1.1 A contingency perspective on coopetition for innovation
Since these positive and negative implications do not appear to equally apply to each firm, it remains unclear how coopetition influences innovation outcomes. Therefore, other aspects may influence the potential of coopetition for innovation (Ritala, 2012). Accordingly, researchers started to adopt a contingency perspective in order to provide nuance to this discussion, relating to four aspects of the coopetitive relationship.
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Second, various contingencies are distinguished related to the competitive positioning of partners. Park, Srivastava and Gnyawali (2013) provided a key distinction concerning the balance in a coopetitive alliance. Within a coopetitive alliance, both the cooperation and the competition element exhibit a degree of intensity. According to the study, competition should ideally be moderate, while cooperation should be high for innovation (Park, Srivastava and Gnyawali, 2013). If this balance is properly distributed, “a pressure to improve” is exerted by competition (Vanyushyn et al., 2017, p. 4). Along similar lines, research stressed the importance of several types of proximity between firms for innovation. Next to the importance of cognitive and technological proximity for innovation development, social proximity was found to be key for reducing tensions arising from coopetition (Jakobsen and Steinmo, 2016). Moreover, the amount of knowledge similarity between firms (relating to absorptive capacity) was also found to be significant (Rodriguez, Nieto and Santamaria, 2017).
Third, academics emphasized firm characteristics as contingency factors. Coopetition experience (Park, Srivastava and Gnyawali, 2014), geographical location (Rodriguez, Nieto and Santamaria, 2017), technological capability of the firm and the presence of alliances with universities (Wu, 2014) have all proven to influence the innovation outcomes of a coopetitive relationship.
Finally, some external or more indirect contingencies have been researched: Ritala (2012) argued for the importance of the environment of a coopetitive relationship. After identifying the three environmental moderators of market uncertainty, network externalities and competitive intensity, it was found that all these external influences should be highly present for coopetition to positively influence innovation (Ritala, 2012). Somewhat comparable findings were published by Bouncken and Kraus (2013), who found that technological uncertainty is affecting coopetition innovation performance. To end with, Vanyushyn et al. (2017) showed that the positive effect of international coopetition for radical innovation is dependent on the magnitude of organizational adjustments that is needed.
To conclude, coopetition is a form of collaboration that is difficult to manage for innovation, due to tensions arising from the paradoxical nature of coopetition (Ritala and Hurmelinna-Laukkanen, 2013). Consequently, coopetition brings along both positive and negative implications for innovation, which however do not equally apply to each firm. Therefore, recent research initiated a contingency perspective to provide a more complete understanding of how coopetition should be managed for innovation. The next section will provide a more specific overview of coopetition for radical innovation.
2.2 COOPETITION AND RADICAL INNOVATION
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light on this particular debate, defining radical innovation and explicating its characteristics is pivotal for further understanding of this research. This research adopts the definition of radical innovation as posed by Chandy and Tellis (2000, p.2): “the development of new products which incorporate a substantially different core technology and provide substantially higher customer benefits relative to existing products in the industry”. Radical innovation is usually characterized by a high amount of both risk and uncertainty (O`Connor and Ayers, 2005). Radical innovation can also include the restructuring of entire industries and can play a critical role for the growth of firms and entire economies (Tellis, Prabhu and Chandy, 2009). Therefore, radical innovation is something that has a very extensive influence on firms and society. Taking these characteristics into account, it is implicit that coopetitive relationships for radical innovation can be very difficult to manage. However, keeping the incumbent`s curse (Chandy and Tellis, 2000) and potential profitability in mind (e.g. O`Connor and Ayers, 2005), radical innovation provides ample incentive for research in the context of coopetition.
Several researchers acknowledge the positive influence of coopetition on radical innovation (e.g. Quintana-Garcia and Benavides-Velasco, 2004). Bouncken and Krauss (2013) observed a positive effect of coopetition on radical innovation within the context of SME`s, while Ritala and Hurmelinna-Laukkanen (2009) provided an extensive analysis proposing that situations of coopetition exist, in which there is “value-appropriating potential” for radical innovation (p. 825). Four years later, the same authors provided additional factors to bear in mind with regard to radical innovation. The appropriability regime and absorptive capacity were found to play a role for radical innovation as an outcome of coopetition (Ritala and Hurmelinna-Laukkanen, 2013), indicating that the authors assumed the positive influence of coopetition.
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probability to access the ‘distant’ knowledge needed for radical innovation. Finally, familiar negative aspects of coopetition, such as opportunism and knowledge leakage, also apply to radical innovation in specific (Cassiman, Di Guardo and Valentini, 2009, in Bouncken et al. 2015).
Table 1 – (Alphabetical) Overview of current literature – coopetition for (radical) innovation
S tudies coopetition for innovation Independent variable(s) Dependent variable(s) Main finding(s) Identified contingency factor(s)
Bouncken, Clauss & Fredrich, 2015 Coopetition Product innovation Relational or plural governance improves product innovation Governance mode
Bouncken & Krauss, 2013 Coopetition Innovation types Coopetition can trigger radical innovation but harm extremely novel innovation Amount of knowledge shared, learning from partner, technological uncertainty
Cassiman, di Guardo & Valentini, 2009 Forces in coopetition Balance in coopetition Alignment of several factors is needed for balance in coopetition -Gnyawali & Park, 2009 Coopetition in SME`s T echnological innovation Coopetition stimulates the ability to pursue technological innvation -Gnyawali & Park, 2011 Coopetition by electronic giants T echnological innovation Coopetition stimulates technological innovation in giants from the electronics industry
-Jakobsen & Steinmo, 2016 Proximity types Innovation from coopetition Cognitive/technological proximity good for innovation, social proximity reduces tension Cognitive, technological, and social proximity Kang & Kang, 2010 Partner types in collaboration Product innovation Customers/uni`s: positive effect, competitors/suppliers: inverted U-shape effect
-Mention, 2011 Internal/external info sources Novelty of innovation Competitor info for innovation negative impact on novelty of innovation -Nieto & Santamaria, 2007 T ype of collaborative network Novelty of product innovation Competitor collaboration has negative impact on novelty of product innovation
-Park, Srivastava & Gnyawali, 2013 Cooperation/competition intensity Innovation performance Ideal for innovation: competition moderate, cooperation high Balance cooperation vs. competition Park, Srivastava & Gnyawali, 2014 Coopetition balance and experience Innovation performance Strong balance and coopetition experience both contribute to innovation performance Coopetition experience
Pereira & Leitao, 2016 Coopetition and absorptive capacity Product innovation Both absorptive capacity and coopetition positively influence product innovation -Quintana-Garcia & Benavides-Velasco,
2004 Coopetition Innovative capability Coopetition has a positive impact on the capacity/capability to innovate -Ritala, 2012 Coopetition Innovation/market performance Coopetition: positive for innovation performance. T ested contingencies should be present at
high degrees
Market uncertainty, network externalities, competitive intensity
Ritala & Hurmelinna-Laukkanen, 2009 - - Set of propositions on how value creation/appropriation exists for coopetition -Ritala & Hurmelinna-Laukkanen, 2013 Appropriability regime/absorptive
capacity
Ability to innovate from
coopetition Appropriability regime/absorptive capacity influence coopetition for incr./rad. innovation Appropriability regime, absorptive capacity Ritala & Sainio, 2014 Coopetition T ypes of radicalness Coopetition negative technological radicalnees, positive business model radicalness
-Rodriguez, Nieto & Santamaria, 2017 Dissimilar technological coopetition Innovation Effect of coopetition on innovation depends on knowledge similarity and partner location Knowledge similarity, geographical location Vanyushyn et. al, 2017 International coopetition (Radical) Innovation International coopetition: favours radical innovation depending on org. adjustments needed Magnitude of needed organizational adjustments Velu, 2015 Coopetition Business model innovation Dominant firms use coopetition for revolutionary business model innovation. Non-dominant
firms use it for evolutionary business model innovation -Wu, 2013 Cooperation with competitors Product innovation Coopetition: inverted U-shape effect on product innovation. T ech. capability & presence uni
alliances weaken this
T echnological capability, presence of IU-alliances
3. METHODOLOGY
After providing the theoretical basis of this paper, this section extends on the methodological approach by discussing the research approach, setting, case selection, data collection and analysis respectively. Overall, this section aims to provide insights and transparency with regard to how and why certain methodological choices have been made.
3.1 RESEARCH APPROACH
Previous literature has maintained a rather ambivalent view on the influence of coopetition for radical innovation. To further enlighten the current ambivalence of coopetition for radical innovation, the developed research question started with “how”, meaning that more in-depth insights were sought for. Consequently, qualitative research is appropriate for asking such questions (Pratt, 2009). More specifically, a multiple case study was opted for as a qualitative research method. This assisted in building more robust theory than single case study research and allowed to understand the dynamics of a single setting (Eisenhardt, 1989; Eisenhardt and Graebner, 2007). Since multiple cases were analysed through secondary and interview data, this paper follows replication logic in the sense that each case is a separate unit of analysis that “serve as replications, contrasts and extensions” (Eisenhardt and Graebner, 2007, p.25).
3.2 RESEARCH SETTING
This research was performed in the setting of the aerospace industry. Aerospace is a high-tech industry (Niosi and Zhegu, 2005), that is very much dependent on innovation (Varga and Allen, 2011). Innovation is of such importance that the necessary R&D costs to develop a new product are recognized as an entry barrier to the industry (McGuire, 2007). Moreover, technological innovation appears to be essential in aerospace: various technologies, such as GPS technology, have originated from this industry (Coykendall, Millar and Captain, 2015) and have influenced other industries in the process (Venturini and Verbano, 2014). Other key aspects of this industry are the precision that is required in manufacturing and assembling aerospace products, and the complexity of technology that is involved (Rebolledo and Nollet, 2011). This may also explain why innovation is considered to be an entry barrier to the industry in itself. Finally, the role of governments is not be underestimated, as these usually function as a customer, while they also consider the aerospace industry strategically important due to geopolitical ambitions (Niosi and Zhegu, 2005; Varga and Allen, 2011).
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component building for these OEM`s (Morton et al., 2006). Interestingly, these players are highly interconnected, as is demonstrated by the large OEM`s mainly focusing on their core capabilities and outsourcing various sub processes towards the tiers (Morton et al., 2006; Rebolledo and Nollet, 2011). Furthermore, the alliances in this industry frequently include an R&D component (Morton et al., 2006), indicating the importance of alliances for innovation. When taking the interconnectedness of the industry and importance of innovation in this industry into consideration, it makes for a promising industry to examine in the context of coopetition and radical innovation.
3.3 CASE SELECTION
Following the aerospace industry structure, I selected three cases: Airbus, Boeing and GKN Aerospace. The initial requirement in case selection was to include at least two European established firms, owing to the link of this research to a greater research project for the European Investment Bank on radical innovation. Aside from this criterion, I performed some initial research in which the presence of coopetitive relationships was examined in each chosen company. It was of particular interest when these coopetitive relationships included an R&D component, as this indicated the presence of a coopetition for innovation. Finally, since Airbus and Boeing both take a powerful position in the industry, I considered these OEM`s essential in case selection, as they have the potential to exhibit great influence on innovation in aerospace.
3.4 DATA COLLECTION
The data collection procedure of this research consisted of two partially overlapping phases. Since various data sources were used to build the cases, data was compared across sources, also known as triangulation (Eisenhardt, 1989).
In the first phase, I gathered secondary data with regard to each chosen case. Several secondary sources such as annual reports, corporate websites and online publications were scanned for innovation initiatives and coopetitive relationships per company. In this paper, innovation initiatives are separate elements of an organization that stimulate innovation. Examples are innovation-focused programmes, specific teams, or knowledge management methods. Subsequently, I performed LexisNexis searches per case in order to further complement the list of these initiatives or to further contextualize them (See Appendix B). Ultimately, I used these datasets to refer to during interviews and in writing up the case reports.
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the Netherlands only. I executed these interviews either in person, by phone or through Skype. Before the actual interview, I individually adjusted the interview protocol to the interviewee and sent it in advance if desired (See Appendix A). Afterwards, the interview tape was transcribed and sent to the interviewee for feedback. It may be of interest that data analysis was already partially initiated during this phase. Researchers have argued that maintaining some overlap (in this case by means of keeping field notes) between these phases is valuable in supporting the speed of the analysis and potential adjustments to the data collection procedure (Eisenhardt, 1989).
Table 2 – Overview of interviewees
3.5 DATA ANALYSIS
The analysis of both interview and secondary data initially occurred somewhat separately. First, I coded the secondary data along the lines of various categories. In separate Excel-files, I coded each formalised or well-documented innovation initiative based on its internal or external focus, objective, approach to achieving that objective, and type of innovation that is aimed for. Beyond that, I coded several types of proximity (technological, organizational and market proximity) per initiative as well. Later, I combined these three datasets with the data structure extracted from the nine interviews. As mentioned earlier, I used several data points from the secondary data as input for the semi-structured interviews.
Second, the analysis of the interviews took place by executing several steps. After first reading all transcripts once, initial ideas were jotted down. Afterwards, I took a more systematic approach, similar to the open coding process (Strauss and Corbin, 1990). This process was separately executed for each interview in Excel. Subsequently, I aggregated and marked all 135 codes to create categories. For overview purposes, any duplicates were combined. Finally, I created overarching themes, which allowed for the development of a data structure comparable to Gioia et al. (2013). This allowed for tracing back the findings to the open codes. From the data structure, I developed a storyline, which was complemented by concrete examples from the secondary data and interview quotes.
Interview No. Interviewee position Interview 1 Head of R&D - aerospace firm
Interview 2 Senior partner aerospace – large consulting firm USA
Interview 3 Business development manager – technological institute for aerospace Interview 4 Senior partner aerospace – large consulting firm USA
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4. RESULTS
Since the previous section outlined the research process, this section follows by expanding on the findings resulting from that particular process. First, an explication of additional important attributes of the aerospace industry is provided. Second, the specifics of aerospace innovation and its related drivers and barriers are elaborated on. Third, an analysis follows on how innovation is stimulated in the aerospace industry. Ultimately, I discuss how and why coopetition for innovation in aerospace is organized, in order to relate the findings to the research question. The data structure below in Table 3 displays the line of argumentation coming from the interview data.
Table 3 – Data structure based on interview data
Main themes Categories Open codes
Industry characteristics Entry barriers High capital requirements Innovation is inherent to aerospace
Certification is entry barrier, but good profits once in
Power of OEM `s Power of Airbus choosing suppliers
OEM innovation wish lists creating industry dynamic
Other characteristics Government multifaceted for aerospace Aerospace is highly supply chain centric
Innovation in aerospace Long lead time Aerospace developments and strategy are long term Innovation in aerospace is long term
T echnical material innovation taking 30 years
No radical innovation Radical innovation coined in aerospace is not that radical Mainly incremental innovation in building aeroplanes Drivers/barriers innovation Cost reduction as a driver Cost reduction is the main pressure to innovate
OEM`s are only interested in innovation if it reduces costs
Certification as a barrier Certification causing long lead time of innovation Not introducing a technology overnight due to flight safety After certification: long term revenue, no changes to process Certification as a barrier in entering an innovation project
Conservatism as a barrier Aerospace conservatism against innovation due to safety issues OEM`s conservative against innovation - stable supply chain Certification driving conservatism - critical mass
Certification and development costs blocking innovation Coopetition aerospace Precompetitive coopetition More likely coopetition when lower T RL, is also cheaper
Precompetitive coopetition needed for critical mass Coopetition is fine, but no money expecting tomorrow If research for one firm (bilateral): more competitive Aerospace coopetition only at low T RL, no IP possible yet
Not sharing radical ideas Anxiety to share radical ideas in coopetition - why no radical Innovation lead time causing anxiety to share
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4.1 AEROSPACE INDUSTRY – ADDITIONAL CHARACTERISTICS TO
CONSIDER
In the methodology section, I concisely discussed the research setting. Among other characteristics, I concluded that innovation is inherent to the aerospace industry, not least because of innovation being considered an entry barrier to the industry. Additionally, a short discussion was provided on the industry structure, taking into account the major OEM`s and the surrounding “tiers” of suppliers. An important distinction to make before this paper progresses with any final results, is that the interview data proceeded and enriched the view on industry characteristics. As a consequence, interview data provided two additional characteristics of the industry, which I consider to be essential for the final results.
The first characteristic concerns an extension of the influence of governments in this particular industry. A major distinction is that governments have a much more multifaceted influence than just being a customer, also providing international business support, knowledge development and education. More importantly for innovation development in aerospace however, is that governments also provide regulation and certification obligations to aerospace firms and their products and processes (Interview 9). This certification can be interpreted as an additional entry barrier for the industry as well. The rationale for this entry barrier is however rather logical; it is namely grounded on safety considerations. (Interview 6). Basically, any change or introduction of a new product or process has to be certified before it can start production.
Second, the way in which developments in the aerospace industry are organized, is also found to have its consequences for innovation. Due to major power of OEM`s, developments in aerospace occur in a supply chain central fashion (Interview 4, 9). In other words, aerospace OEM`s are so powerful that the rest of the aerospace industry is geared towards being part of their supply chain. A head of R&D at an aerospace firm portrayed this by mentioning what occurs to them if they aspire to develop and produce an innovation for an OEM:
“Well, what I mentioned in the case of Airbus with those fuselages: first of all, we look at Airbus as an end customer. If they desire any partner to be selected, then we have to accord that. That is the most important I think. In this case, the end customer wants us to collaborate with two other aerospace firms, and we have to accord that, because otherwise we cannot bring the collaboration any further” (Interview 1).
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In brief, both the certification requirements from governments and the power of OEM`s leading to supply chain central developments, are essential aspects of the aerospace industry. The following sections will explore to what extent these characteristics affect innovation and coopetition in aerospace. Before explicating this however, the next section will provide an in-depth characterization of aerospace innovation, as the innovation status also plays a role in comprehending how coopetition in aerospace is organized for innovation.
4.2 INNOVATION IN AEROSPACE
Interestingly, innovation in aerospace has been characterized during the interviews along the lines of two major attributes: lead time and the lack of radicalness. First, aerospace innovation has been characterized by various interviewees as having a very long lead time (Interview 3, 6, 7, 8, 9), similar to other developments in the industry. A general manager of a technological center exemplified this by stating:
“We`re working on a relatively new concept of materials. In this case, new means: we are doing
research on it for 30 years already. Now we`re entering the stage in which it will actually be applied in the critical parts of aeroplanes” (Interview 8).
Likewise, another industry expert quoted an aerospace professor who had developed a technology for an OEM, on which he had received feedback from that particular OEM:
“It (the technology) is all becoming way too heavy, and they want electronic propulsion in it as
well. Technically, this is all possible, but it will become way too heavy. It is going to take a couple of decennia” (Interview 7).
Secondly, aerospace innovation, especially considering that the bulk of innovation in aerospace is technical innovation, is mostly labelled incremental (Interview 4, 5, 8, 9). Whereas the early outset of aerospace may have influenced life substantially by providing people the ability to fly, current innovations are more or less developed in a very incremental and controlled fashion: “In building
airplanes, innovation is predominantly incremental” (Interview 8). More specifically, industry experts
have voiced their concern about major aerospace firms and their ability to handle more radically innovative ideas. A senior partner for aerospace at a large consulting firm in the USA commented the following on this while discussing radical technology in aerospace:
“Because the major OEM`s like Boeing and Airbus, anytime you do anything within the 4 walls of that company, the overhead structure, the internal structure will burden these types of initiatives so much, that it`s just going to kill innovation to the extent that it`s just very different internally than it is externally” (Interview 4).
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Airbus Ventures, 2018). By adopting these structural measures, established firms create an avenue to manage radical innovation more extensively. Doubts about the extent to which this actually delivers radical innovation however prevail, as the amount of start-ups in aerospace is very low (Interview 9), the integration of externally developed ideas into the mother organization is very difficult (Interview 5), and the internal structure of established aerospace firms is burdening radical initiatives (Interview 4). Hence, innovation in aerospace is usually emphasized to be rather incremental, despite the presence of some radical attributes.
4.2.1 Drivers and barriers of aerospace innovation
To understand why aerospace innovation is mostly incremental and takes so long, several drivers and barriers have been identified. Correspondingly, these drivers and barriers carry its influence on coopetition activities in the aerospace industry. First, a major driver of innovation in the aerospace industry is the aim to reduce costs. This pressure originates from the operators of airplanes:
“The greatest pressure is costs. As a legacy operator, we are just too expensive. We need innovation in order to absorb new technology and knowledge, so we can reduce costs”
(Interview 5),
as an innovation expert at an aerospace-related firm articulated. Tracing back this issue to the OEM`s and suppliers, this means that these companies need to produce cheaper planes or parts. Particularly, cheaper means a lower price, fewer operating costs, or fewer maintenance costs (Interview 7). This is also reflected in the comment of an innovation expert from an aerospace related firm, who stated:
“Currently, a much more important aspect is added, which is mainly about costs. They
(OEMS`s) are only interested in something new if it leads to cost reduction” (Interview 7). Next to cost pressure driving aerospace innovation, two interrelated barriers against innovation have been identified. For this section, please recall the previous discussion of certification and supply chain central developments as additionally found characteristics of the industry. Since all products developed in the industry have one primary aim, which is being safe during operation, the government imposes a great deal of certification obligations to companies that may want to produce a part or product in this industry. Certification is regarded a key issue as to why innovation is hampered in aerospace. Certification hampers aerospace innovation in several ways. First of all, certification comes with its financial considerations: certification brings along costs that have to be taken into account before initiating an innovation project:
“You have to know how much space you have that you can invest in certification. If it is still interesting, you can continue the project” (Interview 9).
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“A product or process in aerospace has to be certified with regard to the operator, material, machine, quality, everything needs to be certified before you can proceed with an innovative product, hardware or software. Speeding up lead time in aerospace is not easy, and that has a very logical reason” (Interview 5).
Stated more concisely, certification causes the introduction of any new aspect in aerospace not to be “an overnight endeavour” (Interview 2). To say the very least, certification in this sense contributes to the main characteristic of aerospace innovation being very slow. Finally, once any aspect of the product or process is certified and integrated with the supply chain, certification also means that no changes can be made to the process or product. While this may ascertain long term revenue for the manufacturer, it also carries a paralyzing effect to any innovation efforts of the manufacturer:
“In aerospace, you`re certified for a specific aircraft, which you need to have. Consequently, well, you cannot rest on your laurels, but you`re pretty sure of your revenue” (Interview 6).
This paralyzing effect brings us to the second barrier to innovation. Interviewees frequently mentioned a certain “conservatism” with regard to innovation, which, among other factors, is being caused by certification practices (Interview 7+8):
“It all needs to be tested, proven and certified. That costs a lot of money, and there is no time for that. So there is a very conservative attitude towards new things” (Interview 7).
Next to lengthy certification processes, also development costs cultivate this conservative attitude towards aerospace innovation:
“If you start over, you`re throwing away so much money, you cannot afford it. This makes them all very conservative, because there is the danger of having to throw away so much money. Boeing called this ‘betting the farm’, about a plane they developed, the Boeing 787” (Interview
7).
Next to certification and development costs, a final force that promotes the conservatism in the industry relates to aerospace OEM`s in specific. The OEM`s are rather cautious in taking up new technologies, as these firms do not want to be dependent on a ‘sole source’ for supplying a specific part or product to their manufacturing programs. This connects to the supply chain centrality of aerospace, in the sense that innovation projects are forced to occur through projects with the entire or partial supply chain to avoid sole sources. In aerospace, OEM`s desire a certain “critical mass” (Interview 7) whenever they potentially include a new technology in their manufacturing program. This critical mass ascertains that the technology is developed by a bunch of firms in order to create an industry standard, consequently reducing the OEM`s dependence, costs and risk of a sole source (Interview 7):
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In short, one should take from this section that innovation in aerospace is mostly incremental and has an incredibly long lead time. The drivers and barriers identified for this are cost pressure, certification obligations and a subsequent conservative industry attitude towards innovation.
4.3 STIMULATING INNOVATION IN AEROSPACE
Now that the essentials with regard to the industry and innovation have been discussed, this section provides a second angle of insights before discussing coopetition as a specific method of collaboration in aerospace. This section explicates both the internally and externally focused innovation initiatives generally found in the aerospace industry. From this, the importance of an internal or external focus by established aerospace firms for innovation is assessed.
4.3.1 Internal innovation initiatives
In examining innovation initiatives in aerospace, I observed a limited amount of internally focused initiatives. To begin with, aerospace firms run their own R&D department (as expected), which often is named “R&T”, also known as Research and Technology (e.g. Norris, 2013, December 27). Alongside this general department, initiatives related to digital transformation are increasingly observed. These usually tend to adopt a more data-based approach. The major aerospace OEM`s have adopted separate data-based organizations dedicated to innovation and improvement. The improvements aimed for by these organizations tend to focus on upgrading operational aspects of the firm, which therefore relate more to incremental type improvements. One slight nuance regarding these initiatives is however that these data-based innovation boosters are also externally focused in the sense that these are commercially available to other aerospace parties (Airbus launches Skywise, 2017; What is Boeing AnalytX?, 2018).
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4.3.2 External innovation initiatives
Besides the internally focused initiatives, an assessment of externally focused initiatives for innovation in aerospace is of importance as well. As I elaborate on below, initiatives for various partner types (universities, start-ups, competitors, suppliers) are generally in place.
First, collaborations with universities are dominantly present throughout the aerospace industry (Airbus Global University Partner Programme, 2018; Boeing University Relations, 2018; University links with GKN Aerospace, 2012). The main objectives behind these collaborations concern the following. It may either be the incubation of ideas, which is exemplified by for instance a collaboration to further develop a technology (GKN Aerospace and Durham University, 2016), or it will have a more educative objective which is showed by the organization of a contest for students by Airbus (Fly your ideas, 2017).
A second key external initiative for innovation are “venture models”, which relate to accessing new external knowledge often found in start-ups or other organizations outside of the industry. The conventional method to access the knowledge in start-ups, is by investing resources in these start-ups (Boeing HorizonX, 2018; Meet Airbus Ventures, 2018). These venture models provide the large OEM`s to access technology from aerospace start-ups or other industries, and to keep the technology within reach whenever this develops into something applicable (Interview 4). In general, I found initiatives to accommodate collaborations with ups are in place (e.g. GKN Aerospace joins forces with start-ups, 2018).
More fundamentally, I found that collaborations with multiple partner types at a same time in a project appear to be primary in innovation development in aerospace. This strongly relates to the supply chain central approach (Interview 4) that is common within aerospace, as well as the conservatism to innovation and not having a sole source within the supply chain (Interview 7). A technical director at a technological center explained the following about this:
“What Boeing has done during the last fifteen years, is that for a new development, they will search for a university that has progressed further than Boeing on that development. Subsequently, Boeing builds a technical center around that university. They ask suppliers to participate, and to work on the new developments together. It differs as you are sharing the costs of such a laboratory and personnel, and moreover, Boeing does not have to educate their supply chain on the newly-gathered knowledge” (Interview 8).
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Interestingly, it is not uncommon that among the variety of partner types in these centers, also competitors are included. This is also the case for the centers mentioned above (e.g. Thermoplastic Composites Research Center, 2018; Advanced Manufacturing Research Center, 2018).
In a nutshell, both internally and externally focused initiatives seem to be present for innovation development in aerospace. Especially large OEM`s tend to collaborate with various partner types, commonly resulting in innovation projects that include several supply chain actors. As these projects could include competitors, it makes for a suitable context to proceed towards an examination of the role of coopetition for innovation.
4.4 COOPETITION FOR (RADICAL) INNOVATION IN AEROSPACE
This final results section concerns the account on how and why the aerospace industry engages in coopetitive relationships for innovation. As explicated in earlier sections, innovation in aerospace carries a long lead time and is mostly incremental, as a consequence of several drivers and barriers. In addition, I found that aerospace firms stimulate innovation internally as well as externally. In this integrative section, I untangle how coopetitive relationships are organized in aerospace, building from the previous sections.
The main finding regarding coopetition in aerospace is that it usually occurs in situations where aerospace firms are working on technologies or initiatives that are still ‘precompetitive’. In other words, these technologies are at a low ‘technological readiness level’ (TRL). The extent to which these coopetitions appear to focus on radical innovation, is however rather limited and leans more towards incremental innovation. A director from the industry stated:
“They are creating an environment in which developments can take place, which could be of interest for them. But it is on a very low TRL. You know everything about that, I assume. As long as you do not get above TRL 3 or 4, people tend to share stuff with each other” (Interview 9).
Since TRL concerns a key aspect of the findings, it is pivotal to comprehend that these innovations at a low TRL merely point to a phase where these are still far away from commercialization. This does not relate to whether or not these innovation are radical or incremental, which is something that should be assessed separately.
Moving on, aerospace firms tend to not engage in a coopetitive relationship whenever the content becomes more competitive, or is at a higher TRL. An example of this was given by a technical director of a technological center that executes research for aerospace firms. While this technological center performs precompetitive research for a whole group of aerospace-related firms, it also offers “bilateral projects”:
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These bilateral projects clearly do not include a competitive element in the sense that multiple partner firms are involved in such a project. It merely concerns bilateral agreements between the research center and the aerospace firm. When asking to what extent the knowledge in bilateral projects is of a precompetitive nature, the director responded: “That goes more into the direction of real applications” (Interview 8). This is interesting, as it illustrates the sensitivity, or even adversity, to collaborating with other parties on more competitive, applicable developments at a higher TRL.
Various examples of precompetitive coopetition for innovation are to be found throughout the aerospace industry: GKN Aerospace for instance participates in a project that aims to design a new winglet and improve its production process. In this project, that includes GKN Aerospace`s legacy competitor Spirit, a winglet is being redesigned or improved, indicating the incremental nature of this innovation (GKN Aerospace leads STEM Project, 2013). Moreover, the innovation developed in this project is still at a low TRL, as subsequent research programmes have been initiated to progress its actual maturity (GKN Aerospace leads new research, 2014). Another concrete example concerns a consortium run by an agency in Singapore which includes all major aerospace OEM`s working on future challenges in aerospace. The research this agency executes is actually rather comparable to the earlier described research centers initiated by Boeing. Likewise, this center supports their members in overcoming common technological barriers, of which “enhancing aviation communication” and the “development of new materials and coatings for engines” are examples (A*Star Aerospace Programme, 2018) These are again indicators of improvements to existing products. When Airbus joined this agency in early 2018, the agency even specifically stated that “precompetitive research” is executed (Cher, 2018). Similarly, GKN and Rolls Royce opened a facility in the UK to develop the technology of composites and their production methods. This again indicates that it is predominantly the development of the technology which is to be considered critical in these relationships (Minister opens multi-million facility, 2012). Again, the research centers (e.g. OMIC, 2016) explicated in the previous section are of a similar nature; precompetitive research is executed for a group of aerospace firms.
4.4.1 Stimuli precompetitive coopetition in the incremental domain
Now that it is clarified that coopetition in aerospace predominantly exists in the precompetitive domain for the more incremental type innovation, two questions remain unanswered. On the one hand, it is of interest to assess why specifically the precompetitive domain is preferred for coopetition in aerospace. On the other hand, an explanation of why coopetition in aerospace does not occur with the aim to develop radical innovation, is also needed.
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“Probably it is still that fundamental that it is difficult to extract IP from it. It is still that
fundamental that we`re not saying: we`ve discovered something and we are going to patent it. There is no product in sight yet, it is still very far away from the market” (Interview 9).
The desirability of no possibility to define or apply intellectual property has been described by various interviewees along the lines of a certain deterrence of discussions regarding intellectual property in the industry:
“What we scrupulously try to stay away from are IP-contracts, intellectual property. We try to discuss that as little as possible between parties, to avoid people shouting: this is IP. As soon as lawyers come into play, everything stops” (Interview 7).
This demonstrates the deterrence of including intellectual property in a collaboration in aerospace. It is perceived as being a blocking factor for the collaboration to be successful. Therefore, not having to worry about intellectual property in this domain is preferred.
A second reason for precompetitive coopetition is the fact that costs of researching such a new technology up to a certain TRL, can more easily be shared (Interview 3, Interview 6). Aerospace firms usually run into similar problems with regard to nascent technology development (Interview 8). Answers to these problems that are encountered at a lower TRL, can benefit all participating firms. In this respect, bundling funds is a mere advantage to all participants:
“The initial stages are expensive, and still useful for all parties, but it does not influence competition that much. So it has to happen, but it is more for the long term. And one sees that with long term research, one tends to collaborate more. Once it becomes more applicable (for
products), that tendency becomes less prominent” (Interview 3).
Third, the earlier discussed critical mass can be developed precompetitively (Interview 7), which reduces the worries of large aircraft OEM`s with regard to single source issues and multiple standards for a single technology.
The second unanswered question still remains: why do coopetitive relationships in aerospace usually not revolve around more radical innovation? The main issue that discourages coopetition for radical innovation relates to industry characteristics and a subsequent anxiety to collaborate. One could pose this as ‘anxiety to share’:
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Figure 1 – Coopetition for innovation in aerospace
Figure 1 visually represents the findings with regard to coopetition for innovation in aerospace. Based on the earlier explanation, coopetitive relationships mainly exists in quadrant Q2, exhibiting a low TRL, and main focus on incremental innovation. Coopetition closer towards a high TRL becomes more difficult due to a deterrence of discussions about intellectual property, and the incentive at lower TRL to share costs in solving common problems and develop critical mass. Hence, Q4 is ruled out. Additionally, if one would have a radical idea, coopetition would not be engaged in due to the anxiety to share radical ideas. Therefore, coopetition in aerospace is less likely to occur in Q1 or Q3.
To summarize, coopetition in aerospace has a specific but rather limited role for innovation, dominantly focusing on precompetitive development of technologies. Coopetitive relationships do exist and do prepare and progress technologies for application, though be it at a low level of technological readiness, and without a very radical component. Other methods of stimulating innovation, such as venture models, receive greater responsibility in developing radical ideas in the aerospace industry.
0 1 2 3 4 5 6 7 8 9 In cre me n tal in n o vatio n R ad ic al i n n o vatio n
Technological Readiness Level
Coopetition for innovation in aerospace
Q1
Q2
Q3
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5. DISCUSSION
This final section interprets the presented findings. Theoretical implications will be discussed, in advance of potential implications for practitioners. Finally, I account for any limitations, as well as potential future research directions that may flow from this study. Forthrightly, one must acknowledge that the initial research question attempted to explore how established aerospace firms organize their coopetition activities for radical innovation. The analysis as presented in the results section however demonstrates that the findings did not lead to the desired or expected insights about coopetition for radical innovation. Nonetheless, the current findings of this study do provide some interesting insights regarding the organization of coopetitive activities for innovation in aerospace.
It will not have gone unnoticed that the findings were presented in a funnel-type manner. On the one side, the importance of industry characteristics and innovation status were discussed. With regard to the industry characteristics, it is of importance to keep the influence of certification and supply chain central developments in mind. Subsequently, I found that aerospace innovation carries a very long lead time and is mostly incremental. Along these lines, the innovation driver of cost pressure, and innovation barriers of certification and conservatism were identified. On the other side, an assessment was provided of how established aerospace firms stimulate innovation internally and externally, before moving towards the organization of coopetition in aerospace. In this section, I explicated how both internally and externally focused initiatives are in place. However most importantly, aerospace tends to organize for innovation by including various partner types into innovation centers or projects. It is pivotal to realise that this relates to how aerospace is supply chain centrally organized.
Accordingly, taking the initial sections into account, I elaborated on how coopetition is only taking up a limited role: coopetition in aerospace is mostly engaged in precompetitively, and is not specifically geared towards radical innovation.
A minor disparity between data sources in the results section requires additional clarification. While aerospace innovation was emphasized by interviewees to be mostly incremental, several initiatives geared towards radical innovation appeared to be in place. While numerous explanations may apply to this disparity, an anticipated explanation would be that the presented barriers to innovation are sufficiently strong to reduce the effectiveness of these initiatives. Previously provided explanations for this issue are for instance the lack of start-ups in aerospace and the innovation-burdening structure of the established aerospace OEM`s. The disparity however does not relate to coopetitive activities directly, and is therefore not considered to be a focal aspect of the analysis.
5.1 THEORETICAL IMPLICATIONS
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Some authors argue in favour of coopetition because of complementarity potential (e.g. Quintana-Garcia & Benavides-Velasco, 2004), while other authors argue against coopetition based on learning race arguments (e.g. Cassiman, di Guardo and Valentini, 2009). A contingency perspective has been initiated to better understand the current ambivalence of the field.
This research adds to the field by providing an in-depth industry perspective on how coopetition is organized in a high-tech industry with a long innovation lead time. In particular, the findings show how coopetition can be used as a tool to solve common problems during the early stages of innovation for the firms involved. The observations showed that by engaging in a multiple coopetitive relationship around a specific technology, common problems can be more easily solved. This is without mentioning the subsequent advantages of cost sharing and development of critical mass. Similarly, this research adds to current literature by showing that the way in which coopetition activities are organized, can be very much dependent on industry characteristics. Especially the power of aerospace OEM`s demonstrated its effect on coopetition throughout the industry. Additional empirical evidence may however be needed to confirm the contingent workings of industry characteristics on the organization of coopetition.
Despite all this, one should not consider coopetition in aerospace to be a solution for the incumbent`s curse. It should be clear that observations have demonstrated that the incumbent`s curse in aerospace is present to some extent; established aerospace firms do appear to organize separately for radical innovation, while innovation in general is still found to be mostly incremental. To what extent could coopetition be considered a solution for the incumbent`s curse in aerospace? On the one hand, coopetition allows for cost sharing and development of critical mass towards the powerful OEM. It should be acknowledged that the latter advantage only accounts for non-OEM`s. On the other hand, the troublesome issues of certification and conservatism in the industry may avoid coopetition to flourish, as this adds to existing tensions that are inherent to a coopetitive relationship. When considering coopetition as a solution for the incumbent`s curse, a slight nuance concerning the negative aspect of an ‘anxiety to share’ radical ideas should be posed. The anxiety to share more radical ideas appears to be entrenched in the traditional doubts related to collaborating for innovation, namely opportunism and knowledge leakage (e.g. Cassiman, di Guardo and Valentini, 2009, in Bouncken et al., 2015). As other research has proven that these doubts can be overcome, this argument should be reassessed in the light of the potential of coopetition for radical innovation in aerospace.
5.2 MANAGERIAL IMPLICATIONS
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‘critical mass’. Before doing this however, managers should assess their internal capability and the resources needed to transition the specific innovation along various levels of technological readiness before choosing a partner for the coopetitive relationship.
Along similar lines, aerospace managers should also consider coopetition as a tool to manage the supply chain in which they participate. By engaging a coopetitive relationship, two aerospace suppliers could for instance create an improved bargaining position against the aerospace OEM.
Finally, managers in established aerospace firms should invest in speeding up the process of certification, as this is what hampers innovation in any manner it takes place. This could be done by for instance lobbying with governmental agencies. Lobbying may provide a fruitful avenue of improvement, as the role of governments in aerospace has been characterized earlier as being rather extensive. Another option would be to develop digital solutions (i.e. simulation) on an industry-wide level. While industry-wide collaboration may appear unlikely, previous initiatives have actually taken place on the development of biofuels, showing the potential to unionize for shared objectives (Airbus, Boeing, Embraer collaborate on aviation biofuel commercialisation, 2012). Nevertheless, in speeding up certification processes, the quality of these processes in ascertaining safety for aerospace operations should remain untouched or improved. This is, again, another tension to manage in the aerospace industry.
5.3 LIMITATIONS AND FUTURE RESEARCH
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a particular coopetitive relationship in aerospace. This may however provide additional insights concerning the actual organization of a coopetition in aerospace, while the current method of analysis remained somewhat more holistic. Therefore, future research on a single coopetitive relationship is encouraged.
From this, a discussion of future research directions flowing from this study is induced. For research on the aerospace industry in specific, it may be of interest to investigate the internal dynamics in a multi-partner research center as they are currently initiated and run by Boeing. Since this approach to innovation was found to be rather essential, a more in-depth examination could provide additional insights. Furthermore, future research could also focus on testing the actual effectiveness of coopetition in developing innovation compared to the other identified innovation initiatives. Naturally, this paper focused on innovation development through coopetition, but other initiatives in aerospace could be more effective in practice.
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