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Differences between Competitive and non-Competitive Consortia
An Investigation of the Dutch Aerospace Industry
By: Paul Wijbenga Supervisor: Dr. K.R.E. Huizingh Second Supervisor: Dr. W.G. Biemans University of Groningen Faculty of Economics and Business
MSc Business Administration Specialization Business Development
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Preface
This document represents the written result of an explorative research into consortia at a firm level in the Dutch Aerospace industry. This master thesis was written with the aim of graduating for the master Business Administration, specialization Business Development at the University of Groningen.
The opportunity to do this research was in part created by Dr. K.R.E. Huizingh, my supervisor at the University of Groningen and not in the least by the enthusiasm and openness of many R&D managers and executives at the companies in the Dutch aerospace industry who kindly opened their doors to me. I would like to take this opportunity to thank every single respondent, all of whom will remain anonymous, for providing me insight into the workings of an amazing industry. The generosity, experience, knowledge and openness of all the people, without exception, I have interviewed during the course of my investigation have meant a great deal to me. Without their enthusiasm and willingness to provide me with exceptional insights this research could not have been conducted.
Also I would like to thank Professor Paavo Ritala from the Lappeenranta University of Technology, for his advice, enthusiasm and extraordinary expertise in the subject of coopetition. His quick, insightful feedback has kept me motivated during the entire course of the investigation; from the initial research idea to the final proposals.
Of course I would also like to thank my supervisor; Dr. K.R.E. Huizingh. He has guided me through the entire research process and shown me the way of true academic research. The iterative process of researching, the long confusing search for the right questions and methodology to write a master thesis that truly adds to academic literature is a skill I have learned from him. I have to admit this skill takes time to master. At times academic research goes backwards just as fast, or faster, as it goes forwards. The patience and guidance of Dr. Huizingh has kept me motivated to finish my research. The countless emails between Dr. Huizingh, Professor Ritala and me to overcome all issues have proven invaluable to making this thesis a sound basis for further research. I hope this thesis helps the course of their academic research and careers.
Finally, I would like to thank my mother, my girlfriend and my friends for their support. Without them I do not think I would have had the strength to stay motivated during this period in my life. I hope everyone enjoys reading my final paper.
Paul Wijbenga November, 2013
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Abstract
Globalization, shorter product lifecycles, lower product margins, increasing competitive pressure, these are examples that literature suggests to have driven many organizations in lots of different industries into an open innovation strategy. Investigators have researched the goals and risks that drive companies to open their R&D departments and expand their views beyond the border of their organizations. However as product margins continue to decrease many organizations have not only extended their R&D activities to cooperate with clients, suppliers, universities and research institutes, they have extended their open innovation activities to working together with competitors.
This paper investigates the goals and risks that are driving organizations to extend their open innovation strategy by joining consortia that contain competitive rivals. A case study research is used to discover unique characteristics and differences in consortia from different (firm) perspectives. The data has been gathered through a series of in-depth interviews. The focus during those interviews has concurrently been on finding new insights and confirming the insights in the next interview. By analyzing differences in competitive and non-competitive consortia in the aerospace industry on a firm level we hope to expand the understanding of the advantages and disadvantages of coopetition in a specific context.
The analysis of the data shed light on seven important differences across four themes found in competitive and non-competitive consortia. The results of this study suggest that goals, risks, innovation type and knowledge transfer in consortia with competitors are substantially different than the goals, risks, innovation type and knowledge transfer in consortia without competitors. Four propositions are made on the suitability of participating in either competitive or non-competitive consortia. First, it is proposed that non-competitive consortia are more suitable for researching incremental innovations rather than radical innovations, while non-competitive consortia can be suitable for both types depending on the technology readiness level of the innovation. Second, competitive consortia are proposed to be more suitable for developing non-core knowledge rather than non-core knowledge and sharing the results at the end of the development, while non-competitive consortia can be suitable for both knowledge types depending on the process of knowledge sharing. Third, competitive consortia are proposed to be more suitable for achieving relational (networking) goals, while non-competitive consortia are more suitable for developing a synergic relationship and achieving strategic goals. Fourth, it is suggested that competitive consortia carry more knowledge related risks, while non-competitive consortia have more technological risks.
This research benefits coopetition and open innovation literature by providing insights with specific propositions in an attempt to find the optimal parameters for participating in competitive and non-competitive consortia. The aerospace industry for decades has been a front runner in open innovation practicing both open innovation without competitors as well as coopetition. The insights from this industry can help managers in all industries with their decision making process on competitive and non-competitive innovation-related consortia. Future research has to confirm these propositions in empirical analyses.
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1.
Introduction
The dispersed nature of specialized knowledge and the networked nature of technology have made sure firms cannot successfully pursue innovation solely through in-house development (Ritala and Hurmelinna-Laukannen, 2013). In the traditional view firms expand their knowledge base by collaborating with clients and suppliers to increase innovation performance. The costs of research and development (R&D) as well as the risks have increased substantially in recent decades, as a consequence more and more firms are collaborating on R&D efforts (Ring, Doz and Olk; 2005). This concept of inter-firm collaboration is called open innovation, a term introduced by Chesbrough (2003). It is defined as; ‘The use purposive inflows and outflows of knowledge to accelerate innovation and expand the market for external use of innovation’. In recent decades organizations started to extend their open innovation activities beyond cooperation with non-competitive parties. The concept of simultaneous cooperation and competition to jointly create value and a bigger market, and then individually compete for that market is called ‘coopetition’ (Brandenburger and Nalebuff, 1996; Bengtsson and Kock, 2000; Ritala and Hurmelinna-Laukannen, 2013).
The purpose of this paper is to explore the participation of organizations in competitive and non-competitive R&D consortia. The focus will be on the goals and risks of organizations when joining and participating in a consortium, in the traditional view, without competitive rivals and the differences between the goals and risks of organizations when joining consortia containing competitive rivals and thus engaging in coopetition. Little research has been done in this area and understanding the differences between participating in a competitive and non-competitive consortium from firms that have successfully been managing both consortia types for decades should generate promising insights for both managers and academics interested in the field of coopetition.
The term ‘R&D consortium’ is often used in the aerospace industry with regard to an alliance of organizations, with a common mission and purpose, who seek to gain a benefit that could not be achieved independently. The participants seek to share risks and achieve a common goal by pooling their resources and sharing their knowledge. This falls under the term ‘alliance’, which is a broad conceptual umbrella, ranging from any inter-firm cooperation between a short term contract to the complete merger of two companies (Contractor and Lorange, 2002). The term ‘coopetition’ is used in this paper when one or more direct competitors, from the perspective of the researched firm, are participating in the same R&D consortium. Direct competitors are defined as: An actor which has the potential to substitute the firm’s offerings in the eyes of the customer – and thus potentially competes from the same share of the value which has been created. In other words, customers value your firm’s products less with the presence of another firm’s products, than when they have your products alone (Brandenburger and Nalebuff, 1996). A competitive consortium is therefore; a consortium which includes one or multiple direct competitors to the firm. And a non-competitive consortium is; a consortium which does not include any direct competitors to the firm.
The setting for this research is the innovative aerospace industry in the Netherlands. The aerospace industry is a fast growing competitive and globalized industry, which brings many managerial challenges. It is attractive to study this industry because of the highly competitive environment, the advanced technical capabilities of the organizations, the high level of globalization, the need for the companies to use open innovation and the high amount of secrecy to protect new innovations. According to previous research (Salvetat and Geraudel, 2012; Dussauge and Garrette, 1995) the aerospace engineering sector is especially suitable for studying coopetition. These papers suggest that amongst other reasons the sector is particularly relevant for analyzing coopetition at multiple levels of the supply chain due to the modular architecture and subcontracting model of the industry. Joint ventures in aerospace count for a important portion of the total activity in this industry and have been common behavior since the early 1960’s, making it better to observe actual outcome of alliances (Dussauge and Garrette, 1995).
5 Also the fact that this particular sector is a source of conflict in the northern hemisphere since many countries seek to invest in this industry seems to add to the interesting nature coopetition poses here.
In The Netherlands the aerospace industry is largely formed by companies working not only on aerospace solutions, but also manufacturing technical innovations for the automotive, naval, defense and off-shore industry. As the diversity of most of these companies is growing, this type of industry is also often referred to as the composite industry. This term is used as the main material for the lightweight innovations produced by these companies are composites. Extending the innovative activities beyond the borders of the company has been practices at most of these companies for many years. It is safe to say that there are no companies left which practice only fully closed innovation activities. Now, with the next phase of widely employing the paradigm of coopetition in many other industries as well, theoretical support for managing these processes is expected to be of great value.
Literature on coopetition and open innovation has found several goals, motives and benefits as well as some possible risks and negative outcomes (Luo et al, 2007; Oxley and Sampson, 2004; Ritala et al, 2009). These studies also suggest there are differences in cooperating with clients, suppliers and research institutes compared to cooperation with competitors. However, academic literature is lacking an understanding of specific differences between consortia with and without competitive parties. Therefore literature also lacks an integrated understanding of which consortium type is most suitable for a specific innovation or research and what risks are to be expected. This research deals with the identified gap by executing a comparative case study which includes six firms from the Dutch aerospace industry in order to connect key concepts and propose suitability for using competitive and non-competitive consortia. The focus of the research question is thus on differences when participating in a consortium with and without competitors. This exploratory investigation will research the current situation in the aerospace industry and create general propositions applicable for firms operating in competitive and non-competitive innovation-related collaborations.
The paper is structured as follows: first, extant theoretical contributions on the subjects of open innovation, coopetition and strategic alliances are shortly discussed. The gap in literature this research aims to fill and the scope of the research are presented. The methodology used to execute this research is explained. Then the findings of the research are presented and linked directly to quotes by managers and executives in the Dutch aerospace industry. Finally, the findings of the research are linked to academic literature in the discussion section and we draft a set of propositions for future empirical research.
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2.
Literature review
The literature review has been conducted to establish a theoretical gap, get familiar with the concepts, to make sure “the wheel will not be reinvented” and to examine other researcher’s suggestions for future research.
2.1 Open innovation
The idea of R&D departments cooperating together for mutual benefit has been around for several decades. However, since the introduction of the concept of ‘open innovation’ by Chesbrough in 2003, many valuable studies have been done into this concept. Gassmann and Enkel (2004), state that the popularity of this topic has increased mostly by a need for shorter innovation cycles, increasing R&D costs and an overall scarcity of resources.
A disadvantage in open innovation literature is that the concept can be defined and applied in multiple ways. According to Huizingh (2011) this does add to the richness of the concept, but it also hinders theory development. Chesbrough et al. (2006) defined open innovation as; “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively”. Most researchers in literature agree on 3 different core processes in open innovation, identified by Gassman and Enkel (2004). The inside-out process (inside-outbound open innovation), the inside-outside-in process (inbound open innovation) and the coupled process (both inside-out and outside-in open innovation simultaneously). Enkel et al. (2009) elaborate further on these core processes of open innovation. Inbound open innovation is focused on increasing the innovativeness in a company by integrating, customers, suppliers or other knowledge sources. Outbound open innovation focuses on exploiting internal knowledge outside the boundaries of the company.
2.2 Strategic alliances
Das and Teng (2000) define strategic alliances as follows; “Strategic alliances are voluntary cooperative inter-firm agreements aimed at achieving competitive advantage for the partners”. A consortium is a type of strategic alliance, with a common mission and purpose, which seeks to gain a benefit that could not be achieved independently. The strategic alliance consists of voluntary agreements between independent firms to develop and commercialize new products, technologies or services (Gulati, 1998; Rothaermel and Deeds, 2006). The term ‘alliance’ is a broad conceptual umbrella for many kinds of inter-firm agreements, from short term contracts to equity joint ventures (Ritala and Hurmelinna-Laukkanen, 2009). “Narrowly defined, a joint venture occurs when two or more firms pool a portion of their resources within a common legal organization” (Kogut, 1988). Joint ventures differ from a consortium as a joint venture is a legally binding enterprise, a company, formed specifically for achieving a common goal. Members in the described consortia retain their financial, legal, managerial and commercial autonomy, which is an important difference with other types of strategic alliances.
Once of the main reasons for companies to form an alliance is learning (Doz, 1996; Dussauge et al., 2000; Gulati, 1999; Hamel, 1991; Inkpen, 1998; Becerra et al., 2008). Literature suggests collaboration with competitors to be motived by the willingness to share risks and costs and creating synergy through pooling R&D resources (Mention, 2011, Das and Teng, 2000).
In literature on managing risks in strategic alliances much work has been done by Das and Teng (1998, 2000 and 2001). They are the first to distinguish between ‘relational risk’ and ‘performance risk’. Relational risk is defined as the probability and consequences of not having satisfactory cooperation (Das and Teng, 1996). Performance risk is defined as the probability and consequences that alliance objectives are not achieved, despite satisfactory cooperation among partner firms (Das and Teng, 1996). These alliance objectives in performance risk could be financial, knowledge-related, technological or strategic in nature. Because of this definition a
7 distinction is made between financial, knowledge-related, technological, strategic and relational goals and risks throughout this paper. Items in the interview guide have been placed under these categories (Appendix B). To avoid confusion it is important to distinguish between knowledge-related and technological goals/risks as the terms sometimes overlap in literature. Throughout this paper knowledge and technology are consistently being separately used. To be thorough, the term knowledge is used in the general sense; a justified belief that increases an individual’s capacity to take effective action, as defined in knowledge management literature (Nonaka, 1994; Huber, 1991). The term ‘technology’ throughout the paper is used as an output of innovation/development processes.
2.3 Coopetition
The traditional view in literature on inter-firm dynamics suggests relationships are cooperative or competitive in nature (Walley, 2007). However, it is apparent that firms can cooperate and compete with each other at the same time. This specific form of inter-firm relationship has been introduced as ‘coopetition’. Bengtsson and Kock (1999) define coopetition as ‘a situation where competitors simultaneously cooperate and compete with each other’. This hybrid activity is aimed at resulting in a positive sum for all parties involved. Although research on coopetition can no longer be called ‘under researched’ (Dagnino and Padula, 2002), within coopetition there are still subjects which require more attention. When taking the viewpoint from open innovation literature, it seems that coopetition is nothing more than extending the open innovation strategy beyond cooperating with customers, suppliers and other knowledge resources to cooperating with competitors. Yet despite the obvious overlap, the term coopetition is not frequently used to describe collaboration between competitors in open innovation literature. (Brandenburger and Nalebuff, 1996; Tether, 2002; Mention, 2011).
Value creation, ways to capture value and the role of numerous concepts in coopetition efforts have been researched Ritala and Hurmelinna-Laukkanen (2009, 2013). They state that findings of existing studies on coopetition and innovation imply that consortia between competing firms include unique characteristic not found in consortia without competing firms. Despite the growing relevance of the topic, the differences are not completely mapped and more remains to be done in terms of examining the logic of innovation-related coopetition, according to them. This statement clearly shows the gap this paper fills in coopetition literature. The differences and logic of innovation-related coopetition and the unique characteristics in competitive consortia that are not present in non-competitive consortia are the main focus points of this research.
2.4 Research gap
The scope of the research is clearly focused on differences and unique characteristics of competitive consortia which are not present in non-competitive consortia. As this research is explorative, the range of subjects is quite broad. Motives and goals, risks and costs, innovation characteristics and knowledge transfer are topics on which the research provides new insight. The insights on characteristics which are present in both competitive and non-competitive consortia and characteristics that are industry- or consortium specific fall outside the scope in this paper. On these insights no propositions will be made, but they might be worth investigating in future research.
To explain the reasoning behind this focus; first, academic literature specifically calls for a research into differences (Ritala et al., 2013). From an academic viewpoint it could also be valuable to map the characteristics between competitive and non-competitive consortia that are in agreement. However, for managers who are facing the option to join either a consortium with one or more competitor(s) or a consortium without competitors the differences are decisive. Also it could be important in practice to understand where a non-competitive consortium changes when a competitor of one of the partners is allowed to join, not where it stays the same.
The differences that are too specific to a firm, consortium or situation are beyond the scope of this research. To make the research relevant for both managers and academic literature it is
8 important to know that the differences found are not a unique occurrence. To prevent this; a specific difference must be mentioned at least in two separate situations/consortia in different interviews (see also the methodology section)
To quickly summarize the gap in current literature:
It is not clear what differences there are between participating in competitive and non-competitive R&D consortia.
It is not clear what the differences in goals and risks are for firms between participating in competitive and non-competitive R&D consortia.
It is not clear what the unique characteristics are in competitive consortia that are not present in non-competitive consortia.
2.5 Research questions Main question:
What are the main differences in goals and risks when participating in a consortium with and without competitors?
Sub questions:
What goals are more suitable to achieve in competitive and non-competitive consortia? What risks are more pronounced in competitive and non-competitive consortia?
What unique characteristics of the innovation and the environment are more suitable for participating in either competitive or non-competitive consortia?
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3.
Methodology
3.1 Case study research
The research approach of this study is a comparative case study design. Not much is known about the specific differences in competitive and non-competitive consortia, so an inductive approach aimed at generation of theory is required before literature can move to theory testing. The level of analysis will be at the firm-level, organizations are treated as individual cases. The research therefore does not take place on the level of the consortia. The firm perspective of the analyzed organization is taken on a competitive and a non-competitive consortium, so the focus is on the firm not on the entire consortium.
In this paper I will follow the Case Study research procedure outlined by Eisenhardt (1989). The research is qualitative in nature and data gathering has been conducted in several stages of in-depth interviews. An important component in the methodology of this research is the iterative process. This process is characterized by the act of moving in and out of the academic literature before, during and after the collection of data has begun and also by simultaneously gathering and analyzing data. Parallel to the research process the paper will address literature before the findings section in this literature review and after the findings section in the discussion (chapter 5). This results in a situation that some new literature will be introduced in chapter 5, as all items were not yet apparent before data analysis.
The goal of the case study method is to describe a contemporary situation within its real-life context (Stake, 1995; Yin, 1994). The research focuses on the differences between competitive and non-competitive consortia in multiple firms. Multiple cases are thus used as we wish to discover unique characteristics and differences in consortia from different perspectives. The multiple-case research design was also used because it permits ‘replication’ logic (Yin, 1994), in which cases are treated as a series of independent experiments that confirm or disconfirm emerging conceptual insights (Brown and Eisenhardt, 1997). I am looking for congruence during the research between cases that provides an increased confidence in the overall findings (Crabtree and Miller, 1999).
The research has been conducted in several stages of in-depth interviews. The focus has concurrently been on finding new insights and confirming those insights in the next interviews. The first interviews were mainly about finding new insights and establishing the different characteristics that come into play when participating in competitive and non-competitive consortia. The confirmation of insights at multiple companies is very important, as it generates explicit data that can directly be related to the interviews and it makes sure the findings are not firm- or consortium specific and thus increases the generalizability of the propositions.
3.2 Data collection; stage 1
First (more general) industry information, characteristics of the developments and consortia were gathered during 3 pilot interviews with high placed executives (see Appendix A). During these interviews insight has been given into what problems and concepts are related to the subjects this paper wishes to explore. In these first interviews 3 companies who have managed several competitive and non-competitive consortia are treated as individual cases and are used to generate conceptual insights. The interview guide that was used was made more specific based on the conceptual insights generated in the previous interview. Data analysis was done after each interview to prepare for the next.
After the first 3 ‘pilot’ interviews were conducted more extensive data analysis and literature research could take place. At this first stage interviews have been conducted in broader terms to generate conceptual insights, these concepts have been categorized and compared with existing literature to fix the final focus of the study.
10 Following the ‘tactic’ of cross-case comparison (Eisenhardt, 1989) several categories were selected based on existing literature. These categories were made specific in order to find differences between cases. This list of categories was added to the interview guide (see appendix B, p 35).
3.3 Data collection; stage 2 and 3
For the second and third stage, both consisting of 3 in-depth interviews, the interview guide and approach was completely revised1. The premise of this new approach was to establish both a competitive and a non-competitive consortium in which the firm operates and on which the respondent was knowledgeable. Then, the differences between non-competitive and competitive consortium endeavors were discussed, covering motives, goals, risks and costs, and other consistent differences like in innovation type and knowledge management were taken into account. By creating a framework of specific possible responses the consortia and firms could be compared and patterns in the answers could be more easily discovered and confirmed. However, the richness of the insights still came from the full transcriptions of the in-depth interviews and the use of quotes in this paper reflects that.
Keeping some guiding information and definitions at hand proved very helpful during these interviews. The concepts used in the interviews are in practice a lot less straight forward than they sometimes appear to be. Even a seemingly simple task like establishing an example of a direct competitor can prove to be quite difficult in practice. Sometimes a competitor on one product is a client on another product. Sometimes a firm supplies a competitor, because their product is cheaper and they need to achieve ‘economies of scale’. Sometimes a competitor uses entirely different materials to create a competitive product, but has no knowledge or interest in the other manufacturing process. So where in theory a competitor is a competitor (and poses a threat), in practice it is often very much open for discussion. These issues add to the richness of the insights, but do make it more difficult to establish clear relationships.
Information on the interviewed firms can be found in Appendix A. The interview guides used for the stage 2 and 3 interviews can be found in Appendix B.
3.4 Data analysis
In concurrence with the research procedure in the paper of Eisenhardt (1989), in the theory filtering stage the analyzed and rebuild data will be compared to existing theory. This comparison with existing theory is presented in the discussion part of the paper. Data analysis has been conducted according to the approaches developed by Yin (1994) in his book on ‘Case study research’ and by the qualitative data analysis methods described in ‘Business research methods’ by Bryman and Bell (2003).
The analysis has been done during the data gathering process with an emphasis on analysis after each stage of interviews was completed (for an overview of the stages see appendix A). The analysis consists of two parts; analyzing the explicit data (in table form), which can be found in appendices C, D and E. And analyzing the entirely transcribed in-depth interviews; for new insights on all the subjects and confirmation. The results of the explicit data (in table form) have provided the backbone of table 1, which provides an overview of the differences between competitive and non-competitive consortia. The analysis of the transcriptions has provided richness to this table in the form of many quotes.
The step of getting from the data presented in Appendices C, D and E to the findings presented in table 1 is quite large. According to Eisenhardt (1989) a huge chasm often separates data from conclusions in case study research. In an attempt to narrow this gap as much as possible a short explanation is given here.
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11 Appendices C and D present data given by respondents to indicate whether an item is more pronounced in either competitive (CC) or non-competitive consortia (NCC), or both. Each ‘X’ represents an indication of a single respondent to either a CC or NCC. Every time both are indicated with an ‘X’ the item is equally pronounced in CC and NCC. Every time there is no ‘X’ indicated the item is not applicable. An ‘X’ is bold when the respondent has mentioned the item in the open part of the interview and feels very strongly about the item. This adds a certain dimension of weight to the indication.
Appendix E provides an overview of simply adding up the number of X’s. In the bold items the difference between the amount of X’s (indications) is at least two. This means the items is potentially good for a proposition to explain the difference in NCC and CC. They are said to be potentially good, as the analysis of the transcriptions has to point out if the data is rich enough to support such a proposition and the situation is not highly incidental.
Several other questions in the interview guide (Appendix B, p.34) are a little more open in nature. An example of such a question is: “What are the main differences between products and services developed in both consortia (radical/incremental)?”. Indications on these open questions are compared in a table (not enclosed due to confidentially reasons) and when a clear difference (two or more indications) appears, the item is also potentially good for a proposition.
Table 1 is an overview of these differences found between competitive and non-competitive consortia, accompanied by an explanation and quotes supporting the finding.
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4.
Findings
The analysis of the data shed light on 7 important differences found between competitive and non-competitive consortia. In table 1 these differences are presented and illustrated using quotes from R&D managers and executives. In the third column a short explanation of the results is given to provide clarification. Some of the differences have been hypothesized in scientific articles (Ritala and Hurmelinna-Laukkanen, 2009), whilst others provide a completely new insight into the problems faced by organizations that manage both competitive and non-competitive consortia. The findings are structured as followed: first, the overview table is presented. Second, the differences will be divided in 4 categories where references will be made to the data in the appendices and subsequent findings in table 1. As explained; all items that were found equally pronounced in competitive and non-competitive consortia are beyond the scope of this research (e.g. financial risks). In the discussion the categories that show pronounced differences will be linked to literature and propositions will be made for these categories.
Nb. In the findings part the reader will regularly encounter an asterisk (*) in the quotes. This indicates that, for confidentiality reasons, a given example has been replaced by the established term to categorize that example.
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Technology Readiness Level (TRL) is a measure, most commonly used in aerospace, to indicate the maturity of a technology. The level indicates the state of development (maturity) the technology is in and starts at level 1 with the most basic technology principles being researched, to level 9 in which the technology has been proven through successful mission operations (source: NASA). In management application the TRL can be used to indicate how close a technology is to being commercialized and thus to generate revenue.
COMPETITIVE CONSORTIA
NON-COMPETITIVE CONSORTIA Incremental
“Our innovation usually falls back on a new combination of existing components” “we are looking for shorter cycles (short term innovation) and flexibility in a CC*”
Incremental/Radical
“A more radical technology, now our core technology, has been fully developed in-house” “In one NCC* we develop a radical new technology, at this moment those products are not or barely on the market”
The interviews indicate a focus on developing incremental innovations, especially in CC’s. There could be many reasons for this. In the interview respondents simply seemed to be hesitant to share information they have on a radical new technology. Participants in competitive consortia are simply not willing to share their unique information about a radical new technology to competitors.
Low and medium TRL
“Competitive consortia* are a little more pre-competitive... The final steps to TRL 5-6 don’t often happen there, because firms say; we don’t want to be with our competitor there”
“The trajectory in that CC is to climb up the TRL ladder to a
medium TRL”
Low and high TRL
“This NCC* is focused on innovation, that’s also very fundamental research”
“Fundamental research we don’t do in this NCC*, companies can do that on their own. In this NCC*
we want to obtain commercial programs… So that’s the high TRL
levels”
Low Technology Readiness Level2 (TRL) research is fundamental research, not much is known yet about the technology and companies sometimes are reluctant to share their ‘high potential’ ideas with competitors.
At this point companies can have different ideas about how to profit from the technology, high investments are required and companies use coopetition in consortia to network and get the idea on the road towards commercialization in order to later profit from it individually.
High TRL research means the system/product is ready to be commercialized. In this stage competitiveness becomes very important and companies are reluctant to share the
experienced they have gained so far in competitive consortia.
Focused on networking Focused on synergy Competitors are usually companies on the same place in the value chain, or aspiring to be in the same place. NCC’s
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“Collaborations are also important, for networking and to encounter new things from outside, it’s impossible to invent everything yourself” “In general I would say networking is an important motive to participate in collaboration” “In a CC* we acquire
knowledge and do networking, …which always happens”
“In this NCC* it is important to create synergy, where everybody needs to develop their own technology... We have to do activities in which we
complement each other and not do the same thing”
“In a NCC* we made a matrix of disciplines which we require in the consortium. So those disciplines we want to fill up. Companies are selected and invited to join...But we want one member for every main discipline”
therefore by nature seem more focused on synergy, by having partners in different parts of the value chain. This makes sure the system/product can be developed entirely within the consortium, without the risk of partners competitively working against each other. The aerospace cluster in the Netherlands for decades has focused on synergy in thermoplastic composites.
The major clients (e.g. Boeing and Airbus) are however located outside the Netherlands. To gain attention with these clients networking is important and is often a motive to engage in a competitive consortium.
Developing non-core knowledge
“We try to develop general process knowledge in a CC*, so both parties can profit from that and no core IP needs to be shared”
“We try to develop
technologies which are not our core IP in a CC*”
Developing core knowledge
“ It is not smart to develop our core technology in a CC*…In both a CC* and NCC* actually ” “This NCC* is the only consortium concerned 100% with our core technology*”
Companies are highly protective of their core knowledge. This IP is most valuable to them and even though it many times is protected through patents, they are not willing to share the details of it in competitive consortia. The core technology is in an advanced commercial stage and usually only developed incrementally in-house.
Sharing results
“There are also many internal secrets we don’t patent. Those are better of being protected in our process. By putting a process in a patent we still tell the outside world and patents can be worked around” This CC* is not where we primary develop our materials… We supply the material in the consortium, establish the problem and bring it back to our own facility. There we work on the problem and then bring the material back into the consortium”
Sharing during process
“In European CC’s* partners often use multiple technologies to create the same part in a different way. In national, NCC’s* different companies apply different techniques to create one part together”
To prevent competitors from gaining insight into valuable (tacit) knowledge many companies indicated they were only willing to share the results of their part of the development process in CC’s. Projects in consortia are usually cut up into smaller pieces to accommodate each company doing their part using their expertise. The balance in sharing during this development is one of the biggest differences in CC’s and NCC’s. Companies have to give enough information for others in the consortium to do their work, but not so much so that others can take over their job. In NCC’s this abundance of information is usually irrelevant as the other companies are not competing for the same customers. But in CC’s an abundance of information can be very useful to other parties and therefore companies are focused on not sharing any information beyond what is absolutely necessary.
Knowledge related risks
“Losing knowledge to a competitor is a risk that is always there”
“The main risks are in technological risks and financial risks. And in CC specifically the knowledge related risks”
Technological risks
“But talking about risks in this NCC*, we consider it pretty much to be risk free. Especially considering the advantages it can bring… But our dependency to the people making the parts is very big”
“At this NCC* we want to generate business. The only risk is that we have been investing time
Risks in CC’s were perceived as low, because the networking goal is almost always achieved. Even if the project fails, the networking can still be of value for other (commercial) objectives. The knowledge related risks were more
pronounced in CC’s, companies fear losing core knowledge to competitors.
The technological risks seemed more pronounced in NCC’s, especially the interdependence risk was much more pronounced. The high amount of synergy makes the
companies more dependent on each other to find solutions to the problems they face. This dependence becomes a risk if one or more companies are not functioning properly.
14 Table 1 - An overview of differences between competitive and non-competitive consortia
4.1 Incremental and radical innovations
The first important difference, on the radicalness of the innovation, was found in the first interview stage. Incremental developments consist of minor changes and modifications on existing products or technologies. Radical developments concern major departures from existing technologies and firm capabilities and constitute the basis for completely new technologies or products.
In competitive consortia almost all developments were incremental developments. One R&D manager states:
“Because the supply chain doesn’t want to finance these projects 10 years in advance, knowing there is still a chance the technology won’t be applied, we keep falling back on existing components. So that is why our innovation usually falls back on a new combination of existing components”
The explanation of most managers was; being reluctant to share unique information in a competitive consortium. When they considered themselves most knowledgeable on a certain radical innovation they could not see the point in collaborating with competitors and risk losing more knowledge than they would gain. An executive illustrates:
“We are leading in a radical technology*, some (competitive) partners* also research this… but they are not capable of using it yet. So it is not in our interest to show them how to further develop that technology”
Incremental developments are by definition based on existing technologies. Most times these technologies are more matured and extensively patented. Due to this nature there is more common knowledge about these technologies and researching them with competitors is a much less threating proposal which could overcome high financial investments or provide new insights that otherwise might have been overlooked.
In non-competitive consortia most developments were also incremental developments, for much of the same reasons as with competitive consortia. However, when the development was still on a low Technology Readiness Level, and thus pre-mature, companies were willing to research the development in non-competitive consortia. The reasons for this were either financial, to involve suppliers or clients and set up a supply chain (which should not require
in the technology for nothing”
Relational goals
“In a CC* we acquire
knowledge and do networking, … which always happens” “Collaborations are also important, for networking and to encounter new things from outside, it’s impossible to invent everything yourself”
Strategic goals “If competitors are involved in the consortium you won’t gain advantage over those competitors”
“In a NCC* we made a matrix of disciplines which we require in the consortium. So those disciplines we want to fill up. Companies are selected and invited to join...But we want one member for every main discipline”
Relational goals were more pronounced in CC’s. In aerospace the end users of the innovations are mainly large OEM’s. These companies usually participate in larger international consortia, which are more likely to contain competitors. Appealing to these companies through consortia is very common. Strategic goals were more pronounced in NCC’s. Finding a suitable customer segment, improving competitiveness, and even getting access to new customers were much more pronounced in NCC’s. Companies simply seemed more confident to form a strategic alliance in NCC’s. There was higher mutual trust between companies, the long term goals and the core knowledge was more aligned in NCC’s.
15 competitors) or to gain additional insights into the development. The link to the Technology Readiness level is explained by a R&D manager:
“CC’s* are a little more pre-competitive…. It is pre-competitive in the sense that it is research before the technology is perfectly detailed and ready for application… At TRL 1,2,3 and 4 we make demonstrators… The final steps to level 5-6 don’t often happen in competitive consortia*, because we don’t want to be with our competitor in one project, because we will lose everything”
4.2 Knowledge transfer
In the interviews differences were found in the way companies transfer knowledge during a development in competitive and non-competitive consortia. This also relates to the kind of knowledge consortia members wish to develop. The finding came to light due to the richness of the information provided by the respondents.
Communication is a vital part of cooperation; it can be done through written (i.e. formal reports), verbal and non-verbal communication. During the interviews indications were given that differences could be found between competitive and non-competitive consortia in both the amount of communication and the communication processes. In competitive consortia a stronger emphasis on written communication was discovered. A higher amount of contracts at the foundation of the consortium ensuring safe knowledge transfer in the form of formal reports was more much common in competitive consortia (see also chapter 5.2).
Companies also made a clear difference between their core knowledge, on a specific technology in which they were specialized, and non-core knowledge which they wanted to develop for future profits. The term ‘core knowledge’ stems from literature on ‘core competencies’ (Prahalad and Hamel, 1990; Hayes, Wheelright and Clark, 1988). In an extension of that term knowledge can be considered ‘core’ if it differentiates a company strategically (Barton, 1992). Thus, knowledge can be considered ‘non-core’ if it does not differentiate the company strategically. The ‘core technology’ is a technology exploited by the company to differentiate the company strategically. The core technology was found during the research at the firms to usually be in an advanced commercial stage and mostly developed incrementally in-house.
Since the survival of the company depends on one or more core technologies, it seems logical that R&D managers are highly protective of this technology. The IP is most valuable to them and even though it is often a matured technology protected through patents, they are not willing to share details and their expertise in competitive consortia. Several managers on knowledge transfer and knowledge protection in a competitive consortium:
“Some innovations are patented. But there are also many internal secrets we don’t patent. Those are better off being protected in our process. By putting a process in a patent we still tell the outside world and patents can be worked around. So we have to create a balance….We talk with competitors in consortia when it could help us to expand our market… that’s not where we primary develop our materials. But possibly we use our materials there; we supply the material in the consortium, establish the problem and bring it back to our own facility. There we work on the problem and then bring the material back into the consortium”
“Building a demonstrator (for a new technology)… can more easily be done in-house and better fits competitive projects* in general… It is not smart to develop our core technology there, unless we have a very good reason to do so…In both a CC* and NCC* actually. The advantage at the CC* is that you are able to develop products, very innovative. But the IP that you generate, what the tooling looks like and how you develop/design tooling, that is a part nobody sees. That is the part only we know”
16 In non-competitive consortia it was more common to develop core knowledge, but in most cases the actual technological development was done within the walls of the company. When core knowledge was developed the results were mostly shared after the research had been conducted and the company’s expertise had been applied. When offering a solution in the form of a product or process to the consortium partners, the trade-off between passing enough knowledge to the partner(s) to effectively extend that solution with their expertise, while not giving enough information to copy that solution, is very important. In many cases of non-competitive consortia the consortium partners applied their expertise (core knowledge) on a component and then pass the component to the next partner in the value chain for further development. In competitive consortia, competitive partners are usually on the same level in the value chain. So they will apply knowledge which is not their main expertise (non-core knowledge) to develop a product and pass it to their (competitive) partners. Or the partners will develop multiple products simultaneously and only demonstrate the result to the client or public. This way they do not need to share information, but are still developing technology under the umbrella of a consortium.
4.3 Goals
4.3.1 Financial goals
The financial goals of the researched firms were not clearly more pronounced in either competitive or non-competitive consortia. Sharing high research costs was more a consideration in competitive consortia, as was ‘selling more products to consortium participants’. ‘Increasing the size of the market’ was considered a more important financial goal in non-competitive consortia. During the in- depth interviews no general consensus could be made about the reasons for this, nor could multiple explicit examples be clearly established. We therefore have to assume financial goals are of importance in both consortia types and general propositions on financial goals cannot be made due to this lack of consensus.
4.3.2 Knowledge related goals
During questioning on knowledge related goals a pattern was found on the item ‘creating synergy through complementary knowledge’ (Appendix E1). The focus on synergy was most pronounced in non-competitive consortia. One R&D manager discussing knowledge protection and synergy:
“We create a certain amount of protection around our innovations. Projects we develop in-house are confidential or patented, which is the same for our partners in the Netherlands. We won’t give that away. What we develop in this non-competitive consortium* is strictly for the consortium, for the partners in that consortium, and will not be available to third parties. When you develop something together to create synergy, you want to accomplish more together then you would do separately. And we built a wall around that and won’t share that information with the outside world… In a consortium like that there are no competitors”
In non-competitive consortia most companies are in different stages of the value chain, no company has the same set of skills. They highly depend on each other for creating a successful final product in this consortium type. Complementary knowledge is thus an essential issue in non-competitive consortia. A manager clarifies:
“At a competitive consortium* our competitor X, is participating... We don’t intensively exchange information of course… In a non-competitive consortium* we made a matrix of disciplines which we require in the consortium. So those disciplines we want to fill up. Companies are selected and invited to join. It is not an open membership. If you bring in a discipline which none of the existing members has, you can enter. But we want one member for every main discipline”
17 In competitive consortia, competitive parties have roughly the same skill set (which is why they are competitors). The need for synergy is less emergent as the companies are more capable of executing tasks independently of one another. This has an effect on knowledge sharing and the general way the consortium is set up and can be considered one of the more important findings of this research.
4.3.3 Technological goals
The importance of technological goals was found remarkably equal in both competitive and non-competitive consortia. Not one item in the interview data was more pronounced in either consortium type. The emphasis on technological goals was high as can be expected in R&D consortia. But since it was equally high in both consortia types no propositions can be made on this subject.
4.3.4 Strategic goals
Strategic goals were found more pronounced in non-competitive consortia. ‘Finding a suitable customer segment’, ‘improving competitiveness’, ‘getting access to new customers’ were all found to be more pronounced in non-competitive consortia. The reasons for improved competitiveness in non-competitive consortia that were mentioned are; in competitive consortia you will not gain competitive advantage over your competitive partners. As quite literally illustrated by a R&D manager:
“If competitors are involved in the consortium you won’t gain advantage over those competitors”
Also, when collaborating in non-competitive consortia mutual trust was considered higher and linking the chains in the value chain was considered essential for the long term strategic goals of the partners.
4.3.5 Relational goals
Another major difference was found in the focus on relational goals in competitive consortia. Although only ‘increasing supplier involvement’ was confirmed by the data to be more pronounced, many managers specifically mentioned the importance of networking and relational goals in competitive consortia, as illustrated by the quotes in table 1. A R&D executive on synergy and networking:
“In collaborative projects is a certain amount of synergy, that’s very important. And an amount of networking, getting to know other companies, that will remain”
Many managers considered competitive consortia to be a great opportunity to improve relations with clients, suppliers and to demonstrate the technology and the abilities of the company to the public.
Data about the findings on; ‘motives and goals’ can be found in Appendix C1 and C23.
Appendix E1 shows an overview of the number of times a certain item was considered more pronounced in competitive or non-competitive consortia. When the difference is more than 2
3
The data in the Appendices C, D and E are used as an indication to confirm the insights made during the in-depth interviews. The rich dataon which the insights of this paper are based lies in the transcriptions of the in-depth interviews. For confidentially reasons the transcriptions of these interviews are not enclosed.
18 the item was considered potentially good for making a proposition. As can be seen in this appendix the items under relational goals are substantially more pronounced in competitive consortia. While knowledge related goals are more pronounced in non-competitive consortia. 4.4 Risks
In general the perceived risks were quite low. Respondents in most companies considered the risks properly managed if they were even acknowledged at all. However, there were several major differences in risk considerations between competitive and non-competitive consortia, some of which were highly unexpected.
4.4.1 Financial risks
Financial risks were found to be more pronounced in competitive consortia. Large participation costs and long financial commitments were much more considered in competitive consortia. A R&D manager states:
“It’s very hard to enter a long term commitment. The fees to participate for a long time are very high… If you want to participate in this competitive consortium* it takes a 7 year commitment. Well, 7 years ago we didn’t know what we would be doing today. So if we participate for 7 years, it costs a lot of money and if it doesn’t create value we have a problem. So it’s hard to commit for such a long time. That’s why we are looking for shorter cycles and flexibility”
Although a pattern emerged when considering the research data in the table (appendices C, D and E); no real consensus could be found pointing out a clear difference between competitive and non-competitive consortia. Most firms had a reason specific for a particular consortium why participation costs were larger and commitments were longer in that consortium. So, no generalization could be made for financial risks being higher in competitive consortia.
4.4.2 Knowledge related risks
The knowledge related risks were more pronounced in competitive consortia. Losing employees to competitors is a risk which is present in competitive consortia. The data in Appendix E2 shows this risk to be more pronounced in competitive consortia. The responses of the managers in the in-depth interviews clearly put emphasize on knowledge related risks in competitive consortia. However, to reduce this risk firms often refrain from researching core technologies or develop the technology within the walls of their own firm and present the results to partners at the end of the process in a formal report. This keeps the transferred knowledge manageable and reduces the risk of unintended knowledge spillovers (see chapter 5.2 and 5.4).
4.4.3 Technological risks
The technological risks were found more pronounced in non-competitive consortia. Especially the risk of a technological failure due to dependence on other partners was found to be more pronounced in non-competitive consortia. A R&D manager states in this context:
“Our dependency to the partners who are making the parts is very big”
As we established earlier (Chapter 4.3.2) firms in non-competitive consortia tend to focus on creating synergy by linking the chains in the value chain. By not allowing competitors into the consortium, each link in the chain becomes harder to replace, because every firm has their unique skills and expertise in the consortium (with no alternative in the consortium). It can therefore be suggested that by nature partners in non-competitive consortia are more dependent on each other, because by definition competitors are offering a substitute for each other’s products or technologies.
19 4.4.4 Strategic risks
Strategic risks were generally perceived as very low. Respondents hardly considered them relevant in either consortium type. The only risk found was ‘losing competitiveness’ in competitive consortia. Two respondents mentioned the risk of losing competitiveness to the competitive partners in the consortium. The idea of those respondents was that because the competitive parties inside the consortium gained benefits on the same innovation they would lose competitiveness relative to competitors outside the consortium. However, the advantage gained over competitors outside of the consortium made up for losing competitiveness to competitors inside the consortium. Only in hypothetical situations where the firm has one or very few competitors, with whom they collaborate in a consortium, could ‘losing competitiveness’ in that competitive consortium be a great strategic risk.
4.4.5 Relational risks
Relational risks were also perceived as low. In general participating in a consortium of either type was found very positive for relations with clients, suppliers, universities, research institutes and all other possible consortium partners. Even failure of the development on a technological level does not undermine the relational value of the partnership in the eyes of the respondents. Opportunistic behavior of consortium partners was considered a potential risk in non-competitive consortia by three respondents, but this was highly specific to the situation and no consistent pattern in the data could be revealed to support a proposition. A manager illustrates on opportunism in competitive consortia:
“It’s not like that for all competitors. But for some, definitely. It is easy to see by looking at the deliverables in some projects; the reports that are being handed in, by looking at the role of certain companies in a project. Some firms are just looking at what is going on. While, we are also looking, but we also deliver tangible data, demonstrators, good estimates on planning, etcetera”
4.4.6 Conclusion
In conclusion it can be said that participating in competitive and non-competitive consortia entails a tradeoff between many different factors which all are connected to each other. The innovation type, transferring knowledge, goals and risks, they are all linked. Having one or more competitors present in a consortium is a definite cause for companies to change their entire approach to a collaborative R&D project. In short, it was found in this study that this change in behavior is most prominently reflected by the innovation type (radical or incremental), the way firms transfer knowledge and their perceived goals and risks. In the discussion section these items will be linked to the current understanding in academic literature.
Data about the findings on; ‘risks and costs’ can be found in Appendix D1 and D24.
Appendix E2 shows an overview of the number of times a certain item was considered more pronounced in competitive or non-competitive consortia.
4
The data in the Appendices C, D and E are an indication to confirm the insights made during the in-depth interviews. The rich dataon which the insights of this paper are based lies in the transcriptions of the in-depth interviews. For confidentially reasons the transcriptions of these interviews are not enclosed.
20
5.
Discussion
In the previous section this research has shown 7 distinct differences in the characteristics of non-competitive and non-competitive consortia in the Dutch aerospace industry. These 7 differences are placed under 4 major themes, because some differences are overlapping and some are moderating others. Table 2 shows which differences are incorporated in which chapter, with a short explanation.
The aim of this paper is to use the rich and insightful data sample that was gathered by comparing it to the existing theories in the current literature stream on open innovation, strategic alliances and coopetition and make several propositions. This discussion describes that comparison of the findings with academic literature and makes a proposition on each subject.
Table 2 – Merging the found differences in 4 chapters
5.1 Incremental and radical innovations
The nature of the innovation, being radical or incremental, has been linked to coopetition on some occasions (Belderbos et al, 2004; Mention, 2011; Ritala and Hurmelinna-Laukkanen, 2013). Belderbos et al (2004) suggest that R&D collaboration with suppliers appears to have more of an incremental nature focused on reducing input costs and labor productivity. In their paper it is also suggested that collaboration with universities are instrumental in creating and bringing to market radical innovations (Belderbos et al., 2004; Mention, 2011), while competitor collaboration is the only type of collaboration that is effective in generating both incremental (improving productivity performance) and radical innovations (generating sales of products novel to the market). Although the consortia researched in this paper mostly consist of multiple R&D partner ‘types’ (competitors, suppliers, customers and university), as researched by Belderbos et al. (2004), these implications draw close to what was found in this research. The relationship between radical innovation and collaboration with competitors is very much under debate; Monjon and Waelbroeck (2003) find a negative relationship, while Tether (2002) finds weak evidence for a positive relationship. Results found by Mention (2011) support a negative relationship between knowledge sourcing from competitors and the degree of innovation novelty, but no definitive negative relationship between coopetition and the propensity to introduce new to the market innovations. These papers all indicate the complexity of the issue, the need for clarity on this subject and support the findings in this paper. During our investigation a general focus was found on incremental developments in consortia (chapter 4.1). It is argued in literature (Pisano, 1989; Oxley and Sampson, 2004) that projects involving existing technologies raise fewer hazards for alliance partners, because the preexistence of a product or process enables parties to delineate property right with less ambiguity than with non-existing technology. This implies that incremental innovations pose fewer risk of knowledge leakage. Especially in competitive consortia it was found that almost all
Chapter Differences Explanation
5.1 Incremental and radical innovations
1. Incremental - Radical innovation 2. Low - Medium - High TRL2
NCC’s were found suitable for both radical and incremental innovations. The TRL was found to moderate this relation.
5.2 Knowledge transfer 3. Non-core - Core knowledge
4. Sharing results - Sharing during process
These items are related as one indicates the type of knowledge transferred and the other the timing when the knowledge is transferred.
5.3 Goals 5. Relational goals - Strategic goals 6. Networking - Synergy
The goal of networking is part of relational goals, which means they overlap.
The need for synergy between firms in NCC’s was found part of their strategic goals.
