The business network

Several innovation projects were dependent on specific equipment produced by subcontractors or bought as standard or modified machines, tools, or software from suppliers. Many of these inputs did not add elements of innovation to the project. However, such transactions opened up access to specific tacit knowledge embedded in the supplier’s organization. A deeper understanding of the functionality of hardware, for example, was an important prerequisite for the development of software running on servers from a specific supplier. The outcome of a pure commercial deal could

24 John Doyle, R&D/HR executive at HP.

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therefore also include fragments of knowledge that were important for some elements of the innovation process.

Few firms mentioned subcontractors or suppliers as an important partner for learning and innovation. This was a surprise, as subcontractors often have a prominent position as a co-developer in innovative manufacturing. This observation could be coincidental, as our informants are small in number and from a special segment of service firms. On the other hand, it could also be a result of the existence of a more modest supply chain and a less sophisticated division of labor in services than what can be observed in manufacturing.

Those who did mention suppliers as an innovation-partner used as examples a close partnership with a supplier of a generic software that is important for the functionality of the case firm’s data systems, or a supplier of customized hardware that is necessary for the distribution and quality of the service provided. Under such circumstances, close relations developed. Knowledge from both parties were used to solve problems and create a platform for the new or modified service.

Most often, a relation with a supplier was basically traded input, where a contract defined the scope of the work. The direction of the knowledge exchange was from the supplier to the service firm.

Many consulting firms added knowledge to the project in this way—adding specialized knowledge that was necessary to solve specific pre-existing problems. In a few cases, the exchange of knowledge was symmetric and developed into a partnership where the supplier in turn also received input from the case firm—knowledge which was important for their own development. In these cases a more informal governance of the transaction developed. As a reward, the case firm could utilize the suppliers’ knowledge base in more depth, or the price for the supplies was reduced.

The customer was often mentioned as an important contributor to the innovation process. This influence often came under the initial part of the project or in the late pilot phase. In the early phase of idea generation and the identification of the commercial potential for the innovation, input from existing and potential customers was important for the implementation and direction of the project.

Under the first part of the development project, customers were seldom involved in the process.

However, when a prototype or a beta version of a software-program was up and running, user-based feedback was essential for the calibration of the quality of the service and for the development of a user-friendly product.

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In this late phase, an existing and trusted customer was invited to take part in a pilot project. Several mentioned that in this phase it was important to interact with individuals in the client’s organization with whom a trust-based relation had already been established. This would create the best foundation for an open exchange, but also for a willingness to share the risk of using time and capacity on the development of the pilot. Such willingness was normally rewarded with reduced prices on other services, the free use of the new service for a certain length of time, and a position as a prioritized customer. For obvious reasons, the customer was involved to a larger extent if the service was customized to the client’s specific needs and assets.

The direct influence of competitors as partners in innovation projects was almost nil. Many reported that competitors had an indirect influence on both the direction and content of an innovation project. This influence could take the form of inspiration for or a model of what improvements it was possible to achieve. Alternatively, it could act as a guide to the main trends in the market and from there in what direction the firm needed to focus and develop new platforms or services.

Most firms closely monitored what their nearest competitors did. They met them indirectly when they competed for contracts or took part in trade exhibitions or conferences. They talked to representatives of their main competitors and knew several of them quite well. They also met personnel from competitors in other arenas as part of professional associations and as colleagues.

Informal relations and social networks, “communities of practices”²⁵ for exchange of experiences, disciplinary associations, and “clubs” were all important forums for access to new information, help solving problems, and arenas for learning.

Through social networks knowledge leaks and spills over from one individual and organization to another. To take part in these exchanges, the participants needed an absorptive capacity that was developed through a mix of educational- and experience-based learning and a “membership” in the

“club.” Such forms of social exchanges contributed to a rapid dissimilation of generic knowledge among the participants. Social relations were also regarded as an important platform for learning in general, and for solving specific problems as they will appear underway in the innovation project.

As explained by informant 9:

25 A group of people sharing a common craft, profession or line of practice.

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“The most important actors we have been in contact with are not mentioned in your figure (Figure 2.4 Innovation system). It is informal actors, in meta-groups, disciplinary groups, conferences, or informal disciplinary networks organized in the participants’ leisure time. It is through such forums that innovation in software technics takes place and new knowledge disseminates. Interaction with other professionals in such forums is how my people learn. We have also been in touch with Coursera (open internet based courses from top universities focused on data-tech). This type of knowledge source is very important for us.”

The form and sophistication of these networks are dependent of the complexity of the services and the professionalization of the competencies important for the firm.

Most of the individual contributors to these knowledge exchanges work in or are committed to units that we include in the set of actors called the “business network” in Figure 2.4. In more advanced forums, individuals from academia also take part.