Ideas with Impact
UNB Faculty of Management

When we think successful innovative companies, one of the first that comes to mind is Tesla. What we don’t think of so readily are the number of small-tech companies that lack the resources Tesla has, but have been able to operate successfully because of Tesla selectively sharing its alternative energy innovations to the public. “Open innovation”, a term created in 2014 by Berkeley Haas professor Henry Chesbrough, is the practice of companies like Tesla sharing their research and development, sometimes for profit, but not always. It is the topic of a study recently published by UNB business professor, Dr. Ibrahim Shaikh, in Technovation, a journal included in the ABDC list of journals as an A level publication. His article, “Managing the risks and motivations of technology managers in open innovation: Bringing stakeholder-centric corporate governance into focus,” identifies potential drawbacks to open innovation and suggests some practical solutions.

“Over the years technology executives increasingly draw on new markets for ideas and technologies and benefit from the use of open innovation,” says Shaikh. “So, without doing much in house corporate research and development, companies can use external ideas to commercialize their innovations, or allow outside stakeholders with better business models to profit from their inventions.”

The study shows that despite strategic leaders’ willingness to embrace open innovation at the top, the drive for short-term shareholder value results in several risks that prevent it from being disseminated throughout society to create shared prosperity.

Some common obstacles to more companies benefiting from open innovation include senior leaders’ emphasis on appeasing shareholders which unwittingly sabotages the absorption and dissemination of open innovation at the backend. This often prevents incumbents from institutionalizing open innovation.

Shaikh suggests holistic stakeholder-centric open innovation governance is a superior alternative to the shareholder primacy model adopted to date by mature R&D companies. He also notes that “non-pecuniary rewards and informal controls support the interests of non-shareholder stakeholders in order for open innovation to be fully institutionalized.”

While open innovation has helped new and smaller tech firms become successful, like those mentioned above, Shaikh’s research shows that the majority of large tech companies are much less open to use their intellectual property to create shared prosperity due to executive incentives to increase short-term shareholder value. 

“Corporate governance (rewards and control mechanisms) helps firms abate the open innovation risks of misaligned managerial motives and stakeholder asymmetry, to institutionalize open innovation,” suggests Shaikh.
 
“The three processes that underpin the institutionalization of open innovation to create shared societal value – generation, absorption and dissemination – require aligning governance practices across primary, secondary and tertiary open innovation agents.”

Shaikh joined UNB’s faculty of management in 2015. His research interests include agency-theory, radical technological innovation, cash holdings, corporate governance, boards, financial strategy, and corporate entrepreneurship. He uses experiential teaching methods in his strategic management, and entrepreneurship courses at both the undergraduate and graduate level.

Shaikh says the experiential approach to entrepreneurial education used in UNB’s faculty of management is a prime example of using open innovation best practices to create shared prosperity. “Open innovation is based on two key assumptions. First, the best people do not always work for you; and two, knowledge is widely diffused throughout society. As such, open innovation at UNB requires our students to get out of the building and test real work business model assumptions.”

Recently, students in his competitive strategy class worked with agencies in Atlantic Canada to incubate potential solutions to a number of problems. They looked at how New Brunswick could increase immigration, and different ways businesses can manage the risks of COVID-19.

“Interestingly, I find small business ecosystems such as Atlantic Canada have a better understanding of using open innovation theory to create shared stakeholder prosperity than most large corporations anchored in major tech hubs such as Toronto, Boston, or San Francisco,” says Shaikh. “That’s quite a revelation, based on years of study and introspection.”

Photo: UNB professor Dr. Ibrahim Shaikh published his research on managing open innovation in Technovation.

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Media Contact: Liz Lemon-Mitchell