Proceedings of the 8th International Conference on Intellectual ...

Balancing <strong>the</strong> Incentives and Controls in <strong>the</strong> Knowledge
Partnership-Based Business Models
Giedrius Jucevičius
HEC University <strong>of</strong> Lausanne, Switzerland
Kaunas University <strong>of</strong> Technology, Kaunas, Lithuania
giedrius.jucevicius@ktu.lt
Abstract: Some <strong>of</strong> <strong>the</strong> most innovative business models are characterized by a high degree <strong>of</strong> openness, as far
as knowledge partnerships with various stakeholders are concerned. However, <strong>the</strong> inbound and outbound open
business models (à la Chesbrough) are confronted with multiple challenges that are mainly related to <strong>the</strong> issues
<strong>of</strong> inter-actor trust, cooperation incentives and private value appropriation. This paper aims to provide a
<strong>the</strong>oretically and empirically sound overview <strong>of</strong> <strong>the</strong> existing coordination mechanisms in <strong>the</strong> knowledge
partnerships within <strong>the</strong> innovative business models. The analysis focuses on <strong>the</strong> ways <strong>the</strong> incentives enabling <strong>the</strong>
collective knowledge sharing and value appropriation from <strong>the</strong> collective activities, as well as safeguards against
free riding are properly balanced and implemented in different organizational contexts. The paper employs <strong>the</strong>
research methods <strong>of</strong> <strong>the</strong> <strong>the</strong>oretical analysis in <strong>the</strong> fields <strong>of</strong> organization studies, business model design and <strong>the</strong>
empirical case studies <strong>of</strong> several innovative business models. The research paper takes into account <strong>the</strong> variety
<strong>of</strong> knowledge partnerships both on <strong>the</strong> supply- and demand-side. The nature <strong>of</strong> incentives for knowledge sharing
and means for value appropriation may vary depending on <strong>the</strong> type <strong>of</strong> <strong>the</strong> knowledge partnership. On <strong>the</strong>
demand-side, <strong>the</strong> emphasis lies on establishing <strong>the</strong> incentives for participation. On <strong>the</strong> supply-side, <strong>the</strong> most
salient issue is <strong>the</strong> establishment <strong>of</strong> proper safeguards that prevent from abusing <strong>the</strong> trust-based knowledge
transactions, as well as <strong>the</strong> proper value appropriation regimes. The incentives and safeguards should be
properly balanced within <strong>the</strong> organizational system so that safeguards are not turned into <strong>the</strong> disincentives to
engage into <strong>the</strong> knowledge partnership. The paper provides a list <strong>of</strong> incentives and safeguards, and discusses
<strong>the</strong>ir systemic relationships in different organizational contexts.
Keywords: knowledge partnerships, business models, incentives, value appropriation
1. Introduction
The recognition that much <strong>of</strong> <strong>the</strong> valuable knowledge is located outside <strong>the</strong> organization, i.e. outside
<strong>the</strong> hierarchies and direct managerial control, makes businesses rethink <strong>the</strong> ways <strong>of</strong> managing
knowledge in <strong>the</strong>ir innovation processes (Chesbrough, 2005; 2006; Wang et al., 2009). One can
notice a change from <strong>the</strong> internal focus on management towards <strong>the</strong> external focus on governance.
The open business models, however, are confronted with new dilemmas, especially concerning <strong>the</strong>
individual appropriation <strong>of</strong> benefits in <strong>the</strong> group-based innovative activities.
This paper tries to combine two perspectives that are indispensible to any successful open business
model that is based on external knowledge partnerships.
On one hand, it looks into <strong>the</strong> incentive structures that are applied in various collaborative business
models. The incentives are <strong>of</strong> a particular importance for any knowledge partnership to take place,
whe<strong>the</strong>r it involves customers, o<strong>the</strong>r producers or just knowledgeable experts from various fields.
There must be sufficient incentives not only for <strong>the</strong>se actors, but also for <strong>the</strong> company that initiates
knowledge partnership as a basis <strong>of</strong> its business model. It most cases companies have to open up
some <strong>of</strong> <strong>the</strong>ir intellectual (and sometimes financial) resources to <strong>the</strong> external stakeholders. Thus,
strong incentives must be present on all sides <strong>of</strong> <strong>the</strong> partnership.
Ano<strong>the</strong>r important aspect <strong>of</strong> a properly functioning open business model concerns <strong>the</strong> establishment
<strong>of</strong> safeguards against <strong>the</strong> free riding activities as well as <strong>the</strong> ways for appropriating <strong>the</strong> value without
destroying <strong>the</strong> participation incentives (i.e. propriety controls <strong>of</strong> <strong>the</strong> outcome). Whereas knowledge
remains a highly intangible asset, its exchange may be subject to various kinds <strong>of</strong> abuse by <strong>the</strong>
partners. The safeguards largely depend on <strong>the</strong> nature and type <strong>of</strong> <strong>the</strong> knowledge partnership, i.e.
one can expect a different type <strong>of</strong> legal, economic and social safeguards in <strong>the</strong> IT-based
crowdsourcing activities (e.g. Innocentive), R&D partnerships <strong>of</strong> large enterprises (e.g. Nestlé), or
customer involvement in co-creation process (e.g. Zara). Depending on <strong>the</strong> type <strong>of</strong> partnership (e.g.
formal, informal, public, private), <strong>the</strong>re can also be a variety <strong>of</strong> value appropriation regimes.
Any successful open business model that is based on <strong>the</strong> exchange and use <strong>of</strong> knowledge by multiple
partners must effectively balance <strong>the</strong> system <strong>of</strong> incentives and safeguards. This is <strong>the</strong> basic
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