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Download PDF FileIntroduction
Innovation is defined as the new ideas, new imaginations, or creative thoughts that can be applied to a system or organization in the form of a method or technique, according to Loukis, Charalabidis, and Androutsopoulou (2017). Open innovation is a model which assumes that organizations should use external and internal ideas, external and internal paths for marketing, to make advancements in their business (Martín-de Castro, 2015). Open Innovation introduced the idea that organizations can make use of the knowledge from various sources for enhancing innovation and delivering value to customers (Martín-de Castro, 2015). Open Innovation was not designed only for private organizations, the model can be adopted by other innovative entities non-profit organizations, and universities.
In the business innovation model, the organizations are responsible to rethink their current business for generating revenue streams. For this purpose, organizations have to improve their existing business model to increase the value of their business.
Innovation Theories
Martín-de Castro (2015) further stated that there are two innovation theories used for this report. The first theory used for this report is the Open Innovation theory. Open Innovation is defined as the use of purposeful outflows and inflows of knowledge for accelerating internal innovation while expanding markets for the use of innovation externally.
Open Innovation Model Processes
Open innovation defines the process through which organizations utilize and access external innovation. Open Innovation model processes are capable of combining external and internal ideas into systems and architectures. According to Martín-de Castro (2015), open innovation model processes employ business models for defining the requirements for systems and architectures.
Principles of Open Innovation Model
To implement the open innovation model, the organizations should focus on the following principles of open innovation model:
The organizations must find and gain the knowledge and expertise of individuals outside the organization.
The organization must know that external research and development may create value in the market whereas internal research and development are required for claiming a portion of that value (Open Innovation, 2020).
Organizations should focus on building better business models rather than focusing on the market needs first (Open Innovation, 2020).
Organizations must make better use of internal and external ideas to make progress in the market.
The organization should gain profit from others using their IP and should buy other organizations’ IP when it makes advancements in the business model of the organization.
Benefits of Open Innovation Theory
Martín-de Castro (2015) mentioned in the study that there are several benefits for the organizations that adopt the Open innovation model for their businesses:
Quality of Services and Products
Open innovation can help the organizations to increase the level of their performance, in this way TerraCycle can generate revenues and work on the different processes of innovations. Schuurman (2015) argued that integrating the feedback from the partner firms during the innovative process can enable TerraCycle to target their development efforts to improve the quality of their services and products (Brant and Lohse, 2014).
Fewer Costs and Risks
Obtaining the technology and skills from external sources is beneficial for the organizations and to gain these benefits TerraCycle needs to create inputs and reduce the risks and costs linked with the development of a product (Brant and Lohse, 2014).
Flexibility
As the market conditions are changing rapidly, Open Innovation will be beneficial for TerraCycle as it permits the organization to become flexible and adapt the knowledge based on shifting commercial needs (Brant and Lohse, 2014).
Monetization
Open innovation will enable TerraCycle to spread its business model and make advancements in its technology (Brant and Lohse, 2014). TerraCycle can monetize its development investments through Open innovation. Through Open Innovation, TerraCycle organization can employ its ideas in the market.
Open innovation will allow TerraCycle to gain profit from the assets of its partners that including investor relationships and reputations (Brant and Lohse, 2014). New opportunities open when the trust is developed between partners which may further deepen the collaboration and sharing between TerraCycle and other organizations. Moreover, Schuurman (2015) added that open innovation produces benefits that are helpful for innovation and technological advancement. Furthermore, Open innovation divides the labor and specialization in development, in this way opportunities are provided for the TerraCycle organization to commercialize new solutions.
Limitations of the Open Innovation Model
According to Schuurman (2015), the open innovation model will impose a few limitations on TerraCycle, as the model advocates the use of organizational form that has further limitations in the complex (problem-solving) environments such as innovation. To implement an open innovation model, TerraCycle should know that as the problems become more complex, the limitations of hierarchy (authority-based) are reached quickly, and another hierarchy (consensus-based) is introduced.
The second theory TerraCycle will be using is the Business model innovation. It defines innovation processes on the basis that how the organizations deliver and creates value which is opposing to the concept of creating new service and product (Santoro et al., 2018). Business model innovation helps to develop the concept that supports organizations' financial viability thincludingdes the processes and mission to make the concept fruitful for the organization.
Business Model Innovation Processes
The business model innovation processes have been intact with sound business principles. These business principles have been outlined with the help of core business principles:
Value proposition: the creation of unique and new value for customers
Resources: Resources required for delivering the customer value proposition must be kept secure
Processes: The organization must identify the fundamental business processes for delivering the customer value proposition
Profit model: The organizations must design a profit model to gain profit
The organization must focus on these four features for making innovation in its business model.
Principles of Business Model Innovation
For applying the business model innovation, organizations should consider the following processes:
Analyzing the Current Business Model
The organization must identify the market and its offerings that how the value proposition of the organization was created, and how the revenue was generated (Kylliäinen, 2020). The organization can design a business model canvas for this process.
Confront the Business Model
Innovation is essential for the advancement of business and for this purpose the organization must create ideas that propose a challenge in the market and ensure that what the current market demands. Out-of-the-box, ideas are required to innovate the business of the organization. When the organization is struggling with the advancement in its business, it must confront its business model for innovation (Kylliäinen, 2020).
Consistency of Business Model
The organizations must ensure that the business model is kept consistent with the long-term vision of the organization.
Plotting and Testing
The organization must make iterations in the business model based on the findings, the organization must test the business model and the success and failure factors associated with it.
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Benefits of Business Model Innovation
Financial Sustainability
The biggest advantage of business model innovation is that it will provide contributions to making TerraCycle sustainable and can cope with the shifts in market conditions. A most organization close their business doors because they have been unable to manage their financial situation. Therefore, a business model innovation will be beneficial for TerraCycle to make a profit each month.
Investment
The investors are well informed of the fact of business failures. Investors want to have a clear knowledge of TerraCycle's plans for profitability. A proper business model and profit statement will provide a huge benefit to TerraCycle over the competitors in the market and profitable investment will be provided by the investors (Ingram, 2020).
Plans for Advancement
An innovative business model will provide benefits and profit to TerraCycle consistently. A solid business model will be helpful to build cash reserves in TerraCycle that will be used for investing in equipment, development efforts, and property (Ingram, 2020).
Moreover, business model innovations yield higher revenues as compared to process and product innovations. According to Geissdoerfer, Vladimirova, and Evans (2018), sustainable business models provide the benefit to mitigate higher risk and resilience. Business model innovation focuses on stakeholder value and benefits rather than focusing on customer benefit (Geissdoerfer, Vladimirova, and Evans, 2018).
Limitations of Business Model Innovation
TerraCycle should know that in business model innovation, the business model canvas has limitations that make the canvas less dynamic. The business model canvas has multiple theoretical views that are not linked with each other. The business model canvas does not consist of theoretical features of dynamic capabilities that declare its static foundations (Rodrigues and Lopes, 2018). The business model canvas monitors and evaluates its results, and it consists of a rudimentary indicator for measuring the value that revenue generated minus cost structure (Rodrigues and Lopes, 2018). Moreover, the business model canvas does not comprise two main elements of a business model the customer need and the product or service. The business model canvas does not allow to represent two-sided markets and networks.
Application of the Open Innovation Theory in the Historical Development Context
Company Background
Leading consumer product companies, cities, facilities, and retailers are partnered with TerraCycle to reprocess packages and products from cigarette butts to dirty diapers that would end up burnt or landfilled otherwise. TerraCycle is working with top product companies to integrate products that are difficult to recycle such as ocean plastic. It is one of the fastest developing companies and is the world’s leading company in terms of using and collecting non-recyclable waste (Li, 2015). TerraCycle has implemented a business model canvas to make advance its business in the market as shown in the table.
TerraCycle took its start with eco-friendly fertilizer which is produced from waste and worms. It is directed towards eliminating waste and saving resources and it makes an important impact on worldwide environmental concerns. In twelve years, it aimed at making waste into new use again. The reuse of cigarette butts and many other recycles are incredibly far beyond one imagination, these are further recycled into plastic pellets to produce industrial goods. Due to low subsidies and donations from the government, TerraCycle has started social entrepreneurship to instrument the social mission of telling the world about the value of environmental protection. Collectors are paid in cash and the financing problem is solved, in the meantime, promote the company’s value and social impact are improved through their products in the market (Li, 2014). Over twelve years, TerraCycle has developed over 200 products, and these products are licensed to the manufacturers. TerraCycle was involved in the manufacture of fertilizers that are made by Vermicompost. Vermicompost is formed when organic waste is fed to worms. The worms are liquefied into compost tea and this is done by mixing the compost tea with warm water and air in vats. In 2007, TerraCycle expanded its production into upcycling and started to develop its products from waste materials. TerraCycle was unable to upcycle the plastic packaging waste, these wastes were then recycled into raw materials which are used in plastic products. TerraCycle is a recycling company that introduced different recycling programs that enabled individuals to collect waste items. In 2019, TerraCycle revealed a loop that provides a packaging platform for companies having consumer packaged goods. This system provides shipping facilities through UPS and ships personal care products, food materials, and cleaning products in a reusable container. These products are distributed from these reusable containers.
Open Innovation Model and Business Model Innovation
The application of the open innovation model in TerraCycle is dependent on the external sources as it is the principle of the open innovation model to gain knowledge and expertise from external sources/individuals and this is critical to the process of innovation in any organization. The open innovation model will aim to improve the abilities of TerraCycle to provide new ideas for solutions and products through external ideas given by partners and consumers to accomplish success in the market. TerraCycle applies the open innovation model to build external strength through recycling or upcycling programs. The company aims to collaborate with leading consumer product companies and retailers to find various solutions. These programs will provide product support for entrepreneurs which will help the entrepreneurs to build new services and products. According to Mortara et al. (2009), TerraCycle will have to focus on building independent open innovation teams that will work within the company and this will be the best choice to implement open innovation. Moreover, TerraCycle will need the skills to implement open innovation because a lack of appropriate skills will be an obstacle to the implementation of open innovation (Mortara et al., 2009). TerraCycle may adopt this model on stages between entrepreneurs and team or maybe on stages between the company and consumers. The open innovation model will involve the consumers in the production process and TerraCycle will use the suggestions given by external ideas/partners and these ideas can be processed to develop new products. According to Lee, Park, Yoon, and Park (2010), it is suggested that more focus should be given to the latter part of the traditional open innovation model so that the model is applied within TerraCycle. The open innovation model is applied to companies that are working with other firms which are specialized in marketing, which had an active collaboration and contribution in the innovation process as is the case with TerraCycle which is partnered with leading consumer product companies and retailers.
According to Cosyns and Cornfield (2018), waste is something that has no value and if it is left untreated, it offers negative value to the society and environment. TerraCycle will be applying the business model innovation for waste upcycling and recycling. There are three mechanisms for achieving sustainable business model innovation to create value from waste that involves the reduction of waste, for example, reverting the waste to the production stream for recycling, creating value from waste in the form of upcycling (Cosyns and Cornfield, 2018). The reduction of waste will improve based on the current business model but TerraCycle must apply business model innovation to create value from the waste.
Application of the Given Theories in Future Development Context
Recycling programs which are funded by various brands retailers and manufacturers are offered by TerraCycle to the world and other organizations to help them collect and recycle the hard to recycle waste in terms of future perspective. Start the collection in-home or anywhere and send the waste to be recycled by the TerraCycle. Rewards can be earned by or favorite non-profit. After thorough planning and rigorous testing, TerraCycle has revealed Loop, which they believe would be revolutionary in packaging and will provide pathways for more development in the packaging industry. The new shopping system should provide various products in refillable and reusable packaging. Moreover, many products which were viewed as unproductive to processes such as pens, razor blades, and diapers will be recycled (TerraCycle, 2020).
Every operation of TerraCycle provided the idea of the circular economy. The recycling course would be highly sustainable and efficient, otherwise, it will affect TerraCycle’s brand and reputation. The company majorly works on its collection programs and this will help other manufacturing companies. The program extension's goal would be to reassure that the products made from recycled materials are recyclable and the tack back for the system exists. It will not take substantial resources to create a system like this because the already existing and functioning point collection could be used (Bukowski and Rok, 2019).
In the next decade, the open innovation model will play a significant role in developed economies. Innovation will be fuelled by new emerging technological trends and sustainable development goals will join them. Rapid growth in the economy of China poses challenges and opportunities in the implementation of the open innovation model. Consumers of middle income will increase and that will cause a tremendous increase in growth all over the world. The innovation will evolve itself therefore there must be policy prepared to adjust. Financial support for start-up projects will be created by the rise of crowdfunding. Consistent increases in the innovation ecosystem will have vital implications for antitrust regulation. According to Bogers, Chesbrough, and Moedas (2018), anti-trust protection will be needed by the consumers but corporations among the competitors will be pro-social in some contexts of open innovation.
Conclusion
An innovative business model and operation method are provided by TerraCycle, which is a typical social enterprise, and a source of inspiration for many others. The model of social entrepreneurship will be an example for people to cope with urgent challenges of social pressure. To maintain a balance between social morals and economic profits, appropriate operations are necessary for a social enterprise to achieve its social mission. Consequently, the social enterprises will make paths to create new business models (Li,2014). It is crucial to identify and address the innovatory abilities according to the context of open innovation as shifting from closed to open innovation poses challenges. According to Lee et al. (2010), small and medium-sized organizations are good at innovations but lack potential resources that’s why it is suggested that they should collaborate with other firms at the stage of commercialization to boost open innovation.
References
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