Open Innovation in Singapore's Finance Industry: Importance, Benefits, and Theories

This report discusses the concept of open innovation and its importance in Singapore's finance industry. It covers three relevant theories: strategic alliance, national R&D, and market pull. The report also provides recommendations and solutions to the issues faced by the industry.

Advance Innovation Management

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Executive summary
This report is developed to comprehend the concept of open innovation, its
importance and benefits. To comprehend the concept of open innovation the finance industry
of Singapore is been selected. The finance sector or industry of Singapore is considered
strongest in the world. There are various factors which are critically supporting Singapore’s
growth as an global financial centre are strong regulatory framework, sound economic
fundamentals, pro-business environment and excellent infrastructure. In this report three
theories strategic alliance, Market pull and national R&D is been selected to comprehend the
importance of open innovation. In the end, the report contains some recommendations in
relation of the issue.

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Contents
Introduction...........................................................................................................................................3
Open innovation....................................................................................................................................3
Definition..........................................................................................................................................3
Diagram of open innovation model...................................................................................................3
How the open innovation model works.............................................................................................4
Why open innovation is important for Finance Industry........................................................................4
Benefits to industry from open innovation.........................................................................................5
Three theories relevant to Finance Sectors............................................................................................5
1.Strategic alliance............................................................................................................................5
Definition......................................................................................................................................5
Identify and explain key theories related to the chosen theory.......................................................6
How are these theories applied to a firm in open innovation?........................................................6
What are the issues faced by the Finance Industry.........................................................................7
Any possible solutions to the issues...............................................................................................7
2. National R&D for companies........................................................................................................7
Definition......................................................................................................................................7
Identify and explain key theories related to the chosen theory.......................................................8
How are these theories applied to a firm in open innovation?........................................................8
What are the issues faced by the Finance Industry.........................................................................8
Any possible solutions to the issues...............................................................................................9
3. Market Pull....................................................................................................................................9
Definition......................................................................................................................................9
Identify and explain key theories related to the chosen theory.......................................................9
How are these theories applied to a firm in open innovation?........................................................9
What are the issues faced by the Finance Industry?...................................................................10
Any possible solutions to the issues.............................................................................................10
Recommendations...............................................................................................................................11
Conclusion...........................................................................................................................................11
References...........................................................................................................................................12

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Introduction
Singapore Finance industry is strongest in the world. The finance sector of Singapore
is engaged in wide range of financial services like, traditional lending, investment banking
activities and deposit-taking functions. There were approx. 14 merchant banks, 3 financial
companies and, 110 commercial banks in the financial sector, with total assets of S$413
billion. The country has the fourth leading foreign exchange market in the world after New
York, Tokyo, and London (Lim, 2010). This report is designed to comprehend the perception
of open innovation model and to know the importance of model for the Finance industry of
Singapore. To know the importance of the model the three theories is been discussed in this
report and in the end the report contain the recommendations related to open innovation
model.
Open innovation
Definition
Open innovation defined by Henry Chesbrough, according to him open innovation
refers as a model, which is been used with a purpose of outflow and inflow of knowledge to
hasten core innovation and enlarge the market for external use of innovation. Once the
organisation adapts the open innovation, its confines become permeable and it will allow
merging of the company resources with external co-operators (Chesbrough, 2012).
Diagram of open innovation model
Out licensing
Technology Spin-offs
Technology Insourcing
Internal
Technology
Base
External
Technology
Base
Other
Firm’s
Market
New
Market
Current
Market

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(Source: Chesbrough, 2012)
How the open innovation model works
Open innovation model is developed to opening up the innovation process beyond
company boundaries in order to increase innovation potential through active strategic use of
the environment. Innovation therefore arise through the interaction of external and internal
ideas, sales channels, processes, technologies with the aim of the company to develop
promising innovative products, and services (Gassmann, Enkel & Chesbrough, 2010).
The open innovation model is designed and develops by the Henry Chesbrough in the
model he defines how open innovation model will help the various industries in getting new
ideas, and knowledge. In that particular model the Henry Chesbrough describe that in close
innovation model the company can utilise only its internal strength and knowledge for
activities of the company, but open innovation model will help the company in accruing the
knowledge, ideas technology and other related aspects from different companies. The other
companies, which the company is going to select for with the purpose of setting open
innovation, will be those who are specialised in their specific field (Lee, Park, Yoon & Park,
2010). In open innovation the company can utilise the knowledge and ideas generated
externally as well as they will use the knowledge and idea develop within the company
(Lichtenthaler, 2011).
Why open innovation is important for Finance Industry
Open innovation model helps employees and business owners by pushing them and
evolve the company. The model is the important driver of business achievement. The model
is not very important aspect of any industry but if industry considers the open innovation
while doing business activities it can provide competitive advantage to them.
One reason why open innovation model is essential is, it helps business owners push
their business and themselves to grow. Open innovation model will make them better
businessperson, better manager and a better people as innovation constantly challenges. The
open innovation also motivates employees to think strongly about how they can fulfil their
tasks related to job.

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Open innovation is important because it induces consumers to purchase more services
and goods from the industry. By having conversation or by conducting surveys with the
clients, the company can understand their problems and needs, and by using that information,
the company can solve the problems of their customers. Finally, the open innovation model
will take the business of the company to the next level (Gronlund, Sjodin, & Frishammar,
2010).
Benefits to industry from open innovation
The open innovation model will help the company by creating the new services and
products. The Finance industry is already in existence and its services are already available in
market. The open innovation model will help the industry in focusing on selling the services
rather than thinking about what else the industry can provide to their customers.
When the company want to create new and innovative services to their clients the
open innovation model will very beneficial because the model of open innovation is the
process, which is never ending.
The open innovation model will build up a relationship with the consumers and fans.
With the help of open innovation model, the company get to know about what the particular
community wants and then fulfil their desire requirement (West & Bogers, 2014).
The open innovation model will keep the employees of the company engaged. One of
the main reasons behind employee’s disappointment is lack of feeling of ownership. By
bringing open innovation model, the feeling of ownership will rise among employees.
Three theories relevant to Finance Sectors
1. Strategic alliance
2. National R&D for companies
3. Market Pull
1.Strategic alliance
Definition
A strategic alliance (SA) is a written agreement between two businesses, which are
ready to portion their resources to undertake an explicit equally benefits project. SA is less

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binding and less involved than a joint venture, in joint venture two businesses usually pool
resources to generate a separate business entity. In SA, each business maintains its self-
sufficiency while earning new opportunity (Hess & Rothaermel, 2011).
Identify and explain key theories related to the chosen theory
Transaction cost Theory
Transaction cost refers to the cost of service or product that is paid by the business
through market, rather than paying within the business. In order to carry out a transactions it
is essential for the business to discover the parties available to conduct negotiations, one who
to deals with the company, one who to draw up the contract, to undertake the review needed
to make sure that the terms of the contract are being observed (Joshi &Nerkar, 2011).
Resource based theory
It is an administrative framework used to regulate the strategic resources, which have
the ability to bring comparative advantage to the industry. The firm can exploit these
resources in order to attain maintainable advantage over their competitors. The RBV focuses
administrative attention on the internal resources of business to identify assets, capabilities
and competencies with the potential to bring superior competitive advantage (Gedajlovicv&
Carney, 2010).
Knowledge based view
The knowledge-based theory of the business considers knowledge as the most
tactically significant resource of a firm. Its exponents argues that because of knowledge based
resources are typically become problematic to socially and imitate complex, varied
knowledge bases and capacities among firms are the major factors of sustained superior
corporate performance and competitive advantage (Czarnitzki & Delanote, 2012).
How are these theories applied to a firm in open innovation?
To apply the abovementioned theories of strategic alliance in the industry the
following steps are required to follow:
Select the proper partners for the intended goal: the first step which company need to
apply the theories in the company need to select the best partner for a particular business. The
partner should be the company or firm which is best in the market.

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Share the right information: while entering into a contract, it is not important to trust
the other party in order to share material information, the industry have to decide which
information needs to be share and which not. An association could include complex
interlacing of intellectual property form different research and development labs maintained
by multiple partners.
Negotiate a deal that includes risk and benefits analysis for all sides: while entering
into a contract it is important for the company to negotiate with the partners in relation to the
risk and benefits associate with the business activity.
Mutual, flexible commitment: the collaborating with the small companies, individual
scientists and academics, individual academics and scientists, where results of trials do not
always seem flexibility and right on time is needed to reshape the analysis and searching for
other outcomes requiring customised solutions.
What are the issues faced by the Finance Industry
The main issues which is been face by the Finance Sector of Singapore is managing
the relationship with the alliance. The parties get into the agreement but still there are many
issues rise between both the parties. Mainly the issues rise at the time when the company
suffer from loss or work with high risk.
Any possible solutions to the issues
When the companies decide to enter into a strategic alliance with other company they
need to first draft the agreement which is been sign by both the parties. At the time of signing
the agreement the point of loss and risk, sharing need to be pre decided among the parties. By
pre-deciding loses and risk sharing percentage the company can prevent itself from getting
into trouble and the relation between the parties will remain good.
2. National R&D for companies
Definition
Research and development refer to a creative work assumed on the bases of
systematic approach in order to increase the stock of knowledge and the use of this
knowledge to device new applications. R&D is the assurance of resources by a business to do
scientific research and the modification and alteration of research prototypes and idea aimed
at the decisive growth of commercially feasible procedures and product. R&D is the process

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of discovering what services and goods are best for the company needs and developing those
products in order to sell them (Rosenberg, 2010).
Identify and explain key theories related to the chosen theory
Basic research: It is a theoretical or experimental work, which is started initially to
obtain new knowledge of the underlying foundation of observable facts and phenomena,
deprived of any use in view, or particular application (Guinee, 2010).
Applied research: It is also innovative examination assumed in order to attain new
knowledge. It is however, absorbed mainly towards a detailed practical aim or impartial.
Experimental Development: Experimental development is organised work, drawing
on prevailing knowledge expanded from practical and research knowledge, which is directed
to constructing new resources, products or plans, to installing new processes, systems and
services, or to improving considerably those already installed or produced (Wang, 2010).
How are these theories applied to a firm in open innovation?
Foster ideas: the research team of the company or the hired company will sit down for
brainstorming. The discussion related to the R&D may start with an itemisation and
understanding of the concerns faced by the industry.
Focus ideas: when from brainstorming the company get the pool of ideas now it is a
time to select one best idea to solve the issues and need to focus on the particular idea.
Develop ideas: when the idea has been systematically researched, it may
conglomerate with a market survey to evaluate market readiness.
Prototypes and trials: Research may work carefully with product creators to
understand and decide on how an idea may be turned into a practical product.
Launch: the service or product that started, as a research question will here at this
stage is ready for its biggest test, the introduction to the market (Avio, Gorbi, &Regoli,
2015).
What are the issues faced by the Finance Industry
In Finance Industry, when it comes to the R&D the experts and employees are not
aware about the process the partner country or company is going to follow. This will create
the problem in the industry as the process of R&D is very complex and assess them the
experts are not aware enough. Due to lack of knowledge, the industry can face many

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problems and the other company or country can easily take advantage over the Finance
Industry of Singapore.
Any possible solutions to the issues
To solve the problem face by the Finance industry is, hiring employees who are aware
about the technical aspect related to R&D process. The hiring of a particular employee can
take a follow up from the partner company or country how much work is been done and how
much work is left, what next they are going to use in R&D. Hiring of a employees is one of
the way to solve the problem of research and development.
3. Market Pull
Definition
The term Market pull is developed to fulfil the needs of new product or for a solution
to a problem at market place. A ranges of products or product are developed, to resolve the
innovative need. Market pull start with questioning about product related questions to
customers and then accordingly brings improvement to the product. Focus groups are often
central to market pull, when testing a concept design is taken place (Lubik, Lim, Platts &
Minshall, 2012).
Identify and explain key theories related to the chosen theory
Segmentation: the product or service that companies offers is designed to solve
problems related to clients and to meet the requirements of customers. Market division is a
skilled job which makes available the products of company at various segments as per the
requirement of the clients. The market segmentation is based on various factors like
behaviours, demographics, and desires. The factors can essence their marketing efforts on the
clients who are most likely to buy (Girshick, et.al. 2014).
Marketing mix: the concept of marketing mix is to organise all characteristics of the
promotion plan around the desires, habits, and psychology of the selected market. This
orientation considers promotion theory of 4 P’s. The 4 P’s are product, place, promotion and
pricing.
Life cycle: the product life cycle model proclaims that promotion strategies must
progress along with a product from inception through undesirability. During the growth
phase, the efforts moves to secure a wider audience by building brand loyalty, a stable supply
chain, and surplus distribution channels as defences against competitors entre the market.

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How are these theories applied to a firm in open innovation?
The above maintained theories can be applied into a company by involving three
basic steps in the Market pull process, these steps are:
R&D: the first step which is been used in the process is the research and development
of market. The company first need to identify the particular market in which they want to
introduce their service of providing loan and other financial service. In that particular market
they will conduct R&D in relation to the demand and needs of the customers presented in that
particular market.
Production: production in relation to the company is the finalising the process of
services in which they deals in, at this stage the company will make sure that the requirement
of the selected market and target audience will be fulfil on the bases of standards set by the
R&D conduct by the company.
Marketing: this is the last stage at which the company become ready to selling their
said developed products and services in the market here the product which company is
dealing is banking activities financial loans, gold loans and many more. The industry will
find out the best method to promote product or service in the desired market (Huang &
Sarigollu, 2014).
What are the issues faced by the Finance Industry?
The main problem which industry is facing is targeting the wrong market. It is been
identify that after conducting research still there is a chance that the industry may target the
wrong market for business. Most of the time it is been noticed the industry may target the
market which is not best suitable for the company.
Any possible solutions to the issues
While selecting the partners for market pull the industry need to be careful about the
few aspects that are the company should have full knowledge of the field, while selecting the
market they will share their plans with the company. The while selecting target market they
should consider size of the segment, required market share to break even, competition in the
segment, predictable profits margins in the segment, sales potential, and brand loyalty of
present customers in the segment.

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Recommendations
1. Partner selection: it is important for the Finance industry to select the right partner
because open innovation involve share knowledge, risk, time and investment in new
concept.
2. Constant activity: the knowledge of importance and constant progress are strong
motivators of open innovation and the Finance industry of the Singapore need to
follow that by introducing new ideas and concepts.
3. Leadership: network of open innovation requires that the finance industry of
Singapore will take initiatives to develop service or products and will ensure the
collaboration among partners by implementing leadership.
4. Openness in transparency and communication: The model in financial industry is all
about network-wide understanding and trusts among partners.
5. Balance among external and internal administration: Every partner of open innovation
strategy need to maintain balance between external and internal management by
availing effective communication.
6. Finances: In finance industry, cost control is considered as extra-complicated task. In
open innovation, it is important for fellow companies to establish their priorities.
7. Managing tension proactively: Collaboration through open innovation is tough.
Failures and problems put the association under pressure, it is essential for companies
to meet and converse the problems (Allfoodexperts, 2018).
Conclusion
To conclude, the Finance Industry of Singapore can use the open innovation model to
improve the present conditions. The open innovation model contains various theories but the
three best theories, which the company can use to improve their working, are Strategic
alliance, National R&D for companies, and Market Pull. With the help of these three
strategies, the industry can attain their desired goals. The open innovation model will help the
company in managing their business and employees effectively and efficiently. Beside these
three theories, the company can use other theories also as per the requirement of the condition
the area is not fixed to these three theories.

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