CUSTOMIZING STANDARD SOFTWARE AS A BUSINESS MODEL IN THE IT INDUSTRY: THE ROLE OF INTER-ORGANIZATIONAL NETWORKS AND OPEN INNOVATION

This research studies a new business model in the IT industry, the customization of standard software as the sole foundation for a software company's earnings. Based on a theoretical background which combines the concepts of inter-organizational networks and open innovation we provide an interpretive case study of a small software company which customizes a standard product. We investigate the company's interactions with a large global software company which is the producer of the original software product and with other companies which are involved in the software customization process. We find that the customizing company and software customizations depend not only on initiatives which are set off internally in the company, but on how the customizing organization's inter-organizational network and interaction with other organizations is built up. The case company has built its network primarily on complex, formal partnerships, in which also opportunistic behavior occurs and where informal relations are invaluable sources of knowledge. In addition, the original software producer's view and treatment of these companies has a vital impact on the customizing company's practice which is influenced by the open innovation initiatives which the producer of the original software instigates

Investigating Open Innovation and Interorganizational Networks in the IT Industry: The Case of Standard Software Customization

Abstract. This research presents and analyzes an empirically grounded account of a new trend, open innovation, in the IT industry. The case depicts another new trend, innovation through customization of standard software as a business model, and we investigate the open innovation activities of an interorganizational network which consists of a small customizing company, a large global software producer, and other companies involved in the innovation process. We contribute to the development of a theory of open IT innovation with a theoretical framework that integrates formally separate aspects of open innovation and interorganizational networks. We extend the literature on open innovation by broadening the view from one focal firm to the relations in a network of companies that mutually contribute to innovation which occur in the different companies. Our research underlines the importance of balanced formal and informal relations, and coopetive and opportunistic behavior for the open innovation process