René Rohrbeck1, Katharina Hölzle2, Hans Georg
firstname.lastname@example.org, Technical University of Berlin, Institute Deutsche Telekom Laboratories, Ernst-Reuter-
Platz 7, 10587 Berlin, Germany.
email@example.com, Technical University of Berlin, Chair for Technology and Innovation Management,
Straße des 17. Juni 135, 10623 Berlin, Germany
firstname.lastname@example.org, Technical University of Berlin, Chair for Technology and Innovation Management,
Straße des 17. Juni 135, 10623 Berlin, Germany
When on the 21st September 2006 ‘The Economist’ compared incumbent telecommunication
operators with dinosaurs that could soon face extinction, most readers were ready to agree. The
mixture of declining revenues and fierce competition was believed to shake the market and soon to
dethrone former national champions. However, there are ways to fight that extinction and one way
is to open up for competitive advantage.
This paper reflects on a case study at Deutsche Telekom, the German national telecommunication
operator. The aim of this study is to analyse to what extent the open innovation paradigm has been
embraced inside this now multinational company. Using empirical evidence from 15 in-depth
interviews, we identify eleven open innovation instruments and detail their value contribution. We
can show that Deutsche Telekom has successfully enhanced its innovation capacity by opening up its
traditional development process and embracing external creativity and knowledge resources.
Formerly, large multinational companies (MNC) used to
have a quasi-monopoly on top researchers. They were the
only ones capable of funding large-scale research
programs and they operated dominating sales networks.
Some multinational companies (MNC) still match the
R&D spending of countries; the top 2 companies Ford
(£ 4.7 bn) and Pfizer (£ 4.3 bn) exceed, for instance, the
R&D spending of Sweden (£ 4.2 bn) (Department of
Trade and Industry UK (DTI), 2006).
Today, this comfortable and dominant position of
these large companies is threatened in most industries.
Small companies use the Internet for selling their goods
globally or for acquiring venture capital for their research.
And, what might be even more alarming, these small
companies are very attractive to top graduates, leaving the
incumbent MNC with second best.
Furthermore, many industries have become quite
volatile and frequent changes force large incumbent
companies to innovate and move into new business fields
more rapidly in order to at least maintain their current
One industry which is particularly known to have a
recent history of important changes and disruptions is the
telecommunications industry (Schläffer & Arnold, 2007).
Only 13 years ago it was a monopolized business run
almost exclusively by state-owned national enterprises. In
the past few years this industry has faced dramatic
transformations making it one of the most volatile
industries overall. Three major disruptions have been the
drivers behind this transformation (Laffont & Tirole,
First, the liberalization of the telecommunications
industry opened the markets to new competitors. This
happened in Germany in 1995 and resulted in a
reconfiguration of the marketplace, allowing new entrants
to capture 52% of the overall market revenue by 2007.
Moreover, the combination of price deregulation and
enhanced competition led to a steady decline in margins,
confronting the industry with a revenue decrease for the
first time in 2006 and 2007 (Bundesnetzagentur, 2007).
Second, the horizontalization of service architecture
allowed small companies to offer services that used to be
highly integrated vertical silos. An example for such a
service is the voice call, which formerly required building
and maintaining large networks. Today small software
Opening up for competitive advantage – How Deutsche Telekom creates an open innovation ecosystem
Rohrbeck, R, Hölzle, K.. and H. G. Gemünden
R&D Management,Vol. 39, No. 4,
pp. 420-430, 2009
This is a preprint. Final article can be found at: http://www3.interscience.wiley.com/journal/122535414/abstract
developers, such as Skype, a Voice over Internet Protocol
(VoIP) provider, can offer voice calls over the Internet
with comparably negligible investment and operating costs
(Pradayrol & Cyrot, 2008).
Third, a shift in the value distribution in the industry is
taking place. Formerly, the network operators were in a
position to demand premium prices and earn high margins
on their services. Today the threat is that the network
operators might be reduced to mere “bit-pipes” and price
premiums will be captured by the device manufactures
such as Apple with the iPhone or the service providers
(Spiegel et al., 2008).
From the observation of such disruptive changes and
the increased capability of small companies to compete on
equal terms with large incumbent companies, Rupert
Murdoch concluded that:
“The world is changing very fast. Big will not
beat small anymore. It will be the fast beating the
This translates into a need for large companies to find
ways to increase their ability to grow into new business
fields fast and foster innovation in fields where they do
not have any prior expertise. One way to do so is to open
up the innovation process and use external resources and
capabilities to boost the company’s innovation capacity
By working cooperatively and competitively with
other companies in order to co-evolve capabilities, to
support new products, satisfy customer needs, and
incorporate a new round of innovations, the company
builds a business ecosystem (Moore, 1993). In the context
of our study, this business ecosystem is therefore more
specifically called an open innovation ecosystem.
The prime example of a company that did exactly this
is Apple. At a time when Apple had its back to the wall
and was desperate to create the next blockbuster product,
an independent product design consultant approached the
company to propose an innovation consisting of an easy-
to-use MP3 player and music-management and purchase
software (Kahney, 2004). This external idea was then
taken up by Apple, a 35-member team hired from Philips,
Ideo, Connectix and WebTV developed the design and
user interface and a partner, PortalPlayer, developed the
technical design. The final product was then produced
together with Wolfson, Toshiba and Texas Instruments.
And today the first-generation iPod is the most celebrated
example of outstanding innovation in the electronic
industry (Kahney, 2004).
This successful example and the described need for
increasing the innovation capacity through opening up the
innovation leads to our main research question:
• To what extent can the open innovation paradigm be
embraced by a large incumbent company whose needs
are particularly high?
The research on open innovation has been initiated by
conceptual work (Berkhout et al., 2006; Chesbrough,
2003b; von Hippel & von Krogh, 2006) and some first
case studies—highlighting open innovation instruments
such as spin-in, spin-outs, outsourcing R&D, technology
in-sourcing (Chesbrough, 2003a; Chesbrough, 2003c;
Chesbrough, 2006; Gwynne, 2007), user integration kits
(Piller & Walcher, 2006) and open innovation platforms,
such as Procter & Gambles “Connect & Develop”
(Dodgson et al., 2006; Huston & Sakkab, 2006).
Further research has looked at understanding the
underlying motivation of firms engaging in open
innovation and how the individual employee can be
stimulated to participate in an open innovation process
(Henkel, 2006; West & Gallagher, 2006).
Today, the first quantitative research results are starting
to appear (Lichtenthaler, 2008b) and the first evidence
shows that even companies outside high-tech industries
are adopting open innovation instruments (Chesbrough &
Crowther, 2006). Moreover, the usage of open innovation
instruments is expected to increase dramatically over the
next few years (Gassmann & Enkel, 2006; Howells,
What has been missing so far is an overall analysis of
an entire company to assess to what extent the open
innovation paradigm is embraced.
In order to assess the degree and extent of the usage of
open innovation in a company, this study uses a single
case-study design. Case-study research is recommended if
the knowledge in a research area is limited. In such a
research setting, gathering rich information is expected to
help identify new aspects and new phenomenon
(Eisenhardt, 1989; Yin, 2003). Single case studies are
particularly powerful in exploring a phenomenon in its
context while retaining the richness of the studied incident
and its context (Eisenhardt & Graebner, 2007).
In order to identify how open innovation instruments
are used in a specific setting, we had to gain access to a
large sample of respondents within the target company
Deutsche Telekom. Additionally, four respondents from a
partner network of the company were also included,
allowing us to further triangulate the data and to bring in
an external perspective. The full sample of respondents is
given in Table 1.
The interviews have been exploratory and semi-
structured. Questions asked in most interviews included:
• What open innovation activities are you involved in?
• What open innovation activities are you aware of?
• What value creation do you expect and have
experienced from open innovation activities?
• What are the major barriers to open innovation in
• What are the major drivers for open innovation in
The respondents were encouraged to describe the
different open innovation activities thoroughly. The
unguided descriptions were then often followed up by
closed questions in order to validate the given information
and explore further aspects.
All interviews have been recorded and transcribed. The
NVIVO software was used to support the coding of the
transcriptions and the following analysis of the different
open innovation instruments.
Company Entity Position Topics Perspective
Deutsche Telekom T-Labs VP Head of innovation development Identification of activities Instrument responsible
Deutsche Telekom T-Labs VP Co-Head of innovation development T-Labs Instrument responsible
Deutsche Telekom T-Labs SM Project field coordinator Consortia projects Instrument responsible
Deutsche Telekom T-Labs Researcher User driven innovation Instrument team
Deutsche Telekom T-Labs Project field coordinator User driven innovation Instrument responsible
Deutsche Telekom T-Labs Researcher T-City Instrument team
Deutsche Telekom Product House SM Head of business innovation Collaborative R&D Instrument responsible
Deutsche Telekom Product House SM project manager Helios Helios Instrument responsible
Deutsche Telekom T-Mobile VP category manager Mobile Internet Creation Center Instrument team
Deutsche Telekom T-Venture M Investment fund manager Spin-outs, spin-ins Instrument team
Qiro Start-up Founder and CTO Spin-outs Instrument team
EICT CEO Industry collaborations Partner
EICT Head of Project Management Industry collaborations Partner
Siemens Corporate Technology Head of professional speech processing Industry collaborations Partner
Infineon Corporate function Director account & marketing strategy Collaborative foresight Partner
Table 1 Respondents and perspectives
When mapping open innovation instruments within large
companies the first choice to be made is what to include
and what to exclude from the analysis. This problem is
best illustrated by the comment of the vice president and
head of innovation development of Deutsche Telekom
Laboratories (T-Labs), the corporate R&D unit:
“The more I think about it [open innovation], the
more I realize that such a large corporation
[Deutsche Telekom] has an endless number of
relevant contacts with outside innovation!”
This holds particularly true for a service company such as
Deutsche Telekom. As a telecommunications company,
Deutsche Telekom has to operate other companies’
innovations. Most innovative products and services are
based on innovations from its suppliers such as Alcatel-
Lucent, Ericsson or Nokia Siemens Networks. In
consequence, the same respondent pointed out that most
innovations visible to the customer are brought into the
company by the product managers. As these innovations
cannot be considered as innovations from Deutsche
Telekom but rather as from the supplier, they have not
been considered in the analysis.
Consequently, the focus of this study was the
identification of those open innovation instruments that
are used to create company-specific innovations. These
include differentiating features that are implemented in
addition to the suppliers’ products as well as innovative
products and services developed entirely at Deutsche
3.1. Open innovation instruments
For classification of the instruments used at Deutsche
Telekom we differentiate between four categories that
follow the innovation process stages at Deutsche Telekom.
• Idea generation: Including any sources and activities
that contribute to the development of a new
• Research: Instruments directed at facilitating research
collaboration or in-sourcing of technologies.
• Development: Activities aimed at engaging with
partners in the creation of new products or new
• Commercialization: Activities that engage with
outside partners to bring technologies or products/
services to market.
A second differentiation is made along the ‘core process
archetypes’ introduced by Gassmann and Enkel (2004).
They identified three types of open innovation processes:
• The outside-in process, where external knowledge or
resources are brought into the company,
• the inside-out process, where internal knowledge or
R&D results are transferred to the outside for
• the coupled process, where inside-out and outside-in
processes are combined and partners share
By combining these two dimensions, a total of eleven
instruments could be identified at Deutsche Telekom.
They are shown in Table 2.
With respect to the innovation process phases we see a
balanced portfolio. Five instruments contribute to the
idea-generation phase, five to research, six to development
and five to the commercialization phase.
In terms of the core process type, a slight emphasis is
put on the outside-in process. This is not surprising as
Deutsche Telekom is a service company and focuses on
the last step in the telecommunications value chain and
thus has a natural inflow of information from its suppliers.
Activities characterized as inside-out are limited to the
commercialization phase, where R&D results are spun-out
with the help of other investors or brought into test
markets such as T-City.
Coupled processes occur exclusively when interacting
within established partnerships. Two instruments –
foresight workshops and executive forums – are used for
information gathering and two other – joined development
and strategic alliances – for development of products
together with partners.
Instrument Identified examples Description Innovation
IG R D C IO OI C
workshops Infineon, Nokia-Siemens-Networks Workshops where potential of innovations and
emerging technologies are discussed
Executive Forums Feldafinger Kreis, Münchner Kreis,
IT-summit of the government Symposia where strategic innovations are identified and
discussed across companies and industries
integration User clinics, Creation Center of
T-Mobile, Day-in-the-life-visits Aimed at sourcing external creativity from customers,
other industries, artists, etc.
Endowed chairs Chairs at T-Labs and Post-Doctoral
Researchers Opening the door to the academic world bringing in
Consortia projects National projects: ScaleNet; EU
projects: Moby Dick, Daidalos, Cost sharing of complex research projects, mostly in
Capitalist T-Venture Window to innovation in the start-up community and
technology sourcing through co-investing
Internet platforms www.developers.telekom.de,
www.BetaBuzz.de Involving users and developers in Web service creation
Joined development Product House Collaborations along the value chain, targeted at a
certain product or market
Strategic alliances Product House Cross-industry or along the value chain alliances, for a
certain time typically targeted at multiple products
Spin-outs Qiro, Zimory External commercialization of internal R&D results:
technologies, products or services
Test market T-City Equipping a city of 100,000 inhabitants with next-
generation ICT infrastructure
Table 2: Open innovation instruments at Deutsche Telekom
3.2. Mapping the open innovation ecosystem
As stated before, all open innovation activities of a
company and its partners take place in an open
innovation ecosystem. The open innovation ecosystem
for Deutsche Telecom is described by the activities
along the innovation process, the intensity they are
pursued with, and the drivers of the activities. The
intensity is used as a proxy because the values of more-
objective measures like budget, internal resources or
time could not be obtained. The matrix was developed
on the basis of the qualitative interviews and then
validated by two respondents who had an overview over
all instruments. The result is shown in Figure 1.
It shows which open innovation instruments have
played an important role within Deutsche Telekom so
far and what effort is involved to make an open
innovation ecosystem work. However, the interpretation
of this matrix should be made with care bearing in mind
the evolution of the matrix. What can be observed is
that most effort is being put into the research and
development phase. This finding confirms the initial
hypothesis of Chesbrough that companies engaging in
open innovation are primarily seeking to share cost and
risk in research and in-source knowledge and
technology for new product development (Chesbrough,
Figure 1: Open innovation ecosystem at Deutsche Telekom
As most resources are spent within research and
development phase, we are discussing these two first
and then focus on the idea generation and
commercialization phase. Within the research phase
university-industry collaborations based on technology
transfer or endowed chairs are the most traditional way
of interacting with the academic world (Siegel, 2003).
A more novel way of organizing the industry-university
interface is represented by T-Labs, a University-
Industry Research Centre. Within T-Labs four endowed
chairs, over 80 post-doctoral researchers and over 100
Deutsche Telekom employees are working on
technology- and customer-driven innovation. Providing
an own organizational structure for academics and
corporate R&D personnel allows to overcome many
barriers associated with university-industry
collaborations (Rohrbeck & Arnold, 2006).
In addition to the joined research activities the post-
doctoral researchers – who typically retain strong links
to their home universities – are perceived as a good way
to access the worldwide R&D community. Through
their informal networks they are able to validate the
state-of-the-art of ongoing research activities in an
effective manner. In addition their link to their former
university is strengthened by a program in which the T-
Lab’s researcher can finance a PhD student at his
For development work – where the most R&D
budget is spent – open innovation is believed to be a
particularly powerful tool to enlarge the resource base
of a company. Instruments active in the development
phase should give access to knowledge, pool
complementary resources and build R&D networks
(Miotti & Sachwald, 2003). As R&D networks are
expected to become bigger in the future (Lichtenthaler
& Lichtenthaler, 2004), it becomes even more
important for companies to increase their own
networking effort. These networks need to be managed
proactively and with a strategic intention in mind.
Hence, Deutsche Telekom has founded the European
Center for Information and Communication Technology
(EICT) as an intermediate that facilitates joint research
programs within a network of preferred partners (Bub &
Schläffer, 2008). The founding partners were Daimler
AG, the automotive company, Siemens AG, the
telecommunications and electronics company, the
Technical University of Berlin, and three Fraunhofer
Institutes for applied research. Through this
organization Deutsche Telekom organizes consortia
projects as well as bilateral development projects. One
example of a successful development project is the
“speech-based classifier” that was developed together
with Siemens and four other partners. This project was
started through an informal contact of the CEO of EICT
to a former colleague at Siemens Corporate
Technologies. The additional four partners were
brought in to complement the skill set of Deutsche
Telekom and Siemens. The product developed within
the project recently won an award at the ‘Voice Days’, a
conference in the field of voice services, and has been
implemented by T-Mobile in their customer-service
Another example of using the power of networks to
support the open innovation principle is the use of
internet platforms as a mean to support and foster the
interaction with partners and especially software
developers in the development phase. The open
development platform developer.telekom.de opens up
existing API (application programming interface)
services and provides software developers with the
possibility to integrate these services in their own
applications and mash-ups. Here, Deutsche Telekom
expects an increased market reach of their applications
generating new additional revenue streams.
Additionally, the customer retention and new additional
revenue streams are expected through an enriched
consumer application portfolio
Before the research phase can start, ideas need to be
created or added to existing knowledge in the idea
generation phase. Here, the value creation of
integrating external sources is almost the highest
(Gruner, 2000; Song, 2006).
Integrating users even beyond the ideation phase has
been discussed for quite some time now. Von Hippel
documented that innovative users are creating new
products themselves if they are not satisfied with
current solutions (von Hippel, 1986). The major
advantage they have compared to a manufacturing
company is that they possess so-called sticky
knowledge (von Hippel, 1998). Such knowledge
includes context information on how products or
services are used and what limitations exist in the
available product. In some cases these users might be
inclined to reveal this information (von Hippel & von
Krogh, 2006), and thus contribute to industry’s
innovation management (Lettl et al., 2006).
But there are also certain risks associated with
customer integration (Enkel et al., 2005), including high
cost, problems identifying suitable customers or
opportunistic customer behaviour (Alam, 2006;
Brockhoff, 2003; Campbell & Cooper, 1999; Jeppesen,
At Deutsche Telekom, T-Labs collects customer
insights using ethnographic methods (Rosenthal &
Capper, 2006) such as empathic design (Leonard &
Rayport, 1997) or day-in-the-life-visits (Mrazek et al.,
1995). Both methods are based on observing the
customers in their own environment in order to get a
deep, empathic understanding of unarticulated user
needs which the user themselves might not be aware of
(Leonard & Rayport, 1997). As an example of applying
the day-in-the-life-visit method, T-Labs recruited six
families that differed in family structure so that within
the small sample every family would add a different
perspective to the topic. It was decided to do a user
shadowing for the duration of one and a half days in
order to get a vivid imagination of the families’ lives
including an interview at the end of the visit.
Subsequent to the observations the team sat together
to review the photos and notes they had taken. A choice
of 50-80 photos was made and three key findings
picked in order to introduce the family to the rest of the
project team. All ideas were collected and refined into
concepts. During the process a long list of approx. 100
ideas were collected that were clustered and refined into
approx. 30 illustrated concepts.
A second customer insight tool which is used by T-
Labs is user clinics. In these clinics, the customer is
confronted with prototypes and later asked for preferred
sets of features. Using conjoint analysis a preferred
product design can be combined from all respondents.
An additional benefit is the interactive process that
allows collecting further rich data on customer
For exploring strategic innovation areas in the first
phase of the innovation process, Deutsche Telekom is
participating in executive forums such as the ‘Münchner
Kreis’ or the ‘Feldafinger Kreis’. Both are forums that
bring together executives and academics in a cross-
industry panel and facilitate discussions about topics
such as digital rights management or the future of the
Internet. In addition there are also government-
sponsored activities such as the ‘IT-Gipfel der
Bundesregierung’ (IT-summit of the German
government), where the CEOs of the largest companies
in Germany and leading academics discuss and kick-off
large-scale innovation activities.
In the idea-generation phase the foresight workshops
also play an interesting role: While traditionally the
knowledge about future directions of technological
developments were regarded as highly valuable and
thus dealt with a maximum level of secrecy, Deutsche
Telekom engages with selected partners in joint
workshops where this knowledge is shared. This is
particularly surprising because Deutsche Telekom is
operating a worldwide network of technology scouts
(Rohrbeck, 2007) and it could be expected that this
effort would be exploited by keeping this information
secret and using it exclusively.
In the commercialization phase, technologies and
products that can or have not been transferred to
business units because of internal barriers might be
commercialized externally (Chesbrough, 2003a;
Lichtenthaler, 2008a; Lichtenthaler & Ernst, 2007).
Such activities have for example been reported at DSM,
a Dutch chemical company (Vanhaverbeke & Peeters,
2005) and can also be found at Deutsche Telekom.
At T-Labs, the first two examples of spin-out
companies could be observed: Qiro and Zimory. Both
spin-out companies are developing technology that is
close to existing business, but fits only weakly into
current innovation strategies. They are financed by
external seed capital. Zimory also received financing
from T-Venture, the corporate venture capitalist arm of
Deutsche Telekom. In reference to the possibility that
these companies might later be bought back, they are
called Spin-Alongs (Rohrbeck et al., 2008).
Another instrument of open innovation is supporting
the commercialization phase: Deutsche Telekom runs a
large test market to promote collaborative innovation.
In 2007 Deutsche Telekom chose Friedrichshafen, a
German City of 58,700 inhabitants to become T-City, a
national showcase for new information and
communication technologies (ICT). The person
responsible for T-City at T-Labs explains that:
“The idea behind T-City is to show that it is
possible to enhance quality of life through
information and communication technology.”
Here, 40 - 50 Mio Euros will be invested in
infrastructure and additional 80 Mio Euros will be spent
on projects developing new products and services.
These projects are defined together with other
companies, such as Alcatel-Lucent, a
telecommunications supplier, or ZF Friedrichshafen, an
automobile supplier, together with the public
administration as well as community groups. Running a
test market at such a scale also yields the benefit that
even large innovations such as e-government
applications, mobile worker solutions or e-health
schemes can be applied and tested in a real-world
This study was aimed at assessing the degree to which
the open innovation paradigm has been adopted by a
large multinational company. We were able to identify
eleven open innovation instruments and shed light on
their aims and value contributions.
Taking into account that in a company of 240,000
employees, a sample of 15 respondents will not be
sufficient to identify all open innovation activities, the
number and intensity of open innovation activities is
When considering the overall innovation
management system of Deutsche Telekom, with around
6,400 employees identified in the annual report as
working in R&D plus an unknown number of
employees working in functions such as marketing, the
number of people associated with open innovation
activities remains limited. Through our interviews we
estimate the number of employees with frequent
interactions with the outside world to be less than 10%.
Here, the future innovation strategy of the company
which is currently being re-defined will put a special
Right now, the opening of the innovation system is
highest in the area where it can be expected to matter
most: corporate R&D. The R&D in the business units
(T-Mobile, mobile services, T-Home, fixed telephony
and broadband access and T-Systems, business
customers and ICT services) has traditionally focused
on applied research and development, mostly based on
innovations brought in from suppliers. Therefore, the
competitiveness of innovations on the business-unit
level is based on procurement rather than on the internal
innovation capacity. Here, the open innovation
ecosystem needs to be enlarged in order to include these
decentralized business units. One example is the joint
development with suppliers in various fields. The
founding of EICT as an intermediate for such joint
projects certainly helps to facilitate activities in this
Another strong driver of open innovation activities
are the T-Labs. Throughout the study various examples
have been identified which documented that the open
innovation instruments are applied very effectively in
this corporate R&D unit. Especially in terms of
customer integration and research partner’s
cooperation, T-Labs has reached a lighthouse position
for the whole organization with respect to activities with
these innovation partners. For the last three years, T-
Labs has consistently shown a strong innovative
capacity as more than 30 already successful finished
projects and more than 70 running projects in 2008
show—of these projects over 70% have been in
collaboration with academic partners.
Overall Deutsche Telekom can be characterized as a
company that has successfully opened a large gate to
the outside world, without tearing down every wall and
opening every door. By doing so Deutsche Telekom
uses most of the benefits of open innovation without
betting its survival on an open innovation future.
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