Lecture Prof Henry Chesbrough Open Innovation
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Transcript of Lecture Prof Henry Chesbrough Open Innovation
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Open Innovation:A New Paradigm for Industrial
R&DPresentation to
National University Ireland - GalwayHenry Chesbrough
Center for Open InnovationUC Berkeley
November 12, 2009
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The Current Paradigm:The Current Paradigm:A Closed Innovation SystemA Closed Innovation System
ResearchInvestigations
Development New Products/Services
TheMarket
Science&
TechnologyBase
R D
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CurrentMarket
InternalTechnology
Base
R D
The Open Innovation Paradigm
Technology Insourcing
NewMarket
Technology Spin-offs
ExternalTechnology
Base
Other Firm’sMarketLicensing
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Open Innovation
Our currentmarket
Our newmarket
Other firm´smarket
External technologyinsourcing
Internaltechnology base
External technology base
Stolen with pride from Prof Henry Chesbrough UC Berkeley, Open Innovation: Renewing Growth fromIndustrial R&D, 10th Annual Innovation Convergence, Minneapolis Sept 27, 2004
Internal/externalventure handling
License, spinout, divest
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Philips Research,Ronald Wolf, 10/08
2003: We broke up the fortress …
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Philips Research,Ronald Wolf, 10/08 6
Bringing in the right partners – Open innovation
> 75 companies and> 7000 people atHigh Tech Campus Eindhoven
Researchinstitutes
Economicdevelopmentcompanies
Corporateinnovators
Consultancy& services
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Philips Research,Ronald Wolf, 10/08
The expansion of the corporate funnel
Front – end Development Commercialization
InsourcedIdeas /Technology
ODM
OEM
Spin inStart upsIP insourcing
Incubators Spin outIP Licensing
Acquisitions
Alliances
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BP’s challenge in February 2006
• Energy Bioscience looked promising (Senior Executive buy-in)
• How do we meld commercial/technology strength withbiology/biotech?
− The company had no bio-expertise
• How to reach out to biology/biotech communities
− Not a corporate lab!
− Corporate labs too insular – can’t tap broader expertise in arapidly moving field
− Where was the Energy/Bio talent pool anyway?
− Not the usual university research programme
− BP does many of these and knows strengths/weaknesses
− Need to facilitate the development, demonstration, andcommercialization of research results
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Lawrence BerkeleyNational Laboratory
OtherBP Components
UC BerkeleyHost Institution
University of IllinoisUrbana-Champaign
OtherEntities
contracts contracts
subcontractscontracts
contracts
ENERGY BIOSCIENCES INSTITUTE (EBI)OPEN RESEARCH
BP R&TPROPRIETARY RESEARCH
subcontracts
Funding for Open and Proprietary Components
$50M/yr
$35M/yr
$15M/yr
BPProprietary Component
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Licensing provisions
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For inventions solely owned by UCB, UIUC and/or LBNL
NON-EXCLUSIVE
Non-exclusive, royal free (NERF)license in BP’s area of interest,providing:
- BP will diligently pursuecommercialization
- BP will underwrite the patentcosts
EXCLUSIVE
BP may obtain exclusive licenserights to sole or joint inventions.
- pre-negotiated capped fees
- “Bonanza clause” in case ofextraordinary commercial success
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© 2008 Henry Chesbrough 11
Procter & Gamble
• P&G used to be a VERY closed organization– “We invented Not Invented Here” – J. Weedman
• P&G financial crisis, in 2000– Missed a series of quarterly financial estimates– Stock market lost confidence in the company– Stock price fell by more than half in 4 months!– CEO (Jagr) was fired
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P&G’s Stock Price: 8/1998-3/2000P&G Stock Price
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Pri
cep
ersh
are
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Searching for the Root Cause
• “We fundamentally had a growth problem.Our current brands were performing well.But we weren’t developing many newbrands.” – C. Wynett
• To get new brands, P&G needed to open up.• Connect and Develop
– SpinBrush, Swiffer, Regenerist
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A.G. LafleyPresident and CEOP&G
“We will acquire 50% of ourinnovations from outside P&G”
Jeff Weedman28 External Business Development managers
VP, External Business Development
“We don’t care where good ideas come from.”
Larry Huston (just retired)120 Technology Entrepreneurs
VP, Knowledge & Innovation, Corporate R&D
Nabil Y. SakkadSVP, R&D, Global Fabric & Home Care
“There’s 1.5 Million people in the world whoknow about my business. I want them on my
team”
Example: Proctor & Gamble
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P&G Share Price Restored!
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The New P&G
• Many processes to enable open innovation– Technology scouts– Legal templates for IP, partnering– Investments in Innovation Intermediaries
• The Goal Now: Become the openinnovation partner of choice
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CurrentMarket
R D
Not Just for High Tech:Procter & Gamble
NewMarket
“Use it or Lose it”
ExternalTechnology
Base
Other Firm’sMarket
TechnologyScouts
InternalTechnology
Base
VentureAcquisitions“Spinbrush”
LargeAcquisitions“Gillette”
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An Iberian Example: El BulliAn Iberian Example: El Bulli
• Ferran Adria studies molecular gastronomy, workingwith Herve This, a French physical chemist
• Adria brings this to El Bulli, restaurant is the Lab• Adria launches many business experiments
• Borges: oils, snacks• Lavassa: coffee• N H Hoteles: FastGood, Nhube• Iberian Airlines (with FastGood)
• Careful not to dilute the El Bulli brand
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Is the internal R&D departmentIs the internal R&D departmentan antiquated concept?an antiquated concept?
• No – open innovation can leverage internal R&D• But…..• New focus: must look outside as well as inside• New role: connecting to and collaborating with the
outside• New skill: integrating internal and external together
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Challenges facing SMEs
• Less internal R&D capability• Less ability to absorb external R&D• Less “status” as a partner for others• Less market power, weaker ability to
capture value• Less IP (usually, not always)• IP Enforcement often too expensive
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Advantages of SmallCompanies
• Size: markets that are too small for large firmscan be attractive
• Focus: greater ability to execute for a specificsegment or set of customer needs
• Specialization: ability to develop deepknowledge of a specific domain
• Entrepreneurial: external focus on results,much less internal “politics”
• Speed: faster decisions, faster execution, fasterresults
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Open Innovation Benefits forSMEs
• Large firms increasingly value collaborativepartnerships
• Large firms create platforms that seeksupporting investments from SMEs
• Users (customers) initiate more innovativeactivity, a big opportunity for SMEs
• SMEs can expand geographically now at lowercost, “hidden champions”
• Greater rewards to specialization in OpenInnovation
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Where does your business fit?
small large
smal
lla
rge
Market Size
Scal
eof
R&
D
Niche
Specialist
Breakout
Dominant
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Winning in the Niche
• Build advantage in a small market– Be highly competent in design, or focus, or
customization, or customer satisfaction– But don’t overinvest, right-size the
investment
• Move fast– Develop new products to keep others out
• Or at least behind
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Risks in the Niche
• Obsolescence– Sticking too long with same offering
• Integration with customer– Can customer go around you?
• Weak or no effective protection for yourIP– You invest, others benefit
• What if niche grows too large?
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Winning in the Breakout Business
• Here, small R&D investments generatesurprisingly large market opportunities
• SME has the opportunity to breakout as well• Can you create a platform for others to build
upon? (TomTom, MTV, American Idol)• Can you encourage other firms to innovate with
you? (Red Bull, and extreme promo’s)• A key skill: thinking like an architect, or a
systems integrator
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Risks in the Breakout Business
• Many businesses don’t scale up well• Large competitors jump in• Partners become competitors• Systems integrator loses control of the
platform
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Winning as a Specialist
• High R&D investment to serve a small market• Economics require specialization, and ability
to serve whole market– Not enough volume for multiple competitors
• An attractive area to partner with a large firm– Take over one of their unattractive businesses– Example: Multis in Ireland (reverse logistics)
• Spinoffs: offload underperforming businessesinto companies that can execute them better
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Risks of Specialists
• Obsolescence• Departing employees• Management Changes at Key Customers• Market Shift Away from the Specialty
– Travel agencies after the Internet
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© 2008 Henry Chesbrough 30
Winning in DominantBusinesses
• The Land of the Giants: High R&D costs, largemarkets
• Many niche opportunities to complementDominant businesses for SMEs
• Speeding up Dominant Business’s time tomarket
• Partnering with Large Business: “Only way tobecome a big company is to learn how to workwith big companies” - Intel
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Risks in Dominant Businesses
• Getting squeezed by your customer• Sustaining collaboration over time• Being acquired by the Dominant partner
– “spin in’s”– How to value fairly such spin-in’s?
• Large firm may lack processes to workeffectively with small companies
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Conclusion
• Being an SME is tough– But being a large company can be tough too
• SMEs are not “one size fits all”– Assess where your business fits, Scale of R&D
vs. Market Size• How can you adapt your business model to
improve your business’s fit?• Can groups of SMEs organize to create
breakout businesses?
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The Crisis in Copenhagen
• Successor to Kyoto protocol• Disputes over emissions targets….• …. and over access to the IP and technology to
achieve them!• Proposals of $100 billion + are ill-suited to the
times• Can Open Innovation help?
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Founding Partner resources:
- brand development (Nike)- legal architecture (Science Commons)- technical implementation (Force.com)- technical implementation (nGenera)- technical implementation (2degrees)- messaging and story (IDEO)- academic outreach (U Washington)- business rationale for sharing (UC Berkeley)
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patents
sustainability
• greentech / sustainability patentsrepresent a small portion of the overallportfolio of the average company.• and most companies have little skill orexperience in licensing or sharing them
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• retain the essential rights inside thecore business• use a standard offer to license therights via automated transactions• determine exceptions to licensingrequirements
– research– geography– field of use– etc….
Businesses Control the Use of Their Green IP
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The Business Benefits of Sharing orExchanging Green IP• Publicity, yes, but there’s much more …• Greater usage of technology to lower costs• Commoditize an input to lower costs• Establish a technical standard to influence the
future development path• Incremental revenues from licensing outside
of your business• Stimulate greater research activity in areas of
value to your business
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Open Innovation in Copenhagen?• Private reasons to share or exchange Green IP
– Good business, not just good publicity
• No government action required– Though policy can help stimulate the process…
• Developing nations need not pay for all IPrights– Exchange, share, or license just those they need
• Developing nations innovate too– And these can be shared with other developing
countries
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Policy Can Help!
• Provide greater information on availablegreen technologies, whether private orpublicly held
• Offer financial assistance for licensing usefulGreen IP to developing countries– Also technical assistance
• Award prizes for most useful Green IP• Provide tax incentives to stimulate sharing or
exchange of Green IP
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Photo Credits
Flickr: Chess/Fox, Tuesday Night Poker/Rambis, RyanAir/ezreenphotography, Ryan Air New Boeing 787Colours/macrodebs, 332/265/Digg Pirate, The busshelter at the edge of the ocean/goddess_spiral, Flickrtreo ad/Steve Rhodes, Technology - "FutureVision“/$ydney
iStockphoto: 000003004014, 000003062424, 000004293861,000007135639, 000005589058, 000000718722
iPod photo: http://www.apple.com/ipodclassic/
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