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Open Innovation: Not a Fad but a Phenomenon
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Transcript of Open Innovation: Not a Fad but a Phenomenon
OPEN INNOVATION NOT FAD BUT A PHENOMENON
THE ROLE OF OPEN INNOVATION IN TODAY’S GLOBAL AND DIGITAL ECONOMY Prof. Sabine Brunswicker Purdue University, USA and Fraunhofer Society, Germany
INNOVATION IS OFTEN THOUGHT TO BE ABOUT SPECIAL PEOPLE
THE INNOVATION GAME HAS CHANGED¹
Source: 1) Chesbrough (2003)
SINCE 2003… FIRMS ENGAGE IN SO CALLED “OPEN INNOVATION PRACTICES”
Google Search Open Innovation : 10/2011 > 8 Mio Hits 05/2013 > 700 Mio Hits
Open Model
existing market
new market
other firm’s market
idea sourcing
running/successful innovation projects discarded innovation projects
Closed Model
market +
+
+
new product/ service
internal innovation resources
internal innovation resources
external innovation resources
technology sourcing
co-development partnerships
spin-out
Source: Brunswicker (2011); see also Chesbrough (2003, 2006)
LET‘S RECAP – WHAT‘S OPEN INNOVATION OPEN INNOVATION DESCRIBES A COGNITIVE FRAMEWORK FOR A FIRM’S STRATEGY TO PROFIT FROM INNOVATION
INNOVATION “CROWDSOURCING” HAS BECOME POPULAR…
Firms outsource the task to solve an innovation problem to the public “crowd” - rather than to a designated group of actors - via an
open call
CROWDSOURGING IS BUILD UPON THE IDEA THAT „DIVERSITY“ IS THE GENERATIVE MECHANISM FOR INNOVATION
source: Chris Anderson (2004), Lakhani (2006), Laursen & Salter (2006)
Popularity of resources
In-house resources
Access to a small number of experts and disciplines
„Long tail“ of resources outside the firm‘s boundaries
Access to large number of different competencies and various disciplines
Range of potential problem solving resources
THE GOLDCORP STORY….
Crowdsourcing challenge: GoldCorp put 000’s of pages of complex geological data online to help discover new veins of gold at its Red Lake mine, Ontario, Canada. US ~$500,000 in prize money
Over 1,400 corporations, consultants and universities from 50 countries entered the
contest. More than 8 million ounces of gold found.
Company’s value rocketed from $100M to $9B
Participation and outcome Over 1,400 corporations, consultants and universities from 50 countries entered the contest. More than 8 million ounces of gold found. Company’s value rocketed from $100M to $9B
OPEN SOURCE IS DIFFERENT FROM OPEN INNOVATION….
Value Capture
Company
Ecosystem
In-House Community-driven
Value Creation
e.g. Microsoft OS
e.g. MySpace
e.g. pirated music complementors
e.g. Linux Kernel
…….with the right business model it can be a successful open innovation practice
OPEN INNOVATION IS ABOUT „PROFITING“ FROM INNOVATION
Open Source Versus Open Innovation
…….Open Innovation requires a business model to ensure both value creation AND value capture
CASE STUDIES SUGGEST THAT THERE IS PERFORMANCE IMPACT
Idea-fairs, e.g. tinkerers or suppliers
Technology acquisition
Research institutes
Strategic suppliers
Customer integration
Further partners
Universities
Internal/external ventures
Internet platform
Licensing
Outside-In
Inside-Out
Co-Development/Networks
Source: Huston & Sakkab (2006), Enkel, Gassmann (2009)
“ In Connect & Develop we set the goal to acquire 50% of our innovations externally “ (VP of Innovation)
Improvement of the R&D productivity by 60%
Within two years P&G has marketed more than 100 new products
OUR RESEARCH SUGGESTS THAT OPENESS IMPROVES PERFORMANCE Success rate of innovation projects
(share of successful innovation projects; median) Comparison of firms from different age classes
Income from new products/services that are younger than 3 years (median)
Comparison of firms from different age classes
11 to 25 years
Older than 25 years
6 t 10 years
2 to 5 years
Datasource: IMP3rove, Oktober 2010; N=1469; see also Brunswicker (2011): Beyond open innovation in large organisations
47.0% 23.0%
29.0%
19.0%
19.0% 10.0%
15.0%
9.0%
50.0% 20.0%
50.0% 25.0%
60.0% 50.0%
50.0% 5.0%
11 to 25 years
Older than 25 years
6 to 10 years
2 to 5 years
Wide and diverse open innovation sourcing*
Closed/selective approach towards innovation sourcing**
10 YEARS LATER
A FAD OR A PHENOMENON ?
Executive study UC Berkeley and
Fraunhofer
Study among the largest firms in Europe and US Firm criteria: >1000 employees
and >250 million USD in sales Key informants: CEO, COO, or
CTO at headquarter Data collection October– December 2012 125 datasets
Adoption of open innovation
Abandonment
Open innovation experience
Management support
Intensity
78% practice open innovation today
No firm has abandoned open innovation
Median of 5 years
71 % have increased management support
82 % have increased open innovation activity
IN OUR NEW EXECUTIVE SURVEY WE FOUND THAT OPEN INNOVATION IS ON THE RISE
THERE IS A BUNCH OF OPEN INNOVATION PRACTICES
Challenge Powering the Grid
Powering your Home
Source: www.ge.com, Chesbrough (2012) California Management Review
Co-investment strategy
VCs: Emerald Capital, Foundation
Capital
LARGE FIRMS LIKE GE EXPERIMENT WITH IDEA COMPETITIONS
High participation 4000 ideas
75013 entrepreneurs participating
Innovation partnerships 23 partnerships
USD 200 million investment GE
OTHERS USE OPEN INNOVATION INTERMEDIARY SERVICES
Open Innovation Marketplaces
Searcher Solver Community (Technology experts,
individuals, entrepreneurs, etc.)
Request for proposal Proposes solution and
ideas
Market for Ideas and Technologies
Problem: Strong durable gear materials that do not require lubrication
• 26 solutions submitted • 16 new solutions • 8 solutions with potential
for development
INNOVATION CO-CREATION WITH USERS IS POPULAR…
More than 27 000 visitors More than 350 design contributions
884 members 3980 hours spent
LET‘S TRY TO CLASSIFY THEM….
Direction
Inbound
Outbound
Pecuniary Non-pecuniary
Financial flows
Acquiring Sourcing
Selling Free revealing
THERE ARE A RANGE OF INBOUND PRACTICES
IP In-licensing
Informal networking
Publically funded R&D projects
Contracting external R&D services
Open Innovation Intermediaries
Inbound
University grants
Supplier innovation awards
Own crowdsourcing initative
Customer and
consumer co-creation
Idea and start-up competition
CO-CREATION WITH USERS MATTERS THE MOST
2.34
2.64
2.66
3.37
3.71
3.73
3.87
4.19
4.38
4.43
1 2 3 4 5 6 7
3.80
4.09
3.76
4.01
4.47
4.04
4.11
4.28
4.12
4.68
1 2 3 4 5 6 7
Customer and consumer co-creation
Informal networking
University research grants
Publically funded R&D consortia
Contracting of external R&D service
Idea and start-up competitions
IP in-licensing
Supplier innovation awards
Crowdsourcing (unknown problem solvers)
Specialized services OI intermediaries
Not important Highly important
Significant decrease
Significant increase
No change
Source: Open Innovation Executive Survey Fraunhofer & UC Berkeley; n = 91
Importance in 2011 (mean values)
Change of importance 2008-2011 (mean values)
Inbound practices
Corporate business Incubation and
business venturing
Donations to commons or non-profits
IP out-licensing and patent selling
AND THERE ALSO DIFFERENT KINDS OF OUTBOUND PRACTICES
Participation in standardization
Participation in standardization
Selling of market-ready ideas
Joint venture activities with
external partners
Inbound
TRADITIONAL PRACTICES ARE THE MOST POPULAR ONES
2.26
2.43
2.84
3.45
3.75
3.85
4.21
1 2 3 4 5 6 7
3.91
3.74
4.20
4.63
3.97
4.39
4.62
1 2 3 4 5 6 7
Joint venture activities
Selling of market-ready products
Participation in public standardization
Corporate business incubation & venturing
IP out-licensing & patent selling
Donations to commons or nonprofits
Spin-offs
Not important
Highly important
Significant decrease
Significant increase
No change
Importance in 2011 (mean values)
Change of importance 2008-2011 (mean values)
Outbound practices
Source: Open Innovation Executive Survey Fraunhofer & UC Berkeley; n = 91
CUSTOMERS ARE THE MOST CRITICAL EXTERNAL PARTNER
2.13 2.47 2.54
3.67 3.82 3.82
4.22 4.30
4.51 4.88
5.17 5.54
1 2 3 4 5 6 7
Unrestricted communitiesRestricted communities
CompetitorsExternal consultants
Contracted R&D service providersEntrepreneurs and start-upsPublic research organisations
Indirect customer or final consumerSuppliers
UniversitiesCustomers
Internal employees
Importance of open innovation partners (mean values; 1= not important to 7=highly important)
Average = 3.9*
not important highly important Source: Open Innovation Executive Survey Fraunhofer & UC Berkeley; n = 82
IT IS NOT ABOUT THE INDIVIDUAL PRACTICE AND SOURCE
1 2 3
Supply-chain oriented Technology oriented Ecosystem-wide Supplier programs Supplier awards etc. Direct customer co-
creation
Source: see also Chesbrough (2006)
University grants Developer communities Contracted R&D services
Third-party developers and service providers
Trusted partner network Complementary network
partners
3 categories of Open Innovation orientation
IT IS NOT ABOUT THE INDIVIDUAL PRACTICE AND SOURCE
….BUT OPEN INNOVATION IS HARD
SOME PEOPLE THINK OPEN INNOVATION REDUCES RESOURCES AND EFFORTS
Source: Open Innovation Executive Survey Fraunhofer & UC Berkeley; n = 91
THERE IS AN INTERNAL COMPONENT OF OPEN INNOVATION THEY JOURNEY FROM CLOSED TO OPEN REQUIRES NEW CAPABILITIES, ROLES, AND VALUES
3.69
4.55
4.53
4.53
4.89
5.26
3.61
4.28
4.49
4.6
4.97
5.6
1 2 3 4 5 6 7
Avoidance of external or already existing knowledge
Effectiveness of intellectual property protection
Identifying new innovation sources
Protecting internal critical know-how
Management of external relationship with innovation sources
Managing the organizational change internally
Challenges of engaging in open innovation (mean values, 1=not important to 7= highly important)
when firm's startedtoday
Not important Highly important
WHY ARE FIRMS NOT SATISFIED WITH CROWDSOURCING AND CHALLENGES?
Task description Start: Submission of Ideas
Many are designed for COMPETITION …
And not for COLLABORATION and CO-CREATION
THERE IS A SOCIAL DIMENSIONS OF CO-CREATION
1
4
2
3
Fun
Fullfillment
Fame
Furtune
New SCN platform
Gamified TechEd 2011
12 months rolling points
THE EVOLUTION OF SAP‘S SCN SUGGESTS THAT GAMIFICATION MATTERS
2003 2005 2007 2009 2011 2013
Ask the Expert
Points introduced
Top Contributors Annual Contest
SAP Mentoring Program
Launch of Gamification
Module
10 years SCN
Some outcome measures Activity up by 1,113% Community feedback up by 250% Points up by 147 %
OUTLOOK: OPEN INNOVATION IS EVOLVING FINAL SLIDE WITH “WEB” AND NEW MODELS OF INNOVATION
The GRAVITY IS SHIFTING EVEN MORE…
..people-centric & decentralized innovation ecosystems
COMPLEMENTORY PARTNERS ARE CRUCIAL IN TODAY‘S BUSINESS ECOSYSTEM
^^
Internet
ISP
T
T T
Phone
WiFi
Enduser
system Handset
Distribution GUI
Shop
OS APIs
Audio-
Dateiformat
A A A
Millions of songs
Thousands of Apps
Assembly C
C
C C
Hundreds of components
Hardware
interface
BIOS
Betriebs-
system
iTunes
Design
Closed IP
External supplier
Complementor
Open Source
Closed Standard
Open Standard
Legend
A LIFECYCL-ORIENTED PERSPECTIVE IS BECOMING MORE AND MORE IMPORTANT BOUNDARIES ARE BLURRING
DATA
Con-tinued Value
Creation Lifecycle-oriented
Innovation Ecosystems
Standardize and open
data Co-create
app
Application lifecycle
Co-create
service
Users Application developers
Application platform
Service providers
Service integrator
Open data provider
Launch app &
service
Operate & con-
tinuously improve
FIRMS ESTABLISH DIVERSIFIED INNOVATION ECOSYSTEM
Trusted Network
New partners
Pearlfinder
Supplier
Government
Researcher Development partner
Pearlfinder • Company owned digital community • Challenge-driven innovation • Multi-staged process and individual
Terms + Conditions • Link with other open innovation
practices
Partner and partner selection • Suppliers, universities, development
partners, customers • No start-ups • Selection based on„manageral fit“
and stabiltiy, IPR-Policy, „Academic Excellence“ and concrete idea
• Selection process based on new methods such as incubation lab
Challenge Uni
Customers
…AND PROFESSIONALIZE THE MANAGEMENT OF NETWORK RELATIONSHIPS
Internal net-
works
Expert communities
Expert support
New research partners
Market places
Web 2.0 Communities
New suppliers
New development
partners
Tier 1
Loose innovation contacts
New opportunities
„Leverage“ (invest)
Tier 2/3
Trusted networks
Shift
towa
rds o
penn
ess
Phase 1 Phase 2 Phase 3 Phase 4
Source: CAS 2010; Ehrenmann & Brunswicker (2012)
Closed System
Firm-centric innovation networks
New infrastructures
New decentralized innovation ecosystems
InterneTechnologie-
Basis
AktuellerMarkt
AktuellerMarkt
Gescheiterte Ideen/ abgebrochene Projekte
Erfolgreiche Ideen/ erfolgreiche Projekte
InterneTechnologie-
Basis
AktuellerMarkt
AktuellerMarkt
Gescheiterte Ideen/ abgebrochene Projekte
Erfolgreiche Ideen/ erfolgreiche Projekte
Gescheiterte Ideen/ abgebrochene Projekte
Erfolgreiche Ideen/ erfolgreiche Projekte
THE SHIFT IS CONTINUING; IT REQUIRES MORE EXPERIMENTATION
New facilitation skills and leadership capabilities
New socio-technical infrastructures
Experimentation (rather than control)
Lifecycle-oriented innovation ecosystems
„If you’re not failing every now and again, it’s a sign you’re not doing anything very innovative.“ Woody Allen
Contact: Prof. Sabine Brunswicker, [email protected]
BACK-UP
AGENDA
Let‘s recap: 2003 – The emergence of Open Innovation as a new model of industrial innovation 10 years later - The Adoption of Open Innovation Practices in Large firms Organizing and managing for open innovation – dynamics and socio-technical infrastructures The emerging landscape of Open Innovation: Towards an Innovation Ecosystem Perspective