Open Innovation OCDE

8/6/2019 Open Innovation OCDE

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Open Innovation:

A New Paradigm for Managing

Technology

Presentation to OECD Conference on

New Business Strategies for R&D

October 22, 2001

Henry ChesbroughAssistant Professor and Class of 1961 Fellow

Harvard Business School


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A Closed Innovation System

ResearchResearch

InvestigationsInvestigationsDevelopmentDevelopment New ProductsNew Products

/Services/Services

The

Market

Science

&

Technology

Base

R D


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The Virtuous Circle for R&D

Fundamental Technology Breakthroughs

New Products and Features

Increased Sales and Profits

via existing business model

Increased investmentin R&D


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The Payoff to Doing Research

# Basic Research Articles

# of

patents

awarded


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0

500

1000

1500

2000

2500

0 500 1000 1500 2000 2500 3000 3500

No of published articles

Noo

fPatents

Merck

Hoffman-LaRoche

Ciba-Geigy

Hoechst/MMD

DuPont

Eli-Lilly

B-M-S

Burroughs-Wellcome

Abbott

Rhone-Poulenc

Bayer

Pfizer Warner-Lambert

The Payoff to Research - Pharma

Source: K. Lim, National University of Singapore


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Hidden Assumptions in the Internally-focused Innovation System

If I discover it, I will find a market for it

If I discover it first, I will get it to market

first If I discover it first, I will own it

The important technologies I will need can

be anticipated in advance The best people in this field work for us


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Shifts in the ResearchEnvironment

Increasingly mobile trained workers

More capable Universities

Knowledge distributed more widely Diminished US hegemony in many leading

technology fields

Erosion of oligopoly market positions Deregulation

Enormous increase in Venture Capital


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Xeroxs Innovation System


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Graceful Exits and Foregone Opportunities

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Year

USDo

llars(millions)

Xerox 3Com

Adobe Doc Sci

Documentum FileNet

Komag Objectshare

SynOptics SDLI

VLSI Sum (10)


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Fundamental Technology Breakthroughs

New Productsand Features

Increased Sales and Profits

Increased

investmentin R&D

Key engineers

exit to formnew company

Venture Capital helps team focus on

new market, new business model

IPO

oracquisition

RIP

The Virtuous Circle Broken


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Semiconductor Firms - Relevant Patents vs Basic Research Publications, 1981-97

0

500

1000

1500

2000

2500

3000

3500

4000

0 1000 2000 3000 4000 5000 6000 7000

No of published articles

No

of

patents

IBM

AT&T

Philips

Motorola

Hitachi, NEC

Mitsubishi

TI

Toshiba

Fujitsu

ST Micro

Siemens

NTT

MatsushitaNatl Semi

Intel

The Payoff to Research - Semiconductors

Source: K. Lim, National University of Singapore


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CurrentMarket

InternalTechnology

Base

R D

The Open Innovation Paradigm

Technology Insourcing

New

Market

Technology Spin-offs

External

TechnologyBase


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Implications for Firms

Can internal R&D continue to be justified, in aworld of dispersed ideas, abundant capital, and a

mobile workforce?

If startups are generating numerous experiments,how can firms learn from their experiences?

Are startups parasitic, or mutualistic?

Should good research practice admit careful monitoringof startups activities?

Should companiespromote startup activity?


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IBMs Innovation System Research internally generated, but externally applied

Global Services supports multiple vendors Unbundling components of systems for sale to

competitors

Careful patenting and vigorous enforcement Leading US patent recipient for each of last 6

years

Collected over $1.7 billion in patent royalties in2000

compared with ~$600 million in basic

research


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Intels Innovation System Little investment in basic research

in an industry driven by Moores law internal labs focused on taking research into mfg.

Aggressive program to sponsor academic research

monitor external research developments stimulate research in areas of interest

manage the institution, as well as the researcher

create an Intellectual Commons

we dont have to own it to profit from it

Intel had 600 internal researchers in 1996

Intel spent over $100 M in external research in 1996


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Intels Innovation System - part II

Intel pioneered the use of corporate venture capital to

stimulate the growth of markets for its products

spent


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Locus of Research/Paths toMarket

Locusof

Innovation

Path to Market

Internal

External

ExternalInternal

IBM products

Intel Labs Intel CVC

Xerox Spin-offsXerox

IBM components, IP


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The Logic ofOpen Innovation We should not restrict research to internal pathways to market.

We must manage IP in order to manage research: need to access external IP

need to profit from our own IP

Our researchers must expand their role: knowledge brokers, as

well as knowledge generators. We dont have to own the research to profit from it.

Not all of the smart people in the world work for us.

We must have enough smart people to recognize excellentresearch. Therefore we must do some internal research.

We must compete and collaborate to advance our technology.Research can help define how we collaborate.


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Implications for Science &Technology Policy

Open Innovation will generate lots ofrecombination, due to wide diffusion of knowledge.

Where will the seed corn for fundamentalbreakthroughs come from in future?

What institutions are needed? Labor markets: training, education, univ. research

Capital markets: startup formation, discipline

IP: access to public, limited protection of private

To what extent should policy promote diffusion, vs.protect invention activity in this new environment?

Open Innovation OCDE

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