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Dan Shapiro
Dan Shapiro

Open Innovation The New Imperative For Creating...



In today's information-rich environment, companies can no longer afford to rely entirely on their own ideas to advance their business, nor can they restrict their innovations to a single path to market. As a result, says Harvard Business School Professor Henry W. Chesbrough, the traditional model for innovation--which has been largely internally focused, closed off from outside ideas and technologies--is becoming obsolete. Emerging in its place is a new paradigm, "open innovation," which strategically leverages internal and external sources of ideas and takes them to market through multiple paths. This path-breaking analysis is based on extensive field research, academic study, and the author's own longtime experience working in Silicon Valley. Through rich descriptions of the innovation processes of Xerox, IBM, Lucent, Intel, Merck, and Millennium, and the many spin-offs that have emerged from these firms, Open Innovation shows how a company can use its business model to identify a more enlightened role for R&D in a world of abundant information, better manage and access intellectual property, advance its current business, and grow its future business. Arguing that companies in all industries must transform the way they commercialize knowledge, Chesbrough convincingly shows how open innovation can unlock the latent economic value in a company's ideas and technologies.




Open Innovation The New Imperative for Creating...



Chapter 3 discusses the open innovation paradigm in detail. Open innovation suggests that companies should make money by leveraging multiple paths to market for their technologies. R&D departments should not restrict their goal to exclusively inventing new knowledge. In addition, they should be open to accessing and integrating external knowledge. Finally, instead of managing intellectual property (IP) to exclude everyone else from using it, companies should manage IP to advance their own business models and to profit from others' use. One of the main business decisions of a firm becomes what necessary pieces of an innovation should be internally versus externally supplied, followed by how to integrate the pieces together.


Chapters 5 through 7 explore different applications of open innovation at IBM, Intel and Lucent's New Ventures Group. The author indicates that IBM presents an excellent example of a firm that managed to transform its approach from closed to open innovation. While IBM has been successful with its internal research commitment to developing different business models for leveraging its technologies, Intel provides an example on the other end of the spectrum. It is a company that connects internal and external research with corporate VC to grow its business model.


Chesbrough targets both practitioners and scholars in presenting his views on the changing stage of innovation. For practitioners, especially if the locus of innovation is shifting in your business, then this book will be worth your while. Academics might be very much interested in some parts of the book. The author points towards universities where ideas could be obtained from faculty members. As the open innovation paradigm embraces external ideas and knowledge in conjunction with internal R&D, practitioners are advised to harness the novel ideas of scholars in order to come up with innovations that create value. The author indicates that sponsoring or supporting research is one way to learn about scholars' ideas. Consequently, if you are a scholar and are trying to persuade companies to support your research, this book is full of justifications as to why companies should invest in university research. Finally, Open Innovation would be a valuable supplementary book for an MBA course (especially for an executive MBA course) as it describes how the innovation process has evolved in recent years.


Chesbrough defines open innovation as, "a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology" (xxiv). Basically, the argues that a series of "erosion factors" have changed firms environments so that they cannot remain competitive with centralized, internal, R&D processes.


In his third chapter, Chesbrough argues that together, these erosion factors open the door to an "open innovation paradigm" which essentially means that companies are more willing to look outside of the firm for new innovations and more willing to let their innovations be commercialized outside the firm as well. He is not arguing for free software or open source. Indeed, he strongly emphasizes the need for new systems for managing the transfer and licensing of patents and other intellectual properties. It is the increase use of these tools, indeed, that facilitates much of what falls under the open innovation umbrella.


The fourth chapter is essentially a recapitulation of on business models found in an article published with Dick Rosenbloom (2002) on The role of the business model in capturing value from innovation published in Industrial and Corporate Change. The chapter essential argues for a more nuanced definition of business model that captures a series of functions including: (1) an articulated value proposition, (2) an identified market segment, (3), a structured value chain, (4) a specified revenue generation mechanism that estimates the cost structure and target margins, (5) a description of the value network linking suppliers and customers, and (6) a formulation of a competitive strategy. The chapter is somewhat out of sync with the core open innovation argument, although Chesbrough uses examples to show how business models kept firms from pursuing alternative models that might have been possible in an open innovation framework.


The shift from the closed innovation to the open innovation model was influenced by several factors including greater employee mobility; engineering schools having better business models than business schools (ironic, right?) when it came to academic collaboration, enormous venture capital under management, and small and medium-sized organizations accounting for an increasing amount of R&D spending.


Strict control of new product development, self-reliance, and aggressive protection of IP all made successful innovation happen in the 20th century. In the era of open innovation, however, these guidelines are harmful, and not helpful to organizations.


The open innovation mindset makes it easier for small companies to join forces with large ones. For example, a large organization might look to a networked incubator in search of strategic partnerships with promising start-ups. Institutionalized networking is therefore an important tool in accelerating the partnering and innovation process as well as maintaining a healthy entrepreneurial drive in an industry.


Balancing value creation with value capture requires the continued participation of resourceful individuals, innovation communities, and collaborative initiatives. This can be best achieved with the help of an open strategy focused on the sustainability of the innovation ecosystem.


One great example is Chez Panisse, where open innovation initiatives such as the open kitchen concept encouraged ideas to bloom and co-evolve in terms of menu, food design, and customer interaction as early as the 1970s.


If you have a little more time at your disposal, you might wish to explore other leading (open) innovation scholars too: Robert Cooper, Eric von Hippel, Michael L. Tushman, John Bessant, Karim Lakhani, Charles O'Reilly, Wim Vanhaverbeke, Joel West are a few important names to keep in mind.


Open innovation is a term used to promote an information age mindset toward innovation that runs counter to the secrecy and silo mentality of traditional corporate research labs. The benefits and driving forces behind increased openness have been noted and discussed as far back as the 1960s, especially as it pertains to interfirm cooperation in R&D.[1] Use of the term 'open innovation' in reference to the increasing embrace of external cooperation in a complex world has been promoted in particular by Henry Chesbrough, adjunct professor and faculty director of the Center for Open Innovation of the Haas School of Business at the University of California, and Maire Tecnimont Chair of Open Innovation at Luiss.[2][3]


The term was originally referred to as "a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology".[3] More recently, it is defined as "a distributed innovation process based on purposively managed knowledge flows across organizational boundaries, using pecuniary and non-pecuniary mechanisms in line with the organization's business model".[4] This more recent definition acknowledges that open innovation is not solely firm-centric: it also includes creative consumers[5] and communities of user innovators.[6] The boundaries between a firm and its environment have become more permeable; innovations can easily transfer inward and outward between firms and other firms and between firms and creative consumers, resulting in impacts at the level of the consumer, the firm, an industry, and society.[7]


Because innovations tend to be produced by outsiders and founders in startups, rather than existing organizations, the central idea behind open innovation is that, in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (i.e. patents) from other companies. This is termed inbound open innovation.[8] In addition, internal inventions not being used in a firm's business should be taken outside the company (e.g. through licensing, joint ventures or spin-offs).[9] This is called outbound open innovation.


The open innovation paradigm can be interpreted to go beyond just using external sources of innovation such as customers, rival companies, and academic institutions, and can be as much a change in the use, management, and employment of intellectual property as it is in the technical and research driven generation of intellectual property.[10] In this sense, it is understood as the systematic encouragement and exploration of a wide range of internal and external sources for innovative opportunities, the integration of this exploration with firm capabilities and resources, and the exploitation of these opportunities through multiple channels.[11] 041b061a72


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