Open Innovation

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Open innovation can be interpreted as Diffuse Innovation that is based on participation from consumers and various external players, or in the more narrow sense as used by Henry Chesbrough, as structured cooperation for innovation between companies. We prefer the former definition.

It is also the title of a specific book by Henry Chesbrough.


Introductory Citation

"Open innovation argues that the future belongs to those who do the best job of integrating the best of their internal ideas and capabilities with the best external ideas and capabilities. Designing and orchestrating a global network of capabilities is the basis for a brighter future for us all."

- Henry Chesbrough (cited in Getting Results from Crowds, p. 149)


Definition

0.

"Use of sources outside of the entity or group to generate, develop and implement ideas. In a world of widely distributed knowledge, where the boundaries between a firm and its environment have become more permeable, companies cannot afford to rely entirely on their own research and ideas to maintain a competitive advantage." (http://www.crowdsourcing.org/community/open-innovation/1)


1. Henry Chesbrough

“Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.”

- Henry Chesbrough, Open Innovation: Researching a New Paradigm (http://www.openinnovation.net/)


2. Katarina Stanoevska-Slabeva:

"According to Chesbrough, Vanhaverbeke & West (2006) “[…] open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation respectively.”


With this definition the authors imply two types of open innovation knowledge flows:

1) inside-out or outbound knowledge flows involve knowledge developed within the firm and made accessible to other firms;

2) outside-in or inbound flows refer to knowledge developed in the environment and being integrated by the firm." (http://berlinsymposium.org/sites/berlinsymposium.org/files/crowdsourcingenabledinnovation.pdf)

Description

1.

"The Open Innovation theory builds on the observation that an institution sits in an ecosystem of empowered individuals and other institutions, but that in a pre-network world the transaction costs of accessing the innovations of those actors was too high to justify. Thus, the institution develops its own internal knowledge creation and governance systems (technology transfer offices, tenure and review boards, etc). In a network culture there is the opportunity to connect more and more of those smart people to an institution’s mission: to contribute to internal projects from the outside, to take a project that fails to gather internal support forward using outside funding, to generate novel projects outside and “spin into” new internal projects. All of this becomes possible as the transaction costs involved in the knowledge movement required drop. Open innovation builds on the idea of knowledge “leakage”29 from the firm or institution to the outside world, which is an informal kind of governance. This leakage comes from many sources depending on the kind of institutions. It could be publication, via scholarly journal, by patent, by conference presentation, informal conversation, or more currently via blog post or wiki edit. The core insight of Open Innovation is the ability to use the world outside an institution to generate internally useful knowledge - and the core dependency of open innovation in turn is the need to make the flow of knowledge in and out of an institution a purposeful thing, not a random process." (http://cyber.law.harvard.edu/commonsbasedresearch/sites/commonsbasedresearch/images/Genomics_Knowledge_Governance.pdf)


2.


"From a beachhead in software (see companion article, “Managing the business risks of open innovation,” on mckinseyquarterly .com), open innovation has spread to a range of industries that use external insights to boost internal R&D efforts or even rely on outside networks for core product ideas.

Our latest research on Web 2.0 technologies reveals that more and more executives are taking advantage of these opportunities and foresee the need for organizational change if their companies are to compete in a more open, networked environment.

Porous company borders increase participation . . . We have found that nearly twothirds of the companies around the world that adopt a social-technology platform aim to collaborate beyond their own walls to share ideas and information with customers and suppliers. We call this organizational form the “networked enterprise.” The rising ability to connect creates a large, vibrant pool of participants: as many as 30 percent of Internet users say they would actively innovate using social technologies.

Within this broader group are significant numbers of people, such as software developers and product designers, who make the most valuable contributions. The large number of open projects continues to grow rapidly at organizations such as the T-shirt company Threadless (which uses its customers’ design ideas to help create its apparel lines) and InnoCentive (a “crowdsourcing” network that companies in the pharmaceutical and other industries use to solve difficult problems)." (http://www.mckinseyquarterly.com/Wiring_the_open-source_enterprise_2912)


Typology

Henry Chesbrough:

"I would like to make a distinction between two important kinds of open innovation: Outside-In and Inside-Out Open Innovation.

The Outside-In part of Open Innovation involves opening up a company’s own innovation processes to many kinds of external inputs and contributions. It is this aspect of open innovation that has received the greatest attention, both in academic research and in industry practice. Inside-Out Open Innovation on the other hand requires organizations to allow unused and under-utilized ideas to go outside the organization for others to employ in their businesses. In contrast to the Outside-In branch of open innovation, this portion of the model is less well understood, both in academic research and also in industry practice.

Thus, I would say that Outside-In Open Innovation is widely accepted, and probably is facing a tipping point, whereas companies are now looking for real business results from using it. Inside-Out Open Innovation, by comparison, remains at an early level of development." (http://www.innovationmanagement.se/2012/07/05/open-innovation-past-and-present-an-exclusive-interview-with-henry-chesbrough/)

Discussion

"Last week, I read an article on how Coloplast has set-up communities for their users to share experiences and ideas. You can use Google to translate the Danish article and you can check out one of their communities here: International Stoma Innovation Community. In the article, Coloplast claims that they have halved their development time over the last couple of years partly due to the external input and they also mention that they are now using many more external partners than previously.

It sounds good, but nevertheless, I think Coloplast is a nice example of company that is still stuck in the user-driven mindset. The main idea of user-driven innovation is to get input from the users – and perhaps even the eco-system – of your products or services.

Open innovation is about integrating external partners in the entire innovation process. This should happen not just in the idea or technology development phase but also in all other phases towards market acceptance. User-driven innovation is great as it directs your innovation efforts towards market needs. Open innovation takes you to the next step by providing more opportunities through external partners as you address those market needs.

Which red flags did I pick up on Coloplast? First, take at look at their corporate website. I cannot find any guidelines on how to approach Coloplast with ideas or other contributions. Compare this to Procter & Gamble where you can find a very visible link to their Connect+Develop initiative.

Another red flag is the stoma community itself. It really gives you the feeling that it is about how Coloplast can tap into users rather than how they can work together and build relationships with external partners. This is what user-driven innovation is about. It should just not be confused with open innovation." (http://www.15inno.com/2009/11/09/userdriven/)


How IP-based business models block Open Innovation

"A world of purposeful information flow in and out of institutions is at odds with many of the business structures of the last 50 years - especially intellectual property rights. Copyrights govern the copying, distribution, and reuse of the documents containing actionable knowledge, from software to scholarship. Trade secrets and knowledge leakage on the public web are completely at odds with one another. And patents prevent institutions from acting on useful knowledge, even if the action would be far afield from the business concerns of the patent owner. Business models incorporate these knowledge “properties” as assets to be protected, and build infrastructures of lawyers and compliance offices precisely to prevent their flow out and usage in the external world. Thus, the business model often forms a block to the institution’s adoption of an open innovation-based knowledge governance model, even if the ideas and theories of open innovation are attractive to the management and leaders of the institution."

(http://cyber.law.harvard.edu/commonsbasedresearch/sites/commonsbasedresearch/images/Genomics_Knowledge_Governance.pdf)


Requirements for Successfull Customer Innovation

Patricia Seybold:

"There's a growing set of best practices in how to develop and sustain a core competency in innovation, including such elements as:

  • Executive sponsorship and formal innovation charters—that give teams milestones, resources, and air cover
  • Incubation/innovation labs to keep the emerging ideas from being killed off
  • Cross-disciplinary teams
  • Making innovation a part of peoples' approved and valued activities
  • Engaging in open innovation to get the best and brightest minds working on tough problems
  • Putting in place organizational learning tools and practices to foster continuous improvement and to boost your organization's collective IQ"[1]

Examples


Procter and Gamble Connect and Develop and Philips Sensing Platforms

See also: Networked Innovation Initiatives


"Procter & Gamble, the consumer goods giant which spends $3bn a year on R&D, has been a particular advocate of this model, using programmes such as the online Connect+Develop platform, enabling individuals and firms to submit ideas relating to new and existing products.

Steve David, a senior adviser at The Boston Consulting Group, estimated P&G has 8,000 staff dedicated to research and development, measured against a global total of 1.5m researchers working in fields tied to its core fields of business.

"So the numbers are pretty simple: by a ratio of nearly 200:1, there are more people on the outside," David told the Financial Times.

As an example of open innovation in practice, P&G allied with the Viridis Strategy Group and the Wharton Business School in July 2011 to hold a two-day "innovation tournament" where staff and external specialists identified ways to make its plants more eco-friendly.

"It probably would have taken us at least a year to gather input from this number of outside experts," Stefano Zenezini, P&G's family care product supply vice president, said. "Overall, it was a more resource efficient process and produced more robust options."

Another leading instance of this kind of approach was Apple's iPod MP3 player, a concept conceived by Tony Fadell, once of Philips, who could not source enough capital as an individual to support the idea, so pitched it to big electronics firms.

"The key in generating ideas is to have the right problem and to define that problem," said Roger Leech, Unilever's open innovation portfolio and scouting director at Unilever, the FMCG company.

Along with Kraft, Philips, L'Oréal and Suntory, Unilever has utilised the services of NineSigma, an organisation linking manufacturers and individuals or groups that can help them find R&D solutions.

"You would be surprised how much R&D goes on in labs that never sees the light of day," said George Vincent, a vice president at NineSingma. "A lot of innovation ideas are sat on a shelf and not being exploited. And that's our job."

General Mills, the packaged food firm, has also recently launched G-WIN Digital, asking the public to provide suggestions about leveraging marketing tools including mobile, social media and online video.

Mark Addicks, CMO of General Mills, said: "We call it 'market while we research, research while we market.' Those used to be discreet functions. Today, it's finding partners, trying something on the brand and really watching and learning as we go and continuing to iterate." (http://www.warc.com/LatestNews/News/Firms_test_new_RD_models.news?ID=29264)


Taiwan Semiconductor Manufacturing Corporation

Henry Chesbrough:

"TSMC provides manufacturing services from its manufacturing facilities (foundries) to its clients, who design new semiconductor chips. This saves TSMC’s customers from having to invest in expensive manufacturing plants to manufacture chips. Otherwise put, they rely on companies like TSMC to do the fabrication work for them.

Designing chips requires customers to use a variety of design tools, such as reference designs and process recipes. With the growth of TSMC’s business ecosystem, many of the third party companies who make these tools all began to take steps to assure their customers that their offerings would run on TSMC’s processes. This expansion in third party tool offerings creates more design options for TSMC’s customers – a clear benefit. However, these new offerings also increase the complexity for TSMC’s customers to manage, and this complexity risks causing new chips to require re-designs or other expensive modifications to be manufactured correctly – a clear risk.

TSMC has addressed this risk with its Open Innovation Platform. It all starts by combining the many design and manufacturing services of TSMC with those provided by many third party companies, and then testing these all together. TSMC then certifies to customers of those offerings that they can use these tools with confidence that the chip will turn out properly the first time through the process. The result is faster time to market for TSMC’s customers, at a lower cost of design. So TSMC uses open innovation to manage a complex ecosystem of internal and external design sources, and provides a guarantee to its customers, provided they stick to these validated resources when designing their chips." (http://www.innovationmanagement.se/2012/07/05/open-innovation-past-and-present-an-exclusive-interview-with-henry-chesbrough/)


GE

Henry Chesbrough:

"My second example comes from GE, and its recent ecomagination challenge. While GE has a very large energy business of its own, with revenues of nearly $40 billion annually, the company has noticed a great deal of venture capital and startup activity in green and renewable energy technologies. Recognizing its own limits, GE sought to establish a process to tap into the potential project ideas out there that had the potential to become promising new ventures in green and/or renewable energy.

But GE did this in an open way. Instead of doing all the work themselves, they enlisted four active VC firms who had already had experience investing in this space. Together, the four VCs and GE pledged a total of $200 million to invest in attractive startup ventures. The ecomagination challenge was born. In July of 2010, the challenge was launched to the world, and everyone was invited to submit potential project ideas for consideration for startup investment.

In the process, more than 3,800 venture proposals were received. As of this writing, 23 ventures have been funded, with five other projects receiving other awards, and even a People’s choice award was given as well. While the ventures are quite young, the VCs and GE are all enthusiastic about the experience. GE’s level of enthusiasm has led them to adapt the model to the health care space (a Healthymagination challenge was launched in 2011) and also in China (a challenge is underway there as well)." (http://www.innovationmanagement.se/2012/07/05/open-innovation-past-and-present-an-exclusive-interview-with-henry-chesbrough/)


Open Innovation Platforms

Compiled by the Openeur blog at http://www.openeur.com/blog/en/2007/08/02/bestprac-en/

Innocentive, solving technical problems Picnic - Sent in your ideas to save the planet Yet2.com - patent trading Ninesigma.com - Innovation networking IXC Australia - Similar approach as ninesigma Eureke medical - Medical Open Innovation platform

Open Innovation Startups

Compiled by the Openeur blog at http://www.openeur.com/blog/en/2007/08/02/bestprac-en/

fellowforce.com - open innovation competions ideawicket.com - evaluating business models crowdspirit.com - product development by the crowds spigit.com - a Startup game - evaluating business ideas Incuby.com - online community for inventors Ideaconnection - Open Innovation - idea marketplace [http://ponoko.com/ Ponoko[ - Rapid Prototyping platform

Key Books to Read

From an earlier list at http://www.openinnovators.net/best-books-on-crowdsourcing-open-innovation-management-wikinomics/:


The Classics

  • The Wealth of Networks: How Social Production Transforms Markets and Freedom - by Yochai Benkler

Yochai Benkler shows us how the Internet enables new commons-based methods for producing goods, remaking culture, and participating in public life.


“Von Hippel presents a persuasive case for the benefits of encouraging lead users to innovate and a truly intriguing look at what they’ve contributed to the world so far”


  • Wikinomics: How Mass Collaboration Changes Everything - by Don Tapscott, Anthony D. Williams

As a proponent of peering, sharing, and open-source thinking, Don Tapscott has presented a clear and exciting preview of how peer innovation will change everything.


  • We Are Smarter Than Me: How to Unleash the Power of Crowds in Your Business - by Barry Libert, Jon Spector, Don Tapscott (foreword)

In We Are Smarter Than Me, you will discover exactly how to use social networking and community in your business, driving better decision-making and greater profitability. The book shares powerful insights and new case studies from product development, manufacturing, marketing, customer service, finance, management, and beyond.


Others

  • Outside Innovation: How Your Customers Will Co-Design Your Company’s Future - by Patricia B. Seybold

Patricia Seybold argues that companies should seek innovation by actively engaging and bringing their customers into the product development process.

  • Motivation in Open Innovation - by Robert Motzek

Robert Motzek’s study investigates the motivational profiles of user innovators from a manufacturer’s point of view, focusing on lead users and tool kit users. The analysis is supported by two exploratory case studies of Spreadshirt and Threadless.


  • Innovation Happens Elsewhere: Open Source as Business Strategy - by Ron Goldman, Richard P. Gabriel

It’s a plain fact: regardless of how smart, creative, and innovative your organization is, there are more smart, creative, and innovative people outside your organization than inside. Open source offers the possibility of bringing more innovation into your business by building a creative community that reaches beyond the barriers of the business.


  • The Global Brain: Your Roadmap for Innovating Faster and Smarter in a Networked World - by Satish Nambisan, Mohanbir Sawhney

Nambisan and Sawhney have written a book that constructs a truly effective bridge between network driven innovation and its application. A refreshing look at innovation and its practice.


Details on Henry Chesbrough's books

The books:

  • Open Innovation: The New Imperative for Creating and Profiting from Technology -b y Henry Chesbrough

Chesbrough suggests that companies make themselves more permeable to the flow of knowledge through such strategies as hiring professors and grad students as summer consultants, sponsoring university research, investing in and partnering with high-tech startups and venture capitalists, and disseminating their own innovations through spin-off companies or even by publishing it in the public domain.


  • Open Innovation: Researching a New Paradigm - by Henry Chesbrough, Wim Vanhaverbeke, Joel West

Offering theoretical explanations for the use (and limits) of open innovation, the book examines the applicability of the concept, implications for the boundaries of firms, the potential of open innovation to prove successful, and implications for intellectual property policies and practices.


  • Open Business Models: How to Thrive in the New Innovation Landscape - by Henry Chesbrough

Chesbrough is not the first academic to grasp the superior economic value of intellectual over tangible property in today’s economy. But he may be the one who has thought most deeply about its consequences for business.


  • Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era. Jossey-Bass, 2011: open innovation is needed not only at the manufacturing level but also at the services level for a more meaningful customer experience to emerge.


Description and Review

From the publisher:

"In his landmark book Open Innovation, Henry Chesbrough demonstrated that because useful knowledge is no longer concentrated in a few large organizations, business leaders must adopt a new, "open" model of innovation. Using this model, companies look outside their boundaries for ideas and intellectual property (IP) they can bring in, as well as license their unutilized home-grown IP to other organizations.

In Open Business Models, Chesbrough takes readers to the next step—explaining how to make money in an open innovation landscape. He provides a diagnostic instrument enabling you to assess your company's current business model, and explains how to overcome common barriers to creating a more open model. He also offers compelling examples of companies that have developed such models—including Procter & Gamble, IBM, and Air Products.

In addition, Chesbrough introduces a new set of players—"innovation intermediaries"—who facilitate companies' access to external technologies. He explores the impact of stronger IP protection on intermediate markets for innovation, and profiles firms (such as Intellectual Ventures and Qualcomm) that center their business model on innovation and IP.

This vital resource provides a much-needed road map to connect innovation with IP management, so companies can create and capture value from ideas and technologies—wherever in the world they are found."


Jon Lebkowsky at Worldchanging.org:


"Open Innovation tells how technology research and development, formerly "closed" and handled inside megacompanies like IBM and Xerox, increasingly happens in smaller companies and universities. What he calls "Open Innovation" is typically driven by VC-funded startups that build toward acquisition, a model that was popular through the Internet boom of the 90s, and is still common. Chesbrough's book is a good overview of the history of corporate innovation in the USA, and a good explanation of the closed vs open models for innovation.

Closed innovation gave way to the more open model because the workforce started churning, and it became increasingly difficult to contain the ideas that resulted from the best thinking and experimentation within any one company. There's also been a knowledge sharing movement facilitated by the Internet, and the Open Source movement's commons-based peer production model, which is oddly excluded from Chesbrough's consideration.

This is where I had a problem with the book – it didn't go far enough. The model Chesbrough describes is an extension of the top-down corporate model, failing to acknowledge promising "small is beautiful" emergent approaches to innovation and business. Open source is one example, the bootstrap approach (favored by fast-growing groups like Bootstrap Austin) is another.

I do recommend the book for its value in setting context, but I don't think it's truly worldchanging. We would hope to see Chesbrough or someone follow up with an exploration of smaller, more modular approaches to business development and technology innovation, and business structures that are truly open, transparent, and inclined to balance competition with cooperation." (http://www.worldchanging.com/archives/004759.html)


Interview

Conducted by Oana-Maria Pop:

'Prof. Chesbrough, could you give us a brief synthesis the Open Innovation Movement’s evolution over the last 10 years?

To put my response into context, when I wrote the first book in 2003, I ran a Google search on the term open innovation. The result: 200 page links that said “company X opened its innovation office at location Y”, but really no meaning to the two words together as a phrase. By contrast, when preparing for a talk last month, that same search generated 483 million links, most of which addressed this new and very different model of innovation. Moreover, there have now been hundreds of academic articles written on the open innovation approach, and there is even an annual PhD conference that trains dozens of new scholars each year who are writing dissertations on the topic. So yes, it had become a movement in its own right.


Given this remarkable pace, is it sensible to state that open innovation is reaching a tipping point?

Here I would like to make a distinction between two important kinds of open innovation: Outside-In and Inside-Out Open Innovation.

The Outside-In part of Open Innovation involves opening up a company’s own innovation processes to many kinds of external inputs and contributions. It is this aspect of open innovation that has received the greatest attention, both in academic research and in industry practice. Inside-Out Open Innovation on the other hand requires organizations to allow unused and under-utilized ideas to go outside the organization for others to employ in their businesses. In contrast to the Outside-In branch of open innovation, this portion of the model is less well understood, both in academic research and also in industry practice.

Thus, I would say that Outside-In Open Innovation is widely accepted, and probably is facing a tipping point, whereas companies are now looking for real business results from using it. Inside-Out Open Innovation, by comparison, remains at an early level of development. [3]


Does the above hold true for business model innovation and IP management?

As you know, in my second book, Open Business Models: How to Thrive in the New Innovation Landscape (Harvard Business School Press, 2006), I explored the treatment of intellectual property in the innovation process, and the concept of business model innovation.

Countering the Closed model (where entities historically accumulated intellectual property to provide design freedom to their staff, obtain liberty to operate, and generally avoid costly litigation) implies that companies should be both active sellers of IP when it does not fit their own business model and active buyers of IP whenever external IP does fit their own business model. This has been slower to take root in peoples’ minds than the original concept of open innovation itself since IP is a challenging area for non-lawyers to manage.

However, business model innovation is becoming a growing area of interest for many practitioners and academics altogether. While my book was among the first to link innovation results to the fit with the prevailing business model, this is an area that is now considered by organizations that treat R&D activities quite separately from the design and improvement of business models. [4]

To sum up, IP management (much like Inside-Out Open Innovation) rests at an early stage of development, while business model innovation is visibly beginning to take off." (http://www.innovationmanagement.se/2012/07/05/open-innovation-past-and-present-an-exclusive-interview-with-henry-chesbrough/)

Visualizations

More Information

Introductory articles:

  1. Principles of Distributed Innovation. Karim R. Lakhani and Jill A. Panetta.
  2. When to engage in open innovation? Bhaskar Chakravorti.

More advanced treatments:

  1. special issue of the journal R&D Management, edited by Ellen Enkel, Oliver Gassman and Henry Chesbrough, at http://www3.interscience.wiley.com/journal/122535404/issue

Interesting cases:

  1. Open Innovation in the 18th Century Cornish Tin Mines

Bibliography:

  1. http://www.exnovate.org/mod_db_articles/616/