Open Services Innovation

• Book: Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era. Henry Chesbrough. (Jossey-Bass, 2011)

Interview

Henry Chesbrough:

"Coming to your most recent book you argue that open innovation is needed not only at the manufacturing level but also at the services level for a more meaningful customer experience to emerge. How are companies adapting to this new paradigm?

HC: One important development in open innovation is the consideration of how innovation occurs in services. To give you an example, most of the top 40 economies in the OECD have half or more of their GDP from services and many companies are witnessing a shift in tis direction as well. For instance, Xerox now gets more than 25 percent of its revenues from services. IBM is another classic case, along with GE and Honeywell.

In some instances what is really happening is that the business model is shifting, which can turn a product business into more of a service business. For example, a GE aircraft engine can be sold for tens of millions of dollars to an airframe manufacturer. That same engine can also be leased on a so-called “power by the hour” to the same company. In the first case it is a product transaction, while in the second case it becomes a service from which GE profits greatly in the aftermarket sales and service, spare parts, etc., that accrue during the 30 year operating life of the engine.

More generally for services, innovation must negotiate a tension between standardization and customization. The resolution to this dichotomy is to construct service platforms that invite others to build on top of one’s own offering, so that there are economies from standardization in the platform, along with customization via the participation of many others adding to the platform. Recall that a fundamental premise of open innovation is “not all the smart people work for you”. If that is the case, there is actually more value not in coming up with yet another building block of technology, but rather in coming up with the architecture that connects these things together in useful ways that solves real problems before other people do." (http://www.innovationmanagement.se/2012/07/05/open-innovation-past-and-present-an-exclusive-interview-with-henry-chesbrough/)