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transcript
Open Innovation:A New Paradigm for Industrial
R&DPresentation to
National University Ireland - GalwayHenry Chesbrough
Center for Open InnovationUC Berkeley
November 12, 2009
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The Current Paradigm:The Current Paradigm:A Closed Innovation SystemA Closed Innovation System
ResearchInvestigations
Development New Products/Services
TheMarket
Science&
TechnologyBase
R D
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CurrentMarket
InternalTechnology
Base
R D
The Open Innovation Paradigm
Technology Insourcing
NewMarket
Technology Spin-offs
ExternalTechnology
Base
Other Firm’sMarketLicensing
Open Innovation
Our currentmarket
Our newmarket
Other firm´smarket
External technologyinsourcing
Internaltechnology base
External technology base
Stolen with pride from Prof Henry Chesbrough UC Berkeley, Open Innovation: Renewing Growth fromIndustrial R&D, 10th Annual Innovation Convergence, Minneapolis Sept 27, 2004
Internal/externalventure handling
License, spinout, divest
Philips Research,Ronald Wolf, 10/08
2003: We broke up the fortress …
Philips Research,Ronald Wolf, 10/08 6
Bringing in the right partners – Open innovation
> 75 companies and> 7000 people atHigh Tech Campus Eindhoven
Researchinstitutes
Economicdevelopmentcompanies
Corporateinnovators
Consultancy& services
Philips Research,Ronald Wolf, 10/08
The expansion of the corporate funnel
Front – end Development Commercialization
InsourcedIdeas /Technology
ODM
OEM
Spin inStart upsIP insourcing
Incubators Spin outIP Licensing
Acquisitions
Alliances
BP’s challenge in February 2006
• Energy Bioscience looked promising (Senior Executive buy-in)
• How do we meld commercial/technology strength withbiology/biotech?
− The company had no bio-expertise
• How to reach out to biology/biotech communities
− Not a corporate lab!
− Corporate labs too insular – can’t tap broader expertise in arapidly moving field
− Where was the Energy/Bio talent pool anyway?
− Not the usual university research programme
− BP does many of these and knows strengths/weaknesses
− Need to facilitate the development, demonstration, andcommercialization of research results
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Lawrence BerkeleyNational Laboratory
OtherBP Components
UC BerkeleyHost Institution
University of IllinoisUrbana-Champaign
OtherEntities
contracts contracts
subcontractscontracts
contracts
ENERGY BIOSCIENCES INSTITUTE (EBI)OPEN RESEARCH
BP R&TPROPRIETARY RESEARCH
subcontracts
Funding for Open and Proprietary Components
$50M/yr
$35M/yr
$15M/yr
BPProprietary Component
Licensing provisions
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For inventions solely owned by UCB, UIUC and/or LBNL
NON-EXCLUSIVE
Non-exclusive, royal free (NERF)license in BP’s area of interest,providing:
- BP will diligently pursuecommercialization
- BP will underwrite the patentcosts
EXCLUSIVE
BP may obtain exclusive licenserights to sole or joint inventions.
- pre-negotiated capped fees
- “Bonanza clause” in case ofextraordinary commercial success
© 2008 Henry Chesbrough 11
Procter & Gamble
• P&G used to be a VERY closed organization– “We invented Not Invented Here” – J. Weedman
• P&G financial crisis, in 2000– Missed a series of quarterly financial estimates– Stock market lost confidence in the company– Stock price fell by more than half in 4 months!– CEO (Jagr) was fired
© 2008 Henry Chesbrough 12
P&G’s Stock Price: 8/1998-3/2000P&G Stock Price
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9/17/1998
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Pri
cep
ersh
are
© 2008 Henry Chesbrough 13
Searching for the Root Cause
• “We fundamentally had a growth problem.Our current brands were performing well.But we weren’t developing many newbrands.” – C. Wynett
• To get new brands, P&G needed to open up.• Connect and Develop
– SpinBrush, Swiffer, Regenerist
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A.G. LafleyPresident and CEOP&G
“We will acquire 50% of ourinnovations from outside P&G”
Jeff Weedman28 External Business Development managers
VP, External Business Development
“We don’t care where good ideas come from.”
Larry Huston (just retired)120 Technology Entrepreneurs
VP, Knowledge & Innovation, Corporate R&D
Nabil Y. SakkadSVP, R&D, Global Fabric & Home Care
“There’s 1.5 Million people in the world whoknow about my business. I want them on my
team”
Example: Proctor & Gamble
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P&G Share Price Restored!
© 2008 Henry Chesbrough 16
The New P&G
• Many processes to enable open innovation– Technology scouts– Legal templates for IP, partnering– Investments in Innovation Intermediaries
• The Goal Now: Become the openinnovation partner of choice
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CurrentMarket
R D
Not Just for High Tech:Procter & Gamble
NewMarket
“Use it or Lose it”
ExternalTechnology
Base
Other Firm’sMarket
TechnologyScouts
InternalTechnology
Base
VentureAcquisitions“Spinbrush”
LargeAcquisitions“Gillette”
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An Iberian Example: El BulliAn Iberian Example: El Bulli
• Ferran Adria studies molecular gastronomy, workingwith Herve This, a French physical chemist
• Adria brings this to El Bulli, restaurant is the Lab• Adria launches many business experiments
• Borges: oils, snacks• Lavassa: coffee• N H Hoteles: FastGood, Nhube• Iberian Airlines (with FastGood)
• Careful not to dilute the El Bulli brand
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Is the internal R&D departmentIs the internal R&D departmentan antiquated concept?an antiquated concept?
• No – open innovation can leverage internal R&D• But…..• New focus: must look outside as well as inside• New role: connecting to and collaborating with the
outside• New skill: integrating internal and external together
© 2008 Henry Chesbrough 20
Challenges facing SMEs
• Less internal R&D capability• Less ability to absorb external R&D• Less “status” as a partner for others• Less market power, weaker ability to
capture value• Less IP (usually, not always)• IP Enforcement often too expensive
© 2008 Henry Chesbrough 21
Advantages of SmallCompanies
• Size: markets that are too small for large firmscan be attractive
• Focus: greater ability to execute for a specificsegment or set of customer needs
• Specialization: ability to develop deepknowledge of a specific domain
• Entrepreneurial: external focus on results,much less internal “politics”
• Speed: faster decisions, faster execution, fasterresults
© 2008 Henry Chesbrough 22
Open Innovation Benefits forSMEs
• Large firms increasingly value collaborativepartnerships
• Large firms create platforms that seeksupporting investments from SMEs
• Users (customers) initiate more innovativeactivity, a big opportunity for SMEs
• SMEs can expand geographically now at lowercost, “hidden champions”
• Greater rewards to specialization in OpenInnovation
© 2008 Henry Chesbrough 23
Where does your business fit?
small large
smal
lla
rge
Market Size
Scal
eof
R&
D
Niche
Specialist
Breakout
Dominant
© 2008 Henry Chesbrough 24
Winning in the Niche
• Build advantage in a small market– Be highly competent in design, or focus, or
customization, or customer satisfaction– But don’t overinvest, right-size the
investment
• Move fast– Develop new products to keep others out
• Or at least behind
© 2008 Henry Chesbrough 25
Risks in the Niche
• Obsolescence– Sticking too long with same offering
• Integration with customer– Can customer go around you?
• Weak or no effective protection for yourIP– You invest, others benefit
• What if niche grows too large?
© 2008 Henry Chesbrough 26
Winning in the Breakout Business
• Here, small R&D investments generatesurprisingly large market opportunities
• SME has the opportunity to breakout as well• Can you create a platform for others to build
upon? (TomTom, MTV, American Idol)• Can you encourage other firms to innovate with
you? (Red Bull, and extreme promo’s)• A key skill: thinking like an architect, or a
systems integrator
© 2008 Henry Chesbrough 27
Risks in the Breakout Business
• Many businesses don’t scale up well• Large competitors jump in• Partners become competitors• Systems integrator loses control of the
platform
© 2008 Henry Chesbrough 28
Winning as a Specialist
• High R&D investment to serve a small market• Economics require specialization, and ability
to serve whole market– Not enough volume for multiple competitors
• An attractive area to partner with a large firm– Take over one of their unattractive businesses– Example: Multis in Ireland (reverse logistics)
• Spinoffs: offload underperforming businessesinto companies that can execute them better
© 2008 Henry Chesbrough 29
Risks of Specialists
• Obsolescence• Departing employees• Management Changes at Key Customers• Market Shift Away from the Specialty
– Travel agencies after the Internet
© 2008 Henry Chesbrough 30
Winning in DominantBusinesses
• The Land of the Giants: High R&D costs, largemarkets
• Many niche opportunities to complementDominant businesses for SMEs
• Speeding up Dominant Business’s time tomarket
• Partnering with Large Business: “Only way tobecome a big company is to learn how to workwith big companies” - Intel
© 2008 Henry Chesbrough 31
Risks in Dominant Businesses
• Getting squeezed by your customer• Sustaining collaboration over time• Being acquired by the Dominant partner
– “spin in’s”– How to value fairly such spin-in’s?
• Large firm may lack processes to workeffectively with small companies
© 2008 Henry Chesbrough 32
Conclusion
• Being an SME is tough– But being a large company can be tough too
• SMEs are not “one size fits all”– Assess where your business fits, Scale of R&D
vs. Market Size• How can you adapt your business model to
improve your business’s fit?• Can groups of SMEs organize to create
breakout businesses?
The Crisis in Copenhagen
• Successor to Kyoto protocol• Disputes over emissions targets….• …. and over access to the IP and technology to
achieve them!• Proposals of $100 billion + are ill-suited to the
times• Can Open Innovation help?
Founding Partner resources:
- brand development (Nike)- legal architecture (Science Commons)- technical implementation (Force.com)- technical implementation (nGenera)- technical implementation (2degrees)- messaging and story (IDEO)- academic outreach (U Washington)- business rationale for sharing (UC Berkeley)
patents
sustainability
• greentech / sustainability patentsrepresent a small portion of the overallportfolio of the average company.• and most companies have little skill orexperience in licensing or sharing them
• retain the essential rights inside thecore business• use a standard offer to license therights via automated transactions• determine exceptions to licensingrequirements
– research– geography– field of use– etc….
Businesses Control the Use of Their Green IP
The Business Benefits of Sharing orExchanging Green IP• Publicity, yes, but there’s much more …• Greater usage of technology to lower costs• Commoditize an input to lower costs• Establish a technical standard to influence the
future development path• Incremental revenues from licensing outside
of your business• Stimulate greater research activity in areas of
value to your business
Open Innovation in Copenhagen?• Private reasons to share or exchange Green IP
– Good business, not just good publicity
• No government action required– Though policy can help stimulate the process…
• Developing nations need not pay for all IPrights– Exchange, share, or license just those they need
• Developing nations innovate too– And these can be shared with other developing
countries
Policy Can Help!
• Provide greater information on availablegreen technologies, whether private orpublicly held
• Offer financial assistance for licensing usefulGreen IP to developing countries– Also technical assistance
• Award prizes for most useful Green IP• Provide tax incentives to stimulate sharing or
exchange of Green IP
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Photo Credits
Flickr: Chess/Fox, Tuesday Night Poker/Rambis, RyanAir/ezreenphotography, Ryan Air New Boeing 787Colours/macrodebs, 332/265/Digg Pirate, The busshelter at the edge of the ocean/goddess_spiral, Flickrtreo ad/Steve Rhodes, Technology - "FutureVision“/$ydney
iStockphoto: 000003004014, 000003062424, 000004293861,000007135639, 000005589058, 000000718722
iPod photo: http://www.apple.com/ipodclassic/
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