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© 2010 Henry Chesbrough 1
Open Innovation and Open Business Models:
A new approach to industrial innovation
Presentation to the
2010 Conference of Rectors and Presidents
NTNU
Henry ChesbroughHaas School of Business
UC Berkeley
© 2010 Henry Chesbrough 2
A Thought Experiment
• It is the year 1900. You have a profitable
business, and it is growing
• To your credit, you recognize that this
won’t last forever
• Where to look for ideas that can grow into a
future business?
© 2010 Henry Chesbrough 3
Henry Rowland’s* Lament
“…what must be done [is] to create a science of physics in this country, rather than to call telegraphs, electric lights, and such conveniences by the name of science…. When the highest honors are given to the mediocre, when third-class men are held up as examples, and when trifling inventions are magnified into scientific discoveries, then the influence of such societies is prejudicial.”
* address as President of the American Academy for theAdvancement of Science, 1883
Where Were the Great Ideas for
Innovation 50 or 100 years ago?
• Individual Inventors
• Lots of imitators
• A few very large companies’ R&D labs
• “The key [to success] is to find a man of
genius, give him money, and leave him
alone.”
– James Conant, former President, Harvard Univ.© 2010 Henry Chesbrough 4
© 2010 Henry Chesbrough 5
The Current Paradigm: A Closed
Innovation System
ResearchResearchInvestigationsInvestigations
DevelopmentDevelopment New ProductsNew Products/Services/Services
TheMarket
Science&
TechnologyBase
R D
© 2010 Henry Chesbrough 6
The Virtuous Circle for R&D
Fundamental Technology Breakthroughs
New Products and Features
Increased Sales and Profits via existing business model
Increased investment
in R&D
© 2010 Henry Chesbrough 7
The same experiment today
• Public repositories of knowledge– Google
– Public Library of Science
• Faculty - and their graduate students
• Growing number of excellent universities around the world
• Growing number of patents received globally
Where are the Great Ideas today?
• Users/Individual Inventors
• Startups and SMEs
• Universities and Research Institutes
• Some large companies
• Nonprofit organizations, foundations
• “Not all the smart people in the world work
for you.”
– Bill Joy, founder, Sun Microsystems, now
Partner at Kleiner Perkins.
© 2010 Henry Chesbrough 8
Where is R&D Occurring?
© 2010 Henry Chesbrough 9
© 2010 Henry Chesbrough 10
Current
Market
Internal
Technology
Base
R D
The Open Innovation Paradigm
Technology Insourcing
New
Market
Technology Spin-offs
External
Technology
Base
Other Firm’s
MarketLicensing
© 2010 Henry Chesbrough
Closed innovation
Our current market
Our new market
Other firm´s market
Open innovation
External technology insourcing
Internal technology base
External technology base
Stolen with pride from Prof Henry Chesbrough UC Berkeley, Open Innovation: Renewing Growth from
Industrial R&D, 10th Annual Innovation Convergence, Minneapolis Sept 27, 2004
Internal/external venture handling
Licence, spin out, divest
© 2010 Henry Chesbrough 12
The Logic of “Open Innovation”
• Good ideas are widely distributed today. No one has a
monopoly on useful knowledge anymore.
• Being first to discover is neither necessary nor
sufficient to win in the market
• A better business model beats a better technology
• Universities are now critical players in the innovation
process
• Not all of the smart people in the world work for us.
© 2010 Henry Chesbrough 13
Implications for Industry-University
Research Collaborations
• Industry is Retreating from Basic Research
• Universities are Picking Up the Slack
• Are Universities Set Up to Work as the Lab for
Industry?
– Is this consistent with the mission of the
university?
• Are Companies Set Up to Work with Universities?
– Can companies profit from university work?
US is still “off the chart” – China projected to be “off the chart” in less than 10 years:US % of WW Top-Ranked Universities: 30,3 %
US % of WW GDP: 23,3 %
Source: http://www.arwu.org/ARWUAnalysis2009.jsp
Correlating Nation’s (2009)% of WW GDP to % of WW Top-Ranked Universities
Japan
ChinaGermany
France
United KingdomItaly
Russia SpainBrazil
CanadaIndia
Mexico AustraliaSouth KoreaNetherlandsTurkey
Sweden
y = 0,7489x + 0,3534
R² = 0,719
0
1
2
3
4
5
6
7
8
9
0 1 2 3 4 5 6 7 8 9
% g
lob
al
GD
P
% top 500 universities
The role of the university
Impact of the universities
Source: Pellenbarg, 2005
Universities as Open Institutions
• Universities are intended to explore,
discover, and disseminate new knowledge
• Society expects that, over time, much of this
new knowledge will be useful
• Post World War II, government
increasingly funded university research
© 2010 Henry Chesbrough 16
U.S. Federal Government R&D History
JFK
Apollo
Program Carter
Energy
Program
Reagan “Star
Wars” Program
Homeland Security,
M. Hoeffert
Courtesy of Chris Somerville
17© 2010 Henry Chesbrough
The Public Research University
• The Morrill Act (1862):
– "An Act Donating Public Lands
to the Several States and
Territories which may provide
Colleges for the Benefit of
Agriculture and the Mechanic
Arts“
• Explicitly intended to advance
technology and serve the working
classes
© 2010 Henry Chesbrough 18
Universities as Industry Research
Partners
• Bayh-Dole Act of 1980 – universities can
claim an ownership right to its discoveries
• University research discoveries sometimes
vital to industry activities
– E.g., Cohen Boyer patent on recombinant DNA
– $255 million paid, product sales of >$25 billion
© 2010 Henry Chesbrough 19
Balancing Openness and Industry
Needs: A Proposed Continuum
© 2010 Henry Chesbrough 20
Open Restricted
Gifts GrantsConsortiaResearchContracts
Overhead $, IP rights
Commons
Adapted from Carol Mimura presentation, 9/29/2008
21
Can This Scale?
Will Universities Be “Bought” if
Funding is High Enough?
• Energy Biosciences Institute an Interesting
Case
• Significant $, some controversy
• Some institutional innovation
• Some corporate innovation as well…
© 2010 Henry Chesbrough 22
BP’s challenge in February 2006
• Energy Bioscience looked promising (Senior Executive buy-in)
• How do we meld commercial/technology strength with biology/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 a rapidly 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, and commercialization of research results
23© 2010 Henry Chesbrough
BP Organizational Choices to Make This Valuable
• A substantial and long-term commitment to engage quality researchers ($500m over 10 years)
• Host at a world-class institution to maximize academic presence and interdisciplinary interaction.
• Single organization doing open and proprietary work
− Open work in Fundamental Energy Biosciences
− In best academic tradition
− Need faculty help in inventing the field
− A window for BP on worldwide Energy Biosciences
− Co-locate some BP researchers
− Live in and understand the open research community, but knowledgeable about BP’s needs, goals
− Enhance industry connection to help motivate/guide open research
− Potential to demonstrate at scale
24© 2010 Henry Chesbrough
25
Lawrence BerkeleyNational Laboratory
Other BP Components
UC BerkeleyHost Institution
University of IllinoisUrbana-Champaign
Other Entities
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
BP Proprietary Component
© 2010 Henry Chesbrough
26
Is this compatible with a public research university?
• Does EBI preserve academic freedom?
• Does Berkeley remain an open institution?
• Will society benefit from EBI, or will BP be the main beneficiary?
• Who controls the assignment of research projects?• Who controls the IP generated by the research?• Who controls the dissemination of research results?
© 2010 Henry Chesbrough
27
Governance Board
UCB/UIUC/LBNL - 4 representativesBP - 4 representatives
Executive Committee
EBI governance and oversight
Strategic ScienceAdvisors
BP R&TProprietary
Research Programs
Energy Biosciences Institute
Open Research Programs
EBI (UIUC)Deputy Director
(Steve Long)
EBI (UCB) Director
(Chris Somerville)
EBI (BP) Assoc. Director(Paul Willems)
5 ResearchLeaders
Scientific AdvisoryBoard
© 2010 Henry Chesbrough
Licensing provisions
28
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 pursue commercialization
- BP will underwrite the patent costs
EXCLUSIVE
BP may obtain exclusive license rights to sole or joint inventions.
- pre-negotiated capped fees
- “Bonanza clause” in case of extraordinary commercial success
© 2010 Henry Chesbrough
Assessment
• Who controls the assignment of research projects?
• Who controls the IP generated from the research?
• Who controls the dissemination of the research results?
29© 2010 Henry Chesbrough
Assessment – Academic Freedom
• Who controls the assignment of research projects?
• Who controls the IP generated from the research?
• Who controls the dissemination of the research results?
• Executive Committee proposes, Governance Board approves – Berkeley and BP each have veto over slate
• Yours, Mine, and Ours
• Berkeley controls, subject to patent decision
30© 2010 Henry Chesbrough
Assessment – Part II: Academic Impact
• Is Berkeley better or worse off for having this agreement?
• Would other universities accept these provisions?
• Will taxpayers view this agreement positively?
31© 2010 Henry Chesbrough
Assessment – Part II
• Is Berkeley better or worse off for having this agreement?
• Would other universities accept these provisions?
• Will taxpayers view this agreement positively?
• Yes – 10 new faculty positions, dozens of grad students supported
• In a heartbeat; 4 other finalists
• Tougher question. If no, may further reduce research funding support
32© 2010 Henry Chesbrough
BP Assessment – Is this more than charity?
• What is BP getting for its $500M?
• How will BP learn from UCB and UI research?
• How will results transfer into useful industry development?
33© 2010 Henry Chesbrough
BP Assessment – Is this more than charity?
• What is BP getting for its $500M?
• How will BP learn from UCB and UI research?
• How will results transfer into useful industry development?
• BP is buying speed, and access to world class bioscience
• BP must invest additional resources to learn
• BP must create new receiving mechanisms inside BP to make use of results
34© 2010 Henry Chesbrough
A Critique of EBI, and Similar Large Scale Corporate Research Collaborations
• Even if the form of academic freedom is preserved in such agreements, the substance in practice can still thwart academic freedom
1.“Relevant” research (from the perspective of the corporation) will be selected over “less relevant” research
2.The additional resources will likely reinforce the favored trajectory of research, especially new faculty appointments and doctoral grants
3.The faculty who bring in such resources may be favored over those who do not
4.Over time, the faculty will become “pro corporate” (and Berkeley is a State-supported University)
35© 2010 Henry Chesbrough
Could This be a New Model for Industry-University Collaboration?
Named a “Deal of Distinction” in 2007
In The Industry-University-Government Interface (IUGI) Sector
By the Licensing Executive’s Society
“…hand sculpted glass by the artisans of Parris-Roche Design Studios, consisting of a pair of entwined blue glass ribbons encased in a clear conic pinnacle symbolic of parties coming together…”
36© 2010 Henry Chesbrough
37
38
39
Backup slides
© 2010 Henry Chesbrough
40
• In 2004 Restructured IP management at Berkeley
• Created IPIRA, goal of streamlining processes & increasing corporate sponsored research
• IP Management Strategies to Maximize Research Impact, Collaboration & Translation
• Relationship model: collaborations, partnerships are key
• Networks are key
• Logo reflects the vitality and interconnectivity of the Industry-University interface
Setting the Stage
© 2010 Henry Chesbrough
41
In 2006: Opportunity to Compete for Funding from BP“Help us to invent the future”
The RFP was consistent with Berkeley’s approach in IPIRA
Most common definition of technology transfer is not consistent with our approach
Our approach is expansive, embraces Open Innovation principles
TT is an ongoing relationship continuum, not a single transaction
•many years, many points of contact
•building a pyramid, contributing
different sectors of a pie
•results from inflows and outflows
to and from the university
•involving personnel exchange, knowledge exchange, materials and equipment, expertise and know-how exchange in both directions
© 2010 Henry Chesbrough
Research Complementarity
42© 2010 Henry Chesbrough
� Joint Genome Institute
� National Energy Research Supercomputing Center
� Molecular Foundry
� National Center for Electron Microscopy
� Cryo-EM Facility
� QB3 NMR Facility
Berkeley Resources
43© 2010 Henry Chesbrough
WHAT IS THE EBI?INTEGRATING PROGRAMS
Feedstock Development
Projects Programs
Feedstock Deconstruction
Fuel Synthesis
Environment, Economics & Policy
Under One Roof
44© 2010 Henry Chesbrough
Relevant Facilities at University IL at Urbana-Champaign
� Institute for Genomic Biology
� Germplasm collections
� Bioprocessing facility
� Off-road vehicle development laboratory
� Network of experimental stations & energy farm
45© 2010 Henry Chesbrough
EBI Open and Proprietary Components Help Us To Implement a Shared Vision
Of translating basic, academic, research results from the EBI into global energy solutions
Science-to-technology transition can be expedited through innovative Public-Private Partnerships
Engineering and Agriculture: • input from industry provides valuable insight • problems to be solved• where and how academics can help
University as innovation accelerator
Bench to bedside
QuickTime™ and aTIFF (Uncompressed) decompressor
are needed to see this picture.Bench to fuel tank
46© 2010 Henry Chesbrough
EBI timeline
• June 14, 2006
− BP announced publicly its intention to create the EBI
• Summer 2006
− Screening of some 52 inquiries in 10 countries
• October 2006
− RFP to 5 potential hosts (three in the US and two in the UK)
− Encourage partnership to bring strength across whole value chain
• Early December 2006
− Reverse site visits in London by a BP panel
• February 1, 2007
− Selection of UCB/UIUC/LBNL announced
• Spring-Fall 2007
− Contract negotiations / Partner meetings re governance / EBI Directors in place / Pre-proposals →→→→ proposals →→→→ funding decisions
• November 14, 2007
− Contract formally signed, operations begin
47© 2010 Henry Chesbrough