Open Innovation:The First Decade
Joel WestKGI - The Keck Graduate Institute
Claremont, California
UCSD, Rady School of ManagementJanuary 27, 2015
Plan
• What is open innova tion?
• Three modes of open innova tion- Inbound
- Outbound
- Coupled
• What’s next?
• Keck Graduate Institute of Applied Life Sciences
• Youngest of 7 Claremont Colleges• Founded in 1997: Harvey Mudd spinoff• Funded by grant from Keck Foundation• 300+ graduate students• Preparing students for biotech careers• Genentech, Amgen are biggest employers
What is KGI?
Where is KGI?
KGI
Open Innovation
Open innovation: a common practice
• Qua lcomm- Outlicens ing pa tents- Se lling components to handse t makers- Acquiring Snaptrack, Fla rion, Atheros
• Amgen- Licensed EPO to J&J (Procrit)- Today in-licenses oncology drugs
• IBM- Se lling components to othe rs- Collabora tion with Apache , Eclipse , Linux open source
communitie s
Invention vs. Innovation
“Inventions … do not necessarily lead
to technica l innova tions . In fact the
majority do not. An innova tion in the
economic sense is accomplished only
with the firs t commercia l transaction.”
—Freeman (1982: 7)
Latent value of an innovation
“The inherent va lue of a technology
remains la tent until it is commercia lized in
some way.
“A bus iness model unlocks tha t la tent
va lue , media ting be tween technica l and
economic domains .”
– Chesbrough & Rosenbloom (2002)
Bringing innovation to market
• Crea tion- Technica l invention
- Bas ic research, applied research, product deve lopment
• Commercia liza tion- Production, marke ting, sa les , dis tribution
- Requires diffe rent complementa ry asse ts (Teece 1986)
Vertical Integration
Research of Alfred D Chandle r (1918-2007)
• Studied la rge US firms 1840-1940
• Firms vertica lly integra te to supply own inputs and control the ir outputs- R&D is an essentia l part of integra tion
- Technology indus tries require la rge R&D labs
- Marke ts don’t exis ts to buy/se ll innovation
• Integra tion wide ly adopted in practice- Pa tte rn of la rge 20th C US and MNC firms
ResearchResearchInves tiga tionsInves tiga tions
Deve lopmentDeve lopment New ProductsNew Products& Services& Services
TheMarket
Science&
TechnologyBase
Source : Chesbrough (2006)
Vertically Integrated R&D
Open Innovation
• Chesbrough (2003, 2006, 2007)
• Key points :- Find a lte rna te sources of innovation
Either marke ts or spillovers
- Find a lte rna te marke ts for innova tion
- Centra l role of the bus iness model
• Cognitive manageria l pa radigm
• Overlaps with other work such as user innova tion
What is “open innovation”?
“Open innova tion is the use of purpos ive
inflows and outflows of knowledge to acce le ra te
inte rna l innova tion, and expand the marke ts for
exte rna l use of innova tion, respective ly.”
Henry Chesbrough, O p e n Inno va tio n:Re s e a rching a Ne w Pa ra d ig m (2006)
Source : Chesbrough (2006)
CurrentMarke t
Inte rna lTechnology
Base
Technology Insourcing
New Market
Technology Spin-offs
Externa lTechnology
Base
Other Firm’s Marke t
Licens ing
“Open” innova tion s tra tegies
R&D under Open Innovation
What’s new?
• Many antecedent/overlapping a reas- Technology sourcing, IP marke ts ,
univers ity licens ing, a lliances , supplie r innova tion, use r innova tion
• New ideas include- Role of the bus iness model- Agnos tic to inte rna l/exte rna l pa ths- Rise of innova tion inte rmedia ries
Cf. Chesbrough (2006)
Open vs. user innovation
Open Innovation User Innovation
Focal actor Firm User
Knowledge transfer IP Needs
IP regime Pa tents Free revea ling
Innova tion production
Hiera rchy Community, individua l
Motiva tions Mone ta ry Socia l, persona l utility
Frank Pille r & Joe l West, Ch. 4 of O p e n Inno va tio n: Ne w Fro ntie rs & App lic a tio ns
Three open innovation processes
1. Inbound (or “outs ide-in”)- Externa l technology commercia lized by the foca l
firm
1. Outbound (or “ins ide-out”)- A firm’s technology commercia lized by others
1. Coupled combines these two- Various forms of collabora tion
Cf. Chesbrough (2003, 2006), Gassmann & Enke l (2004), Enkel e t a l (2009), Wes t & Gallagher (2006)
Inbound Open Innovation
Why Look Outside for Innovation?
“Not a ll the smart people in the world can work in one place .”
Bill Joyco-founder
Sun Microsys tems
Recent comprehensive review
• Goa l: Synthes ize inbound (& coupled)
• Sample from top management & innova tion journa ls
• Either mention “open innovation” or cite Chesbrough (2003)
• Hand se lected 291 down to 165
• 161 a rticles , 3 books , 1 chapte r
Joe l West & Marce l Bogers , Jo urna l o f Pro duc t Inno va tio n Mana g e m e nt, July 2014
Breakdown of 165 OI pubsInbound: 118 Outbound: 50
Coupled: 70
57 14
11
24
26 1
32
4-stage process model
InnovationSource† Customers
CommercializingObtaining Integrating
Interaction
Focal Firm
R&DOther
Functions
† Sources may include suppliers, rivals, complementors and customers.
1. Obtaining Innovations• Bes t covered of the phases
- Searching, enabling, filte ring- Sourcing particula rly well covered
• Mos t popula r a rea : sources of innova tion- Many crowdsourcing s tudies- Also use r-genera ted content
2. Integrating Innovations• Cons iders org capabilities and culture
- Limited examina tion beyond “Not Invented Here”
- Clear cha llenges of processes , incentives
• Integra tion seems to be a black box- How are these innova tions integra ted to
the firm?
- What skills a re needed to do this well?
3. Commercializing Innovations• Lots of va lue crea tion
- Increased product re leases , revenues
- What is ne t? Do cos ts go up?
• Assumes exte rna l innova tions commercia lized same as inte rna l ones- How do firms diffe r in exte rna l innova tion
commercia liza tion capabilitie s?
4. Reverse PathsBeyond the linea r mode l, this includes
• Feedback mechanisms- Information flow ups tream
• Reciproca l measures- Ongoing inte ractions
- Includes co-crea tion, communities
Outbound Open Innovation
What is outbound OI?
• Firms should find bes t/highes t use of the ir IP- Not a ll IP a ligns to the firm’s bus iness model
• Avoids Type II (fa lse nega tive) e rror• Can include licens ing to riva ls , spinoffs
- In para lle l or ins tead of inte rna l use
Inspired by Chesbrough s tudy of Xerox PARC spinoffs (Chesbrough & Rosenbloom, 2002)
Various IP licensing models
• Dolby Labs : $700m/yr, 88% margins
• Genentech: Humulin, Inte rfe ron
• IBM: licens ing IP portfolio
• Dupont: licens ing core technologies
• Game mods , e .g. Ha lf-Life
• Xerox: crea ting spinoffs
Key challenges of outbound OI
• Identifying underused IP• Simultaneous inte rna l/exte rna l
commercia liza tion• Functioning IP marke ts• Dilemma over appropriability
- Fear of sharing if weak IP- Strong IP can de lay other’s innovation
Chesbrough (2003, 2006b), Fabrizio (2006), Enkel e t a l (2009), Dahlander & Gann (2010)
Coupled Open Innovation
Coupled open innovation
• “Coupled” is diffe rent from inbound and outbound
• Two modes of coupled inte raction- Bi-directiona l (Gassmann & Enkel, 2004)
Combines inbound & outboundApplies to firm-to-firm R&D collabora tions
- Inte ractive collabora tion (P ille r & West, 2014)Joint production outs ide the firmDiffe rent from e ithe r inbound or outbound
Coupled open innovation
Focal Firm Organization
Focal FirmOrganization or
IndividualCo- Creation
BidirectionalCoupled
InteractiveCoupled
Source : P ille r & West (2014), p. 39
Coupled open innovation
Examples of coupled open innova tion:•Open source (Wes t & Gallagher, 2006)•Communities (West & Sims , 2013)•R&D consortia (Mulle r-Se itz & Sydow, 2013)̈
Bes t practice seems very particularis tic to the se tting
What’s Next?
Recent trends in OI research
• Linking to es tablished theory
• Grea te r precis ion of cons tructs
• Bette r measurement
• Bette r unders tanding of pe rformance
• Diffe rent leve ls of ana lys is
• Role of appropriability
• Nonprofit actors and motiva tionsSee Vanhaverbeke e t a l (2014), West e t a l (2014) a lso http://bit.ly/1v2Gf7
2014: new OI publications
• Re s e a rch Po lic y specia l is sue (June 2014)- Chesbrough, Sa lte r, Vanhaverbeke & West,
gues t editors- 10 a rticles- See http://bit.ly/openinno2013
• O p e n Inno va tio n: Ne w Fro ntie rs & App lic a tio ns (Oxford)- Chesbrough, Vanhaverbeke & Wes t, eds .- 15 chapters- See http://bit.ly/NFOI2014
Thank you!
blog.OpenInnovation.net