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Dr. V. G. DhanakumarDirector

Indian Institute of Plantation Management (IIPM) Bangalore

(An Autonomous Organization of the Ministry of Commerce & Industry, GOI)

Strategy for R&D DrivenOpen Innovation (OI)

Successful Innovating Organizations

• Sense all “Impulses” that could lead toinnovation

• “Thinkers” (Generate Ideas) Vs. “Innovator”(Determine >> ways to Realize)

• Exercise “Entrepreneurship” (extra-preneur):as Innovation Leader

• Creativity in Totality -- employees

• Vision: World Best at Enriching Lives throughInnovation

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• Project-based approach & Management• Cooperation with external experts

• Employees’ Motivation & Rate of Risk-taking

• Continued education/training

• Finance for innovation

Successful Innovating Organizations

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3 Conditions to be Innovator

1. Innovation means work hard, concentrated and thorough work. {Otherwise, no use for the big talent,

cleverness (or) knowledge}

2. Successful innovations must build on “your”strong points

3. Innovation must focus on a market, must be controlled by the market (market-pull)

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R&D Supply Chain Management (SCM)

Suppliers Purchasers Production / Processors

Distribution Market Customers

R&D Value Chain

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Stakeholders Chain

Suppliers’ Supplier

Customers’ Customer

“Novel Ways to Create Value”

?

How to Create Substantial New Value to Customers &

Organization

About “New Value”, Not New things

Customerdecides work of “Innovation”

by-voting-wallets

Innovation by“Do It Yourself” to

Underserved Customer

“All” aspects of Business with a

valuable end-userapplication

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R&D Innovative Performance – Use of External KnowledgeThe majority of R&D firms do not incorporate external knowledge in their

products, Processes and services

R&D Innovative Performance – Use of PatentsA large amount of patents is not used and remains on the shelf

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Closed Innovation: An Assumption

Traditionally, R&D development processes andmarketing of new products took place within R&Dboundaries.

Beginning twentieth century, universities, R&DCentre and government were not involved incommercial application of science.

Created their own (R&D) to new productdevelopment (NPD) cycle inside.

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The Current Paradigm: A Closed Innovation System

ResearchInvestigations

Development New Products& Services

TheMarket

Science&

TechnologyBase

R D&EVGD@IIPM

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R&D Innovation – Traditional ApproachFor years companies/R&D Units innovated using a Closed Innovation perspective

Contrasting Principles: Closed VS Open Innovation

Closed Innovation Principles Open Innovation Principles

Smart People in our field work for us

Excellence from R&D, we mustdiscover, develop and ship itourselves.

External (3PL) R&D can create significantvalue; internal R&D can claim a portionof that value

“Not all” smart people work for us*: Wemust find and tap into the knowledge andexpertise of bright individuals “outside”R&D

If we discover ourselves, we will get itto market first.

We don’t have to originate the researchin order to excel or profit from it.

Building a value-based business modelis better, than getting to market first

If we make the best use of internal andexternal ideas, we will win.

We should profit from others’ use of ourIP and we should buy others’ IP,whenever it advances our own businessmodel

If we are the first to commercialize aninnovation, we will win.

If we create the most and best ideas inthe industry, we will win.

We should control our intellectualproperty (IP) so that our competitorsdon’t profit from our ideas.

* Bill Joy of Sun Microsystems over a decade ago. See for example, http://thestandard.net

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What is Open Innovation

“…Open Innovation is a potential mechanism to

source and share expertise through alliances

and

collaborations within a strong intellectual

property framework.”

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What is Open Innovation

Open innovation has been defined as:

use of purposive inflows and outflows of knowledge to accelerate internal innovation,

and

expand the markets for external use of innovation, respectively.

- Chesbrough, 2003

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Open Innovation Process1. Ideas are investigated at the research stage and the

best and most promising of these make it to development and commercialisation phases

2. Less promising ideas are dropped

3. In a open innovation process, R&D’s boundaries become permeable/porous to allow in & out

4. Under closed innovation process all the invention, research and development is kept secure and confidential until the end product is launched

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Open Innovation Process

A diagram illustrating an open innovation process. The boundaries of the firm, represented by the dashed lines of the funnel, are permeable and allow ideas and technologies (the

mauve and green circles) to pass in and out of the firm.

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CurrentMarket

InternalTechnology

Base

R DTechnology Insourcing

New Market

Technology Spin-offs

ExternalTechnology

Base

Other Firm’s MarketLicensing

The Open Innovation Paradigm

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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

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Open Innovation – New ApproachCompanies revise their innovation strategy by moving towards an Open Innovation model.

Open Innovation: Four Implementation Challenges

Source: Tutkimusraportti – Research Report 189

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P&G’s Global Innovation Network (Sakkab, 2002, 40

Largest R&D expenses were in IBM

R&D Investments/revenue during the period of 1996-2005

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P&G has a largest percentage of intangible assets (almost 40% of its assets are intangible in 2005)

Intangible Assets as Percentage from Total Assets during the period of 1996-2005

Knowledge is not anymore proprietary to theorganization. It resides in employees,suppliers, customers, competitors, anduniversities.

Combining internal and external ideas as wellas internal and external paths to market toadvance the development of newtechnologies.

Feature of Open Innovation

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Advantages of Open Innovation

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Shorter time to market

Shorter time to market

Find new technologies

Access to additional competence

Find new ideas

Cost reduction + cost efficiency

Access to new + other markets

Influencing innovation in an ecosystem

Access to vital information for decision making

Flexibility of skills

Exploiting technologies from inside

Increase of quality

Open Innovation Enablers

Support from Top Management(culture-related factor)

Create an OI Culture(culture-related factor)

Appropriate Structural Changes(procedure-related factor

Knowledge of the Company(skill-relate factor)

Obtaining the Right Blend of Skills(skill-related factor)

Motivation of Operatives(motivation-related factor)

Number of stars indicates the approximate proportion of companies who cited that

enabler or obstacle as important

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Open Innovation Enablers

Internal cultural issues[Culture- + Motivation-related factor]

Lack of appropriate skills[Skill-related factor]

Operational difficulties[Procedure-related factor]

Lack of resources[Procedure-related factor]

External cultural issues[Culture-related factor]

Number of stars indicates the approximate proportion of

companies who cited that enabler or

obstacle as important

Managing Partnerships Between Large R&D and Start-ups

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Strategic Innovation Breaks with Past R&D

Practice in at least one of three areas:

a) Value chain design;

b) Conceptualization of customer value;

c) Identification of potential customers

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Cause-and-Effect Relationships – is the influence diagram.

Influence Diagrams: OI

Conclusion: 4 Challenges Most R&D units face difficulties while implementing" Open

Innovation”(OI)

• Formal innovation strategies are well-defined… but they have not yet won thehearts and minds of people.

• Mindset Challenge

• R&D Organizations know how to bring external knowledge inside… but not the other way round. IP is underutilized.

• IP Challenge

• Traditional techniques for Open Innovation have been implemented…but the latest tools have scarcely been applied.

• Tools of Challenge

• Top management support the use of external ideas…but have notimplemented the supporting management processes.

• Management Challenge

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Conclusion: Benefits of OI

Allows many people from different

disciplines to tackle the same problem

simultaneously and not sequentially.

Anyone can participate with collaborative

technology and OI training.

Many minds work on the same problem to

take less time to solve it.

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“Let us open-up our closed handshake now, to initiate Open Innovation (OI) to Delight Customers of the Rubber World ”

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R&D Business Innovation is creation of substantial new value for customers and the firm by creatively changing one or

more dimensions of the R&D system.

R&D Innovation is about New Value, Not New Things.

Innovation is relevant only if it creates value for customers –and therefore for the firm.

Creating ‘new things” is neither necessary nor sufficient for R&D innovation.

R&D Business Innovation

Philips operates in electronics industry

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Five out of eight companies, Cisco, IBM, Intel, Lucent and Sun are related to ICT sector.

P&G business is consumer goods

DuPont is a material supplier in may fields.

Implementation of open innovation differs from each other. E.g. in P&G would be difficult.

Companies have to find the way that is the most suitable for its business model and strategy.

All actions towards openness should create value to the company. It is always a risk to open boundaries of the firm but in our fast chancing

global world, it is also risky not do to so.

Find balance between openness and closed.

Model of Open Innovation

“Open innovation is a paradigm that assumes that firms can and should use external ideas as

well as internal ideas, and internal and external paths to market, as the firms look to

advance their technology”

Chesbrough Henry

development of internal competences

search for new competences through an extension of the R&D firm boundaries