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Prof. Henry Chesbrough's keynote speech at the Open Innovation Seminar 2009 in Sao Paulo, Brazil. October 22nd, 2009
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Open Innovation:
Realização: Open
Innovation Center - Brasil
Patrocínio Oficial e
Colaboração: Allagi –
Open Innovation Services
Open Innovation:
A New Approach to Industrial R&D
Henry Chesbrough
São Paulo, Brasil
22/10/2009
Open Innovation:
A New Approach to Industrial R&D
Presentation to Open Innovation Conference
Sao Paolo, Brazil
Henry Chesbrough
Center for Open Innovation
UC Berkeley
October 22, 2009
The Current Paradigm: The Current Paradigm: A Closed Innovation SystemA Closed Innovation System
TheMarket
Science&
Technology
3
ResearchInvestigations
Development New Products /Services
MarketTechnologyBase
R D
XeroxXerox’s Business Model, ’s Business Model, and Project Evaluation and Project Evaluation ErrorsErrors
4
�Designed to minimize “false positive” errorsIgnores risk of “false negative” errors
ChessChess
• Plan several moves ahead
• No new
5
• No new information needed
• You know what you and your opponent have
PokerPoker•• Pay to playPay to play
•• Pay for new Pay for new informationinformationinformationinformation
•• Discover what Discover what other players and other players and you haveyou have
6
Xerox: Great at Chess, Lousy at Poker
7
InternalTechnology
Base
TheOpen Innovation Paradigm
New Market
Technology Spin-offs
Other Firm’s MarketLicensing
8
CurrentMarket
Base
R D
Technology Insourcing
ExternalTechnology
Base
License in
Spin in
Acquire
Open innovation in practise
9 C 2002 Henry Chesbrough EIRMA SIG III, 2005-10-20
Robert Kirscbaum, DSM: Research & Technology management, July – August 2005
DivestSpin out
License out
� “The creation of new businesses is a highly dynamic process, best represented as a horizontal funnel” (passed in iterative steps)
Open Innovation
Our new market
Other firm´s market
Internal technology base
License, spin out, divest
Our current market
External technology insourcing
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
2003: We broke up the fortress …
Philips Research,Ronald Wolf, 10/08
Bringing in the right partners – Open innovation
> 75 companies and
> 7000 people at
High Tech Campus Eindhoven
Philips Research,Ronald Wolf, 10/08 12
Research institutes
Economic development companies
Corporate innovators
Consultancy & services
Venturing timescale longer: keep it apart from business
Co
nsu
mer L
ifestyle
Philips Research,Ronald Wolf, 10/08
Co
nsu
mer L
ifestyle
Health
care
Lig
htin
g
The expansion of the corporate funnel
InsourcedIdeas /Technology
ODM
OEM
Spin inStart upsIP insourcing Acquisitions
Philips Research,Ronald Wolf, 10/08
Front – end Development Commercialization
OEMIP insourcing
Incubators Spin outIP Licensing
Acquisitions
Alliances
BP’s challenge in February 2006
• Energy Bioscience looked promising (Senior Executiv e 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
15
A imagem não pode ser exibida. Talvez o computador não tenha memória suficiente para abrir a imagem ou talvez ela esteja corrompida. Reinicie o computador e abra o arquivo novamente. Se ainda assim aparecer o x vermelho, poderá ser necessário excluir a imagem e inseri-la novamente.
A imagem não pode ser exibida. Talvez o computador não tenha memória suficiente para abrir a imagem ou talvez ela esteja corrompida. Reinicie o computador e abra o arquivo novamente. Se ainda assim aparecer o x vermelho, poderá ser necessário excluir a imagem e inseri-la novamente.
A imagem não pode ser exibida. Talvez o computador não tenha memória suficiente para abrir a imagem ou talvez ela esteja corrompida. Reinicie o computador e abra o arquivo novamente. Se ainda assim aparecer o x vermelho, poderá ser necessário excluir a imagem e inseri-la novamente.
UC Berkeley
Funding for Open and Proprietary Components
$50M/yr
A imagem não pode ser exibida. Talvez o computador não tenha memória suficiente para abrir a imagem ou talvez ela esteja corrompida. Reinicie o computador e abra o arquivo novamente. Se ainda assim aparecer o x vermelho, poderá ser necessário excluir a imagem e inseri-la novamente.
BP
16
A imagem não pode ser exibida. Talvez o computador não tenha memória suficiente para abrir a imagem ou talvez ela esteja corrompida. Reinicie o computador e abra o arquivo novamente. Se ainda assim aparecer o x vermelho, poderá ser necessário excluir a imagem e inseri-la novamente.
Lawrence BerkeleyNational Laboratory
A imagem não pode ser exibida. Talvez o computador não tenha memória suficiente para abrir a imagem ou talvez ela esteja corrompida. Reinicie o computador e abra o arquivo novamente. Se ainda assim aparecer o x vermelho, poderá ser necessário excluir a imagem e inseri-la novamente.
Other BP Components
UC BerkeleyHost Institution
A imagem não pode ser exibida. Talvez o computador não tenha memória suficiente para abrir a imagem ou talvez ela esteja corrompida. Reinicie o computador e abra o arquivo novamente. Se ainda assim aparecer o x vermelho, poderá ser necessário excluir a
imagem e inseri-la novamente.
University of IllinoisUrbana-Champaign
A imagem não pode ser exibida. Talvez o computador não tenha memória suficiente para abrir a imagem ou talvez ela esteja corrompida. Reinicie o computador e abra o arquivo novamente. Se ainda assim aparecer o x vermelho, poderá ser necessário excluir a imagem e inseri-la novamente.
Other Entities
subcontractscontracts
contracts
ENERGY BIOSCIENCES INSTITUTE (EBI)OPEN RESEARCH
BP R&TPROPRIETARY RESEARCH
subcontracts
$35M/yr
$15M/yr
BP Proprietary Component
Licensing provisions
For inventions solely owned by UCB, UIUC and/or LBNL
NON-EXCLUSIVE EXCLUSIVE
17
Non-exclusive, royal free (NERF) license in BP’s area of interest, providing:
- BP will diligently pursue commercialization
- BP will underwrite the patent costs
BP may obtain exclusive license rights to sole or joint inventions.
- pre-negotiated capped fees
- “Bonanza clause” in case of extraordinary commercial success
Intel’s University model
• Intel contributes over $100 million annually to leading US universities (15) and overseas universities (12)
• Intel defines promising areas of scientific and engineering research to focus its $
© 2004 Henry Chesbrough18
engineering research to focus its $
− After the NIH and NSF, Intel is one of the biggest funding sources in its chosen areas
• Negotiates access to university IP at the university, prior to funding research there
Intel’s latest move: “Lablets”
• Intel has recently (fall 2002) initiated four smaller research centers, located immediately adjacent to universities at
− U Washington
− Berkeley
© 2004 Henry Chesbrough19
− Berkeley
− CMU
− Cambridge
• Each center is led by University academic
• Intel staff measured on joint collaborative research efforts
Intel and Startups
• Intel has pioneered the use of Corporate Venture Capital to invest in startups
− Most active CVC investor today, 1000 investments
− Increasingly focused outside US
© 2004 Henry Chesbrough20
• Two important roles for its CVC
− Grow the current market using Pentium products
− Explore potential new markets for Intel products− Best market research you can buy!
InternalTechnology
Base
Intel & Intel & Open Innovation Open Innovation
New Market
Other Firm’s Market
LANDesk
21
CurrentMarket
Base
R D
Technology Insourcing
ExternalTechnology
BaseUniversities
IntelCapital Acq’ns
The iPodThe iPodTony
FaddellTony
Faddell9
mo
nth
s!9
mo
nth
s!9
mo
nth
s!9
mo
nth
s!
Not Just for High Tech: Procter & Gamble
New Market
“Use it or Lose it”
Other Firm’s Market
InternalTechnology
Base
23
CurrentMarket
R D
ExternalTechnology
BaseTechnologyScouts
Base
VentureAcquisitions“Spinbrush”
LargeAcquisitions“Gillette”
An Iberian Example: El An Iberian Example: El BulliBulli
• Ferran Adria studies molecular gastronomy, working with Herve This, a French physical chemist
• Adria brings this to El Bulli, restaurant is the Lab
• Adria launches many business experiments
24
• 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
Finding Partners: A Massive Filtering Problem
The Unwashed
The Suspects
© 2006 Henry Chesbrough 25
The Suspects
The ProspectsThe
Finalists
The Partner(s)
InternalTechnology
Base
Intermediaries & Open Innovation
New Market
NVPLLC: spinoffs
Other Firm’s MarketIP Value - licensing
© 2006 Henry Chesbrough 26
CurrentMarket
Base
R D
Technology Insourcing
ExternalTechnology
Base InnoCentiveNineSigmaYet2.com
InvestmentBanks
Sequoia/Cisco
Other Innovative IP IntermediariesInbound• Innovation Exchange• SSIPEX• Yet2.com
© 2006 Henry Chesbrough 27
• YourEncore.comOutbound• IpValue, ThinkFire (patents)• Utek, Flintbox (university technology)• New Venture Partners, LLC (spinoffs)
Is the internal R&D department Is the internal R&D department an 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
28
• New role: connecting to and collaborating with the outside
• New skill: integrating internal and external together
How do companies gain access to the right
competences at the right point in the
innovation process?
�Want
�Find
29
�Find
�Get
�Manage
How do companies gain access to the right competences
at the right point in the innovation process?
WantWhat is our “shopping list”?
FindWhere will we find these resources?
ManageHow will we manage these resources, once we have signed the agreement?
GetHow will we access the resources? How do we structure the agreement?
Sources: Hoffman-Laroche; Slowinski and Segal, 200 3
Building Your Shopping List
Start with your product road map
Identify the gaps, missing pieces, and open spaces to be explored
Define the external relationships needed to support the business strategy
� Whom are we targeting (type of partners)?
� Are we collaborating on or outsourcing (value chain module)?
� How deep does our relationship need to be?� How deep does our relationship need to be?
Share across internal organizations. They will nee d to work with external innovation partners too!
Let’s Focus our Discussion a Bit—WGFM Model Applied to Co-Development
WantWhat is our “shopping list”?
FindWhere will we find these resources?
Open InnovationStrategy
External PartnerIdentification
ManageHow will we manage these resources, once we have signed the agreement?
GetHow will we access the resources? How do we structure the agreement? Structuring the
Relationship
RelationshipManagement
One Key Distinction
Define your requirements
| 33CoDev 2007 Conference, Workshop D—29 January 2007 | © 2007 PRTM Proprietary | 33CONFIDENTIAL
Transaction• one time• little ongoing support needed• little or no investment needed
Relationship• ongoing• support required• investment required
Innovation Intermediaries: A great transaction res ource
Intermediary (Company) Focus Primary Function
InnoCentive Online exchange portal Marketplace for technology transfer/agent
NineSigma E-mail RFPs Agent
Big Idea Group Concept developer Agent/codeveloper
Yet2.com Technology exchange Online marketplace / technolgoy licensing
Accelovation Linguistic-based Internet research
Search engine
InnovationXchange Membership-based innovation community
Broker
Shanghai Silicon IP Exchange
Repository for legally obtained semiconductor IP
Broker
Ocean Tomo IP merchant banker Market maker
Source: Open Business Models , Henry Chesbrough, 2006
Relationships Require Consideration of Both Parties
1. Short-term returns for both companies
� Don’t try to “boil the ocean”
2. Clearly defined long-term potential for both comp anies
� Collaboration “set-up costs” are too great for merely a quick win
3. Shared vision of technology and market developments
Cisco’s Critical Partner Evaluation CriteriaCisco’s Critical Partner Evaluation Criteria
3. Shared vision of technology and market developments
� Agree on “where the world is headed”
4. Shared destiny of cooperation, not competition
� Supports openness with technical information and sharing of intellectual property
Source: “Model of Co-Development Emerges”; Deck and Strom, Research * Technology Management, May–June 2002
Let’s Focus our Discussion a Bit—WGFM Model Applied to Co-Development
WantWhat is our “shopping list”?
FindWhere will we find these resources?
Open InnovationStrategy
External PartnerIdentification
ManageHow will we manage these resources, once we have signed the agreement?
GetHow will we access the resources? How do we structure the agreement? Structuring the
Relationship
RelationshipManagement
Business Contract and the JDA—Tools for “Get”The Joint Development Framework helps to structure the relationship
Joint DevelopmentAgreement (JDA)
� Structures specific projects
� Developed by the ones who will
Project Operational FocusBusiness Contract
� Structures the ongoing relationship
� Developed and negotiated by senior management
Global Relationship Focus
� Developed by the ones who will use it
� Provides operational flexibility
� Defines development responsibilities, schedules, milestones, and deliverables
� Focuses on how the relationship will work (e.g., communication, issue resolution, project reviews)
� Legally binding and establishes liabilities
� Sets intellectual property rights
� Scopes boundaries under which multiple JDAs can be written
� Supersedes the JDA when discrepancies arise
Intellectual Property Needs MatrixBackground intellectual property
Foreground intellectual property
Inside the Boundaries Cell 1 Cell 2
Outside the Boundaries Cell 3 Cell 4
Upon Termination Cell 5 Cell 6
Let’s Focus our Discussion a Bit—WGFM Model Applied to Co-Development
WantWhat is our “shopping list”?
FindWhere will we find these resources?
Open InnovationStrategy
External PartnerIdentification
| 39CoDev 2007 Conference, Workshop D—29 January 2007 | © 2007 PRTM Proprietary | 39CONFIDENTIAL
ManageHow will we manage these resources, once we have signed the agreement?
GetHow will we access the resources? How do we structure the agreement? Structuring the
Relationship
RelationshipManagement
Great Partners Work Seamlessly Along“Want, Find, Get, and Manage”
Want
Find
GetManage
Targeted,Receptive & Proactive
Fast efficient due diligence, valuable to the partner
Negotiates high quality agreements – rapidly, two way link to strategy
Execute Seamlessly Builds a Multi-Project, High Value RelationshipDeliver Marketplace Results
Overall: Expeditious, Trustworthy, Capable
Copyright 2006; PRTM and Alliance Management Group, Inc.
Collaborative R&D: An Example
• P&G and Clorox• Problem: Clorox obtained Glad brand from
Dow as Dow focused its business portfolio– No R&D in the pipeline
© 2006 Henry Chesbrough
42
– No R&D in the pipeline– Risk of commoditization
• Opportunity: P&G had two technologies internally that lacked a path to market– Press ‘n Seal– Force Flex
Management Challenges
• P&G was a competitor to Clorox
• Neither company had done a collaborative deal with a competitor
© 2006 Henry Chesbrough
43
deal with a competitor
• How to structure a collaboration?– How much is each side contributing?
– Will each side perform?
– Will either side go around the other?
P&G Alternatives• Launch directly
– Good test market results– Tough times in 2002– Likely competitive response
• Straight License to Clorox
© 2006 Henry Chesbrough
44
• Straight License to Clorox– How much help will they need?– Will they perform?
• Straight Technology Sale to Clorox– What about follow-on technology in pipeline?
The Solution: a JV Company
• Clorox held 80%, P&G had 10%, with option on another 10% (since exercised)– P&G paid Clorox $133M for the additional
10% in 2005
© 2006 Henry Chesbrough
45
10% in 2005
• Glad products now in #1 market position• Business now ahead of plan• Clorox didn’t have to worry about P&G
entry into market
The Collaboration Bonus: New Business Opportunities
• Clorox has approached P&G to distribute some of its brands in Japan– Rather than build its own distribution
© 2006 Henry Chesbrough
46
• This collaboration has also been successful– Would never have occurred but for first JV
• Both companies are winning• Both companies had to change long-held
management practices
Which Would You Rather Have?
A Great Technology
OROR
A Great Business Model
48
Photo Credits
Flickr: Chess/Fox, Tuesday Night Poker/Rambis, Ryan Air/ezreenphotography, Ryan Air New Boeing 787 Colours/macrodebs, 332/265/Digg Pirate, The bus shelter at the edge of the ocean/goddess_spiral, Flickr treo ad/Steve Rhodes, Technology - "Future treo ad/Steve Rhodes, Technology - "Future Vision“/$ydney
iStockphoto: 000003004014, 000003062424, 000004293861, 000007135639, 000005589058, 000000718722
iPod photo: http://www.apple.com/ipodclassic/
49