Download pdf - Open Innovation Seminar 2008 - Brazil - Henry Chesbrough

Open Innovation Seminar 2008 – Allagi

Inovação aberta - Brasil

Henry ChesbroughCenter for Open Innovation – UC Berkeley

Palestra Open Innovation and Open Business Models

June 16, 2008 – São Paulo/SP

© 2008 Henry Chesbrough 2

Open Innovation and Open

Business Models

Open Innovation Seminar 2008

World Trade Center, Sao Paulo, Brazil

Henry Chesbrough

Executive Director

Center for Open Innovation

UC Berkeley

Where Were the Great Ideas for

Innovation 50 or 100 years ago?

• Individual Inventors

• 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.



The Current Paradigm:

A Closed Innovation System

Research

Investigations

Development New Products

& Services

The

Market

Science

&

Technology

Base

R D&E


Diminishing Economies of Scale:

US Industrial R&D

by Size of Enterprise

Company Size 1981 1989 1999 2003

< 1000 employees 4.4 % 9.2% 22.5% 22.5%

1,000 – 4,999 6.1 % 7.6 % 13.6% 14.8%

5,000 – 9,999 5.8 % 5.5% 9.0% 7.5%

10,000 – 24,999 13.1% 10.0% 13.6% 13.4%

25,000 + 70.7% 67.7% 41.3% 40.9%

Sources: National Science Foundation, Science Resource Studies, Survey of Industrial

Research Development, 1991, 1999, 2001, 2003.


R&D Spending by Firm Size, in $

0

50000

100000

150000

200000

250000

1960 1970 1980 1990 2000 2002 2003

in m

illio

ns o

f d

ollars

>25000

10k-25k

5k-10k

1k-5k

<1000


What changed?

Five Erosion Factors

1. Increasingly mobile trained workers

2. More capable Universities

3. Diminished US hegemony

4. Erosion of oligopoly market positions

5. Enormous increase in Venture Capital

Where are the Great Ideas today?

• Individual Inventors

• SMEs

• Universities and Research Institutes

• Some large companies

• “Not all the smart people in the world work

for you.”

– Bill Joy, founder, Sun Microsystems, now

Partner at Kleiner Perkins.



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

10 C 2002 Henry Chesbrough EIRMA SIG III, 2005-10-20

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


R.I.P

2007

R.I.P

Proudly Found

Elsewhere!

A New Perspective Towards R&D


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


P&G’s Stock Price: 8/1998-3/2000

P&G Stock Price

40

50

60

70

80

90

100

110

120

130

9/17

/199

8

10/1/199

8

10/15/199

8

10/29/199

8

11/12/199

8

11/26/199

8

12/10/199

8

12/24/199

8

1/7/199

9

1/21

/199

9

2/4/199

9

2/18

/199

9

3/4/199

9

3/18

/199

9

4/1/199

9

4/15

/199

9

4/29

/199

9

5/13

/199

9

5/27

/199

9

6/10

/199

9

6/24

/199

9

7/8/199

9

7/22

/199

9

8/5/199

9

8/19

/199

9

9/2/199

9

9/16

/199

9

9/30

/199

9

10/14/199

9

10/28/199

9

11/11/199

9

11/25/199

9

12/9/199

9

12/23/199

9

1/6/200

0

1/20

/200

0

2/3/200

0

2/17

/200

0

3/2/200

0

3/16

/200

0

3/30

/200

0

Pric

e p

er s

hare


Searching for the Root Cause

• “We fundamentally had a growth problem.

Our current brands were performing well.

But we weren’t developing many new

brands.” – C. Wynett

• To get new brands, P&G needed to open up.

• Connect and Develop

– SpinBrush, Swiffer, Regenerist

| 15| 15

A.G. Lafley

President and CEO

P&G

“We will acquire 50% of our

innovations from outside P&G”

Jeff Weedman

28 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. Sakkad

SVP, R&D, Global Fabric & Home Care

“There’s 1.5 Million people in the world who

know about my business. I want them on my

team”

Example: Proctor & Gamble

| 16| 16

P&G Share Price Restored!


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 open

innovation partner of choice


Balancing Internal and External

R&D Funding: P&G100

1000

0 % from internal

% from

External

Westinghouse

Raytheon

TI

Nokia

Hitachi

P&G 2002

Source: Gassmann, v. Zedtwicz (2002)


Balancing Internal and External

R&D Funding: P&G100

1000

0 % from internal

% from

External

Westinghouse

Raytheon

TI

Nokia

Hitachi

P&G

2002

2007

Source: Gassmann, v. Zedtwicz (2002)

Open Innovation examples in Latin and South America

Biocancer (Br) Provides drug development and clinical trial services to

international pharmaceutical companies, mostly from the USA

TVEI (Br) A company founded by local media industry experts, offers

multi-platform sport-related interactive content to consumers and

advertising services to businesses.

Movix (Ch) Technologies for mobile operators developed by former

employee of a large telco, the main product was licensed exclusively to

a(nother) telco

Akikb (Ch) Self-storage solution, not available in Chile at the time,

based on a widespread model from the USA and leveraging the

infrastructure of an established “sister” construction company

Alltournative (Mx) Ecotourism and recreational experiences with the

support and collaboration of local Mayan communities

Interfactura (Mx) Billing software and services initially developed for

a large firm and integrated to its network of suppliers

Source: Dr. Jaime Garcia Alba, IADB

Case Studies’ Innovation Sources

Biocancer TVEI Movix Akikb Alltournativ

e

Interfactura

Innovation Process Service Product ServiceProduct/Proce

ssProcess

Networking

Patterns

Global Value

ChainIntra-industry Intra-industry Transplant

Global Value

chain

Company

Value Chain

FinancingPersonal,

Customerself

Internal

company

Sister

Companyself

Internal

company

Intellectual Assets Not Important Important Not Important Not Important Not Important Not important


Case Studies Key Success Factors (KSFs)

Initial Customers: Most start with very few clients, typically large

firms

Prior Experience: A number of entrepreneurs have an international

background (prior US experience)

Business Focus: Most offer services rather than products

Source of Capital: Personal/Family sources initially, followed only

later by bank and PE/VC

IP Protection: Not a KSF. Limited use of intellectual property

protection mechanisms



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


Advantages of Small Companies

• Size: markets that are too small for large firms can be attractive

• Focus: greater ability to execute for a specific segment or set of customer needs

• Specialization: ability to develop deep knowledge of a specific domain

• Entrepreneurial: external focus on results, much less internal “politics”

• Speed: faster decisions, faster execution, faster results


Open Innovation Benefits for SMEs

• Large firms increasingly value collaborative partnerships

• Large firms create platforms that seek supporting investments from SMEs

• Users (customers) initiate more innovative activity, a big opportunity for SMEs

• SMEs can expand geographically now at lower cost, “hidden champions”

• Greater rewards to specialization in Open Innovation


Current

Market and

Business

Model

Research Development

Job #1: Strengthening the Current Business

Internal

Research

projects

Venture

investing

Product/ Technology

acquisition

Technology

In-licensingExternal research

project


Current

Market and

Business Model

for your firm

Research Development

Job #2: Finding and Growing the New Business

Research

projects

Venture

investingExternal research

project

Other firm’s

Market and

Business

Model

New

Market and

Business Model

for your firm

License & JV

Venture &

Acquisition

Issues for Open Innovation

• Where will the basic science come from?

• Will stronger Intellectual Property help or hurt

the greater inflow and outflow of ideas?

• Will companies accept external ideas as

willingly as internal ideas?

• Will companies allow internal ideas to flow

outside to other businesses?

• How can companies manage Open Innovation?

© 2007 Henry Chesbroug 28

Issues for Open Innovation in

Brazil

• Can Universities and Research Institutes rise

to the challenge of working more effectively

with industry?

• Can SMEs obtain the necessary financial and

human capital to innovate and grow?

• Are Intellectual Property laws and

enforcement sufficient for Open Innovation?

• Will large companies collaborate, or exploit?


| 30

Sustaining Innovation Capabilities:What You Innovate and How You Innovate

Focus of

Traditional

Product

Development

Systems

“Closed” “Open”

Product

and Service

Innovation

Business

Model

Innovation

Challenge: New

Ways to Create and

Capture Value

Challenge:

Ecosystem Design,

Growth and

Sustenance

Challenge:

Becoming an

Innovation Partner

of Choice

Changin

g the

What

Changing

the How

Wh

at

Yo

u In

no

va

te

How You Innovate

| 31

Graphic Illustration of a Generic Airline Business Model

Air Travel

Airport Aircraft, Fuel

Runway Check-in Jetway

Cleaning

Food

Passengers Revenue

Costs


Ryan Air

• Ryan Air is a regional low-fare airline operating in

the United Kingdom and northern Europe.

• Only flies into regional airports, no landing fees.

• Guarantees airport certain # passengers in their terminal

• Airport pays Ryan Air to operate out of its airport

• Airport provides Ryan Air a percentage of the revenues

from shops, restaurants, car hire and hotels at airport.

| 33

The Ryan Air Business Model

Air Travel

Airport

Check-inJetway

ParkingShopping

& Food

Car HireHotels Aircraft, Fuel

Cleaning

Food

Passengers

Revenue

X XX

X X

Cost


Business Model Maturity Stages

6 stages

1. Undifferentiated business model

2. Differentiated business model

3. Segmented business model

4. Externally aware business model

5. Integrated business model

6. Platform leadership business model


Adopting Darwin’s Perspective

• “It is not the strongest of the species that

survives, nor the most intelligent that

survives. It is the one that is the most

adaptable to change.”

• By analogy, it is not the strongest or best

informed business model that prevails.


The Business Model Innovation

Gap

• Who is responsible (budget and authority) for

business model innovation at your company?

• What processes are in place to experiment with

alternative business model possibilities?

• How do resources for business model innovation

compare to resources for technical innovation?


What is Innovation?

Before

• Invention

• Product

• Technology-driven

• Internally generated

• Engineering’s job


What is Innovation?

Before

• Invention

• Product

• Technology-driven

• Internally generated

• Engineering’s job

After

• Commercialization

• Business, including

process and biz model

• Business/value-driven

• Internal Integration of

int. and ext. stuff

• Everyone’s job
