Open Innovation: The First Decade
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This document provides an overview of open innovation including: - Defining open innovation as using external and internal knowledge to accelerate innovation and expand markets. - Describing three modes of open innovation: inbound, outbound, and coupled. - Noting that while open innovation overlaps with other areas, it emphasizes the role of business models in connecting technical and economic domains. - Summarizing recent research on open innovation which is linking it to established theory, improving measurement, and better understanding performance.
Open Innovation: The First Decade
- 1. Open Innovation: The First Decade Joel West KGI - The Keck Graduate Institute Claremont, California UCSD, Rady School of Management January 27, 2015
- 2. Plan • What is open innovation? • Three modes of open innovation - Inbound - Outbound - Coupled • What’s next?
- 3. • 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?
- 6. Open innovation: a common practice • Qualcomm - Outlicensing patents - Selling components to handset makers - Acquiring Snaptrack, Flarion, Atheros • Amgen - Licensed EPO to J&J (Procrit) - Today in-licenses oncology drugs • IBM - Selling components to others - Collaboration with Apache, Eclipse, Linux open source communities
- 7. Invention vs. Innovation “Inventions … do not necessarily lead to technical innovations. In fact the majority do not. An innovation in the economic sense is accomplished only with the first commercial transaction.” —Freeman (1982: 7)
- 8. Latent value of an innovation “The inherent value of a technology remains latent until it is commercialized in some way. “A business model unlocks that latent value, mediating between technical and economic domains.” – Chesbrough & Rosenbloom (2002)
- 9. Bringing innovation to market • Creation - Technical invention - Basic research, applied research, product development • Commercialization - Production, marketing, sales, distribution - Requires different complementary assets (Teece 1986)
- 10. Vertical Integration Research of Alfred D Chandler (1918-2007) • Studied large US firms 1840-1940 • Firms vertically integrate to supply own inputs and control their outputs - R&D is an essential part of integration - Technology industries require large R&D labs - Markets don’t exists to buy/sell innovation • Integration widely adopted in practice - Pattern of large 20th C US and MNC firms
- 11. ResearchResearch InvestigationsInvestigations DevelopmentDevelopment New ProductsNew Products & Services& Services The Market Science & Technology Base Source: Chesbrough (2006) Vertically Integrated R&D
- 12. Open Innovation • Chesbrough (2003, 2006, 2007) • Key points: - Find alternate sources of innovation Either markets or spillovers - Find alternate markets for innovation - Central role of the business model • Cognitive managerial paradigm • Overlaps with other work such as user innovation
- 13. What is “open innovation”? “Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.” Henry Chesbrough, O pe n Inno vatio n: Re se arching a Ne w Paradig m (2006)
- 14. Source: Chesbrough (2006) Current Market Internal Technology Base Technology Insourcing New Market Technology Spin-offs External Technology Base Other Firm’s Market Licensing “Open” innovation strategies R&D under Open Innovation
- 15. What’s new? • Many antecedent/overlapping areas - Technology sourcing, IP markets, university licensing, alliances, supplier innovation, user innovation • New ideas include - Role of the business model - Agnostic to internal/external paths - Rise of innovation intermediaries Cf. Chesbrough (2006)
- 16. Open vs. user innovation Open Innovation UserInnovation Focal actor Firm User Knowledge transfer IP Needs IP regime Patents Free revealing Innovation production Hierarchy Community, individual Motivations Monetary Social, personal utility Frank Piller & Joel West, Ch. 4 of O pe n Inno vatio n: Ne w Fro ntie rs & Applicatio ns
- 17. Three open innovation processes 1. Inbound (or “outside-in”) - External technology commercialized by the focal firm 1. Outbound (or “inside-out”) - A firm’s technology commercialized by others 1. Coupled combines these two - Various forms of collaboration Cf. Chesbrough (2003, 2006), Gassmann & Enkel (2004), Enkel et al (2009), West & Gallagher (2006)
- 19. Why Look Outside for Innovation? “Not all the smart people in the world can work in one place.” Bill Joy co-founder Sun Microsystems
- 20. Recent comprehensive review • Goal: Synthesize inbound (& coupled) • Sample from top management & innovation journals • Either mention “open innovation” or cite Chesbrough (2003) • Hand selected 291 down to 165 • 161 articles, 3 books, 1 chapter Joel West & Marcel Bogers, Jo urnalo f Pro duct Inno vatio n Manag e m e nt, July 2014
- 21. Breakdown of 165 OI pubs Inbound: 118 Outbound: 50 Coupled: 70 57 14 11 24 26 1 32
- 22. 4-stage process model Innovation Source† Customers CommercializingObtaining Integrating Interaction Focal Firm R&D Other Functions † Sources may include suppliers, rivals, complementors and customers.
- 23. 1. Obtaining Innovations • Best covered of the phases - Searching, enabling, filtering - Sourcing particularly well covered • Most popular area: sources of innovation - Many crowdsourcing studies - Also user-generated content
- 24. 2. Integrating Innovations • Considers org capabilities and culture - Limited examination beyond “Not Invented Here” - Clear challenges of processes, incentives • Integration seems to be a black box - How are these innovations integrated to the firm? - What skills are needed to do this well?
- 25. 3. Commercializing Innovations • Lots of value creation - Increased product releases, revenues - What is net? Do costs go up? • Assumes external innovations commercialized same as internal ones - How do firms differ in external innovation commercialization capabilities?
- 26. 4. Reverse Paths Beyond the linear model, this includes • Feedback mechanisms - Information flow upstream • Reciprocal measures - Ongoing interactions - Includes co-creation, communities
- 28. What is outbound OI? • Firms should find best/highest use of their IP - Not all IP aligns to the firm’s business model • Avoids Type II (false negative) error • Can include licensing to rivals, spinoffs - In parallel or instead of internal use Inspired by Chesbrough study of Xerox PARC spinoffs (Chesbrough & Rosenbloom, 2002)
- 29. Various IP licensing models • Dolby Labs: $700m/yr, 88% margins • Genentech: Humulin, Interferon • IBM: licensing IP portfolio • Dupont: licensing core technologies • Game mods, e.g. Half-Life • Xerox: creating spinoffs
- 30. Key challenges of outbound OI • Identifying underused IP • Simultaneous internal/external commercialization • Functioning IP markets • Dilemma over appropriability - Fear of sharing if weak IP - Strong IP can delay other’s innovation Chesbrough (2003, 2006b), Fabrizio (2006), Enkel et al (2009), Dahlander & Gann (2010)
- 32. Coupled open innovation • “Coupled” is different from inbound and outbound • Two modes of coupled interaction - Bi-directional (Gassmann & Enkel, 2004) Combines inbound & outbound Applies to firm-to-firm R&D collaborations - Interactive collaboration (Piller & West, 2014) Joint production outside the firm Different from either inbound or outbound
- 33. Coupled open innovation Focal Firm Organization Focal Firm Organization or Individual Co- Creation Bidirectional Coupled Interactive Coupled Source: Piller & West (2014), p. 39
- 34. Coupled open innovation Examples of coupled open innovation: •Open source (West & Gallagher, 2006) •Communities (West & Sims, 2013) •R&D consortia (Muller-Seitz & Sydow, 2013)̈ Best practice seems very particularistic to the setting
- 35. What’s Next?
- 36. Recent trends in OI research • Linking to established theory • Greater precision of constructs • Better measurement • Better understanding of performance • Different levels of analysis • Role of appropriability • Nonprofit actors and motivations See Vanhaverbeke et al (2014), West et al (2014) also http://bit.ly/1v2Gf7
- 37. 2014: new OI publications • Re se arch Po licy special issue (June 2014) - Chesbrough, Salter, Vanhaverbeke & West, guest editors - 10 articles - See http://bit.ly/openinno2013 • O pe n Inno vatio n: Ne w Fro ntie rs & Applicatio ns (Oxford) - Chesbrough, Vanhaverbeke & West, eds. - 15 chapters - See http://bit.ly/NFOI2014
Editor's Notes
- #2: Thank you
- #7: Google Amgen license cancer therapy: Kite Pharma (Jan 2015), BioVex (Jan 2011), Immunomedics (2000)
- #12: Also, the other counterpoint is the vertically integrated model, where in order to do anything, you have to do everything.
- #15: The open innovation model emphasizes flexibility in a firm’s innovation strategy: The best source of innovation may be outside the firm (arrows going in) The best market for an innovation may be outside the firm (arrows going out) The importance of flexibility. Span firm boundaries. Can bring in technology at any point in the product development process. Major goal: if firm is fighting false positives (extra cautious), you will get lots of false negatives (Chesbrough 2006). Make sure you find a way to monetize or otherwise find a path to market for these false negatives.
- #18: A lot of people when they think about open innovation they only think about the inbound mode; most of the research is about inbound
- #21: 15 highly cited, with 100+ Google Scholar cites. 3 books and 1 chapter by Chesbrough
- #23: 4-phase model
- #24: 1. Searching (where): Sourcing, Brokerage , Limits, University research, User innovation 2. Enabling process/mechanisms (how): Contests, Intermediaries , Toolkits, PlatformsCrowdsourcing 3. Filtering (which): Gatekeepers , Technology scouts, Technology brokering 4. Acquiring: Incentives to share, Contracting, Nature of the innovation
- #25: Absorptive capacity: 80/280 articles
- #31: Chesbrough and Rivette & Klein’s Rembrandts in the Attic, IP licensing is going up; Issue of what, why and how: descriptive, causal and normative. At least 6 OI-related papers on technology sourcing have been retracted: SMJ, Org Science, Research Policy, Strategic Organization, Industrial and Corporate Change. Google Open Innovation retraction to read all about it.
- #38: Late 2013, more likely in 2014