The Changing Faces of Open Innovation
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(1) Open innovation has become more important over time due to globalization and dispersion of knowledge sources, but new challenges have emerged that are changing the open innovation model. (2) Concerns around technology transfer to China and the bifurcation of the global economic system are driving a transition in open innovation, with new rules and agreements between countries and "clubs" likely to emerge. (3) The open innovation model may split into separate systems for liberal democracies and autocracies, each with different rules, as countries prioritize technological value capture over just value creation.
The Changing Faces of Open Innovation
- 1. The Changing Faces of Open Innovation Professor David J. Teece Thomas W. Tusher Professor in Global Business Haas School of Business, University of California, Berkeley Open Innovation Seminar (OIS) November 16, 2020 1
- 2. Open Innovation (OI) “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 et al, 2 Henry Chesbrough
- 3. 3 An early view of the open innovation imperative provided a contingent framework* that recognized: i. Diversity in the sources of know- how, differences in appropriability regimes and ii. Transactions and transfer costs *See G. Pisano & D.Teece, “Collaboration Arrangements & Global Technology Strategy”, in R. Rosenbloom & R. Burgelman, Research on technology Innovation, Management Policy & JAI Press, vol 4, 1989).
- 4. Why the enhanced imperative for OI? • Post 1960 global dispersion in the sources of knowledge • Greater global competition… need for greater speed in new product development • Digital Convergence… which is requiring greater connectedness and platform engagement • Stronger IP rights in the 1980’s strengthened the market for know-how • Decline in in-house R&D spending because of shareholder activism and short-term focus (traders and raiders play too big a role in US Capital markets) 4
- 5. a) Timely access to domain and technology expertise is critical to firm level competitiveness b) Active engagement by practically all firms in sensing/outsourcing of technology is now required c) Scouting/sensing tools need to be developed d) Seizing/orchestration/integrating skills are now paramount 5 So fundamental were these developments that open innovation has become qualitatively and quantitatively different from pre-1980’s Open innovation… requires new management approaches & deep (systems) capabilities in technology “integration”
- 6. Open innovation is a handmaiden of dynamic capabilities …and dynamic capabilities is also a handmaiden of open innovation! 6 Dynamic Capabilities Sensing Seizing Transforming Open Innovation PFI/Open Innovation
- 7. Who Profits from Open Innovation? • Adner’s “Wider Lens”* is most insightful and outlines the importance of “lining up all the ducks” to achieve commercial success • Understanding Adner’s “Wider Lens” requires OI, PFI, and Dynamic Capabilities. 7 Ron Adner, Dartmouth Ron Adner, “Wider Lens”, Penguin Books, (2012).
- 8. The PFI/open innovation (Teece) proposition: The major prize might also go to the party that puts down the first piece. It depends on whether or not the “piece” is the bottleneck. The scarcity of the underlying resource has much to do with the answer (e.g. is it is protected by intellectual property?) 8 *Adner interview in Brian Leavy’s, “Ron Adner: managing the interdependencies and risks of an innovation ecosystem”, Strategy and Leadership, (2012). Adner proposition: “The major prize was destined to go, not to the party that puts down the first piece of the puzzle, but the one that puts down the final piece.”* Contrasting perspectives?
- 9. Sensing and Seizing are critical activities for successful OI • For those companies that embrace open innovation either partially or fully, the greatest challenge is being able to identify what is available in the market for sale or licensing and then evaluating it in terms of its fit to their product strategy. • Where it is needed, intermediaries are becoming established to join the two together and provide a set of services around channeling innovations towards companies whose business structure is based on open innovation. Markets are rapidly changing. • It can be a long process from ideas to profit and doing all of the innovation in-house is limiting. 9 The overriding aim will be to get a progressively better return from R&D/technology spend. It will not matter whether the approach taken is closed, open or some combination of both
- 10. The perversion of Open Innovation? Does China systematically pry technology from foreign companies? “The combination of naiveté and hubris on the part of U.S. companies seeking to enter the Chinese market, coupled with a sophisticated Chinese effort to extract technology has been a lethal combination.” Peter Navarro Wall Street Journal September 26, 2018 10 These concerns are propelling “decoupling” and the bifurcation of global systems…such developments hinder open innovation
- 11. • China has allegedly engaged in a technology coercion by: • Denying open access to the home market (contingent on technology transfer by prospective entrants from abroad) • Using the regulatory process as a subterfuge to access technology from foreign firms. (e.g., antitrust investigations and documents raids designed to scoop up and disseminate trade secrets) • Making unwillingness to license IP to Chinese competitors an antitrust violation. • Discriminating application of IP law in China (against foreign firms) • The US and some other nation states are beginning to decouple and question certain elements of certain versions of the open innovation framework. 11
- 12. •The open innovation model is once again in major transition. •The bifurcation of the global economic system is the major factor driving change. 12 The Open Innovation Predicament Today (2020)
- 13. “Since the origins of technical and social innovations have never been confined to the borders of any one nation, the economic growth of all countries depends to some degree on the successful application of a transnational stock of knowledge” (Teece, 1977, paraphrasing Kuznets, 1966) 13 Simon Kuznets understood the importance of knowledge transfer to all nations
- 14. Knowledge flows (tech transfer) have been at the core of globalization… but have hitherto been underemphasized in global economic relations • Technology flows, not goods and financial flows, are at the strategic core of international commerce and enterprise competitiveness. • Global (open) innovation “supply” chains permeate innovation ecosystems. • Yet most discussions of international commerce and international business wrongly prioritize physical and financial flows 14
- 15. Global economic governance has failed because: • Existing international rules focus on physical and financial flows when knowledge and intangibles are key. • Chinese companies doesn’t accept existing free and fair trade rules that govern the open global system. Some commentators believe that the CCP turns companies in strategic sectors into economic predators. Prediction: The post 2020 semi-global (perhaps bifurcated) economic order will prioritize technological value capture over value creation 15
- 16. OBSERVATIONS: (1) New bilateral and multilateral agreements are needed to reduce tensions and create new innovation alliances amongst the liberal democracies. (2) Future sovereign to sovereign “trade and investment” agreements are likely to govern/regulate, and promote R&D activities and knowledge exchanges involving corporations, governments, and universities. (3) New regulations/governance arrangements will shape the nature and practice of open innovation. 16
- 17. Corporations will need to pick their technology “clubs” • Each “club” will have agreed upon “open” innovation rules • There are scores of existing “clubs” e.g., NATO, OECD, EU, NAFTA that will be setting their own rules for “open” innovation • These “clubs” will become increasingly strategic over time • Different “clubs” are likely for different missions e.g., Global Warming 6G AI Pandemics/epidemiology Data Security • Higher education will not be as open as it has been in the past • Basic science will still remain quite open 17
- 18. Conclusions • The open innovation model will bifurcate into at least two communities • Liberal democracies • Autocracies • Other? • It is not just military technology that is at issue; “dual use” as well as economic development considerations will lead to mission-specific “clubs” with different rules. • Future rules of openness will be heavily regulated and shaped by geopolitical considerations. 18 Mission 1 Mission 2 Mission 3 Mission 4 Mission 5 Mission 6 Mission 7 Mission 8 Mission 9 Mission 10 Liberal Democracies Autocracies
- 19. Conclusions cont. • The open innovation model we once knew depended on the US-led “rule of law” reciprocal system which is now collapsing. • Open innovation isn’t dead; it is going through a metamorphosis. • We have an opportunity to shape what emerges. 19