2. Road Map
• Today’s question
• The value of innovation
• What is open innovation?
• Different types of open innovation
• Examples of how firms leverage open
innovation
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3. About Me
Two careers (so far):
•Software engineer and entrepreneur
– Columnist, MacWEEK, Byte, MacTutor
– President, Palomar Software (1987-2002)
•Innovation professor and researcher
– San José State University
– Keck Graduate Institute, Claremont Colleges
– Two books, 30 articles on innovation strategy
•Research focus: openness strategies by firms
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6. What is “innovation”?
Something that is
•new or novel,
•valuable or useful,
•that is adopted by others
…as chronciled by Everett Rogers
Today I’ll focus on innovations that
improve firm success
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7. Original puzzle: Xerox PARC
• PARC invented all these cool technologies
– LANs
– Laser printers
– Graphical workstations
• It was unable to commercialize them
• Why?
– It didn’t fit the copier business model
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9. Role of the business model
“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)
10. Origins of open innovation
• Term coined by Chesbrough (2003)
• Based on actions of IBM, Intel, P&G etc.
• Cognitive paradigm
– Combines traditional, open approaches
• Explosion of industry, academic interest
11. Initial Insights
• Firms have technology they can’t
commercialize
– Risk of false negative (Type II error)
– Others might see value even if we don’t
• Firms need technology beyond what they
can develop internally
– Other sources of ideas
– Other ways to solve a problem
12. 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, 2006
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13. What is “openness”?
Openness is changing a firm’s mindset:
•Porous firm boundaries
•Outward orientation
•Markets rather than firm control
•Cooperation not just competition
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14. Innovation flows
How does the knowledge flow?
•Inbound: from outside to firm
•Outbound: from firm to outside
•Coupled: bidirectional flows
– Collaboration with specific organization
– Collaborations with network of organizations
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17. “Not all the smart people in the
world can work in one place.”
Bill Joy
co-founder
Sun Microsystems
Why should firms be open?
18. Model of inbound OI
Innovation
Source†
Customers
CommercializingObtaining Integrating
Interaction
Focal Firm
R&D
Other
Functions
† Sources may include suppliers, rivals, complementors and
customers.
Source: West & Bogers, Journal of Product Innovation, 2014
22. Role of the business model
• Firms best able to commercialize
technology aligned to business model
• A successful business model allows firms
to create and capture value
– Can be cognitive trap: excludes other paths
– Example: Xerox good at copiers, bad at PCs
• Firms should outlicense or spin-off rather
than leave technology on the shelf
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23. Outbound challenges
• Arrow “information paradox”
– Buyers want to evaluate a technology
– Disclosure obviates need to acquire IP
– Works only with effective IPR
• Availability of markets to match buyers
and sellers
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24. Example: Dolby Labs
• Founded in 1965 by Ray Dolby
• Originally: tape noise reduction
• Standard:
• Today: Cinema 7+1 channel sound
• $1b/year, 90+% gross margin
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25. Collaborative openness
• Often openness is collaborative
– Combines inbound & outbound flows
– Quid pro quo
– Pooling knowledge
– Jointly (co-creating) creating
• Different degrees of openness
– Truly open (e.g. open source)
– Club (walled garden)
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27. 1. Standards Consortia
Internet Engineering Task Force
•First meeting in 1986
•Individuals sponsored by firms
•Proposes, votes on new protocols
•Defined essential Internet protocols
– SMTP, http, https, IP V6
•Made Internet possible
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28. 2. R&D Consortia
• More than 200 pharma industry consortia
• Example: Extractables and Leachables
Safety Information Exchange (ELSIE)
– Founded 2007
– Maintains data on drug/packaging
interaction
– Data only available to members
– 13/30 top pharma companies are members
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29. 3. Open Source Software
What is OSS?
1.A standard form of open IP license
– Sets terms for perpetual sharing
1.Cooperative development process
– Specific tools for virtual collaboration
1.Form of shared governance
– Independent or firm-dominated
1.A pool of shared technology
2.A culture and set of norms
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30. Open Source Software
• Risks: info leakage, license restrictions
• Many benefits of coopetition
– Pooling R&D costs
– Development of shared infrastructure
– Standardization in multi-vendor env’ts
• How do you make money?
– Tacit knowledge/transient advantage
– Commodity technology+proprietary add-ons
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31. 4. Crowdsourcing
• Putting out a problem to large group
– Usually an “open call” to any and all
– Generally people you don’t know already
– Self-selected participants who compete
• Leverage the “wisdom of the crowd”
– Benefit from heterogeneous knowledge
• Typically compete for prize
• Example: innovation contests
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32. Crowdsourcing Intermediaries
• Consultants run innovation contests
• Paid by “seekers”: firms with a problem
– Help firms define a problem
– Manage disclosure, IP issues
• Attract a large pool of “solvers”
– Value added: matching 2-sided market
• Examples: InnoCentive, NineSigma,
Yet2.com
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33. Problem: Alaskan Oil Spills
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11/4/16, 12:39 AMIf You Have a Problem, Use Innocentive to Ask Everyone - The New York Times
SCIENCE
If You Have a Problem, Ask Everyone
By CORNELIA DEAN JULY 22, 2008
John Davis, a chemist in Bloomington, Ill., knows about concrete. For example, he
knows that if you keep concrete vibrating it won’t set up before you can use it. It
will still pour like a liquid.
Now he has applied that knowledge to a seemingly unrelated problem
thousands of miles away. He figured out that devices that keep concrete vibrating
can be adapted to keep oil in Alaskan storage tanks from freezing. The Oil Spill
Recovery Institute of Cordova, Alaska, paid him $20,000 for his idea.
The chemist and the institute came together through InnoCentive, a company
that links organizations (seekers) with problems (challenges) to people all over the
world (solvers) who win cash prizes for resolving them. The company gets a
posting fee and, if the problem is solved, a “finders fee” equal to about 40 percent
of the prize.
The process, according to John Seely Brown, a theorist of information
34. 5. Internal Crowdsourcing
• Goal: seek contributions from internal
crowd
• Combines elements of crowdsourcing,
suggestion boxes, internal venturing
• Challenges
– Limits of internal knowledge pool
– Fair evaluation process
– Desire for internal anonymity
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36. Conclusions
• Open innovation changes the role of the
firm
– Less about control
– More about orchestrating cooperation
• Supplements existing strategies
• Most firms begin with experiments
– How can OI address unsolved problems?
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Idea of the permeable organization suggested by Chesbrough — and my prior interest in open source software and open standards — has sparked my interest in how firms use openness as a business strategy
4-phase model
Facebook’s margin is 84%, Google / Alphabet 61%. Netscout 65% in March 31 2016
The Oil Spill Recovery Institute – based in Alaska – had a problem: when oil spilled in alaska, it would freeze, making it hard to skim off the surface of the ocean
. It turns out a technique for keep concrete from setting — from a chemist — would help oil recovery barges keep the oil liquid so that it could be extracted