42629 lecture 2 pt1

Welcome to 42629

Open vs Closed InnovationThomas J. [email protected]

Unless otherwise stated, this material is under a Creative Commons 3.0 Attribution–Share-Alike licence and can be freely modified, used and redistributed but only under the same licence and if including the following statement:

“Original material by Thomas J. Howard for course 42629 – Innovation and Product Development Department of Mechanical Engineering, The Technical University of Denmark”

mailto:[email protected]

2012Original material by Thomas J. Howard for course 42629 – Innovation and Product Development Department of Mechanical Engineering, The Technical University of Denmark

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Agenda

08:30 – Open vs Closed Innovation

09:00 – Break and discussion

09:15 – Crowd Sourcing09:45 – Exercise


10:15 – Product/Service-Systems (PSS)10:45 – Exercise


11:15 – Open Design11:45 – Exercise

Why

the

se top

ics?


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What is Open Innovation ?


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Open Design:The Oxford English Dictionary

“Box of quotation slips” by Owen McKnight, CC BY-SA 2.0

http://www.manhattanrarebooks-literature.com/oed.htm

The Oxford English Dictionary – 1st Edition

http://www.flickr.com/photos/addedentry/

http://creativecommons.org/licenses/by-sa/2.0/

2012© 2007 Henry Chesbrough5

Open Innovation

“A paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external

paths to market, as the firms look to advance their technology”

(Chesbrough H. W., 2003).


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The Power of Open Innovation

Concrete Issues (Issue 1/11) - http://www.concreteissues.com/cartoons


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Why Opening Up is Difficult


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Game Theory: The Prisoner’s Dilemma• Two robbers enter a house


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Game Theory: The Prisoner’s Dilemma• Two robbers enter a house• Police catch them• Due to a lack of evidence they can only be charged with

trespassing (skudt og dræbt)


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Game Theory: The Prisoner’s Dilemma• Two robbers enter a house• Police catch them• Due to a lack of evidence they can only be charged

with trespassing (skudt og dræbt)

They are then given the offer that:• If both remain silent they get 1yr each• If both confess they get 5 yrs each• But if one confesses and the other doesn’t,

the confessor gets 0 years and the other gets 20 years

What should the prisoner A do?


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Game Theory: The Prisoner’s Dilemma• Two robbers enter a house• Police catch them• Due to a lack of evidence they can only be charged

with trespassing (skudt og dræbt)

They are then given the offer that:• If both remain silent they get 1yr each• If both confess they get 5 yrs each• But if one confesses and the other doesn’t

the confessor gets 0 years and the other gets 20 years

What should the prisoner A do?

-5, -5

0, -20

-20, 0

-1, -1


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Opening up is difficult

Conservative industries consider Knowledge as power to be held tightly

Most stakeholders are slaves to the prisoners’ dilemma and therefore reach suboptimal solutions

-5, -5

0, -20

-20, 0

-1, -1


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Activities of Open Innovation

Exploitation:• Venturing: Starting up new organisations drawing on

internal knowledge, and possibly also with finance, human capital and other support services from your enterprise.

• Outward IP licensing: Selling or offering licenses or royalty agreements to other organizations to better profit from your intellectual property, such as patents, copyrights or trade marks.

• Employee involvement: Leveraging the knowledge and initiatives of employees who are not involved in R&D, for example by taking up suggestions, exempting them to implement ideas, or creating autonomous teams to realize innovations.

VAN DE VRANDE, V., DE JONG, J.P.J., VANHAVERBEKE, W. and DE ROCHEMONT, M., 2009. Open innovation in SMEs: Trends, motives and management challenges. Technovation, 29(6-7), pp. 423-437.


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Indicators of Openness

Exploration:• Customer involvement: Directly involving customers in

your innovation processes, for example by active market research to check their needs, or by developing products based on customers’ specifications or modifications of products similar like yours.

• External networking: Drawing on or collaborating with external network partners to support innovation processes, for example for external knowledge or human capital.

• External participation: Equity investments in new or established enterprises in order to gain access to their knowledge or to obtain others synergies.



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Indicators of Openness

Exploration:• Outsourcing R&D: Buying R&D services from other

organizations, such as universities, public research organizations, commercial engineers or suppliers.

• Inward IP licensing: Buying or using intellectual property, such as patents, copyrights or trade marks, of other organizations to benefit from external knowledge.



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Open vs. closed innovationClosed Innovation – the lab is our world Open Innovation – the world is our lab

Hire the best and the smartest Recognize that lots of smart people work elsewhere, so find ways to interface with them

Put them in special conditions Open your networks to diverse talents

Innovators are free from market pressures to innovate from within

Innovators are exposed to real world needs, pressures and information exchange to innovate by engagement

Very pushy - move technology pipeline from ideas to products

Push and Pull - non-linear process of ideation advances products and services

Delivered to passive customers Delivered to engaged customers


The Current Paradigm: A Closed Innovation System

Research

Investigations

Development New Products

& Services

The

Market

Science

&

Technology

Base

R D&E


Great Successes from the Closed Innovation Model

• The Chemicals Industry – Germany and later US

• Edison, GE, and the rise of electrification

• Rockefeller and Standard Oil

• World War II scientific achievements

• Chandler: Internal R&D key to the rise of the modern US corporation in 20th century


Rising Costs of R&D

Then (25 years ago)

• <$ 50 million for a new drug

• < $ 10 million for a new consumer product

Now

• > $ 800 million for a new drug

• > $50 million for a new consumer product


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.


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


The Division of Innovation Labor

• Open Innovation separates innovation into multiple stages–From a marathon to a relay race

• Lab and Test Equipment are Fundamental to this division of labour–Customer’s ability to verify that spec–Supplier’s confidence that good product was

delivered–Enables the innovation baton to be passed

efficiently and effectively

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


IBM’s Closed Value Chain

Val

ue-A

dded

Act

ivit

ies

Materials

Chips, devices

Computers

Operating Systems

Applications

Productivity SW

Atoms

Solutions

Value Chain

All IBM – pre 1993


IBM’s Open Business Model

Val

ue-A

dded

Act

ivit

ies

Materials

Chips, devices

Computers

Operating Systems

Applications

Productivity SW

IBM Chain OEM Market

Materials

Chips, devices

Computers

Operating Systems

Applications

Productivity SW

Integration

Atoms

Solutions Other Integrators


IBM’s Open Source Business Model• Spends about $100M each year on Linux

–50% for general improvement–50% for specific improvements for IBM gear

• Others spend another $800M a year • IBM creates value through Linux

–Also donates development tools, patents• IBM captures value through value-added services and software “up the stack”


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


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 strategy lead to:

–Crest SpinBrush–Swiffer dusters–Olay Regenerist


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&G

100

100

0

0 % from internal

% from

External

Westinghouse

Raytheon

TI

Nokia

Hitachi

P&G 2002


Balancing Internal and External R&D Funding: P&G

100

100

0

0 % from internal

% from

External

Westinghouse

Raytheon

TI

Nokia

Hitachi

P&G

2002

2007


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http://www.benmillen.com/portfolio/projects/iphoneDeconstruction/map2.html

Apple iPhone Collaborator Network


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http://www.benmillen.com/portfolio/projects/iphoneDeconstruction/map2.html

Apple iPhone Collaborator Network


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Benefits of Open Innovation?• Multiple sources of ideas, parallel discovery• Faster exchange of ideas through innovation actor

networks and shared development• Lower costs• Skilled labour is more mobile and independent• Ability to outsource is growing with more distributed

workforce• More agile, better able to deal with uncertainty of markets

and technology, more adaptive, more efficient• End of knowledge monopolies (conventional IP models) as

predominant economic leverage


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Questions

?

42629 lecture 2 pt1

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