Part 2 -Excerpt from Innovation: Bringing Good Ideas To Market

by Henry Chesbrough

What is open innovation? How should we be taking advantage of it? Read more in this excerpt from the book, Innovation, Bringing Good Ideas to Market.

Open Innovation: The New Imperative for
Creating and Profiting from Technology

Foreward, John Seely Brown
April 25, 2003; hardcover; $35.00; ISBN: 1578518377

  • About the Book
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Q: What is Open Innovation, briefly?

Open Innovation means that valuable ideas can come from inside or outside the company and can go to market from inside or outside the company as well. This approach places external ideas and external paths to market on the same level of importance as that reserved for internal ideas and paths to market in the earlier era. Put differently, Open Innovation means that no one can afford the Not-Invented-Here syndrome.

Q: How did you come to identify it as a new form, or method of thinking?

I conducted an extensive three year study of industrial research at the Xerox Corporation. I wasn’t satisfied with what was written about how Xerox had mismanaged its Palo Alto Research Center (PARC). I came to learn that Xerox managed PARC according to the best research practices of the day. Where the error arose was from the mindset and logic behind those practices. Xerox managed as though it had a monopoly on the smart ideas and smart people in its field. Most of the spin-offs from PARC created their value by linking to and exploiting knowledge that Xerox did not have. As I examined the R&D practices of other leading companies, I became increasingly convinced that a new mindset and logic were in use, and that they fit much better with the environment most companies operate it today.



Q: Has the business world been gradually shifting into this model of innovation without even realizing it?

Yes and no. The younger, smaller companies have definitely changed the way they play the innovation game. You don’t see many newer firms creating their own classic research centers, off in the middle of nowhere. They are far more likely to look outside, to universities, to other companies, or to alliances, for ideas to take to market. In the older, larger companies, the picture is more mixed. Yet even here, large companies today are putting up new research facilities next to universities and other clusters of knowledge to get new ideas in, instead of locating them far from others to keep internal ideas from leaking out.

Q: What is the biggest impact of changing the way we think about innovating technology?

Perhaps the biggest impact comes from realizing that (as Bill Joy of Sun once put it) “Not all the smart people in the world work for us.” Once you acknowledge that, the innovation task shifts to locating and connecting to the smart people, wherever they are, and finding ways to leverage their expertise with your own capabilities. It works the other way too. Not all the smart people sell for you, either. That means that your ideas may earn additional money by sharing them with others, rather than restricting the sale of all of your ideas to your own sales and marketing staff.

Q: Why will people change? Why will they be willing to embrace a new way of doing things, which is traditionally a very difficult thing to do?

Change is indeed difficult, and it will be here too. Öpen Innovation will not only require a rethinking of “R&D”, it will also require a new approach to sales, marketing and distribution as well. What will drive people towards Open Innovation is the widely shared sense that the old way is indeed broken. People sense that the old way is inefficient. Worse, they realize that it is ineffective. And they watch in amazement as exciting new ideas emerge from rather unlikely places, from companies who spend far less on internal R&D. Then they’re ready to say, “Next time, let’s us be the ones who introduce that new idea.”

Q: Tell us about some companies that are successfully using Open Innovation in their businesses.

I list a number of companies in the book. Two that exemplify fascinating aspects of the concept are Intel and Procter & Gamble. I described P&G above, so let me say a bit about Intel. Intel competes in a very technologically intensive industry. Yet they do very little internal research, for a company of its size and stature. They have a very well thought out program for funding external research, and carefully evaluate the results of the external work to see whether and when it is ready to transfer back into Intel. They also have a large corporate venture capital program, that invests in external startup companies. To Intel, these are really another kind of laboratory, for Intel to learn from, where real companies make real products to sell to real customers for real money. For many years, in fact, the Intel research program and the corporate venture capital program reported into the same guy, Les Vadasz.

Q: How can internal research departments reach out and connect with the body of knowledge that now exists in whatever their field of discipline is?

This question contains an important clue about why this will be hard, the term “field of discipline”. For a long time, companies’ research departments mirrored the academic departments of universities. Companies had physics departments, materials science departments, operations research departments, and so forth. These people were deeply knowledgeable, but had little ability to relate that knowledge to other areas of knowledge. Today’s researchers need to be far broader, even at the cost of being a little less deep. The domain of systems integration will become an increasingly critical skill. It is in the integration area where companies will not only connect to external knowledge, but where they will harness that knowledge to create new products, services and solutions that solve customers’ problems.

Q: Traditionally innovation has been considered the intellectual space of large R & D departments within big corporations. Are they likely to be threatened by your approach?

I actually think most R&D departments will welcome the ideas in Open Innovation. There is a widely shared sense in R&D groups that I talk with that things cannot continue as they have in the past. I would go so far as to say that there is a hunger for a new path forward. Without a new approach, corporate R&D is likely to be cut back more and more. Open Innovation provides an approach that can support a renewed corporate commitment to R&D, albeit with less internal focus and greater external connection.

Q: Will Open Innovation change things for the consumer of technology? Will the average purchases know there is anything different about the way the product arrives in the marketplace?

Procter & Gamble’s experience with Open Innovation would say that consumers will see more choices in their lives – not just different colored toothpaste, but new kinds of choices, like electronic toothbrushes instead of manual brushes, or new ways of cleaning floors, windows, clothes, and kids. I would not be surprised to see a P&G robot in the market in the next three years as a cleaning helper, and I promise you such a robot would not come solely from P&G’s own research.

Q: Would innovation have shifted in this way without the development of the Internet?

Yes. The Internet certainly creates a smaller village for all of us, but these trends have been underway for at least twenty years. In my research at Xerox, for example, the biggest and most valuable ideas I studied all pre-dated the Internet. Having said that, the Internet and email certainly reduce the cost, and especially the time, it takes to implement Open Innovation concepts in your company.

Q: Tell us what’s ahead for innovators. What does the next ten or twenty years in technology development look like to you?

One trend will be innovation as recombination and integration, rather than as the initial discovery of a “new to the world” idea. Another trend will be that the ideas we all work with will come from all over the world, and relatively fewer of them will come from the US. A third trend is that there will be far greater trade in the market for ideas, and companies become active buyers, as well as active sellers, of ideas. A final trend is that the concepts and language of “business models” will move into the R&D process, rather than being the sole concern of “the suits” in marketing or business development.

Q: Finally, if readers could take away one idea from OPEN INNOVATION, what would you like that to be?

Our supply of useful knowledge is bigger and better than ever, and today is widely distributed. This levels the playing field for companies of all sizes, and increases the rewards for companies that can identify, connect to, and leverage this knowledge.

Henry Chesbrough is an Assistant Professor and the Class of 1961 Fellow at Harvard Business School. He worked for many years in Silicon Valley, including a 7 year stint at Quantum where he worked in disk drive development. He and his wife and two daughters divide their time between Boston and the Bay Area of California.

 
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