Henry Chesbrough - Open Innovation Seminar 2009 - Brazil

Open Innovation: A New Approach to Industrial R&D Henry Chesbrough Realização: Open Patrocínio Oficial e Innovation Center - Brasil Colaboração: Allagi – Open Innovation Services São Paulo, Brasil 22/10/2009

Open Innovation: A New Approach to Industrial R&D Presentation to Open Innovation Conference Sao Paolo, Brazil Henry Chesbrough Center for Open Innovation UC Berkeley October 22, 2009

The Current Paradigm: A Closed Innovation System Science & The Technology Market Base Research Development New Products Investigations /Services R D 3

Xerox’s Xerox’s Business Model, and Project Evaluation Errors Designed to minimize “false positive” errors Ignores risk of “false negative” errors 4

Chess • Plan several moves ahead • No new information needed • You know what you and your opponent have 5

Poker • Pay to play • Pay for new information • Discover what other players and you have 6

Xerox: Great at Chess, Lousy at Poker 7

The Open Innovation Paradigm Other Firm’s Licensing Market Technology Spin-offs New Internal Market Technology Base Current External Market Technology Base Technology Insourcing R D 8

Open innovation in practise License in Spin in Acquire Divest Spin out License out “The creation of new businesses is a highly dynamic process, best represented as a horizontal funnel” (passed in iterative steps) Robert Kirscbaum, DSM: Research & Technology management, July – August 2005 9 C 2002 Henry Chesbrough EIRMA SIG III, 2005-10-20

Open Innovation Other firm´s market License, spin Our new out, divest market Internal technology base Internal/external Our current venture handling market External technology insourcing 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

2003: We broke up the fortress … Philips Research,Ronald Wolf, 10/08

Bringing in the right partners – Open innovation > 75 companies and > 7000 people at High Tech Campus Eindhoven Corporate Research innovators institutes Consultancy Economic & services development companies Philips Research,Ronald Wolf, 10/08 12

Venturing timescale longer: keep it apart from business Consumer Lifestyle Consumer Lifestyle Healthcare Lighting Philips Research,Ronald Wolf, 10/08

The expansion of the corporate funnel Insourced Ideas /Technology Spin in ODM Start ups IP insourcing OEM Acquisitions Incubators Spin out Alliances IP Licensing Front – end Development Commercialization Philips Research,Ronald Wolf, 10/08

BP’s challenge in February 2006 • Energy Bioscience looked promising (Senior Executive buy-in) • How do we meld commercial/technology strength with biology/biotech? − The company had no bio-expertise • How to reach out to biology/biotech communities − Not a corporate lab! − Corporate labs too insular – can’t tap broader expertise in a rapidly moving field − Where was the Energy/Bio talent pool anyway? − Not the usual university research programme − BP does many of these and knows strengths/weaknesses − Need to facilitate the development, demonstration, and commercialization of research results 15

Funding for Open and Proprietary Components $50M/yr A imagem não pode ser exibida. Talv ez o computador não tenha memória suficiente para abrir a imagem ou talv ez ela esteja corrompida. Reinicie o computador e abra o arquiv o nov amente. Se ainda assim aparecer o x v ermelho, poderá ser necessário excluir a imagem e inseri-la nov amente. A imagem não pode ser exibida. Talv ez o computador não tenha memória suficiente para abrir a imagem ou talv ez ela esteja corrompida. Reinicie o computador e abra o arquiv o nov amente. Se ainda assim aparecer o x v ermelho, poderá ser necessário excluir a imagem e inseri-la nov amente. A imagem não pode ser exibida. Talv ez o computador não tenha memória suficiente para abrir a imagem ou talv ez ela esteja corrompida. Reinicie o computador e abra o arquiv o nov amente. Se ainda assim A imagem não pode ser exibida. Talv ez o computador não tenha memória suficiente para abrir a imagem ou talv ez ela esteja corrompida. Reinicie o computador e abra o arquiv o nov amente. Se ainda assim aparecer o x v ermelho, poderá ser necessário excluir a imagem e inseri-la nov amente. aparecer o x v ermelho, poderá ser necessário excluir a imagem e inseri-la nov amente. UC Berkeley BP Host Institution Proprietary Component $35M/yr contracts subcontracts A imagem não pode ser exibida. Talv ez o computador não tenha memória suficiente para abrir a imagem ou talv ez ela esteja corrompida. Reinicie o computador e abra o arquiv o nov amente. Se ainda assim aparecer o x v ermelho, poderá ser necessário excluir a imagem e inseri-la nov amente. Other contracts subcontracts A imagem não pode ser exibida. Talv ez o computador não tenha memória suficiente para abrir a imagem ou talv ez ela esteja corrompida. Reinicie o computador e abra o arquiv o nov amente. Se ainda assim aparecer o x v ermelho, poderá ser necessário excluir a imagem e inseri-la nov amente. Lawrence Berkeley BP Components National Laboratory A imagem não pode ser exibida. Talv ez o computador não tenha memória suficiente para abrir a imagem ou talv ez ela esteja corrompida. Reinicie o computador e abra o arquiv o nov amente. Se ainda assim aparecer o x v ermelho, poderá ser necessário excluir a imagem e inseri-la nov amente. Other $15M/yr A imagem não pode ser exibida. Talv ez o computador não tenha memória suficiente para abrir a imagem ou talv ez ela esteja corrompida. Reinicie o computador e abra o arquiv o nov amente. Se ainda assim aparecer o x v ermelho, poderá ser necessário excluir a imagem e inseri-la nov amente. University of Illinois Entities Urbana-Champaign ENERGY BIOSCIENCES INSTITUTE (EBI) BP R&T OPEN RESEARCH PROPRIETARY RESEARCH 16

Licensing provisions For inventions solely owned by UCB, UIUC and/or LBNL NON-EXCLUSIVE EXCLUSIVE Non-exclusive, royal free (NERF) BP may obtain exclusive license license in BP’s area of interest, rights to sole or joint inventions. providing: - pre-negotiated capped fees - BP will diligently pursue commercialization - “Bonanza clause” in case of extraordinary commercial - BP will underwrite the patent success costs 17

Intel’s University model • Intel contributes over $100 million annually to leading US universities (15) and overseas universities (12) • Intel defines promising areas of scientific and engineering research to focus its $ − After the NIH and NSF, Intel is one of the biggest funding sources in its chosen areas • Negotiates access to university IP at the university, prior to funding research there © 2004 Henry Chesbrough 18

Intel’s latest move: “Lablets” • Intel has recently (fall 2002) initiated four smaller research centers, located immediately adjacent to universities at − U Washington − Berkeley − CMU − Cambridge • Each center is led by University academic • Intel staff measured on joint collaborative research efforts © 2004 Henry Chesbrough 19

Intel and Startups • Intel has pioneered the use of Corporate Venture Capital to invest in startups − Most active CVC investor today, 1000 investments − Increasingly focused outside US • Two important roles for its CVC − Grow the current market using Pentium products − Explore potential new markets for Intel products − Best market research you can buy! © 2004 Henry Chesbrough 20

Intel & Open Innovation Other Firm’s Market LANDesk Internal New Market Technology Base Current External Market Technology Intel Base Capital Acq’ns Universities Technology Insourcing R D 21

9 months! 9 months! 9 months! 9 months! The iPod Faddell Tony

Not Just for High Tech: Procter & Gamble Other Firm’s Market “Use it or Lose it” Internal New Market Technology Base Current External Market Technology Venture Large Base Acquisitions Acquisitions Technology “Spinbrush” “Gillette” Scouts R D 23

An Iberian Example: El Bulli • Ferran Adria studies molecular gastronomy, working with Herve This, a French physical chemist • Adria brings this to El Bulli, restaurant is the Lab • Adria launches many business experiments • Borges: oils, snacks • Lavassa: coffee • N H Hoteles: FastGood, Nhube • Iberian Airlines (with FastGood) • Careful not to dilute the El Bulli brand 24

Intermediaries & Open Innovation Other Firm’s IP Value - licensing Market NVPLLC: spinoffs Internal New Market Technology Base Current External Market Technology Sequoia/ Investment Base InnoCentive Cisco Banks NineSigma Yet2.com Technology Insourcing © 2006 Henry Chesbrough R D 26

Other Innovative IP Intermediaries Inbound • Innovation Exchange • SSIPEX • Yet2.com • YourEncore.com Outbound • IpValue, ThinkFire (patents) • Utek, Flintbox (university technology) • New Venture Partners, LLC (spinoffs) © 2006 Henry Chesbrough 27

Is the internal R&D department an antiquated concept? • No – open innovation can leverage internal R&D • But….. • New focus: must look outside as well as inside • New role: connecting to and collaborating with the outside • New skill: integrating internal and external together 28

How do companies gain access to the right competences at the right point in the innovation process? Want Find Get Manage 29

How do companies gain access to the right competences at the right point in the innovation process? What is our “shopping list”? Want Where will we find these resources? Find How will we access the resources? How Get do we structure the agreement? How will we manage these resources, Manage once we have signed the agreement? Sources: Hoffman-Laroche; Slowinski and Segal, 2003

Building Your Shopping List Start with your product road map Identify the gaps, missing pieces, and open spaces to be explored Define the external relationships needed to support the business strategy Whom are we targeting (type of partners)? Are we collaborating on or outsourcing (value chain module)? How deep does our relationship need to be? Share across internal organizations. They will need to work with external innovation partners too!

Let’s Focus our Discussion a Bit—WGFM Model Applied to Co- Development What is our “shopping list”? Want Open Innovation Strategy Where will we find these resources? Find External Partner Identification How will we access the resources? How Get do we structure the agreement? Structuring the Relationship How will we manage these resources, Manage once we have signed the agreement? Relationship Management

One Key Distinction Define your requirements Transaction Relationship • one time • ongoing • little ongoing support needed • support required • little or no investment needed • investment required CoDev 2007 Conference, Workshop D—29 January 2007| © 2007 PRTM Proprietary CONFIDENTIAL | 33

Innovation Intermediaries: A great transaction resource Intermediary (Company) Focus Primary Function InnoCentive Online exchange portal Marketplace for technology transfer/agent NineSigma E-mail RFPs Agent Big Idea Group Concept developer Agent/codeveloper Yet2.com Technology exchange Online marketplace / technolgoy licensing Accelovation Linguistic-based Internet Search engine research InnovationXchange Membership-based Broker innovation community Shanghai Silicon IP Repository for legally Broker Exchange obtained semiconductor IP Ocean Tomo IP merchant banker Market maker Source: Open Business Models, Henry Chesbrough, 2006

Relationships Require Consideration of Both Parties Cisco’s Critical Partner Evaluation Criteria 1. Short-term returns for both companies Don’t try to “boil the ocean” 2. Clearly defined long-term potential for both companies Collaboration “set-up costs” are too great for merely a quick win 3. Shared vision of technology and market developments Agree on “where the world is headed” 4. Shared destiny of cooperation, not competition Supports openness with technical information and sharing of intellectual property Source: “Model of Co-Development Emerges”; Deck and Strom, Research * Technology Management, May–June 2002

Let’s Focus our Discussion a Bit—WGFM Model Applied to Co- Development What is our “shopping list”? Want Open Innovation Strategy Where will we find these resources? Find External Partner Identification How will we access the resources? How Get do we structure the agreement? Structuring the Relationship How will we manage these resources, Manage once we have signed the agreement? Relationship Management

Business Contract and the JDA—Tools for “Get” The Joint Development Framework helps to structure the relationship Global Relationship Focus Project Operational Focus Business Contract Structures the ongoing Joint Development relationship Agreement (JDA) Developed and negotiated by Structures specific projects senior management Developed by the ones who will Legally binding and establishes use it liabilities Provides operational flexibility Sets intellectual property rights Defines development responsibilities, schedules, Scopes boundaries under milestones, and deliverables which multiple JDAs can be written Focuses on how the relationship will work (e.g., communication, Supersedes the JDA when issue resolution, project reviews) discrepancies arise

Intellectual Property Needs Matrix Background Foreground intellectual intellectual property property Inside the Boundaries Cell 1 Cell 2 Outside the Boundaries Cell 3 Cell 4 Upon Termination Cell 5 Cell 6

Let’s Focus our Discussion a Bit—WGFM Model Applied to Co- Development What is our “shopping list”? Want Open Innovation Strategy Where will we find these resources? Find External Partner Identification How will we access the resources? How Get do we structure the agreement? Structuring the Relationship How will we manage these resources, Manage once we have signed the agreement? Relationship Management CoDev 2007 Conference, Workshop D—29 January 2007| © 2007 PRTM Proprietary CONFIDENTIAL | 39

Great Partners Work Seamlessly Along “Want, Find, Get, and Manage” Find Want Get Manage Negotiates high quality agreements – rapidly, two way link to strategy Fast efficient Targeted, due diligence, Receptive & Execute Seamlessly valuable to Proactive Builds a Multi-Project, High Value Relationship the partner Deliver Marketplace Results Overall: Expeditious, Trustworthy, Capable Copyright 2006; PRTM and Alliance Management Group, Inc.

Collaborative R&D: An Example • P&G and Clorox • Problem: Clorox obtained Glad brand from Dow as Dow focused its business portfolio – No R&D in the pipeline – Risk of commoditization • Opportunity: P&G had two technologies internally that lacked a path to market – Press ‘n Seal – Force Flex © 2006 Henry 42 Chesbrough

Management Challenges • P&G was a competitor to Clorox • Neither company had done a collaborative deal with a competitor • How to structure a collaboration? – How much is each side contributing? – Will each side perform? – Will either side go around the other? © 2006 Henry 43 Chesbrough

P&G Alternatives • Launch directly – Good test market results – Tough times in 2002 – Likely competitive response • Straight License to Clorox – How much help will they need? – Will they perform? • Straight Technology Sale to Clorox – What about follow-on technology in pipeline? © 2006 Henry 44 Chesbrough

The Solution: a JV Company • Clorox held 80%, P&G had 10%, with option on another 10% (since exercised) – P&G paid Clorox $133M for the additional 10% in 2005 • Glad products now in #1 market position • Business now ahead of plan • Clorox didn’t have to worry about P&G entry into market © 2006 Henry 45 Chesbrough

The Collaboration Bonus: New Business Opportunities • Clorox has approached P&G to distribute some of its brands in Japan – Rather than build its own distribution • This collaboration has also been successful – Would never have occurred but for first JV • Both companies are winning • Both companies had to change long-held management practices © 2006 Henry 46 Chesbrough

Which Would You Rather Have? A Great Technology OR A Great Business Model

Photo Credits Flickr: Chess/Fox, Tuesday Night Poker/Rambis, Ryan Air/ezreenphotography, Ryan Air New Boeing 787 Colours/macrodebs, 332/265/Digg Pirate, The bus shelter at the edge of the ocean/goddess_spiral, Flickr treo ad/Steve Rhodes, Technology - "Future Vision“/$ydney iStockphoto: 000003004014, 000003062424, 000004293861, 000007135639, 000005589058, 000000718722 iPod photo: http://www.apple.com/ipodclassic/ 49

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Henry Chesbrough - Open Innovation Seminar 2009 - Brazil

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Henry Chesbrough - Open Innovation Seminar 2009 - Brazil — Presentation Transcript