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Open Innovation: The First Decade

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Open keynote presented 19 Sept 2013 at workshop “Strategizing open innovation: foundations for new approaches” at the University of Bath, School of Management.

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Open Innovation: The First Decade

  1. 1. Open Innovation: The First Decade Joel West KGI - The Keck Graduate Institute Claremont, California Strategizing Open Innovation University of Bath 19 September 2013
  2. 2. Plan • What is open innovation? • Three modes of open innovation - Inbound - Outbound - Coupled • What’s next?
  3. 3. • Keck Graduate Institute of Applied Life Sciences • Mission: “dedicated to education and research aimed at translating into practice, for the benefit of society, the power and potential of the life sciences.” • Founded in 1997 • Funded by grant from Keck Foundation • Youngest of 7 Claremont Colleges • Mixture of science and business faculty • About 200 graduate students What is KGI?
  4. 4. Open Innovation
  5. 5. Invention vs. Innovation “Inventions … do not necessarily lead to technical innovations. In fact the majority do not. An innovation in the economic sense is accomplished only with the first commercial transaction.” —Freeman (1982: 7)
  6. 6. Latent value of an innovation “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)
  7. 7. Bringing innovation to market • Creation - Technical invention - Basic research, applied research, product development • Commercialization - Production, marketing, sales, distribution - Requires different complementary assets (Teece 1986)
  8. 8. Research of Alfred D Chandler (1918-2007) • Studied large US firms 1840-1940 • Firms vertically integrate to supply own inputs and control their outputs - R&D is an essential part of integration - Technology industries require large R&D labs - Markets don’t exists to buy/sell innovation • Integration widely adopted in practice - Pattern of large 20th C US and MNC firms Vertical Integration
  9. 9. ResearchResearch InvestigationsInvestigations DevelopmentDevelopment New ProductsNew Products & Services& Services The Market Science & Technology Base Source: Chesbrough (2006) Vertically Integrated R&D
  10. 10. Open Innovation • Chesbrough (2003,2006,2007,2011) • Key points: - Find alternate sources of innovation Either markets or spillovers - Find alternate markets for innovation - Central role of the business model • Cognitive managerial paradigm • Overlaps with other work such as user innovation
  11. 11. 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, O pe n Inno vatio n: Re se arching a Ne w Paradig m (2006)
  12. 12. Source: Chesbrough (2006) Current Market Internal Technology Base Technology Insourcing New Market Technology Spin-offs External Technology Base Other Firm’s Market Licensing “Open” innovation strategies R&D under Open Innovation
  13. 13. What’s new? • Many antecedent/overlapping areas - Technology sourcing, IP markets, university licensing, alliances, supplier innovation, user innovation • New ideas include - Role of the business model - Agnostic to internal/external paths - Rise of innovation intermediaries Cf. Chesbrough (2006)
  14. 14. Open vs. user innovation Open Innovation UserInnovation Focal actor Firm User Knowledge transfer IP Needs IP regime Patents Free revealing Innovation production Hierarchy Community, individual Motivations Monetary Social, personal utility Frank Piller & Joel West, Ch. 2 of O pe n Inno vatio n: Ne w Fro ntie rs & Applicatio ns
  15. 15. Three open innovation processes 1. Inbound (or “outside-in”) 2. Outbound (or “inside-out”) 3. Coupled combines these two Cf. Chesbrough (2003, 2006), Gassmann & Enkel (2004), Enkel et al (2009), West & Gallagher (2006)
  16. 16. Inbound Open Innovation
  17. 17. Review of inbound OI • Goal: Synthesize inbound (& coupled) • Sample from 25 top SSCI management & innovation journals (+15 oft-cited) • Either mention “open innovation” or cite Chesbrough (2003) • Hand selected 291 down to 165 • 161 articles, 3 books, 1 chapter Joel West & Marcel Bogers, “Leveraging External Sources of Innovation: A Review of Research on Open Innovation,” Jo urnalo f Pro duct Inno vatio n Manag e m e nt, http://ssrn.com/abstract=2195675
  18. 18. Breakdown of 165 OI pubs Inbound: 118 Outbound: 50 Coupled: 70 57 14 11 24 26 1 32
  19. 19. 4-stage process model Innovation Source† Customers CommercializingObtaining Integrating Interaction Focal Firm R&D Other Functions † Sources may include suppliers, rivals, complementors and customers.
  20. 20. 1. Obtaining Innovations • Best covered of the phases - Searching, enabling, filtering - Sourcing particularly well covered • Most popular area: sources of innovation • Often about external knowledge and not external innovations • Not much about asset specificity of potential innovations
  21. 21. 2. Integrating Innovations • Considers org capabilities and culture - Absorptive capacity over-researched - NIH is mentioned, not well measured - Implicit assumptions • Integration seems to be a black box - Are new competencies needed? - Does utilizing external innovations help or hurt internal R&D competencies?
  22. 22. 3. Commercializing Innovations • Lots of value creation - Sometimes measured using NPD metrics - Less research on value capture • Assumes external innovations commercialized same as internal ones - How do firms differ in external innovation commercialization capabilities?
  23. 23. 4. Reverse Paths Beyond the linear model, this includes • Feedback mechanisms - Information flow upstream • Reciprocal measures - Ongoing interactions - Includes co-creation, communities Research relatively scarce
  24. 24. Other gaps and opportunities • Is everything an “innovation”? - Patent, copyright, knowledge • Where is the business model? - Not a lot of value capture • Where are the success metrics?
  25. 25. Outbound Open Innovation
  26. 26. What is outbound OI? • Firms should find best/highest use of their IP - Not all IP aligns to the firm’s business model • Avoids Type II (false negative) error • Can include licensing to rivals, spinoffs - In parallel or instead of internal use Inspired by Chesbrough study of Xerox PARC spinoffs (Chesbrough & Rosenbloom, 2002)
  27. 27. Key challenges of outbound OI • Identifying underused IP • Simultaneous internal/external commercialization • Functioning IP markets • Appropriability fears • Drag due to excess appropriability Outbound OI research getting scarcer Chesbrough (2003, 2006b), Fabrizio (2006), Enkel et al (2009), Dahlander & Gann (2010)
  28. 28. Coupled Open Innovation
  29. 29. Coupled open innovation • “Coupled” is different from inbound and outbound • Two modes of coupled interaction - Bi-directional (Gassmann & Enkel, 2004) Combines inbound & outbound Applies to firm-to-firm R&D collaborations - Interactive collaboration (Piller & West, 2014) Joint production outside the firm Different from either inbound or outbound
  30. 30. Coupled open innovation Examples of coupled open innovation: •Open source (West & Gallagher, 2006) •Communities (West & Sims, 2013) •R&D consortia (Muller-Seitz & Sydow, 2013)̈ More abstraction is needed
  31. 31. What’s Next?
  32. 32. Recent trends in OI research • Greater precision of constructs • Better measurement - Inspired by Laursen & Salter (2006) • Better understanding of performance • Services, not just products - Chesbrough 2011 book • Nonprofit actors and motivations - West & Gallagher (2006), Dahlander & Gann (2010), Chesbrough & Di Minin (2014)
  33. 33. 2014: new OI publications • Re se arch Po licy special issue - Chesbrough, Salter, Vanhaverbeke & West, guest editors - Ashish Aurora, lead editor - Ca. 10 articles (5 so far) • O pe n Inno vatio n: Ne w Fro ntie rs & Applicatio ns (Oxford) - Chesbrough, Vanhaverbeke & West, eds. - 15 chapters
  34. 34. Thank you! blog.OpenInnovation.net

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