1. Leveraging Open Innovation
Joel West
November 15, 2016
http://slideshare.net/joelwest

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
2

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
3

4. Today’s question
How can openness help
firm innovation?
4

5. Open Innovation
5

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
6

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
7

8. Xerox Personal Computers
8Xerox Alto
(1973)
~$40,000
Xerox Star (1981)
$16,500
Xerox 820 (1981)
$3,000

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
12

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
13

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
14

15. 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
Knowledge flows in
Open Innovation

16. Inbound Open innovation
16

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

19. Inbound challenges
1. Obtaining technology
– Searching & sourcing
– Selecting/evaluating
– Acquiring
1. Integrating technology into the firm
– Overcoming “not invented here”
1. Bringing products to market
19

20. Example: P&G
• Connect + Develop established 1999
• Solicits outside technologies to support
product lines
• One-third of product have external
technologies
– Swiffer duster
– Mr Clean eraser
– Printing images on Pringles®
20

21. Outbound Open innovation
21

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
22

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
23

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
24

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)
25

26. Examples: leveraging OI
26

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
27

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
28

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
29

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
30

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
31

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
32

33. Problem: Alaskan Oil Spills
33
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
34

35. Conclusion
35

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?
36

37. Thank you!
http://slideshare.net/joelwest