Professor Wim Vanhaverbeke, University of Hasselt, Belgium, presented this InterTradeIreland Innovation master class entitled "From Open Innovation to Innovation Ecosystems" at the Whitaker Institute on 8th May 2014

1. 1
From open innovation to innovation
ecosystems:
Prof. dr. Wim Vanhaverbeke
Hasselt University
ESADE Business School
National University of Singapore
May 6, 2014
What is open innovation (OI)?
Traditional definition

2. 2
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.”
Chesbrough, Vanhaverbeke, West
Open Innovation: Researching a New Paradigm
(OUP, 2006)
A Closed Innovation System
Research
Investigations
Development New Products
/Services
The
Market
Science
&
Technology
Base
R D
Source: Henry Chesbrough

3. 3
What changed?
New Division of Innovation Labor
n Increasingly mobile trained workers
n More capable universities
n Knowledge distributed more widely throughout
the world
n Diminished US hegemony in many leading
technology fields
n Erosion of oligopoly market positions
n Deregulation (EU-liberalization)
n Enormous increase in Venture Capital
Source: Henry Chesbrough
Current
Market
Internal
Technology
Base
R D
Inbound OI: Filling the gaps with external
technology
Technology Insourcing
New
Market
External
Technology
Base
External research projects
Venture investing
Technology in-licensing
Technology
acquisition
Source: H. Chesbrough, Sloan Management Review, Spring 2003

4. 4
Breakaway innovation takes a lot of time
for reaching large business sizes
Immediate growth requires acquisition of early growth ventures
Source: Loek Nijman - Philips
CAGR
Revenue in
10 years
100
10M 100M 1B
10
1M
Start 600 K
Start 600 K
Start 600 K
10%
3M
30%
10M
75%
1B
Acq. 60M
30%
1B
Venturing in the outside world
Current
Market
Internal
Technology
Base
R D
Outbound OI: Profiting from others’ use of your
technology
Technology Insourcing
New
Market
Technology Spin-offs
External
Technology
Base
Other Firm’s
Market
Licensing
Source: H. Chesbrough, Sloan Management Review, Spring 2003

5. 5
Extension of the original model
By combining open / closed innovation
with open / closed business models
Business models - Chesbrough (2006)
n Performs two important functions:
u it creates value, and
u it captures a portion of that value
n Creation of value: by defining a range of activities
that will yield a new product or service valued by
a (target) customer group
n Value capturing: by establishing a unique
resource, asset or position within that series of
activities where the firm enjoys a competitive
advantage

6. 6
Open business models- Chesbrough (2006)
Open business model:
u create greater value by leveraging more ideas (external
ideas)
u capture greater value by using key asset, resource, or
position not only in the company’s own business but
also in other companies’ businesses
Innovation
Business Model
Outside in
Open
Closed
Closed
Inside out
Unused
technology
used by
others
(Glad at P&G)
Technology
licensed to
strengthen
own BM
(IBM- Linux)
Closed
innovation
model
(Tide in P&G -
Foat glass in
Pilkington)
Search for
assets
owned by
others
(iPhone)
Use others’
technology
for own
products
(iPod – Swiffer
at P&G)
Use others’
technology
for VNPs
(Orchestrator:
Curana / KLM
SkyNRG)

7. 7
P&G – Clorox: Joint-venture
with a competitor
n P&G : develops a promising plastic film technology discovered through diaper
research proved successful in test market
n It was not strategic for P&G to be a new player in such a well-established
category.
n C+D led to a joint venture with Clorox who already had strong brand equity
and the leading plastic wrap – Glad.
n What partners bring in :
u P&G brings global marketing expertise and intellectual property behind
Press’n Seal as well as future innovations, including the revolutionary
Glad ForceFlex trash bag technology.
u Clorox brings brand equity, focused R&D in plastics and resins, and the
organizational structure for creating and distributing new plastic film
products.
u Source: P&G C+D
Innovation
Business Model
Outside in
Open
Closed
Closed
Inside out
Unused
technology
used by
others
(Glad at P&G)
Technology
out-
licensing to
strengthen
own BM
(IBM- Linux)
Closed
innovation
model
(Tide in P&G -
Foat glass in
Pilkington)
Search for
assets
owned by
others
(iPhone)
Use others’
technology
for own
products
(iPod – Swiffer
at P&G)
Use others’
technology
for VNPs
(Orchestrator:
Curana /
KLMSkyNRG)

8. 8
Outside-in open innvation
Critical success factors:
• Openness of development
process
• Fast decision making
• Iterative collaborative
relationship with
PortalPlayer and other
partners
Innovation
Business Model
Outside in
Open
Closed
Closed
Inside out
Unused
technology
used by
others
(Glad at P&G)
Technology
licensed to
strengthen
own BM
(IBM- Linux)
Closed
innovation
model
(Tide in P&G -
Foat glass in
Pilkington)
Search for
assets
owned by
others
(iPhone)
Use others’
technology
for own
products
(iPod – Swiffer
at P&G)
Use others’
technology
for VNPs
(Orchestrator:
Curana / KLM
SkyNRG)

9. 9
Innovation
Business Model
Outside in
Open
Closed
Closed
Inside out
Unused
technology
used by
others
(Glad at P&G)
Technology
licensed to
strengthen
own BM
(IBM- Linux)
Closed
innovation
model
(Tide in P&G -
Foat glass in
Pilkington)
Search for
assets
owned by
others
(iPhone)
Use others’
technology
for own
products
(iPod – Swiffer
at P&G)
Use others’
technology
for VNPs
(Orchestrator:
Curana / KLM
SkyNRG)

10. 10
• KLM Royal Dutch Airlines, the North Sea Group and Spring
Associates joined forces and founded SkyNRG in Nov 2009.
n Goal: to help create and accelerate the development of a
market for sustainable jet fuel (safe, sustainable and
affordable) & avoid large price swings in petro-based
kerosene
n Creating a viable market for sustainable jet fuels for aviation
can only be achieved by combining expertise and experience
in the fields of air transport, product knowledge, R & D,
regulation and effective sustainability criteria
n SkyNRG is the hub firm in the ecosystem

11. 11
SkyNRG
Financial
world
(VCs…)
Airline
industry
Govern-
mental
agencies
Biofuel
value
chain
KLM’s value driver?
KLM profits as a
customer of a steady
supply of sustainable
and affordable biofuel
Open innovation:
SkyNRG sets up the aviation
biofuel value chain and
drives the acceleration of
joint technological
innovations between
partners
Broadening the scope
n OI when it is not related to your NPD:
u You are a service company with no technical
expertise
u SME with insufficient technological expertise
u Government agency:
t Nasa: new technologies may help you a lot in
your mission as space agency
n Insourcing knowledge of others in an indirect way
through an open business model (OBM)

12. 12
What if your products are commodities?
n BP pumps crude oil from wells and produces
petro products (commodities)
n Product innovation is not a value driver
n Oil well exploration and extraction are major
value drivers
n Collaborate with Schlumberger and others
technology services to advance their technology in
order to find the best wells earlier than
competitors.
Strategy as ecosystem building
n Multiple partners in a network innovation
ecosystem
n Health of your company depends in the health of
your ecosystem
n Nurturing your ecosystem is necessary
n Nambisan and Sawhney; Network-centric
innovation, AMP, 2011
u Tasks: - Innovation leverage
– Innovation coherence
– Innovation appropriability
n The wide lens – Ron Adner

13. 13
Risks
to
Realizing
Innova0on
Value
Co-Innovation Risk
Execution Risk
Adoption Chain Risk
Data-Based
Strategy and
Return
Innovation/
Product Plan
n Co-­‐Innova(on
Risk:
requirement
of
other
innova0ons
for
successful
commercializa0on
n Execu(on
Risk:
requirements
for
your
company
to
bring
forth
your
product
with
required
specifica0ons
on
0me/budget
n Adop(on
Chain
Risk:
requirement
of
partners
to
adopt
your
product
before
end
customers
can
assess
the
full
value
proposi0on
Slide adapted from “The Wide Lens” by Ron Adner
Begin with the End in Mind
n Traditional Marketing training focuses on
the internal company ecosystem:
u Innovation management
u Customer definition and engagement
u Execution of advertising, sales,
distribution, legal HR and finance
n However, the broader external ecosystem is
often ignored or addressed in too little detail
30
Slide adapted from “The Wide Lens” by Ron Adner

14. 14
Co-Innovation Risk
31
Operator
Component 1
Component 2
Component 3
Formatting Software
Nokia
Handset
3G Phone
Database
Features
Digital Rights
Management
Slide adapted from “The Wide Lens” by Ron Adner
Co-innovation risk
• Collaboration = Dependence
• The joint probability that all innovations are successful
will determine when and if your product will be!
• Alignment is required:
• Resources
• Profits
• Strategy
• Relationship

15. 15
Digital
Film
Innova0ons:
Digital
film
processing
and
projec0on
n “DVD”
form,
rapid
distribu0on,
less
piracy,
improved
picture
resolu0on,
cheap
reproduc0on,
3D
n Huge
benefits
to
film
industry
and
film
goers
n 1996
–
DLP
projector
n 1999
–
T3
lines
n All
in
order
–
but
no
adop0on
What about the theaters who
show the films?
n $70-100,000 to purchase the
projector
n Switching costs too high
n No regulation or incentive of
increased customer value could
create adoption
33
Slide adapted from “The Wide Lens” by Ron Adner
New adoption chain
Studio
+++++
Theater
---
Viewer
++
Digital Projector
++
X
Studio
+++++
Theater
+
Viewer
++
Digital
Projector
++
Bank +
Digital Theater
Integrator +
(VPF)

16. 16
Ochestrating a network-centric innovation
Hub firm as integrator
Key objective • Integrate partners’ technological assets and capabilities in the
development of new product or service
Primary tasks • Define and explicate the innovation architecture
• Assign specific roles/responsibilities to partners
• Provide a common technological/process infrastructure
1. Managing
innovation leverage
• Network members leverage (reuse or redeploy) the technologies,
processes, and other innovation assets of other members to facilitate
or enable their own innovation. Positive for asset owners and those
that leverage these assets. Structure relations between these partners!
2. Managing
innovation coherence
• Make appropriate changes in the innovation architecture to maintain
external innovation coherence and ensure that partners adapt their
modules accordingly
• Coordinate interactions/activities among partners to ensure internal
innovation coherence
3. Managing
innovation of
appropriability
• Establish policies and guidelines for fair and equitable distribution
of rights associated with all intellectual property assets created during
the innovation project
• Allocate and distribute partners’ share of the rewards from
product/service commercialization
Open commercialization

17. 17
.
Open commenrcialization:
The Flavr Savr tomato
Calgene 1994
Flavr Savr Traditional
The Flavr Savr tomato
ripens on the vine –
resulting in fuller flavor. It
is modified so that it
remains firm after
harvesting.
The traditional tomato
must be harvested
while it is still green
and firm so that it is
not crushed on the
way to the
supermarket.
The traditional tomato is
sprayed with ethylene
after shipping to induce
ripening
Ripe but
decreased
Flavour.
Ripe and
Increased
Flavour +
Longer shelf
live
SupermarketSupermarket
Two examples from Calgene:
Flavr Savr tomato
Calgene
11 growers
7 packers
40 (+60)
grocers
Consumers
Lots of
channel
partners
required
Motivation?
Why would they partner with Calgene?
Value proposition?
Why take on channel partners?
- to assure supply
- to reap retail margins
Value proposition:
Better taste for 2.5 to 3.5 times the price
Fresh tomato market :$ 5 billion
Flavr Savr:
30% of premium + 15% premium of superpremium =
$ 375 million. How realistic is this?
seeds
tomatoes

18. 18
Two examples from Calgene:
Bromotol Cottonseed (herbicide resistant)
Calgene
All growers
Distributors /
Manufacturers
Retailers
Consumers
All the
action is
here
Value proposition
- increased yield
- increased market share
Result :
- increased margin
- increased market share
No changes for these groups
seeds
Cotton
Clothing
Value networks from a managerial point of view
VN-wide value creation
• Rel .attractiveness of product offering
• Configuration of VN
• Value drivers
• Etc…
Value distribution
among VN-players
• Everyone should be better off
than in competing offerings
VN-management
• External transaction management
• Supporting activities
• Specialized assets
• Etc…
Set up strategies
• Thin market problems
• Risk sharing (contracts)
• Etc…
Competing offerings
• Existing and new
Government
• E.g. environmental policy

19. 19
OI and SMEs
Low tech industries:
A fruitful place for OI by SMEs

20. 20
43
Curana
Curana: combining innovation
and industrial design
n The old situation:
u steel mudguards and fenders
u Belgium as market (10 million inhabitants)
u Family owned business
n Challenge:
u Growing economies of scale and globalization of the industry
u Strategic change:
t differentiation through innovation
t or price competition with low-cost import

21. 21
Curana:
B"Lite : Mudguard of Curana
06/05/14 Wim Vanhaverbeke 45
Curana: innovation combined with
industrial design in low-tech markets
n Advantages:
u Lighter mudguard (25% less weight than plastic
mudguards).
u Production cost are low enough to be competitive with
standard mudguards
u Installation of the mudguard is easier
u Nice design
u Aluminum separated by plastic can be used as a conductor
for electricity (no more wires required for lights)
n IP
u European patents
u Curana also applied for a patent on the production process

22. 22
Curana : Open innovation
u combination of internal and external knowledge
t external design company
t polymer extrusion manufacturer
t coordination with customers (bicycle producers) in
exchange of an exclusive deal that is limited in time
(Batavus and Sparta (both belong to the Accell-
group)
Curana: Spectacular results
06/05/14 Wim Vanhaverbeke 48

23. 23
Curana:
a small company in transformation
06/05/14 Wim Vanhaverbeke 50
Original
Design
Manufacturer
• price setting
• design driven
• added value
OEM ODM OSM OBM
Original
Equipment
Manufacturer
• price pressure
• technology driven
• no added value
Original
Strategic
Management
• vision driven
• proactive design
solutions
• Innovative
Original
Brand
Management
• Image driven
• Reliability &
authenticity
• Market pull from
customers
> > >
Curana’s innovation ecosystem
Curan
a
Steel and
market
knowledge
Polymer
extruder
Bicycle
manufac-
turers
Design
offices
Material
suppliers,
moldma-
kers, etc
Technical
centers
Exclusive deal
with a customer
for a particular
accessory
Does this always
work?
Open innovation?
Innovation
capability is in the
network. Managing
the network for
innovation

24. 24
Managing your external network (partners)
as a
key process
59
Managing your innovation
network (key process)
n Connecting partners (SMEs and other knowledge partners) is
based on strong personal ties between the main partners
n Trust + transparency about the objectives of the partners
n Time and money have to be invested
• Does everybody want to take risk?
• Important that the different firms are prepared to grow
together
n Cooperation is easier between companies of the same size
• But cooperation with large ones is possible too (different
logic)
n Over time assimilate the knowledge of different partners.
Become smarter by knowing more partners (knowing who) and
knowing more than your partners
• … 60

25. 25
Managing your innovation
network (key process)
n Project management (central partner) with partners is quite
different from internal project management
u Each one is busy with a part of the project : costs easily raise
excessively
n Diplomacy and mutual respect
n Same corporate culture
n Tensions will pop up after a while
u Good relationship may become under pressure
u Open innovation? Open communication!
u Organize (mutual) evaluation session with partner(s)
u Open bookkeeping with main partners (their problems will be
yours)
u Set out rules for disloyal behavior
61
Managing your innovation
network (key process)
n IP?
• Make proper arrangements with your partners
• Who is the owner?
• How partners can make use of the technology?
• Who is going to court (and who pays) in case of patent
infringement?
n Make sure that all partners are better off than
when they would not join / stay in the network
n Open innovation: benefits should be a multiple
of when companies work on their own.
62

26. 26
Open innovation in services:
Example: Pet insurance!
§ Combining resources, knowledge and
databases of insurance company, pet
food manufacturer
§ Collaboration between different partners
§ Bonding of clients in commodity like
markets
§ Cross industry innovation,
§ Relational capital / open innovation
§ Sustainable competitive advantage
§ Similar example:
Yacht insurance
OI: New
frontiers and
applications
Edited by:
Henry Chesbrough,
Wim Vanhaverbeke
Joel West
2003
2006
2006 2008
2011
20132011

27. 27
Exnovate as a network of excellence
for OI-practitioners and scholars?
n www.exnovate.org
n An international network of excellence on Open and
Collaborative Innovation
n Projects
u PhD course OI in ESADE (5th time – 20-22 Janaury
Barcelona, 2014)
u CE and OI Masterclass 10 times already; 12th time at
ESADE Barcelona last week of May 2014)
u Study on open innovation metrics
u Using best practices to improve OI in SMEs
u …
http://www.innovationmanagement.se/welcome-to-the-the-
mooi-project/
wim.vanhaverbeke@uhasselt.be

28. 28
http://www.exnovate.org/
wim.vanhaverbeke@uhasselt.be