Given by Sabine Brunswicker at the 2013 Red Hat EMEA Partner Conference

1. OPEN INNOVATION
NOT FAD BUT A PHENOMENON
THE ROLE OF OPEN INNOVATION IN TODAY’S GLOBAL AND
DIGITAL ECONOMY
Prof. Sabine Brunswicker
Purdue University, USA and Fraunhofer Society, Germany

2. INNOVATION IS OFTEN THOUGHT TO BE ABOUT SPECIAL PEOPLE

3. THE INNOVATION GAME HAS
CHANGED¹
Source: 1) Chesbrough (2003)

4. SINCE 2003…
FIRMS ENGAGE IN SO CALLED “OPEN INNOVATION PRACTICES”
Google Search Open Innovation :
10/2011 > 8 Mio Hits
05/2013 > 700 Mio Hits

5. Open Model
existing market
new market
other firm’s
market
idea sourcing
running/successful innovation projectsdiscarded innovation projects
Closed Model
market
+
+
+
new product/
service
internal
innovation
resources
internal
innovation
resources
external
innovation
resources
technology
sourcing
co-development
partnerships
spin-out
Source: Brunswicker (2011); see also Chesbrough (2003, 2006)
LET‘S RECAP – WHAT‘S OPEN INNOVATION
OPEN INNOVATION DESCRIBES A COGNITIVE FRAMEWORK FOR A FIRM’S STRATEGY TO PROFIT
FROM INNOVATION

6. INNOVATION “CROWDSOURCING” HAS BECOME POPULAR…
Firms outsource the task to solve an innovation problem to the
public “crowd” - rather than to a designated group of actors - via an
open call

7. CROWDSOURGING IS BUILD UPON THE IDEA
THAT „DIVERSITY“ IS THE GENERATIVE MECHANISM FOR INNOVATION
source: Chris Anderson (2004), Lakhani (2006), Laursen & Salter (2006)
Popularity of resources
In-house resources
Access to a small number of
experts and disciplines
„Long tail“ of resources outside the
firm‘s boundaries
Access to large number of different
competencies and various
disciplines
Range of potential problem solving resources

8. THE GOLDCORP STORY….
Crowdsourcing challenge:
GoldCorp put 000’s of pages of complex geological data
online to help discover new veins of gold
at its Red Lake mine, Ontario, Canada.
US ~$500,000 in prize money
Over 1,400 corporations, consultants and
universities from 50 countries entered the
contest.
More than 8 million ounces of gold found.
Company’s value rocketed
from $100M to $9B
Participation and outcome
Over 1,400 corporations, consultants and universities from
50 countries entered the contest.
More than 8 million ounces of gold found.
Company’s value rocketed from $100M to $9B

9. OPEN SOURCE IS DIFFERENT FROM OPEN INNOVATION….
Value Capture
Company
Ecosystem
In-House Community-driven
Value Creation
e.g. Microsoft
OS
e.g. MySpace
e.g. pirated music
complementors
e.g. Linux Kernel
…….with the right business model it can be a
successful open innovation practice

10. OPEN INNOVATION IS ABOUT „PROFITING“ FROM INNOVATION
Open Source Versus Open Innovation
…….Open Innovation requires a business model to ensure both
value creation AND value capture

11. CASE STUDIES SUGGEST THAT THERE IS PERFORMANCE IMPACT
Idea-fairs,
e.g. tinkerers
or suppliers
Technology
acquisition
Research
institutes
Strategic
suppliers
Customer
integration
Further
partners
Universities
Internal/externa
l ventures
Internet
platform
Licensing
Outside-In
Inside-Out
Co-Development/Networks
Source: Huston & Sakkab (2006), Enkel, Gassmann (2009)
“ In Connect &
Develop we set
the goal to
acquire 50% of
our innovations
externally “
(VP of
Innovation)
Improvement of the
R&D productivity by
60%
Within two years P&G
has marketed more
than 100 new products

12. OUR RESEARCH SUGGESTS THAT OPENESS IMPROVES PERFORMANCE
Success rate of innovation projects
(share of successful innovation projects; median)
Comparison of firms from different age classes
Income from new products/services that are younger
than 3 years (median)
Comparison of firms from different age classes
11 to 25 years
Older than 25 years
6 t 10 years
2 to 5 years
Datasource: IMP3rove, Oktober 2010; N=1469; see also Brunswicker (2011): Beyond open innovation in large organisations
47.0%
23.0%
29.0%
19.0%
19.0%
10.0%
15.0%
9.0%
50.0%
20.0%
50.0%
25.0%
60.0%
50.0%
50.0%
5.0%
11 to 25 years
Older than 25 years
6 to 10 years
2 to 5 years
Wide and diverse open innovation sourcing*
Closed/selective approach towards innovation sourcing**

13. 10 YEARS LATER
A FAD OR A
PHENOMENON ?

14. Executive study
UC Berkeley and
Fraunhofer
 Study among the largest firms in
Europe and US
 Firm criteria: >1000 employees
and >250 million USD in sales
 Key informants: CEO, COO, or
CTO at headquarter
 Data collection
October– December 2012
 125 datasets
Adoption of open
innovation
Abandonment
Open innovation
experience
Management
support
Intensity
78% practice open innovation today
No firm has abandoned open
innovation
Median of 5 years
71 % have increased management
support
82 % have increased open innovation
activity
IN OUR NEW EXECUTIVE SURVEY WE FOUND THAT OPEN INNOVATION IS ON THE RISE

15. THERE IS A BUNCH OF OPEN INNOVATION PRACTICES

16. Challenge
 Powering the Grid
 Powering your Home
Source: www.ge.com, Chesbrough (2012) California Management Review
Co-investment
strategy
 VCs: Emerald
Capital, Foundation
Capital
LARGE FIRMS LIKE GE EXPERIMENT WITH IDEA COMPETITIONS
High participation
 4000 ideas
 75013 entrepreneurs
participating
Innovation
partnerships
 23 partnerships
 USD 200 million
investment GE

17. OTHERS USE OPEN INNOVATION INTERMEDIARY SERVICES
Open Innovation
Marketplaces
Searcher
Solver Community
(Technology experts,
individuals, entrepreneurs,
etc.)Request for proposal Proposes solution and
ideas
Market for Ideas and Technologies
Problem: Strong durable gear
materials that do not require
lubrication
• 26 solutions submitted
• 16 new solutions
• 8 solutions with potential
for development

18. INNOVATION CO-CREATION WITH USERS IS POPULAR…
More than 27 000 visitors
More than 350 design contributions
884 members
3980 hours spent

19. LET‘S TRY TO CLASSIFY THEM….
Direction
Inbound
Outbound
Pecuniary Non-pecuniary
Financial flows
Acquiring Sourcing
Selling
Free
revealing

20. THERE ARE A RANGE OF INBOUND PRACTICES
IP In-licensing
Informal networking
Publically funded
R&D projects
Contracting external
R&D services
Open Innovation
Intermediaries
Inbound
University grants
Supplier
innovation awards
Own crowdsourcing
initative
Customer and
consumer co-creation
Idea and start-up
competition

21. CO-CREATION WITH USERS MATTERS THE MOST
2.34
2.64
2.66
3.37
3.71
3.73
3.87
4.19
4.38
4.43
1 2 3 4 5 6 7
3.80
4.09
3.76
4.01
4.47
4.04
4.11
4.28
4.12
4.68
1 2 3 4 5 6 7
Customer and consumer co-creation
Informal networking
University research grants
Publically funded R&D consortia
Contracting of external R&D service
Idea and start-up competitions
IP in-licensing
Supplier innovation awards
Crowdsourcing (unknown problem solvers)
Specialized services OI intermediaries
Not important Highly
important
Significant
decrease
Significant
increase
No change
Source: Open Innovation Executive Survey Fraunhofer & UC Berkeley; n = 91
Importance in 2011
(mean values)
Change of importance 2008-2011
(mean values)
Inbound practices

22. Corporate business
Incubation and
business venturing
Donations to
commons or
non-profits
IP out-licensing
and patent selling
AND THERE ALSO DIFFERENT KINDS OF OUTBOUND PRACTICES
Participation in
standardization
Participation in
standardization
Selling of
market-ready ideas
Joint venture activities
with
external partners
Inbound

23. TRADITIONAL PRACTICES ARE THE MOST POPULAR ONES
2.26
2.43
2.84
3.45
3.75
3.85
4.21
1 2 3 4 5 6 7
3.91
3.74
4.20
4.63
3.97
4.39
4.62
1 2 3 4 5 6 7
Joint venture activities
Selling of market-ready products
Participation in public standardization
Corporate business incubation & venturing
IP out-licensing & patent selling
Donations to commons or nonprofits
Spin-offs
Not
important
Highly
important
Significant
decrease
Significant
increase
No change
Importance in 2011
(mean values)
Change of importance 2008-2011
(mean values)
Outbound practices
Source: Open Innovation Executive Survey Fraunhofer & UC Berkeley; n = 91

24. CUSTOMERS ARE THE MOST CRITICAL EXTERNAL PARTNER
2.13
2.47
2.54
3.67
3.82
3.82
4.22
4.30
4.51
4.88
5.17
5.54
1 2 3 4 5 6 7
Unrestricted communities
Restricted communities
Competitors
External consultants
Contracted R&D service providers
Entrepreneurs and start-ups
Public research organisations
Indirect customer or final consumer
Suppliers
Universities
Customers
Internal employees
Importance of open innovation partners
(mean values; 1= not important to 7=highly important)
Average = 3.9*
not important highly important
Source: Open Innovation Executive Survey Fraunhofer & UC Berkeley; n = 82

25. IT IS NOT ABOUT THE INDIVIDUAL PRACTICE AND SOURCE
1 2 3
Supply-chain oriented Technology oriented Ecosystem-wide
 Supplier programs
 Supplier awards etc.
 Direct customer co-
creation
 University grants
 Developercommunities
 ContractedR&D services
 Third-party developers
and service providers
 Trusted partner network
 Complementarynetwork
partners
3 categories of Open Innovation orientation

26. IT IS NOT ABOUT THE INDIVIDUAL PRACTICE AND SOURCE

27. ….BUT OPEN INNOVATION IS HARD
SOME PEOPLE THINK OPEN INNOVATION REDUCES RESOURCES AND EFFORTS

28. Source: Open Innovation Executive Survey Fraunhofer & UC Berkeley; n = 91
THERE IS AN INTERNAL COMPONENT OF OPEN INNOVATION
THEY JOURNEY FROM CLOSED TO OPEN REQUIRES NEW CAPABILITIES, ROLES, AND VALUES
3.69
4.55
4.53
4.53
4.89
5.26
3.61
4.28
4.49
4.6
4.97
5.6
1 2 3 4 5 6 7
Avoidance of external or already existing knowledge
Effectiveness of intellectual property protection
Identifying new innovation sources
Protecting internal critical know-how
Management of external relationship with innovation sources
Managing the organizational change internally
Challenges of engaging in open innovation
(mean values, 1=not important to 7= highly important)
when firm's started
today
Not important Highly important

29. WHY ARE FIRMS NOT SATISFIED WITH CROWDSOURCING AND CHALLENGES?
Task description
Start:
Submission of Ideas
Many are designed for COMPETITION …
And not for COLLABORATION and CO-
CREATION

30. THERE IS A SOCIAL DIMENSIONS OF CO-CREATION
1
4
2
3
Fun
Fullfillment
Fame
Furtune

31. New SCN
platform
Gamified TechEd
2011
12 months
rolling points
THE EVOLUTION OF SAP‘S SCN SUGGESTSTHAT GAMIFICATION MATTERS
2003 2005 2007 2009 2011 2013
Ask the Expert
Points
introduced
Top Contributors
Annual Contest
SAP Mentoring
Program
Launch of
Gamification
Module
10 years SCN
Some outcome measures
 Activity up by 1,113%
 Community feedback up by 250%
 Points up by 147 %

32. OUTLOOK: OPEN INNOVATION IS EVOLVING
FINAL SLIDE WITH “WEB” AND NEW MODELS OF INNOVATION
The GRAVITY IS SHIFTING
EVEN MORE…
..people-centric & decentralized
innovation ecosystems

33. COMPLEMENTORY PARTNERS ARE CRUCIAL IN TODAY‘S BUSINESS ECOSYSTEM
^^
Internet
ISP
T
T T
Phone
WiFi
Enduser
system
Handset
Distribution
GUI
Shop
OS APIs
Audio-
Dateiformat
A A A
Millions of
songs
Thousands of
Apps
Assembly
C
C
C C
Hundreds of
components
Hardware
interface
BIOS
Betriebs-
system
iTunes
Design
Closed IP
External supplier
Complementor
Open Source
Closed Standard
Open Standard
Legend

34. A LIFECYCL-ORIENTED PERSPECTIVE IS BECOMING MORE AND MORE IMPORTANT
BOUNDARIES ARE BLURRING
DATA
Con-
tinued
Value
Creation
Lifecycle-oriented
Innovation
Ecosystems
Standardize
and open
data
Co-create
app
Application lifecycle
Co-
create
service
Users
Application
developers
Application
platform
Service
providers
Service
integrator
Open data
provider
Launch
app &
service
Operate &
con-
tinuously
improve

35. FIRMS ESTABLISH DIVERSIFIED INNOVATION ECOSYSTEM
Trusted Network
New
partners
Pearlfinder
Supplier
Government
ResearcherDevelopment
partner
Pearlfinder
• Company owned digital community
• Challenge-driven innovation
• Multi-staged process and individual
Terms + Conditions
• Link with other open innovation
practices
Partner and partner selection
• Suppliers, universities, development
partners, customers
• No start-ups
• Selection based on„manageral fit“
and stabiltiy, IPR-Policy, „Academic
Excellence“ and concrete idea
• Selection process based on new
methods such as incubation lab
ChallengeUni
Customers

36. …AND PROFESSIONALIZE THE MANAGEMENT OF NETWORK RELATIONSHIPS
Internal
net-
works
Expert
communities
Expert
support
New
research
partners
Market
places
Web 2.0
Communities
New
suppliers
New
development
partners
Tier 1
Loose innovation contacts
New opportunities
„Leverage“
(invest)
Tier 2/3
Trusted networks

37. Shifttowardsopenness
Phase 1 Phase 2 Phase 3 Phase 4
Source: CAS 2010; Ehrenmann & Brunswicker (2012)
Closed System
Firm-centric
innovation networks
New infrastructures
New decentralized
innovation ecosystems
Interne
Technologie-
Basis
Aktueller
Markt
Aktueller
Markt
Gescheiterte Ideen/
abgebrochene Projekte
Erfolgreiche Ideen/ erfolgreiche
Projekte
Interne
Technologie-
Basis
Aktueller
Markt
Aktueller
Markt
Gescheiterte Ideen/
abgebrochene Projekte
Erfolgreiche Ideen/ erfolgreiche
Projekte
Gescheiterte Ideen/
abgebrochene Projekte
Erfolgreiche Ideen/ erfolgreiche
Projekte
THE SHIFT IS CONTINUING; IT REQUIRES MORE EXPERIMENTATION

38. New facilitation skills and leadership capabilities
New socio-technical infrastructures
Experimentation (rather than control)
Lifecycle-oriented innovation
ecosystems

39. „If you’re not failing every
now and again, it’s a sign you’re
not doing anything very
innovative.“
Woody Allen
Contact: Prof. Sabine Brunswicker, sbrunswi@purdue.edu

40. BACK-UP

41. AGENDA
 Let‘s recap: 2003 – The emergence of Open Innovation as a new model of industrial innovation
 10 years later - The Adoption of Open Innovation Practices in Large firms
 Organizing and managing for open innovation – dynamics and socio-technical infrastructures
 The emerging landscape of Open Innovation: Towards an Innovation Ecosystem Perspective