Open source innovation is a paradigm shift that involves sharing ideas and intellectual property externally rather than keeping them internal. It allows companies to source ideas from outside their organizations. The document discusses why open source innovation is increasingly popular for business model innovation and provides two case studies as examples. The mountain bike industry benefited from open collaboration with customers to develop new product features. Cadbury set up an open innovation team that established external partnerships and sourced over 50% of research projects from public organizations.

1. Open Source Innovation
Modifying your business model to
accommodate it
EXPERIMENT WITH BUSINESS
INNOVATIONS
Successful
Australian
Manufacturers
Frank Wyatt, Enterprising Partnerships Pty Ltd
frank@enterprisingpartnerships.com.au
0414 39 2323

2. Outline
What is ‘Open Source Innovation’
Why it is it increasingly popular
Case Studies, Models & Potential
Implications for your business model innovation

3. Open Source Innovation
.......is a paradigm shift for most of us
“Open innovation assumes that firms can and should use external ideas as
well as internal ideas, and internal and external paths to market, as
firms look to advance their technology”.
In addition, internal inventions not being used in a firm's business
should be taken outside the company and offered to others.
Companies can no longer afford to rely entirely on their own
research, but should share with other companies.
Henry Chesbrough 2003 Open Innovation: The new imperative for creating and profiting from technology

4. Assumptions behind Open Source
Innovation
.......the paradigm shift
Innovation is everywhere,
“there is more elsewhere than here”
Other Industry domains provide solutions
New paradigm is about managing IP – not necessarily owning IP
New markets for innovation are being created faster through OSI
Requires strong collaborative relationships working in alliances
Only recently has it become more accepted and so accessible

5. So why is it so popular now in BMI?
“Companies using the web intensively, gain greater
market share and higher margins”
McKinsey released reports in 2010/2011
1. The Rise of the networked enterprise: Web2.0 finds its payday” – McKinsey Quarterly Dec. 2010;
2. MGI Report, “Internet Matters: The Net’s sweeping impact on growth, jobs and prosperity” May 2011
The reports found that companies using OSI see on average…
20% decrease in travel costs
15 - 20% improvement in marketing effectiveness & costs
10% reduction in operational costs
18% increase in customer satisfaction
41% increase in employee satisfaction
SME’s using Web technologies grow and export
2x as much as others

6. Why is this happening……..Global connectedness is
changing worldwide society
 Internet is 18 years old (6,000 days); Social Networking
 Web 2 is ~ 8 years old – still an infant!!
 E.g. Facebook
•
•
•
•
10% of all internet on line time, doubling every 12 months, est.
to grow to 50% in 5 years (Scott Gallway, NYU Stern)
1Billion users: approx 1m+/yr
50% of users make $50k+/yr; 50%+ degree + credit card
1/3 smartphone to buy on-line & this is growing rapidly
The future global market may not be China but Facebook!!

7. OSI is one of the tools of
Business Model Innovation
It is not a silver bullet!!
LET’S LOOK AT TWO REVEALING
CASE STUDIES.............

8. From humble beginnings to giving the
sport of biking a new life
California, 1970s, going up and down the Marin county south bay hills on their
“Klunkers”
Gary Fisher, Tom Ritchey, Mike Sinyard Joe Breeze and Charlie Cunningham
are just a few names from those “thrill seekers” that gave birth to a new
sport…..and a new bike!!

9. From this....
Mountain bike builders were
innovative, inspired and
reckless AND they sourced
ideas from their customers –
and increased their revenues
INNOVATION
• Fat tires
• Wheel size and shape
• Front suspension
• Rear suspension
• Lever breaks to disc brakes
• high performance derailleur 27 speeds
• seat post (quick release)
• Handlebars
• Frame geometry
• Pedals
• Crack arms
• Equipment
• Clothing
To this...... faster, lighter,
reliable, and way more
expensive.

10. Mountain Bike brought new markets......
• Ski resort
• National parks
• Indoor facilities
Moab Slickrock trail, Utha

11. Cadbury – OSI Implementation Team
 Small team mandated to source R&D
solutions and new product ideas from broad
areas outside confectionery
 Grew to become a globally linked team
The early goals:
 Develop ‘needs list’ (Want)
 Build networks (Find)
 Deliver value (Existing teams)
 Grow capability (Value
Dr Sarah Pearson, Director ANU Edge &Visiting Fellow, College of Business & Economics
Dr Sarah Pearson

12. OSI @ Cadbury - Delivering value
Over ~ two year period:
 Integrated with the global innovation strategy
 35 collaborations set up internationally
 External partners for 50% of long term research projects
with public research organisations
 New product platforms
 Recognised as innovation leaders, ideas coming to them
 CEO quote – “open innovation is the key to Cadbury success”
Dr Sarah Pearson, Director ANU Edge &Visiting Fellow, College of Business & Economics

13. Cadbury Open Source

14. Cadbury’s Innovation Strategy
Develop innovation roadmapping with flexible portfolio approach in
multi-functional teams
Divisions within Cadbury own the ‘want list’
Clear value when deliver
Discoveries had a home: value to company; value to external
network; greater chance of success
Demonstrate relevance and seen to help deliver success for others
Knowing longer term strategies or consumer foresight means knowing
when radical innovation is appropriate – integrated into global strategy
Dr Sarah Pearson, Director ANU Edge &Visiting Fellow, College of Business & Economics

15. HOW ARE COMPANIES
CHANGING THEIR BUSINESS
MODEL TO USE OSI
LET’S LOOK AT SOME EXAMPLES

16. Partnerships with Customers
Invited customers to work with you to improve the
product overall, and to improve the offering
made to all customers.
This works for three reasons:
1.
customers want to help and work with brands they
know are listening to them
2.
customers want to solve problems
3.
all too often the solution or idea you need will be
really simple to somebody else

17. Lego
Having experienced an historic
loss of 188 million Euros in 2003;
the turnover of the Danish group
increased by 38% in 2008 to reach
182 million Euros
They appointed a new CEO who
adopted Open Source Innovation!!
Case Study: http://www.managing-innovation.com/case_studies/Lego.pdf

18. “Do it yourself programmable robot “
In 2 weeks of the product hitting the market, adult hackers
reverse-engineered the firmware and developed additional
gaming software for the robots – Lego engaged with these
customers and changed their business model!
Business Model Changed
When Lego produced its next
generation product,
MINDSTORMS NXT, the
company turned to its lead
customers again; recruiting a
small group of lead customers
from the hacker community to
consult with them on the design
of the next generation product
http://mindstorms.lego.com/en-us/Default.aspx

19. Value for Money – Research Findings
Insights from 4,500 firms from 13 European countries
 Low-technology firms investing in R&D can achieve the
highest returns if they direct their search behaviour towards
customers.
 Advanced technology firms invariably source inventions
from public research is the major leverage point for a firm’s
search pattern.
Carbon fibre wheels
Parallel-shaft speed
reducer gear
Nano soft tissue
design
Kelly Slater, world
champion Surfer,
wearing a Deakin
University &
Quicksilver high
performance wetsuit
Source: Christoph Grimpe and Wolfgang Sofka, 2007, Search Patterns and Absorptive Capacity:
A Comparison of Low- and High-Technology Firms from Thirteen European Countries, Centre for European Economic Research, Discussion Paper No. 07-062

20. Competitions: Peugeot Design
4 million page
views
5 demonstration
models exhibited
at auto
marketing events
Designers from
100 nationalities
contributed
10.000 prizes
5th year of the
contest

21. • 5 Million projects
• 7 million designers
• 1 Trillion AUD $
CROWDSOURCING: logo and website design
NOW Launched just this week:
CROWDSOURCING in all job categories,
employers can source software, slogans, video
production, design work and architecture
They are also now crowdsourcing for their next
generation of ideas – “tell us what you want us to
crowd source for you”!!

22. Intermediary Model

23. P&G’s Collaborative Approach
The "P&G Advisors” program
allows consumers to try new
products and offer suggestions and
feedback to P&G for refining their
products and shaping national
marketing plans.
Before, P&G would spend $25,000
to field a new product concept test
that took two months to complete.
Now, by engaging the customers, the
company spends $2,500 and gets
results in about two weeks.

24. Collaborations : “Those with Challenges
meet those with Solutions”
GHD Aust – Innovation Exchange
Released in 2011
to build
collaborations
between owners
of
“Challenges” &
“Solutions”

25. GHD: Innovation Interchange - Water

26. Water First– What’s next?

27. InnoCentive: Partnering Intermediaries

28. NineSigma works with Clients
NineSigma works with Clients
. . .. . toto discover innovative ideas, technologies,
. discover innovative ideas, technologies, products
and services from outside their organizations
products and services from outside their
. . organizations the very best innovators and
. to connect with
solution providers
. . . to connect withfrom very best innovators and
the around the world
. . solution providers from around the world
. to quickly and cost-effectively solve their business
needs
. . . to quickly and cost-effectively solve their
. . business needs their innovation processes
. and to transform
. . . and to transform their innovation processes
NineSigma profile:

Offices in USA, Europe and Japan

Over 1,200 Open Innovation projects
completed

>2 million solution providers contacted

14,000+ proposals received from 73 countries

South Africa regional partnership with RIIS
N I N E S I G M A I S A L E A D E R I N O P E N I N N O VAT I O N S E R V I C E S
Our clients tell us we help

Accelerate the innovation cycle

Provide greater access to new ideas, innovation,
knowledge

Help hedge risk

Provide an expandable, low-cost network of
innovation partners

Expand access to different skill sets and
competencies
Some of their many global clients

29. Worldwide Society is Changing
In four years to 2010, newspaper
ad revenue dropped by 44.24%
Revolution is
Everywhere
Manufacturing to China,
Services to India, Philippines,
Eastern Europe, etc

30. What’s next? .....Web 3
Internet will be
everywhere

31. There are very few silver
bullets out there
This is one of the tools of
Business Model Innovation!!