2014.05.08 why open innovation fails

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Open innovation fails because companies are not prepared to open up

Prof. dr. Wim Vanhaverbeke

Hasselt University ESADE Business School

National University of Singapore

May 6, 2014

What is open innovation (OI)?

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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

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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

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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

Extension of the original model

By combining open / closed innovation with open / closed business models

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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

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

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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)

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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)

•  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

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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

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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)

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.

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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

OI and SMEs

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Low tech industries: A fruitful place for OI by SMEs

Jaga n  Differentiation vs. competition through:

u Eco-radiators u Design-radiators

n  The company is not selling products but experiences, ideas, values, etc….

n  Differences: u  radiators as heating machines u  radiators to reduce carbon-footprint u  radiator as a creative part of the house, heating

the "soul"

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Some JAGA products

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Jaga Oxygen : controlling temperature,

moisture and oxygen in the house

Wearable heating?

Some JAGA products

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Jaga Experience Lab : JEL - Product: test-facility

- Experience: test and develop your own products

- Jaga invites professors & engineers worldwide

- Low cost form of publicity: new projects as Federation Tower / Telefonica

Open innovation # 1

Experience Strategy

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Open innovation #2 Jaga Product days 2007 n  Total number of projects: 119 n  Total number of products by 1 or more designers/engineers: 70 n  Total number of products created by non professionals: 49 n  Total number of solo projects*: 95

u  created by a designer/engineer: 47 u  made by non professionals: 48

n  Number of Jaga Product days ideas taken into production within 6 months: 6 *= Created by only one person

25/05/14 Wim Vanhaverbeke 52

Jaga products days

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Example: Play radiator

25/05/14 Wim Vanhaverbeke 54

Example: The play radiator

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•  Birth of an entire city BLACK ROCK CITY in the Black Rock Desert in Nevada

•  40.000 people

•  a cross-pollination of art, music, theatre, sensation

•  wonderful creations > go up in flames at the end of the 3 weeks

Open innovation #3 Uchronians and the Burning Man

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www.uchronians.org

Start of the creative (internet) community

Open innovation in services: Example: Pet insurance! Example: KLM jet service! §  New technological applications +

redesigning the VC

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How to manage OI?

An example: How to cooperate with high-tech

start-ups?

How to manage open innovation

How to source external technology? An example of corporate venturing u BM / strategy but not organization

structure, culture, dynamics of corporate strategy, routines, internal technology transfers t External Venturing @ DSM

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How to organize for OI? External Venturing at XYZ §  Pitfall : Large firm invests in a start-up and uses its

financial participation as a power tool to enforce cooperation on terms of the investing company

Start-up

XYZ-BU XYZ-V

Is it an interesting investment? Yes? Then a minority participation

Once there is a financial participation there is no ex ante deal how to handle the transfer of technology!

How to organize for OI? External Venturing at DSM §  Rationale:

§  Strategic return, not a financial return §  One of the BU should benefit from it

§  Therefore: Negotiation is a three way negotiation There are two deals packaged into one

overall deal

Start-up

DSM-BU DSM-V

1. Option creation: Is it an interesting investment?

2. Option exercising: Can the new technology create a new business in the future?

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Strategic use of IP in open innovation

Some non ICT-examples

License scheme of Bekaert & Continental (technical standards)

Bekaert Continental

Other clients

Other suppliers

Proposal: •  X = …% of net sales value of supplied product •  Supplier collects royalties •  Cross-license agreement between client and supplier implying:

•  Bekaert to supply "other clients" at X% •  "Other suppliers" to supply the Continental at X% •  Bekaert grants sublicenses to "other suppliers". The latter can supply to

"other clients" at 2X%

0%

x %

2x %

100% 100% 60%: compensation for licensing activities 40%

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embryonic potential growth mature declining/ obsolete

Collaborative research Own Research

technology life cycle

potential

generic technology

application oriented

IP policy: IMEC’s position in the technology life cycle

time

Long term – many options

short term applications

low high R&D expenditures

Know- ledge

Know- ledge focus

academic institutions

focus industrial actors

IP policy: Imec's bridge function between academic institutions and industry

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IP policy: IMEC Industrial Affiliation Program

n  What u  R&D cooperation in generic technologies u  Strategic program develop by IMEC and executed in IMEC u  IIAP partners send guest researcher(s) to IMEC

n  Advantages u  Sharing costs, risks, research infrastructure, IP u  IIAP partners get access to:

- IMEC’s background knowledge - selected results of other partners in IIAP

u  bilateral contract within the framework of IIAP n  Leverages

u  resources u  knowledge u  cross-fertilization of research of different partners u  shortening time to market

IIAP foreground knowledge

partner B

partner C

partner …

partner A

IMEC IIAP

background knowledge

knowledge developed within the program

common IP (R1 - R1*)

co-owned – non-exclusive license partner IP (R2) exclusive license

IMEC IP (Ro) non-exclusive

licensing

IP policy: IIAP – Generic framework

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Managing the transition from closed to open innovation

Objectives

102

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Lewin’s organizational change model

1.  Unfreezing: u  The first phase is concerned with the establishment of a sense of urgency

for change, the establishment of a ‘guiding coalition’ for championing it and the creation and communication of the new vision to both internal and external stakeholders.

2.  Moving: u  The second phase concerns the actual implementation of change, through

the establishment of new procedures and patterns of behavior consistent with the new vision, eventually acting on budget constraints, targets, schedules and reward systems. Characterized by an experimental approach.

3.  Institutionalizing: u  The third phase involves the institutionalization of the new order, through

consolidating improvements achieved to prevent a slip back to the antecedent status quo 103

Managerial levers for OI n  Understanding the anatomy of the process from Closed to

Open Innovation requires identification of the dimensions along which change occurs identifies four dimensions

n  Dimensions:

u  Networks, u  Organizational structures u  Evaluation processes and knowledge u  Knowledge management systems

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Phasing open innovation

Outside-in dimension

Unfreezing Moving Institutionalizing

Networks Exploitation of individual social networks, particularly for developing relationships with universities and research centres

Creation of an exploration network, through a switch of existing individual social networks to the firm level

Establishment of long-term forms of collaboration with universities and research centres

Organizational structures

Evaluation processes

Knowledge management systems

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Phasing open innovation Outside-in dimension


Networks


Achievement of a strong commitment from the firm’s top management.. Separation of R&D activities from existing technical assistance. Creation of an independent IP Office within the firm Identification of an OI champion

Establishment of a dedicated organizational unit for managing collaborations with universities. Identification of a pilot project (well defined and separate from the rest of the firm’s innovation activities) to serve as experimental field for the implementation of OI.

Creation of the role of gatekeepers for monitoring the development of technologies and scientific advances in the areas of interest for the firm. Identification of the main areas of research and establishment of innovation champions for each of them.



106

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Networks



Establishment of regular meetings for validating and monitoring innovation projects developed within the firm

Introduction of explicit evaluation procedures to assess the potential for accessing external sources of knowledge, particularly within the existing exploration network

Adoption of general indicators and eventually of derived innovation performance measures for project managers


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Networks




Start to file patents leveraging knowledge already existing within the firm.

Adoption of ICT systems (intranet, videoconference, project management tools) for increasing project team interoperability

Assessment of internal knowledge, eventually explicitly included into the firm’s strategic plan

108

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Phasing open innovation Inside-out dimension


Networks Using personal networks to explore potentially interested parties for licensing deals, spin-offs, sale of technology, divestments

Creation of an firm level exploitation network, involving key customers

---


Creation of a new organizational unit for better linking R&D and commercial functions


Involvement of a new unit linking R&D and commercial functions into the initial screening of innovation projects

Introduction of a formal evaluation procedure for co-development projects with customers or other value partners


Assessment of individual R&D projects that can find and external route to market

Assessment of licensing competences into the IP Office Filing 109

AN OI MANAGEMENT MATURITY FRAMEWORKS

Frank Mattes / Forrester (www.innovationmanagement.se ) Ellen Enkel, John Bell and Hannah Hogenkamp, (2011), OI maturity framework, IJIM, 15 (6), 1161–1189

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Open Innovation maturity model with four stages (1/2) n  Stage I: Experimentation.

u  This stage is characterized by initiatives driven by single Business Units, by a project-based resource allocation and by pilot runs with selected new open approaches to innovation. 60% of firms are in this stage (Forrester).

n  Stage II: Commitment. u  The second stage is achieved, when there is a CxO support for

Open Innovation, formal resources are reserved for Open Innovation, the first steps towards organizational embedding are taken and preliminary cost-benefit analyses are done. 30% of firms are in this stage (Forrester).

Open Innovation maturity model with four stages (2/2)

n  Stage III: Sustainable state. u  This stage is characterized by a CxO mandate for OI,

significant formal resources allocated to OI, solid cost-benefit analyses in place and continuous use of new open approaches to innovation. 9% of firms have achieved this stage (Forrester).

n  Stage IV: Full integration. u  The final stage of Open Innovation maturity is characterized by

the traits of stage III plus cultural embedding of OI, well-defined and well-managed innovation networks, seamless integration of Open Innovation, and shareholder value justification of the investment in Open Innovation. Maximal 1% of the firms are in this stage (Forrester).

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Elements in the maturity analysis

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OI Maturity analysis: immature firm

118

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OI Maturity analysis: mature firm

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Restructuring companies as a silent driver of OI

Philips Natlab

R&D center Applied technologies

Running businesses

R&D OI campus Applied

technologies

Running businesses

•  Downsizing •  Other functions •  Inbound OI •  Lic & spin-offs •  OI campus

•  Profit center •  Downsizing •  Ext & int clients •  Manage rel. with BU

•  In-sourcing •  Looser link with R&D and AT •  Manage rel. with AT

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OI: New frontiers and applications

Edited by: Henry Chesbrough, Wim Vanhaverbeke Joel West

2003

2006

2006 2008 2011

2013 2011

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  …

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