1ZM40 – strategy and technology management
THE ERA OF OPEN INNOVATION (CHESBROUGH, 2003)
This paper basically explains how innovation evolved in the 20th century from internal R&D to open innovation.
CLOSED AND OPEN INNOVATION
Lucent Technologies had a very good industrial research organization with was considered as a decisive strategic
weapon. However, Cisco Systems, which lacks anything resembling the deep internal R&D capabilities of Lucent
Technologies, somehow has consistently managed to stay abreast of Lucent, even occasionally beating the
company to market. This was because the two companies were not innovating in the same manner. Lucent
devoted enormous resources to exploring the world of new materials and state-of-the-art components and
systems, while Cisco deployed a different strategy. Cisco bought whatever technology the company needed from
outside. In this way, Cisco kept up with the R&D output of perhaps the world’s finest industrial R&D organization,
without conducting much research of its own.
Internal R&D is no longer a strategic asset like it used to be because of the shift in how companies generate new
ideas and bring them to market. In the old model, closed innovation (also called fully integrated innovators),
firms adhered to the philosophy that successful innovation requires control. This approach calls for self-reliance:
if you want something done right, you’ve got to do it yourself. The shift occurred because there was a rise in the
number and mobility of knowledge workers, making it increasingly difficult for companies to control their
proprietary ideas and expertise. Also, the growing availability of private venture capital, which helped to finance
new firms and commercialize their products, was a problem. These factors have wreaked havoc with the virtuous
cycle that sustained closed innovation.
In the new model, open innovation, firms commercialize external (and internal) ideas by deploying outside (and
in-house) pathways to the market (this is referred to as the “not Invented Here (NIH) syndrome). Companies can
commercialize internal ideas through channels outside of their current business in order to generate value for
the organization.
Vehicles for accomplishing open innovation:
• Startup companies: which might be financed and staffed with some of the company’s own personnel
• Licensing agreements
Old model: New model:
The major difference between the old and the new model is that in closed innovation the managers seperated
bad proposals (discarted) from the good ones (persuing and commercializing), while with open innovation bad
proposals, which are identified as false negatives (projects that initially seem to lack promise but turn out to be
valuable) can be commercialized as well.
A company focussing too internally is prone to miss opportunities (false negatives) because many will fall outside
the organization’s current business or will need to be combined with external technologies to unlock their
potential.
,Differences between closed innovation and open innovation:
MODES OF INNOVATION
Three modes of innovation: Funding, Generating and commercializing innovation.
FUNDING INNOVATION
Two types of organization: Innovation investors and benefactors.
Innovation investors = used to be the R&D budget, but now a wide range of other types like venture capital
firms, angel investors, corporate venture capital entities, private equity investors and small business investment
companies.
When the economy rebounds after an economic downturn, innovation investors will likely spot and fund new
developments in areas like genomics and nanotechnology, which will likely spur the next economic wave of
innovation.
Innovation benefactors provide new sources of research funding. They focus on the early stages of research
discovery.
GENERATING INNOVATION
Four types of organizations that generate innovation: innovation explores, merchants, architects and
missionaries.
Innovation explorers = those who specialize in performing the discovery research function that previously took
place in within corporate R&D laboratories.
Innovation merchants = those who also explore, but are focused on a narrow set of technologies that are then
codified into intellectual property and aggressively sold to (and bought to market by) others. Innovation
merchants will innovate but only with specific commercial goals in mind, whereas explorers tend to innovate for
innovation’s sake.
Innovation architects = those who provide a valuable service in complicated technology worlds. They develop
architectures that partition complexity, enabling numerous other companies to provide pieces of the system, all
while ensuring that those parts fit together in a coherent way. E.g. Boeing will engineer the overall desing of the
airplane, after which GE develops and manufactures the jet engines. Innovation architects work in areas that are
complex and fast-moving, which disfavors the “do-it-yourself” approach. To be successful, innovation architects
must establish their systems solution, communicate it, persuade others to support it and develop it in the future.
Also, they must devise a way to capture some portion of the value they create, otherwise they find it impossible
to sustain and advance their architecture.
Innovation missionaries = those who consist of people and organizations that create and advance technologies
to serve a cause. They do not seek financial profits from their work, while innovation architects do. Their mission
is what motivates them.
COMMERCIALIZING INNOVATION
Two types of organizations are focused on bringing innovation to market: innovation marketeers and one-stop
centers.
Innovation marketeers = are those who perform at least some of the functions of the other types of
organizations, but their defining attribute is their keen ability to profitably market ideas. They focus on
developing a deep understanding of the current and potential needs in the market and this helps them to identify
which outside ideas to bring in-house.
, Innovation one-stop centers = those who provide comprehensive products and services. They take the best ideas
and deliver those offering to their customers at competitive prices. They thrive by selling others’ ideas by forming
unshakable connections to the end users, increasingly managing a customer’s resources to his or her
specifications.
