© 2010 Henry Chesbrough 1

Open Innovation:Implications for Catalonia

Henry ChesbroughHaas School of Business, UC Berkeley

yESADE, Ramon Llul University

La Pedrera, BarcelonaJune 17, 2010

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The Current Paradigm: A Closed Innovation System

ResearchInvestigations

Development New Products /Services

TheMarket

Science&

TechnologyBase

R D

Xerox’s Business Model, and Project Evaluation Errors

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Designed to minimize “false positive” errorsIgnores risk of “false negative” errors

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Chess• Plan several

moves ahead• No new

information needed

• You know what you and your opponent have

Poker• Pay to play• Pay for new

information• Discover what

other players and you have

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Xerox: Great at Chess, Lousy at Poker

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CurrentMarket

InternalTechnology

Base

R D

The Open Innovation Paradigm

Technology Insourcing

New Market

Technology Spin-offs

ExternalTechnology

Base

Other Firm’s MarketLicensing

Open Innovation

Our current market

Our new market

Other firm´s market

External technology insourcing

Internal technology base

External technology base

Stolen with pride from Prof Henry Chesbrough UC Berkeley, Open Innovation: Renewing Growth from Industrial R&D, 10th Annual Innovation Convergence, Minneapolis Sept 27, 2004

Internal/external venture handling

License, spin out, divest

Philips Research,Ronald Wolf, 10/08

2003: We broke up the fortress …

Philips Research,Ronald Wolf, 10/08 10

Bringing in the right partners – Open innovation

> 75 companies and > 7000 people at High Tech Campus Eindhoven

Research institutes

Economic development companies

Corporate innovators

Consultancy & services

Philips Research,Ronald Wolf, 10/08

The expansion of the corporate funnel

Front – end Development Commercializa

InsourcedIdeas /Technology

ODMOEM

Spin inStart upsIP insourcing

Incubators Spin outIP Licensing

Acquisitions

Alliances

© 2008 Henry Chesbrough 12

Procter & Gamble

• P&G used to be a VERY closed organization– “We invented Not Invented Here” – J. Weedman

• P&G financial crisis, in 2000– Missed a series of quarterly financial estimates– Stock market lost confidence in the company– Stock price fell by more than half in 4 months!– CEO (Jagr) was fired

© 2008 Henry Chesbrough 13

P&G’s Stock Price: 8/1998-3/2000P&G Stock Price

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Pri

ce p

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are

© 2008 Henry Chesbrough 14

Searching for the Root Cause

• “We fundamentally had a growth problem. Our current brands were performing well. But we weren’t developing many new brands.” – C. Wynett

• To get new brands, P&G needed to open up.• Connect and Develop

– SpinBrush, Swiffer, Regenerist

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A.G. LafleyPresident and CEOP&G

“We will acquire 50% of our innovations from outside P&G”

Jeff Weedman 28 External Business Development managers

VP, External Business Development

“We don’t care where good ideas come from.”

Larry Huston (just retired)120 Technology Entrepreneurs

VP, Knowledge & Innovation, Corporate R&D

Nabil Y. SakkadSVP, R&D, Global Fabric & Home Care

“There’s 1.5 Million people in the world who know about my business. I want them on my

team”

Example: Proctor & Gamble

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P&G Share Price Restored!

© 2008 Henry Chesbrough 17

The New P&G

• Many processes to enable open innovation– Technology scouts– Legal templates for IP, partnering– Investments in Innovation Intermediaries

• The Goal Now: Become the open innovation partner of choice

Which Would You Rather Have?

Better Technology Better Business Model

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OR

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Go with the Business Model

Business Model > Technology

Ability to profit from technologyAbility to scale technologyAbility to continue innovating

technologyAbility to acquire technology

Generic Airline Business Model

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Passengers Airline

Food Aircraft, FuelCleaning

Airport:• Runway• Check-In• Jetway

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Ryan Air

Ryan Air is a regional low-fare airline operating in the United Kingdom and northern Europe.

•Only flies into regional airports, no landing fees. •Guarantees airport certain # passengers in their terminal•Airport pays Ryan Air to operate out of its airport•Airport provides Ryan Air a percentage of the revenues from shops, restaurants, car hire and hotels at airport.

Ryan Air Business Model

Passengers

Ryan Air Aircraft, Fuel

Airport:• Car Hire• Parking• Hotels• Shopping

and Food

Food

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Jetway,Check-In,Cleaning

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The Business Model

• Identifies market segment• Articulates value of proposed offering• Focuses on key attributes of offering• Defines value chain to deliver offering• Creates way for getting paid • Establishes value network needed to sustain model

Sample Business Model Revenue Mechanisms

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Per item and “all you can eat” Razor and Razor Blade

Free trial, follow on subscription

Free, with paid advertising

Sample Business Model Revenue Mechanisms

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Recruit your friends, and save money

Market maker/aggregator/switchboard

Turn cost centers into profit centers:

Airport landing fees (Ryanair)Hotel room

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Business Model Maturity Stages

6 Stages:

1. Undifferentiated business model

2.Differentiated business model

3. Segmented business model

4. Externally aware business model

5. Integrated business model

6. Platform leadership business model

openclosed

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Pitch IT investments

Evaluate collaboration

partners

Understand customers

Understand suppliers

Understand competitors

Train new employees

How to use a

Business Model

An Iberian Example: El Bulli

© 2008 Henry Chesbrough 28

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An Iberian Example: El Bulli• Ferran Adria studies molecular gastronomy, working

with Herve This, a French physical chemist• Adria brings this to El Bulli, restaurant is the Lab• Adria launches many business experiments

• Borges: oils, snacks• Lavassa: coffee• N H Hoteles: FastGood, Nhube• Iberian Airlines (with FastGood)

• Careful not to dilute the El Bulli brand

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How Can A Catalan Football Club Beat One Funded by a

Russian Billionaire?

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No One Person in Catalonia Can…But Everyone in Catalonia Can!

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Is the internal R&D department an antiquated concept?

• No – open innovation can leverage internal R&D• But…..• New focus: must look outside as well as inside• New role: connecting to and collaborating with the

outside• New skills: integrating internal and external together• Closer coordination with Intellectual Property• For False Negatives, Business Model Innovation

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Photo Credits

Flickr: Chess/Fox, Tuesday Night Poker/Rambis, Ryan Air/ezreenphotography, Ryan Air New Boeing 787 Colours/macrodebs, 332/265/Digg Pirate, The bus shelter at the edge of the ocean/goddess_spiral, Flickr treo ad/Steve Rhodes, Technology - "Future Vision“/$ydney

iStockphoto: 000003004014, 000003062424, 000004293861, 000007135639, 000005589058, 000000718722

iPod photo: http://www.apple.com/ipodclassic/

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