open innovation seminar 2008 - brazil - henry chesbrough
DESCRIPTION
Prof. Henry Chesbrough's speech at the Open Innovation Seminar 2008, the first event about the subject in Brazil, promoted by Allagi. The event took place at the World Trade Center São Paulo in June 16, 2008.TRANSCRIPT
Open Innovation Seminar 2008 – Allagi
Inovação aberta - Brasil
Henry ChesbroughCenter for Open Innovation – UC Berkeley
Palestra Open Innovation and Open Business Models
June 16, 2008 – São Paulo/SP
© 2008 Henry Chesbrough 2
Open Innovation and Open
Business Models
Open Innovation Seminar 2008
World Trade Center, Sao Paulo, Brazil
Henry Chesbrough
Executive Director
Center for Open Innovation
UC Berkeley
Where Were the Great Ideas for
Innovation 50 or 100 years ago?
• Individual Inventors
• A few very large companies’ R&D labs
• “The key [to success] is to find a man of
genius, give him money, and leave him
alone.”
– James Conant, former President, Harvard Univ.
© 2008 Henry Chesbrough 3
© 2008 Henry Chesbrough 4
The Current Paradigm:
A Closed Innovation System
Research
Investigations
Development New Products
& Services
The
Market
Science
&
Technology
Base
R D&E
© 2008 Henry Chesbrough 5
Diminishing Economies of Scale:
US Industrial R&D
by Size of Enterprise
Company Size 1981 1989 1999 2003
< 1000 employees 4.4 % 9.2% 22.5% 22.5%
1,000 – 4,999 6.1 % 7.6 % 13.6% 14.8%
5,000 – 9,999 5.8 % 5.5% 9.0% 7.5%
10,000 – 24,999 13.1% 10.0% 13.6% 13.4%
25,000 + 70.7% 67.7% 41.3% 40.9%
Sources: National Science Foundation, Science Resource Studies, Survey of Industrial
Research Development, 1991, 1999, 2001, 2003.
© 2008 Henry Chesbrough 6
R&D Spending by Firm Size, in $
0
50000
100000
150000
200000
250000
1960 1970 1980 1990 2000 2002 2003
in m
illio
ns o
f d
ollars
>25000
10k-25k
5k-10k
1k-5k
<1000
© 2008 Henry Chesbrough 7
What changed?
Five Erosion Factors
1. Increasingly mobile trained workers
2. More capable Universities
3. Diminished US hegemony
4. Erosion of oligopoly market positions
5. Enormous increase in Venture Capital
Where are the Great Ideas today?
• Individual Inventors
• SMEs
• Universities and Research Institutes
• Some large companies
• “Not all the smart people in the world work
for you.”
– Bill Joy, founder, Sun Microsystems, now
Partner at Kleiner Perkins.
© 2008 Henry Chesbrough 8
© 2008 Henry Chesbrough 9
Current
Market
Internal
Technology
Base
R D
The Open Innovation Paradigm
Technology Insourcing
New
Market
Technology Spin-offs
External
Technology
Base
Other Firm’s
MarketLicensing
10 C 2002 Henry Chesbrough EIRMA SIG III, 2005-10-20
Closed innovation
Our current
market
Our new
market
Other firm´s
market
Open innovation
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
Licence, spin
out, divest
© 2008 Henry Chesbrough 11
R.I.P
2007
R.I.P
Proudly Found
Elsewhere!
A New Perspective Towards R&D
© 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: 8/1998-3/2000
P&G Stock Price
40
50
60
70
80
90
100
110
120
130
9/17
/199
8
10/1/199
8
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1/6/200
0
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/200
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2/17
/200
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3/2/200
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3/16
/200
0
3/30
/200
0
Pric
e p
er s
hare
© 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
| 15| 15
A.G. Lafley
President and CEO
P&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. Sakkad
SVP, 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
| 16| 16
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
© 2008 Henry Chesbrough 18
Balancing Internal and External
R&D Funding: P&G100
1000
0 % from internal
% from
External
Westinghouse
Raytheon
TI
Nokia
Hitachi
P&G 2002
Source: Gassmann, v. Zedtwicz (2002)
© 2008 Henry Chesbrough 19
Balancing Internal and External
R&D Funding: P&G100
1000
0 % from internal
% from
External
Westinghouse
Raytheon
TI
Nokia
Hitachi
P&G
2002
2007
Source: Gassmann, v. Zedtwicz (2002)
Open Innovation examples in Latin and South America
Biocancer (Br) Provides drug development and clinical trial services to
international pharmaceutical companies, mostly from the USA
TVEI (Br) A company founded by local media industry experts, offers
multi-platform sport-related interactive content to consumers and
advertising services to businesses.
Movix (Ch) Technologies for mobile operators developed by former
employee of a large telco, the main product was licensed exclusively to
a(nother) telco
Akikb (Ch) Self-storage solution, not available in Chile at the time,
based on a widespread model from the USA and leveraging the
infrastructure of an established “sister” construction company
Alltournative (Mx) Ecotourism and recreational experiences with the
support and collaboration of local Mayan communities
Interfactura (Mx) Billing software and services initially developed for
a large firm and integrated to its network of suppliers
Source: Dr. Jaime Garcia Alba, IADB
Case Studies’ Innovation Sources
Biocancer TVEI Movix Akikb Alltournativ
e
Interfactura
Innovation Process Service Product ServiceProduct/Proce
ssProcess
Networking
Patterns
Global Value
ChainIntra-industry Intra-industry Transplant
Global Value
chain
Company
Value Chain
FinancingPersonal,
Customerself
Internal
company
Sister
Companyself
Internal
company
Intellectual Assets Not Important Important Not Important Not Important Not Important Not important
Source: Dr. Jaime Garcia Alba, IADB
Case Studies Key Success Factors (KSFs)
Initial Customers: Most start with very few clients, typically large
firms
Prior Experience: A number of entrepreneurs have an international
background (prior US experience)
Business Focus: Most offer services rather than products
Source of Capital: Personal/Family sources initially, followed only
later by bank and PE/VC
IP Protection: Not a KSF. Limited use of intellectual property
protection mechanisms
Source: Dr. Jaime Garcia Alba, IADB
© 2008 Henry Chesbrough 23
Challenges facing SMEs
• Less internal R&D capability
• Less ability to absorb external R&D
• Less “status” as a partner for others
• Less market power, weaker ability to
capture value
• Less IP (usually, not always)
• IP Enforcement often too expensive
© 2008 Henry Chesbrough 24
Advantages of Small Companies
• Size: markets that are too small for large firms can be attractive
• Focus: greater ability to execute for a specific segment or set of customer needs
• Specialization: ability to develop deep knowledge of a specific domain
• Entrepreneurial: external focus on results, much less internal “politics”
• Speed: faster decisions, faster execution, faster results
© 2008 Henry Chesbrough 25
Open Innovation Benefits for SMEs
• Large firms increasingly value collaborative partnerships
• Large firms create platforms that seek supporting investments from SMEs
• Users (customers) initiate more innovative activity, a big opportunity for SMEs
• SMEs can expand geographically now at lower cost, “hidden champions”
• Greater rewards to specialization in Open Innovation
© 2007 Henry Chesbrough 26
Current
Market and
Business
Model
Research Development
Job #1: Strengthening the Current Business
Internal
Research
projects
Venture
investing
Product/ Technology
acquisition
Technology
In-licensingExternal research
project
© 2007 Henry Chesbrough 27
Current
Market and
Business Model
for your firm
Research Development
Job #2: Finding and Growing the New Business
Research
projects
Venture
investingExternal research
project
Other firm’s
Market and
Business
Model
New
Market and
Business Model
for your firm
License & JV
Venture &
Acquisition
Issues for Open Innovation
• Where will the basic science come from?
• Will stronger Intellectual Property help or hurt
the greater inflow and outflow of ideas?
• Will companies accept external ideas as
willingly as internal ideas?
• Will companies allow internal ideas to flow
outside to other businesses?
• How can companies manage Open Innovation?
© 2007 Henry Chesbroug 28
Issues for Open Innovation in
Brazil
• Can Universities and Research Institutes rise
to the challenge of working more effectively
with industry?
• Can SMEs obtain the necessary financial and
human capital to innovate and grow?
• Are Intellectual Property laws and
enforcement sufficient for Open Innovation?
• Will large companies collaborate, or exploit?
© 2007 Henry Chesbrough 29
| 30
Sustaining Innovation Capabilities:What You Innovate and How You Innovate
Focus of
Traditional
Product
Development
Systems
“Closed” “Open”
Product
and Service
Innovation
Business
Model
Innovation
Challenge: New
Ways to Create and
Capture Value
Challenge:
Ecosystem Design,
Growth and
Sustenance
Challenge:
Becoming an
Innovation Partner
of Choice
Changin
g the
What
Changing
the How
Wh
at
Yo
u In
no
va
te
How You Innovate
| 31
Graphic Illustration of a Generic Airline Business Model
Air Travel
Airport Aircraft, Fuel
Runway Check-in Jetway
Cleaning
Food
Passengers Revenue
Costs
© 2007 Henry Chesbrough 32
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.
| 33
The Ryan Air Business Model
Air Travel
Airport
Check-inJetway
ParkingShopping
& Food
Car HireHotels Aircraft, Fuel
Cleaning
Food
Passengers
Revenue
X XX
X X
Cost
© 2007 Henry Chesbrough 34
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
© 2007 Henry Chesbrough 35
Adopting Darwin’s Perspective
• “It is not the strongest of the species that
survives, nor the most intelligent that
survives. It is the one that is the most
adaptable to change.”
• By analogy, it is not the strongest or best
informed business model that prevails.
© 2007 Henry Chesbrough 36
The Business Model Innovation
Gap
• Who is responsible (budget and authority) for
business model innovation at your company?
• What processes are in place to experiment with
alternative business model possibilities?
• How do resources for business model innovation
compare to resources for technical innovation?
© 2007 Henry Chesbrough 37
What is Innovation?
Before
• Invention
• Product
• Technology-driven
• Internally generated
• Engineering’s job
© 2007 Henry Chesbrough 38
What is Innovation?
Before
• Invention
• Product
• Technology-driven
• Internally generated
• Engineering’s job
After
• Commercialization
• Business, including
process and biz model
• Business/value-driven
• Internal Integration of
int. and ext. stuff
• Everyone’s job
© 2007 Henry Chesbrough 39