Open Innovation: Is it Really Worth Sharing?

I recently received a very interesting comment. So interesting, in fact, that I feel it is worth posting. Sit tight, this is a long post. I would like to thank Micheal for putting forth such an interesting question.

Michael wrote:

The entire special report on Innovation in the recent Economist is worth the read. In the article you cite, “The Love-in…” I would be curious to read your critical assessments about the challenges facing management to even move slightly toward “open innovation”.

For example, it seems that one of the daunting issues facing management when contemplating such a move is to redefine the firm’s value proposition. I can illustrate one example from a recent conversation with a book author. He wrote his first book about 25 years ago and his most recent in 2004. He was lamenting that his most recent book can now be downloaded from several web sites. Aside from whether the availability of his book on these sites is legitimate, let’s assume that it is, to him it means that he is not being compensated for the consumption of his work product.

I think this is a relevant example because. as in open innovation, the value of his work has shifted from the physical representation of his work — the book — to something else. He could see this as a new opportunity to gain credibility as the expert he clearly is that will lead to other “value generating” activities (e.g., career enhancement, consulting engagements, etc.).

Perhaps this is a trivial example of open innovation, but I think the basics are there. For firms that move toward open innovation they clearly have to accept that “always invented here” meant they could patent their ideas and build a patent portfilio of some value of its own, while also generating profits from products and services flowing from the inventions/innovations. But if they are content to not own the inventions themselves, then a new value proposition needs to established to make it all worth the effort.

I don’t know the answer to this question. I suspect it varies by firm, product, service and industry – but I’m reasonably certain it’s a major question facing the prospectcs of open innovation.

Agree? Disagree? Thanks!

Michael, I absolutely agree when you say that the entire special report on Innovation in the recent Economist is well worth the read. Innovation is such a hot topic, that having the economist dedicate so many pages to it was quite a treat.

Though the articles examine innovation from many angles, they continue to leave us (or me anyway) with that lingering feeling that though a lot of possibilites were presented, little was laid out in the way of real, solid roadwork. That is to say, there was no “tear out, foldable, pocket innovation roadmap” for me to use. Not that that is the ultimate goal, but it would be nice if we were a little closer.

I must tell you though, that I have only recently begun to familiarize myself with the world of innovation, in the economic sense. I am a beginner, and I find it fascinating, but I am by no means an expert. That in mind, I found your example of the writer very relevant.

A similar example, that came to me immediately when I read your post, was something currently happening in the music industry. For some artists, the challenge of controlling illegal downloads has proven to be a tsunami not worth swimming against. Within the last few months, a few major artists (e.g., Madonna) have announced that they will not re-sign with their record companies and will offer their music online, for free. Indeed, this indicates that they are confident that they have developed a new, innovative, business model and will gain revenue with other ‘value generating’ activities (e.g. concerts, merchandise, other appearances, etc). These are exciting (though if you are a recording executive, I bet REALLY scary) times in the music industry with regard to innovation. I believe the publishing industry will be forced address similar issues, as you have shown.

For many industries, the R&D/in house patent model is so difficult to let go of (the pharmaceutical industry comes to mind). I think it will continue to be that way depending on the product or service offering. It is crucial to keep in mind that a patent is only as good as the attorneys protecting it. So, for smaller companies, it might not be a justifiable fight, thereby making open innovation, potentially, a more profitable choice. Not owning the patent and sharing the knowledge or technology does force the organization to find ways to add value that are not easily duplicated. It forces companies to innovate.

Open innovation requires networks. The trick, it seems, it to manage your networks and offer enough information to keep a continuous flow (both to and fro) yet not give up the entire farm, so to speak. You want to give up enough knowledge or technology to nuture your network, but not so much that you put yourself out of business. This is a delicate balance and one that is very much a constant concern for the IT industry.

So, I agree. If companies are content to not own the inventions themselves, then a new value proposition needs to be established to make it all worth the effort.

Thank you so much for such a compelling comment! Please visit again.
Nina.

Open Innovation = “Never Invented Here”?

An article in The Economist (Oct 13th-19th, 2007 p.16-19) titled “The love-in: The move toward open innovation is beginning to transform entire industries” This article discusses the interesting dynamics of open innovation and how some industries embrace it, while others simply do not.
Henry Chesbrough, wrote “Open Innovation” and “Open Business Models” and is largely credited with popularizing the concept of open innovation. He is a professor at UC Berkeley, and the article states that he “observes with a smile that ‘this is the 40th anniversary of the Summer of Love’.” Berkeley, “at the very heart of the anti-establishment movement of the 1960s”…spawning “plently of radical thinkers”, seems a natural birthplace for concepts and ideas in relation to innovation.

Open innovation results in organizations sharing and gleaning ideas with individuals and organizations outside their own. Bright ideas are openly shared and used resulting in more agile corporate development. Fast failure and getting products to market more quickly, reduced internal R&D expeditures are potential benefits. Losing the proprietary technology necessary to mantaining a competitive edge is a possible downside.

Here are some surprising stats:

All in all it is a pretty interesting article and makes compelling arguements both for, and against, open innovation. You can read it here.

And the picture of the stethoscope at the top of the page is from Bang & Olufsen. I just like their design process. They collaborate with students and universities a lot. Smooth design.

Creativity, Innovation and The 4th State

Copenhagen Business School, among others, is/are/were hosting The 10th European Conference On Creativity And Innovation (14-17 October 2007) ECCI X. There are a few bloggers blogging on it. I followed Silberbauer’s blog and found they had a few things to say about it. I did not get a chance to go, which is a disappointment, but as I perused their website, I was lassoed into watching this video on Consciousness, Creativity and the Brain. Chalk it up to having a long-standing admiration for David Lynch coupled with a never-ending fascination with graphically displayed mental activity (brain waves, specifically). I wouldn’t feel right if I did not alert you to the length of this video (almost two hours). It roped me in from breakfast to lunch. Interesting. The 4th state of consciousness. I suspect the inventors out there are familiar with this, whether they put a name to it or not.

David Lynch: Consciousness, Creativity and the Brain

Innovation and the Inventor

Here is an interesting dilema. You invent a thing. You are creative, inspired, brilliant or lucky, but you invent something the world needs it does not yet have. Now what? Well here’s the thing. Many times, inventors enjoy the process of inventing. The process of taking the new product to market is, as I stated in a comment reply yesterday, so long, arduous and frusterating that they give up or go broke. What are the possible next steps? I’ve made an incomplete list;

Your Invention, what next?

1. To patent or not to patent?
2. Keep the idea or sell it to someone else and let them take it to market?
3. Create a brand
4. Create a business plan
5. Find backing (capital): your own, f&f’s, angels or venture
6. Spend your first round of seed money
7. Spend your second round
8. Spend your third round
9. Manage your growth
10. Keep it or sell it and move on to the next big invention (see #2)

I invite all inventors to comment on their experiences. Revamping and revising this list would be the goal. I know what the textbooks say. I know what the probabilities are (of success and failure). But, what has been your experience?

I used to think that “take it all the way to the market” would be the only satisfying option. But now, I wonder if “selling it for the most you can and let someone else do all that work” might not be a better way.

I sometimes think that inventors are much like artists. An artist might be a brilliant painter, yet horrible at selling his/her own work. Of course, most of us, would like to be good at everything. So we strive to beat the odds and do it all. I still believe in that. The striving to beat the odds thing. It’s what keeps us inspired.

Schumpeter, Innovation and Creative Destruction

The following is clipped directly from Wikipedia:

Schumpeter, The Man

Born in Triesch, Moravia (then part of Austria-Hungary, now Třešť in the Czech Republic), Schumpeter was always a brilliant student and praised by his teachers. He began his career studying Law at the University of Vienna under the great Austrian capital theorist Eugen von Böhm-Bawerk, taking his PhD in 1906. In 1909, after some study trips, he became a professor of economics and government at the University of Czernowitz (a German-language university in Austria, now in Ukraine), in 1911, at the University of Graz, where he remained until World War I. In 1919-1920, he served as the Austrian Minister of Finance, with some success, and in 1920-1924, as President of the private Biederman Bank. That bank collapsed in 1924 and left Schumpeter in bankruptcy. From 1925-1932, he held a chair at the University of Bonn, Germany. Having to leave central Europe because of the rise of the Nazis, he moved to Harvard (where he had already lectured in 1927-1928 and 1930), where he taught from 1932 to 1950.

Schumpter and Creative Destruction

Creative destruction, introduced in 1942 by the economist Joseph Schumpeter, describes the process of transformation that accompanies radical innovation. In Schumpeter’s vision of capitalism, innovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power.

Schumpter and the Types of Innovation

There are numerous types of innovation-generating creative destruction in an industry:
-New markets or products
-New equipment
-New sources of labor and raw materials
-New methods of organization or management
-New methods of inventory management
-New methods of transportation
-New methods of communication (e.g., the Internet)
-New methods of advertising and marketing
-New financial instruments
-New ways to lobby politicians or new legal strategies (though many economists would argue that this last is not a genuine example of creative destruction, so much as an example of using force of government to prevent more innovative or lower cost competitors from selling to one’s customers)

Innovation and Economics: A quick look at Europe

Innovation occurs on a global scale and has become increasingly important to the global economy. Economic globalization has reshaped the world economic order. (Commission of European Communities 2006) To stay competitive within this new world economic order, Europe must be more innovative. “These legitimate concerns must be turned into an opportunity to enhance Europe’s global economic competitiveness. The quicker it can react, the higher the chance of success and the greater prospect that its approach will serve as a global model. [...] the Commission is convinced that innovation in a broad sense is one of the main answers to citizens’ material concerns about their future.” (Commission of the European Communities 2006)

The Organization for European Economic Co-ordination (OECD) has acknowledged the importance innovation plays in growth of output and productivity. The understanding of innovation activities has increased but is still lacking. “For example, as the world economy evolves, so does the process of innovation. Globalization has led to dramatic increases in access to information and new markets for firms. It has also resulted in greater international competition and in new organizational forms in order to manage global supply chains. Owing to advances in technologies and greater flows of information, knowledge is more and more viewed as a central driver of economic growth and innovation. Yet, we do not fully understand how these factors affect innovation… (OECD)

Innovation Hits the Road

You remember back in August and September when I was writing about the Innovation Bubbles? Well, I was walking by to have a look yesterday and it looks like they’re packing up to hit the road. It was pretty interesting to see the poor bubbles with their tops blown off, little plastic half-orbs laying around the park, ideas moving on.

The third picture (up there to the right) is an invention called the “tongue sucker”. This is an interesting concept in that it allows a person with little or no first aid cpr experience to clear an airway immediately. Interesting little device. I have left that file a little bigger than the rest so that those interested in reading more about it can read the info on the photo (above).

DIGRESSITORICAL SIDENOTES: If having these pictures on this blog slows down the loading of the page, please drop me an email or leave me a comment. I may start just putting them up on flicker and linking to a flicker page.

Also, all the photos on this blog, so far, have been taken with my cellphone camera. I have a Sony Ericsson K800i. I love my phone.

On an academic note, I had a meeting with the company and my advisor regarding the finalization of the direction of my project while I am here. It took an unexpectedly interesting turn. What I though was so obvious and necessary was only scratching the surface. There is so much to learn. More on that later.
Hope everyone is having a fantastic day! The sun is breaking through the rain laden clouds as I write this. A little afternoon sunshine bathes this very damp city. Copenhagen’s weather is almost as unpredictable as Boston’s.

Focus Focus Focus

We conducted a focus group yesterday. It was for a client who is taking new foods to a new European market. We brought in 10 students from CBS who were fresh from their homeland-their homeland being the market the client wanted to enter. We had a discussion with the students for about an hour, talking about this food, what their perceptions were and how tradition played a role in their choices and willingness to try new things. We then did a blind tasting having them fill out questionaires. Afterwards there was a little eating and drinking and more discussion. It was quite good and very informative. The client was there and took part in discussions. We gleaned valuable information from this focus group. It was the first step toward setting a direction for the company’s goals for innovating new food products. I did this and a million other things over the course of this last week. A very busy and productive week working with a tremedous group of people.

Suspense and Innovation

Hello World! My first blog. I arrived in Copenhagen exactly one week ago. Working through lost luggage and a new language, I have found Denmark to be incredibly welcoming, efficient and innovative. On my way to my Danish Crash Course at Copenhagen Business School, I noticed these “bubbles” in the park. Each bubble showcases an innovative product. I must investigate further…

…still waiting to hear what company I will be placed with…