Open Innovation: A New Paradigm for Managing Technology

Transcription

1 Open Innovation: A New Paradigm for Managing Technology Presentation to OECD Conference on New Business Strategies for R&D October 22, 2001 Henry Chesbrough Assistant Professor and Class of 1961 Fellow Harvard Business School

2 A Closed Innovation System Science & Technology Base The Market Research Investigations R Development D New Products /Services

3 The Virtuous Circle for R&D Fundamental Technology Breakthroughs Increased investment in R&D New Products and Features Increased Sales and Profits via existing business model

4 The Payoff to Doing Research # of patents awarded # Basic Research Articles

5 The Payoff to Research - Pharma 2500 Merck 2000 No of Patents Bayer Pfizer Hoechst/MMD Warner-Lambert Abbott Eli-Lilly DuPont Ciba-Geigy Hoffman-LaRoche Rhone-Poulenc B-M-S 500 Burroughs-Wellcome No of published articles Source: K. Lim, National University of Singapore

6 Hidden Assumptions in the Internallyfocused Innovation System If I discover it, I will find a market for it If I discover it first, I will get it to market first If I discover it first, I will own it The important technologies I will need can be anticipated in advance The best people in this field work for us

7 Shifts in the Research Environment Increasingly mobile trained workers More capable Universities Knowledge distributed more widely Diminished US hegemony in many leading technology fields Erosion of oligopoly market positions Deregulation Enormous increase in Venture Capital

8 Xerox s Innovation System

9 Graceful Exits and Foregone Opportunities Xerox 3Com Adobe Doc Sci Documentum FileNet Komag Objectshare SynOptics SDLI VLSI Sum (10) US Dollars (millions) Year

10 The Virtuous Circle Broken Fundamental Technology Breakthroughs IPO or acquisition Increased investment in R&D New Products and Features Key engineers exit to form new company RIP Increased Sales and Profits Venture Capital helps team focus on new market, new business model

11 The Payoff to Research - Semiconductors Semiconductor Firms - Relevant Patents vs Basic Research Publications, IBM No of patents Natl Semi Motorola Toshiba Mitsubishi TI Hitachi, NEC Fujitsu ST Micro Philips Intel Siemens Matsushita NTT AT&T No of published articles Source: K. Lim, National University of Singapore

12 The Open Innovation Paradigm Internal Technology Base External Technology Base R Technology Spin-offs Technology Insourcing D New Market Current Market

13 Implications for Firms Can internal R&D continue to be justified, in a world of dispersed ideas, abundant capital, and a mobile workforce? If startups are generating numerous experiments, how can firms learn from their experiences? Are startups parasitic, or mutualistic? Should good research practice admit careful monitoring of startups activities? Should companies promote startup activity?

14 IBM s Innovation System Research internally generated, but externally applied Global Services supports multiple vendors Unbundling components of systems for sale to competitors Careful patenting and vigorous enforcement Leading US patent recipient for each of last 6 years Collected over $1.7 billion in patent royalties in 2000 compared with ~$600 million in basic research

15 Intel s Innovation System Little investment in basic research in an industry driven by Moore s law internal labs focused on taking research into mfg. Aggressive program to sponsor academic research monitor external research developments stimulate research in areas of interest manage the institution, as well as the researcher create an Intellectual Commons we don t have to own it to profit from it Intel had 600 internal researchers in 1996 Intel spent over $100 M in external research in 1996

16 Intel s Innovation System - part II Intel pioneered the use of corporate venture capital to stimulate the growth of markets for its products spent <$50M in 1994, spent $1.3B in 2000 Intel has achieved good returns from its investments (until this year) Intel s corporate investments also stimulate the search for new markets and new technologies communications market a prime example Intel Labs and Intel Capital report to same person!

17 Locus of Research/Paths to Market External Locus of Innovation Internal Intel Labs IBM products Xerox Internal Path to Market Intel CVC IBM components, IP Xerox Spin-offs External

18 The Logic of Open Innovation We should not restrict research to internal pathways to market. We must manage IP in order to manage research: need to access external IP need to profit from our own IP Our researchers must expand their role: knowledge brokers, as well as knowledge generators. We don t have to own the research to profit from it. Not all of the smart people in the world work for us. We must have enough smart people to recognize excellent research. Therefore we must do some internal research. We must compete and collaborate to advance our technology. Research can help define how we collaborate.

19 Implications for Science & Technology Policy Open Innovation will generate lots of recombination, due to wide diffusion of knowledge. Where will the seed corn for fundamental breakthroughs come from in future? What institutions are needed? Labor markets: training, education, univ. research Capital markets: startup formation, discipline IP: access to public, limited protection of private To what extent should policy promote diffusion, vs. protect invention activity in this new environment?