Open innovation — a term coined by an American professor in 2003 — is now a fact of life for big business. Spanning most service and industry sectors, it is driving a significant change in culture at most multinational corporations. What forms does open innovation take? What advantages does it offer? Open innovation’s originator, Henry Chesbrough, Executive Director of the Center for Open Innovation at the Haas School of Business at the University of California, Berkeley, sheds light on the subject.
What is open innovation?
Henry Chesbrough / Open innovation is a process that assumes that firms can and should use external as well as internal ideas, and internal and external paths to market, as they look to advance their technology.
What forms does open innovation take?
H. C. / Open innovation can take many forms, which shows that there are now many participants in corporate innovation. The time when you had to do everything by yourself to do something valuable is past. It can be a big corporation working with much smaller businesses or start-ups, it can be a collaboration with individuals through crowdfunding initiatives, public entities or universities where researchers offer a true alternative to their own internal R&D labs. I would say it’s always a good idea to work with both your own internal R&D lab and outside experts who are sometimes more able to question and judge your new ideas. Finally, open innovation can even be a corporation opening its patent portfolio in order to cross licenses and exchange ideas.
Since you first defined open innovation in 2003, has business climbed on board?
H. C. / Let me give you an example: when I typed both words on my search engine in 2003, 200 page links came up in the results. The words “open” and “innovation” would appear in the same sentence, but there was no meaning to the term. Ten years later, there were 483 million page links. This massive increase shows that it had become an accepted concept. Open innovation started in the ICT* sector, but it quickly spread to the industrial sector and consumer packaged goods, then to services like banking, insurance, finance and transportation, and to oil and gas too. So, I’d say it’s not in all industries, but in most of them. I recently contributed to a survey that looked at companies in Europe and the U.S with sales of more than $250 million. It turns out that 78% of them are using open innovation.
How do you explain its success?
H. C. / Useful knowledge is now spread widely throughout society. Before, experts and researchers used to be behind closed doors in their R&D labs. Today, with increased mobility, the Internet and universities, there are lots of very skilled people working outside those labs, and they’re too valuable to ignore. I’ll give you an example of what competitive advantages open innovation can give you: Lucent was competing with Cisco back in the 1990s and had about 50,000 patents. Cisco only had one patent and no research lab. Everyone thought Lucent was going to keep this dominant position. But Cisco prevailed over Lucent because it was based in Silicon Valley, surrounded by start-ups, and could acquire a lot of those small firms with new ideas. Lucent relied too much on its internal R&D, and didn’t do enough with the external knowledge surrounding it.
Does open innovation require a consistent corporate strategy?
H.C. / I think it does. A company that did it well is HP. They integrated it in their strategy planning process. They chose five or ten areas of strategic interest that became topics of research, basically used it as a shopping list, and sent a call for proposals in those areas to universities and researchers outside the firm. What is clever about this is that, before you spend any money, you receive all the responses from all these external researchers in the exact areas you have identified as being of strategic importance. Then you can fund the ones that fit your needs best. You also need a clear strategy to be efficient at finding valuable people. Open innovation is about social networks. Big companies always have big networks, but they can be managed more effectively. You could create a scientific advisory board made up of experts from different areas and get them to help expand that network according to your specific needs. Many innovative ideas come from start-ups. You need to be able to identify them to use them as labs, because they can do things a lot quicker than internally.
* Information and Communication Technology