The changing shape of innovation | I-CIO
Open innovation pioneer Henry Chesbrough on how new co-creation models are fueling business success in the digital age.
Ever since his 2003 book Open Innovation: The New Imperative for Creating and Profiting from Technology posited a fresh framework for 21st-century business to find and leverage new ideas, Haas Business School professor Henry Chesbrough has been refining and extending his theories on collaborative business models to encompass not just the innovation of products but of services too. Now, 15 years and several books on, open innovation is being championed by a growing number of global businesses that believe the concept holds the key to successful digital transformation.
There are two types of business guru. First, there are the power-talking egos with a fondness for platitudes, whose rhetoric and illustrations frequently serve to distract their audience from an absence of insight. Then there’s a rarer breed: the ones who genuinely merit their management guru status, visionary thinkers with the ability to articulate transformative, inspiring business truths and back those up with compelling evidence and detailed research. Thinkers like Professor Henry Chesbrough.
The bookish, softly spoken 62-year-old is faculty director of the Garwood Center for Corporate Innovation at the Haas School of Business, part of the University of California, Berkeley. Although known for coining the term “open innovation,” Chesbrough certainly makes no claim on the invention of the concept itself. Rather, he acknowledges his work builds on and updates concepts that business theorists have been kicking around for several decades. The late Peter Drucker, for example, was promoting open organizational cultures and extended networks of knowledge-sharing as far back as the late 1950s.
The reason Chesbrough’s work has become so pivotal in recent years is that as technology-driven disruption forces companies to rethink their business models and market approaches, it offers a solid framework for agile, sustainable business innovation. And it is a framework that both drives and draws upon the digital transformation strategies that so many organizations are striving to execute.
As with all the best theories, although there’s plenty of detail to delve into, the basic idea can be expressed in a single sentence. “It’s a way of companies doing innovation and R&D where they make much greater use of external ideas and technologies in their own business and, in turn, let their unused ideas be used by others,” Chesbrough says.
New pathways for innovation
Embracing that approach has required a change in mindset among many senior executives. “The old model of innovation was a closed model – think of a product development funnel, where ideas from a science and technology base are whittled down and taken to market. This is a classic technology push model. It worked very well for a long time in many industries but these days there’s too much useful knowledge available in too many areas all over the world to try to do everything yourself. In the open innovation model, there are many more pathways for ideas to come into the organization, not only from inside but also from the outside. And while some ideas may come to fruition inside the company, others can be taken to market in different ways – such as licensing to third parties, creating spin-offs or entering into joint ventures.”
When Chesbrough’s Open Innovation was first published it contrasted the traditional R&D approach with the more open models then being adopted by a handful of (predominantly technology) companies, such as Intel. “These companies bring in a lot of extra stuff to complement their internal R&D. They have built up an extensive set of programs to identify, recognize and then transfer external ideas – from universities, from start-ups and elsewhere. In turn they create platforms that others can build upon and take advantage of. In other words, they construct an ecosystem around their technologies,” Chesbrough outlined more than a decade ago. Back then the concept of ecosystems was alien to most large organizations. Now of course, they are widely understood as extended, networked communities of partners, suppliers, distributors, resellers, customers, researchers, developers, users and other stakeholders working collaboratively on shared technology platforms to help develop and bring new products and services to market.
Service economics
But the open innovation model is by no means restricted to the creation of products. “Many of the existing approaches to innovation emerged from business models focused in product-based or manufacturing-based thinking. We know much less about how to innovate in services even as advanced economies have increasingly become oriented around services,” Chesbrough said in 2010’s Open Service Innovation: Rethinking Your Business to Grow and Compete in a New Era.
Leveraging services innovation effectively is a challenging task that requires nothing less than a new approach to doing business. Even more so than with products, open service innovation requires a different mindset and a different stance towards business, customers, business models, and the ability and willingness to open up the innovation process.
That means embracing a set of new concepts: