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Open Innovation: The New Imperative for Creating and Profiting from Technology Paperback – September 30, 2005
"Warlight" by Michael Ondaatje
A dramatic coming-of-age story set in the decade after World War II, "Warlight" is the mesmerizing new novel from the best-selling author of "The English Patient." Pre-order today
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From Publishers Weekly
The great corporate research departments at companies like Bell Labs, IBM and Xerox were once the motor of American industry. But that may be changing, according to this probing academic study of corporate technological innovation. Chesbrough, an assistant professor at the Harvard Business School, argues that the old "closed innovation" model-vertically integrated research-and-development departments that develop technology in-house for the sole use of their corporate parent-is becoming obsolete in an age of mobile scientific workers, ubiquitous high-tech startups and a growing extra-corporate research establishment at university labs. Modern technology powerhouses like Cisco and Microsoft do little of their own basic research, he reports; instead they have dropped the "do-it-all-yourself" approach and pioneered a new model of "open innovation," in which companies import ideas from without and let their own innovations enter the wider marketplace. Drawing on case studies of companies like Lucent and Intel, Chesbrough suggests that companies make themselves more permeable to the flow of knowledge through such strategies as hiring professors and grad students as summer consultants, sponsoring university research, investing in and partnering with high-tech startups and venture capitalists, and disseminating their own innovations through spin-off companies or even by publishing it in the public domain. Chesbrough's sophisticated but highly readable discussion of these complex issues will give managers much food for thought.
Copyright 2003 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.
"...offers an original explanation of why the old 'big labs' model of corporate innovation turned out to be inadequate." -- Financial Times --This text refers to an out of print or unavailable edition of this title.
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The author begins by providing background for the test-case companies, Xerox and PARC. Afterwards, the author discusses the tactics (Chess and Poker games) that were implemented during the transition. Moving forward, the author discusses how to transform a firm with solely internal R&D (closed environment) into a firm that leverages both external and internal R&D (open environment). Three case studies are provided in support of the authors push for open innovation.
The first case study focuses on how IBM overcame the pressures from market-dominating competition by using open innovation. IBM took the plunge and converted their methodology from closed to open innovation, yielding many benefits after switching. IBM is a legacy company that essentially created the underlying computer science used in both software and hardware for much of modern technology. One issue that IBM had to tackle was their complete vertical integration. To overcome their closed innovation and vertical integration, IBM turned to open innovation to broaden their capabilities. In doing this, IBM went from providing an end-to-end computing system in a closed environment to partnering with their clients to better meet the client’s goals. IBM stopped guarding their technology, and instead allowed other companies to leverage it, thus maximizing IBMs profits.
The second case study reviews how Intel incorporated open innovation from the beginning, and the success that it brought them. The founders of Intel used lessons from prior employers and chose open innovation to close the divide between research and development from the start. Open innovation worked significantly better than traditional R&D as seen with IBM and Bell (AT&T). When companies like IBM and Bell significantly reduced their R&D budget, customers looked to Intel to continue improving to meet new customer demands.
The third case study centers around the Lucent Bell Labs and how they created a new way of marketing through the establishment of venture capital firms. Lucent Bell adopted a systematic approach to designing a new business model for the company's internal technology after carefully studying Xerox's business model. Lucent Bell’s open success rule was to spread internal knowledge into the external marketplace, to commercialize the company’s internal technology through creating an external venture organization, and to create a new business model in the process.
The author analyzes how the companies should use their internal and external intellectual property to create value through the study of business model. The author believes it crucial for a company to find a suitable model that maximizes the value of intellectual property by analyzing internal and external business model limitations. He goes on to assert that companies should first study the entire technology market, and then work on how to manage the intellectual property. He also briefly introduces the patent research and application process by citing case analysis of several large companies (Millennium Pharmaceuticals, IBM, and Intel).
The conclusion recaps the concepts of how a company can make the transition from closed innovation to open innovation by defining a business model through the learnings of others, Launching the VC model, and most importantly, creating the relationship between company and knowledge source. In addition, there are key insights on advancing a current business by growing new business and discovering new opportunities to expand the current business. In summary, the author provides many facts to back the argument that companies should embrace Open Innovation.
Still this book was the first to use these ideas and put them in a useful framework that is relevant for most businesses today. This is a valid extension of previous ideas. For this reason I think this book is very valuable if you are a manager or an academic interested in open innovation. I could also recommend the author's Open Business Models: How to Thrive in the New Innovation Landscape, which is almost like part 2 of this book. I would recommend reading them together. The author's recent Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era is mostly covering the same ground and I can't really recommend it.
Chesborough is a scholar and his writing is a bit scholarly. If you don't like this approach because you think most business schools ideas are a bit fluffy and disconnected from reality you might consider The Open Innovation Revolution: Essentials, Roadblocks, and Leadership Skills instead. This book is taking the perspective of a middle manager that wants to do open innovation in the company in which he is working. It is very much a hands-on approach of how to do it. Some managers, me included, are not so keen on this kind of managerial self-help book, but if you like that kind of book please have a further look. On the other hand if you want more of a research perspective have a look at this edited volume, which has contributions from several academics Open Innovation: Researching a New Paradigm.
This book covers a wide range of business models, both good and bad, with case studies for each. Most samples are mentioned only briefly, like RCA's response to the transistor. (They invested more in vacuum tubes!) Three major case studies show three major strategies for the trade in ideas: Xerox, Intel, and IBM. The Xerox model never successfully opened itself to the marketplace of ideas, and Xerox suffered for it. Intel, by contrast, went for years with no formal R&D group of its own. accepting and improving others' technology. IBM showed how a company could transform itself from an innovation hermit to a gregarious buyer and seller of technology.
The book is very readable. It gives enough information to make each point clear, in terms of real companies in the recent past. The author avoids both MBA jargoneering and academic dryness, making this very accessible to any interested reader.
This is a quick and rewarding read. It lacks academic rigor, but it's at a good level for anyone wanting a practical perspective on innovation strategies, yesterday, today, and in the transition between.
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