Open Innovation: The New Imperative for Creating and Profiting from Technology

by Henry William Chesbrough and Henry Chesbrough

Book Overview

In today's information-rich environment, companies can no longer afford to rely entirely on their own ideas to advance their business, nor can they restrict their innovations to a single path to market. As a result, says Harvard Business School Professor Henry W. Chesbrough, the traditional model for innovation--which has been largely internally focused, closed off from outside ideas and technologies--is becoming obsolete. Emerging in its place is...

• Format: Hardcover
• Language: English
• ISBN: 1578518377
• ISBN13: 9781578518371
• Release Date: March 2003
• Publisher: Harvard Business Review Press
• Length: 227 Pages
• Weight: 1.30 lbs.
• Dimensions: 1.0" x 6.4" x 9.5"

Customer Reviews

A "new vision" of the innovation process

I recently re-read Henry Chesbrough's Open Business Models and then this book, first published in 2003. In the earlier work, Chesbrough explains that a business model "performs two important functions: it creates value and it captures a portion of that value. It creates value by defining a series of activities from raw materials through to the final consumer that will yield a new product or service with value being added throughout the various activities. The business model captures value by establishing a unique resource, asset, or position within that series of activities, where the firm enjoys a competitive advantage." Having thus established a frame-of-reference, Chesbrough continues: "An open business model uses this new division of innovation labor - both in the creation of value and in the capture of a portion of that value. Open models create value by leveraging many more ideas, due to their inclusion of a variety of external concepts. Open models can also enable greater value capture, by using a key asset, resource, or position not only in the company's own business model but also in other companies businesses." What we have in Open Innovation is a development of this concept in much greater depth. As Chesbrough explains, what he characterizes as "Closed Innovation" has a number of implicit rules such as "The company that gets an innovation to market first will usually win" and "We should control our intellectual property, so that our competitors don't profit from our ideas." As a result of several "erosion factors" that have undermined its logic, Chesbrough asserts, the Closed Innovation paradigm is rapidly becoming obsolete. (Please see Table 1-4, "Contrasting Principles of Closed and Open Innovation," on Page xxvi in the Introduction.) "When the innovation context shifts from Closed to Open, the process of innovation must change as well." Chesbrough carefully organizes his material within nine chapters. In the first, he examines one of the most familiar examples of a company (Xerox Corporation) that selected technologies from its research laboratory (Palo Alto Research Center) that fit its business model, and rejected others. Apple was among the major beneficiaries of that process. "Xerox's management of its PARC technologies illustrates in a nutshell the transition from Closed Innovation to Open Innovation. Chesbrough examines the Closed Innovation Paradigm is analyzed in Chapter 2 and the Open Innovation Paradigm in Chapter 3, then offers a business model in Chapter 5 that illustrates how to connect internal and external innovation. For me, some of the most valuable material in the book is provided in this chapter. Then in the next three chapters, Chesbrough focuses on three major corporations: IBM and its transformation from Closed to Open Innovation (Chapter 5), Open Innovation at Intel, (Chapter 6), and the New Ventures Group within Lucent Technologies organization (Chapter 7). In the last two chapters, Chesbrough first shif

Important Read on Innovation

Innovation is a critical driver for the competitiveness of firms and the overall economy. It is also a difficult and messy process to understand. I have read most of the well-known books on innovation as I am fascinated with the topic. Chesbrough brings a coherent and useful point of view into this arena. The contribution of this book is mostly synthesizing a number of principles to provide a useful mental model for managing innovation. It does not present some new ground-breaking theory that knocks your socks off. For example, the author uses the metaphors of "playing chess" and "playing poker" to describe the invention process. If everything about the technical and market application is known, playing chess (i.e., making careful, methodical moves based on having all available knowledge) is appropriate. However, most innovation occurs in an uncertain environment with plenty of market and technology risk. In such cases, you need to play poker. This means there are multiple hands to be played, you need to be ready to react to new information (newly exposed cards) and you must be willing to toss a hand in when it doesn't pan out. Chesbrough hits on the idea that successful innovation often requires innovation within the business model. In fact, new ideas shoved into the existing old business model is a classic way for innovations to fail. This is one reason why new firms are often the first ones to embrace radical ideas that change industries. This book is not just conceptual models dreamed up by an academic. The author uses plenty of real world examples from companies such as Xerox, IBM and Intel. I highly recommend this book for your innovation management bookshelf.

Open Your Mind, Open Your Company

As we have come to expect from Harvard's Professor Chesbrough, Open Innovation is a wealth of insight and knowledge in how organizations can transform themselves by blending the best of their internal know-how and external sources of perspectives. Beginning with an interesting historical vantage point, Chesbrough introduces us to innovation structures as they have evolved at the beginning of the twentieth century, through the establishment of central research & development facilities and beyond. It was historian Alfred Chandler who first researched the economies of scale that resulted from the internal research & development facilities. As it points out in the book, `these R & D facilities were so successful in extracting more efficiency out of increased understanding that they created natural monopolies in many leading industries, or economies of scope'. But many erosion factors have weathered these fortresses of knowledge, and now Chesbrough maintains that innovations, however clever, are worth nothing until a viable business model is found to exploit them. The function of a business model, according to the author and colleague Richard Rosenbloom, is to: articulate the value proposition; identify a market segment; define the structure of the firm's value chain; estimate the cost structure and margin, describe the position of the firm within the value network and to formulate the competitive strategy of the offering. So invention is not enough. Organizations most follow the path to commercialization, but that route often means it must work collaboratively with many others. This approach has many ramifications on company structure and ways of working. It is hard for organizations (and their leaders) to work on having core-differentiated capabilities, while still being open with their value network. Therefore, this leads ManyWorlds to assume that those things, which are seen as true differentiators in mature companies, must move away from a specific product advantages and more toward process differentiating capabilities. While there is always a role for product innovators, the model they operate under is not usually scaleable, and companies often grow into either `economies of scale' or `economies of scope'. But finding and developing that all important part of the value network becomes a crucial skill in itself. Open Innovation is a truly excellent book that a review cannot do justice to. With detailed case studies on Xerox (and spin outs), Intel and examples from many other companies, Chesbrough has written an insightful and timely work that draws many threads together. Executives who want to explore how facets of innovation, whether internally or externally motivated, sourced or executed, would not find a better read than Open Innovation.

Essential Book

Open Innovation is the only other book besides Leifer and McDermott's "Radical Innovation" that I feel compelled to keep with me on hand at all times. It is practical, useful, and the arguments - backed by excellent deep research - is fresh and compelling. There are a lot of gurus out there saying the same old things. Chesbrough is the future. He sees where things are going, and Open Innovation is squarely focused on the force that is driving the transformation of corporate governance right now and over the next five-ten years.

not just for corporate innovation managers

Having been "grist" in the Xerox mill that Chesbrough covers (he interviewed me in 1997), I can attest to the thoroughness of his research into why Xerox didn't capitalize on the inventions of PARC. Chesbrough goes way beyond the Word template journalist seem to have for articles about PARC. Rather than pointing at the usual suspects of senior managers with no clue about innovation or research types with no clue about business, Chesbrough looks to the broader historical and social context for explanations. After examining changes in the knowledge landscape---e.g. mobility of high-skill high-knowledge people and rise of venture capital to grease exploration of high-risk high-reward ideas---Chesbrough arrives at the necessity of a shift from a closed model of innovation based on tight control to an open model based on enabling the free flow of ideas for its benefits and capturing what value can be viably captured. Besides Xerox, he looks at IBM, Intel, and Lucent in detail and many others including Microsoft, Cisco, and Merck to explore the open innovation model and how to transition. The book reads well, the years and years of research and detailed case studies don't get in the way. Beyond direct application to large corporations, the model of open innovation has significant implications for academia, government research and policy, and innovation everywhere. Even having thought about the issues covered for years, I see the book having immediate impact on my own actions.