Download - Module IV Open Innovation
-
8/8/2019 Module IV Open Innovation
1/23
Open Innovat ion
Module IV
Peter A. Koen, Ph.D.Associate ProfessorDepartment of ManagementPhone: 201-216-5406E-mail: [email protected]
2
Agenda
Closed Innovation Model
Open Innovation
IBM, Intel, P&G, Apple and Lego
Intermediaries
Innocentive, Nine Sigma and YourEncore
-
8/8/2019 Module IV Open Innovation
2/23
3
Closed Innovat ion Model
The Chemicals Industry Germany and later US
Edison, GE, and the rise of electrification
Rockefeller and Standard Oil
World W ar II scientific achievements
Great Successes
4
Closed Innovat ion
New ProductDevelopment
Front End ofInnovation
CurrentMarket
Closed Innovation Paradigm
InternalTechnology
Base
-
8/8/2019 Module IV Open Innovation
3/23
5
Hidden Assumptions
Closed Innovat ion
If I discover it, I w ill find a market for it
If I discover it first, I w ill own it
The important technologies I w ill need can beanticipated in advance
The best people in this field work for us
Pick a man of genius, give him money, andleave him alone Conant, Harvard
6
Closed Innovat ion
Principal Erosion Factors
Mobility of highly experienced and skilled people
Focus of science in Academia
Enormous increase in Venture Capital
What changed?
-
8/8/2019 Module IV Open Innovation
4/23
7
Ec onomies o f Sca le
US Enterprise Size
Source: National Science Foundation, Science Resource Studies, Survey of Industrial Research Development, 1991 and 1999.
41.4%67.7%70.7%25,000+
13.6%10.0 %13.1%10,000 24,999
9.0%5.5%5.8%5,000 9,999
13.6%7.6 %6.1%1,000 4,999
22.5%9.2%4.4%< 1000
199919891981Size (# ofemployees)
8
Techn ic a l AND Marke t Unc er ta in t y
Cannot focus R&D if market application isunknown
If everything matters, nothing has priority
Cannot solve by more planning not onlyunknown, but unknowable
Must experiment, adapt, and iterate
-
8/8/2019 Module IV Open Innovation
5/23
9
Playi ng Chess vs. Playi ng Pok er
Chess
Plan several moves ahead
No new informationneeded
You know what youve got,what opponent has
Poker
Pay to play
Pay for new information
You discover what youvegot, what other playershave
10
Adobe
Warnock and Geschke at PARC
Creating fonts for Star Workstation
Wanted to make into a standard
Xerox said no: how can we make money if wegive it away?
They leave, and form Adobe
Initial plan
Turn key publishing system, complete with ownhardware, software, and fonts
-
8/8/2019 Module IV Open Innovation
6/23
11
Adobe
We were originally going to supply a turn key systems solutionincluding hardware, printers, software, etc.
Steve Jobs and Gordon Bell were key ingredients in getting thingsgoing
Gordon said, dont do the whole system
Steve said, just sell us the software.
Thats how the business plan formed. It wasnt there in thebeginning.
Reference: Charles Geschke
12
0
5000
10000
15000
20000
25000
30000
35000
40000
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Year
US
Dollars(millions)
Xerox 3Com Adobe
Doc Sci Documentum FileNet
Komag Objectshare SynOptics
SDLI VLSI Sum (10)
Xerox
Great at Chess, but lousy at Poker
-
8/8/2019 Module IV Open Innovation
7/23
13
Lessons f rom Xerox
Xeroxs managers were NOT idiots
PARC was m anaged according to the bestpractices of the day
30+ years of funding PARC
Tremendous science and technology
No process to manage Playing Poker
A new paradigm is required
14
Shor te r Product L i fec yc les
Conventional
Volume
Intro-
duction Ramp
-up
MaturityEndof
life
DevelopmentDramaticend of life
Shorter timeto market
Fast
ramp
-up
Demandfluctuation
Higherpeak
Digital Consumer
3-5 years1 year
Source: Dr Tsugio Makimoto - Hitachi/Sony
Faster and efficient R& D processes required
-
8/8/2019 Module IV Open Innovation
8/23
15
Shor te r Product L i fec yc les
Faster and efficient R& D processes required
Speed-to-Mark et is CriticalIncreasing the Need for External
Collaboration
There is an increasing need forexternal collaboration and efficiencyin R&D to accelerate speed-to-market
Greater Need for Corporations to Gain Access toInnovation Occurring Outside its Boundaries
Non-corporate ResearchOrganization Focus On Long-term
Innovation
Corporate research labs forced tofocus on increasingly shorter productcycles
More opportunity for smallcompanies and individual inventorsto generate breakthroughs with longterm impact
16
Agenda
Closed Innovation Model
Open Innovation
IBM, Intel, P&G, Apple and Lego
Intermediaries
Innocentive, Nine Sigma and YourEncore
-
8/8/2019 Module IV Open Innovation
9/23
17
Open Innovat ion
New ProductDevelopment
Front End ofInnovation
CurrentMarket
Open Innovation Paradigm
InternalTechnology
Base
ExternalTechnology
BaseTechnologyInsourcing
NewMarket
Other FirmsMarket
TechnologySpin Offs
18
IBM & Open Innovat ion
Current
Market
InternalTechnology
Base
ExternalTechnology
Base
TechnologyInsourcing
NewMarket
Other FirmsMarket
Java andLinux
$1.9 B LicensingOEM for Semi Cond CoOEM for others
-
8/8/2019 Module IV Open Innovation
10/23
19
IBM
Materials
Chips, Devices
Computers
OperatingSystems
Productivity
Applications
Value Chain
Hidden Assumptions (Closed Value Chain)
Atoms
Solutions
Valu
e
Added
Activities
20
IBM
Materials
Chips, Devices
Computers
OperatingSystems
Productivity
Applications
IBM
Unbundling the Value Chain
Atoms
SolutionsIntegration
Materials
Chips, Devices
Computers
OperatingSystems
Productivity
Applications
Other Integrators
OEM
ValueA
dded
Activities
-
8/8/2019 Module IV Open Innovation
11/23
21
In t e l and Open Innovat ion
CurrentMarket
InternalTechnology
Base
ExternalTechnology
Base
TechnologyInsourcing
NewMarket
Other FirmsMarket
Universities
IntelCapital
Acquisitions
22
In t e l s Univers it y model
Intel contributes over $100 million annually toleading US universities (15) and overseasuniversities (12)
This is not philanthropy
Intel defines prom ising areas of scientific andengineering research to focus its $
After the NIH and NSF, Intel is one of the biggestfunding sources in its chosen areas
Elicits proposals from university researchers
Negotiates access to university IP at theuniversity, prior to funding research there
-
8/8/2019 Module IV Open Innovation
12/23
23
In te l s la tes t m ove: Lab le ts
Intel initiated (fall 2002) four smaller researchcenters, located immediately adjacent touniversities at
U Washington
Berkeley
CMU
Cambridge
Each center is led by University academic
Intent ion is joint research
Intel staff measured on joint collaborativeresearch efforts
24
P& G & Open Innovat ion
CurrentMarket
InternalTechnology
Base
ExternalTechnology
Base
TechnologyInsourcing
NewMarket
Other FirmsMarket
TechnologyScouts
VentureAcquisitions
(ex: Spinbrush)
LargeAcquisitions(Ex: LOreal)
Connect and Develop Use it orLose it
-
8/8/2019 Module IV Open Innovation
13/23
25
P& G Financia l Per formanc e
4.7
4.5
4
3.9
3.53.4
0
10
20
30
40
50
60
2000 2001 2002 2003 2004 2005
Sales(Billions)
3
3.5
4
4.5
5
%
R&D
Sales % R&D
26
P& G & Open Innovat ion
ExternalTechnology
Base
Technology Entrepreneurs (70)
Discovered 10,000 products, productideas and promising technologies.For every 100 ideas found from theoutside, one ends up in the market
China (High quality materials andcost innovations)
India (Solve problems inmanufacturing process)
Japan
Western Europe
Latin America
US
Suppliers
Share technology briefs withsuppliers using a secure IT
platform
-
8/8/2019 Module IV Open Innovation
14/23
27
Use i t or Lose i t
Use it orLose it
28
Use i t or lose i t
Use the best
Divest the rest
License,commercialize
Maintain(Confidential to
Company)Donate Retire
Income, royalties,equity stakesNone
TaxDeduction
Savings on main-tenance expenses
Action
Value beyondcore business
Could patent have commercialvalue with additionaldevelopment?
Is patent truly worthlessWhat is the donation value? Is there any reason not to
retire the patent?
Licensing - Traditional View
-
8/8/2019 Module IV Open Innovation
15/23
29
Use the best Divest the rest
License,commercialize
Donate Retire
Income, royalties,equity stakes
TaxDeduction
Savings on main-tenance expenses
Action
Value beyondcore business
Could patent have commercialvalue with additionaldevelopment?
Is patent truly worthlessWhat is the donation value? Is there any reason not toretire the patent?
Licensing - The new world
What applications exist beyondcore industries?
Who would be interested in thepatent?
What is the rough value of thepatent?
Is value best captured throughlicensing, commercialization?
MaintainConfidential to
Company)
None
Use i t or lose i t
30
IBM
Generated $1.8 Billion from royalties and income (16percent of net income in 2000)
Proctor and Gamble
Generated in 2002 over $2 billion in sales
Licensing - The new world
Use i t or lose i t
-
8/8/2019 Module IV Open Innovation
16/23
31
ALL technologies are candidates for licensing
Licensing policy
3 years after market introduction
5 years after patent is granted
Packaging may be immediately licensed
P&G retains the right to practice
Will license to competitors
P&G quote We have no competitors, only customers.
Licensing at Proctor and Gamble
Sakkab, N. Connect and Develop Compliments Research and Development at P&G, Research Technology Management,38-45; 45(2), Mar/April 2002.
Use i t or lose i t
32
Let the numbers guide the decisions Higher NPV to out license vs. keep internal Will sell, donate, swap, collaborate for capital avoidance Will trade for lower process Will use to minimize litigation costs
Separate Business Unit facilitates the process Business Unit is Staffed with approximately 40 people
Approximately 100 a deals a year with about 100 companies/year
Deal revenue returns to business unit
Partnered wi th ww w.yet2.com to post their technologiesavailable for license
Licensing at Proctor and Gamble
Use i t or lose i t
-
8/8/2019 Module IV Open Innovation
17/23
33
Yet2 .com
On line marketplacefor intellectual
property exchange
34
Agenda
Closed Innovation Model
Open Innovation
IBM, Intel, P&G, Apple and Lego
Intermediaries
Innocentive, Nine Sigma and YourEncore
-
8/8/2019 Module IV Open Innovation
18/23
35
In te rmed iar ies
CurrentMarket
InternalTechnology
Base
ExternalTechnology
Base
TechnologyInsourcing
NewMarket
Other FirmsMarket
AcquisitionsInnoCentiveNineSigma
YourEncore
NVPLLC: spinoffs
36
Innocent i ve
Innocentivebrokers solutions to
narrowly definedscientific problems
-
8/8/2019 Module IV Open Innovation
19/23
37
Innocent i ve
Example problem from I nnocentive
38
Innocent i ve
221 individuals expressed interest in solving theproblem and create project rooms onInnoCentive.com web site
10 individuals from 7 countries subm it chemicals foranalysis
Retired scientist with wet lab in his backyard wins
Solution
-
8/8/2019 Module IV Open Innovation
20/23
39
Innocent i ve
Problems posted appear mostly as organicsynthesis problems
P&G reports that 1/ 3 of problems posted aresolved
Another client* reported and ROI of 2,175% on12 posted problems
Total bounty awarded: $333,500
Internal costs: $60,000
Value generated: $10,300,000
Raynor, M. and Panetta, J., A Better Way to R&D, Strategy and Innovation, HBR Newsletter, Reprint S0503E, March April 2005.
40
NineSigma
NineSigma connectscompanies w ith
technology problems w ith700,000 potential solvers
-
8/8/2019 Module IV Open Innovation
21/23
41
YourEncore
YourEncore allowscompany to contract
short term assignmentswith 800 high performing
retired scientists andengineers from over 150
companies atpreretirement salary
adjusted for inflation
42
NineSigma
P&G helped create NineSigma
P&G has distributed 100 technology briefs to over 700,000people
Completed 100 projects with 45% of them leading to agreementfor further collaboration
Company preparestechnology briefwhich describes
the problem
NineSigma posts problem700,000 solution providers
at other companies,universities, governmentand private laboratories
Solvers submitsnon-confidentialproposal back to
NineSigma
Company connects withsolver if project has meritfor further collaboration
-
8/8/2019 Module IV Open Innovation
22/23
43
Open Innovat ion
What it is
Strategic IP management
Strategic R&D
Technology + business model
Technical invention
Win-win partnership
Core R&D processes
Innovation ecosystem building
improving R&D ROI
What it is NOT
Free access to corp.technologies
Outsourced R&D
Technology only
Commercial innovation
Appropriating value
New ventures
Partnerships
Cutting research costs
44
Why is Open Innovat ion Cr i t ic a l?
A more agile R & D process
Increased ability to turn on a dime and adjust to unpredictablemarket shifts
A higher new product hit rate
Increases the number of truly innovative products and commercialsuccesses
A greater effectiveness of R & D
Higher new product success rate through iterative researcher &
customers contact Faster time-to-market and lower development spend
Decreased Risk of Missing Market Opportunities
Fewer false negatives given early exposure to market and alternativedevelopment paths; also less risk of being blind-sided by competitiveproduct, technology, service introductions
Growth and Renewal
-
8/8/2019 Module IV Open Innovation
23/23
45
Logic o f Open Innovat ion
Good ideas are w idely distributed today. No onehas a monopoly on useful know ledge anymore.
Industrial innovation processes must play poker,as well as chess
We must manage IP in order to manage research:
Need to access external IP to fuel our business model
Need to profit from our own IP in others businessmodel
Not all of the smart people in the world w ork forus.