henry chesbrough - open innovation seminar 2009 - brazil

Open Innovation:

Realização: Open

Innovation Center - Brasil

Patrocínio Oficial e

Colaboração: Allagi –

Open Innovation Services

Open Innovation:

A New Approach to Industrial R&D

Henry Chesbrough

São Paulo, Brasil

22/10/2009

Open Innovation:

A New Approach to Industrial R&D

Presentation to Open Innovation Conference

Sao Paolo, Brazil

Henry Chesbrough

Center for Open Innovation

UC Berkeley

October 22, 2009

The Current Paradigm: The Current Paradigm: A Closed Innovation SystemA Closed Innovation System

TheMarket

Science&

Technology

3

ResearchInvestigations

Development New Products /Services

MarketTechnologyBase

R D

XeroxXerox’s Business Model, ’s Business Model, and Project Evaluation and Project Evaluation ErrorsErrors

4

�Designed to minimize “false positive” errorsIgnores risk of “false negative” errors

ChessChess

• Plan several moves ahead

• No new

5

• No new information needed

• You know what you and your opponent have

PokerPoker•• Pay to playPay to play

•• Pay for new Pay for new informationinformationinformationinformation

•• Discover what Discover what other players and other players and you haveyou have

6

Xerox: Great at Chess, Lousy at Poker

7

InternalTechnology

Base

TheOpen Innovation Paradigm

New Market

Technology Spin-offs

Other Firm’s MarketLicensing

8

CurrentMarket

Base

R D

Technology Insourcing

ExternalTechnology

Base

License in

Spin in

Acquire

Open innovation in practise

9 C 2002 Henry Chesbrough EIRMA SIG III, 2005-10-20

Robert Kirscbaum, DSM: Research & Technology management, July – August 2005

DivestSpin out

License out

� “The creation of new businesses is a highly dynamic process, best represented as a horizontal funnel” (passed in iterative steps)

Open Innovation

Our new market

Other firm´s market

Internal technology base

License, spin out, divest

Our current market

External technology insourcing

External technology base

Stolen with pride from Prof Henry Chesbrough UC Berkeley, Open Innovation: Renewing Growth from Industrial R&D, 10th Annual Innovation Convergence, Minneapolis Sept 27, 2004

Internal/external venture handling

2003: We broke up the fortress …

Philips Research,Ronald Wolf, 10/08

Bringing in the right partners – Open innovation

> 75 companies and

> 7000 people at

High Tech Campus Eindhoven

Philips Research,Ronald Wolf, 10/08 12

Research institutes

Economic development companies

Corporate innovators

Consultancy & services

Venturing timescale longer: keep it apart from business

Co

nsu

mer L

ifestyle


Co

nsu

mer L

ifestyle

Health

care

Lig

htin

g

The expansion of the corporate funnel

InsourcedIdeas /Technology

ODM

OEM

Spin inStart upsIP insourcing Acquisitions


Front – end Development Commercialization

OEMIP insourcing

Incubators Spin outIP Licensing

Acquisitions

Alliances

BP’s challenge in February 2006

• Energy Bioscience looked promising (Senior Executiv e buy-in)

• How do we meld commercial/technology strength with biology/biotech?

− The company had no bio-expertise

• How to reach out to biology/biotech communities

− Not a corporate lab!

− Corporate labs too insular – can’t tap broader expertise in a rapidly moving field

− Where was the Energy/Bio talent pool anyway?

− Not the usual university research programme

− BP does many of these and knows strengths/weaknesses

− Need to facilitate the development, demonstration, and commercialization of research results

15

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UC Berkeley

Funding for Open and Proprietary Components

$50M/yr


BP

16


Lawrence BerkeleyNational Laboratory


Other BP Components

UC BerkeleyHost Institution

A imagem não pode ser exibida. Talvez o computador não tenha memória suficiente para abrir a imagem ou talvez ela esteja corrompida. Reinicie o computador e abra o arquivo novamente. Se ainda assim aparecer o x vermelho, poderá ser necessário excluir a

imagem e inseri-la novamente.

University of IllinoisUrbana-Champaign


Other Entities

subcontractscontracts

contracts

ENERGY BIOSCIENCES INSTITUTE (EBI)OPEN RESEARCH

BP R&TPROPRIETARY RESEARCH

subcontracts

$35M/yr

$15M/yr

BP Proprietary Component

Licensing provisions

For inventions solely owned by UCB, UIUC and/or LBNL

NON-EXCLUSIVE EXCLUSIVE

17

Non-exclusive, royal free (NERF) license in BP’s area of interest, providing:

- BP will diligently pursue commercialization

- BP will underwrite the patent costs

BP may obtain exclusive license rights to sole or joint inventions.

- pre-negotiated capped fees

- “Bonanza clause” in case of extraordinary commercial success

Intel’s University model

• Intel contributes over $100 million annually to leading US universities (15) and overseas universities (12)

• Intel defines promising areas of scientific and engineering research to focus its $

© 2004 Henry Chesbrough18

engineering research to focus its $

− After the NIH and NSF, Intel is one of the biggest funding sources in its chosen areas

• Negotiates access to university IP at the university, prior to funding research there

Intel’s latest move: “Lablets”

• Intel has recently (fall 2002) initiated four smaller research centers, located immediately adjacent to universities at

− U Washington

− Berkeley


− Berkeley

− CMU

− Cambridge

• Each center is led by University academic

• Intel staff measured on joint collaborative research efforts

Intel and Startups

• Intel has pioneered the use of Corporate Venture Capital to invest in startups

− Most active CVC investor today, 1000 investments

− Increasingly focused outside US


• Two important roles for its CVC

− Grow the current market using Pentium products

− Explore potential new markets for Intel products− Best market research you can buy!

InternalTechnology

Base

Intel & Intel & Open Innovation Open Innovation

New Market

Other Firm’s Market

LANDesk

21

CurrentMarket

Base

R D


ExternalTechnology

BaseUniversities

IntelCapital Acq’ns

The iPodThe iPodTony

FaddellTony

Faddell9

mo

nth

s!9

mo

nth

s!9

mo

nth

s!9

mo

nth

s!

Not Just for High Tech: Procter & Gamble

New Market

“Use it or Lose it”

Other Firm’s Market

InternalTechnology

Base

23

CurrentMarket

R D

ExternalTechnology

BaseTechnologyScouts

Base

VentureAcquisitions“Spinbrush”

LargeAcquisitions“Gillette”

An Iberian Example: El An Iberian Example: El BulliBulli

• Ferran Adria studies molecular gastronomy, working with Herve This, a French physical chemist

• Adria brings this to El Bulli, restaurant is the Lab

• Adria launches many business experiments

24

• Adria launches many business experiments

• Borges: oils, snacks

• Lavassa: coffee

• N H Hoteles: FastGood, Nhube

• Iberian Airlines (with FastGood)

• Careful not to dilute the El Bulli brand

Finding Partners: A Massive Filtering Problem

The Unwashed

The Suspects

© 2006 Henry Chesbrough 25

The Suspects

The ProspectsThe

Finalists

The Partner(s)

InternalTechnology

Base

Intermediaries & Open Innovation

New Market

NVPLLC: spinoffs

Other Firm’s MarketIP Value - licensing


CurrentMarket

Base

R D


ExternalTechnology

Base InnoCentiveNineSigmaYet2.com

InvestmentBanks

Sequoia/Cisco

Other Innovative IP IntermediariesInbound• Innovation Exchange• SSIPEX• Yet2.com


• YourEncore.comOutbound• IpValue, ThinkFire (patents)• Utek, Flintbox (university technology)• New Venture Partners, LLC (spinoffs)

Is the internal R&D department Is the internal R&D department an antiquated concept?an antiquated concept?

• No – open innovation can leverage internal R&D

• But…..

• New focus: must look outside as well as inside

• New role: connecting to and collaborating with the

28

• New role: connecting to and collaborating with the outside

• New skill: integrating internal and external together

How do companies gain access to the right

competences at the right point in the

innovation process?

�Want

�Find

29

�Find

�Get

�Manage

How do companies gain access to the right competences

at the right point in the innovation process?

WantWhat is our “shopping list”?

FindWhere will we find these resources?

ManageHow will we manage these resources, once we have signed the agreement?

GetHow will we access the resources? How do we structure the agreement?

Sources: Hoffman-Laroche; Slowinski and Segal, 200 3

Building Your Shopping List

Start with your product road map

Identify the gaps, missing pieces, and open spaces to be explored

Define the external relationships needed to support the business strategy

� Whom are we targeting (type of partners)?

� Are we collaborating on or outsourcing (value chain module)?

� How deep does our relationship need to be?� How deep does our relationship need to be?

Share across internal organizations. They will nee d to work with external innovation partners too!

Let’s Focus our Discussion a Bit—WGFM Model Applied to Co-Development



Open InnovationStrategy

External PartnerIdentification


GetHow will we access the resources? How do we structure the agreement? Structuring the

Relationship

RelationshipManagement

One Key Distinction

Define your requirements

| 33CoDev 2007 Conference, Workshop D—29 January 2007 | © 2007 PRTM Proprietary | 33CONFIDENTIAL

Transaction• one time• little ongoing support needed• little or no investment needed

Relationship• ongoing• support required• investment required

Innovation Intermediaries: A great transaction res ource

Intermediary (Company) Focus Primary Function

InnoCentive Online exchange portal Marketplace for technology transfer/agent

NineSigma E-mail RFPs Agent

Big Idea Group Concept developer Agent/codeveloper

Yet2.com Technology exchange Online marketplace / technolgoy licensing

Accelovation Linguistic-based Internet research

Search engine

InnovationXchange Membership-based innovation community

Broker

Shanghai Silicon IP Exchange

Repository for legally obtained semiconductor IP

Broker

Ocean Tomo IP merchant banker Market maker

Source: Open Business Models , Henry Chesbrough, 2006

Relationships Require Consideration of Both Parties

1. Short-term returns for both companies

� Don’t try to “boil the ocean”

2. Clearly defined long-term potential for both comp anies

� Collaboration “set-up costs” are too great for merely a quick win

3. Shared vision of technology and market developments

Cisco’s Critical Partner Evaluation CriteriaCisco’s Critical Partner Evaluation Criteria

3. Shared vision of technology and market developments

� Agree on “where the world is headed”

4. Shared destiny of cooperation, not competition

� Supports openness with technical information and sharing of intellectual property

Source: “Model of Co-Development Emerges”; Deck and Strom, Research * Technology Management, May–June 2002








Relationship


Business Contract and the JDA—Tools for “Get”The Joint Development Framework helps to structure the relationship

Joint DevelopmentAgreement (JDA)

� Structures specific projects

� Developed by the ones who will

Project Operational FocusBusiness Contract

� Structures the ongoing relationship

� Developed and negotiated by senior management

Global Relationship Focus

� Developed by the ones who will use it

� Provides operational flexibility

� Defines development responsibilities, schedules, milestones, and deliverables

� Focuses on how the relationship will work (e.g., communication, issue resolution, project reviews)

� Legally binding and establishes liabilities

� Sets intellectual property rights

� Scopes boundaries under which multiple JDAs can be written

� Supersedes the JDA when discrepancies arise

Intellectual Property Needs MatrixBackground intellectual property

Foreground intellectual property

Inside the Boundaries Cell 1 Cell 2

Outside the Boundaries Cell 3 Cell 4

Upon Termination Cell 5 Cell 6

Great Partners Work Seamlessly Along“Want, Find, Get, and Manage”

Want

Find

GetManage

Targeted,Receptive & Proactive

Fast efficient due diligence, valuable to the partner

Negotiates high quality agreements – rapidly, two way link to strategy

Execute Seamlessly Builds a Multi-Project, High Value RelationshipDeliver Marketplace Results

Overall: Expeditious, Trustworthy, Capable

Copyright 2006; PRTM and Alliance Management Group, Inc.

Collaborative R&D: An Example

• P&G and Clorox• Problem: Clorox obtained Glad brand from

Dow as Dow focused its business portfolio– No R&D in the pipeline

© 2006 Henry Chesbrough

42

– No R&D in the pipeline– Risk of commoditization

• Opportunity: P&G had two technologies internally that lacked a path to market– Press ‘n Seal– Force Flex

Management Challenges

• P&G was a competitor to Clorox

• Neither company had done a collaborative deal with a competitor


43

deal with a competitor

• How to structure a collaboration?– How much is each side contributing?

– Will each side perform?

– Will either side go around the other?

P&G Alternatives• Launch directly

– Good test market results– Tough times in 2002– Likely competitive response

• Straight License to Clorox


44

• Straight License to Clorox– How much help will they need?– Will they perform?

• Straight Technology Sale to Clorox– What about follow-on technology in pipeline?

The Solution: a JV Company

• Clorox held 80%, P&G had 10%, with option on another 10% (since exercised)– P&G paid Clorox $133M for the additional

10% in 2005


45

10% in 2005

• Glad products now in #1 market position• Business now ahead of plan• Clorox didn’t have to worry about P&G

entry into market

The Collaboration Bonus: New Business Opportunities

• Clorox has approached P&G to distribute some of its brands in Japan– Rather than build its own distribution


46

• This collaboration has also been successful– Would never have occurred but for first JV

• Both companies are winning• Both companies had to change long-held

management practices

Which Would You Rather Have?

A Great Technology

OROR

A Great Business Model

Photo Credits

Flickr: Chess/Fox, Tuesday Night Poker/Rambis, Ryan Air/ezreenphotography, Ryan Air New Boeing 787 Colours/macrodebs, 332/265/Digg Pirate, The bus shelter at the edge of the ocean/goddess_spiral, Flickr treo ad/Steve Rhodes, Technology - "Future treo ad/Steve Rhodes, Technology - "Future Vision“/$ydney

iStockphoto: 000003004014, 000003062424, 000004293861, 000007135639, 000005589058, 000000718722

iPod photo: http://www.apple.com/ipodclassic/

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henry chesbrough - open innovation seminar 2009 - brazil

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