INTRODUCTION TO OPEN INNOVATION &

UNDERSTANDING THE CONCEPT OF OPENNESS

SARAVANAN APhD Candidate,

Rajiv Gandhi School of Intellectual Property Law, IIT KHARAGPUR

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Agenda:

Invention-Innovation Open & Closed Innovation Open Source Open Innovation

Outside-in & Inside-out When OS & OI part ways? Benefits of OI Challenges for OI

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Disclaimer:

• Images, content, and published articles are for reference and illustrative purposes only. Under no circumstances should any image, logo, content or article be viewed as an endorsement for this presentation or any of its contents. This presentation is intended for educational purposes only.

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Introduction:

• Many ways internet has changes our lives• IT- digitalized: Rampant duplication

– Napster, Torrent- Millions of users to download billions of audio and videos

• Many legislations were brought to control• Technological advance- Two Phases

– Invention & Innovation

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• What is the difference between invention and innovation according to you?

Question:

Source: www.inaray.com

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Difference between Invention and Innovation:

Invention Innovation

Creation of something new Novelty and modernization

Only invention Invention + Exploitation(individuals and organizations generate new ideas and put them into practice

Concern is a singular product or process Involves an amalgamation of various products and process

E.g: Invention of MP3 Player Development of iPod

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MP3 v Apple iPod:

Vs

Source: http://www.sevenforums.com Source: www.theipodrenaissance.files.wordpress.com

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New Forms of Managing Innovation:

• Innovation process divided into different phases.

• Each phases requires distinct management.

Source: http://furtyop.myblog.it/

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Closed Innovation:

• Closed Process• Project can enter in one

way and can only exit in one way, by going into market

• Organizations generate, develop, and commercialize their own ideas belongs to the closed innovation model

• All the activities performed internally

Source: H Chesbrough, Open Business Models

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Cont…

• It is based on control.• During 1970s and 80s IT cos invested

– Eg IBM, Xerox• With the transformation of society

– Information-based, Knowledge-intensive, and Service-driven economy

• Business rules shifted radically– Closed Innovation- obsolete

• Cos to take step to open up their innovation philosophies

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Open Innovation:

• “A paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market as the firms look to advance their technology”

• Henry Chesbrough

Source: H Chesbrough, Open Business Models

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What is the Difference - Practical Approach

Benefits of the sandpit:•You don’t have to pay for all the toys•You can use the toys others don’t want•You can negotiate to play with other toys•You can play alone or together

Rules of the sandpit:•The toys must be shared•You can’t have it all your way•You must behave yourself

Closed Innovation Open Innovation

Source: http://www.pbase.comSource: http://www.excellenceincare.com.au

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Modes of open innovation

Inbound

Outbound

Pecuniary Non-pecuniary*

Direction

Financial flows

IP in-licensing

Contracted R&D services

Specialized openInnovation intermediaries

Idea & start-up competitions

Supplier innovation awards

University research grants

Joint-venture activities

Spin-offs

Corporate business incubation

Selling market-ready products

IP out-licensing

Customer & consumer Co-creation

Crowdsourcing

Publically fundedR&D consortia

Informal networking

Participation in standardization (public standards)

Donations tocommons

or nonprofits

* Without full compensation

Source: Managing Open Innovation in Large Firms, H. Chesbrough, S. Brunswicker, 2013

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Kinds of OI:

Outside-in OI• Opening up a co’s own innovation processes to

many kinds of external Inputs and contributions.• ‘Not-invented-here’ into an outside-in OI

– E.g: Bring 100s of researchers around the world to supplement you R & D activities.

– Cos acquire inventions or IP from other cos

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Inside-out OI:

• How organizations can allow unused and under-utilized ideas to go outside the organizations for others to use in their businesses and markets – E.g: Unused patents and other IP to external users. – Patents are often underused- more than half of Dow's

patents were unutilized.

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Difference between Open Source and OI:

Open Source:• Started during 1970s, even before OI

– Software vendors- impossible to change what they have developed

• MIT researcher Richard Stallman came up with the concept ‘support and sharing’ philosophy

• Creates project GNU and founded Free Software Foundation– First Success- LINUX OS (now used in all android)

• Open Source Initiative- born in California.

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Open Source Open InnovationObjects involved: Software Any type of product or service

Economic Legal Framework: - Defined

•Provides framework for economic exchange and an IP policy

Framework Change- case by case

Weight:•No such intermediaries•Code may be done via computer servers

Often dictated by a large company or defined through a specialized intermediary

Diversity:OS covers software development or improvement

Diversity is huge.Cos use OI for upstream projects (ideation, ideas competition), as well as problem solving, improving existing products, mounting research projects

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Open Source projects as examples of OI:

Source: J. West and S. Gallagher

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Where Open Source and Open Innovation Part Ways?

• Some firms involvement in OS fits the Chesbrough definition of OI.– It doesn’t mean “all OS Software is an eg for all OI”

• Scenario of using OI in Computer industry has increased– Because computer vendors are relied upon 3rd party

supplier• Important Milestone- in 1980s• IBM had decided to source their PC, CPU and OS

from Intel and Microsoft.

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In certain cases OS and OI are overlap each other

1) OS but not OI: • OS is OI only if it has a business model. • OS is not OI if it has any non-pecuniary

motivations– Eg: GNU Project.

2) OI but not OS: • 'Wintel' PC using Windows and Intel components

represent OI. • It lowered barriers to entry, of numerous 'PC

Clone' makers.

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3) Neither OS nor OI: • Norm - Use of independent software vendors

(ISVs) for external innovations. • In some cases, firms doing it in other direction,

becoming increased integrated- decreasing the relative importance of third party application providers. – Eg: i) Microsoft has integrated downstream from OS

into applications such as Windows, Money and SQL Server

– ii) Intuit- adding additional services such as loans- to extend its quicken financial management software.

Cont…

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• OS is having profound impact on IT value creation and capture, – But it is too soon to say what effect OS, OI will have upon

proprietary alternatives

Source: J. West and S. Gallagher

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Benefits of OI:

• Up gradation: Adopting global technologies – wider source of innovation.

• Acquire patent without in house expertise.• Leverage R&D developed on someone budget .• Instant solutions: Found & adopted immediately.• Constant reinvention: Constant renewing of

technology which may be difficult to achieve with in-house R&D.

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Cont…

• Improved payback on internal R&D through sale or license of otherwise unused IP.

• Strategic experiments at lower risk & resources, with the opportunity to extend core business & create new sources of growth.

• Create innovative culture, from the ‘outside in’ through continued exposure & relationships with external innovators.

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Challenges for OI:

• What is the appropriate balance of internal/external technology?

• What competencies should we invest in & control externally? How should others be acquired?

• How do we make quantum leaps in innovation?• How do we integrate board room deal making

with other types of advance technology collaboration?

• Licensee may become a competitor?• Theft of IP?

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Adoption of OI across different Industries:

Source: Managing Open Innovation in Large Firms, H. Chesbrough, S. Brunswicker, 2013

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Closed Innovation Open Innovation• IP Generators of new technologies- mainly companies• IP- barrier to entry- not source of revenue

Variety of IP generators and collaborators – other companies, public universities and R&D institutions, users, customers, suppliers.

Huge IP non-performing portfoliosCompanies usually selling but not buying

Active IP asset management of the companies’ IP portfolio – matching technologies with innovative (inside or external) business models to add value toIP

IPRs (advantage – no confusion about IP ownership)

• More proactive assertion of IP policy• Development of Intermediate IP Markets –semiconductors, biotechnology, chemicals and consumer products and Innovation Intermediaries (facilitators)

IP valuation method – Discounted Cash Flow– ‘Net Present Value’ of the technology

Use of More complex IP Valuation methods- ‘Real Option’

Models of Innovation and IP:

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Unanswered Questions?

• How innovation researchers were hired?• What incentives they were offered for their

inventions?• What is the strategy of the firm was towards

the technologies being patented?

All of these important influences are determined by managerial decisions.

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Thank You…