Open innovation: Open innovation:

What it is and how it is changing IP use What it is and how it is changing IP use

& business models?& business models?Open innovation: Open innovation:

Side Side eventevent at WIPO General at WIPO General AssembliesAssembliesSide Side eventevent at WIPO General at WIPO General AssembliesAssemblies

Prof. dr. Wim Vanhaverbeke Prof. dr. Wim Vanhaverbeke

Hasselt Hasselt UniversityUniversity

VlerickVlerick Leuven Gent Management SchoolLeuven Gent Management School

ESADE Business SchoolESADE Business School

GenevaGeneva

September 22, 2010September 22, 2010

What is Open Innovation?

“Open innovation is the use of purposive “Open innovation is the use of purposive

inflows and outflows of knowledge to inflows and outflows of knowledge to

accelerate internal innovationaccelerate internal innovation, and , and expand expand accelerate internal innovationaccelerate internal innovation, and , and expand expand

the markets for external use of innovationthe markets for external use of innovation, ,

respectively.”respectively.”

ChesbroughChesbrough, Vanhaverbeke, West, Vanhaverbeke, West

Open Innovation: Researching a New Paradigm Open Innovation: Researching a New Paradigm

(OUP, 2006)(OUP, 2006)

A Closed Innovation SystemA Closed Innovation System

The

Market

Science

&

Technology

ResearchResearch

InvestigationsInvestigations

DevelopmentDevelopment New ProductsNew Products

/Services/Services

MarketTechnology

Base

R DSource: Henry ChesbroughSource: Henry Chesbrough

What changed? What changed?

New Division of Innovation LaborNew Division of Innovation Labor

�� Increasingly mobile trained workersIncreasingly mobile trained workers

�� More capable universitiesMore capable universities

�� Knowledge distributed more widely throughout Knowledge distributed more widely throughout the worldthe worldthe worldthe world

�� Diminished US hegemony in many leading Diminished US hegemony in many leading technology fieldstechnology fields

�� Erosion of oligopoly market positionsErosion of oligopoly market positions

�� Deregulation (EUDeregulation (EU--liberalization)liberalization)

�� Enormous increase in Venture CapitalEnormous increase in Venture Capital

Source: Henry ChesbroughSource: Henry Chesbrough

Internal

Technology

Base

Inbound OI: Filling the gaps with external Inbound OI: Filling the gaps with external

technologytechnology

New

Market

Current

Market

Base

R DTechnology InsourcingTechnology Insourcing

External

Technology

BaseExternal research projectsExternal research projects

Venture investingVenture investing

Technology inTechnology in--licensinglicensing

TechnologyTechnology

acquisitionacquisition

Source: H. Chesbrough, Source: H. Chesbrough, Sloan Management Review, Sloan Management Review, Spring 2003Spring 2003

Breakaway innovation takes a lot of time

for reaching large business sizes

Immediate growth requires acquisition of early growth ventures

CAGRCAGR

100100

Start 600 KStart 600 K

Start 600 KStart 600 K

30%30%

10M10M

75%75%

1B1B

Acq. 60MAcq. 60M30%30%

1B1B

Venturing in the outside worldVenturing in the outside world

Source: Loek Nijman Source: Loek Nijman -- PhilipsPhilips

Revenue in Revenue in

10 years10 years

10M10M 100M100M 1B1B

1010

1M1M

Start 600 KStart 600 K

Start 600 KStart 600 K

10%10%

3M3M

10M10MAcq. 60MAcq. 60M 1B1B

Internal

Technology

Base

Outbound OI: Profiting from others’ use of your Outbound OI: Profiting from others’ use of your

technologytechnology

New

Market

Technology Spin-offs

Other Firm’s

MarketLicensing

Current

Market

Base

R DTechnology Insourcing

External

Technology

Base

Source: H. Chesbrough, Source: H. Chesbrough, Sloan Management Review, Sloan Management Review, Spring 2003Spring 2003

Why business models are hard to Why business models are hard to

manage: Mapping across domainsmanage: Mapping across domains

Technical Technical

Inputs:Inputs:EconomicEconomic

Outputs:Outputs:

Business

Model

• target marketInputs:Inputs:

e.g.,e.g.,

feasibility,feasibility,

performanceperformance

Outputs:Outputs:

e.g.,e.g.,

value,value,

price,price,

profitprofit

• target market

• value prop.

• key attributes

• value chain

• how paid

• value network

Measured in technical domainMeasured in technical domain Measured in social domainMeasured in social domain

The Business Model

�� Identifies a Identifies a market segmentmarket segment�� Users to whom the technology is useful and the purpose for which Users to whom the technology is useful and the purpose for which

it will be usedit will be used

�� Articulates the Articulates the value of the proposed offeringvalue of the proposed offering�� Value created for users by the offering based on the technologyValue created for users by the offering based on the technology

Focuses on the Focuses on the key attributes of the offeringkey attributes of the offering�� Focuses on the Focuses on the key attributes of the offeringkey attributes of the offering

�� Defines the Defines the value chainvalue chain to create and deliver that to create and deliver that

offering offering (+ complementary assets)(+ complementary assets)

�� Creates Creates a a way for getting paidway for getting paid

�� Cost structure and target marginsCost structure and target margins

�� Establishes the Establishes the value network / ecovalue network / eco--systemsystem needed needed

to sustain the modelto sustain the model

OI ? Open source? Open science? OI ? Open source? Open science?

User innovation? User innovation?

OI always requires a BMOI always requires a BM

�� Determines how Determines how to create valueto create value::

�� what to get from the outsidewhat to get from the outside

�� what to monetize by external pathways to the marketwhat to monetize by external pathways to the market�� what to monetize by external pathways to the marketwhat to monetize by external pathways to the market

�� How to How to capture value / capture value / to make money:to make money:

�� Technology market or product marketTechnology market or product market

�� Sharing IP and sharing profitsSharing IP and sharing profits

�� Equitability + trust !!!Equitability + trust !!!

�� WhatWhat is for free and is for free and whatwhat to to paypay??

�� OI : (inOI : (in--)(out)(out--))sourcingsourcing / / collaborationcollaboration + + valuevaluecreationcreation and and capturecapture

WhatWhat to do to do ifif othersothers ownown IP IP

whichwhich is is valuablevaluable to to youyou??whichwhich is is valuablevaluable to to youyou??

Case of Case of externalexternal corporatecorporate venturingventuring

How to organize for OI?

External Venturing at XYZ �� Pitfall : Pitfall : Large firm invests in a startLarge firm invests in a start--up and uses its up and uses its

financial participation as a power tool to enforce financial participation as a power tool to enforce

cooperation on terms of the investing companycooperation on terms of the investing company

Start-up

XYZ-BUXYZ-V

Is it an interesting investment?Is it an interesting investment?

Yes? Then a minority participationYes? Then a minority participation

Once there is a financial Once there is a financial

participation there is no ex participation there is no ex

ante deal how to handle the ante deal how to handle the

transfer of technology!transfer of technology!

How to organize for OI?

External Venturing at DSM

�� Rationale:Rationale:�� Strategic return, not a financial returnStrategic return, not a financial return�� One of the BU should benefit from itOne of the BU should benefit from it

�� Therefore: Therefore: Negotiation is a Negotiation is a three way negotiationthree way negotiationThere are There are two deals two deals packaged into packaged into one one overall dealoverall dealoverall dealoverall deal

Start-up

DSM-BUDSM-V

1. 1.

Option creation:Option creation:

Is it an interesting investment?Is it an interesting investment?

2. 2.

Option exercising:Option exercising:

Can the new technology createCan the new technology create

a new business in the future?a new business in the future?

How to organize for OI?How to organize for OI?

External Venturing at DSM External Venturing at DSM

�� Result: negotiate to get a maximal winResult: negotiate to get a maximal win--win situationwin situation�� Both firms can offer each other a lotBoth firms can offer each other a lot

�� The large firm:The large firm:�� business and market intelligencebusiness and market intelligence�� application technologyapplication technology�� marketing knowmarketing know--howhow�� marketing knowmarketing know--howhow�� large scale manufacturinglarge scale manufacturing�� credibility among large potential clientscredibility among large potential clients�� patent writing skillspatent writing skills�� ……

�� StartStart--up:up:�� new technology, business model, etc..new technology, business model, etc..�� entrepreneurial risk taking and decision makingentrepreneurial risk taking and decision making�� ……

Tensions and debates: Tensions and debates: The following conflicting interestsThe following conflicting interests

•• High upfront investmentHigh upfront investment•• Opportunity to work with Opportunity to work with

other partiesother parties

•• No upfront investmentNo upfront investment•• ExclusivityExclusivity

SanusSanusDSM Food SpecialtiesDSM Food Specialties

other partiesother parties•• Time to develop Time to develop

products/marketsproducts/markets•• No risk for No risk for SanusSanus•• Limited, more focused Limited, more focused

approach on other approach on other applicationsapplications

•• Access to DSM resourcesAccess to DSM resources

•• Quick resultsQuick results

•• No risk for DSMNo risk for DSM•• Technology to be used in Technology to be used in

strategic areas of DSMstrategic areas of DSM

•• Full access to IP of Full access to IP of SanusSanus

© Wim Vanhaverbeke – UH –

Vlerick - ESADE1525/08/2011

How to organize for OI?

External Venturing at DSM

Six reasons not to start a power play with Six reasons not to start a power play with external ventures:external ventures:

1.1. Bad reputation:Bad reputation: when the large, investing firm is looking when the large, investing firm is looking for interesting startfor interesting start--ups as a recurrent practiceups as a recurrent practice

2.2. Pushing Pushing too hard for a particular applicationtoo hard for a particular application (based on (based on 2.2. Pushing Pushing too hard for a particular applicationtoo hard for a particular application (based on (based on the business model and proposed application of the the business model and proposed application of the large, investing firm) large, investing firm)

�� Market potential of startMarket potential of start--up technologies is still very up technologies is still very uncertain because of the early stage technology. uncertain because of the early stage technology. Keep options openKeep options open for unintended but interesting for unintended but interesting applications. applications.

�� limits business potential of startlimits business potential of start--up (and thereby up (and thereby shareholders value)shareholders value)

….….

How to organize for OI?

External Venturing at DSM

Six reasons not to start a power play with Six reasons not to start a power play with

external ventures:external ventures:

3.3. Might Might kill the spirit of good cooperationkill the spirit of good cooperation..

4.4. Kill entrepreneurial spirit by creatingKill entrepreneurial spirit by creating another "corporate another "corporate 4.4. Kill entrepreneurial spirit by creatingKill entrepreneurial spirit by creating another "corporate another "corporate

puppet on a string"puppet on a string"

5.5. Could Could limit exit possibilities and exit valuelimit exit possibilities and exit value for other for other

shareholders (by lockshareholders (by lock--in to/dependency onin to/dependency on corporate)corporate)

6.6. Could result in litigationCould result in litigation if perceived as abuse of if perceived as abuse of

economic powereconomic power

Strategic use of IPStrategic use of IP

in open innovationin open innovation

ExamplesExamplesExamplesExamples

Setting a standard and Setting a standard and precompetiveprecompetive R&DR&D

License scheme of Bekaert & ContinentalLicense scheme of Bekaert & Continental(technical standards)(technical standards)

BekaertBekaert ContinentalContinental

Other Other

clientsclients

Other Other

supplierssuppliers

0%0%

x %x %

2x %2x %

100%100%100%100% 60%: 60%: compensation for licensing activitiescompensation for licensing activities 40%40%

clientsclientssupplierssuppliers

Proposal:Proposal:•• X = …% of net sales value of supplied productX = …% of net sales value of supplied product

•• Supplier collects royaltiesSupplier collects royalties

•• CrossCross--license agreement between client and supplier implying:license agreement between client and supplier implying:

•• Bekaert to supply "other clients" at X%Bekaert to supply "other clients" at X%

•• "Other suppliers" to supply the Continental at X%"Other suppliers" to supply the Continental at X%

•• Bekaert grants sublicenses to "other suppliers". The latter can supply to Bekaert grants sublicenses to "other suppliers". The latter can supply to

"other clients" at 2X%"other clients" at 2X%

2x %2x %

Collaborative research Own Research

IP policy: IMEC’s position in the technology life cycle

embryonic potential growth mature declining/ obsolete

technology life cycle

potential

generic technology

application oriented

timetime

Long term Long term ––

many optionsmany options

focus focus academicacademic

IP policy: Imec's bridge function between

academic institutions and industry

short termshort term

applicationsapplications

lowlow highhigh R&D R&D expendituresexpenditures

academicacademicinstitutionsinstitutions

focus focus industrial actorsindustrial actors

IP policy: IMEC Industrial Affiliation IP policy: IMEC Industrial Affiliation

ProgramProgram

�� WhatWhat

�� R&D cooperation in generic technologiesR&D cooperation in generic technologies

�� Strategic program develop by IMEC and executed in IMEC Strategic program develop by IMEC and executed in IMEC

�� IIAP partners send guest researcher(s) to IMECIIAP partners send guest researcher(s) to IMEC

�� AdvantagesAdvantages

�� Sharing costs, risks, research infrastructure, IPSharing costs, risks, research infrastructure, IP

IIAP partners get access to: IIAP partners get access to: �� IIAP partners get access to: IIAP partners get access to: -- IMEC’s background knowledgeIMEC’s background knowledge-- selected results of other partners in IIAPselected results of other partners in IIAP

�� bilateral contract within the framework of IIAPbilateral contract within the framework of IIAP

�� LeveragesLeverages

�� resourcesresources

�� knowledgeknowledge

�� crosscross--fertilization of research of different partnersfertilization of research of different partners

�� shortening time to marketshortening time to market

partner Bpartner B

partner Apartner A

common IP common IP (R(R11 -- RR11**))

coco--owned owned –– nonnon--exclusive licenseexclusive license partner IP partner IP (R(R22))

exclusive licenseexclusive license

IP policy: IP policy: IIAP IIAP –– Generic frameworkGeneric framework

IIAPIIAPforegroundforegroundknowledgeknowledge

partner Cpartner C

partner …partner …

IMECIMECIIAPIIAP

background background knowledgeknowledge

knowledge developed knowledge developed

within the program within the program

IMEC IP IMEC IP (R(Roo))nonnon--exclusive exclusive

licensinglicensing

Open IP model can be generalized iff…

�� There is a specialized supplier / facilitator different from the There is a specialized supplier / facilitator different from the technology user firmstechnology user firms

�� Consortium (Consortium (SematechSematech))

�� Research organization (IMEC)Research organization (IMEC)

�� Technology firm (Technology firm (MilleniumMillenium Pharmaceuticals)Pharmaceuticals)

�� Facilitator leverages core assets to develop multiple "Facilitator leverages core assets to develop multiple "partnerablepartnerable" " �� Facilitator leverages core assets to develop multiple "Facilitator leverages core assets to develop multiple "partnerablepartnerable" " applications:applications:

�� Implies different focus on the technology life cycle: science / research Implies different focus on the technology life cycle: science / research ((ex.technologyex.technology platform in functional genomics) vs. applications (business platform in functional genomics) vs. applications (business oriented: disease categories) oriented: disease categories)

�� Facilitator has to build background knowledge:Facilitator has to build background knowledge:

�� e.g. Patents based on PhDe.g. Patents based on PhD--thesestheses

�� together with partners / financed by partnerstogether with partners / financed by partners

�� IP: Commonly developed knowledgeIP: Commonly developed knowledge

�� NonNon--exclusive licensingexclusive licensing

�� Exclusive licensing for particular applications (choice of partners)Exclusive licensing for particular applications (choice of partners)

ChangingChanging the the rolerole of of youryour legallegal

(and (and purchasingpurchasing) ) departmentdepartment??(and (and purchasingpurchasing) ) departmentdepartment??

SomeSome conclusionsconclusions

RoleRole of of legallegal departmentdepartment

�� CI:CI:

�� Protecting a firm’s IP from infringementsProtecting a firm’s IP from infringements

�� Highly protective, hoarding technologyHighly protective, hoarding technology

�� Maximal profit for firm: sue other firms!Maximal profit for firm: sue other firms!

�� OI:OI:�� OI:OI:

�� Constructive approach supporting the company’s development Constructive approach supporting the company’s development

goalsgoals

�� Legal dep. should become strategic partnership builderLegal dep. should become strategic partnership builder

�� Willingness to be a risk taker rather than being risk averseWillingness to be a risk taker rather than being risk averse

�� IPIP-- and profit sharing / communicating with partners about and profit sharing / communicating with partners about

confidentiality and IPR issuesconfidentiality and IPR issues

�� Developing new legal approaches of OI!!Developing new legal approaches of OI!! Patents pools / consortiaPatents pools / consortia

Open Open

InnovationInnovation

for for

Policy makersPolicy makersVisionVision--EranetEranet

20032003

20062006

20082008

Implementing

and

organizing

open

innovation

20062006

20112011

ExnovateExnovate as a network of excellence as a network of excellence

for OIfor OI--practitioners and scholars?practitioners and scholars?

�� www.exnovate.orgwww.exnovate.org

�� An international network of excellence on Open and An international network of excellence on Open and

Collaborative InnovationCollaborative Innovation

�� ProjectsProjects�� ProjectsProjects

�� CE and OI CE and OI MasterclassMasterclass (7(7thth time at ESADE Barcelona time at ESADE Barcelona

June 14June 14--18; 818; 8thth time in Tilburg November 18time in Tilburg November 18--24)24)

�� Monetizing unused IP in large companies with VCFsMonetizing unused IP in large companies with VCFs

�� RfPRfP for open innovation metrics for open innovation metrics

�� Using best practices to improve OI in SMEsUsing best practices to improve OI in SMEs

�� ……

http://www.exnovate.org/http://www.exnovate.org/