1. Open Innovation: A New Paradigm for Industrial R&D
Presentation to
Queen’s University
Henry Chesbrough
Center for Open Innovation
UC Berkeley
November 10, 2009

2. The Current Paradigm: A Closed Innovation System
Science
&
Technology
Base
The
Market
Research
Investigations
Development
New Products /Services R D
C. M. Christensen

3. The Open Innovation Paradigm
Other Firm’s
Market
Licensing
Internal
Technology
Base
Technology Spin-offs
New
Market
Current
Market
External
Technology
Base
Technology Insourcing R D

4. Internal technology base External technology base
Open Innovation
Other firm´s market
License, spin out, divest
Internal technology base
Our new market
External technology base
Internal/external venture handling
External technology insourcing
Our current market
Our current market are our current group satisfaction
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
C. M. Christensen

5. 2003: We broke up the fortress …

6. Bringing in the right partners – Open innovation
> 75 companies and
> 7000 people at High Tech Campus Eindhoven
Leverage joint R&D into different application areas
Extended reach and capability for new ideas and technology
Corporate innovators
Research institutes
Consultancy & services
Economic development companies

7. The expansion of the corporate funnel
Front – end Development Commercialization
Insourced
Ideas /Technology
ODM
OEM
Spin in
Start ups
IP insourcing
Incubators
Spin out
IP Licensing
Acquisitions
Alliances

8. BP’s challenge in February 2006
Energy Bioscience looked promising (Senior Executive 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

9. Funding for Open and Proprietary Components
$50M/yr
contracts
contracts
UC Berkeley BP
Proprietary Component
Host Institution
$35M/yr
contracts
subcontracts
Other
contracts
subcontracts
BP Components
Lawrence Berkeley
National Laboratory
$15M/yr
Other
Entities
University of Illinois
Urbana -
Champaign
ENERGY BIOSCIENCES INSTITUTE (EBI)
OPEN RESEARCH
BP R&T
PROPRIETARY RESEARCH

10. Licensing provisions
For inventions solely owned by UCB, UIUC and/or LBNL
NON-EXCLUSIVE
Non-exclusive, royal free (NERF) license in BP’s area of interest, providing:
BP will diligently pursue commercialization
- BP will underwrite the patent costs
EXCLUSIVE
BP may obtain exclusive license rights to sole or joint inventions.
pre-negotiated capped fees
“Bonanza clause” in case of extraordinary commercial success

11. Procter & Gamble P&G used to be a VERY closed organization
“We invented Not Invented Here” – J. Weedman
P&G financial crisis, in 2000
Missed a series of quarterly financial estimates
Stock market lost confidence in the company
Stock price fell by more than half in 4 months!
CEO (Jagr) was fired
© 2008 Henry Chesbrough

12. P&G’s Stock Price: 8/1998-3/2000
© 2008 Henry Chesbrough

13. Searching for the Root Cause
“We fundamentally had a growth problem. Our current brands were performing well. But we weren’t developing many new brands.” – C. Wynett
To get new brands, P&G needed to open up.
Connect and Develop
SpinBrush, Swiffer, Regenerist
© 2008 Henry Chesbrough

14. Example: Proctor & Gamble
A.G. Lafley
President and CEO
P&G
“We will acquire 50% of our innovations from outside P&G”
Jeff Weedman
28 External Business Development managers
VP, External Business Development
“We don’t care where good ideas come from.”
Nabil Y. Sakkad
SVP, R&D, Global Fabric & Home Care
“There’s 1.5 Million people in the world who know about my business. I want them on my team”
Larry Huston (just retired)
120 Technology Entrepreneurs
VP, Knowledge & Innovation, Corporate R&D

15. P&G Share Price Restored!

16. The New P&G Many processes to enable open innovation
Technology scouts
Legal templates for IP, partnering
Investments in Innovation Intermediaries
The Goal Now: Become the open innovation partner of choice
© 2008 Henry Chesbrough

17. Not Just for High Tech: Procter & Gamble “Use it or Lose it” Internal
Other Firm’s
Market
“Use it or Lose it”
Internal
Technology
Base
New
Market
Current
Market
External
Technology
Base
Venture
Acquisitions
“Spinbrush”
Large
Acquisitions
“Gillette”
Technology
Scouts R D

18. An Iberian Example: El Bulli
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
Borges: oils, snacks
Lavassa: coffee
N H Hoteles: FastGood, Nhube
Iberian Airlines (with FastGood)
Careful not to dilute the El Bulli brand

19. Is the internal R&D department 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 outside
New skill: integrating internal and external together

20. The Crisis in Copenhagen
Successor to Kyoto protocol
Disputes over emissions targets….
…. and over access to the IP and technology to achieve them!
Proposals of $100 billion + are ill-suited to the times
Can Open Innovation help?

22. Founding Partner resources:
brand development (Nike)
legal architecture (Science Commons)
- technical implementation (Force.com)
- technical implementation (nGenera)
- technical implementation (2degrees)
- messaging and story (IDEO)
- academic outreach (U Washington)
business rationale for sharing (UC Berkeley)

23. sustainability
patents
greentech / sustainability patents represent a small portion of the overall portfolio of the average company.
and most companies have little skill or experience in licensing or sharing them

25. Businesses Control the Use of Their Green IP
retain the essential rights inside the core business
use a standard offer to license the rights via automated transactions
determine exceptions to licensing requirements
research
geography
field of use
etc….

26. The Business Benefits of Sharing or Exchanging Green IP
Publicity, yes, but there’s much more …
Greater usage of technology to lower costs
Commoditize an input to lower costs
Establish a technical standard to influence the future development path
Incremental revenues from licensing outside of your business
Stimulate greater research activity in areas of value to your business

27. Open Innovation in Copenhagen?
Private reasons to share or exchange Green IP
Good business, not just good publicity
No government action required
Though policy can help stimulate the process…
Developing nations need not pay for all IP rights
Exchange, share, or license just those they need
Developing nations innovate too
And these can be shared with other developing countries

28. Policy Can Help!
Provide greater information on available green technologies, whether private or publicly held
Offer financial assistance for licensing useful Green IP to developing countries
Also technical assistance
Award prizes for most useful Green IP
Provide tax incentives to stimulate sharing or exchange of Green IP

30. 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 Vision“/$ydney iStockphoto: , , , , , iPod photo: