Open Innovation: The New Imperative for Creating And Profiting from Technology

The function of a business model, according to the author and colleague Richard Rosenbloom, is to: articulate the value proposition; identify a market segment; define the structure of the firm's value chain; estimate the cost structure and margin, describe the position of the firm within the value network and to formulate the competitive strategy of the offering. So invention is not enough. Organizations most follow the path to commercialization, but that route often means it must work collaboratively with many others. This approach has many ramifications on company structure and ways of working. It is hard for organizations (and their leaders) to work on having core-differentiated capabilities, while still being open with their value network. Therefore, this leads ManyWorlds to assume that those things, which are seen as true differentiators in mature companies, must move away from a specific product advantages and more toward process differentiating capabilities. While there is always a role for product innovators, the model they operate under is not usually scaleable, and companies often grow into either `economies of scale' or `economies of scope'. But finding and developing that all important part of the value network becomes a crucial skill in itself.

Open Innovation is a truly excellent book that a review cannot do justice to. With detailed case studies on Xerox (and spin outs), Intel and examples from many other companies, Chesbrough has written an insightful and timely work that draws many threads together. Executives who want to explore how facets of innovation, whether internally or externally motivated, sourced or executed, would not find a better read than Open Innovation.


not just for corporate innovation managers   April 3, 2003
Ramana Rao (San Francisco, USA)
14 out of 15 found this review helpful

Having been "grist" in the Xerox mill that Chesbrough covers (he interviewed me in 1997), I can attest to the thoroughness of his research into why Xerox didn't capitalize on the inventions of PARC. Chesbrough goes way beyond the Word template journalist seem to have for articles about PARC. Rather than pointing at the usual suspects of senior managers with no clue about innovation or research types with no clue about business, Chesbrough looks to the broader historical and social context for explanations.

After examining changes in the knowledge landscape---e.g. mobility of high-skill high-knowledge people and rise of venture capital to grease exploration of high-risk high-reward ideas---Chesbrough arrives at the necessity of a shift from a closed model of innovation based on tight control to an open model based on enabling the free flow of ideas for its benefits and capturing what value can be viably captured. Besides Xerox, he looks at IBM, Intel, and Lucent in detail and many others including Microsoft, Cisco, and Merck to explore the open innovation model and how to transition.

The book reads well, the years and years of research and detailed case studies don't get in the way. Beyond direct application to large corporations, the model of open innovation has significant implications for academia, government research and policy, and innovation everywhere. Even having thought about the issues covered for years, I see the book having immediate impact on my own actions.


Important Read on Innovation   November 2, 2004
Robert Witte (Colorado)
3 out of 3 found this review helpful

Innovation is a critical driver for the competitiveness of firms and the overall economy. It is also a difficult and messy process to understand. I have read most of the well-known books on innovation as I am fascinated with the topic. Chesbrough brings a coherent and useful point of view into this arena. The contribution of this book is mostly synthesizing a number of principles to provide a useful mental model for managing innovation. It does not present some new ground-breaking theory that knocks your socks off.

For example, the author uses the metaphors of "playing chess" and "playing poker" to describe the invention process. If everything about the technical and market application is known, playing chess (i.e., making careful, methodical moves based on having all available knowledge) is appropriate. However, most innovation occurs in an uncertain environment with plenty of market and technology risk. In such cases, you need to play poker. This means there are multiple hands to be played, you need to be ready to react to new information (newly exposed cards) and you must be willing to toss a hand in when it doesn't pan out.

Chesbrough hits on the idea that successful innovation often requires innovation within the business model. In fact, new ideas shoved into the existing old business model is a classic way for innovations to fail. This is one reason why new firms are often the first ones to embrace radical ideas that change industries.

This book is not just conceptual models dreamed up by an academic. The author uses plenty of real world examples from companies such as Xerox, IBM and Intel.

I highly recommend this book for your innovation management bookshelf.


A "new vision" of the innovation process   June 18, 2007
Robert Morris (Dallas, Texas)
3 out of 3 found this review helpful


I recently re-read Henry Chesbrough's Open Business Models and then this book, first published in 2003. In the earlier work, Chesbrough explains that a business model "performs two important functions: it creates value and it captures a portion of that value. It creates value by defining a series of activities from raw materials through to the final consumer that will yield a new product or service with value being added throughout the various activities. The business model captures value by establishing a unique resource, asset, or position within that series of activities, where the firm enjoys a competitive advantage."

Having thus established a frame-of-reference, Chesbrough continues: "An open business model uses this new division of innovation labor - both in the creation of value and in the capture of a portion of that value. Open models create value by leveraging many more ideas, due to their inclusion of a variety of external concepts. Open models can also enable greater value capture, by using a key asset, resource, or position not only in the company's own business model but also in other companies businesses."

What we have in Open Innovation is a development of this concept in much greater depth. As Chesbrough explains, what he characterizes as "Closed Innovation" has a number of implicit rules such as "The company that gets an innovation to market first will usually win" and "We should control our intellectual property, so that our competitors don't profit from our ideas." As a result of several "erosion factors" that have undermined its logic, Chesbrough asserts, the Closed Innovation paradigm is rapidly becoming obsolete. (Please see Table 1-4, "Contrasting Principles of Closed and Open Innovation," on Page xxvi in the Introduction.) "When the innovation context shifts from Closed to Open, the process of innovation must change as well."

Chesbrough carefully organizes his material within nine chapters. In the first, he examines one of the most familiar examples of a company (Xerox Corporation) that selected technologies from its research laboratory (Palo Alto Research Center) that fit its business model, and rejected others. Apple was among the major beneficiaries of that process. "Xerox's management of its PARC technologies illustrates in a nutshell the transition from Closed Innovation to Open Innovation. Chesbrough examines the Closed Innovation Paradigm is analyzed in Chapter 2 and the Open Innovation Paradigm in Chapter 3, then offers a business model in Chapter 5 that illustrates how to connect internal and external innovation. For me, some of the most valuable material in the book is provided in this chapter. Then in the next three chapters, Chesbrough focuses on three major corporations: IBM and its transformation from Closed to Open Innovation (Chapter 5), Open Innovation at Intel, (Chapter 6), and the New Ventures Group within Lucent Technologies organization (Chapter 7).

In the last two chapters, Chesbrough first shifts his attention to a critically important subject, the management of intellectual property (IP) in the innovation process. "In a world of abundant knowledge, companies should be active buyers - and active sellers of IP." Earlier in his book, Chesbrough had explained why ideas that are not readily used could be lost. They and the people who create them "no longer can be warehoused until the companies' own businesses are ready to make use of them. Companies that do not use their ideas with alacrity risk losing them - and the people who thought of them - to outside organizations." Of course, as Chesbrough explains in Chapter 4, the value of an idea is determined by the given business model. "There is no inherent value in a technology per se. The value is determined instead by the business model used to bring it to market." Apple gratefully embraced technologies that Xerox had rejected.

How to complete the transition to a more Open Innovation system? Chesbrough responds to that question in the last chapter, providing a number of strategies and tactics. He recommends devising a strategic map that identifies the given organization's recent innovative ideas as well as those within its industry. On Page 178, he provides a list of questions to ask while completing the map, a document best viewed as "a work in progress." He then offers rock-solid advice on how to proceed with the "roadmap." As I absorbed and digested Chesbrough's brilliant insights on these and other key business issues prompted me to recall my own involvement with a number of organizations that struggled - with mixed success - to complete that process. I now presume to share some of the most important lessons I learned:

1. When designing and implementing an "open" business model, the first requirement is that everyone involved has both an "open" mindset (i.e. receptive to new ideas, whatever their source may be) and is not only willing but also eager to collaborate with others within and beyond her or his own organization. So-called "conventional wisdom" is often a justification for defending the status quo.

2. When setting objectives, focus on the most serious problems to solve and on the most important questions to answer.

3. With regard tracking progress, measure only what really matters...and do so with accuracy and consistency. Meeting deadlines, for example, as well as first-pass yield and cycle time. Be especially alert for variances.

4. Have "open" communication, cooperation, and collaboration at all levels and in all areas throughout what should be viewed as an extended enterprise. There is so much of value to be learned from associates, of course, (especially in other departments), but also from customers, vendors, strategic allies, and other stakeholders within the given value chain. Moreover, Chesbrough cites examples of situations in which valuable information was obtained (legally) from competitors.

5. Open Innovation is a journey of discovery. Therefore, view all problems as learning opportunities. Focus on determining their root causes rather than merely responding to their symptoms.

The final paragraph of the Introduction offers an appropriate conclusion to this commentary. By then, Chesbrough has shared a new vision of the innovation process. "This vision eagerly seeks external knowledge and ideas, even as it nurtures internal ones. It utilizes valuable ideas from whatever source in advancing a company's own business, and it places the company's own ideas in other companies' businesses. By opening itself up to the world of knowledge that surrounds it, the twenty-first-century corporation can avoid the innovation paradox that plagues so many firms' R&D activities today. In so doing, the company can renew its current business and generate new business. For the innovative company in a world of abundant knowledge, today can be the best of times."


Essential Book   April 9, 2003
John D. Wolpert (Austin, TX USA)
4 out of 5 found this review helpful

Open Innovation is the only other book besides Leifer and McDermott's "Radical Innovation" that I feel compelled to keep with me on hand at all times. It is practical, useful, and the arguments - backed by excellent deep research - is fresh and compelling. There are a lot of gurus out there saying the same old things. Chesbrough is the future. He sees where things are going, and Open Innovation is squarely focused on the force that is driving the transformation of corporate governance right now and over the next five-ten years.