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Open Services Innovation: Rethinking Your Business to
C t d G i N ECompete and Grow in a New Era
K t P t ti t VIA L d F XIIKeynote Presentation to VIA Leaders Forum XII
Henry ChesbroughHaas School of Business, UC Berkeley
Esade Business SchoolOpen Services Innovation Presentation by Professor Henry Chesbrough is licensed under a Creative Commons Attribution 3 0 Unported License
Open Services Innovation Presentation by Professor Henry Chesbrough is licensed under a Creative Commons Attribution 3.0 Unported License.Permissions beyond the scope of this license may be available at www.openinnovation.net.
The Current Paradigm: The Current Paradigm: ggA Closed Innovation SystemA Closed Innovation System
ScienceThe
Market
Science&
Technology MarketTechnologyBase
ResearchInvestigations
Development New Products /Services
3R D
Open Innovationp
O
Other firm´s market
Our new market
I t l
License, spin out, divest
Internal technology base
Our currentI t l/ t l Our current market
External technology
Internal/external venture handling
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
Open Innovation:Then and Now
Then
• In April of 2003, the term “open innovation”In April of 2003, the term open innovation yielded ~200 Google pages, before I published the bookthe book
Now
• In April of 2010, a search on the same term yielded 21 9 million pages!yielded 21.9 million pages!– 5 orders of magnitude in 7 years
2003: We broke up the fortress 2003: We broke up the fortress …
Philips Research,Ronald Wolf, 10/08
Bringing in the right partners – Open innovationBringing in the right partners Open innovation
> 75 companies and > 75 companies and > 7000 people at High Tech Campus Eindhoven
Philips’ Open Innovation Tools, MethodsOI Power Questions Patent Scans
Literature Scans
Co-creation platforms
Landscape Expert
Internet searchesLandscape Expert
Networks
SMIS MarketSMIS Market Scans
ConnectUs
Website portal
9
DIY NDATechnology CarrouselSupplier
Roadshow
Procter & Gamble
• P&G used to be a VERY closed organization– “We invented Not Invented Here” – J. Weedman
• P&G financial crisis in 2000• 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
“We will acquire 50% of our innovations from outside P&G”
Jeff Weedman 28 External Business Development managers
VP, External Business Development
Nabil Y. SakkadSVP, R&D, Global Fabric & Home Care
“There’s 1 5 Million people in the world who“We don’t care where good ideas come from.”
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
P&G Share Price Restored!
The New P&G
• Many processes to enable open innovation– Technology scouts– Legal templates for IP, partneringLegal templates for IP, partnering– Investments in Innovation Intermediaries
Th G l N B h• The Goal Now: Become the open innovation partner of choice
• Nokia becomes world leader in handsets• Global distribution, cost leader• Strong position in emerging economies• Strong position in emerging economies• But…
Ph b l i l di• Phones become gateway to multiple media and uses– Users personalize phones with apps
A l RIM d G l b ildi i ifi t• Apple, RIM and Google building significant platforms for third parties to build upon– Microsoft also trying to get back in
• Nokia remains #1 in units but not in profit• Nokia remains #1 in units, but not in profit
• More than half of IBM’s revenue is coming from its Global Services business
• Circa 2004, few if any IBM Research Staff were working on services innovation opportunitiesworking on services innovation opportunities
• How to sustain Industrial Research, if that research is not relevant to more than half ofresearch is not relevant to more than half of the company’s business?
This is Not New ThinkingThis is Not New Thinking• “What the customer buys and considers value is never aWhat the customer buys and considers value is never a
product. It is always utility – that is, what a product does for him.”
– Peter Drucker, Management: Tasks, Responsibilities, Practices
• “People don't want to buy a quarter‐inch drill. They want a quarter‐inch hole!”
– Ted Levitt, Marketing Myopia
• “… it is the customer who drives the business, and customers are not differentiating between personalized, customized, or standardized offerings; they just want to get what they want.”
• Carsharing program: www.car2go.comL h d i Ul G i• Launched in Ulm, Germany in
2008; Austin, TX in 2010• Ultra‐convenient: no fixed station to pick up or drop off; no required return time• No upfront commitment: no psecurity deposit, monthly fee, reservation cost
• Amazon allows third party merchants to use its own tools tomerchants to use its own tools to create Amazon web pages• Creates consistent shopping experience for users • Increases “share of wallet” for AAmazon• Makes Amazon.com a more attractive Internet destination forattractive Internet destination for merchants
Amazon Web Services – Open Services Creates Economies of Scale
• Amazon hosts other companies’ web sitescompanies web sites
• Converts fixed server farms to variable costs for customerscustomers• Increases Amazon’s utilization of its servers• Lowers Amazon’s own costs as a result
• Rapidly growing and profitable business forprofitable business for Amazon
Asian Paint’s PlatformAsian Paint s Platform• Provide the “back end” function for its distribution partners– Each applicator job had its own record– Save them time, money, and more information – Now Asian Paints can see through to the end customer for the first time!customer for the first time!
• Tremendous savings in supplying paints, fewer out‐of‐stock situationsout‐of‐stock situations
• Differentiation vs. competition, without relying on pricerelying on price
Implications for LeadershipImplications for Leadership …
El t th i t l d i i• Elevate the importance placed on services in your organization.
• Identify the utility of your offering to your• Identify the utility of your offering to your customers. How can you enhance it?
• Search for underutilized assets in your• Search for underutilized assets in your organization, and ways to unlock their value
• Create a platform that intertwines your product• Create a platform that intertwines your product and your service. Invite others to participate, both customers and third parties.p– Look for platforms you can join, to expand your business
H i diff i i i i ?• How can you sustain differentiation in services?– Little or no IPOb bl i– Observable experiences
– Therefore, easy to copy (?)
• Service Platforms can sustain differentiation• Service Platforms can sustain differentiation– Platform: a multi‐sided market The company’s technologies become the basis for others’– The company s technologies become the basis for others technologies and innovations
– The company is able to shape the direction of evolutionp y p– Others invest their money, making your service more valuable (value multiplier): iFund