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Hosted by the President of India, Shri Pranab Mukherjee

Rashtrapati Bhavan, New Delhi, India

Opening Remarks by Solomon Darwin, Berkeley Haas, School of Business,

March 8th, 2015

Dear Honorable Chairman,

I would like thank you and his Excellency, the President of India for inviting the Haas School of Business, University of California at Berkeley, to this historic first Global Innovation Round Table at Rashtrapati Bhavan. I would also like to thank my friend and colleague, Dr. Anil Gupta of IIM, Ahmedabad and the Executive Chair of the National Innovation Foundation who is the spirit behind this most needed event. Berkeley Haas School of Business and the Garwood Center for Corporate Innovation applauds this effort and is happy to participate in this event.

Our center collaboratively works with many universities, knowledge creators, government entities and multinationals across the world to promote relevant and sustainable solutions in this ever changing economic and business landscape. We are excited to participate and explore the value we could bring to this table in years to come.

Our center engages with many fortune 100 firms across key industries, three times a year. These firms have been the backbone of our US economy for many years but due to their size, legacy, culture, and infrastructure, many of them have become dinosaurs and lost the agility to move fast; they change direction and keep adapting to exponential changes, as innovation comes to us at a much faster rate than we realize. We lead this effort by engaging with Chief Innovation Officers of these firms as well as various government agencies around the world.

We are firm believers in “Open Innovation” a concept that goes against base human nature to adapt, change, embrace and share. UC Berkeley is the home of “Open Innovation” the word was first coined by Professor Henry Chesbrough, the faculty director of our center, whose research and work has been internationally recognized and applied. Open Innovation has a broad application in Technology Development, Business Models, Services, and Marketing. Open Innovation needs to be applied across the entire supply chain to capture its full value. We are seeing its increasing value in development of public policy, creation of smart cities and efficient operation of cities and governments at large.

Unfortunately, most often, Open Innovation is incorrectly defined and applied by most entities. Open Innovation is not merely soliciting and incorporating external ideas and knowledge into one’s business model, it is a two way street. It also seeks and explores internal ideas and knowledge; it helps incorporate it into someone else’s business model for a strategic advantage. The flow of knowledge creates a strategic advantage and a more sustainable ecosystem, for the firm and society at large. This calls for disruptive models for which the landscape is not accustomed to. Open Innovation is not free – it is not open source.

Increasingly, companies that have embraced Open Innovation have been doing better and flourishing in this current landscape. Not many embrace Open Innovation as I defined it.

quoteWhat made America great is not “Open Innovation” – it was “Closed Innovation. In the past and even today, knowledge useful to society is protected in fortresses like R&D centers, AT&T Bell Labs, Phillips, IBM research. Those who have the knowledge, benefit by protecting it and hoarding it as stock on the balance sheet. Closed Innovation only makes some great––Open Innovation makes everyone great!

In 1945, a great British economist, Fredrich Hayak said “Knowledge is unevenly distributed in society.” This helped those who acquired it, hoarded it and protected it, but only few in society benefited from it – this was closed innovation. In 2003, William Gibson said: “The future is already here – it’s just not evenly distributed”

The web has changed everything – knowledge wants to be free and now it flows from high to low, providing access for everyone to innovate. The barriers of distance, time, communication and knowledge have decreased by creating new challenges for the legacy companies that we work with. Now, there seems to be no other way for organizations other than to open up and benefit from strategic exchange of knowledge sharing in order to create better value propositions for the society at large.

During World War I, II, and until the Cold War, most knowledge created at Berkeley and Stanford and other prominent US institutions was classified as top secret. About 70% of the PhD thesis of engineering and physical sciences at Berkeley and Stanford were classified during that era. We held knowledge and leveraged it to become powerful.

The knowledge that was created at these universities gave birth to many Silicon Valley industries. After the wars ended, the US government gave tax incentives to these firms to commercialize their knowledge into electronic consumer goods and mobile technologies that we now enjoy. Empowered by the internet as knowledge flows from high to low, it creates more disruptive business models that present a challenge to the large legacy companies that were once the backbone of the economic engine.

Most companies that we work with at the Garwood Center are plagued with the following issues as basis for change in competition:

1. Short product life cycles: this means an increase in innovation cost.

2. Speed to market: requires firms to work in collaboration with others to gain speed.

3. Unpredictable value of Knowledge Assets: they evaporate quickly – now dominate 80% of our balance sheets, vs only 20% in 1975.

4. Facing the Unknown: competition shifting from “known” to “unknown” – it is easier to fight goliaths whose strategy is known.

5. Nature of competition: the focus is shifting from completion among firms to fight an entire ecosystem.

6. New Product success: shifting from “Minimum Viable Product” to “Minimum Viable Ecosystem.”

7. Achieving scale: shifting from “supply chains” to “networks” that are independent and cost effective.

8. Business Models: shifting to “outcome based” as “supplier based” models diminish.

9. Context exceeds Content (big data): delivering value in real time as and when needed by consumers.

10. Open Innovation challenges: developing processes to capture the global brain, timely and efficiently.

11. Balance Sheet Power is declining: Asset Ownership loosing way to Asset Access, i.e. Airbnb and Uber.

According to Professor David Teece of Berkeley Haas, whatever is essential is no longer found on the balance sheet – it has migrated to the Dynamic Capability of talent required within the organization. Dynamic Capabilities can sense, seize the opportunity and transform the business landscape through rapid deployment – for immediate impact – it is in the orchestration of assets rather than in the assets themselves from which value is now derived.

The days of high margin products are long gone! The large legacy companies that have long been the economic backbone of many western countries now seek new and more disruptive models. These models demand low margin products at high value to be relevant to the emerging world’s largest consumer base in India and China.

Yesterday, we spoke about engaging and exchanging students among our countries to foster inclusive innovation. At Berkeley Haas, we have already started this process – I brought my students to India during the past two years to learn and study how the GEs and the IBM’s of the world can be relevant low margin businesses. Students of this digital generation came up with good models.

Last semester, I taught a class called “IBM Watson Leveraging Open Innovation”. The smartest computer on the planet, available via the cloud, and with 24/7 access around the world. Watson understands and communicates in natural language and processes over a million records per second. The question is “how relevant is this asset to the poor person in India?” My students worked with Apollo Hospital group in India to create business models that would create value to the Indian population that cannot afford this computer.

Our models with Apollo revolved around making Watson accessible at no cost to the poor person in remote villages via the smart phone. How does the poor person get advice and diagnosis at no cost and only pay outcome based services? How can IBM make money and how can Apollo Hospital Group make money? This was the challenge and many great solutions were offered by the students.

The course I am teaching this semester is called “Building Smart Cities Leveraging Open Innovation.” My students and I found it valuable to visit India, to learn from your models. In the spirit of Open Innovation we’d like to learn as you learn to build smart cities, and exchange ideas with you. We spent a couple of weeks this past December and January and visited the Gift City and other cities in India. We met with builders, academics, citizens and policy makers to touch, feel, and smell the landscape, to innovate and propose frameworks for the next several years. Smart cities are supposed to produce triple bottom line, while saving time and costs through technology and open business models that benefit the entire citizenry and the ecosystem surrounding it.

As of today, our students have completed preliminary frameworks for the cities selected by Prime Minister Modi and President Obama: Ajmer, Vizag, Ahmedabad, and the Gift City.

This fall, to further this effort knowledge exchange among executives between both our countries, I am leading a group of senior US executives to India to learn about your business and regulatory landscape. I believe that this will create value for all parties that will be involved.

We like to continue this collaboration in the spirit of Open Innovation as your great nation forges and leapfrogs ahead in the new emerging economy.

Berkeley Haas & Garwood Center for Corporate Innovation will be most happy to collaborate with entities that surround this table in the spirit of Open Innovation. We would be happy to share our research, experiences and network and equally benefit from knowledge that is disseminated by each organization represented here to benefit the global society as a whole.

Solomon Darwin
Executive Director
Center for Corporate Innovation
UC Berkeley Haas School of Business