Under an open innovation model, the business model of the firm will be the key driver to determine internal and external innovation activities by the firm. The table below will be helpful to identify an organization’s current business model and to guide how it can improve innovation and IP management practices to transition successfully towards a more open innovation strategy.
Examples of commodity-like, type 1 business models include “mom and pop” restaurants, many family farmers, and other entry-level services establishments such as independent bookstores, cafes, etc. Type 2 business models include organizations such as newly entering companies differentiated based on higher performance – often one-hit wonder startups or organizations. Type 3 business models are illustrated in companies with good product and process technologies such as startups that successfully distributed multiple products and have roadmaps for innovation and expansion, or old-line industrial firms who are still trying to do it all themselves. Type 4 business models start to open up towards the external environment and these include organizations with established corporate R&D activities, working with both internal and external technology. These organizations include some drug companies and financial institutions that proactively assess market demand and generate products around that.
Type 5 business models go beyond this external awareness to integrate both outside-in and inside-out sources of technology, such as IBM, P&G, Kraft, and Masterfoods. The final type of business model is type 6 which offers a platform for others to invest in and build upon the innovations of the firm. Companies in this category include organizations such as Apple, IBM and P&G.
Using the questions in the Dynamic Business Model Framework, a manager will not only be able to assess their group’s innovation strategy but also perform a diagnosis about how it can specialize towards a strategy that creates immense value through the open innovation model!
Matrix of Business Models Framework
| Type | Business Model | Innovation Process | IP Management |
| 1 | undifferentiated | None | NA |
| 2 | Differentiated | Ad hoc | Reactive |
| 3 | Segmented | Planned | Defensive |
| 4 | Externally Aware | Externally Supportive | Enabling Asset |
| 5 | Integrated | Connected to Business Model | Financial Asset |
| 6 | Platform Leading | Identifies New Business Models | Strategic Asset |
Dynamic Business Model Framework
| Description | Type 1 | Type 2 | Type 3 | Type 4 | Type 5 | Type 6 |
| Title | Undifferentiated | Differentiated | Segmented | Externally Aware | Integrated with Business Model | Platform Player Shapes Markets |
| Examples | Mom and pop restaurants | Startup technology companies | Technology push companies | Mature industrial R&D firms | Leading financial firms | Intel – Pentium
Walmart, Dell |
| Diagnostic Questions | Is there anything that differentiates this business from its competitors?
Why do customers buy from us? Why do customers leave us? What control do we have over the future direction of our business? |
Do we earn a price premium for our product or service?
Can we sustain our differentiation over time? For how long? Are we likely to develop a second successful offering? When? |
Are we an engineering-driven company?
Have we created new market segments, or did our customers find us? Can we further segment our markets? Can we extend our markets? |
Do we look outside on a regular basis for new ideas and technologies?
Do our key customers and suppliers know about our future roadmaps? Is marketing an equal partner in the innovation process? |
Is our business model widely understood within our company?
Do our key customers and suppliers share their roadmaps with us? Is innovation managed as a business or as. a technology function? |
Can we direct the future evolution of our markets?
Will customers and suppliers fit their business models to our own? Do other companies routinely invest in projects that require our technology as a platform? |
| How Different from Previous Type | NA | 1) there is now innovative work being done within the Type 1 firm, 2) some differentiation is achieved by the company through its innovations and perhaps through its business model; 3) some IP is being generated and defended. | 1) innovation is now a planned organizational process; 2) innovation now is treated as an investment in the company’s future; 3) the company now segments its markets and serves multiple segments; 4) functions beyond engineering or R&D are now a part of the innovation process; 5) IP management now coordinated inside the firm as someone’s responsibility. | 1) the Type 3 company looks outside for innovations; 2) there is a role for suppliers and customers in the innovation process; 3) the business model can be extended to adjacent markets for new growth; 4) Innovation becomes a cross-functional activity; 5) IP now managed as a corporate asset, with occasional outlicensing of under-used internal technologies | 1) the company’s internal and external R&D activities are now integrated through the company’s widely understood business model; 2) the company’s innovation roadmaps are widely shared, and access is reciprocated by those parties; 3) the company’s business model is now focused on new markets and new businesses, as well as current business, and the company is able to align its business model with customers and suppliers; 4) innovation is now a business function; 5) IP now is managed as another kind of financial asset. | 1) The company’s business model is interconnected with the business models of its key suppliers and customers; 2) Innovating the company’s business model, itself is now part of the company’s innovation task; 3) External partners now share technical and financial risks and rewards with the company in the innovation process; 4) IP is managed as a strategic asset, helping the company enter new businesses and exit existing businesses. |
For more information, see Ch. 5 Open Business Models by Henry Chesbrough