BIF Open Innovation Articles:
(for exclusive members only)
Open Innovation Articles and Papers by Henry Chesbrough
(BIF Member Exclusive Access to full text, including Abstracts)
Gassmann, Oliver; Enkel, Ellen and Chesbrough, Henry (2010), “The future of open innovation“,R&D Management, Jun2010, Vol. 40 Issue 3, p213-221, 9p; Publisher link/DOI:http://dx.doi.org/10.1111/j.1467-9310.2010.00605.x
Abstract: Institutional openness is becoming increasingly popular in practice and academia: open innovation, open R&D and open business models. Our special issue builds on the concepts, underlying assumptions and implications discussed in two previous R&D Management special issues (2006, 2009). This overview indicates nine perspectives needed to develop an open innovation theory more fully. It also assesses some of the recent evidence that has come to light about open innovation, in theory and in practice.
Chesbrough, Henry (2010), “Business Model Innovation: Opportunities and Barriers“, Long Range Planning, Apr2010, Vol. 43 Issue 2/3, p354-363, 10p; Publisher link/DOI:http://dx.doi.org/10.1016/j.lrp.2009.07.010
Abstract: Companies commercialize new ideas and technologies through their business models. While companies may have extensive investments and processes for exploring new ideas
and technologies, they often have little if any ability to innovate the business models through which these inputs will pass. This matters – the same idea or technology taken to market through two different business models will yield two different economic outcomes. So it makes good business sense for companies to develop the capability to innovate their business models.
This paper explores the barriers to business model innovation, which previous academic research has identified as including conflicts with existing assets and business models, as well as cognition in understanding these barriers. Processes of experimentation and effectuation, and the successful leadership of organizational change must be brought to bear in order to overcome these barriers. Some examples of business model innovation are provided to underline its importance, in hopes of inspiring managers and academics to take these challenges on.
Xiaohong Quan and Chesbrough, Henry (2010), “Hierarchical Segmentation of R&D Process and Intellectual Property Protection: Evidence From Multinational R&D Laboratories in China“, IEEE Transactions on Engineering Management; Feb2010, Vol. 57 Issue 1, p9-21, 13p; Publisher link/DOI: http://dx.doi.org/10.1109/TEM.2009.2033043
Abstract: This paper examines how multinational corporations (MNCs) protect their intellectual property (IP) when they conduct R&D in countries with weak IP rights (IPRs) protection. Findings from a small-scale survey and three case studies in China show that hierarchical segmentation of the R&D process can provide an effective way for IPR protection. Furthermore, a modular R&D structure adopted by many information technology companies can facilitate the hierarchical segmentation. Because R&D is becoming distributed across locations with varying levels of IPR protection, a center-peripheral R&D organizational structure is emerging within MNCs as R&D globalization proceeds.
Chesbrough, Henry (2010), “How Smaller Companies Can Benefit from Open Innovation“,JAPAN SPOTLIGHT Bimonthly; Jan 1 2010.
Abstract: Innovation often happens first at the edge of markets, rather than at the center of existing markets. This is the great source of opportunity for SMEs in the open innovation landscape. SMEs can participate sooner, move faster, and adapt more readily to opportunities that emerge from the periphery of a market, relative to large firms. Which path makes the most sense for which SMEs requires a careful assessment of R&D requirements and market opportunities. Clearly, there is no single answer; one size will not fit all SMEs.
Chesbrough, Henry and Garman, Andrew (2009), “How Open Innovation Can Help You Cope in Lean Times” (cover story), Harvard Business Review; Dec2009, Vol. 87 Issue 12, p68-76, 9p, 1 Color Photograph, 1 Illustration, 1 Diagram; [Publisher links: full article PDF, partial article HTML]
Abstract: Despite the clear advantages of inside-out open innovation, you should not underestimate the diffi culty of developing a program for doing it. There are inevitable cultural, political, and organizational challenges to face. For example, internal and external channels will compete for the fruits of R&D, and you’ll have to manage that tension. You’ll also have to coordinate and harmonize the various roles and interests of your company’s technical, marketing, fi nance, and legal functions. Intellectual property must regularly be inventoried, analyzed, and classifi ed into assets to be either retained for further development or off ered to the outside world. You’ll need to evaluate a range of fi nancial structures in order to identify the best combination of expense reduction today and upside potential tomorrow. You’ll also need to negotiate with outside parties, including investors, allies, partners, customers, and suppliers.
Gassmann, Oliver, Enkel, Ellen and Henry Chesbrough (2009), “Open R&D and open innovation: exploring the phenomenon“, R&D Management; Sep2009, Vol. 39 Issue 4, p311-316, 6p.; Publisher link/DOI: http://dx.doi.org/10.1111/j.1467-9310.2009.00570.x
Abstract: There is currently a broad awareness of open innovation and its relevance to corporate R&D. The implications and trends that underpin open innovation are actively discussed in terms of strategic, organizational, behavioral, knowledge, legal and business perspectives, and its economic implications. This special issue aims to advance the R&D, innovation, and technology management perspective by building on past and present studies in the field and providing future directions. Recent research, including the papers in this special issue, demonstrates an increasing range of situations where the concept is regarded as applicable. Most research to date has followed the outside-in process of open innovation, while the insideout process remains less explored. A third coupled process of open innovation is also attracting significant research attention. These different processes show why it is necessary to have a full understanding of how and where open innovation can add value in knowledge-intensive processes. There may be a need for a creative interpretation and adaptation of the value propositions, or business models, in each situation. In other words, there are important implications for new and emerging methods of R&D management.
Vanhaverbeke, Van de Vrande, Vareska, and Henry Chesbrough (2008), “Understanding the Advantages of Open Innovation Practices in Corporate Venturing in Terms of Real Options“,Creativity & Innovation Management; Dec2008, Vol. 17 Issue 4, p251-258, 8p.; Publisher link/DOI: http://dx.doi.org/10.1111/j.1467-8691.2008.00499.x
Abstract: Part of the advantages of using open innovation (compared to closed innovation) in corporate venturing can be explained by applying the real options approach. Open innovation in riskladen activities such as corporate venturing has the following advantages: (i) benefits from early involvement in new technologies or business opportunities; (ii) delayed financial commitment; (iii) early exits reducing the downward losses; and (iv) delayed exit in case it spins off a venture. We furthermore argue that these benefits do not automatically materialize. Innovative firms have to learn new skills and routines to develop the full ‘real option’ potential of open innovation practices.
Chesbrough, Henry Kwanghui Lim and Annie Ruan (2008),“Open Innovation and Patterns of R&D Competition”, Intellectual Property Research Institute of Australia Working Paper No. 04/08, (November 2008). [Publisher link]
Abstract: We explore the technological evolution of three microprocessor firms between 1976 and 2004. We trace how two initially small entrants (Intel and AMD) competed against a larger and more established incumbent (IBM). We show that changes in inter-firm relationships (as reflected by competitive and cooperative events) affect patenting strategies. Periods of increased competition correspond to greater patenting within patent classes in which the firms compete head-on. Periods of cooperation are surprisingly not always accompanied by increased patenting in complementary upstream and downstream areas. Despite changes in competitive regime, Intel and AMD exhibit a persistent dependence upon IBM for technology. Our study shows that small firms can compete against a large incumbent in the product market while being dependent upon external sources for knowledge. We also suggest ways in which incumbent firms operating in such environments (e.g., IBM) might engage with these entrants through co-opetition and open innovation.
Chesbrough, Henry and Andrea Prencipe (2008), “Networks of innovation and modularity: a dynamic perspective“, International Journal of Technology Management, 2008, Vol. 42 Issue 4, p414-425, 12p; Publisher link/DOI: http://dx.doi.org/10.1504/IJTM.2008.019383
Abstract: The aim of this paper is to provide a comprehensive perspective for understanding the dynamics of modularity and the implications of those dynamics for innovation networks. The main contention of this paper is that the dynamics of technology development should reflect the dynamics of a firm network. During the early development of a technology, when the interactions among component types are unclear (in a state of flux) and, therefore, difficult to codify and freeze, organisations build connections with research centres and universities to explore alternative technological solutions. Once such interactions are better understood, codified, modularised and shared, then more exploitative networks (e.g., with suppliers and customers) may be better suited to exploit the current technology. In the transition from the early development phase to the more mature phase, firms must build ties to startups and new entrants, because these firms experiment with alternative design configurations that exploit the underlying technology. In addition, during this transition stage, firms must connect to third-party firms, since the supporting investments made by these firms may determine which of the alternative configurations will become ‘the standard’. During this stage, the relationships across firms are defined and governed by modular interfaces that are, in turn, dictated by product interfaces.
De Jong, J.P.J., W. Vanhaverbeke, T. Kalvet & H. Chesbrough (2008), “Policies for Open Innovation: Theory, Framework and Cases“, Research project funded by VISION Era-Net, Helsinki: Finland, July 2008.[public article link 1] [public article link 2]
Abstract: VISION Era-Net, a collaborative network of nationally leading innovation policy organizations, has launched a research program on ‘Collaborative and Open Innovation: Future challenges for national innovation policies in the emerging European Research Area’. The overall goal is to expand perspectives on Open Innovation in various national innovation systems. More specifically, in 2007 researchers were invited to develop proposals to study the impact of Open Innovation on national and European innovation policies and to develop recommendations to innovation policy makers on how to respond. This challenge has also been taken up by a consortium of researchers from the Netherlands, Belgium, Estonia and the United States. In the current report we offer a framework which contains guidelines for policymaking, and we apply this framework in three countries to assess the extent in which current policy practices match with the principles of Open Innovation. It is anticipated that this work will support and inspire future policy efforts in interested countries.
Abstract: The importance of services innovation prompts this special section of the California Management Review. Innovation in services is the next frontier for both managers and for policymakers as they utilize innovation to advance firms and economic growth. Services are today responsible for the main part of employment in the Western countries, and their portion of these economies is increasing. Our ability to advance our standard of living further depends crucially on innovating in the services sector of the economy. For many firms, services are a growing portion of their business and represent a challenge to traditional product- based business models. The role of the customer, the interaction between customer and supplier, and the design of the supply chain also require different perspectives in order to manage them successfully.
Abstract: THIS ARTICLE DISCUSSES: ■ False negatives: projects deemed failures that actually hold substantial promise ■ How to unlock their value internally ■ How to look outside the organization to derive benefits from them
Abstract: What makes the often fractious negotiations particularly interesting this time are the underlying business-model challenges confronting both sides. Business models enable companies (and organizations such as the 12,000-member Writers Guild of America or the Alliance of Motion Picture & Television Producers) to create and capture value. Once established, successful models often take on a life of their own. This can lead to inertia, and a prevailing model can drift out of alignment with the future needs of an industry.
Abstract: Anew breed of innovation—open innovation—is forcing firms to reassess their leadership positions, which reflect the performance outcomes of their business strategies. It is timely to juxtapose some new phenomena in innovation with the traditional academic view of business strategy. More specifically, we wish to examine the increasing adoption of more open approaches to innovation, and see how well this adoption can be explained with theories of business strategy. In our view, open innovation is creating new empirical phenomena that exist uneasily with wellestablished theories of business strategy. Traditional business strategy has guided firms to develop defensible positions against the forces of competition and power in the value chain, implying the importance of constructing barriers to competition, rather than promoting openness. Recently, however, firms and even whole industries, such as the software industry, are experimenting with novel business models based on harnessing collective creativity through open innovation. The apparent success of some of these experiments challenges prevailing views of strategy.
Chesbrough, Henry (2007),”Business model innovation: it’s not just about technology anymore“, Strategy & Leadership, 2007, Vol. 35 Issue 6, p12-17, 6p; Publisher link/DOI:http://dx.doi.org/10.1108/10878570710833714.
Abstract: There was a time, not so long ago, when ‘‘innovation’’ meant that companies needed to invest in extensive internal research laboratories, hire the most brilliant people they could find, and then wait patiently for novel products to emerge. Not anymore. The costs of creating, developing, and then shipping these novel products have risen tremendously (think of the cost of developing a new drug, or building a new semiconductor fabrication facility, or launching a new product into a crowded distribution channel). Worse, shortening product lives mean that even great technologies no longer can be relied upon to earn a satisfactory profit before they become commoditized. Today, innovation must include business models, rather than just technology and R&D. Business models matter. A better business model often will beat a better idea or technology. Consider Wal-Mart in retailing, Dell in PCs, or Southwest Airlines. But business models are not all the same. To innovate your business model, you must first understand what it is, and then examine what paths exist for you to improve upon it.
Chesbrough, Henry (2007), “Microsoft Should Welcome Piracy in India and China“,BusinessWeek Online, 7/26/2007, p8-8, 1p. [Publisher link]
Abstract: One-size-fits-all thinking would suggest that Microsoft should employ the same weapons against software piracy in India that it uses in the U.S. This would mean vigorously policing the use of its software and undertaking prompt legal action against any and all illegal use wherever in the world such activities are found. And that seems to be the path Microsoft took in Gujarat this spring. A more nuanced view would suggest a dramatically different approach.
Abstract: In most companies, innovation is the responsibility of the technical side of the organization. The research and development staff is supposed to come up with the cool new technologies, and the rest of the company takes them to market. But that model doesn’t assure success, as the recent history of innovation shows. Betamax lost out to VHS. Macintosh, to a lesser degree, lost out to Windows. We still use color-TV standards from the 1940s, despite many initiatives to improve picture quality. Put simply, bad things can happen to good technology. And much of what can happen is due to the business model the company uses to commercialize the technology. This is the next wave in innovation: to innovate the business model that commercializes promising new ideas and technologies. Doing so is, for the most part, a simple process of trial and error. But at most companies it also requires the removal of some barriers to such innovation.
Chesbrough, Henry (2007), “The Market for Innovation: Implications for Corporate Strategy”,California Management Review, 49/3 (Spring 2007): 45-66. [full-text of article not available] [Publisher link]
Abstract: Historic shifts have opened the door to much more active, even aggressive, management of intellectual property. This new approach can best be seen by reviewing the experiences of companies that tested the strength of their patents in the courts: Texas Instruments, Polaroid, and IBM. These experiences illustrate the emergence of secondary or intermediate markets for innovations. The presence of these markets expands the number of ways a new technology can be used and promotes specialization among the different participants in the market: a “division of innovation labor.”
Abstract: Using outside technologies to develop products and licensing intellectual property to external parties will carry a company only so far. The next frontier is to open the business model itself.
Chesbrough, Henry and Kevin Schwartz (2007), “Innovating Business Models with Co-Development Partnerships“, Research Technology Management, Jan/Feb2007, Vol. 50 Issue 1, p55-59, 5p. [Publisher link]
Abstract: Business model innovation is vital to sustaining open innovation. External technology partnerships allow open business models to accomplish even more. One important mechanism for innovating one’s business model is through establishing co-development relationships. The proper character of these relationships varies, depending on the context for the relationship. To sustain co-development relationships, one must carefully define the business objectives and align the business models of each firm. One should also determine whether the various R&D capabilities are core, critical or contextual. The decision to partner externally will have different implications for each of these.
Abstract: Productivity in R&D is in crisis, in part due to the rising cost of technology development in many industries. The causes of this productivity crisis–rising development costs and shorter product life cycles–mean that companies are finding it increasingly difficult to justify investments in innovation. If companies stick with their tried-and-true approaches, we can expect increasingly incremental innovation, a reduction in R&D and an eventual collapse of innovation. But there is another way. If companies can change their business models to become more open, to make greater use of external ideas in their own businesses, and let their unused ideas go to other businesses, these causes can be treated. Open business models attack the cost side of the problem by leveraging external R&D resources to save time and money in the innovation process.
Chesbrough, Henry (2007), “Embracing Open Business Models“, Optimize, 1 January 2007.
Abstract: Open innovation calls for companies to make much greater use of external ideas and technologies while sharing their unused ideas with others. This requires each company to open up its business model to let more external ideas and technology flow in and more internal knowledge flow out. By adopting these models, organizations can bring innovations to market more quickly and less expensively, thereby securing a competitive advantage in an increasingly dynamic global economy. It’s critical for CIOs to understand these models’ disruptive implications and provide the infrastructure necessary for their companies to thrive in the new landscape.
Chesbrough, Henry; Julian Birkinshaw, and Morris Teubal (2006). “Introduction to the Research Policy 20th anniversary special issue of the publication of “Profiting from Innovation” by David J. Teece“, Research Policy, Oct2006, Vol. 35 Issue 8, p1091-1099, 9p; Publisher link/DOI:http://dx.doi.org/10.1016/j.respol.2006.09.001.
Abstract: This introductory essay reviews the key contributions of David Teece’s landmark paper “Profiting from Innovation” published in research policy in 1986. It summarises the contributions of each of the papers in the special issue. It then offers some perspectives on the key themes emerging from these papers, and on the broader challenges facing researchers, strategists and policymakers in the field of technology innovation today.
Abstract: The services sector has grown over the last 50 years to dominate economic activity in most advanced industrial economies, yet scientific understanding of modern services is rudimentary. Here, we argue for a services science discipline to integrate across academic silos and advance service innovation more rapidly.
Chesbrough, Henry and Adrienne Kardon Crowther (2006), “Beyond high tech: early adopters of open innovation in other industries,” R&D Management, 36, 3 (June): 229-236. Publisher link/DOI: http://dx.doi.org/10.1111/j.1467-9310.2006.00428.x
Abstract: Companies have historically invested in large research and development departments to drive innovation and provide sustainable growth. This model, however, is eroding due to a number of factors. What is emerging is a more open model, where companies recognize that not all good ideas will come from inside the organization and not all good ideas created within the organization can be successfully marketed internally. To date, Open Innovation concepts have been regarded as relevant primarily to ‘high-technology’ industries, with examples that include Lucent, 3Com, IBM, Intel and Millenium Pharmaceuticals. In this article, we identify organizations in industries outside ‘high technology’ that are early adopters of the concept. Our findings demonstrate that many Open Innovation concepts are already in use in a wide range of industries. We document practices that appear to assist organizations adopting these concepts, and discover that Open Innovation is not ipso facto a recipe for outsourcing R&D. We conclude that Open Innovation has utility as a paradigm for industrial innovation beyond high tech to more traditional and mature industries.
Chesbrough, Henry and Shane Ahern, Megan Finn, and Stephane Guerraz (2006), “Business Models for Technology in the Developing World: The Role of Non-Governmental Organizations“,California Management Review, Spring2006, Vol. 48 Issue 3, p48-61, 14p.[Publisher link]
Abstract: In the successful cases we studied, it was non-governmental organizations (NGOs) that did much of the initial creation of the business model infrastructure. This suggests a way to resolve the time horizons issue for for-profit companies: engage with NGOs to assist in the creation of business models. From the NGOs’ perspective, enlisting the involvement of for-profit firms creates sustainability for a technology, and it enables the NGO to “exit” and search out the next opportunity.
Chesbrough, Henry et al (2005), “Corporate Venture Capital in the Context of Corporate Innovation“, paper presented at the DRUID Summer Conference 2004 on Industrial Dynamics, Innovation and Development, Elsinore, Denmark, June 14-16, 2004. [Publisher link]
Abstract: Corporate venture capital (CVC) programs have followed a strongly cyclical pattern in response to the ebbs and flows of the private and public equity markets. However, the role of these programs inside the firm has received far less study. What role do corporate venture programs play inside large corporations, beyond any financial returns they generate? Do these programs substitute for more traditional corporate investments, such as R&D spending, perhaps outsourcing some portion of a company’s innovation activities? Or do they complement internal R&D spending, and thereby stimulate additional corporate innovation activities? To examine these questions, we develop a novel dataset of US and selected foreign corporations that have initiated corporate venture capital investment programs since 1980. We then examine the R&D spending activities of these firms, prior to and immediately after the onset of CVC programs. We find that the existence of a CVC program is strongly and positively associated with the level of corporate R&D spending, and that this finding is robust to several alternate methods of estimation. We conclude that CVC investing should not be studied merely as an asset class within the public and private equity markets. The strategic dimensions of CVC deserve more attention within the larger context of corporate innovation activities. CVC investments can complement the actions of other corporate innovation initiatives, effects that are not measured in analyses of the financial returns of CVC portfolio investments.
Chesbrough, Henry et al (2005), “Toward a New Science of Services” in “Breakthrough Ideas for 2005“, Harvard Business Review, Feb2005, Vol. 83 Issue 2, p17-54, 29p, 10 Color Photographs, 1 Diagram.
Full-text of section: Services contribute even more to the global economy than products do. So shouldn’t the science of services be an academic field in its own right? Whether it becomes one may depend on the same criteria-including the extent of corporate support-that set computer science apart from engineering, math, and physics.
Chesbrough, Henry (2004), “The Sustainability of Technology Markets: A Review of Markets for Technology: The Economics of Innovation and Corporate Strategy by A. Arora, A. Fosfuri, and A. Gambardella, MIT Press: Cambridge, MA”, Journal of Management & Governance, Mar2004, Vol. 8 Issue 1, p117-120, 4p; Publisher link/DOI:http://dx.doi.org/10.1023/B:MAGO.0000015395.29422.18.
Abstract: This volume is based on a ten-year research project on the theory and practice of technology licensing in the engineering services market in the petroleum industry. These authors have looked inside the “black Box” of technology, and the volume reflects the lessons they have learned from joining close observation with straightforward, but institutionally informed, theoretical models. One example of the market that intrigued the authors is the prevalence of specialized engineering services firms. Notwithstanding the enormous size and scale of production that is present in the chemicals industry, these specialist firms have carved out a niche for themselves, and have created a fascinating division of labor between the suppliers of specialized technologies and their downstream petrochemical company customers.
Abstract: Industrial innovation is becoming more open, requiring changes in how firms manage innovation. External sources of knowledge become more prominent, while external channels to market also offer greater promise. This complicates the evaluation of early-stage technology projects, which often involve significant technical and market uncertainty. In such circumstances, companies need to “play poker” as well as chess. Mea surement errors (fa lse positives, false negatives) are likely to arise from judgments about the commercial potential of early-stage projects. Most companies’ policies consciously limit “false positives” in assessing a project’s commercial potential, but few companies take steps to mana ge the risk of “false negatives.” New metrics may help a firm focus more upon external sources of innovation to enhance its business model, and enable the firm to salvage value from false negatives that otherwise would be lost.
Chesbrough, Henry (2003), “Open Platform Innovation: Creating Value from Internal and External Innovation,” Intel Technology Journal, 7, 3 (August): 5-9. [Publisher link]
Abstract: This paper explains the Open Innovation approach to managing innovation, with particular emphasis on the use of platform technologies in the Information Technology (IT) sector and, more specifically, on the personal computer industry. Platforms provide an architecture to combine internal and external innovations in ways that create value throughout the chain of activities that deliver a useful technology to the market. Value creation is vital for adoption of the architecture by third parties and customers. The architecture must also enable the platform architect to capture a portion of the value created. This value capture is critical to sustaining the advance of the platform. The value of building a platform technology will be illustrated briefly by the early history of Adobe Systems, while the difficulty of doing so will be demonstrated by a comparison with another early software company, Metaphor Computer Systems. Implications for other IT platform architects, such as Intel, will be examined, including the appropriate metrics for managing an Open Innovation approach.
Chesbrough, Henry, and Stephen Socolof (2003), “Sustaining Venture Creation from Industrial Laboratories“, Research Technology Management, Jul/Aug2003, Vol. 46 Issue 4, p16, 4p.[Publisher link]
Abstract: Lucent’s New Ventures Group launched 35 ventures out of Bell Laboratories technologies. Not withstanding this success, NVG has been forced to change its funding approach. It has now evolved into a partnership with private equity capital suppliers called New Venture Partners. This partnership addresses some structural limits upon a public corporation’s ability to support internal venture creation over the business cycle, and offers a new model for sustaining corporate innovation.
Chesbrough, Henry (2003), “A Better Way to Innovate,” Harvard Business Review, 81:7 (July): 12-14.
Abstract: Open innovation experiments, already under way in a variety of industries, show how forward-thinking companies are leveraging the power of external ideas. [Publisher link]
Abstract: Success today depends on borrowing other firms’ ideas—and showing them how to use yours.
Chesbrough, Henry (2003), “Environmental influences upon firm entry into new sub-markets: Evidence from the worldwide hard disk drive industry conditionally“, Research Policy, Apr2003, Vol. 32 Issue 4, p659, 20p. Publisher link/DOI: http://dx.doi.org/10.1016/S0048-7333(02)00033-1
Abstract: Firms need to access skills, capital and customers to enter into an industry initially and the choices they make to access these resources are likely to exert path dependent influences over subsequent entry behavior into new sub-markets. This paper explores how firms configure themselves to access skills, capital and customers and reports data on their association with whether and when firms enter new sub-markets in the worldwide hard disk drive (HDD) industry. While, as with other studies, there appear to be geographic differences between US and Japanese firms in sub-market entry behavior, these are shown not to simply reflect differences in region: US startup firms with former IBM personnel and Japanese incumbent firms with keiretsu linkages to their customers, exhibit different entry behavior than other firms in the same region. The analysis suggests that entry decisions are influenced by firms’ configuration choices to access needed resources and that the menu of configuration options available to firm managers varies across different institutional settings.
Chesbrough, Henry (2003), “The Logic of Open Innovation: Managing Intellectual Property”,California Management Review, 45:3 (Spring 2003): 33–58.[full-text of article not available] [Publisher link]
Abstract: Licensing a technology outside is essentially hiring an external business model to create value for that technology. Unless and until a business model can be identified for a technology that is available for sale, you are likely to receive a surprisingly small amount for that technology. For this reason, companies seeking to leverage their IP will need to work hard to identify prospective business models that could profitably employ their technology, even if the company has no plans to use that business model itself.
Abstract: Companies are increasingly rethinking the fundamental ways in which they generate ideas and bring them to market — harnessing external ideas while leveraging their in-house R&D outside their current operations.
Chesbrough, Henry W. (2003), “The governance and performance of Xerox’s technology spin-off companies“, Research Policy, Mar2003, Vol. 32 Issue 3, p403, 19p.Publisher link/DOI:http://dx.doi.org/10.1016/S0048-7333(02)00017-3
Abstract: Companies that conduct internal research cannot fully specify the output from that research in advance. Inevitably, spillovers may result. A company might choose to create a technology spin-off company to realize value from such research spillovers. But how is such a spin-off to be governed? Effective spin-off governance structures in a highly uncertain environment must promote experimentation and adaptation, in order to unlock the latent value in a technology. These can conflict with structures intended to manage coordination with the parent firm’s complementary assets. This paper analyses 35 spin-off organizations that arose from the Xerox Corporation. Xerox’s own initial equity position is negatively correlated with the subsequent performance of its spin-offs, but this is due not to their equity per se, but Xerox’s practices in managing its spin-offs. Spin-offs with a higher percentage of venture capital investors on their Boards were associated with higher financial performance, while spin-offs with a Xerox insider as CEO were associated with lower financial performance. Qualitative interview data suggest that Xerox’s practices caused its spin-offs to search locally near Xerox’s own business, while spin-offs governed by outside investors’ practices searched a broader space for commercializing their technologies.
Chesbrough, Henry W. (2002), “Graceful Exits and Missed Opportunities: Xerox’s Management of its Technology Spin-off Organizations“, Business History Review, Winter2002, Vol. 76 Issue 4, p803, 35p, 2 Black and White Photographs, 1 Chart, 1 Graph. [JSTOR]
Abstract: The Xerox Corporation has devised several strategies for managing the numerous spin-off firms that independently commercialized many of its technologies. From 1979 to 1998, thirtyfive technology-based organizations emerged from Xerox’s research centers. Contradicting the common perception that Xerox “fumbled the future” by letting its technology walk out the door, in fact the company set in motion a series of deliberate initiatives to manage its spin-off organizations. After initially adopting a laissez-faire approach, the company soon turned to ad hoc methods, which evolved into a formal internal venture capital structure and culminated in a triage process, with the result that only companies perceived by Xerox as fitting into its overall corporate strategy were retained. By using spin-offs to withdraw gracefully from areas it considered to be marginal, Xerox forfeited the potential to realize value from their research. Some, but not all, of the spin-offs obtained venture capital financing from outside sources and thus prospered independently. Their success demonstrated the opportunity that Xerox missed in managing its spin-offs.
Chesbrough, Henry W. (2002), “Markets for Technology: The Economics of Innovation and Corporate Strategy (Book Review)“, Journal of Economic Literature, Dec2002, Vol. 40 Issue 4, p1275-1276, 2p.[Publisher link]
Abstract: This volume is based on a ten year research project on the theory and practice of technology licensing in the engineering services market in the petroleum industry. The prevalence of specialized engineering services firms has created a fascinating division of labor between the suppliers of specialized technologies and their downstream petrochemical company customers.
Chesbrough, Henry and David Teece. (2002), “Organizing for Innovation: When Is Virtual Virtuous?“, Harvard Business Review, Aug2002, Vol. 80 Issue 8, p127-135, 9p, 2 Color Photographs, 1 Diagram, 1 Graph. Reprinted from Jan.-Feb. 1996 issue. [Publisher link]
Abstract: Advances in information technology have made it easier for companies to exchange data and coordinate activities. That has given rise to a radical new vision of corporate organization-one in which individual companies outsource many of their activities to an array of partners. Such virtual enterprises may be more efficient, but what are the broader strategic implications of rampant subcontracting? Henry Chesbrough and David Teece sound a noteof caution. When it comes to innovation,they argue, virtuality often does more harm than good. Loose partnerships of companies inevitably produce more conflicts of interest than do centrally managed corporations, and those conflicts can hamper the kind of complex, systematic innovation that creates valuable business breakthroughs. Innovation is a destabilizing force and will therefore be resisted by companies wary of upsetting a comfortable status quo. Chesbrough and Teece acknowledgethat some degree of outsourcing can furthercorporatecreativity and that virtuality makes sense under certain conditions. But every company, they contend, needs to tailor its organization to its own operations and its unique sources of innovation. Blindly following fads is a recipe for disaster.
Chesbrough, Henry and Richard Rosenbloom (2002), “The role of the business model in capturing value from innovation: evidence from Xerox Corporation’s technology spin-off companies“, Industrial & Corporate Change, Jun2002, Vol. 11 Issue 3, p529-555, 27p, 1 Diagram, 1 Chart. [Publisher link]
Abstract: This paper explores the role of the business model in capturing value from early stage technology. A successful business model creates a heuristic logic that connects technical potential with the realization of economic value. The business model unlocks latent value from a technology, but its logic constrains the subsequent search for new, alternative models for other technologies later on—an implicit cognitive dimension overlooked in most discourse on the topic. We explore the intellectual roots of the concept, offer a working definition and show how the Xerox Corporation arose by employing an effective business model to commercialize a technology rejected by other leading companies of the day. We then show the long shadow that this model cast upon Xerox’s later management of selected spin-off companies from Xerox PARC. Xerox evaluated the technical potential of these spin-offs through its own business model, while those spin-offs that became successful did so through evolving business models that came to differ substantially from that of Xerox. The search and learning for an effective business model in failed ventures, by contrast, were quite limited.
Abstract: Companies have, at best, a mixed record funding start-ups. A new framework, simple in design but powerful in application, can help identify the investments that will yield a return that matters – strategic growth.
Intel’s approach suggests some important principles for research in the future:
- We don’t have to own the research to profit from it.
- Not all of the smart people in the world work for us.
- We have to be smart enough, though, to recognize excellent people and strong research projects when we see them. That knowledge requires us to do some amount of internal research.
- While we must compete in order to win, we must also collaborate to advance our technology, particularly in creating standards upstream in our supply chain and downstream in our architectures.
- Research can help define when and how we cooperate.
Moreover, there is another side to Intel’s approach to research, reflecting how many important new technologies are coming out of startup organizations rather than central research laboratories.
Abstract: Big Blue’s transformation illustrates some principles that will become part of any successful new model for organizing and managing research: 1) The importance of internal and external research sources for ideas, and internal and external paths to market for research discoveries. This requires companies to allow upstream technologies and components to be sold to downstream product and systems competitors. It also lets those downstream units buy on the outside. 2) The management of intellectual property, both to ensure access to external ideas as well as to profit from one’s own IP. 3) Changing the role of research staff from not just generating knowledge but facilitating and brokering it as well. Researchers and their managers must have direct experience with customer problems as they formulate future research agendas.
Abstract: Are all the central R&D labs going to shut down tomorrow? No. However, the role that central R&D labs themselves play inside their firms must change. I believe that they must help firms identify, access and absorb external research discoveries far more than they do today. They also must become more adept at using alternative paths to market the internal discoveries they create. Finally, they must learn how to conduct effective organizational experiments, in addition to technical experiments, to get the most out of their ideas.
Abstract: Business incubators such as Hotbank, CMGI, and Idealab! are a booming industry. Offering office space, funding, and basic services to start-ups, these organizations have become the hottest way to nurture and grow fledgling businesses. But are incubators a fleeting phenomenon born of an overheated stock market, or are they an important and lasting way of creating value and wealth in the new economy? The authors argue that one type of incubator, called a networked incubator, represents a fundamentally new and enduring organizational model uniquely suited to growing businesses in the Internet economy. It shares certain features with other incubators–mainly, it fosters a spirit of entrepreneurship and offers economies of scale. But its key distinguishing feature is its ability to give start-ups preferential access to a network of potential partners. Such incubators institutionalize their networking–they have systems in place to encourage networking, helping startups, for example, to meet with potential business allies. That doesn’t mean incubatees get preferential treatment; it means only that they have built-in access to partnerships that might not have existed without the incubator. Even with this advantage, however, networked incubators can easily follow the road to ruin. To avoid failure, they must create a portfolio of companies and advisers that their incubatees can leverage.That can be done by strategically investing in portfolio firms and by enlisting a large set of business allies. It can also be done by establishing connections and relationships that are anchored more to the incubator than to particular individuals. INSETS: Our Research;The Value of Corporate Incubators;Questions Every Entrepreneur Should Ask.
Chesbrough, Henry (2000), “Designing Corporate Ventures in the Shadow of Private Venture Capital”, California Management Review, 42:3 (Spring), pp. 31-49. [Publisher link]
Abstract: Corporate venturing has had a checkered past, rising and falling with the public equity markets. The recent surge in private venture capital makes the design of corporate ventures even more problematic, as these ventures must compete with independent venture capital for entrepreneurial talent latent in the firm. To sustain themselves through the down phase of the next cycle, corporate venturing structures must be designed to operate in the shadow of independent venture capital. While they may do well to mimic certain VC practices, corporate venture structures ultimately will only work if they can deliver strategic benefits to their sponsoring companies. To realize these benefits, these structures must do more than mimic independent venture capital. They must leverage the potential advantages of corporate ventures. To be sure, in these days of munificent public equity markets and abundant IPOs, the potential advantages of corporate venturing versus independent venture capital have yet to assert themselves. However, corporate structures do differ in their time span, their scale, their management of strategic complements, and their ability to learn from venture failures. In less exuberant equity markets, these advantages could become more salient.
Abstract: Interest grows in the use of corporate venture capital as a way of unlocking the hidden potential of technologies which lie inside private central research labs and do not fit with established businesses. The experience of the New Ventures Group within Lucent Technologies illustrates both the challenges and the opportunities of using venture capital for these purposes. The challenge is to balance the forces of the venture capital model with those of an internal corporate development model. The New Ventures Group’s experience to date suggests that balancing these forces is difficult but that there are rewards to the organization for doing so. These include the discovery of new sources of growth, the ability to leverage internal technology across multiple businesses, and the ability to stimulate cultural change within the organization.
Chesbrough, Henry (1999), “The organizational impact of technological change: a comparative theory of national institutional factors“, Industrial and Corporate Change, Volume 8, Number 3, pp. 447-485. [Publisher link]
Abstract: This paper offers a parsimonious theory of national institutional factors that promote or inhibit the formation of start-up firms in the USA and Japan. Three factors are proposed: the technical labor market, the venture capital market and the structure of buyer-supplier ties. Complementarities between these factors cause them to work as a system, while their differences elevate or reduce the level of incentive constraints and appropriability constraints acting on incumbent and start-up firms respectively. As a result, incumbents might be displaced in an industry in one country while incumbent firms in the same industry in another country might persevere, due to the presence or absence of start-up firms. This suggests that there may be no single best way to organize for innovation in different institutional settings; rather, firms must seek to exploit the virtues of their environment, even as they act to mitigate the hazards it poses.
Chesbrough, Henry (1999), “Arrested development: the experience of European hard disk drive firms in comparison with US and Japanese firms“, Journal of Evolutionary Economics, Volume 9, Number 3 / August, 1999, 287-329. [Publisher link]
Abstract: This paper analyses how US, Japanese, and European HDD firms responded to technological shifts in the hard disk industry from 1973 through 1996. Leading incumbent US HDD firms were frequently forced out of the market. Leading Japanese incumbent firms in the same industry, however, were not displaced by these changes. US startup firms thrived under these technological shifts, displacing US incumbent firms. Japanese startups did poorly. European firms encountered the worst of both worlds: its incumbent firms were frequently displaced by technological changes, as were US firms; while startup firms (with one exception) performed as poorly as those in Japan.