Interview: Talking #Open Innovation with Prof. Henry Chesbrough

Henry Chesbrough is an Adjunct Professor at the University of California – Berkeley, where he serves as Faculty Director of the Garwood Center for Corporate Innovation.  He is also Professor in the department of Information Systems Management at ESADE Business School in Barcelona, Spain. Before moving to Berkeley, Chesbrough was Assistant Professor of Business Administration and the Class of 1961 Fellow at the Harvard Business School.

Chesbrough has written extensively on the topic of open innovation, a term that he coined in his award-winning book Open Innovation: The New Imperative for Creating and Profiting from Technology (Harvard Business Press, 2003). More recently, Chesbrough has turned his attention to the world of innovation in services. In Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era (Jossey-Bass, 2011), he explains how companies can, with the help of open innovation, make the shift from product-centric to service-centric thinking.   With global economies shifting to a focus on services, openness, and its ability to deliver improved choices for customers and better economies for corporations, is a path that can turn commodity companies into trailblazers.
(source: Henry sat with Camille Duran, Chief Business Development Officer at IntelligentHQ to share his insights on open innovation.

IntelligentHQ: For our readers that are not familiar with the concept, what does Open Innovation mean for businesses in 2013?

Henry Chesbrough, PhD: Open innovation advises companies to make more use of external ideas and technologies in their own innovations, and allow unused internal ideas and technologies to be used by others for their innovations.  Your business model helps determine what to bring in, and what to take out – and this links directly to the two halves to the model: an “outside in” half, and an “inside out” half.

IntelligentHQ: How has the OI movement evolved throughout recent years?

Henry Chesbrough, PhD:A lot has changed in the past 9 years.  When I wrote the first book in 2003, I did a Google search on the term “open innovation” and received about 200 page links.  Most of these were in the form that “company A opened its innovation office at location B”, so that the words “open” and “innovation” appeared in the same sentence, but there was no special meaning to the term.  When I did that same search on Google last April, I received 483 million links.

Qualitatively a lot has changed too.  Open innovation began as a way for a single company to extend its R&D beyond its own four walls.  Today, it has grown to include entire value chains, ecosystems, and communities in the scope of its activities.  In my most recent book, Open Services Innovation, open innovation even moves into the services domain.

IntelligentHQ: Which industries are the most active in the open innovation space today? What do you think are the reasons for it?

Henry Chesbrough, PhD: Open innovation is actively used in a number of industries, from chemicals to consumer products to the ICT sector.  Consider the competition underway between Apple, Microsoft and Google.  Apple only spends about 2% of its sales on internal R&D while its competitors like Microsoft and Google spend 13-15% of sales on internal R&D.  Apple can only do so much internal innovation with that level of spending.  So Apple is leveraging a lot of external innovation from its suppliers, its partners, its developers and its users, in the course of its innovations.

IntelligentHQ: Can you name one (or more) surprising application(s) of the Open Innovation concept that you could share with us?

Henry Chesbrough, PhD: One new application is to think about open innovation in services, as well as products.  Companies that think of themselves exclusively as product companies have to worry about falling into the commodity trap.  In this trap, further improvements in products and even new products deliver less and less value for the company.  The key insight is that innovation ultimately has to deliver a superior customer experience if a company wishes to avoid this problem.  Once you focus on improving the customer’s experience, you start thinking of how the product is used, what job the customer is trying to perform with the product, and what other elements of the customer’s context must be addressed to do this.  So you need a renewed focus on the customer, and you need to remove the constraint of providing a product as the means of addressing the customer’s experience.

IntelligentHQ: Who were the first movers with respect to this approach?

Henry Chesbrough, PhD: IBM is a great example of a services innovation company, with more than half of its revenues coming from IBM Global Services.   Xerox and GE are other examples of companies who traditionally were product companies, but now are getting an increasing percentage of revenues from services.  Zara is having enormous success in the fashion industry.  And Amazon is a great example of a digital services company.

But there is still time for other companies to embrace this approach.  The key is to deliver a superior experience to your customers.  So Facebook actually followed years AFTER Friendster and after MySpace.  But it did a much better job of improving the customer’s experience connecting to friends, managing identity, opening up its interface to social gaming companies like Zynga, and creating a complete environment for its customers.

My advice is to think about how well you know your own customers, and what your customers’ biggest needs are.  Often, the raw data for this lies in your customer service organization.  This is a low priority function in most companies, but it can be the source of new insights into ways to deliver better value and a better experience.  The most important take-away here is to open up internally before opening up externally (put this in quotes).  Many companies restrict the flow of information to specific functions in the organization, so that no one else sees it.  In such a company, bringing in more external knowledge will simply clog up the information flows inside the company, and little will improve.  If you are focusing on your customer, your customer wants to deal with one contact across your company, not different people for different parts of the company.  So adopting this customer focus will force information to flow more freely within your company.

IntelligentHQ: What will be the role of new product/ service/ business development teams in the future? Will we see more “innovation architects” envisioning disruptive structures or rather “corporate doctors” aiming at quick fixes and streamlining of the systems?

Henry Chesbrough, PhD: Yes, the ability of architects to integrate disparate pieces of knowledge into a coherent system that delights consumers or solves a real problem is a key skill in an open innovation world.  Quick fixes, by contrast, often treat the superficial symptom, while leaving the underlying cause untreated.

IntelligentHQ: Finally, how do you see innovation tools evolving? Where can we see the biggest progress?

Henry Chesbrough, PhD: Some of these open innovation concepts, and related constructs like the business model, are moving into software.  These software tools will help companies organize and manage these processes better.  The business model canvas, by Alex Osterwalder, is an example where excellent progress is being realized already.