Open Innovation
The New Imperative for Creating and Profiting from Technology
by Henry Chesbrough
Harvard Business School Press, 2003. 195 pages
This month I turned back time for some background reading on open innovation. 20 years ago, in 2023, Henry Chesbrough published Open Innovation: The New Imperative for Creating and Profiting from Technology. He focuses in this book on case studies describing how large technology companies managed research and development in the last millennium. Although the author aims at remaining objective, the case studies he presents try to show the advantages of open innovation over proprietary research. I found the cases rather descriptive and had a challenging time distilling the message that Chesbrough wants to send.
Let me first have a look at the ideas presented in this book, before challenging some of them. First, and I believe that this is critical, the author defines the term innovation and explains the difference between invention and innovation. An innovation is an invention that is implemented and taken to the market. Here, the first question pops up in my mind. Is, and should, research be about innovations, or should it be about inventions? Unfortunately, I am missing an answer, especially as inventions in the technology sector typically precede innovations. A second important observation is that innovation often demands a novel business model, in addition to an innovative product or service offering.
After having set the stage in chapter one about Innovation in the 21st century as the tale of two models, the author describes the achievements and limits of closed innovation through the famous Xerox PARC case. He tries to answer the question of why so many inve tions from PARC turned into successful innovations but yielded little value to its shareholders. He identifies the root cause in the innovation process, a vertically integrated approach within the four walls of the company. Indeed, Xerox executed a sizable number of research projects, but only exploited those that were aligned with its core business model. Also, results were often shelved or left the company with their inventors. While I concur with Chesbrough’s reasoning, I am unsure that other innovation processes would have led to some of the key inventions, like PostScript, graphical user interfaces, or the Ethernet. I am challenging the idea that the inventions, especially those requiring expensive equipment, could have grown out of open knowledge pools as suggested by the open innovation model. In contrast with the closed innovation model, chapter three presents the open innovation paradigm and chapter four puts it into perspective, focusing on business models, connecting internal and external innovations. He describes his reasoning using the Xerox Model 914 Copier case, competing with Japanese low-end copier models. Through a detailed description of the transformation of IBM, the author presents ideas about how to transform a firm from closed to open innovation, focusing on available options and challenges faced. He studies the concepts of intellectual property and licensing in detail.
On the other extreme of the innovation spectrum, when comparing the Xerox PARC approach, sits the open innovation approach of Intel. Intel did not contact much basic research by itself. It relied extensively on research by others, often finance through Intel’s VC arm Intel Capital. Lucent Technologies, a remand of the breakup of Bell Laboratories, heavily focused on its new venture group model for innovation, that is, either developing ideas internally inside the existing business model, or creating new ventures and selling innovations, or licensing the intellectual property from the innovations.
In the last chapter, Chesbrough proposes ideas on how to manage the transition, both strategically and tactically, towards open innovation.
After having finished reading this book, I have mixed feeling. I am missing the consolidation of the inside game. The author spends too much time on details and case specificities and too little time on generalising. This may be explained by the state of knowledge about open innovation, 20 years ago. The bigger challenge I have with Chesbrough’s reasoning is the lack of confounders analysis. What do I mean by that? You need a certain environment to innovate, an environment that allows for sometimes taking the wrong path and having ample time and no pressure. I question the basic premise that the key to any technology innovation is knowledge and knowledge is available on the open market. For example, I would challenge that transistors or superconductivity would have been invented in an open innovation model. To me, open innovation focuses too much on taking inventions to the market and misses the fundamental idea generation found in closed innovation models. I believe we need both, and recent trends favouring open innovation models are very risky. As such, this book provides a solid background but only covers it in a biased (towards opening innovation) and limited way the relevant questions.
As always, this is my personal subjective assessment of the book Open Innovation with which you may or may not agree. Any well-argued opinions, whether in agreement or not, are welcome!
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