Chesbrough open innovation is a business model introduced by Henry Chesbrough in 2003. It is written that companies should leverage on both internal and external ideas and both internal and external routes to market to progress their technology. Rather than just in-house research, companies collaborate with startups, universities, customers, and even rival companies. No less they license or spin off ideas that they do not use. The objective is to add more value, accelerate the speed and minimize the development cost and risk of new product development without others.
Ever had a great idea, just because it didn’t fit the plan, that sat in a drawer? Many companies have. His problem was the basis of Chesbrough open innovation. It questions the notion that a business needs to develop everything in-house and demonstrates that collaborative ideas can yield innovative outcomes for all parties. This article will discuss the background of the concept, how it functions and how it can be leveraged.
Who Is Henry Chesbrough?
Henry Chesbrough is an academic from the United States and faculty director of the Garwood Center for Corporate Innovation at the University of California, Berkeley. He started to observe a trend among technology companies with respect to their research and development processes. Good ideas sometimes left a business and the idea found success elsewhere.
In the early days his research focused on companies such as Xerox, which had developed multiple technologies in its research laboratory that had gone on to become successful in the outside world. He wondered, why didn’t the original company reap more benefits from the ideas? His response was to lay the groundwork for the open innovation model.
In the year 2003 he released his book Open Innovation: The New Imperative for Creating and Profiting from Technology. The book provided some structure and a name to the idea. He later made it more extensive in a book on open business models and open services.
The Idea Behind Chesbrough Open Innovation
The main concept is simple to express. There are many people and organisations that contribute useful knowledge and no single company can have it all. Smart companies learn how to apprentice in and share with others what they don’t already know.
This is a “managed flow of ideas” over company boundaries, as Chesbrough puts it. Ideas come in and ideas go out. Both movements are intended, both are value-building.
Not the same as giving away. Businesses continue to cultivate their valuable assets, including their patents and trade secrets. The difference is that they see IP as a means to use, rather than a means to lock up.
Closed Innovation vs. Open Innovation
To understand the shift, it helps to look at the older approach. Before open innovation became common, many large firms followed what Chesbrough calls the closed model. They hired top researchers, built private labs, and kept everything inside.
Here is how the two approaches compare:
- Source of ideas: Closed innovation relies on internal staff. Open innovation uses internal and external sources.
- Control: Closed innovation keeps projects private. Open innovation shares some work with partners.
- Unused ideas: Closed innovation shelves them. Open innovation licenses, sells, or spins them off.
- Speed: Closed innovation depends on one team’s pace. Open innovation can use outside skills to move faster.
- Cost and risk: Closed innovation carries them alone. Open innovation spreads them across partners.
The closed model worked well when knowledge was concentrated in a few large labs. That changed as more skilled workers, universities, venture capital, and startups appeared. Good ideas were now everywhere, and the closed model began to miss them.
Three Types of Open Innovation
Three forms of open innovation are typically described by researchers. All of them process the flow of ideas differently.
Inbound open innovation is introducing outside knowledge to the company. This can be done by purchasing a license, collaboration with a university, running an idea contest, or working with a startup.
Outbound Open Innovation: To take the internal ideas outwards. A company may license a patent that it is not utilizing, or sell a technology to another company, or establish a spin-off company to utilize that technology.
Coupled open innovation involves both aspects. Partners collaborate over time and share risks and rewards, and create something that neither can create alone. These include joint ventures and research alliances.
Inbound activities are more likely to be the first to be implemented, as they feel less risky for most companies. Generally, outbound and coupled approaches come after a firm has established trust and experience.
Real-World Examples of Open Innovation
The more concrete the examples, the easier it is to visualize the model. To illustrate its use in practice, a few well known cases are mentioned.
Procter & Gamble began its program for Connect + Develop in the early 2000s. The firm aimed to get approximately half of its ideas for new products from outside sources, such as inventors, suppliers and smaller businesses. The program turned out to be one of the most referenced ones in the history of open innovation in business.
IBM selected the Linux operating system (OS), which is open-source. The company didn’t develop all of the software, but rather it built services on top of what other developers had done.
LEGO has developed a site for fans to upload their own sets. Once a design receives sufficient public approval, the company looks at the design and possibly develops the product. Customers are not just buyers, but also a source of ideas.
Xerox, the company that first inspired Chesbrough’s research, shows the outbound side. That research lab has spawned new companies that have made their products available to the market.
Benefits of the Open Innovation Model
Companies do open innovation because it solves their real business needs. The primary advantages are:
- Faster development: Skills or technology can be acquired from outside and is not years in the making.
- Reduced expenses: Work-sharing also means research-sharing expenses.
- Lower risk: If a project fails, it doesn’t cripple the organization so much if multiple partners are involved.
- Better access to talent: Companies have access to specialists they aren’t able to hire full-time.
- Finding additional uses for unused ideas: Ideas that don’t get used can be licensed or spun out for additional revenue.
- Greater connection with customers: Open programs reveal what customers want.
It can be even more beneficial for small businesses. While a small team might not have the research budget of a large firm, they can form smart partnerships.
Challenges and Risks to Consider
Open innovation is a gradual process, not a quick solution. It can have its challenges and understanding them beforehand helps.
Most frequently, it is the issue of IP protection. Contracts need to be clear with who owns what when sharing information. If they are not there, then conflicts can ensue.
Culture is another barrier. Staff might be reluctant to accept suggestions from other teams. This is commonly known as the “not invented here” problem. Reward individuals who are finding and using good outside ideas.
The issue of “man management” can also be important. Partnerships require check-ins, clear vision and transparency. A bad partnership can cost more than it’s worth.
Lastly, not all projects need to be opened. There are some key technologies that can grant a company its primary benefits, and these could require it to remain private.
How to Apply Open Innovation in Your Business
It doesn’t take much money to get going. A simple and steady approach works well.
- Set a clear goal. Determine the problem you want to address or the open space you want to take up.
- Map your assets. Write down your existing ideas, patents and skills – even the ones you are not using.
- Look outside. Look for related problems to work on among startups, universities, suppliers and customers.
- Begin with a small pilot. Test out one partnership before scaling up.
- Agree on the rules. Make agreements about ownership, sharing and profits in writing.
- Measure and adjust. Monitor and evaluate performance, adjust and adapt as necessary.
Patience matters here. The initial projects will involve your team in collaboration, and over time the outcomes tend to get better.
Open Innovation Today
The model has since been adopted by many companies other than big tech. Biomedical companies exchange research information for faster drug discoveries. Public challenges are conducted by governments to seek novel answers. University collaborations with industry facilitate the translation of research into products. Startups are admitted to startup accelerators of large companies.
Digital tools have been useful in achieving this. The Internet provides channels for companies to meet inventors and experts from all over the world. Open source communities demonstrate how thousands of people can work together to create large-scale products.
The ideas in Chesbrough open innovation remain relevant because the main condition has not changed. There’s still a lot of knowledge out there in a lot of hands and the companies that get good at reaching out to it adjust faster.
Final Thought
Chesbrough open innovation asks companies to rethink a simple habit: keeping every good idea inside. A business that allows ideas to flow in and out will operate faster, share risk and utilize the assets already in place. Planning, clear agreements and listening to other voices is the approach. If you don’t know what this means, begin with one small partnership and find out what you learn. There may be an idea that’s useful, that is just outside your walls.
FAQs:
- What is Chesbrough open innovation?
It is a business model from Henry Chesbrough that uses both internal and external ideas and routes to market. Companies collaborate with outside partners and share unused ideas to create more value. - When did Henry Chesbrough introduce open innovation?
He introduced the term in his 2003 book Open Innovation: The New Imperative for Creating and Profiting from Technology. - What are the main types of open innovation?
The three main types are inbound (bringing ideas in), outbound (sending ideas out), and coupled (a mix of both through joint work). - How is open innovation different from closed innovation?
Closed innovation keeps research and development inside the company. Open innovation uses outside partners and shares unused ideas with others. - Which companies use open innovation?
Well-known examples include Procter & Gamble, IBM, and LEGO. Many startups, universities, and healthcare organizations also use it. - What are the risks of open innovation?
The main risks are weak protection of intellectual property, internal resistance to outside ideas, and the time needed to manage partnerships.
