Open keynote presented 19 Sept 2013 at workshop “Strategizing open innovation: foundations for new approaches” at the University of Bath, School of Management.

1. Open Innovation:
The First Decade
Joel West
KGI - The Keck Graduate Institute
Claremont, California
Strategizing Open Innovation
University of Bath
19 September 2013

2. Plan
• What is open innovation?
• Three modes of open innovation
- Inbound
- Outbound
- Coupled
• What’s next?

3. • Keck Graduate Institute of Applied Life
Sciences
• Mission: “dedicated to education and research aimed
at translating into practice, for the benefit of society,
the power and potential of the life sciences.”
• Founded in 1997
• Funded by grant from Keck Foundation
• Youngest of 7 Claremont Colleges
• Mixture of science and business faculty
• About 200 graduate students
What is KGI?

4. Open Innovation

5. Invention vs. Innovation
“Inventions … do not necessarily lead
to technical innovations. In fact the
majority do not. An innovation in the
economic sense is accomplished only
with the first commercial transaction.”
—Freeman (1982: 7)

6. Latent value of an innovation
“The inherent value of a technology
remains latent until it is commercialized in
some way.
“A business model unlocks that latent
value, mediating between technical and
economic domains.”
– Chesbrough & Rosenbloom (2002)

7. Bringing innovation to market
• Creation
- Technical invention
- Basic research, applied research, product
development
• Commercialization
- Production, marketing, sales, distribution
- Requires different complementary assets
(Teece 1986)

8. Research of Alfred D Chandler (1918-2007)
• Studied large US firms 1840-1940
• Firms vertically integrate to supply own
inputs and control their outputs
- R&D is an essential part of integration
- Technology industries require large R&D labs
- Markets don’t exists to buy/sell innovation
• Integration widely adopted in practice
- Pattern of large 20th C US and MNC firms
Vertical Integration

9. ResearchResearch
InvestigationsInvestigations
DevelopmentDevelopment New ProductsNew Products
& Services& Services
The
Market
Science
&
Technology
Base
Source: Chesbrough (2006)
Vertically Integrated R&D

10. Open Innovation
• Chesbrough (2003,2006,2007,2011)
• Key points:
- Find alternate sources of innovation
Either markets or spillovers
- Find alternate markets for innovation
- Central role of the business model
• Cognitive managerial paradigm
• Overlaps with other work such as user
innovation

11. What is “open innovation”?
“Open innovation is the use of purposive
inflows and outflows of knowledge to accelerate
internal innovation, and expand the markets for
external use of innovation, respectively.”
Henry Chesbrough, O pe n Inno vatio n:
Re se arching a Ne w Paradig m (2006)

12. Source: Chesbrough (2006)
Current
Market
Internal
Technology
Base
Technology Insourcing
New
Market
Technology
Spin-offs
External
Technology
Base
Other Firm’s
Market
Licensing
“Open” innovation strategies
R&D under Open Innovation

13. What’s new?
• Many antecedent/overlapping areas
- Technology sourcing, IP markets,
university licensing, alliances, supplier
innovation, user innovation
• New ideas include
- Role of the business model
- Agnostic to internal/external paths
- Rise of innovation intermediaries
Cf. Chesbrough (2006)

14. Open vs. user innovation
Open Innovation UserInnovation
Focal actor Firm User
Knowledge transfer IP Needs
IP regime Patents Free revealing
Innovation
production
Hierarchy Community,
individual
Motivations Monetary Social, personal
utility
Frank Piller & Joel West, Ch. 2 of O pe n
Inno vatio n: Ne w Fro ntie rs & Applicatio ns

15. Three open innovation processes
1. Inbound (or “outside-in”)
2. Outbound (or “inside-out”)
3. Coupled combines these two
Cf. Chesbrough (2003, 2006), Gassmann & Enkel
(2004), Enkel et al (2009), West & Gallagher (2006)

16. Inbound Open Innovation

17. Review of inbound OI
• Goal: Synthesize inbound (& coupled)
• Sample from 25 top SSCI management
& innovation journals (+15 oft-cited)
• Either mention “open innovation” or cite Chesbrough
(2003)
• Hand selected 291 down to 165
• 161 articles, 3 books, 1 chapter
Joel West & Marcel Bogers, “Leveraging External Sources of Innovation: A
Review of Research on Open Innovation,” Jo urnalo f Pro duct Inno vatio n
Manag e m e nt, http://ssrn.com/abstract=2195675

18. Breakdown of 165 OI pubs
Inbound: 118 Outbound: 50
Coupled: 70
57 14
11
24
26 1
32

19. 4-stage process model
Innovation
Source†
Customers
CommercializingObtaining Integrating
Interaction
Focal Firm
R&D
Other
Functions
† Sources may include suppliers, rivals, complementors and customers.

20. 1. Obtaining Innovations
• Best covered of the phases
- Searching, enabling, filtering
- Sourcing particularly well covered
• Most popular area: sources of innovation
• Often about external knowledge and not
external innovations
• Not much about asset specificity of potential
innovations

21. 2. Integrating Innovations
• Considers org capabilities and culture
- Absorptive capacity over-researched
- NIH is mentioned, not well measured
- Implicit assumptions
• Integration seems to be a black box
- Are new competencies needed?
- Does utilizing external innovations help or
hurt internal R&D competencies?

22. 3. Commercializing Innovations
• Lots of value creation
- Sometimes measured using NPD metrics
- Less research on value capture
• Assumes external innovations
commercialized same as internal ones
- How do firms differ in external innovation
commercialization capabilities?

23. 4. Reverse Paths
Beyond the linear model, this includes
• Feedback mechanisms
- Information flow upstream
• Reciprocal measures
- Ongoing interactions
- Includes co-creation, communities
Research relatively scarce

24. Other gaps and opportunities
• Is everything an “innovation”?
- Patent, copyright, knowledge
• Where is the business model?
- Not a lot of value capture
• Where are the success metrics?

25. Outbound Open Innovation

26. What is outbound OI?
• Firms should find best/highest use of their IP
- Not all IP aligns to the firm’s business model
• Avoids Type II (false negative) error
• Can include licensing to rivals, spinoffs
- In parallel or instead of internal use
Inspired by Chesbrough study of Xerox PARC
spinoffs (Chesbrough & Rosenbloom, 2002)

27. Key challenges of outbound OI
• Identifying underused IP
• Simultaneous internal/external
commercialization
• Functioning IP markets
• Appropriability fears
• Drag due to excess appropriability
Outbound OI research getting scarcer
Chesbrough (2003, 2006b), Fabrizio (2006), Enkel
et al (2009), Dahlander & Gann (2010)

28. Coupled Open Innovation

29. Coupled open innovation
• “Coupled” is different from inbound and
outbound
• Two modes of coupled interaction
- Bi-directional (Gassmann & Enkel, 2004)
Combines inbound & outbound
Applies to firm-to-firm R&D collaborations
- Interactive collaboration (Piller & West, 2014)
Joint production outside the firm
Different from either inbound or outbound

30. Coupled open innovation
Examples of coupled open innovation:
•Open source (West & Gallagher, 2006)
•Communities (West & Sims, 2013)
•R&D consortia (Muller-Seitz & Sydow, 2013)̈
More abstraction is needed

31. What’s Next?

32. Recent trends in OI research
• Greater precision of constructs
• Better measurement
- Inspired by Laursen & Salter (2006)
• Better understanding of performance
• Services, not just products
- Chesbrough 2011 book
• Nonprofit actors and motivations
- West & Gallagher (2006), Dahlander & Gann (2010),
Chesbrough & Di Minin (2014)

33. 2014: new OI publications
• Re se arch Po licy special issue
- Chesbrough, Salter, Vanhaverbeke & West,
guest editors
- Ashish Aurora, lead editor
- Ca. 10 articles (5 so far)
• O pe n Inno vatio n: Ne w Fro ntie rs &
Applicatio ns (Oxford)
- Chesbrough, Vanhaverbeke & West, eds.
- 15 chapters

34. Thank you!
blog.OpenInnovation.net