Open Innovation

Open Innovation: A New Paradigm for Managing Technology
Presentation to OECD Conference on New Business Strategies for R&D October 22, 2001

Henry Chesbrough
Assistant Professor and Class of 1961 Fellow Harvard Business School

A Closed Innovation System
Science & Technology Base

The Market

Research Investigations

Development

New Products /Services

R

D

The Virtuous Circle for R&D
Fundamental Technology Breakthroughs

Increased investment in R&D

New Products and Features

Increased Sales and Profits via existing business model

The Payoff to Doing Research
# of patents awarded

# Basic Research Articles

The Payoff to Research - Pharma
2500

Merck
2000

No of Patents

Hoechst/MMD 1500 Bayer

Eli-Lilly
1000

Ciba-Geigy

Pfizer

Warner-Lambert Abbott

DuPont
B-M-S

Hoffman-LaRoche

Rhone-Poulenc 500

Burroughs-Wellcome

0 0 500 1000 1500 2000 2500 3000 3500

No of published articles Source: K. Lim, National University of Singapore

Hidden Assumptions in the Internallyfocused Innovation System
• If I discover it, I will find a market for it • If I discover it first, I will get it to market first • If I discover it first, I will own it • The important technologies I will need can be anticipated in advance • The best people in this field work for us

Shifts in the Research Environment
• Increasingly mobile trained workers • More capable Universities • Knowledge distributed more widely • Diminished US hegemony in many leading technology fields • Erosion of oligopoly market positions • Deregulation • Enormous increase in Venture Capital

Xerox’s Innovation System

Graceful Exits and Foregone Opportunities
45000 40000 35000 30000 25000 20000 15000 10000 5000 0
19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00

US Dollars (millions)

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