Open Innovation Seminar (OIS) November 2020

1. The Changing Faces of
Open Innovation
Professor David J. Teece
Thomas W. Tusher Professor in Global Business
Haas School of Business, University of California, Berkeley
Open Innovation Seminar (OIS)
November 16, 2020
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2. Open Innovation (OI)
“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 et al,
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Henry Chesbrough

3. 3
An early view of the open
innovation imperative
provided a contingent
framework* that
recognized:
i. Diversity in the
sources of know-
how, differences in
appropriability
regimes and
ii. Transactions and
transfer costs
*See G. Pisano & D.Teece, “Collaboration Arrangements & Global Technology Strategy”, in R. Rosenbloom & R. Burgelman, Research on
technology Innovation, Management Policy & JAI Press, vol 4, 1989).

4. Why the enhanced imperative for OI?
• Post 1960 global dispersion in the sources of knowledge
• Greater global competition… need for greater speed in new product
development
• Digital Convergence… which is requiring greater connectedness and
platform engagement
• Stronger IP rights in the 1980’s strengthened the market for know-how
• Decline in in-house R&D spending because of shareholder activism and
short-term focus (traders and raiders play too big a role in US Capital
markets)
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5. a) Timely access to domain and technology expertise is critical to firm level
competitiveness
b) Active engagement by practically all firms in sensing/outsourcing of technology is
now required
c) Scouting/sensing tools need to be developed
d) Seizing/orchestration/integrating skills are now paramount
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So fundamental were these developments that
open innovation has become qualitatively and
quantitatively different from pre-1980’s
Open innovation… requires new management approaches &
deep (systems) capabilities in
technology “integration”

6. Open innovation is a handmaiden of dynamic
capabilities
…and dynamic capabilities is also a handmaiden of open innovation!
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Dynamic Capabilities
Sensing Seizing Transforming
Open
Innovation
PFI/Open
Innovation

7. Who Profits from Open Innovation?
• Adner’s “Wider Lens”* is most insightful and outlines the importance of
“lining up all the ducks” to achieve commercial success
• Understanding Adner’s “Wider Lens” requires OI, PFI, and Dynamic
Capabilities.
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Ron Adner, Dartmouth
Ron Adner, “Wider Lens”, Penguin Books, (2012).

8. The PFI/open innovation (Teece) proposition:
The major prize might also go to the party that puts down the first
piece. It depends on whether or not the “piece” is the bottleneck.
The scarcity of the underlying resource has much to do with the
answer (e.g. is it is protected by intellectual property?)
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*Adner interview in Brian Leavy’s, “Ron Adner: managing the interdependencies and risks of an innovation ecosystem”, Strategy and
Leadership, (2012).
Adner proposition:
“The major prize was destined to go, not to the party that puts
down the first piece of the puzzle, but the one that puts down the
final piece.”*
Contrasting perspectives?

9. Sensing and Seizing are critical activities for
successful OI
• For those companies that embrace open innovation either partially or fully, the
greatest challenge is being able to identify what is available in the market for sale or
licensing and then evaluating it in terms of its fit to their product strategy.
• Where it is needed, intermediaries are becoming established to join the two together
and provide a set of services around channeling innovations towards companies
whose business structure is based on open innovation. Markets are rapidly changing.
• It can be a long process from ideas to profit and doing all of the innovation
in-house is limiting.
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The overriding aim will be to get a progressively better return from
R&D/technology spend. It will not matter whether the approach taken is
closed, open or some combination of both

10. The perversion of Open Innovation?
Does China systematically pry technology from
foreign companies?
“The combination of naiveté and hubris on the part of U.S. companies seeking to enter
the Chinese market, coupled with a sophisticated Chinese effort to extract technology
has been a lethal combination.”
Peter Navarro
Wall Street Journal
September 26, 2018
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These concerns are propelling “decoupling” and the bifurcation of global systems…such
developments hinder open innovation

11. • China has allegedly engaged in a technology coercion by:
• Denying open access to the home market (contingent on technology transfer by prospective
entrants from abroad)
• Using the regulatory process as a subterfuge to access technology from foreign firms. (e.g.,
antitrust investigations and documents raids designed to scoop up and disseminate trade
secrets)
• Making unwillingness to license IP to Chinese competitors an antitrust violation.
• Discriminating application of IP law in China (against foreign firms)
• The US and some other nation states are beginning to decouple and question
certain elements of certain versions of the open innovation framework.
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12. •The open innovation model is once again in major
transition.
•The bifurcation of the global economic system is the
major factor driving change.
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The Open Innovation Predicament Today (2020)

13. “Since the origins of technical and social innovations
have never been confined to the borders of any one
nation, the economic growth of all countries depends
to some degree on the successful application of a
transnational stock of knowledge”
(Teece, 1977, paraphrasing Kuznets, 1966)
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Simon Kuznets understood the importance of
knowledge transfer to all nations

14. Knowledge flows (tech transfer) have been at the core of
globalization… but have hitherto been underemphasized
in global economic relations
• Technology flows, not goods and financial flows, are at the strategic core
of international commerce and enterprise competitiveness.
• Global (open) innovation “supply” chains permeate innovation
ecosystems.
• Yet most discussions of international commerce and international
business wrongly prioritize physical and financial flows
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15. Global economic governance has failed because:
• Existing international rules focus on physical and financial
flows when knowledge and intangibles are key.
• Chinese companies doesn’t accept existing free and fair trade
rules that govern the open global system. Some
commentators believe that the CCP turns companies in
strategic sectors into economic predators.
Prediction: The post 2020 semi-global (perhaps bifurcated)
economic order will prioritize technological value capture
over value creation
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16. OBSERVATIONS:
(1) New bilateral and multilateral agreements are needed
to reduce tensions and create new innovation alliances
amongst the liberal democracies.
(2) Future sovereign to sovereign “trade and investment”
agreements are likely to govern/regulate, and promote
R&D activities and knowledge exchanges involving
corporations, governments, and universities.
(3) New regulations/governance arrangements will shape
the nature and practice of open innovation.
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17. Corporations will need to pick their
technology “clubs”
• Each “club” will have agreed upon “open” innovation rules
• There are scores of existing “clubs” e.g., NATO, OECD, EU, NAFTA that will be
setting their own rules for “open” innovation
• These “clubs” will become increasingly strategic over time
• Different “clubs” are likely for different missions e.g.,
Global Warming
6G
AI
Pandemics/epidemiology
Data Security
• Higher education will not be as open as it has been in the past
• Basic science will still remain quite open
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18. Conclusions
• The open innovation model will bifurcate into at least two communities
• Liberal democracies
• Autocracies
• Other?
• It is not just military technology that is at issue; “dual use” as well as
economic development considerations will lead to mission-specific “clubs”
with different rules.
• Future rules of openness will be heavily regulated and shaped by
geopolitical considerations.
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Mission 1 Mission 2 Mission 3 Mission 4 Mission 5 Mission 6 Mission 7 Mission 8 Mission 9 Mission 10
Liberal
Democracies
Autocracies

19. Conclusions cont.
• The open innovation model we once knew depended on
the US-led “rule of law” reciprocal system which is now
collapsing.
• Open innovation isn’t dead; it is going through a
metamorphosis.
• We have an opportunity to shape what emerges.
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