Professor Wim Vanhaverbeke, University of Hasselt, Belgium, presented the InterTradeIreland Innovation Lecture entitled "Open Innovation Fails Because Companies Are Not Prepared to Open Up!" at the Whitaker Institute on 8th May 2014

1. 1
Open innovation fails because companies
are not prepared to open up
Prof. dr. Wim Vanhaverbeke
Hasselt University
ESADE Business School
National University of Singapore
May 6, 2014
What is open innovation (OI)?

2. 2
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.”
Chesbrough, Vanhaverbeke, West
Open Innovation: Researching a New Paradigm
(OUP, 2006)
A Closed Innovation System
Research
Investigations
Development New Products
/Services
The
Market
Science
&
Technology
Base
R D
Source: Henry Chesbrough

3. 3
What changed?
New Division of Innovation Labor
n Increasingly mobile trained workers
n More capable universities
n Knowledge distributed more widely throughout
the world
n Diminished US hegemony in many leading
technology fields
n Erosion of oligopoly market positions
n Deregulation (EU-liberalization)
n Enormous increase in Venture Capital
Source: Henry Chesbrough
Current
Market
Internal
Technology
Base
R D
Inbound OI: Filling the gaps with external
technology
Technology Insourcing
New
Market
External
Technology
Base
External research projects
Venture investing
Technology in-licensing
Technology
acquisition
Source: H. Chesbrough, Sloan Management Review, Spring 2003

4. 4
Current
Market
Internal
Technology
Base
R D
Outbound OI: Profiting from others’ use of your
technology
Technology Insourcing
New
Market
Technology Spin-offs
External
Technology
Base
Other Firm’s
Market
Licensing
Source: H. Chesbrough, Sloan Management Review, Spring 2003
Extension of the original model
By combining open / closed innovation
with open / closed business models

5. 5
Business models - Chesbrough (2006)
n Performs two important functions:
u it creates value, and
u it captures a portion of that value
n Creation of value: by defining a range of activities
that will yield a new product or service valued by
a (target) customer group
n Value capturing: by establishing a unique
resource, asset or position within that series of
activities where the firm enjoys a competitive
advantage
Open business models- Chesbrough (2006)
Open business model:
u create greater value by leveraging more ideas (external
ideas)
u capture greater value by using key asset, resource, or
position not only in the company’s own business but
also in other companies’ businesses

6. 6
Innovation
Business Model
Outside in
Open
Closed
Closed
Inside out
Unused
technology
used by
others
(Glad at P&G)
Technology
licensed to
strengthen
own BM
(IBM- Linux)
Closed
innovation
model
(Tide in P&G -
Foat glass in
Pilkington)
Search for
assets
owned by
others
(iPhone)
Use others’
technology
for own
products
(iPod – Swiffer
at P&G)
Use others’
technology
for VNPs
(Orchestrator:
Curana / KLM
SkyNRG)

7. 7
Innovation
Business Model
Outside in
Open
Closed
Closed
Inside out
Unused
technology
used by
others
(Glad at P&G)
Technology
licensed to
strengthen
own BM
(IBM- Linux)
Closed
innovation
model
(Tide in P&G -
Foat glass in
Pilkington)
Search for
assets
owned by
others
(iPhone)
Use others’
technology
for own
products
(iPod – Swiffer
at P&G)
Use others’
technology
for VNPs
(Orchestrator:
Curana / KLM
SkyNRG)
• KLM Royal Dutch Airlines, the North Sea Group and Spring
Associates joined forces and founded SkyNRG in Nov 2009.
n Goal: to help create and accelerate the development of a
market for sustainable jet fuel (safe, sustainable and
affordable) & avoid large price swings in petro-based
kerosene
n Creating a viable market for sustainable jet fuels for aviation
can only be achieved by combining expertise and experience
in the fields of air transport, product knowledge, R & D,
regulation and effective sustainability criteria
n SkyNRG is the hub firm in the ecosystem

8. 8
SkyNRG
Financial
world
(VCs…)
Airline
industry
Govern-
mental
agencies
Biofuel
value
chain
KLM’s value driver?
KLM profits as a
customer of a steady
supply of sustainable
and affordable biofuel
Open innovation:
SkyNRG sets up the aviation
biofuel value chain and
drives the acceleration of
joint technological
innovations between
partners

9. 9
Broadening the scope
n OI when it is not related to your NPD:
u You are a service company with no technical
expertise
u SME with insufficient technological expertise
u Government agency:
t Nasa: new technologies may help you a lot in
your mission as space agency
n Insourcing knowledge of others in an indirect way
through an open business model (OBM)
What if your products are commodities?
n BP pumps crude oil from wells and produces
petro products (commodities)
n Product innovation is not a value driver
n Oil well exploration and extraction are major
value drivers
n Collaborate with Schlumberger and others
technology services to advance their technology in
order to find the best wells earlier than
competitors.

10. 10
Strategy as ecosystem building
n Multiple partners in a network innovation
ecosystem
n Health of your company depends in the health of
your ecosystem
n Nurturing your ecosystem is necessary
n Nambisan and Sawhney; Network-centric
innovation, AMP, 2011
u Tasks: - Innovation leverage
– Innovation coherence
– Innovation appropriability
n The wide lens – Ron Adner
OI and SMEs

11. 11
Low tech industries:
A fruitful place for OI by SMEs
Jaga
n Differentiation vs. competition through:
u Eco-radiators
u Design-radiators
n The company is not selling products but
experiences, ideas, values, etc….
n Differences:
u radiators as heating machines
u radiators to reduce carbon-footprint
u radiator as a creative part of the house, heating
the "soul"

12. 12
Some JAGA products
48
Jaga Oxygen :
controlling temperature,
moisture and oxygen in the
house
Wearable heating?
Some JAGA products

13. 13
Jaga Experience Lab : JEL
- Product: test-facility
- Experience: test and develop
your own products
- Jaga invites professors &
engineers worldwide
- Low cost form of publicity: new
projects as Federation Tower /
Telefonica
Open innovation # 1
Experience
Strategy

14. 14
Open innovation #2
Jaga Product days 2007
n Total number of projects: 119
n Total number of products by 1 or more designers/engineers: 70
n Total number of products created by non professionals: 49
n Total number of solo projects*: 95
u created by a designer/engineer: 47
u made by non professionals: 48
n Number of Jaga Product days ideas taken into production within 6
months: 6
*= Created by only one person
25/05/14 Wim Vanhaverbeke 52
Jaga products days

15. 15
Example: Play radiator
25/05/14 Wim Vanhaverbeke 54
Example: The play radiator

16. 16
• Birth of an entire city BLACK ROCK CITY in the Black
Rock Desert in Nevada
• 40.000 people
• a cross-pollination of art, music, theatre, sensation
• wonderful creations > go up in flames at the end of the 3
weeks
Open innovation #3
Uchronians and the Burning Man

17. 17
www.uchronians.org
Start of the creative (internet) community
Open innovation in services:
Example: Pet insurance!
Example: KLM jet service!
§ New technological applications +
redesigning the VC

18. 18
How to manage OI?
An example:
How to cooperate with high-tech
start-ups?
How to manage open innovation
How to source external technology? An
example of corporate venturing
u BM / strategy but not organization
structure, culture, dynamics of corporate
strategy, routines, internal technology
transfers
t External Venturing @ DSM

19. 19
How to organize for OI?
External Venturing at XYZ
§ Pitfall : Large firm invests in a start-up and uses its
financial participation as a power tool to enforce
cooperation on terms of the investing company
Start-up
XYZ-BU
XYZ-V
Is it an interesting investment?
Yes? Then a minority participation
Once there is a financial
participation there is no ex ante
deal how to handle the transfer
of technology!
How to organize for OI?
External Venturing at DSM
§ Rationale:
§ Strategic return, not a financial return
§ One of the BU should benefit from it
§ Therefore: Negotiation is a three way negotiation
There are two deals packaged into one
overall deal
Start-up
DSM-BUDSM-V
1.
Option creation:
Is it an interesting investment?
2.
Option exercising:
Can the new technology create
a new business in the future?

20. 20
Strategic use of IP
in open innovation
Some non ICT-examples
License scheme of Bekaert & Continental
(technical standards)
Bekaert Continental
Other
clients
Other
suppliers
Proposal:
• X = …% of net sales value of supplied product
• Supplier collects royalties
• Cross-license agreement between client and supplier implying:
• Bekaert to supply "other clients" at X%
• "Other suppliers" to supply the Continental at X%
• Bekaert grants sublicenses to "other suppliers". The latter can supply to
"other clients" at 2X%
0%
x %
2x %
100%100% 60%: compensation for licensing activities 40%

21. 21
embryonic potential growth mature declining/
obsolete
Collaborative research Own Research
technology life cycle
potential
generic
technology
application
oriented
IP policy: IMEC’s position in the technology life cycle
time
Long term –
many options
short term
applications
low high R&D
expenditures
Know-
ledge
Know-
ledgefocus
academic
institutions
focus
industrial actors
IP policy: Imec's bridge function between
academic institutions and industry

22. 22
IP policy: IMEC Industrial Affiliation
Program
n What
u R&D cooperation in generic technologies
u Strategic program develop by IMEC and executed in IMEC
u IIAP partners send guest researcher(s) to IMEC
n Advantages
u Sharing costs, risks, research infrastructure, IP
u IIAP partners get access to:
- IMEC’s background knowledge
- selected results of other partners in IIAP
u bilateral contract within the framework of IIAP
n Leverages
u resources
u knowledge
u cross-fertilization of research of different partners
u shortening time to market
IIAP
foreground
knowledge
partner B
partner C
partner …
partner A
IMEC
IIAP
background
knowledge
knowledge developed
within the program
common IP (R1 - R1
*)
co-owned – non-exclusive license partner IP (R2)
exclusive license
IMEC IP (Ro)
non-exclusive
licensing
IP policy: IIAP – Generic framework

23. 23
Managing the transition from
closed to open innovation
Objectives
102

24. 24
Lewin’s organizational change model
1. Unfreezing:
u The first phase is concerned with the establishment of a sense of urgency
for change, the establishment of a ‘guiding coalition’ for championing it
and the creation and communication of the new vision to both internal
and external stakeholders.
2. Moving:
u The second phase concerns the actual implementation of change, through
the establishment of new procedures and patterns of behavior consistent
with the new vision, eventually acting on budget constraints, targets,
schedules and reward systems. Characterized by an experimental
approach.
3. Institutionalizing:
u The third phase involves the institutionalization of the new order, through
consolidating improvements achieved to prevent a slip back to the
antecedent status quo
103
Managerial levers for OI
n Understanding the anatomy of the process from Closed to
Open Innovation requires identification of the dimensions
along which change occurs identifies four dimensions
n Dimensions:
u Networks,
u Organizational structures
u Evaluation processes and knowledge
u Knowledge management systems
104

25. 25
Phasing open innovation
Outside-in dimension
Unfreezing Moving Institutionalizing
Networks Exploitation of individual
social networks,
particularly for developing
relationships with
universities and research
centres
Creation of an exploration
network, through a switch
of existing individual social
networks to the firm level
Establishment of long-term
forms of collaboration
with universities and
research centres
Organizational
structures
Evaluation
processes
Knowledge
management systems
105
Phasing open innovation
Outside-in dimension
Unfreezing Moving Institutionalizing
Networks
Organizational
structures
Achievement of a strong
commitment from the firm’s
top management..
Separation of R&D activities
from existing technical
assistance.
Creation of an independent
IP Office within the firm
Identification of an OI
champion
Establishment of a dedicated
organizational unit for
managing collaborations
with
universities.
Identification of a pilot
project (well defined and
separate from the rest of the
firm’s innovation
activities) to serve as
experimental field for the
implementation of OI.
Creation of the role of
gatekeepers for monitoring
the
development of technologies
and scientific advances in the
areas of interest for the firm.
Identification of the main
areas of research and
establishment of innovation
champions for each of them.
Evaluation processes
Knowledge
management systems
106

26. 26
Phasing open innovation
Outside-in dimension
Unfreezing Moving Institutionalizing
Networks
Organizational
structures
Evaluation
processes
Establishment of regular
meetings for validating and
monitoring innovation
projects
developed within the firm
Introduction of explicit
evaluation procedures to
assess the potential for
accessing external sources
of knowledge, particularly
within the existing
exploration network
Adoption of general
indicators and eventually
of derived innovation
performance measures for
project managers
Knowledge
management
systems
107
Phasing open innovation
Outside-in dimension
Unfreezing Moving Institutionalizing
Networks
Organizational
structures
Evaluation
processes
Knowledge
management
systems
Start to file patents
leveraging knowledge
already existing within the
firm.
Adoption of ICT systems
(intranet, videoconference,
project management tools)
for
increasing project team
interoperability
Assessment of internal
knowledge, eventually
explicitly included into the
firm’s strategic plan
108

27. 27
Phasing open innovation
Inside-out dimension
Unfreezing Moving Institutionalizing
Networks Using personal networks to
explore potentially
interested parties for
licensing deals, spin-offs,
sale of technology,
divestments
Creation of an firm level
exploitation network,
involving key customers
---
Organizational
structures
Creation of a new
organizational unit for
better linking R&D and
commercial functions
Evaluation
processes
Involvement of a new unit
linking R&D and
commercial functions into
the initial screening of
innovation projects
Introduction of a formal
evaluation procedure for
co-development projects
with customers or other
value partners
Knowledge
management
systems
Assessment of individual
R&D projects that can find
and external route to market
Assessment of licensing
competences into the IP
Office Filing
109
AN OI MANAGEMENT
MATURITY FRAMEWORKS
Frank Mattes / Forrester
(www.innovationmanagement.se )
Ellen Enkel, John Bell and Hannah Hogenkamp, (2011), OI maturity
framework, IJIM, 15 (6), 1161–1189
110

28. 28
Open Innovation maturity model
with four stages (1/2)
n Stage I: Experimentation.
u This stage is characterized by initiatives driven by single
Business Units, by a project-based resource allocation and by
pilot runs with selected new open approaches to innovation.
60% of firms are in this stage (Forrester).
n Stage II: Commitment.
u The second stage is achieved, when there is a CxO support for
Open Innovation, formal resources are reserved for Open
Innovation, the first steps towards organizational embedding
are taken and preliminary cost-benefit analyses are done. 30%
of firms are in this stage (Forrester).
Open Innovation maturity model
with four stages (2/2)
n Stage III: Sustainable state.
u This stage is characterized by a CxO mandate for OI,
significant formal resources allocated to OI, solid cost-benefit
analyses in place and continuous use of new open approaches to
innovation. 9% of firms have achieved this stage (Forrester).
n Stage IV: Full integration.
u The final stage of Open Innovation maturity is characterized by
the traits of stage III plus cultural embedding of OI, well-
defined and well-managed innovation networks, seamless
integration of Open Innovation, and shareholder value
justification of the investment in Open Innovation. Maximal 1%
of the firms are in this stage (Forrester).

29. 29
Elements in the maturity analysis
117
OI Maturity analysis: immature firm
118

30. 30
OI Maturity analysis: mature firm
119
Restructuring companies as a silent
driver of OI
Philips
Natlab
R&D center Applied
technologies
Running
businesses
R&D
OI campus Applied
technologies
Running
businesses
• Downsizing
• Other functions
• Inbound OI
• Lic & spin-offs
• OI campus
• Profit center
• Downsizing
• Ext & int clients
• Manage rel. with BU
• In-sourcing
• Looser link with R&D
and AT
• Manage rel. with AT

31. 31
OI: New
frontiers and
applications
Edited by:
Henry Chesbrough,
Wim Vanhaverbeke
Joel West
2003
2006
2006 2008
2011
20132011
Exnovate as a network of excellence
for OI-practitioners and scholars?
n www.exnovate.org
n An international network of excellence on Open and
Collaborative Innovation
n Projects
u PhD course OI in ESADE (5th time – 20-22 Janaury
Barcelona, 2014)
u CE and OI Masterclass 10 times already; 12th time at
ESADE Barcelona last week of May 2014)
u Study on open innovation metrics
u Using best practices to improve OI in SMEs
u …

32. 32
http://www.innovationmanagement.se/welcome-to-the-the-
mooi-project/
wim.vanhaverbeke@uhasselt.be
http://www.exnovate.org/
wim.vanhaverbeke@uhasselt.be