open innovation and open business models: a new … innovation and open business models: a new...

© 2010 Henry Chesbrough 1

Open Innovation and Open Business Models:

A new approach to industrial innovation

Presentation to the

2010 Conference of Rectors and Presidents

NTNU

Henry ChesbroughHaas School of Business

UC Berkeley


A Thought Experiment

• It is the year 1900. You have a profitable

business, and it is growing

• To your credit, you recognize that this

won’t last forever

• Where to look for ideas that can grow into a

future business?


Henry Rowland’s* Lament

“…what must be done [is] to create a science of physics in this country, rather than to call telegraphs, electric lights, and such conveniences by the name of science…. When the highest honors are given to the mediocre, when third-class men are held up as examples, and when trifling inventions are magnified into scientific discoveries, then the influence of such societies is prejudicial.”

* address as President of the American Academy for theAdvancement of Science, 1883

Where Were the Great Ideas for

Innovation 50 or 100 years ago?

• Individual Inventors

• Lots of imitators

• A few very large companies’ R&D labs

• “The key [to success] is to find a man of

genius, give him money, and leave him

alone.”

– James Conant, former President, Harvard Univ.© 2010 Henry Chesbrough 4


The Current Paradigm: A Closed

Innovation System

ResearchResearchInvestigationsInvestigations

DevelopmentDevelopment New ProductsNew Products/Services/Services

TheMarket

Science&

TechnologyBase

R D


The Virtuous Circle for R&D

Fundamental Technology Breakthroughs

New Products and Features

Increased Sales and Profits via existing business model

Increased investment

in R&D


The same experiment today

• Public repositories of knowledge– Google

– Public Library of Science

• Faculty - and their graduate students

• Growing number of excellent universities around the world

• Growing number of patents received globally

Where are the Great Ideas today?

• Users/Individual Inventors

• Startups and SMEs

• Universities and Research Institutes

• Some large companies

• Nonprofit organizations, foundations

• “Not all the smart people in the world work

for you.”

– Bill Joy, founder, Sun Microsystems, now

Partner at Kleiner Perkins.


Where is R&D Occurring?



Current

Market

Internal

Technology

Base

R D

The Open Innovation Paradigm

Technology Insourcing

New

Market

Technology Spin-offs

External

Technology

Base

Other Firm’s

MarketLicensing

© 2010 Henry Chesbrough

Closed innovation

Our current market

Our new market

Other firm´s market

Open innovation

External technology insourcing

Internal technology base

External technology base

Stolen with pride from Prof Henry Chesbrough UC Berkeley, Open Innovation: Renewing Growth from

Industrial R&D, 10th Annual Innovation Convergence, Minneapolis Sept 27, 2004

Internal/external venture handling

Licence, spin out, divest


The Logic of “Open Innovation”

• Good ideas are widely distributed today. No one has a

monopoly on useful knowledge anymore.

• Being first to discover is neither necessary nor

sufficient to win in the market

• A better business model beats a better technology

• Universities are now critical players in the innovation

process

• Not all of the smart people in the world work for us.


Implications for Industry-University

Research Collaborations

• Industry is Retreating from Basic Research

• Universities are Picking Up the Slack

• Are Universities Set Up to Work as the Lab for

Industry?

– Is this consistent with the mission of the

university?

• Are Companies Set Up to Work with Universities?

– Can companies profit from university work?

US is still “off the chart” – China projected to be “off the chart” in less than 10 years:US % of WW Top-Ranked Universities: 30,3 %

US % of WW GDP: 23,3 %

Source: http://www.arwu.org/ARWUAnalysis2009.jsp

Correlating Nation’s (2009)% of WW GDP to % of WW Top-Ranked Universities

Japan

ChinaGermany

France

United KingdomItaly

Russia SpainBrazil

CanadaIndia

Mexico AustraliaSouth KoreaNetherlandsTurkey

Sweden

y = 0,7489x + 0,3534

R² = 0,719

0

1

2

3

4

5

6

7

8

9

0 1 2 3 4 5 6 7 8 9

% g

lob

al

GD

P

% top 500 universities

The role of the university

Impact of the universities

Source: Pellenbarg, 2005

Universities as Open Institutions

• Universities are intended to explore,

discover, and disseminate new knowledge

• Society expects that, over time, much of this

new knowledge will be useful

• Post World War II, government

increasingly funded university research


U.S. Federal Government R&D History

JFK

Apollo

Program Carter

Energy

Program

Reagan “Star

Wars” Program

Homeland Security,

M. Hoeffert

Courtesy of Chris Somerville

17© 2010 Henry Chesbrough

The Public Research University

• The Morrill Act (1862):

– "An Act Donating Public Lands

to the Several States and

Territories which may provide

Colleges for the Benefit of

Agriculture and the Mechanic

Arts“

• Explicitly intended to advance

technology and serve the working

classes


Universities as Industry Research

Partners

• Bayh-Dole Act of 1980 – universities can

claim an ownership right to its discoveries

• University research discoveries sometimes

vital to industry activities

– E.g., Cohen Boyer patent on recombinant DNA

– $255 million paid, product sales of >$25 billion


Balancing Openness and Industry

Needs: A Proposed Continuum


Open Restricted

Gifts GrantsConsortiaResearchContracts

Overhead $, IP rights

Commons

Adapted from Carol Mimura presentation, 9/29/2008

Can This Scale?

Will Universities Be “Bought” if

Funding is High Enough?

• Energy Biosciences Institute an Interesting

Case

• Significant $, some controversy

• Some institutional innovation

• Some corporate innovation as well…


BP’s challenge in February 2006

• Energy Bioscience looked promising (Senior Executive buy-in)

• How do we meld commercial/technology strength with biology/biotech?

− The company had no bio-expertise

• How to reach out to biology/biotech communities

− Not a corporate lab!

− Corporate labs too insular – can’t tap broader expertise in a rapidly moving field

− Where was the Energy/Bio talent pool anyway?

− Not the usual university research programme

− BP does many of these and knows strengths/weaknesses

− Need to facilitate the development, demonstration, and commercialization of research results


BP Organizational Choices to Make This Valuable

• A substantial and long-term commitment to engage quality researchers ($500m over 10 years)

• Host at a world-class institution to maximize academic presence and interdisciplinary interaction.

• Single organization doing open and proprietary work

− Open work in Fundamental Energy Biosciences

− In best academic tradition

− Need faculty help in inventing the field

− A window for BP on worldwide Energy Biosciences

− Co-locate some BP researchers

− Live in and understand the open research community, but knowledgeable about BP’s needs, goals

− Enhance industry connection to help motivate/guide open research

− Potential to demonstrate at scale


25

Lawrence BerkeleyNational Laboratory

Other BP Components

UC BerkeleyHost Institution

University of IllinoisUrbana-Champaign

Other Entities

contracts contracts

subcontractscontracts

contracts

ENERGY BIOSCIENCES INSTITUTE (EBI)OPEN RESEARCH

BP R&TPROPRIETARY RESEARCH

subcontracts

Funding for Open and Proprietary Components

$50M/yr

$35M/yr

$15M/yr

BP Proprietary Component


26

Is this compatible with a public research university?

• Does EBI preserve academic freedom?

• Does Berkeley remain an open institution?

• Will society benefit from EBI, or will BP be the main beneficiary?

• Who controls the assignment of research projects?• Who controls the IP generated by the research?• Who controls the dissemination of research results?


27

Governance Board

UCB/UIUC/LBNL - 4 representativesBP - 4 representatives

Executive Committee

EBI governance and oversight

Strategic ScienceAdvisors

BP R&TProprietary

Research Programs

Energy Biosciences Institute

Open Research Programs

EBI (UIUC)Deputy Director

(Steve Long)

EBI (UCB) Director

(Chris Somerville)

EBI (BP) Assoc. Director(Paul Willems)

5 ResearchLeaders

Scientific AdvisoryBoard


Licensing provisions

28

For inventions solely owned by UCB, UIUC and/or LBNL

NON-EXCLUSIVE

Non-exclusive, royal free (NERF) license in BP’s area of interest, providing:

- BP will diligently pursue commercialization

- BP will underwrite the patent costs

EXCLUSIVE

BP may obtain exclusive license rights to sole or joint inventions.

- pre-negotiated capped fees

- “Bonanza clause” in case of extraordinary commercial success


Assessment

• Who controls the assignment of research projects?

• Who controls the IP generated from the research?

• Who controls the dissemination of the research results?


Assessment – Academic Freedom

• Who controls the assignment of research projects?

• Who controls the IP generated from the research?

• Who controls the dissemination of the research results?

• Executive Committee proposes, Governance Board approves – Berkeley and BP each have veto over slate

• Yours, Mine, and Ours

• Berkeley controls, subject to patent decision


Assessment – Part II: Academic Impact

• Is Berkeley better or worse off for having this agreement?

• Would other universities accept these provisions?

• Will taxpayers view this agreement positively?


Assessment – Part II

• Is Berkeley better or worse off for having this agreement?

• Would other universities accept these provisions?

• Will taxpayers view this agreement positively?

• Yes – 10 new faculty positions, dozens of grad students supported

• In a heartbeat; 4 other finalists

• Tougher question. If no, may further reduce research funding support


BP Assessment – Is this more than charity?

• What is BP getting for its $500M?

• How will BP learn from UCB and UI research?

• How will results transfer into useful industry development?


BP Assessment – Is this more than charity?

• What is BP getting for its $500M?

• How will BP learn from UCB and UI research?

• How will results transfer into useful industry development?

• BP is buying speed, and access to world class bioscience

• BP must invest additional resources to learn

• BP must create new receiving mechanisms inside BP to make use of results


A Critique of EBI, and Similar Large Scale Corporate Research Collaborations

• Even if the form of academic freedom is preserved in such agreements, the substance in practice can still thwart academic freedom

1.“Relevant” research (from the perspective of the corporation) will be selected over “less relevant” research

2.The additional resources will likely reinforce the favored trajectory of research, especially new faculty appointments and doctoral grants

3.The faculty who bring in such resources may be favored over those who do not

4.Over time, the faculty will become “pro corporate” (and Berkeley is a State-supported University)


Could This be a New Model for Industry-University Collaboration?

Named a “Deal of Distinction” in 2007

In The Industry-University-Government Interface (IUGI) Sector

By the Licensing Executive’s Society

“…hand sculpted glass by the artisans of Parris-Roche Design Studios, consisting of a pair of entwined blue glass ribbons encased in a clear conic pinnacle symbolic of parties coming together…”


39

Backup slides


40

• In 2004 Restructured IP management at Berkeley

• Created IPIRA, goal of streamlining processes & increasing corporate sponsored research

• IP Management Strategies to Maximize Research Impact, Collaboration & Translation

• Relationship model: collaborations, partnerships are key

• Networks are key

• Logo reflects the vitality and interconnectivity of the Industry-University interface

Setting the Stage


41

In 2006: Opportunity to Compete for Funding from BP“Help us to invent the future”

The RFP was consistent with Berkeley’s approach in IPIRA

Most common definition of technology transfer is not consistent with our approach

Our approach is expansive, embraces Open Innovation principles

TT is an ongoing relationship continuum, not a single transaction

•many years, many points of contact

•building a pyramid, contributing

different sectors of a pie

•results from inflows and outflows

to and from the university

•involving personnel exchange, knowledge exchange, materials and equipment, expertise and know-how exchange in both directions


Research Complementarity


� Joint Genome Institute

� National Energy Research Supercomputing Center

� Molecular Foundry

� National Center for Electron Microscopy

� Cryo-EM Facility

� QB3 NMR Facility

Berkeley Resources


WHAT IS THE EBI?INTEGRATING PROGRAMS

Feedstock Development

Projects Programs

Feedstock Deconstruction

Fuel Synthesis

Environment, Economics & Policy

Under One Roof


Relevant Facilities at University IL at Urbana-Champaign

� Institute for Genomic Biology

� Germplasm collections

� Bioprocessing facility

� Off-road vehicle development laboratory

� Network of experimental stations & energy farm


EBI Open and Proprietary Components Help Us To Implement a Shared Vision

Of translating basic, academic, research results from the EBI into global energy solutions

Science-to-technology transition can be expedited through innovative Public-Private Partnerships

Engineering and Agriculture: • input from industry provides valuable insight • problems to be solved• where and how academics can help

University as innovation accelerator

Bench to bedside

QuickTime™ and aTIFF (Uncompressed) decompressor

are needed to see this picture.Bench to fuel tank


EBI timeline

• June 14, 2006

− BP announced publicly its intention to create the EBI

• Summer 2006

− Screening of some 52 inquiries in 10 countries

• October 2006

− RFP to 5 potential hosts (three in the US and two in the UK)

− Encourage partnership to bring strength across whole value chain

• Early December 2006

− Reverse site visits in London by a BP panel

• February 1, 2007

− Selection of UCB/UIUC/LBNL announced

• Spring-Fall 2007

− Contract negotiations / Partner meetings re governance / EBI Directors in place / Pre-proposals →→→→ proposals →→→→ funding decisions

• November 14, 2007

− Contract formally signed, operations begin


open innovation and open business models: a new … innovation and open business models: a new...

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