How Open Should Organizations be?

1. Henry Lopez Vega Ph.D. Candidate ESADE Business School How Open Should Organizations be?

2. At Glance • What is Open Innovation? • Who is using it? • Do I lose resources if I do not use it? • What is an Open Business Model? • Why do organizations require Open Business Models? • Business model maturity stages • How to use Business models? • European Living Labs • How does Open Innovation works in Europe • What is real real-life user-driven innovation?

3. A general Overview of Current Environmental Conditions • Customers and consumer markets have returned to center stage • Changes in economic conditions and political events • The global economic plain field is been flattened ( Thomas Friedman)

4. A Real Example from IBM • Closed Innovation Success 1945 – 1980 • 1980 – 1992 • Problems transferring research results into production • 1992 Near Death Experience • the single largest quarterly and annual lost in U.S. corporate history, a loss $4.96 billon after taxes • New External CEO, Lou Gerstner

5. A Real Example from IBM • Solutions 1992 - 2007 • Helping customers integrating computing technologies to achieve their business goals • Management of customer’s equipment • Unbundling the value chain • Licensing Intellectual Property (IP) • Learning from customers and not only from …

6. Broad and deep: T-shaped people

7. Actual IBM’s Business Model

8. Open innovation Licence, spin out, divest Internal technology base Internal/external venture handling External technology insourcing External technology base Closed innovation Other firm´s market Our new market Our current market Source: Chesbrough, H.

9. IBM & Open Innovation Other Firm’s Market $1.9 B licensing, OEM for semi co’s ODM for others Internal Technology Base New Market Current Market External Technology Base Global Svcs Sun, and others’ eqmt Java, Linux Technology Insourcing R D

10. Open Innovation does not only works on High Tech but also … Procter&Gamble Other Firm’s Market “Use it or Lose it” Internal Technology Base New Market Current Market External Technology Base Large Acquisitions “L’Oreal” Venture Acquisitions “Spinbrush” Technology Scouts R D

11. 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 ,2006)

12. Open Innovation: Who are the main actors Internal External Customers Competitors Venture Capital Start-ups Universities Research Institutions Living Labs • R&D Departments • Joint Ventures • Licenses • Spinoffs

13. Contrasting Principles of Closed and Open Innovation

15. Business Models:Practical examples • ipod • IBM • Ryan Air • MTV • What about your Business Model? MTV networks is part of the VIACOM group,world’s largest entertainment and media company How does MTVsurvive in the new media world? Sometimes opportunities are not visible

16. MTV Network World Wide

17. Business Model:6 Maturity Stages • Undifferentiated business model - none • Differentiated business model – Ad hoc • Segmented business model – Planned • Externally aware business model – externally supportive • Integrated business model – Connected to business model • Platform leadership business model – identifies new business model

18. Business models at Xerox = 3Com, Adobe, ….

19. The Business Model of Open Innovation Sale/ Divestiture New Revenues Revenues Market Revenue Spinoff License Own Market Revenue Own Market Revenue 0 Internal Developmnet Costs Internal Develop ment costs Internal And Extenal Development costs RisingCosts Of innovation Costs and time savings From leaveraging Extenal development Costs Closed Model Before Closed Model After Open Business Model Source: Chesbrough (2006,2007)

20. Business Models A business model is a useful framework to link ideas and technologies to economic output • Two clear functions • Value Creation • Value Capture

21. European Network of Living Labs The European Network of Living Labs creates a platform where firms, public authorities and citizens can work together on developing and testing new technologies, business models and services in real-life contexts The ultimate aim is to set up a new European Innovation Infrastructure where users play an active role in innovation

22. Living Labs Concept

23. Living Labs Concept

24. Traditional Wisdom… • How to launch converged services… • Build an IP network • Test a service in the lab • Launch it after a couple of years • Charge a nice subscription • Customers buy it • We make a nice profit • Think of another service… • But true convergence, and some really cool companies changed all this…

25. Convergence…

26. Converged Communications

27. Living Labs: i-city • Health Care • Mobility • Tourism • Culture & Heritage • Logistics • Education • e-Gov • Food & Retail

28. i-City: largest mobile testing platform in the world • Pocket PC = your office in your pocket • Consumers don’t need an office, they don’t want to sync with a PC • PDA needs to become a connected device like a mobile: turn it on, it works • Naked PDA is too difficult to turn into a fun and useful tool • i-City bridges the gap with its own Runtime Environment (Mercator)

29. “This converged world will require new forms of partnerships. Microsoft grew up on partnerships with companies like Intel, HP, Dell and others -- for this next generation of innovation, the partners are going to look like France Telecom.” Steve Ballmer, CEO, Microsoft Corporation

30. To take away • Knowledge is inside and outside your organization. So, become an Scout • Business models create value (Exploration). So, capture (Exploit) it. • Users are the best innovators !!! So, let them evaluate your innovation • Your role as consultant, manager, …. is to let employees tell you their ideas and your work is to find a market and a business model for it