Dr. Henry Chesbrough is a world-renowned organizational theorist and technology management theorist who is currently the educational director at the Garwood Center for Corporate Innovation at Berkeley Haas. Dr. Chesbrough’s research focuses heavily on managing innovation and technology for businesses and has written extensively on the link between organizational structures in business and market innovation.
Chesbrough is originally from Michigan where he attended high school in Ann Arbor. Afterward, he attended Yale University where he received his BA in economics where he graduated summa cum laude with honors. After receiving his undergraduate degree, Chesbrough moved on to the Stanford Graduate School of Business where he received his MBA. He then attended the Haas School of Business at the University of California, Berkeley where he earned his Ph.D. in Business Administration.
After earning his Ph.D., Chesbrough began teaching at the Harvard Business School as an assistant professor from 1997-2003. He currently works as a professor and faculty director at the Haas School of Business. He has published numerous popular and academic books and is most known for his idea of “open innovation.”
Before embarking on his academic career, Chesbrough was an executive manager in the disk drive industry in Silicon Valley. Chesbrough worked for 10 years in the industry, most of which were at the hard disc dive company Quantum.
During his time working for tech companies, Chesbrough recalls feeling frustrated that companies were not integrating useful ideas and approaches from academia. The perceived mismatch between academia and the business world is what inspired him to pursue his Ph.D. with the goal of bridging the gap between the academy and industry.
Chesbrough has also been a successful author. His first book, Open Innovation was published in 2003 and won NPR’s award for best book on innovation and was featured on several outlets. Chesbrough’s first book earned him a spot on Scientific Americans list of the top 50 technology and business leaders in 2004. Several critics praised the book for Chesbrough’s broad and encompassing understanding of the connections between the academy and wider industry.
Chesbrough’s second book, Open Business Models analyzed innovation in business models and was named one of the ten best books on innovation in 2006 by BusinessWeek. The book was also translated into 6 languages. Chesbrough’s latest book is titled Open Information Results and was published in 2019.
As the director of the Garwood Center for Corporate Innovation, Chesbrough is heavily involved in the production of cutting-edge industry research, the formation of strategic alliances and partnerships, and the creation of sustainable business models for the modern age. Specifically, the Garwood Center is focused on the “implementation of issues and development of new business models to capture the value of innovative products and services.”
Through its various programs and courses, the Garwood Center brings scholars and industry experts together to bridge the divide between the theory-focused world of the business academy and the more grounded practice in the actually existing business sphere. The Garwood Center also hosts the annual World Open Innovation Conference in which member firms share their successes and obstacles across a range of industries.
What Is Open Innovation?
Open Innovation is a mindset and research paradigm which advocates for firms using external along with internal ideas to advance their technology and pursue innovation. Traditionally, firms have been relatively conservative in where they source ideas for things like supply chain management, organizational structure, and more.
As explained by Chesbrough himself: “Open Innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology. Open Innovation combines internal and external ideas into architectures and systems whose requirements are defined by a business model” (2003).
Chesbrough created the idea of Open Innovation in response to what he saw as a shortcoming in how businesses handle R&D. Many research ventures for modern businesses are based on a kind of centralized internally oriented logic that is no longer adequate for the modern business landscape. The point of Open Innovation is to embrace external ideas and processes in the R&D process to find more innovative methods of operation.
In the past, R&D was often a large barrier to entry in competitive markets. The high cost of internal R&D meant that only a handful of large corporations could eat up the majority of R&D requests in their particular sector; companies such as DuPont, IBM, and AT&T. Smaller companies are just not able to put the resources to large scale technological R7D programs.
This closed circle of R&D in the technology and business sector is often seen as stifling for innovation. Specifically, Chesbrough points out a phenomenon that he terms the Exponential Paradox: the fact that technological advance is accelerating in growth while economic productivity growth is slowing down.
Chesbrough posits that the solution to this paradox is that technological growth does not necessarily cause productivity increase. What technology needs is a method of dissemination and integration into existing productivity structures. Open Innovation as a paradigm for business R&D is a means to answer this exponential paradox and break the closed cycle that many R&D practices are trapped in.
In this new model of open innovation, firms are encouraged to commercialize internal ideas in external paths and channels to generate value. The boundary between a firm and its environment is seen to be more porous and firms are encouraged to bring in external ideas through things like funding startup companies and licensing agreements. The goal of Open Innovation is to decentralize and diversify the R&D network of a business.
A major difference that this open approach to R&D brings is that it allows firms to better take advantage of the potential of opportunities that might require technologies outside their current focus. A firm that operates on an Open Innovation paradigm can utilize external structures to commercialize internal and external ideas.
Chesbrough offers an example of the potential pitfalls of a closed innovation approach in Xerox and Palo Alto Research Center (PARC). Internal R&D developed new hardware technologies like ethernet and graphical user interfaces (GUIs). However, Xerox did not feel that these technologies were worth pursuing to an increased degree as their business model focuses mostly on copiers and printers.
Xerox missed out though as those technologies were commercialized by companies to great benefit in the early 21st century. Ethernet technology and GUIs were heavily exploited by companies like Windows and Apple because they thought to seek innovative ideas outside of their OS-focused business model.
Benefits and Risks
The widespread adoption of the internet has made Open Innovation more feasible than it may have been in the past. Connecting internal resources to external commercialization structures is a viable path to improve innovative enterprises.
For instance, Open Innovation allows for lower R&D costs because they do not have to be centralized and only draw on in-house resources. Firms can exploit R&D opportunities external to their business model. By spreading their resources over more nodes, firms can also reduce risk by spreading that risk over more shareholders.
Open Innovation can also allow for faster times to market for products and services. With internal development, a single kink in the chain can greatly disrupt progress. With Open Innovation, tasks can be completed in parallel between multiple organizations, distributing the workload over many nodes. The result is that products can be improved quicker and new products can make it to market faster.
However, Open Innovation is subject to risks. Most of the time, the inherent risks of Open Innovation have less to do with the acquisition and development of ideas themselves but with how they are collected and organized. It can be difficult to coordinate objectives across several development nodes and it can also be difficult to navigate the legal landscape surrounding IP rights, trademarks, patents, and more.
Also, Open Innovation can be truncated if there is no clear innovative strategy. Managing a collaborative effort with multiple partners is difficult without a single unified goal that all stakeholders understand and are privy to.
Final Words on Open Innovation
Open Innovation is an exciting new paradigm in the realm of business research and is a radically new structure that solves many problems with old models of internal closed research practices. In today’s highly globalized and connected economy, it makes sense that businesses should look outside their own in-house idea to commercialize good opportunities. Dr. Chesbrough has been an influential figure in the push for Open Innovation and continues to share his wisdom and expertise at the Garwood Center for Business. You can listen to this podcast to hear more from the man himself on his business philosophy, career, and aspirations for the future of Open Innovation in the business world.
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