Open Innovation and Open Business Models - Conference of ...

Open Innovation and Open Business Models:
A new approach to industrial innovation
Presentation to the
2010 Conference of Rectors and Presidents
NTNU
Henry Chesbrough
Haas School of Business
UC Berkeley
© 2010 Henry Chesbrough 1

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?
© 2010 Henry Chesbrough 2

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 the
Advancement of Science, 1883
© 2010 Henry Chesbrough 3

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
Science
&
Technology
Base
The
Market
Research
Investigations
R
Development
New Products
/Services
© 2010 Henry Chesbrough 5
D

The Virtuous Circle for R&D
Fundamental Technology
Breakthroughs
Increased
investment
in R&D
New Products and
Features
Increased Sales and
Profits via existing
business model
© 2010 Henry Chesbrough 6

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
© 2010 Henry Chesbrough 7

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.
© 2010 Henry Chesbrough 8

Where is R&D Occurring?
© 2010 Henry Chesbrough 9

The Open Innovation Paradigm
Licensing
Other Firm’s
Market
Internal
Technology
Base
External
Technology
Base
R
Technology Spin-offs
Technology Insourcing
Current
Market
© 2010 Henry Chesbrough 10
D
New
Market

Closed Open innovation
Internal
technology base
Other firm´s
market
Licence, spin
out, divest
Our new
market
External technology
base
© 2010 Henry Chesbrough
Internal/external
venture handling
External technology
insourcing
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
Our current
market

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.
© 2010 Henry Chesbrough 12

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?
© 2010 Henry Chesbrough 13

Correlating Nation’s (2009)
% of WW GDP to % of WW Top-Ranked Universities
9
8
Japan
7
6
y = 0,7489x + 0,3534
R² = 0,719
China
Germany
% global GDP
5
4
Italy
France
United Kingdom
3
2
1
Russia
India
Mexico
Turkey
Brazil
Spain
South Korea
Netherlands
Sweden
Australia
Canada
0
0 1 2 3 4 5 6 7 8 9
% top 500 universities
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

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
© 2010 Henry Chesbrough 16

U.S. Federal Government R&D History
Homeland Security,
Reagan “Star
Wars” Program
JFK
Apollo
Program
Carter
Energy
Program
© 2010 Henry Chesbrough
M. Hoeffert
17
Courtesy of Chris Somerville

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
© 2010 Henry Chesbrough 18

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
© 2010 Henry Chesbrough 19

Balancing Openness and Industry
Needs: A Proposed Continuum
Open
Restricted
Gifts
Commons
Consortia
Grants
Research
Contracts
Overhead $, IP rights
Adapted from Carol Mimura presentation, 9/29/2008
© 2010 Henry Chesbrough 20

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…
© 2010 Henry Chesbrough 22

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
© 2010 Henry Chesbrough
23

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
© 2010 Henry Chesbrough
24

Funding for Open and Proprietary Components
contracts
$50M/yr
contracts
subcontracts
UC Berkeley
Host Institution
$35M/yr
BP
Proprietary Component
contracts
Lawrence Berkeley
National Laboratory
subcontracts
ENERGY BIOSCIENCES INSTITUTE (EBI)
OPEN RESEARCH
University of Illinois
Urbana-Champaign
Other
BP Components
$15M/yr
BP R&T
PROPRIETARY RESEARCH
Other
Entities
contracts
© 2010 Henry Chesbrough
25

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?
© 2010 Henry Chesbrough
26

EBI governance and oversight
Governance Board
UCB/UIUC/LBNL - 4 representatives
BP - 4 representatives
Scientific Advisory
Board
Strategic Science
Advisors
5 Research
Leaders
EBI (UCB)
Director
(Chris Somerville)
Executive Committee
EBI (UIUC)
Deputy Director
(Steve Long)
EBI (BP)
Assoc. Director
(Paul Willems)
Energy Biosciences
Institute
Open Research Programs
BP R&T
Proprietary
Research Programs
© 2010 Henry Chesbrough
27

Licensing provisions
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
© 2010 Henry Chesbrough
28

Assessment
• Who controls the
assignment of
research projects?
• Who controls the IP
generated from the
research?
• Who controls the
dissemination of the
research results?
© 2010 Henry Chesbrough
29

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
© 2010 Henry Chesbrough
30

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?
© 2010 Henry Chesbrough
31

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
© 2010 Henry Chesbrough
32

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?
© 2010 Henry Chesbrough
33

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
© 2010 Henry Chesbrough
34

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)
© 2010 Henry Chesbrough
35

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…”
© 2010 Henry Chesbrough
36

Backup slides
© 2010 Henry Chesbrough
39

Setting the Stage
• 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
© 2010 Henry Chesbrough
40

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
© 2010 Henry Chesbrough
41

Research Complementarity
© 2010 Henry Chesbrough
42

Berkeley Resources
Joint Genome Institute
National Energy Research
Supercomputing Center
Molecular Foundry
National Center for Electron
Microscopy
Cryo-EM Facility
QB3 NMR Facility
© 2010 Henry Chesbrough
43

WHAT IS THE EBI?
INTEGRATING PROGRAMS
Under One Roof
Projects
Programs
Feedstock
Development
Feedstock
Deconstruction
Fuel
Synthesis
Environment,
Economics & Policy
© 2010 Henry Chesbrough
44

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
© 2010 Henry Chesbrough
45

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
Bench to bedside
Bench to fuel tank
QuickTime and a
TIFF (Uncompressed) decompressor
are needed to see this picture.
University as innovation accelerator
Engineering and Agriculture:
• input from industry provides valuable insight
• problems to be solved
• where and how academics can help
© 2010 Henry Chesbrough
46

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
© 2010 Henry Chesbrough
47