Author, Open Business Models: How to Thrive in the New Innovation landscape

Summary from the Front End of Innovation Conference in Boston, May 2007.

Open innovation has been well received in the technology industry, but not initially with the business side of the organization.

The traditional product development funnel paradigm is a closed innovation system. It’s a one-way system, a pipeline with a beginning and end. These are physically rigid systems. Economic pressures in most industries make this less relevant as a model. Stakes have become increasingly higher. Chip development, drug development, consumer product development all see higher development costs. Worse yet, shorter shipping lives for products. ROI is becoming harder to justify. Cell phone technology delivers products with a shipping life of less than 12 months.

Chris Zook in HBR says productive lives of strategies are also growing much shorter. Impact on innovation reduces cost recovery time. The entire process is economically questionable.

The new model, The Open Innovation model, is a funnel with multiple integrated point of entry not limited to the wide end. This creates an alternative set of economics with shorter time to market for products with more revenue opportunities and more profit potential. The may also generate new sources of growths – additional paths to profit.

Consider the definition of innovation. It used to be synonymous with invention. It was the realm of R&D exclusively. In the new model, it’s about commercialization. It’s about business model innovation as much as product. The integration of the two extends the process across the organization.

Which is more important: better technology or a better business model? Engineers favor technology. MBAs favor the business model. The ability to profit, scale, acquire external technology favors the business model as the more valuable.

Six stages of the business model

Undifferentiated business                     
                    Commodity priced on cost

Differentiated business                           
                    Something unique priced on value not just cost. One hit wonders. Not sustainable.

Segmented business                                            
                    Can serve multiple markets at same time. Volume and cost plust

External                                                      
                    Harness external sources of technology to complement internal. More at bats.

Integrated                                                 
                    External sources, internal ideas, company

Platform                                                     
                    Other companies involved.

The most adaptable are the ones that survive and win. The business model is most important in a changing environment.

Who is responsible for crafting the business models? Who has budget and authority to explore and drive changes?

In R&D or technology. Clear. What processes enable experimentation?

An innovation gap has been created by organizations that have honed their abilities to exploit processes for efficiency and lost sight of the longer range opportunity to create differentiation and competitive advantage. (See Vijay Govindarajan)

Who will be the architects of new business models? New industry entrants and people at periphery of the industry. They bring a broader perspective and less baggage. They can’t afford to compete head on with established business models. To attract capital, they have to prove that alternative approach is viable. Innovation becomes part of their brand.