If you are interested in cutting edge technology and the businesses that are making this happen then I strongly suggest you watch some of the archived videos of the Web 2.0 Summit 2010. In particular, the interview of Eric Schmidt (Google) by Tim O’Reilly is very good. Schmidt is asked to comment on the new Google device, Android, face recognition, net neutrality, if Google is planning a Facebook alternative, etc etc. Very interesting, indeed! The Q&A at the end raises some future implications as well.

Nice, straightforward talk by Professor Henry (Hank) Chesbrough today on Opensourceway.com. (For audio recording please see: Open Services Innovation – Chesbrough). The talk was based on his new book Open Services Innovation.

Professor Gary Hamel was also present on the audio call talk. Chesbrough explained his new research and ideas that build on the idea of open services innovation rather than just product innovation. He began with some basics about what is innovation, and open innovation by explaining how nobody has a monopoly on great and new ideas, and how companies need to make more use of the ideas of others. He called for companies to liberate the material and ideas that are held internally with the rest of the world (so long as they are not your core competence, of course). If many companies followed such a model of sharing then we would see more innovation. Using the example of drug discovery he showed how the same discovery can help lead to the cure of more than one disease.

The larger problem here, he acknowledged was that companies and management are built to have an implicit logic of NOT sharing as internal promotion systems etc are all tightly linked to ideas of keeping information to yourself and not sharing. There is active discouragement of sharing.

Such a mindset and internal structures do not allow companies to change. Linking the idea of holding on to the status quo and non-sharing, Chesbrough brought the argument around to the big problem he sees in product innovation – It is limiting, or as he puts it, companies fall into the ‘commodity trap’. Commodity trap simply means that organizations become dependent on merely innovating the product internally. You are thus only as good as your next product. But what makes it harder to sustain differentiation and success is that you can only rely on internal ideas and innovation, and that too in the products area (limited to the design of your last product and how you will you upgrade it etc…. but also new products in a similar area). On the other hand Chesbrough’s research has shown that companies like IBM indicate that more than half of their profit comes from services (this was back in 2004). Why is this not matched with a focus on services innovation then?

Clarifying his ideas, Chesbrough explains that products are not important in themselves – it is the service they deliver that a customer wants. For instance a drill makes holes and it is the hole that the customer wants and not the tool per se. See his slide below on utilization differential.

Open services innovation is one way to avoid the commodity trap. Open services innovation implies building deeper relationships with your customers so you can find other ways of adding value and working closer with each other. He provides three different examples (from various industries to prove that his model does not only apply to technology – Amazon, El Bulli, and TSMC). Opening up your backend infrastructure leads to more innovation.

Some questions asked by the audience:

Q: How does open services innovation avoid the commodity trap?

Chesbrough: Open source business models allow for collaboration at one level and then competition higher up in the stack, the same is true for open services innovation.

Q: How do you differentiate in services models? (asked Chesbrough of himself)

Chesbrough: Services platforms!

Q: If I am in a traditional entrenched Fortune 500 company what do I do to make a change of such a drastic nature in my organization?

Chesbrough: Rethinking management in fundamental ways  is never easy. You could start with an experiment that you can control. Look to your customers for inspiration and observe how they use your products.

Q: How do I retrain my boss to exhibit values of open innovation?

Chesbrough: I feel the commodity trap example helps to dissuade managers from becoming too entrenched.

Q: How does one use the lessons of open innovation and translate them to social innovation?

Chesbrough: Use the platform to innovate with ideas, as you would for products and services.

Professor Gary Hamel asks Professor Chesbrough: Platforms are competing with each other like Apple versus Android (Google)? You say there is no longer a first mover advantage? So where is the advantage?

Chesbrough: We are not beyond competition. It is clearly not a first mover issue these days but companies can gain by building a more robust and faster working network.

I wasn’t very taken by the new sculpture at the corner of our New Academic Building (NAB) at the LSE. This piece of abstract art was ‘interesting’ but I was not inspired. Well, that is till today when my opinion was somewhat changed by a current PhD student in ISIG, Department of Management. His name is Nuno Oliveira. He provided a new take on Richard Wilson’s piece of art.

Instead of a clumsy clump of cement that I attempt, with my brain, to sort out every day and smooth the rough edges, Nuno explained how that in itself represents the chaos, complexity and recalcitrance of research ideas before they are moulded into a polished one. Of course, it can be said that we never really have a polished idea as such – we just gently muscle the data and our research question to a more harmonious fit. Anyway, I won’t go on about data collection, theoretical fit, and abstracting from both to contribute to knowledge, but I will say that this strange monstrosity on the side of the NAB makes me more reluctant now to even it out. I wonder what the busy London passer-by on Kinsgway thinks of our art ;-).

I began to watch this video with the idea that this will be a ‘business’ talk that will bore me to death. I couldn’t have been more wrong. Is Mr Caan an entertaining speaker – no doubt about it, but that was not what held my interest till the end. It was his humanity and understanding of people. He seems to want people to ‘speak to him’ through their business models. Perhaps I am guilty of being soppy but I really felt that no matter what anecdote he told the LSE crowd of students and faculty, it came from the heart and he wants the entrepreneurs he finances to care too.

[http://www2.lse.ac.uk/newsAndMedia/videoAndAudio/publicEventsVideos/publicEventsVideosPrevious.aspx]

He offers entrepreneurial advice to the audience, again using his own experience and failures. I have a deadline or else I would summarize his talk here. I must come back to my notes later! I hope you enjoy the video courtesy of LSE Public Events.

Alpheus Bingham of Innocentive’s talk is quite interesting. He claims that the fundamental ways that open innovation (OI) can become transformative for a business are often ignored. His research has shown that this involves exploiting spot capacity, OI as a mechanism for risk distribution (financial, execution and scientific risk), and OI as a  misguided claim for diversity. When discussing spot capacity he shows through a simple use of Transaction Cost Theory how search costs and other costs related to making and post-making a transaction an organization needs to deal with are very high. However with OI this can be reduced. Risk distribution and diversity are highly linked. If an organization like a pharmaceutical company wants to find the cure for a rare disease the risk of failure will be quite high (Bingham uses Edison’s example of creating a lightbulb after having failed over a 1000 times). Shareholders of most companies are not happy to have their money ‘wasted’ on failure. In the case of OI the community takes on the risk of failure rather than one organization. By sending out an electronic call companies manage to get the attention of all the suppliers that will probably not have the people with the diverse skills that you need in order to innovate. By specifying such close criteria you strip out all diversity and thus endanger OI.  

In essence the field of vision for your company’s problem space includes scientific method, social search, and finally the open space of OI. All three have merit but they do not follow each other logically or chronologically. Sadly companies do not draw on a taxonomy of OI. Instead, they take OI as a broad field and engage in it and with it without realizing they do indeed need to have a clearer path to steer to make effective use of OI.