Hello, everyone. Today's presentation is on the topic of open innovation. And we'll talk a little bit about closed innovation in order to explain what open innovation is. But I'll go through the process of what open innovation is all about and who are some of the key scholars in this place. We'll start with the work of Henry Chesbrough who is a faculty member, professor in University of California in Berkeley, and he has been one of the pioneers in using this term and popularizing it and coming up with theories around the topic of open innovation. And so this is one of the ways by which Chesbrough defines open innovation. He refers to it as, the use of purposive inflows and outflows of knowledge. So let me explain this a little bit. Typically speaking, the way companies have thought about innovation in the past has been, we have a research and development group within the organization, they come up with technological innovations, new technological ideas those get transferred into products. So it happens very often internally. So what inflow and outflow of knowledge means that companies are willing to share or look outside the R and D, look outside the company to find new ideas, to find new knowledge. So that's one part of the definition with one purpose, to accelerate internal innovation. To make sure that you can speed up the process of internal innovation, come up with more innovations in the process by looking outside, and expand the markets for external use of innovation, respectively. So by doing this, by reaching outside, getting knowledge from the outside, accelerating internal innovation with a goal to create bigger markets, more markets for externalizing that innovation. So that's Chesbrough's definition of open innovation, and we'll talk about this just a bit more in terms of what are some of the conditions that have led to this, and what are some of the advantages of open innovation. So in order to understand open innovation, let's quickly look at what closed innovation would mean. Like I mentioned earlier, one of the things that happens with, or has happened with cooperation in the past is that innovation happens within the organization itself. It's an internal process, it's very often handled within the research and development group. It's often thought of as primarily technological innovation. That's how things had happened in the past so just to give a quick map of how this is happen. If you have an R and D group within the organization, this is where some of the new work happen. This is where you have some engineers working on technological innovations so they come up with new ideas. They develop those into innovations. So initially they're technologies then they become innovations, which lead to new products and services, these new products and services go out into the market. When they go out into the market that, hopefully, the goal is to create more sales and therefore more profits. And when there are more profits, that then feeds back into the organization to create more revenue for R and D. So if you look at this loop, it's primarily an internal loop. R and D to innovation to new products to more revenue, back to R and D, so each company has a certain percentage of its profits that feeds back into the R and D activities so that they can come up with new innovations for the future. So this is a con with Chesbrough this has been sort of the model that has existed for a long time. It's a closed innovation loop that companies have been following. He's saying that we need to think more broadly about innovation. And companies are now thinking of this idea of open innovation. Why? Because there are a few factors you have to keep in mind. One of the factors is that of globalization. What does that mean? Globalization essentially refers to the movements of people, capital, and goods all over the world. So we have companies in America designing products that are sold in, that are manufactured in Asia and then sold in Europe. All companies that are making products in Asia that are then manufactured somewhere else and sold in the US. So there's all these movement of trade, there's movement of people, there's movement of monies and all that is the process of globalization. So what has happened with globalization is that because of these increased and heightened exchanges and trades across national borders and across continental borders. That has meant that there's more communication across the world, which means that products could be made here and sold there, there's knowledge growth everywhere. So a company can then tap a global market, can tap a global workforce, can tap global capital to make innovation happen. And so because of this increased communication across the world, more globalization, there's more need for open processes of innovation. The other thing is technology and complexity. So one of the things that has happened is, with more and more digital technology coming into the world we have seen, for example, you take something like a car. A car, in the past, used to be primarily an electromechanical device. What's happened now is that you have several, quote, unquote, computers on a car. There could be many circuit boards. There could be complex digital circuitries. There could be several digital, analogue, physical, electromechanical things on a vehicle. So product complexity has increased. What that has meant is that no single company can have all the expertise that it needs to take complex products to market. So in that kind of a situation, it makes sense to collaborate with, to interact with, to bring in external expertise to allow companies to deal with this increased level of product complexity. The third thing is information and communication technologies. So this goes hand in hand with the first point of globalization. Now because we have the worldwide web, because we have access to data anywhere in the world, because of the new information and communication technologies it's easier to network develop across the globe. It's easier to connect with people, it's easier to get ideas out there, and easier to get ideas from out there back into the company. So this has made it easier for companies to be able to get involved in the process of open innovation. The next one is intellectual property. There's more trading happening on intellectual property on licensing, on royalties and things like that. So there's more exchange of intellectual property across companies to allow and to encourage more open innovation to happen. One of the reasons there was a whole amount of closed innovation happening is because companies are really really concerned about their own intellectual property. Which means any ideas, any new technologies that they develop were had to be protected so they won't be copied elsewhere. There's seems to be a more openest towards sharing this intellectual property information, and therefore that has led to a more possibility and more viability for practices of open innovation. So what is about the advantages? So when a company gets involved with other companies outside or other consumers outside, what are some of the advantages. One of the advantages is shorter time to market so this phrase time to market is really important and companies think a lot about this time to market. So if you look at this graph what you see is the x axis is time, this is time extending out in the x axis direction. What you see on the y axis, this is 0 this is where the 0 cost below it a company is going into debt above that company is getting revenue so they're making profit. So this is sort of the baseline. What happens when a company decides to introduce a new product into the market let's say you are a high tech company and you have a new product that is a new kind of phone, when you get the idea to do this phone you start off at this point in time. This is the starting point. What you start here, what happens is that the company has to invest in the product. You may have to hire more people, you may have to do more research in the technology itself, you may have to start a lab and as you start designing the product you may have to invest in a manufacturing facility, you may have to buy a machines, equipment. So there's a significant amount of investment that a company makes in developing these new products. So there's a lot of cost. This is a cost. What happens it's negative, because the company investing money. But because that product is not yet going to market, there no sales, there's no revenue, there's no profit, so this is actually time of a company's losing money on the product because the only investing without getting anything back. Once the product goes to market, when it reaches it's time to market, now there's revenue coming in, there's profit. And beyond a certain stage, beyond this point, this is called the breakeven point that the company has made the amount of money that is invested in the development of the product. So all of this, so this top this will be all the research and development money that goes into making their product. After this the revenues are profit, there's money coming into the company. It's a positive, there's gain rather than negative. And then eventually the product sort of dies off or it droops off after the null market is saturated or something new comes out. So this is kind of the trajectory of product and this is time to market. Now as you look at this. This is the amount of money that goes into taking that product to market. What companies want to do is they want to minimize this time. The shorter the time to market. So if it's over here, or if it's over here. That's a lot better because there's less money that is sunk costs into the product. The sooner you can start selling, the better it is. So one of the advantages of open innovation is that, if you as an organization don't have the people, don't have the technology, don't have the time, don't have the equipment to invest in developing a new innovation, why not reach outside? Why not make partnership with maybe a start-up? Maybe a young company that has the talent, that has the resources, that has some way to explore. Bring them into the process and either partner up with them or buy them or bring them in house. Somehow connect with them. Let them develop that innovation that then this company can take to market. So exchanging knowledge, inflows and outflows of knowledge with these external partners can reduce the time to market, because they can do the work that the company might not be able to do. This is one very big advantage of open innovation. The second advantage is reduced risk. So if you have, for example, a company that you're working with, it could actually be their idea that they bring to the table. You as a company invest some time and effort into it. You take the product to market and you try it out and you push forward with it. If for some reason, it does not succeed, there's a less amount of risk for you as an organization because you're not investing a significant amount of money into the product and the process, you're actually working with somebody external. So there's a certain amount of reduction of risk because you are not developing entirely yourself, you're not investing all this money into developing something new that may or may not succeed, so there's some reduction of risk when you get involved with open innovation. The third thing is if you engage with multiple partners outside your company might you have one partner that's doing something in the high tech area, someone is doing something with material, somebody else is doing something with consumer innovations. If you have multiple partners you may not be want to do that to yourself as a company. You just don't have that much time and that many people on board but if you're working with five or six different partners, you as an organization can take more innovations out to market. So in addition to reducing the amount of time to market it can also have more innovations out in the marketplace in that reduced amount of time. And what that means is that you can also start expanding into new markets. So this becomes a process that which you can have strategic growth so you can decide, for example, we need a new low cost product that goes into a certain market in an emerging economy. We don't have the resources to do it. We'll partner up with company x, y, or zed here. We help them develop the product. We bring it in house and we send this out to this new market. So what happen is, in a shorter amount of time, you can start opening up and start exploring new markets through the process of open innovation. So these are the advantages, the conditions and the advantages of open innovation. Some examples that a lot of companies who are doing this days, even larger companies like Procter and Gamble which is a worldwide organization. They have a program called Connect and Develop. They actually have a website and you can go to the website and read more about P&G's Connect and Develop program on their website. What they do is they invite individuals, startups, companies, anybody else who might have an idea that they think would line up with Procter & Gamble's visions or their strategic initiative, or their ideas for growth. If there's a match between what you think you have to offer and what P&G might want, you can submit your innovation to this portal, to Connect and Develop. And they will evaluate it, they'll talk to you, and they'll develop this. Co-participate in developing this innovation and taking it to market, and then the individual or startup can get into agreements about how to do profit sharing, or licensing, or royalties, so financial agreements are also made at this time. So P&G's Connect and Develop has become a really popular program and it's talked about quite a bit in discussions of corporate growth and open innovation circles. Products like, they have a product called the Febreze line. So there's a Febreze candle. That was developed as a part of this Connect and Develop program. Some of the products that deal with a brand called Bounce, which makes dryer sheets to keep clothes soft and to reduce static in washers and dryers, that will develop as the part of Connect and Develop. So those are some of the products that have come out of this Connect and Develop program, and that P&G website you'll see a lot more examples as well. Another one is the Coca-Cola, Coca-Cola has something called an Accelerator Program. Where they in certain cities across the world they will help support innovation, they'll help support startup, they'll help support entrepreneurs. So what they've done is they've tried to find who in the neighborhood is doing some interesting work that involved Coca-Cola in some way and they'll support those people and those startups in those processes in those programs. So that's Coca-Cola's Accelerator Program. And similarly, Samsung has a center called the Open Innovation Center. And it's similar model, what they do is they work with external partners. Their goal is to explore new technologies that Samsung can then involve and incorporate into some of their products as well. So this is another example of open innovation. So we can see that very large companies like Procter & Gamble, Samsung, Coca-Cola. These are massive multi-national companies which used to be following the model of close innovation. Looking internally for ideas are now recognizing that a good idea could come from anywhere. It does not have to happen within the company, within the research and development department. So, innovation exists everywhere. It exists in people's minds. It exists in startups. It exists in large companies and what has happened with this model of open innovation is instead of keeping it completely closed. Companies are reaching out and making new partnerships because they recognize that there are quite a few benefits of this model of innovation. So that's the sort of fundamentals and basics of open innovation. Thank you.
