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Open Business Models: How To Thrive In The New Innovation Landscape [Hardcover]

Henry W Chesbrough
4.7 out of 5 stars  See all reviews (3 customer reviews)

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Book Description

1 Nov 2006

In his landmark book Open Innovation, Henry Chesbrough demonstrated that because useful knowledge is no longer concentrated in a few large organisations, business leaders must adopt a new, “open” model of innovation. Using this model, companies look outside their boundaries for ideas and intellectual property (IP) they can bring in, as well as license their unutilised home-grown IP to other organizations.

In Open Business Models, Chesbrough takes readers to the next step—explaining how to make money in an open innovation landscape. He provides a diagnostic instrument enabling you to assess your company’s current business model, and explains how to overcome common barriers to creating a more open model. He also offers compelling examples of companies that have developed such models - including Procter & Gamble, IBM, and Air Products.

In addition, Chesbrough introduces a new set of players—“innovation intermediaries”—who facilitate companies’ access to external technologies. He explores the impact of stronger IP protection on intermediate markets for innovation, and profiles firms (such as Intellectual Ventures and Qualcomm) that centre their business model on innovation and IP.

This vital resource provides a much-needed road map to connect innovation with IP management, so companies can create and capture value from ideas and technologies—wherever in the world they are found



Product details

  • Hardcover: 224 pages
  • Publisher: Harvard Business School Press; 1 edition (1 Nov 2006)
  • Language: English
  • ISBN-10: 1422104273
  • ISBN-13: 978-1422104279
  • Product Dimensions: 24 x 16.1 x 2.5 cm
  • Average Customer Review: 4.7 out of 5 stars  See all reviews (3 customer reviews)
  • Amazon Bestsellers Rank: 443,029 in Books (See Top 100 in Books)

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From the Author

On the value of Innovation and Business Models:
"Innovation is often expensive, but consider how expensive it would be to stop innovating. The key is to make innovation more effective by extending it to business models.... Business model innovation must be the job of every senior manager."

On unused ideas and technology:
"Unused ideas abound in many companies. When Procter and Gamble surveyed all the patents it owned, it determined that about 10 percent of them were in active use in at least on P&G business, that the remaining 90 percent of patents had no business value of any kind to P&G."

On the human cost of unused ideas and technology:
"....many of the ideas people work on are never deployed in the market. It is reportedly quite common for a pharmaceutical researcher to never see one of her projects ship to market, even over a thirty year career, because the attrition rate of compounds is so high. This is an enormous waste of human talent and must take a toll on any person's initiative."

On Closed Innovation models vs. Open Innovation models:
"In the Closed Innovation model, companies had to take their new discoveries to market themselves for two reasons: first, because they would obtain more money that way; and second, because there weren't many other companies that knew enough to use the technology successfully. Intermediate markets for innovation in the Closed Innovation system were sparse. In an Open Innovation world, where useful knowledge is widespread, there are many companies with many potential technologies that might be utilized in a company's business model. No company can hope to exploit all of the many ways a new technology might be used, so Open Innovation companies typically license technologies liberally to other companies. This creates a secondary market for innovations."

On Dell and Wal-Mart:
"...companies like Dell and Wal-Mart do not invest much of their own money in product innovation. Each company, however, is a leader within its industry on process innovation, which is at least as important to future success as product innovation."

From the Back Cover

Hank Chesbrough's writings on open innovation are some of the most important, insightful ideas about innovation and creating new growth that have ever been written. This book is another crucial cornerstone in this body of understanding, explaining how executives can operate successfully in the new, open innovation landscape. I strongly recommend it for anyone concerned with innovation and growth.

--Clayton M. Christensen, Harvard Business School, author, The Innovator’s Dilemma

To develop and sustain business excellence, a company must continuously innovate in the very way it creates business value in the marketplace—its business model. To create the most value, the business model must become more open. Open Business Models shows how to create a more open business model, explains the barriers that may arise, and describes how to overcome them.

-- Dr. Irving Wladawsky-Berger, Vice President of Technical Strategy and Innovation, IBM

Innovation in the business model is one of the most profound ways to differentiate a business and turn the tables on competition. In Open Business Models, Henry Chesbrough rethinks the traditional approach to business from the ground up. This book should be read by anybody who wants to understand how to innovate in the 21st century global economy.

--Nathan Myhrvold, founder and CEO, Intellectual Ventures


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Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
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Customer Reviews

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4.7 out of 5 stars
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Most Helpful Customer Reviews
7 of 7 people found the following review helpful
By Donald Mitchell HALL OF FAME TOP 500 REVIEWER VINE VOICE
Format:Hardcover
This book is misnamed. Rather than being about open business models, the book's topic is about how to open business models to benefit from access to more technological innovation and strengthen your competitive posture through intellectual property.

As a result, Professor Chesbrough creates a misapprehension that successful open business models are almost always linked to technological innovation as their main purpose and benefit. My own research (with Carol Coles in The Ultimate Competitive Advantage: Secrets of Continuously Developing a More Profitable Business Model) indicates just the opposite point: Technological innovation is rarely the most effective way to open up your business model to create improvements.

So, this book's value is mostly to those who work in achieving or creating more benefits from technology innovation. If that is your interest, you've come to the right book. If that's not your interest, skip this book.

Why do those involved in achieving or creating more benefits from technology innovation need to open their business models? Professor Chesbrough points to several influences:

1. Technological innovation is coming from more sources than ever before. As a result, you will be developing inferior technology without accessing the best of what the world has to offer.

2. Most intellectual property isn't used for any practical purpose. That's a waste of social and company resources.

3. The protections for intellectual property are stronger now, and your pathway to progress will be blocked without collaborating with those who have complementary IP.

4.
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5 of 6 people found the following review helpful
By Robert Morris TOP 500 REVIEWER
Format:Hardcover
What is an open business model? In Chapter 1, here's Chesbrough's response to that question: "A business model performs two important functions: it creates value and it captures a portion of that value. It creates value by defining a series of activities from raw materials through to the final consumer that will yield a new product or service with value being added throughout the various activities. The business model captures value by by establishing a unique resource, asset, or position within that series of activities, where the firm enjoys a competitive advantage."

Having thus established a frame-of-reference, Chesbrough continues: "An open business model uses this new division of innovation labor - both in the creation of value and in the capture of a portion of that value. Open models create value by leveraging many more ideas, due to their inclusion of a variety of external concepts. Open models can also enable greater value capture, by using a key asset, resource, or position not only in the company's own business model but also in other companies businesses."

These two brief excerpts are provided because Chesbrough`s definitions of various terms are far clearer and more authoritative than mine could possibly be. Also, these excepts address the "what" so that in the balance of this brilliant book, Chesbrough can then focus almost entirely on the "why" and "how" concerning the design, implementation, modification, and performance measurement of open business models.
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1 of 2 people found the following review helpful
4.0 out of 5 stars Superb! 25 Aug 2009
Format:Hardcover
Very interesting book, with plenty of references and interesting ideas about IP management and their impacts on business models.
I had not read the previous book from Chesbrough, but this one is pretty much independant and definetely very interesting!
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Amazon.com: 4.5 out of 5 stars  10 reviews
25 of 29 people found the following review helpful
5.0 out of 5 stars Open Business Models for Those Who Rely on Technology Innovation and Need Intellectual Property Protection 14 May 2007
By Donald Mitchell - Published on Amazon.com
Format:Hardcover
This book is misnamed. Rather than being about open business models, the book's topic is about how to open business models to benefit from access to more technological innovation and strengthen your competitive posture through intellectual property.

As a result, Professor Chesbrough creates a misapprehension that successful open business models are almost always linked to technological innovation as their main purpose and benefit. My own research (with Carol Coles in The Ultimate Competitive Advantage: Secrets of Continuously Developing a More Profitable Business Model) indicates just the opposite point: Technological innovation is rarely the most effective way to open up your business model to create improvements.

So, this book's value is mostly to those who work in achieving or creating more benefits from technology innovation. If that is your interest, you've come to the right book. If that's not your interest, skip this book.

Why do those involved in achieving or creating more benefits from technology innovation need to open their business models? Professor Chesbrough points to several influences:

1. Technological innovation is coming from more sources than ever before. As a result, you will be developing inferior technology without accessing the best of what the world has to offer.

2. Most intellectual property isn't used for any practical purpose. That's a waste of social and company resources.

3. The protections for intellectual property are stronger now, and your pathway to progress will be blocked without collaborating with those who have complementary IP.

4. Product cycles are shorter and costs of developing new technologies are higher; open business models offer the promise of getting to market sooner at lower cost so that your business has a better chance of earning a decent return on new technology.

5. Large companies need to make new product development more productive if they are to meet their growth goals.

Professor Chesbrough does a nice job of developing those themes. He balances theoretical arguments with case histories of recent practices.

Of even more value, he explains how companies will have a hard time finding all of the technology they need without help. As a result, he feels that intermediaries will turn out to be important to helping connect organizations. His case histories of such intermediaries are very interesting in showing how difficult it is to play such intermediary roles without deep pockets.

For those who are new to the subject of technological innovation in the context of business models, you will find his descriptions of what a business model is (see page 182) and types for assessing your business model (see pages 132-133) to be helpful. The only quibble I would make with his types is that in his examples he assumes relative undifferentiation in industries and business types where there are often large nontechnological differentiations.

I found the last chapter to be by far the most helpful, in describing three case histories (IBM, Procter & Gamble, and Air Products) for showing how large organizations went from closed to open business models for the purpose of technological innovation. In fact, the discussion of Procter & Gamble's practices is the best one that I have read. That point, by itself, is sufficient to commend this book to you. I suspect that almost everyone will be doing what Procter & Gamble is doing now ten years hence.

Excellent work, Professor Chesbrough!
21 of 25 people found the following review helpful
5.0 out of 5 stars Innovation requires an open mind...and the courage to challenge "the ideology of comfort and the tyranny of custom." 13 Mar 2007
By Robert Morris - Published on Amazon.com
Format:Hardcover
What is an open business model? In Chapter 1, here's Henry Chesbrough's response to that question: "A business model performs two important functions: it creates value and it captures a portion of that value. It creates value by defining a series of activities from raw materials through to the final consumer that will yield a new product or service with value being added throughout the various activities. The business model captures value by by establishing a unique resource, asset, or position within that series of activities, where the firm enjoys a competitive advantage."

Having thus established a frame-of-reference, Chesbrough continues: "An open business model uses this new division of innovation labor - both in the creation of value and in the capture of a portion of that value. Open models create value by leveraging many more ideas, due to their inclusion of a variety of external concepts. Open models can also enable greater value capture, by using a key asset, resource, or position not only in the company's own business model but also in other companies businesses."

These two brief excerpts are provided because Chesbrough`s definitions of various terms are far clearer and more authoritative than mine could possibly be. Also, these excepts address the "what" so that in the balance of this brilliant book, Chesbrough can then focus almost entirely on the "why" and "how" concerning the design, implementation, modification, and performance measurement of open business models.

I was especially interested in what Chesbrough has to say about what several quite different exemplary companies -- including IBM, Qualcomm, Genzyme, Procter & Gamble, and Chicago (the musical stage show and film) -- share in common: "each started with an idea that traveled from invention to market through at least two different companies" which shared the work of innovation, and, all were assisted by effective management of an open business model. Chesbrough also devotes a substantial attention to IBM whose type 3 business model (i.e. multiple segmentations, "inside-out" mindset) reached a financial crisis in 1992. Had the IBM board not replaced its then CEO with Lou Gerstner and fully supported his leadership throughout an immensely complicated and equally difficult transformation , it is probable that IBM would not have survived. Gerstner deserves much of the credit for the success of that "cultural revolution" (as he once described it) but much credit should also be assigned to IBM's open source business model. Procter & Gamble is another company which completed an especially difficult transition from having internal staff members who protected (hoarded?) various technologies so that other companies, including potential competitors, could not use them to becoming a company with a much more open approach to innovation. Chesbrough notes that P&G began to pay much greater attention of external licensing of its technologies, (e.g. to BearingPoint), now strongly supports openly partnering for driving growth equity joint ventures (e.g. with Clorox), and an entirely new perspective on competitive advantage.

According to Jeff Weedman, vice president of P&G's external business development: "There are many kinds of competitive advantage. The original view here was: I have got it, and you don't. Then there is the view, that I have got it, you have got it, but I have it cheaper. Then there is I have got it, you have got it, but I got it first. Then there is I have got it, you have gotten it from me, so I make money when I sell it, and I make money when you sell it." To me, that in essence describes the primary competitive advantage of the open business model.

I also appreciate what is rarely provided in other business books: detailed notes (Pages 217-242) which are clustered per chapter. As I read them, it seemed as if Chesbrough were standing next to me, supplementing his narrative with additional comments that are always informative and frequently entertaining. What also struck me about Chesbrough's notes is that they enable him to acknowledge various sources with appreciation and admiration. His was obviously an open source approach to the research for this book and then to the writing of it.

To thrive in the new innovation landscape, change agents must have both an open mind and the courage to challenge what James O'Toole characterizes, in Leading Change, as "the ideology of comfort and the tyranny of custom." They would also be well-advised to absorb and digest the material in this book. Congratulations to Henry Chesbrough on a brilliant achievement.
12 of 14 people found the following review helpful
3.0 out of 5 stars Fair 21 Jun 2007
By Sam - Published on Amazon.com
Format:Hardcover
This is another pretty good book from the author. As in his earlier book, he starts with the motivation for open innovation, which is an old idea but that is not well practiced. In this new book he addresses many of the shorcomings of the first book, such as getting real value out of the partnerships that can be formed while overcoming internal issues, such as NIH. He then talks about different ways companies go about this. What drives you crazy is that he seems unaware that companies have been doing this forever. In the consumer electronics industry, for example, open innovation is mostly the model. Companies like GE, TI, and RCA were examples. In the case of GE and RCA they go back almost 100 years.
10 of 12 people found the following review helpful
3.0 out of 5 stars Worthwhile Read for Some 9 Feb 2008
By C. Daley III - Published on Amazon.com
Format:Hardcover|Verified Purchase
To put my response in context, I work with startup companies every day so I'm continually exposed to the importance of IP and business models and markets and markets and suppliers and distributors... many of the elements that that turn a cool idea or a cool technology into a profitable product.

From that perspective, both this book and Open Business Models are a disappointment. As I would suggest that you only read one (and in most cases the latter), I'll briefly review both here.

Open Innovation is supposed to bring attention to changing industry landscape. In this regard, it does a decent job to point out the trends in innovation and partnerships that are likely to drive companies forward. If you've missed out on IBM's reinvention of itself and are finding increasing pressures on your business, Open Innovation might give you some insight. Unfortunately, the content seems to border on obvious and, since it's thoroughly revisited in the latter book, it doesn't really make sense to read Open Innovation.

Marginally better, Open Business Models offers some simple frameworks or ideas about how to classify companies (based on their embracing of innovation and open innovation) and how companies move from one to another. While offering few or no "aha" moments, Open Business Models paints a decent roadmap of the transition, identifying pitfalls and opportunities. If you were responsible for this process in your company, it could help you understand where you are and how to get where you need to be.

If you're just looking for an insightful read and have any passing knowledge of open business models, I wouldn't bother with either. If you're responsible for this process in your company, try Open Business Models as it could be rewarding. Unless you're devouring everything you can find on the "open innovation" subject, I wouldn't really bother with Open Innovation.
2 of 2 people found the following review helpful
5.0 out of 5 stars Well-written, concise, with specific examples 2 Jun 2007
By K. Novak - Published on Amazon.com
Format:Hardcover
As with his previous book Open Innovation, Chesbrough provides a concise and easily read review of important new trends in high-tech management. In this book the focus is on the path an innovation takes to profitability in the marketplace. Among the topics reviewed are novel "intermediate markets" for ideas and technology.

I particularly appreciated the chapters of the book that provide nine examples of companies that are more-or-less "pure play" innovation intermediaries. Companies like Innocentive, Ocean Tomo, and UTEK are profiled in depth. I appreciate the specificity, which will allow the reader to evaluate Chesbrough's insights into the future: By following up on the progress of these companies, we'll see how well Chesbrough hit the mark. This specificity is rare in business books.

It will be interesting to see where Chesbrough's interests flow in future. I would welcome a focus on public sector research institutions. A comparison of the innovation and commercialization models among universities, NIH, NASA, ESA, etc. could be helpful to policy makers as Open Innovation ideas gain wider acceptance.
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