Open innovation: an interview with Henry Chesbrough

Henry Chesbrough is the key-speaker at the 14th B2B Marketing Conference on 5th june 2012 and on this occasion, the Social Economic Council of Flanders had an interview for the SERV-magazine of June 2012. In recognition of his contribution to the Flemish debate on open innovation, we publish here the English version.

Henry Chesbrough, worldwide known for his pioneering work on open innovation, published recently a new book titled Open Service Innovation. Key to innovation is 'think of your business as a service business' or 'make your product a service'.

In the interview the SERV asked how open services innovation supports cooperation between companies especially the small and medium ones. The Flemish social partners are convinced that cooperation, between companies and between companies and knowledge centers, is vital for innovation in the Flemish industry. The Foundation Work & Innovation – a research department within the SERV - carried out a research project on the issue, focusing on the obstacles for small and medium sized companies to collaborate with knowledge centers and on mechanisms how to overcome them. The English abstract is on our website 'Cooperation in technological innovation. Barriers and levers for enterprises and knowledge centres'.

Open service innovation is an answer to (avoid) the commodity trap, where products and profits rely on 'cost' and not on adding & selling 'value' or 'solutions' (the product as a service). Offering your product as a service is more sustainable, but that requires more information on the costumers needs. What more is necessary than Customer Relation Management (CRM), a strategy already used by many companies?

H.C.: CRM is a valuable tool for tracking customer relationships, but it should not be confused with a business mindset that is focused on services, rather than products, as the basis of the business. Rarely, for example, does the R&D department ever access CRM in its innovation process, yet it needs ways to engage directly with customers at various points in the process, to co-create new possibilities together. Escaping the commodity trap requires wrapping services around products in ways that delight your customers and differentiate you from your competition. CRM is only a rather small piece in that challenging puzzle.

The barriers we could list to cooperation can be summed up as a mismatch in terms of knowledge, culture, finance and intellectual property rights or patents (a gap or a collision of interests can arise). How to break through this barriers and to what extend is Open Service Innovation helpful for this? Does open service innovation offer an extra opportunity to collaboration? Is thinking of your business as a service business, making it easier to set up partnerships?

H.C.:You rightly note that effective collaboration with customers faces many challenges, and if these challenges are not addressed, the whole effort may fail. I think the starting point is to identify ways to create sufficient value that one can construct win-win collaborations, such that both parties will benefit from the collaboration. If this foundation is in place, one can find the methods and processes to overcome the other challenges you note. If this is not present, however, then any hurdles that arise could imperil the whole project. Open services innovation provides a framework to think through the value creation process for both parties, to assess if mutually beneficial relationships can be constructed.

Entrepreneurs, particularly those with small businesses, are still all too often reluctant to cooperate with knowledge centres or are not open enough to outsiders. Researchers at knowledge centres are sometimes focussed too exclusively on their research and/or lack the necessary business sense to understand enterprises' questions. How to create an open-innovation initiative atmosphere, both in firms – especially in SME's - and in research centres?

H.C.:Entrepreneurs and academics can benefit greatly from working together, an example of the win-win relations discussed in the previous question. Yet their different backgrounds and experiences complicate the working relationships. It greatly helps if the entrepreneur has had some post-graduate education, like a Masters or PhD degree, because then the entrepreneur will better understand what motivates academics. It also helps if the professor has had prior experience working with an SME, so that the professor understands the very different world that the entrepreneur faces. So one suggestion I would offer is to inquire into the background of the other party. If they have not had the relevant experience you require, I would choose to look further, for others in the same area who might also have had some relevant experience.

The different types of innovation often occur together: innovation of products and services, process innovation, technological innovation, changes in organizational structure and in personnel policy. During last years, in Flanders 61.3% of companies and organizations implemented at least 2 different types of innovation. Undoubted this is part of the (changing) business model when companies implement innovation. Which business model fits best with open service innovation? Do you have some advice for the small and medium sized enterprises (in Flanders the majority)?

H.C.:A very popular innovation method these days is a design-focused methodology for innovating new products and services. This is a method that puts a premium on developing a deep understanding of a customer's needs and even the customer's daily work or living situation, in order to develop distinctive solutions for the customer. This method requires time, but not much money, and is a natural place for SMEs to focus their innovation efforts. My colleague Wim Vanhaverbeke from Hasselt University and Esade Business School has studied a number of Belgian companies who do this well.

Then the SME must choose an effective business model to carry the service solution to the market. These business models can be more open, in the sense of incorporating many others into the ecosystem of solutions offered, or more closed, where the delivery of the solution is done solely by the SME.

H.C.:My advice for Belgian SMEs is to focus first on your customers, and develop a deep understanding of their situation, their problems, and their needs. Then create a business model that can deliver a solution to those needs that harnesses the energies of other companies (some of them SMEs, and perhaps even a few large companies). But there needs to be a control point where the SME captures some portion of the value in all this.