Open Business Models: How To Thrive In The New Innovation Landscape [ハードカバー]

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!

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.

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.