Background: In the just-published Open Innovation: The New Imperative For Creating And Profiting From Technology, Henry Chesbrough of HBS discusses the shift that has happened in regards to the competitive advantage of innovation--formerly the competitive advantage lay in having in internal corporate R&D laboratory, and now the competitive advantage lies in leveraging the discoveries of others, via licensing technologies from other companies, or partnering or acquiring other companies. In Open Innovation Dr. Chesbrough discusses how, when, and why the shift from Closed Innovation to Open Innovation happened, using case studies from such companies as Xerox, IBM, Lucent, Intel, Milennium Pharmaceuticals, and others.

I'll post the results of the interview over the next several days, and will continue to forward any questions you have on to Dr. Chesbrough during that time. Here in Part 1, Dr. Chesbrough goes into more detail about Closed Innovation vs Open Innovation, and where he sees the open source movement fitting the current Open Innovation landscape.

Interview, Part 1:

Ideaflow: I keep reading about an "innovation movement" in the business press. Is there really one? In other words--is it true that innovation is so much more important to a company than it used to be?

Henry Chesbrough: I'm probably not the most objective person to ask about that. I am trying to START an "innovation movement" around the ideas in Open Innovation. Now that the Iraq war is starting to subside, I hope that we will start to focus on ways to grow, and ways to do business that save money, which are two of the primary benefits of innovation.

IdeaFlow: Can you talk a little about the distinction between more innovation and better innovation?

HC: I think of "more" as a quantity. I think of "better" as a quality of something. In this case, better innovation enables people to solve problems that are important to them. In business terms, these solutions are worth more to the consumer than they cost to provide, so the consumer is willing to pay what it costs for the solution, and gets more value than they pay in return. Better innovation not only enables people to do their tasks faster or easier, at its best it can enable people to do new tasks.

IdeaFlow: So the calls for “more” innovation miss the point somewhat?

HC: Well, I think that these calls are based on the notion that you can't keep cutting, keep shrinking, and keep laying off people, and restore prosperity to the company. You DO need to staunch the bleeding, but then you need to find new ways to grow. And the mindset for cutting and the damage it causes can get in the way of finding new ways to grow. A lot of research shows that most innovative ideas come bottom up from within the organization, rather than top-down. An organization that has been cutting expenses and reducing innovation spending is simultaneously damaging the information networks that will generate the next new things.

IdeaFlow: I was really intrigued by your distinctions between Open Innovation and Closed Innovation.

HC: Yes, innovation is not all the same. This distinction between open and closed innovation is at the heart of the book. Closed Innovation is fundamentally about scarcity of useful knowledge. In order to do anything, you have to do everything. It is inwardly focused, and deeply vertically integrated. It takes little or no notice of external knowledge and resources. Open Innovation is fundamentally about operating in a world of abundant knowledge, where "not all the smart people work for you", so you better go find them, connect to them, and build upon what they can do. It seeks ways to build upon and leverage external knowledge, and focuses internal activities upon filling in the gaps, and integrating internal and external knowledge into useful systems.

IdeaFlow: Are there lessons in the open source software movement for innovation?

HC: Open source is a new social movement, as well as a means for coding software. It has taught the world that people don't innovate just for money, but also for reputation, fame, influence, and peer recognition. But social movements rise and they also fall. Historically, they have been hard to sustain. I personally think that the Open Source movement will persist for many years, but for a reason most people prefer not to talk about. What has been much less remarked by people is how Open Source is being used by companies like IBM to tweak Microsoft's nose. I think IBM's support for Open Source has helped Linux and Java achieve much more inside the enterprise than they otherwise would have done. It’s kind of like the “Baptists and the bootleggers” in the days of Prohibition. The two groups had common interests, even though their ultimate agendas were quite different.

In Part 2 (to be posted tomorrow), Dr. Chesbrough discusses patents and copyrights and goes into more detail about Open Innovation in the context of industries such as entertainment, biotech, consumer packaged goods, and financial services. If you have a question for me to forward to Dr. Chesbrough, send it on!