Saturday, December 5, 2015

Open Innovation - A New Paradigm for Collaborative Innovation

Posted on December 5, 2015 - There’s been lots of talk recently about “open innovation.” Dr. Henry Chesbrough, at UC Berkeley’s Haas School of Business, coined the term and has written three books on the subject. It’s now become a popular buzzword, but what does open innovation really mean?

To understand open innovation, we need to understand innovation itself. Innovation is about commercializing products or services based on inventions. It is about taking research and inventions from the lab and developing them into products to be sold in the marketplace. Many inventions, even those that are patented, never make it beyond the lab. That’s why innovation, not just invention, is vital for companies to achieve competitive advantage. Companies do this by introducing new or improved products, or producing existing products more efficiently.

“Closed innovation” describes the way innovation often happened over the past century. Under this paradigm, the most successful companies were those that made large investments in internal research and development (R&D). This gave them a constant stream of innovative ideas that could be developed into new products. They also invested heavily in IP protection to prevent competitors from infringing on this internal R&D. Money was key to this model. The companies that came out on top were those that had the most research funding, the best technical resources, and the most state-of-the-art facilities. It was difficult for smaller companies to compete with established players.

Toward the end of the twentieth century, however, this paradigm began to fail. Highly skilled employees were becoming more mobile, moving from one company to another and taking their experience with them. The availability of venture capital funding for startups encouraged more employees to leave large research organizations and start their own companies. These employees were taking their knowledge and skills gained after many years of experience working in research labs of large companies, leaving these companies with no return on their investment. The closed innovation paradigm was no longer working, but a new standard for innovation was starting to develop. It was called “open innovation.”

Open innovation embraces the idea that not all technology must be internally developed. External ideas can be brought into a company and used to build innovative products. This can be done through licensing technologies or by acquiring entire companies developing technologies of interest. Similarly, internally developed technology that is not used can be monetized through licensing or by creating startup companies that can commercialize these technologies more effectively.

A shift toward open innovation is underway. It has been easier to adopt in some industries than others, and many companies are understandably reluctant to change existing business models. However, companies that fail to incorporate at least some aspects of open innovation will likely have difficulty competing against those that take the plunge. As companies begin to expand their search for innovation beyond internal R&D, universities can become important sources of new technology. Companies can use universities’ expertise and resources as extensions of their own research teams. They can sponsor research into specific areas of interest, and negotiate ownership or exclusive licensing rights to any resulting technology. They can also guard their inventions with IP protection such as patents.

Open Innovation can be a powerful source of competitive advantage, even for large companies, if employed effectively. Since only a small proportion of even the most innovative research is ever successfully commercialized, companies working under the old paradigm of developing all innovation internally end up with lots of technology and ideas that never get commercialized. Only technology that fits the business goals and direction of the company ever gets developed into a commercial product. Companies that embrace open innovation can avoid this wasted investment, and can focus on investing in innovation, internal or external, that fits their business needs.

Of course, this is easier said than done. To effectively utilize an open innovation paradigm requires, among other things, an appropriate organizational structure, a well trained innovation staff that knows the process and potential pitfalls, processes and procedures for integrating externally developed technology, and a savvy IP team to negotiate licensing agreements to secure needed technologies quickly and effectively. Perhaps these can be topics for future blog posts.

In the meantime, I would be very interested to know your experience and thoughts on open innovation. Is it really a new phenomenon, or is it just a meaningless buzzword? Can it really be part of a successful business strategy? I look forward to reading your comments in the comments section below.

photo credit: Resources for learning about open innovation via photopin (license)

Friday, December 4, 2015

Do Patents Hinder or Promote Innovation?

Posted on December 4, 2015 - With all the news about patent litigation these days, some have argued that patents are hurting innovation. There have even been suggestions of just eliminating or greatly curtailing patent rights. Such comments are heard particularly loudly when products are pulled from the market due to patent disputes, or when small companies are forced to shut down by larger competitors as a result of patent lawsuits. Patent trolls that take advantage of the patent system to unfairly extract money from small companies also add to these feelings.

Modern patent systems are based on the premise of a contract between inventors and society. In exchange for making their innovative work available to the public and allowing society to benefit from their inventions, inventors receive the right to exclude others from practicing that same activity for a limited period of time, normally 20 years.

Such a system rewards inventors for their work, thereby encouraging research activities, since researchers know that they can protect their ideas and recoup their investment in time and money through patent rights. Strong patent systems have been credited with increasing R&D spending. Without patent protection, companies would not invest in R&D activities and in bringing innovative products to the market, knowing that their competitors can copy the products for a fraction of the cost.

Patents also provide financial incentives for universities and research labs to bring their research to the market. According to the Association for University Technology Managers (AUTM), universities, hospitals, and research institutions generated $2.5 billion in overall income from patents they hold in 2011. Such revenues would not have been possible without patents.

Moreover, inventors must fully disclose their invention in order to obtain a patent, to a sufficient level of detail to enable a person trained in that particular field to carry out the invention and build on it. Patents are published and open to the public normally 18 months after being filed with the patent office. With over 8 million published patents just in the United States, this provides a huge resource for researchers to keep building upon these innovative ideas and developing the next invention.

It has been argued that inventors are discouraged from launching companies and developing new products for fear of patent infringement lawsuits by bigger competitors. While this may be true, the risk of patent infringement is just one of many business risks that a company takes when going into business. Companies that possess genuinely innovative technologies can use patents as an insurance policy to protect their IP and their products from being copied by competitors.

By providing incentives to companies and individuals to invest in research and to develop innovative products, a strong patent system becomes central to promoting economic development. In fact, the jobs created through R&D investments in innovative technology are very high value jobs, and each job created in R&D normally results in several other support and service jobs being created.

While there are some negative aspects that are associated with the patent system, such as patent trolls, endless patent litigations, and small companies coming under pressure due to patent infringement, these are best addressed through specific policies that target and minimize them. It is clear, however, that the advantages provided by a strong patent system far outweigh any of the disadvantages that may come with it. In the words of Abraham Lincoln, the patent system added “the fuel of interest to the fire of genius in the discovery and production of new and useful things.”

photo credit: Speaking of software patents via photopin (license)

The Role of Universities and Research Centers in Economic Development

Posted on December 4, 2015 - In a recent report entitled “Encouraging a British Invention Revolution,” the CEO of GlaxoSmithKline, Sir Andrew Witty, highlights the importance of universities to economic growth. He notes that “the research strength of the UK’s universities is an enormous national asset,” and that they have great potential to generate new companies and whole new industries.

There is no doubt that universities can drive economic growth, not just in the UK but worldwide. Universities are the source of a constant stream of innovations and ideas. While university innovations are often early-stage and require further development to become market-ready, they are also often game changing. This is due to the fact that university researchers have greater freedom to explore new areas and breakthrough research, without having to worry about showing an immediate return on investment.

In a BBC News article about this report, Dr. Wendy Piatt, Director General of the Russell Group of research universities, cites the billions generated by university discoveries, and emphasizes how important it is to the economy that “groundbreaking discoveries make it all the way from idea to implementation and from prototype to profit.” This highlights the importance of technology transfer in bridging the gap between university research and industry.

However, Witty also notes that without well-focused funding, organization, and collaboration to transform competitive technologies into real business, there is a risk that these opportunities can be lost or delayed, or that British inventions would end up being used to build foreign industries. Witty proposes a new government funding model focused on what he calls “Arrow Projects,” key technology platforms that have strong market potential. The projects would be run by a consortium of partners including universities, industry, and local and central government.

The use of such focused funding programs can help small and mid-size businesses take advantage of opportunities presented by university research. Typically, it is larger companies that have the financial and human resources to be able to take advantage of early-stage university technologies. With additional support in terms of funding and with collaborations among multiple partners to develop technology, the huge potential of university research can be unlocked to SMEs, which could have a significant positive impact on economic growth.

The report also calls upon universities to take responsibility for a “third mission” of facilitating economic growth, in addition to the usual missions of teaching and research. An important part of this third mission should be to “seek out ... potentially innovative SMEs and to support them with technology, expertise, talent and know-how.”

An increasing number of universities are recognizing the important role they can play in economic development, and are investing in bridging the gap between research and innovation by providing funds for proof-of-concept and technology prototyping, as well as supporting entrepreneurs with training and seed funding to take innovative research and turn it into commercial products. These new innovative products enable companies to be more competitive and profitable, and support the creation of high value jobs.

What are your thoughts about the role that universities can play in economic development? Please contribute your thoughts and experiences in the comments section below.

photo credit: Graph With Stacks Of Coins via photopin (license)

Tuesday, December 1, 2015

How Mobile is Disrupting Multiple Markets

Posted on December 1, 2015 - As the mobile device revolution of the past decade continues, the amount of time people spend on PC's and laptops continues to drop in favor of mobile devices. Since the introduction of the first iPhone in 2007, and as the capability of mobile devices has evolved, people are performing more daily tasks on their smartphones. Starting with entertainment including music, movies and games, to connectivity such as email and social networking, and even productivity such as document creation and editing, traditional voice calls are now a minor part of what a smartphone is used for.

This trend has been observed for a number of years and continues to escalate, and has resulted in companies by prioritizing their offerings on mobile at the expense of PC's. While this has been true for smartphones, it appears that tablet computers have yet to find their niche, as sales continue to be flat in recent years. However, companies continue to experiment with variations on tablet computers to try to find a sweet spot with a combination of features and price that will put a fire under sales. For example, Apple recently introduced the iPad Pro, adding new features such as a stylus and larger nearly 13" screen. Google also recently introduced the Pixel C, with an innovative keyboard experience. Of course, Microsoft's Surface line of tablets has been on the market for a few years, but adoption is still been lagging.

Nonetheless, there is no doubt that mobile devices, or at least smartphones, have completely disrupted the traditional PC and laptop market, and will continue to do so for the foreseeable future. It is not that PC's will be completely replaced. They will continue to have their place in the market. However, growth will be flat or declining as people prefer to spend their money on new and replacement mobile devices.

This has opened up a great opportunity for another disruption in the market, specifically the internet service provider (ISP) market. Traditionally, internet access has been available through telephone and/or cable companies. However, as we spend more and more of our time on mobile devices, and especially because they are with us wherever we go, the trend will be for more internet consumption on mobile devices. Also, as 4G and LTE coverage continues to expand, and with 5G eventually coming into service, download speeds on mobile data plans are becoming very competitive with what you typically get from your traditional ISP. Therefore, consumers will likely shift much of their usage to their mobile data plan. Traditional ISPs will have to adjust their pricing to be competitive, or risk losing business.

Incidentally, as internet speeds continue to increase enabling us to consume more and more content online, the traditional TV market is being disrupted by streaming video services such as Netflix and Hulu. That topic warrants its own discussion in another post. 

One competitor worth mentioning is Google Fiber. It currently offers speeds of 1 Gbps and no bandwidth cap, making it a very competitive option worth keeping an eye on. However, at some point, a saturation point in terms of download speeds will be reached. After all, we can only consume so much data. Most consumers would probably be very satisfied with a download speed of 50 Mbps, and are unlikely to pay much more for faster service. The competition will likely turn to the issue of bandwidth caps, for both traditional ISPs and mobile operators. Those companies that are able to provide unlimited, uncapped service will likely find significant consumer demand, as many consumers would enjoy the peace of mind of having a flat monthly fee, without having to worry about how much data they have consumed each month.

One last market to mention in this context is the software market. On mobile platforms, software tends to be monetized with advertising and with in-app purchases, rather than an up-front fee as was the case with PC software. For example, mobile games are either free or cost a few dollars, where as an average PC game typically costs $50-$60. Mobile devices come pre-installed with an operating system, whereas with PCs, Microsoft was able to sell its OS for hundreds of dollars for many years. This approach is untenable in mobile, especially since there is fierce competition between iOS and Android, with Microsoft attempting to find a foothold as well. So in the software industry, the traditional business models are being disrupted. Rather than selling software as a product, the trend is to sell software as a service with a monthly subscription fee, or to monetize through advertising, app stores and selling content such as music or movies.

What are your thoughts on markets that the mobile industry is disrupting? Please share your thoughts and ideas through the comments below.

photo credit: iPad Air 2 via photopin (license)