Love without copyright

Business is moving towards open innovation.

Berkeley, apparently, the most suitable place for the founder of the movement for open innovation. In the 60s of the last century, this California town was the epicenter of the radical movements that opposed mass culture. One of the participants in the aforementioned events, and now a professor at the Department of Business at the University of California at Berkeley, Henry Chesbraf, notes with a smile that “the 40th anniversary of the Summer of Love has arrived.”

The books “Open Innovations” and “Open Business Models”, which Mr. Chesbraf wrote, tell about the advantages of finding innovative ideas outside the company. As open innovation gains in popularity, corporate research laboratories lose their importance. They cease to be the source of the bulk of ideas (see figure 4).
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The city of Cincinnati in Ohio is culturally as distant from Berkeley as it is generally possible in the United States. Here, in the mid-west, is the headquarters of one of the most conservative US companies, the company Procter & Gamble. For several decades, this company has been supplying all of the world with Ivory soap, Crest toothpaste and Ariel washing powder, and is also famous for its secrecy regarding innovations that originate in the depths of its secret research laboratories.

But all this is in the past. P & G has changed its attitude to new ideas and products in a key way. Now she invites to cooperate and works with universities, suppliers and third-party inventors. In addition, the company offers them a share of the profits. In less than ten years, the ratio of ideas for new products to P & G from outside sources increased from less than one-fifth to half. This spurred the process of innovation and, according to the head of the company, Mr. Leifli, is the main factor that allowed P & G, between 2001 and 2006, to grow by 6% per year, tripling its annual income to $ 8.6 billion. Today, the company's market capitalization is $ 200 billion.

Another prominent representative of companies that have adopted the idea of ​​open innovation is IBM. One of the most closed companies that made a sharp 180-degree turn, by purchasing Linux, an open source operating system. Now IBM is trying hard to fit into the “community of open innovation advocates”, giving up hundreds of software patents in favor of “ creative commons ” type licenses, rather than registering them in the name of their enterprise. Nevertheless, the company continues to obtain patents in other areas at a record pace, for example, in the field of innovative materials, receiving only license ownership of up to $ 1 billion per year.

Since the army of programmers from all over the world took to developing Linux for free, IBM began to produce very cheap and reliable operating systems. She makes money by providing services to clients related to using Linux - of course, for money. According to Paul Horn, who until recently led the research department at this company, the use of open source software saves IBM as much as $ 400 million a year. IBM has been so committed to the ideals of openness that, sometimes, it even holds special “online jam sessions”, during which tens of thousands of its employees collectively exchange ideas in brainstorming mode.

Mr. Chesbrafe, of course, warmly supports such turns in the strategies of intercontinental corporations. He cites many other examples of companies that have acted in a similar way - from Clorax, which manufactures household goods, to Air Products, which produces industrial gases. Mr. Chesbrafe believes that “IBM and P & G have very precisely chosen the time to switch to a full-fledged model of open business” and that if their competitors do not act in the same way, they will be in a difficult situation.

But not everyone shares such enthusiasm. Kinette Morse, head of the Center for Entrepreneurship at MIT, ridicules IBM's statement about its own openness: “They are open only in those markets where they fail to take first place, for example, in the software market. At the same time, in the hardware market, where they are leaders, they are closed more than tightly. ”

Open price

David Geng and Linus Dalendir from King's College London also express their skepticism. They believe that companies have always been to some extent open to innovation, and that the benefits of such openness may depend on the type of enterprise. For example, those enterprises that use more outdated technologies will not achieve significant benefits from innovation. They also point out that the costs associated with the transition to an open innovation strategy, which are attributable to the expansion of managerial staff or the loss of intellectual property rights, are a question that is far from being as thoroughly studied as the perceived benefit of this new strategy.

Another wave of criticism comes from highly capitalized industries, where products go through a long development cycle and remain on sale for years. Mr. Reinirt from Toyota, laughs in response to a question about open innovation. He believes that taking into account the billions of dollars that his company spends on conducting research and purchasing equipment for its plants - not even taking into account the five-year product development cycle - it would be foolish to let competitors take advantage of all the achievements. “In the end, even Google will ever release some physically existing product, and when this happens, they will have to protect it - just like Tesla Motors, which does not use the open model,” says Reinert.

Mr. Aimilt of General Electric states that his company is leading in several industries, for example, the production of aircraft engines and locomotives, which means "the ability to produce things that no one else in the world could produce except you" and that requires a high level of copyright protection rights, as well as a high level of secrecy. His research manager, Mack Little, is even more skeptical and believes that ideas coming from outside "do not fit into the concept of their company." He expresses perfect satisfaction with the work of the research laboratories. “We are completely satisfied with the specialists in our state,” Little said.

Adherents of open innovation agree that there are certain risks in this matter. Among them are the difficulties of working with outsiders. Corporate cultures can sometimes conflict with each other, and also not every one of the potential idealgenerators is ready to work under tight deadlines and frameworks. For example, P & G had a “joint inventive laboratory” with BASF, a large German chemical manufacturer with its own strict corporate culture. Some inventors from the US National Laboratory in Los Alamos are also involved in the planning of some research projects for P & G. Companies that produce consumer products believe that collaboration with such a motley public is worth it.

In a certain respect, patents play a lesser role today than trademarks and speed of moving goods to the market. It is true that in developing countries, some, especially successful companies, are beginning to give up many patents, but at the same time, they, as before, keep many of their innovations secret. These markets are so changeable, and the traditions of copyright protection remain so weak that managers often prefer to keep their designs secret and declare them only when there is a need to actively fight for market primacy.

Even in the conditions of a developed market, the accelerator of innovation is precisely that patents cease to play a significant role. Moreover, according to P & G experts, the dizzying pace of today's changes in the market makes consumers feel uncomfortable with the immense variety of offers. To save consumers from the agony of choice, such companies are increasingly relying on already established trademarks. Andrew Höbet, head of Microsoft’s Cambridge research center, states that: “Our company has to hide a huge amount of innovation.”

Open innovation often helps to avoid bureaucratic red tape in large corporations, and thus more successfully compete. According to Leifli, thanks to new technologies and an innovative approach to management, P & G managed to reduce the number of its failed projects from eight out of every ten products to only 5.

Unilever's David Duncan, claims that his company, one of P & G’s main competitors, is now much more closely connected with its customers. “Twelve years ago, when I first started working at the company, we were more closed, with a rigid hierarchical structure and owned the rights to most of the materials and tools we used - even chemicals and software,” says David. Now we are more receptive to ideas coming from outside, up to the announcement of internal needs on the corporate website, in the hope of getting good advice from visitors. Although he admits that at first it can be a difficult step: “this is the first time using the Google search service - a bit scary and unusual, but very soon you start to notice how convenient it is.”

So is there a way to determine if an open innovation strategy will work for a particular company? This may depend not only on what the company does, but also on how it is perceived in the market. Hal Sirkin of the Boston Consulting Group, advises to treat companies such as P & G and IBM, not so much as adherents of open innovation, but rather as "signal beacons." They have an extensive staff of experts who attract unsuited people from outside who have good ideas. Such firms are "open" in the sense that they spread out very wide networks in pursuit of new ideas. And, nevertheless, as soon as they find a similar idea, “they completely take control of its implementation and promotion on the market,” reports Sirkin.



At your service

On a summer evening, in a London nightclub called Ministry of Sound, a noisy party was held by Nokia. When the last starlet slipped from the runway, several corporate executives came on the scene to make an announcement regarding global changes in the work of their firm.

The Finnish company Nokia produces mobile devices that are used by about a billion people around the world. However, the company decided to switch from products to services. Why? Niklas Savevir from Nokia believes that “thanks to the proliferation of Internet communications, the mobile device business is changing so rapidly that we just have to take innovative approaches.” The company claims that in order to survive in the modern mobile telephony market, it is not enough to offer the consumer the device itself.

Since half of the cost and the bulk of innovation in a mobile phone are now in software, “the jump from product to service is not as great as it may seem,” adds Niklas. Now Nokia is promoting its proprietary service Ovi, which includes online games, music for download and other services available via mobile devices.

If a company looks to the future, it should strive for more, say academicians from the University of Michigan, Messrs. S. K. Prahalad and Venkataram Ramaswami. They believe that success will belong to those companies that set themselves the goal of creating networks, whose users will receive "personalized participation experience, and goods and services will be only tools in this process." It sounds like it comes from the lips of some activist of the Summer of Love.

And yet, despite the risks, some companies managed to engage their clients in the innovation process. Among others, this was achieved by the Danish company Lego, which produces children's designers. Using the results of MIT's research on how children learn different things, Lego released a set of parts called Mindstorms, which allows you to design your own robot and other devices. Soon, there were many sites where users - including adults - enthusiastically discussed various ways of how to make all sorts of things from this set, from security alarms to small-sized unmanned aircraft.

Eric von Hippel of MIT has long advocated innovation, driven by end users. He believes that this potential can be observed everywhere. Users who are truly passionate about a product often try to improve it themselves, since it does not meet their specific needs. It can be a bike, kayak or even a car. He believes that “intellectual property has become obsolete” and open innovations lose all meaning if their users are not the driving force.

Von Hippel believes that companies that listen more attentively to the most devoted to their users, often more successfully carry out the design of new products and quickly promote them to the markets. It may seem that this advice is contrary to the opinion of the Harvard professor Kraystsena, but in fact they are combined with each other. Christansen believes that companies should not obediently follow the lead of the majority of their own users. You should be very skeptical about the requirements of this group, or, otherwise, your innovations may turn out to be nothing more than just another thing to an already existing product. Like Von Hippel, he is convinced that companies should be more attentive to new and dissatisfied users, who are more likely to be a source of valuable ideas.

Invented on Facebook

Von Hippel notes that networks are especially critical users, it may be useful for companies to quickly filter out inappropriate ideas. The extraordinary popularity of social networks like Facebook and MySpace can be quite useful. Sainan Erel from the Stern School of Business at New York University, argues that people's attitudes toward the products they use (something that is often the subject of discussion on such sites) reflect social structure and preferences. This can help companies better understand their customers and find a more efficient way to market their products.

User networks have become the familiar tools of many companies. The mobile information system OnStar, which was widely deployed in 2000 by General Motors, was originally a service for car drivers, which provided them with greater safety and speed of rescue services. However, users wanted more from the service and forced GM to make innovations. Now OnStar can monitor the health of the car, open the door of the car, if the owner forgot the keys inside and even determine the location of the nearest cafe. Lary Burns of GM believes that OnStar strengthens the good relationship between his company and its customers, as this service requires being in constant contact with users.

Richard Lyons of Goldman Sachs, offers the most powerful arguments in favor of the fact that companies should think about how to attract users to innovative developments. About four-fifths of the economic activity of developed countries is now in the service sector, and the financial boundaries of these markets continue to blur. He argues that “services often turn into goods even faster than products in the real world”, because innovation becomes easier to copy, patents can mean only a limited level of protection, the size of the required investment decreases, and the life cycle of the product itself is shortened.

For enterprises that introduce open and collective innovation, it does not matter where these ideas came from. Leaders must make every effort to maximize the benefits of ideas, no matter how they arose. Unfortunately, government officials, who are often obsessed with the official rules regarding innovation and the mania of creating a special state Silicon Valley, do not think about such business lessons. As history shows, not every country introducing new technologies on its territory strives to popularize or commercialize them.Richard Heilkit of the British company Nesta, which explores the rules of innovation, jokes that the most appropriate innovation rule at the state level might sound like “no inventions”. Apparently, he is right.

Translation from English:
Roman Ravve

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