The Cerebral Vortex

A Critical Essay on Open Business Models and Open Innovation - Part 1

Today’s Business Environment is moving toward a more Open Business Model and further away from the Closed Business Model of the last century. We have all heard of the Open Source revolution in the Software Industry, but what is an Open Business Model? What factors are acting as catalysts toward open innovation and shared technologies between competing or potentially competitive business entities? Chesbrough defines Open Business Models: How to Thrive in the New Innovation Landscape, in the most basic sense, as a method of doing business by which a company can sustain itself -- that is, generate revenue. Business Models are a kind of roadmap that explains how a company plans to generate revenue by specifying where it is positioned in the value chain. In recent years, the focus on the Open Business Models has gained greater interest due to the increasing use of intellectual property (IP), which can be protected through patents. For this reason, Business Models have been increasingly focused within the realm of patent law. Chesbrough defines the Open Business Model as a business paradigm that creates value by leveraging a variety of ideas by including external concepts. It is also noted that Open Business Models can also enable greater value capture by using a key asset resource or position that benefits a company’s own business as well as other companies’ business.

The concept of the Open Business Model is illustrated in a few brief case studies of companies and/or ventures such as Qualcomm, Genzyme, Proctor & Gamble, and “Chicago” (the musical stage show and movie). Chesbrough describes how in each of the abovementioned cases there is a running theme common to all of them: Each started with an idea that traveled from invention to market through at least two different companies, which effectively divided the innovative duties between the entities involves. In my opinion, the cases of Qualcomm, Genzyme, and Proctor & Gamble were deliberate uses of Open Innovation and the Open Business Model while the example of “Chicago” was not. In the cases of Qualcomm and Genzyme, active licensing of technology was used to spur innovation. Qualcomm licensed its chip technology to outside companies while Genzyme imported licensed technologies then further developed the external ideas within the company. Proctor & Gamble has taken a different approach by developing a program called Connect and Develop, which licenses in or acquires products then markets them under the P&G brand. I feel that “Chicago” does not fit into the category of an Open Business Model because it started as from a play written long ago that was simply revised several times and then released as a movie. If “Chicago” represents use of an Open Business Model, then other creative literary works that have been simply dusted off and revamped into different incarnations can be included by the same rule. A similar example that I also would not consider Open Innovation is The Wizard of Oz, which started out as book, then became a movie. Later it was revamped into a musical, “The Wiz”, then found a home on Broadway as “Wicked” and then was recently translated into “Tin Man” as a mini-series on the Sci-Fi Channel.

Qualcomm, Genzyme, and Proctor & Gamble are examples of what I term, Active Open Innovation as opposed to Passive Open Innovation. Active Open Innovation is defined by actively employing the importation of exportation of technology and/or intellectual property as an integral part of one’s business model. Each of the abovementioned companies nurtured their respective products and technologies through a process of buying, selling, licensing and transferring their products throughout the product development life cycle. This definition comes with an important caveat. One should not take the view that mere multiple instances of transfers through the hands of external parties, is the key to fully exploiting the potential of a product or technology. The key ingredient that makes this Open Innovation process work it that the external and internal transfer of technology and intellectual property is coupled with and effective Open Business Model framework that captured the benefits and strengths of each transaction during the product’s migration through the Open Innovation cycle.

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