COMMERCIAL PROFILE; INTERTRADEIRELAND:Looking outwards is as important for large companies as it is for smaller one, says Prof Henry Chesbrough
FOR COMPANIES to draw on external ideas for their innovative thinking might seem an obvious choice but when Prof Henry Chesbrough began studying in this area he found that often the bigger the company, the more insulated it was in its thinking.
The Berkeley lecturer was in Ireland recently as part of the part of the InterTradeIreland All-Island Innovation Programme, speaking at Queen's University Belfast and NUI Galway on his key concept, "open innovation".
Director of the Centre for Open Innovation at the Haas School of Business, University of California, Berkeley, Chesbrough, in the 2006 book he co-edited, Open Innovation: Researching a New Paradigm, defines this paradigm as one which "assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology".
A more challenging part of the equation is that larger companies can create a synergic environment if they share their R&D with outside firms. He found that firms are resistant to new forms of thinking particularly when they find themselves in the groove of a successful formula.
Chesbrough first became conscious that the traditional dog-eat-dog type of capitalism in which a successful company ultimately seeks to monopolise its market was outmoded when he worked for a disk drive company called Quantum in Silicon Valley in the 1980s.
"One of our biggest competitors, in fact the biggest competitor, was IBM, who had really invented the mass storage market place back in the 1950s. They were really the Bell Laboratories of that time: they had developed all the basic, fundamental technology that had really created the industry and continued to lead the industry well through the times that I was there. At the same time, with all their technology and their capability and this very proud history, our little company was growing faster and we were taking market share away from this extremely successful company. How was it that we were able to do that?"
He began to explore this question in depth while doing his PhD and continuing as a consultant to Quantum.
Part of the answer lies in the start-up being small, flexible and often forced to draw its R&D from external sources but, equally, large companies can be the victim of their limited success and an ossified business model.
"Part of the answer came back to this notion of how IBM was so internally reliant on its own resources and took little or no account of external resources that might be brought to bear on their behalf. They were a very vertically integrated and, I would also say, rather inward looking".
Instead of a larger company trying to take over all the pie, he says, it can take a smaller, but much more valuable, slice of a greater pie.
"This new openly-innovative landscape is characterised by large companies engaging in activities with smaller ones, creating a network of "ecosystem participants" .
He gives the example of Apple, whose iPod touch has attracted dozens of complementary products for use on the media player. "Ironically, by leaving more on the table I think you attract a lot more in and as these smaller companies begin to make their own decisions and their own investments, they do their own experiments, essentially to try to find new markets and ways to grow their own markets that generate a lot of learning for the larger companies."
He thinks that Ireland has an advantage in being a relatively small country which can consult with its major players. Drawing parallels with California, where he lives, he points to the deep fiscal crisis facing the state but the difficulty in achieving consensus where there is a population of 37 million.
"Countries cannon fire their unions, their public servants, their leading businesses. They are all part and parcel of the country. You have to make do with what you have. The ability to integrate and co-ordinate across the interest groups is something that will be very necessary not only in Ireland but also in California and here is where size does not help."
He also believes that Ireland's traditional advantage in producing well-educated people may continue to distinguish it from new, low cost EU entrants and stresses that the Asian market is the growth region "for the next generation".
"Maybe there are ways for Ireland to connect the EU more with parts of Asia," he adds. But he shares the sentiment of many educationalists, that key to innovative thinking is the nurturing of creative minds. Graduates and postgraduate students "know more and more about less and less", he says.
"They are tremendously talented at what they have been reading, but in terms of what they have been exposed to in their education, it is often much narrower than when we were getting in our education a generation earlier.
"There is an awful lot of compliance and taking things for granted and as given, as opposed to,'well why should we do that? Does that really make sense? Where did that come from?' That questioning attitude that we felt was almost the starting point of a good education seems to be completely bypassed and instead now it is, 'How do I do this? How do I do more of this? How do I do it even better and more precisely, more quantitatively?'"
Apart from the value of creative thinking, he also believes business leaders often overlook the value and lessons of history and that many economic theories "take little or no account of history whatsoever".
"In the work I am doing around open innovation, the open innovation idea is based on a comparison to an earlier approach that was very successful for a very long time. And I think it is that earlier historical grounding that helps me get some understanding into what might be new or different now from what was quite successful for a long time."
