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strategy and business
 / Summer 2011 / Issue 63(originally published by Booz & Company)


The Thought Leader Interview: Henry Chesbrough

It’s a terrific arrangement from the customer standpoint. Your competitive advantage is not in which copier you buy; you want copying services, and you’re more than happy to have somebody take care of that for you, because if you yourself are running your own copiers in your own organization, that’s usually very much a backwater kind of job. So the career paths at Xerox in Managed Print Services are far better than the career paths that Xerox’s customers can provide to people doing the same function.

It’s also beneficial for Xerox, for many of the reasons I go into in my book. One is that Xerox knows more about copiers and printers than even the most sophisticated of its customers. Its specialized knowledge allows it to manage resources more effectively. Another is that Xerox can develop, install, and operate the most efficient equipment over the life cycle of print services, which can generate big savings. Finally, Xerox manages all the customer’s print devices under these arrangements — not just those that it manufactures — so it gets a better view of the customer’s overall copying and printing needs. This gives it a learning advantage over its competitors.

The Footprint of an Idea

S+B: Your first book on open innovation attracted a lot of interest, judging by the amount of media attention it’s generated and the number of other books, magazine articles, papers, and conferences that refer to the phenomenon. Is it being put into practice by managers?
In terms of what companies are actually doing day to day, it’s moved pretty far pretty fast in some industries — for example, in consumer packaged goods. Virtually every major consumer products company I know has an open innovation program going on. I would say it’s taken off pretty quickly in the IT sector as well. In other sectors, like transportation, it’s taking a long time. Financial services is also relatively slow, although that industry has been in such turmoil, it’s hard to make a simple statement about it.

In every organization that I’ve worked with, it doesn’t come easily. There are tremendous internal barriers to doing it well. Some of those barriers are cultural in nature; some, I think, reflect the logic of the reward systems that companies have in place. And even if the company wants to embrace open innovation and some people actually start the process, there are a lot of things that they don’t realize until they get into it.

A good example is the internal legal staff, which is charged with keeping the company out of trouble and out of court, making sure that it has ownership for what it sells, and trying to reduce risk. Along comes this idea of open innovation, and suddenly you’re bringing in external ideas and taking internal ideas outside. Ideas are flying beyond the boundaries of the firm, and it may not be clear what the best legal arrangements are to enable this. On the one hand, you want to keep the company from being contaminated when you bring external ideas in, so you’re not inadvertently selling things you don’t have the right to sell. On the other hand, when ideas go to the outside, you need to make sure that the arrangements are structured in such a way that you participate in some of the revenues and opportunities that come along.

These things can all be resolved, but legal people tend to be very uncomfortable with the idea, and they haven’t had a lot of examples and successes to look at as models. These are the kinds of barriers that companies encounter. In the industries where open innovation is really starting to take off, I see that changing.

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