Open Services Innovation by Henry Chesbrough

By: Paul Hobcraft

Chesbrough is back with a new book on open innovation, this time extending the open paradigm to services. Paul Hobcraft goes past the sub-title “Rethinking your business to grow and compete in a new era”, in search of the real news.

Services and innovation

Services today comprise roughly 80% of economic activity in the United States, and 60% of economic activity in the top forty economies of the world (source OECD). Henry Chesbrough, guru of Open Innovation, has now turned his attention to this service economy with his new book Open Services Innovation.

Why?

1. Because “We have been trapped in a product context for far too long” in our innovation thinking,
2. we need to “reconnect to dominant economic activities of the larger society”, i.e. understanding the importance of Services  its potential as a real source of competitive difference and
3. we are presently heading” into the commodity trap” where products alone glean very little sustainable competitive advantage and “we need to get out of this mess”. Open Services Innovation can be one of the ways to do this.

Chesbrough’s “Open Innovation” in 2003 was much acclaimed and set a paradigm for innovation management and the collaborative enterprise. At the time, it was a bold and radical notion and it challenged the established mindset on innovation. Today, we are still working with this concept in many organizations. Open Innovation is still a work-in-progress.

Chesbrough followed up Open Innovation in 2006 with “Open Business Models”, in which he elevated the importance of business models, external ideas and concepts, to a more strategic level.

“Open Services Innovation”

The new book asks us to shift our thinking even further away from the R&D labs. The most important aspect of this is the need to rethink business innovation from a service perspective, one that has its focus on “creating the customer’s experience”.

The main messages are:

• Move the organization even further away from the linear process that has dominated much of the 20th century thinking (think Porter’s value chain 1985).
• Make more use of the ‘open’ iterative process, be more multi-dimensional in collaboration, and integrate the customer more centrally into the ‘web’ of collaborators.
• Invention from the R&D bench led to market ‘push’ and an attempt to justify corporate thinking by imposing it on the market and onto the consumers. We have seen some really dramatic shifts in research techniques to know more of what ‘pulls’ and ‘connects’ with consumers – open innovation helps in delivering on this understanding.
• Focus on the consumers unmet, unarticulated or required needs by making customers central in the web of co-creators and co-creation activities.

For most organizations this will be a strategically defining decision-step, fraught with many imponderables for creating and managing services in a  more open and engaged framework where customers have a more central role.

The four fundamentals driving Open Services Innovation

Chesbrough frames his thinking around four concepts that he suggests will accelerate the movement to more open (collaborative) service innovation.

The four foundational concepts are bold and certainly radical in their strategic implications, although on first glance they may not seem that way.

1. Think of your business as an open services business in order to create and sustain differentiation in a commodity trap world.
2. Invite customers to co-create innovation to generate (new) experiences they will value and reward.
3. Use Open Service Innovation to help you turn your business into a platform for others to build on.
4. Transform your business model with Open Services Innovation to profit from building a platform business model so you can gain from others’ innovation activities as well.

The ‘traps’ and dangers of product-led innovation

Chesbrough argues there are many tensions that need to be reduced and addressed.

1. The ‘best practices’ movement has advanced innovation capability so that it is now more difficult to differentiate, leading more and more companies into a commoditization trap.
2. Today customers are seeking more diversity and differentiated experiences and because of this the need for customization is clashing with standardization.
3. Equally customers are looking to become more engaged and involved in their products and services.
4. Multiple partners organizations are seeking more involvement in a ‘joint’ innovation process and are becoming critical contributors of diverse ideas and solutions to the product and service design process.

Acknowledging these ‘tensions’ allows for more knowledge to flow, more participation, more experiments in parallel, and new ways of using and combining a broader community of knowledge.

Chesbrough proposes that companies develop their own Open Innovation Business Platform Model for others to connect and build upon – this is the critical aspect of this book and it grabs my attention. The suggestion is you can construct, manage and innovate together on this ‘extended’ collaborative platform.

Implications of Chesbrough’s Open Services Innovation

• When you have a movement like ‘open innovation’ you run the danger of pushing the concept too far or rationalising other movements into your own framework to readily.  Chesbrough has probably done that here.

• There are many ‘open’ questions still to be addressed for open innovation to be fully embedded even today, a good seven years since it was first proposed.

• It might have been healthier for Professor Chesbrough to address these legacy issues from his knowledge, understanding and exposure rather than pushing the ‘open’ paradigm even further right now.

• In my view there are just too many ‘open questions’ from this book that will fuel resistance to the proposed changes and inhibit the momentum needed to make them work.

• Let me give you an example. The four foundation steps in the way the book outlines them as concepts leaves an awful lot of white space between them; I mean an awful lot of understanding and knowledge to bridge. Many of the leading edge concepts introduced here are somewhat ‘raced over’ and there is a  lack a real depth that seemingly will be left to others to fill in.

• It can be argued that this is a book of ideas, concepts, principles, frames and emerging themes. I can accept any new movement has to be painted in broad brush strokes and often left to others to fill in the blanks, but this can slow the momentum down before the detail is filled in.

• The success of this book will be in the adoption, but this is a foundational framework that requires thinking through. It’s a long road to action from there. Those that already are on the journey will have first mover advantage.

Whatever the outcome, this  is a book I can only recommend as an essential read. You might end up with more questions than answers, but heck, that’s what we have consultants and professors around for, isn’t it? Chesbrough has certainly raised the bar on service innovation.

By Paul Hobcraft