1. Frank Wyatt, Enterprising Partnerships Pty Ltd frank@enterprisingpartnerships.com.au 0414 39 2323 Open Source Innovation: Modifying your business model to accommodate it EXPERIMENT WITH BUSINESS INNOVATIONS INVEST IN PEOPLE AND SKILLS MULTIPLY KNOWLEDGE CONNECTIONS Successful Australian Manufacturers

2. Outline  What is ‘Open Source Innovation’  Why it is it increasingly popular  Case Studies & Potential  Implications for your business model innovation (In Part 2)

3. “Open innovation assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as firms look to advance their technology”. In addition, internal inventions not being used in a firm's business should be taken outside the company and offered to others. Companies can no longer afford to rely entirely on their own research, but should share with other companies. Henry ChesbroughHenry Chesbrough 2003 Open Innovation: The new imperative for creating and profiting from technology Open Source Innovation.......is a paradigm shift for most of us

4.  Innovation is everywhere, “there is more elsewhere than here”  Other Industry domains provide solutions  New paradigm is about managing IP – not necessarily owning IP  New markets for innovation are being created faster through OSI  Requires strong collaborative relationships working in alliances Assumptions behind Open Source Innovation.......the paradigm shift Only recently has it become more accepted and so accessible

5. So why is it so popular now in BMI? McKinsey released reports in 2010/2011 1.The Rise of the networked enterprise: Web2.0 finds its payday” – McKinsey Quarterly Dec. 2010; 2.MGI Report, “Internet Matters: The Net’s sweeping impact on growth, jobs and prosperity” May 2011 “Companies using the web intensively, gain greater market share and higher margins” The reports found that companies using Web2.0 & OSI see on average… 20% decrease in travel costs 20% improvement in marketing effectiveness 10% reduction in operational costs 15% decrease in marketing costs 18% increase in customer satisfaction 41% increase in employee satisfaction SME’s heavily using Web technologies grow and export 2x as much as others The focus is the business model not the tools and technology

6.  Internet is 17 years old (6,000 days); Social Networking / Web 2 is ~ 7 years old (2,600 days)  FaceBook is predicted to be the virtual internet within 5 years? 10% of all internet on line time, doubling every 12 months, est. to grow to 50% in 5 years (Scott Gallway, NYU Stern) 900m users: approx 1m/yr 70% outside of USA : 50% of users make $50k+/yr; 50%+ degree + credit card + 1/3 smartphone to buy on-line & this is growing rapidly The future global market is not China but FaceBook!! Why is this happening……..Global connectedness is changing worldwide society

7. OSI is one of the tools of Business Model Innovation It is not a silver bullet!! Some revealing Case Studies.............

8. From humble beginnings, to giving the sport of biking a new life  California, 1970s, going up and down the Marin county south bay hills on their “Klunkers”  Gary Fisher, Tom Ritchey, Mike Sinyard Joe Breeze and Charlie Cunningham are just a few names from those “thrill seekers” that gave birth to a new sport…..and a new bike!!

9. From this.... To this....... Mountain bike builders were innovative, inspired and reckless – but they paid attention to their customers – and increased their revenues Fat tires Wheel size and shape Front suspension Rear suspension Lever breaks to disc brakes high performance derailleur 27 speeds seat post (quick release) Handlebars Frame geometry Pedals Crack arms Equipment Clothing and now… 29ers (size of the wheel)

10. Mountain Bike brought new markets...... Ski resort National parks Indoor facilities Moab Slickrock trail, Utha

11. Lego They appointed a new CEO who adopted Open Source Innovation!! Case Study: http://www.managing-innovation.com/case_studies/Lego.pdf Having experienced an historic loss of 188 million Euros in 2003; the turnover of the Danish group increased by 38% in 2008 to reach 182 million Euros

12. LEGO: “Do it yourself programmable robot “ In 2 weeks of the product hitting the market, adult hackers reverse-engineered the firmware and developed additional gaming software for the robots – Lego engaged with these customers and changed their business model! When Lego produced its next generation product, MINDSTORMS NXT, the company turned to its lead customers again; recruiting a small group of lead customers from the hacker community to consult with them on the design of the next generation product Business Model Changed http://mindstorms.lego.com/en-us/Default.aspx

13.  Small team mandated to source R&D solutions and new product ideas from broad areas outside confectionery  Grew to become a globally linked team The early goals:  Develop ‘needs list’ (Want)  Build networks (Find)  Deliver value (Existing teams)  Grow capability (Value Dr Sarah Pearson Dr Sarah Pearson, Director ANU Edge &Visiting Fellow, College of Business & Economics Cadbury – OSI Implementation Team

14. OSI @ Cadbury - Delivering value Over ~ two year period: Integrated with the global innovation strategy 35 collaborations set up internationally External partners for 50% of long term research projects with public research organisations New product platforms Recognised as innovation leaders, ideas coming to them CEO quote – “open innovation is the key to Cadbury success” Dr Sarah Pearson, Director ANU Edge &Visiting Fellow, College of Business & Economics

15. Cadbury Open Source

16. Cadbury’s Innovation Strategy  Develop innovation roadmapping with flexible portfolio approach in multi-functional teams  Divisions within Cadbury own the ‘want list’ Clear value when deliver Discoveries had a home: value to company; value to external network; greater chance of success Demonstrate relevance and seen to help deliver success for others  Knowing longer term strategies or consumer foresight means knowing when radical innovation is appropriate – integrated into global strategy Dr Sarah Pearson, Director ANU Edge &Visiting Fellow, College of Business & Economics

17. Why has it become so popular?  Global connectivity - rapid pace of technological change and Web 2  Scientific/Technical complexity  Speed to market and new market opportunities  Access to talent – MNC are keen to access talent  Increased growth rate potential *C.R. Bard, Profit from the Innovation Network: Employee-Entrusted Idea Screens, Research & Technology Executive Council®, 10 February 2009

18. Co-Creation Partnerships with Customers This works for three reasons: 1. customers want to help and work with brands they know are listening to them 2. customers want to solve problems 3. all too often the solution or idea you need will be really simple to somebody else Customers are working with you to improve the product overall, and to improve the offering the brand has to make to all customers.

19. Insights from 4,500 firms from 13 European countries  Low-technology  Low-technology firms investing in R&D can achieve the highest returns if they direct their search behaviour towards customers. high-technology  In high-technology industries, supporting supplier centric search patterns is rewarding but appears to be a niche strategy. Instead, university knowledge is the major leverage point for a firm’s search pattern. Results indicate that knowledge from university inventions play an important role for generating knowledge stocks inside high-technology firms as they innovate (commercialise ideas). Source:Christoph Grimpe and Wolfgang Sofka, 2007, Search Patterns and Absorptive Capacity: A Comparison of Low- and High-Technology Firms from Thirteen European Countries, Centre for European Economic Research, Discussion Paper No. 07-062 Value for Money – Research Findings

20. Quick summary............... Closed InnovationOpen Innovation Most of the smart people work for usNot all of the smart people work for us, need to tap into the knowledge and expertise of others To profit from R&D, we must discover, develop and manage ourselves External R&D can create significant value; internal R&D is needed to exploit our access to that knowledge If we discover it, we’ll get it to market first We don’t have to originate the research in order to profit from it If we are the first to commercialise we will win Building a better business model is better than getting to market first If we create the most and the best ideas in the industry, we win If we make the best use of internal AND external ideas we win We control our IP so that our competitors don’t profit from our ideas We profit from others’ use of our IP, and we buy others’ IP whenever it advances our own business model

21. Projected Importance of External Partnerships – 2008 > 2014 NineSigma, Open Innovation Practices & Outcomes Benchmark Survey Spring 2009

22. Competitions: Peugeot Design 4 million page views 5 demonstration models exhibited at auto marketing events Designers from 100 nationalities contributed 10.000 prizes 5 th year of the contest

23. Intermediary Model

24. P&G’s Collaborative Approach The "P&G Advisors” program allows consumers to try new products and offer suggestions and feedback to P&G for refining their products and shaping national marketing plans. Before, P&G would spend $25,000 to field a new product concept test that took two months to complete. Now, by engaging the customers, the company spends $2,500 and gets results in about two weeks. The "P&G Advisors” program allows consumers to try new products and offer suggestions and feedback to P&G for refining their products and shaping national marketing plans. Before, P&G would spend $25,000 to field a new product concept test that took two months to complete. Now, by engaging the customers, the company spends $2,500 and gets results in about two weeks.

25. P&G Spin Profits with the SpinBrush Developed in 1998 by a startup (Dr Johns' Products) Originated as the “Spin Pop”, a lollipop with a battery-operated handle that twirled the candy in the eater’s mouth. Price point of $5 was a breakthrough in making this a mass- market product. In January 2001, Osher sold the idea to P&G. P&G retained Osher and his team for a year to oversee the transition and gave Osher and his team lots of leeway in bending P&G’s corporate rules in marketing the product. The Crest SpinBrush is the best-selling toothbrush in the US. It generates over $300 million in annual revenues for P&G.

26. GHD Aust – Innovation Exchange Collaborations : “Those with Challenges meet those with Solutions” Released in 2011 to build collaborations between owners of “Challenges” & “Solutions”

27. GHD: I nnovation Interchange - Water

28. Water First– What’s next?

29. InnoCentive: Partnering Intermediaries

30. NineSigma works with Clients... to discover innovative ideas, technologies, products and services from outside their organizations... to connect with the very best innovators and solution providers from around the world... to quickly and cost-effectively solve their business needs... and to transform their innovation processes NineSigma profile:  Offices in USA, Europe and Japan  Over 1,200 Open Innovation projects completed  >2 million solution providers contacted  14,000+ proposals received from 73 countries  South Africa regional partnership with RIIS Our clients tell us we help  Accelerate the innovation cycle  Provide greater access to new ideas, innovation, knowledge  Help hedge risk  Provide an expandable, low-cost network of innovation partners  Expand access to different skill sets and competencies NINESIGMA IS A LEADER IN OPEN INNOVATION SERVICES Some of their many global clients

31. Worldwide Society is Changing In four years to 2010, newspaper ad revenue dropped by 44.24% Revolution is Everywhere Manufacturing to China, Services to India, Philippines, Eastern Europe, etc

32. What’s next?.....Web 3 Internet will be everywhere

33. There are very few silver bullets out there: This is one of the tools of Business Model Innovation!!

34.  Start of Part 2

35. Changes to the Innovation Business Model 1980-90’s focus2005+ focus

36. Interactivity Matrix wikis + Inter-activity - - + e-commerce online discussions forums blogs Internet presence Online product catalogue fully fledged e-commerce site Ideas shared ideagoras Closed Group Shared online space Closed Group extranets - needs facilitation - contents to be generated prior to opening the wiki - user expertise required build content collectivelly + very interactive open to all/ unstructured. Can be monitored. Best suited for consumer or support Co. Marketing / expert facilitation ++++ job in itself online discussions : co_market / design + interactive/ - facilitation+++ - initial content required easy to setup no risk - a must in services ultimate goal for website - require database and flow page Web 3 Next