As California’s second most famous open innovation scholar — a distant second — I sometimes get emails from people asking about open innovation topics. This week a couple of visitors came from Japan to pick my brain, and we got talking about various open innovation topics, including markets for IP and innovation.
One question I’d heard before was “how is open innovation practiced in Silicon Valley?” It’s been my impression that the various Chesbrough books on open innovation had less of an impact on Silicon Valley than almost anywhere else. Yes, HP created an “Open Innovation Office,” but that’s just a new name (and broader responsibilities) for the existing university relations staff.
From my own consulting, research and speaking, I think open innovation has had a big impact in Europe, and in the Midwest. It’s also had an impact on South America (Brazil, Chile) and Asia, but it doesn’t seem to be as organized from an academic sense. I don’t see much of a groundswell here.
Why? One factor is that (in my decidedly unscientific anecdotal sampling) is that SV entrepreneurs don’t seem to read books. I don’t know if it’s because they are too busy or too arrogant, but business books seem to have less impact here than in say, Fortune 500 America, England or Japan.
But a more fundamental reason is that I think open innovation was practiced here before Chesbrough’s pathbreaking 2003 book was published. I’ve talked with Henry about it, and he sees my point — although he’s so polite that it was hard to tell if he was agreeing or being noncommittal.
After all, the first chapter of Chesbrough’s 2003 book is about Xerox’s Palo Alto Research Center. To put it bluntly, the copier executives from upstate NY didn’t know how to monetize all these great technologies, but eventually (as Chesbrough chronicles it) they use a combination of licensing and equity positions to capture value from the spin-off companies that are going to be created anyway.
It was an important and necessary adaptation by Xerox, since spin-off companies are a way of life here. The “silicon” in Silicon Valley came from semiconductor spinoffs (starting with Fairchild in 1957), and the idea of quitting to start a new company is well-entrenched. (A friend of mine, Martin Kenney, co-authored a 1990 book that argued that the spinoff-culture of Silicon Valley and Route 128 (still important then) were fragmenting American abilities to mass product new technologies; he’s since edited an important book praising the SV process: Understanding Silicon Valley.)
But more fundamentally, who were these companies that put the “silicon” in Silicon Valley? Merchant semiconductor manufacturers. These were companies that got all their revenues from component that went into the systems designed and built by other companies. And this was the norm in SV if not the US electronics industry.
Yes, IBM was vertically integrated (until the wrenching transformation chronicled by the 2003 Chesbrough book) — as was RCA before it committed seppaku — but such vertical integration is now long gone from US electronics companies. Meanwhile, NEC, Toshiba, Samsung, LG, Siemens, Ericsson, Nokia and other Asian (and European) companies remain among the most integrated of firms in the ICT sector.
Buying components is one of the three modes of acquiring external innovations, along with licensing knowledge/information/IP and custom solutions. Silicon Valley has thus been built around OI for 50 years, even if it wasn’t called that. Open innovation is relevant to SV, but you’d have a hard time selling it to local startups as a new practice.