Academic journal article Research-Technology Management

Open Services Innovation: An Interview with Henry Chesbrough: Henry Chesbrough Talks to James Euchner about How Open Innovation Can Be Applied in the Services Sector-And Why It Should Be

Academic journal article Research-Technology Management

Open Services Innovation: An Interview with Henry Chesbrough: Henry Chesbrough Talks to James Euchner about How Open Innovation Can Be Applied in the Services Sector-And Why It Should Be

Article excerpt

Henry Chesbrough is best known for his work on open innovation, which has grown in popularity and impact since the publication of his book by that title in 1993. He has recently turned his attention to services innovation, and his book Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era was published in January 2011 by Jossey-Bass. I spoke to Henry at IRI's Member Summit in October about the evolution of open innovation and his latest work. In this installment flora our lengthy conversation, we discuss services innovation, its likely impact on the evolution of business, what it takes to succeed with services innovation, and the connection between services innovation and the open-innovation model.

James Euchner [JE]: Your latest work looks at services innovation. What attracted you to that area? Why innovation in services?

Henry Chesbrough [HC]: My interest was prompted by a few observations. First, when I talked about open innovation, I got a lot of questions from service businesses. They asked, "What does this mean for me?" My earlier work in open innovation really focused on high-tech companies making products and technologies. It was not entirely clear what it meant for services, which are intangible and are not well tracked in the accounting system. Services really get into managing knowledge, and there seemed to be a question: will open innovation work in services?

A second motivator was a look at trends across the globe. In all of the advanced economies, more than half of the economy is coming from services rather than products and technologies. That made it even more important to address the gap.

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My third motivator was a conversation I had in 2004 with the head of IBM's research at the time, Paul Hom. When I asked him what his biggest problem was, he told me that he was concerned because he worked in an organization that got more than half its revenue from its services business, but his 3,000-person research staff was working on stuff related to new products and new technology. He understood that he couldn't sustain his research effort if he wasn't working directly on things that were going to impact the other half of the revenue stream of the company. When I heard that and put the other pieces together, I said, "You know, this is something that really needs attention." So that's when I got the desire to really figure it out.

JE: What do you mean when you talk about services innovation?

HC: In researching my book, I have been looking at what companies in service businesses are doing to innovate. United Parcel Service is an interesting one. They now offer to come in and take over the functions of the shipping department of your company, whether the parcel is going to go out through the US Postal Service or FedEx or UPS. UPS takes over all of the responsibility for these accounts for customers.

When UPS takes over the [shipping] facility, they badge the employees and put them on UPS's payroll. This gives them much more insight into what their customers are actually doing to generate the shipments. It gives them ideas for, let's say, working upstream in the supply chain to help optimize logistics that the shipping department didn't even know about because they were simply working from shipping documents on individual parcels to get them out.

That's an example where a company with tremendous logistics capability is partnering with its customers to help them get shipments of their products out to the market. But then, later on, as they learn more, they're working back upstream to optimize the supply chain as well.

The key idea is that both UPS and its customer are opening up. The customer is sharing more of its internal processes with an outsider, UPS. And UPS is taking on more responsibility and sharing more of its internal processes (such as its information technology) with its customers. …

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