Intelligent Machines

Reinvention

It’s a good thing for ­innovation that the age of monolithic ­corporate labs is over.

Many of the great research-and-­development laboratories of the 20th century have been downsized or broken up. Despite nostalgia for powerhouses like Bell Labs, they are unlikely to return.

Those industrial labs were often supported by de facto monopolies that have since been swept away. With knowledge concentrated in those few large companies, society had to rely on centralized internal research to generate innovation. But useful knowledge is much more widely distributed today, making it infeasible and unwise to hoard vital knowledge in such silos.

Tomorrow’s labs will need to follow a different, open approach to innovation if they are to deliver new ideas and technologies. Tapping external expertise and sharing the load of innovation with others allows a company to expand its scope and bring new ideas to market faster.

This story is part of our November/December 2011 Issue
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Henry Chesbrough

These labs need to test new business ideas as well as new technologies. Clay Christensen’s concept of the “innovator’s dilemma” demonstrates how established business models stifle the formation and growth of “disruptive” models and technologies. Nokia (see “Can This Man Work Magic?”) has suffered greatly not because of any failures of its technology, but because its business model in mobile telephony has been overtaken by a new and better one from Apple and Google. A research lab can protect nascent business models and technologies from the corporate immune system that kills off challenges to the core business. Allowing new business models to evolve alongside new technology can be vital to earning a return on R&D.

Steve Jobs’s decision to give iPhone app makers 70 percent of the revenue from app sales is an example of a business-model innovation that also boosted technological innovation. Jobs’s staff argued that Apple should retain 70 percent itself, since it had made the platform for the apps. But by ignoring this argument, Jobs made the resulting ecosystem of apps far more extensive and profitable, creating a place where app makers innovate so Apple doesn’t have to do it all.

A good example of a company that has successfully negotiated the transition from old-style to new-style R&D is IBM. Until 20 years ago, Big Blue invented numerous fundamental technologies and developed them into products sold under its own brand. Then the company was threatened as competitors attacked on numerous fronts. IBM came close to shattering into several smaller companies, but it survived by opening up its innovation. It used outside tools like Java and Linux, and it offered its own technologies to others for licensing. Opening up its R&D and its business model saved IBM.

The lesson is that the processes of industrial innovation are themselves being innovated. The champions of the future won’t be the companies with giant, closed laboratories; they will be those that find the best way to combine outside ideas and technologies with their own.

Henry Chesbrough, a professor at the Haas School of Business at the University of California, Berkeley, is the author of several books on open innovation.

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