1、http:/ Thought Leader Interview: Henry ChesbroughPublished: May 24, 2011To escape the commodity trap and to compete effectively in a knowledge-based economy business leaders of all kinds need to reinvent themselves as innovators in services.by Rob NortonPhotograph courtesy of Henry ChesbroughEconomi
2、sts debate whether a service-based economy can be truly robust or whether prosperity depends on having enough of a manufacturing base to support service businesses. But what if this turned out to be a false dichotomy? Thats the question raised by innovation expert Henry Chesbrough. All successful ma
3、nufacturers, in Chesbroughs view, need to come to terms with a fundamental change: the accelerating flows of knowledge and information that are shortening product cycles and commoditizing their products. They can do this, he says, only by reinventing themselves, not as pure manufacturers or service
4、providers, but as hybrid productservice companies that design their business models around creating more meaningful experiences for their customers.Of course, many manufacturers are already doing this. General Motors does it with its OnStar system; General Electric does it with its infrastructure fi
5、nancing; Ikea, Apple, Inditex (Zara), and many others do it with their own retail outlets; and Taiwan Semiconductor Manufacturing Company does it with its co-creation model for helping customers design computer chips, which it then manufactures to order. On the other side, service companies such as
6、Barnes they can be others.If you look at the iPhone, iTunes, iPad the whole “i” empire that Apple has built they havent done it alone. Theyve done it with hundreds or thousands of apps makers alongside them, much as Microsoft did with Windows in the 1980s and 90s, when they had, at one point, someth
7、ing like 75,000 independent software vendors working on Windows.Thats the way products become platforms, and I think thats where companies of all kinds need to end up, so that theyre not just making a product or a providing a simple service. The right way to think about it is, “How do I turn what I
8、have into a platform?” And a platform, on the one hand, attracts others to build alongside and on top of what youre doing, but on the other hand allows you to provide a much wider set of experiences. I go into some detail in the book about both the economies of scope and the economies of scale that
9、a company can gain from being more open in services innovation. I think this is where you can continue to make money and escape that commodity trap.S+B: In the early days of the Macintosh, Apple was famous for restricting innovation to a system it tightly controlled and thereby limiting the market f
10、or its computers. What theyre doing now with the “iFamily” seems like quite a change.CHESBROUGH: The earlier history of Windows and the Mac is instructive. There were some lessons learned by Steve Jobs and others: that as good as you are, there are too many other smart people out there, and by cutti
11、ng yourself off from them you really shoot yourself in the foot. But I dont think they truly anticipated just how explosive the “iStore” apps sector was going to be, because really, there was nothing like it out there prior to this. To give Apple credit, they were able to keep up with the explosion.
12、 Their models opened up to accommodate the demand. By the time they launched the iPad in 2010, one of the things they were banking on was that because there were so many apps out there, the iPad could hit the ground running. And they were right; I think they sold 3 million units in the first 90 days
13、 after its introduction.By doing that, they also put the new companies coming out with Android tablets and Android tablet apps at a disadvantage. Were beginning to see a good library of Android apps become available, but even today its not as extensive as the Apple ecosystem. Although Im sure the ti
14、me is coming when it will fully catch up, and there will be wonderful stuff.S+B: What are some other examples of how being open can provide scale and scope?CHESBROUGH: Amazon illustrates both. On the scope side, being open allows them to give more choices to customers. Amazon allows third-party merc
15、hants to use the same tools that Amazon uses to build their own Web pages; the third parties can build the Web pages on Amazon so that the user gets an exactly consistent experience, whether youre buying books that Amazon sells or jewelry for which Amazon will take your money, but the actual merchan
16、dising and fulfillment is done by a third party.The user gets a consistent experience; Amazon gets the money in advance, so they get that nice cash flow. And for the merchant, Amazon is one of the most heavily trafficked sites out there, so the merchants are going where the customers are. Amazon jus
17、t had a great quarter in terms of revenues, and the third-party merchants revenues were up even more than Amazons own internally provided merchandise. Amazon is really benefiting from more of the customers share of wallet, so to speak.http:/ the scale side, Amazon is also interesting because it has
18、to make huge investments to build the extensive server infrastructure to handle all the transactions. And Amazon has been criticized for a long time, especially by security analysts, who say, “Hey, youre a retailer, why are you spending all this money on R they dont even try to compete on these thin
19、gs. And the companies that compete with Amazon Web Services are those like Google and Microsoft and IBM and a very small number of companies that see these capabilities as fundamental to the cloud computing platform of the future. But Amazon got there long before others did, because they thought abo
20、ut their business much more broadly than as just being a focused online bookseller.Being open allows you to get economies of specialization; thats your path for gaining both economies of scope and economies of scale. If Amazon hadnt been open either to the third-party merchants in the first case or
21、to letting others use its infrastructure in the second case, it wouldnt have gotten all this. Open services innovation is a key part of how Amazon makes all this possible.S+B: How does openness lead to economies of specialization? Whats the link?CHESBROUGH: Like innovation in products and technologi
22、es, innovation in services benefits greatly from specialization. By using open services innovation to harness the forces of scale and scope economies, services firms can get more value and more growth from their core capabilities. But the highest and best use of these capabilities is in open innovat
23、ion approaches to constructing business platforms. These platforms induce others to invest their time, money, energy, and ideas in extending your initiatives. As they do, your platform becomes more attractive to more customers, while becoming more profitable and sustainable for you.“Real Men Have Fa
24、bs”S+B: Talk about some of the other examples of open services innovation from your book, like Taiwan Semiconductor Manufacturing Company (TSMC). Its not a business youd obviously think of as a service business. In fact, within the Internet economy, semiconductors are as close to a “big-iron” manufa
25、cturing industry as you could think of.CHESBROUGH: Thats right. Real men have fabs wafer fabrication plants. In the early days of the computer industry, up to the early or mid-1960s, if you wanted to build semiconductor chips, you had to design and build the systems into which the chips went. So IBM
26、, AT it also invites third parties that have their own specialty design tools to provide their intellectual property to TSMC, and TSMC essentially sells it for them. So now you can actually get paid when companies use your tools to design their chips.And the open innovation platform takes all of thi
27、s intellectual property, both TSMCs and the third parties IP, and lets them test it and validate it. When customers use these processes, TSMC will guarantee that theyll get their chip through production the first time without any mistakes. Errors can add significant costs, and can slow production by
28、 weeks or months. So TSMC really provides some peace of mind and assurance, plus a faster time-to-market. The whole system is a way of aggregating third-party and internal IP alongside the manufacturing services.There are quite a few other companies providing foundry services now, but TSMC still has
29、 about half of the market by market share. When youve got a great new process, tool, or reference design, usually the first place you would go is the biggest guy in the market. So this is a case where the big do get bigger, and it becomes a very powerful advantage.S+B: In other words, being first wi
30、th their open innovation model gave TSMC a hard-to-beat competitive advantage.CHESBROUGH: Thats right. They brought the foundry model into the market I think in 1987 or thereabouts. But since then, a lot of other companies have come into that market as well, so they have to keep that advantage by co
31、ntinuing to move forward. TSMC is now raising the ante by offering to test and http:/ the assortment of tools and processes, many of which come from outside companies, that go into the chips designs. But because of their testing and validation, you the customer dont have to worry about how to make a
32、ll this work for you; theyve done that work for you.Its an example of how you really can build a sustainable advantage even in a services business. The normal knock on services is that these things dont have a lot of intellectual property protection. Patents are less commonly used in services, and s
33、ervices are not always standardized theres always subjectivity. And any of us can undergo the experience and then reproduce it, so services are easy to copy. TSMC is an example of how IP can create and capture value, even in a services context. By developing its own IP for designing and verifying ch
34、ips for its customers, and creating published interfaces and validation for third-party designs, TSMC has been able to build an enduring advantage.S+B: Another example you give of excellence in service innovation is Xerox. This might be surprising to some people, since Xerox is most often cited as a
35、 company that lost its way as an innovator.CHESBROUGH: Ive been studying Xerox for more than 12 years, and I have documented in some detail some of their challenges, particularly those involving the Palo Alto Research Center. Their technology spin-offs, like the graphic user interface, created a lot
36、 of value for other companies like Microsoft and Apple, but not much for Xerox itself. Those are the stories youre referring to. But one thing that Ive learned from Xerox is that a big, established company can generate a fundamental business model innovation. For the first 40 years of its life, Xero
37、x sold its copiers and printers as products. Sure, it charged for toner, paper, and service, and also for financing the purchase of its products, but those items were secondary to its business model (except eventually for toner, which became a key source of profits).Today, however, it has an entirel
38、y different model: Instead of selling copiers and printers, it is offering a service it calls Managed Print Services, in which you pay only for what you use, by the copy or by the page. Xerox takes over all the management and maintenance of the equipment and keeps all the toner stocked, the paper in
39、 the machines, and all the rest. Its a very different way for its customers to obtain copies. Its a deceptively simple idea, but its devilishly difficult to execute.Its a terrific arrangement from the customer standpoint. Your competitive advantage is not in which copier you buy; you want copying se
40、rvices, and youre more than happy to have somebody take care of that for you, because if you yourself are running your own copiers in your own organization, thats usually very much a backwater kind of job. So the career paths at Xerox in Managed Print Services are far better than the career paths th
41、at Xeroxs customers can provide to people doing the same function.Its also beneficial for Xerox, for many of the reasons I go into in my book. One is that Xerox knows more about copiers and printers than even the most sophisticated of its customers. Its specialized knowledge allows it to manage reso
42、urces more effectively. Another is that Xerox can develop, install, and operate the most efficient equipment over the life cycle of print services, which can generate big savings. Finally, Xerox manages all the customers print devices under these arrangements not just those that it manufactures so i
43、t gets a better view of the customers overall copying and printing needs. This gives it a learning advantage over its competitors.The Footprint of an Ideahttp:/ Your first book on open innovation attracted a lot of interest, judging by the amount of media attention its generated and the number of ot
44、her books, magazine articles, papers, and conferences that refer to the phenomenon. Is it being put into practice by managers?CHESBROUGH: In terms of what companies are actually doing day to day, its moved pretty far pretty fast in some industries for example, in consumer packaged goods. Virtually e
45、very major consumer products company I know has an open innovation program going on. I would say its taken off pretty quickly in the IT sector as well. In other sectors, like transportation, its taking a long time. Financial services is also relatively slow, although that industry has been in such t
46、urmoil, its hard to make a simple statement about it.In every organization that Ive worked with, it doesnt come easily. There are tremendous internal barriers to doing it well. Some of those barriers are cultural in nature; some, I think, reflect the logic of the reward systems that companies have i
47、n place. And even if the company wants to embrace open innovation and some people actually start the process, there are a lot of things that they dont realize until they get into it.A good example is the internal legal staff, which is charged with keeping the company out of trouble and out of court,
48、 making sure that it has ownership for what it sells, and trying to reduce risk. Along comes this idea of open innovation, and suddenly youre bringing in external ideas and taking internal ideas outside. Ideas are flying beyond the boundaries of the firm, and it may not be clear what the best legal arrangements are to enable this. On the one hand, you want to keep the company from being contaminated when you bring external ideas in, so youre not inadvertently selling things you dont have the right to sell. On the ot
