Cluster based open innovation system

Cluster based open innovation
system - enabler of economic and
firm's development
Cluj Innovation Day 20.03.2015
Innovation myths mess with success…
1. Innovation is about creating a hot new product…
New products are swiftly copied and rarely enjoy sustained profits
2. Innovation comes from being creative…
It is far likelier to come from being disciplined
3. Innovation is expensive, demanding lots of resource
Failure to innovate is what is costly
4. Create hundreds of ideas because of high failure rates…
Fewer, bolder ideas based in strong capabilities and the
unmet customer needs you discover work best
5. Financial analytics are key to approving concepts…
Guessing cash flow in year four for something unprecedented wastes
months and is nearly always wrong — build prototypes instead
Source: Doblin/Monitor Analysis
2
Ten types of innovation: Move beyond products to win
1. Business model
how the enterprise makes money
5. Product performance
basic features, performance & functionality
6. Product system
extended system that surrounds an offering
2. Networking
enterprise’s structure/
value chain & partnering
7. Service
how you support your customers
Finance
Business
model
Networking
Process.
Enabling
process
Core
process
Offering
Product
performance
Product
system
Delivery
Service
Channel
Brand
Customer
experience
8. Channel
how you connect your offerings
to your customers
3. Enabling process
assembled capabilities you
typically buy from others
9. Brand
how you express your offering’s
benefits and ideas to customers
4. Core process
proprietary processes that add value
10. Customer experience
how you create an integrated
experience for customers
Source: Doblin/Monitor Analysis
3
Prosperity, Productivity, and Innovation
The key source of regional prosperity is increased productivity, which comes from innovation

A high and rising standard of living is the proper objective
of economic development efforts

For wages and profits to grow, workers and their firms
must create more value year after year

They must boost productivity, or competitiveness

Productivity will not grow if firms keep making the same
goods and services using the same methods and
processes

They must do something new and better

They must innovate
Prosperity
Productivity
(Competitiveness)
Innovation
4
Drivers of Prosperity
Many different factors contribute to the overall business environment and, ultimately, drive
prosperity and innovation
Prosperity
(Creation of high-paying jobs)
Productivity
(High value creation by workers)
Innovation
(New products, processes, business models, etc.)
PK-12 Education
Workforce
Quality of Life and
Talent Attraction
University
Research and
Tech Transfer
Tax and
Regulatory
Environment
Transportation and
Communication
Infrastructure
Entrepreneurship
Business Recruitment
and Retention
Suppliers and
Buyers
5
Culture of
Competition
Collaboration and
Networks
Responsiveness of
Government
Clusters Defined and correlations to innovation and prosperity

A cluster is a geographically proximate group of interconnected companies and
associated institutions in a particular field, linked by commonalities and
complementarities (M.Porter)

Based on US based research performed by Deloitte
– Direct correlation between number of patents and average salary per region
(correlation between innovation and prosperity)
– Direct correlation between focus on industry and higher average salary growth per
region (correlation between industry focus and prosperity per region; ie cluster per
industry)
6
Innovation Performance of Regions
Patenting Intensity and Wage Level
$50,000
R2 = 0.6344
P-value = 0.001
NY
CT
MA
NJ
$40,000
CA
DE
Average
Regional
Wage,
2001
WA
IL
MD
VA
Economy
HI
exhibits
AL
less
WV
AR
innovation MS
MO
KS
FL
TN
OK
SD
$20,000
0
10
CO
IN
NC
RI
OR
OH
AZ
NH
WI
Economy
exhibits more
innovation
UT
NM
MN
TX
PA
GA
$30,000
MI
IA
SC ND
MT
20
30
40
50
Patents per 100,000 Inhabitants by Region, 2001
Source: U.S. Patent and Trademark Office; CHI Research; County Business Patterns; Michael E. Porter, The Economic Performance of Regions‖,
Regional Studies, Vol. 37, 2003
Note:
All states, except three (ID, VT, AK) eliminated when a state had one patentor accounting for more than 50% of total patents, or the top 5
accounting for more than 80% of total patents
7
60
Clusters Have Multiple Effects on Innovation
Increase
Productivity /
Efficiency
Stimulate and
Enable Innovations
Facilitate
Commercialization

Efficient access to specialized inputs,

Ease of coordination across firms

Rapid diffusion of best practices

Better ability to perceive innovation
opportunities

Multiple suppliers and institutions to assist
in knowledge creation

Ease of experimentation

Opportunities for new companies are more
apparent

Lower barriers to entry into cluster related
businesses
Source: Professor Michael Porter, Harvard Business School; Monitor Analysis
8
Competition is
fundamentally
enhanced by
linkages across
firms, industries,
and associated
institutions
What Is Open Innovation

Open innovation is a purposeful, systematic quest for, and use of, new
sources of innovation by engaging suppliers, employees and other parties in
collaborate development
– It is not serendipitous or one-off, requiring a supporting process and
infrastructure

Open innovation is applied by companies to stretch the boundaries of
what’s possible in their offerings, customer engagement, internal processes,
networks and business models
Deloitte helps companies access sources of inspiration and innovation
outside of the organization to create new sources of value
9
Cluster-based, open innovation is a particularly useful tool for
economic and firm development

A new way of thinking about an economy and organizing economic development
efforts

Better aligned with the nature of competition and sources of competitive advantage.
Clusters capture important linkages in terms of technology, skills, information, marketing
and customer needs that cut across firms and industries. Such linkages are fundamental
to competition and, especially, to the direction and pace of innovation

Recasts the role of the private sector, government, trade associations and educational
or research institutions

Brings together firms of all sizes

Creates a forum for constructive business-government dialog

Cluster members identify common opportunities, not just common problems

Highlights attractive public and private investment opportunities

Provides guidance for both social and economic policies
Source: Professor Michael Porter, Harvard Business School; Monitor Analysis
10
Importance of a Wide Definition of Open Innovation
Broad
Outside
Open Innovation
Inside Cluster
Inside Company
Narrow
Experts
Partners
11
Everyone
Open innovation is a great tool to get at the “edges”
where Innovation tends to be most challenging


Like with innovation generally, most measurement schemes over-emphasize product
performance innovation because there is no shared definition
More systemic and broad-based innovation activities are often overlooked
Finance
Business
model
Networking
Offering
Process.
Enabling
process
Core
process
Product
performance
Product
system
Delivery
Service
Channel
Brand
Finance
Customer
experience
Business
model
Volume of innovation efforts
Hi Last 10 years
Networking
Process.
Enabling
process
Core
process
Offering
Product
performance
Product
system
Delivery
Service
Channel
Brand
Customer
experience
Cumulative value creation
Hi Last 10 years
Pareto revisited:
Fewer than 2% of projects produce More than 90% of
value…
Lo
Lo

Develop a shared, cluster-based definition of innovation

Participate in and learn from international innovation scorecard efforts to improve
innovation within innovation types

Developed a more nuanced measurement effort to take the national innovation
condition into account and help support systemic innovation across innovation types
Source: Doblin/Monitor Analysis
12
What Is Open Innovation
Process and Infrastructure
A process — a set of activities —
whose purpose is to find or
generate good ideas, technologies,
etc., and adapt them for use
Frame
Engage
Contract
Create /
Find
Adapt /
Fit
and
The infrastructure needed to
support those activities —
optimized for the type of open
innovation the organization
chooses to pursue





Interfaces
Tools
Data
People
Metrics / Incentives
Suppliers
Universitie
s
VC Funds
Trade
Customers
Expert
Networks
HQ
Captive
Labs
Industry
Players
13
Open Innovation and Clusters Share Key Success Factors




Conquer ―Not Invented Here‖
Seek for best solution source
Promote open
communication
A
Encourage creative conflict
Open Mindset


B
Proactiveness


E
Scout for new
opportunities
Actively seek for
partners
Dedicate team resources
Encourage sharing of
R&D
C
Tolerance of
Failure
Flexibility

D


Cooperativeness
Encourage risk taking
Learn from failures



Encourage internal and
external collaboration
Involve more partners
earlier
Source: Monitor Analysis adapted from ―Open Innovation‖ by Henry Chesbrough
14
Enhance efficiency
in buying and
selling
technologies
Accept new
business models
Monitor Point of View
Multiple Models to Connect with External “Expertise”
Companies must leverage a range of models to tap into external expertise, balancing
tradeoffs between fostering a broad set of transactional relationships versus more targeted
strategic relationships
Broad Reaching and Transactional
Open Partner
Platforms
External
Challenges
Focused and Collaborative
R&D /
Technology
Brokering
Building
Posting
Scanning,
platforms that challenges and
either
naturally attract rewards to a
independently
diverse
broad
or through
partners who
audience,
brokers, for
see value in
directly or
new IP that can
developing on
through a
be licensed to
top of your
market maker
target new
offering
opportunities
Consortium /
Incubator
Value Chain
Network
Partnership /
Alliances
/ JVs
Joining open or
Forming
Creating
topic specific linkages across
strategic
consortiums to
value chain
partnerships
gain technology
members to
within an
and market
collectively
industry or into
insight and find
identify and
adjacent
opportunities
target
spaces to
for joint R&D
opportunities
unlock new
opportunities

iPhone and
App Store

P&G Connect
and Develop

GSK and
ceedd™

US Advanced
Battery

Google Maps

Netflix Prize

XETHANOL
and UTEK

IBM
“Collaboraties”
15

SABIC
Innovative
Plastics
network

Walt Disney,
NBC and
News Corp.
(Hulu)

IFF value
chain network

Nike and
Apple iPod
Deloitte Innovation Services
16
How We Can Help
Monitor Develops and Installs Open Innovation Systems
What we have heard from clients
“We need strategies that are
less constrained by internal
capabilities”
“We need to determine where
and how we reach for external
support to succeed with a new
opportunity”
Our focus areas for open innovation
We help leaders set open
innovation strategy that
build aggressive targets
and increases your
likelihood for success
We provide clients open
innovation infrastructure
and processes to
accelerate specific
initiatives







“We need to increase
innovation productivity and
build a discipline to reach
outside our walls”
We partner with clients to
build open innovation
capabilities that are
systematic and repeatable


17
Setting intent and ambition
Identifying and reframing
opportunity spaces for
investment
Linking to company strategy
Defining core value drivers
Authoring problem statements
and external challenges
Co-constructing a concept
Executing structured open
innovation pilots and
experiments
Designing the interface with
internal development processes
Training employees
How We Can Help
Enable: Designing the Open Innovation System
Key Activities / Modules
4–6 Weeks
4–6 Weeks
8–10 Weeks
6–8 Weeks
Diagnose
Map
Design
Implement
Diagnose the
company’s ―capacity‖
for open innovation to
identify the most
economically attractive
areas to focus efforts
around
Map the landscape of
existing, emerging and
potentially disruptive
opportunity spaces for
innovation, prioritizing
focus areas
Design the ideal ―endstate‖, prioritizing a set
of new external
communities as well as
the playbook for
engagement
Implement targeted
experiments and
partnerships while
embedding training and
incentives for sustained
open innovation
activities
Outputs and Deliverables
Strategic focus areas
for open innovation
Map the landscape of existing, emerging and potentially
disruptive opportunity spaces
Map and gap analysis
of current network
Assessing the current network for open innovation
We help companies look across the current and future competitive terrain to define their
opportunity spaces, identifying options of “where to play” for the next generation of growth
Playbook and roadmap for
engaging external parties
Monitor Point of View
Multiple Models to Connect with External “Expertise”
Implement in the organization
Companies must leverage a range of models to tap into external expertise, balancing
tradeoffs between fostering a broad set of transactional relationships versus more targeted
strategic relationships
Broad Reaching and Transactional
Open Partner
Platforms
External
Challenges
Map of linkages
with internal processes
Communication plan and
change program
Preparing a Plan: Cultural Transformation
A process needs to be established to ensure that the network is created, maintained, utilized
and evaluated
Focused and Collaborative
R&D /
Technology
Brokering
Consortium /
Incubator
Value Chain
Network
Partnership /
Alliances
/ JVs
Building
Scanning,
Creating
Posting
Joining open or
Forming
platforms that
either
strategic
challenges and
topic specific linkages across
naturally attract
independently
partnerships
rewards to a
consortiums to
value chain
diverse
or through
within an
broad
gain technology
members to
partners who
brokers, for
industry or into
audience,
and market
collectively
see value in
new IP that can
adjacent
directly or
insight and find
identify and
developing on
be licensed to
spaces to
through a
opportunities
target
top of your
target new
unlock new
market maker
for joint R&D
opportunities
offering
opportunities
opportunities
36
38

iPhone and
App Store

P&G Connect
and Develop

GSK and
ceedd™

US Advanced
Battery

Google Maps

Netflix Prize

XETHANOL
and UTEK

IBM
“Collaboraties”
18
18

SABIC
Innovative
Plastics
network

Walt Disney,
NBC and
News Corp.
(Hulu)

IFF value
chain network

Nike and
Apple iPod
40
42
How We Can Help
Create: Prospecting with Open Innovation
Key Activities / Modules
2–4 Weeks
2–4 Weeks
4–6 Weeks
6–8 Weeks
Diagnose
Map
Design
Implement
Diagnose the
opportunity and problem
that is trying to be
solved, reframing new
insight into value
drivers which define
the external search
Map the most relevant
external sources that
address key challenges
and value drivers
required to capture the
opportunity
Design the most
effective methods for
working with external
parties (e.g.,
partnerships,
transactional
relationships)
Implement external
involvement by refining
the offering description
and designing an
integrated concept
Outputs and Deliverables
Value driver analysis
and problem statement
Key Choices: How to Frame Customer Needs
Technology and
capability landscape
Playbook for accessing
external expertise
Case Example: Medical Device Coatings Assessment
Opportunity Characterization and Prioritization
There are two types of inputs to the framing work
Construct the specific partnership engagement
Case Example: Medical Device Coatings Assessment
Action Plan and Outcomes
The design of the partnership / collaboration / alliance should be carefully considered with
concentration on scope, organization, decision rights, structures and valuations (if required)
A near-term actin plan with timing and accountability was developed for R&D and business
development teams to pursue prioritized opportunity and build necessary capabilities
Partner
Qualification
Corporate or
BU Strategy
Partnership
Strategy
Contract
Completion
Post-Partnership
Management
Partnership
Design
Scope









What are the objectives of the partnership?
How will value creation occur”?
What are the competitive scenarios and
implications?
What will be the functions of the partnership?
What will be each partner’s involvement and
contribution?
Which assets / products will be contributed?
What are the non-compete agreements
between the parents?
Ownership of innovations?
How will shared assets / services be divided?
Organization and Decision Rights








What are the key decision rights? Are they any
veto rights?
Who has control? Joint?
What are conflict resolution mechanisms
How will entity react to possible internal /
external shocks?
What is the governance? How are decisions
made?
What is the organizational structure?
What is the budgeting and reporting process?
What are the appropriate incentives?
32
19
Operational plan for
sustained collaboration
Structure and Valuation







How will the contributions be valued? Does this
affect the sharing of the outcomes?
What are the exit provisions?
What representations are warranties to be
provided?
What are the value drivers?
Will there be access to third party capital or
other funding?
How will synergies be shared?
What ownership structure to choose? Will this
change over time?
Financing Innovation initiatives
Open Innovation
Technology Transfer Project 1
Technology Transfer Project 2
Suppliers
Universiti
es
VC
Funds
Trade
Customers
Expert
Networks
HQ
Captiv
e Labs
Technology Transfer Project N
Industry
Players
Cluster IT Cluj
------------------------------------------------------------------------------------------------------------------------Financing options
Innovative Clusters – POC
Technology Transfer - POR

Use Deloitte expertise in accessing EU funding options above
20
How We Can Help
Our Differentiated Combination of Expertise
We bring differentiated and relevant expertise that can build the core capabilities for open
innovation
Deep experience installing growth systems
Deloitte has proven expertise in helping leaders install systems: bringing defined
processes, tools and capability building that can drive faster time to impact and
commitment
Leading thought leaders in innovation management
Deloitte’s Innovation Practice has over 25 years of experience in driving growth through
innovation, pioneering new sophistication and management techniques
An ability to speak both technology and user-centric language
Deloitte’s innovation practice combines 60+ professionals across a wide range of specialist
skills with an external network of over 5,300 experts in more than 450 technology
categories
Deep expertise in organizational change management
Deloitte brings deep expertise in delivering corporate transformations, drawing on over 25
years of experience and the work of leading experts in the field of corporate change and
transformation
21
For more information please contact
Bogdan Marin
bmarin@deloittece.com
+40 731 730 574
22
Appendix A: Open Innovation Models
Monitor Point of View
Multiple Models to Connect with External “Expertise”
Companies must leverage a range of models to tap into external expertise, balancing
tradeoffs between fostering a broad set of transactional relationships versus more targeted
strategic relationships
Broad Reaching and Transactional
Open Partner
Platforms
External
Challenges
Focused and Collaborative
R&D /
Technology
Brokering
Building
Posting
Scanning,
platforms that challenges and
either
naturally attract rewards to a
independently
diverse
broad
or through
partners who
audience,
brokers, for
see value in
directly or
new IP that can
developing on
through a
be licensed to
top of your
market maker
target new
offering
opportunities
Consortium /
Incubator
Value Chain
Network
Partnership /
Alliances
/ JVs
Joining open or
Forming
Creating
topic specific linkages across
strategic
consortiums to
value chain
partnerships
gain technology
members to
within an
and market
collectively
industry or into
insight and find
identify and
adjacent
opportunities
target
spaces to
for joint R&D
opportunities
unlock new
opportunities

iPhone and
App Store

P&G Connect
and Develop

GSK and
ceedd™

US Advanced
Battery

Google Maps

Netflix Prize

XETHANOL
and UTEK

IBM
“Collaboraties”
24

SABIC
Innovative
Plastics
network

Walt Disney,
NBC and
News Corp.
(Hulu)

IFF value
chain network

Nike and
Apple iPod
Open Partner
Platforms
Monitor Point of View
Open Partner Platform: iPhone “Apps Store”
External
Challenges
R&D /
Technology
Brokering
Consortium /
Incubator
Value Chain
Network
Apple’s use of third-party developers has allowed it to create an extensive portfolio of
iPhone applications, creating a powerful asset to attract and retain users
 Apple enabled third-party developers to
create iPhone applications available for
download through Apple’s online ―App
Store‖
 Since launch on July 11, 2008, iPhone
applications have been a huge success
– Over 50,000 applications developed
– Over 1 Billion applications
downloaded
 Beyond creating large barriers to entry,
the business model has proven highly
profitable for both Apple and developers
– App Store revenue expected to
exceed $800M in 2009, with Apple
taking 30%1
– Kleiner Perkins Caufield & Byers
launched a $100M ―iFund‖ targeting
the iPhone
1
Piper Jaffray estimate
25
Partnership /
Alliances
/ JVs
Monitor Point of View
External Challenges: Procter & Gamble
Open Partner
Platforms
External
Challenges
R&D /
Technology
Brokering
Consortium /
Incubator
Value Chain
Network
Partnership /
Alliances
/ JVs
P&G’s innovation “revolution” has been hailed as both a huge success and an exemplar on
how to reconfigure innovation to connect with a broad set of experts outside the firm
Actions: Connect and Develop



Results
CEO mandate to acquire 50% of all innovations
from outside P&G
Uses existing networks (e.g., universities,
suppliers, retailers) to source and drive
innovation
Significant up-front investment to reconfigure
R&D — took ten years to accomplish, with
three years of up-front planning from a
dedicated team of 18 senior R&D leaders




Increased use of external innovation sources:
35%+ of new products and 45%+ of initiatives
in development include elements from outside
P&G
Increased growth: Annual sales growth of 10%
from 2000 to 2008
Decreased costs: R&D as % of sales
decreased from 4.8% in 2000 to 3.4% in 2006
Increased R&D productivity by ~60%
Success Stories
Crest Spinbrush



Developed by small
company
P&G improved product,
expanded distribution,
extended Crest brand equity
Put Crest into billion USD
brand category
Mr. Clean Magic Eraser



Japanese company
launches BASF-developed
foam sponge
P&G discovers product in
store, tests internally then
launches in U.S. and
Europe
Doubled hard surface
market share in one year
26
Pringles Prints



Through global network
finds Italian baker that had
developed method to print
on cakes and cookies
Adapted method for Pringles
brand
U.S. Pringles business
realized double-digit growth
Open Partner
Platforms
External
Challenges
Monitor Point of View
R&D / Technology Brokering: GSK and CCEEDD
R&D /
Technology
Brokering
Consortium /
Incubator
Value Chain
Network
Partnership /
Alliances
/ JVs
GlaxoSmithKline’s corporate approach to R&D is untraditional; it uses small, entrepreneurial
drug discovery centers in place of a single, centralized function. The creation of CEEDD
applies this approach to external innovation, creating an independent business unit to
pursue external partnership to fuel innovation

Established the Center of Excellence for External Drug Discovery
(CEEDD) to support late-stage drug development

CEEDD forms partnerships with biopharmaceutical firms to bring
projects from target to clinical proof of concepts
– At proof-of-concept, GSK has the option to license the compound
for development and commercialization
– Biotechnology firms receive GSK’s expertise in commercializing
beyond proof-of-concept, as well as funding

Once therapeutic areas of interest have been determined, the partnering
firms receive upfront payments from GSK, with additional payments for
meeting success milestones as well as royalty agreements for any
commercialized therapies

Forty percent of phase III compounds in trials and 48% of approved
products stem from in-licensed agreements
– 10 of 11 top brands began as collaboration

GSK’s Consumer Healthcare division has specialized ―Open Innovation‖
teams that work with external parties develop and commercialize their
products
Source: ceedd.com, Drug Discovery News, GlaxoSmithKline
27
Open Partner
Platforms
Monitor Point of View
Consortium: Wal-Mart
External
Challenges
R&D /
Technology
Brokering
Consortium /
Incubator
Value Chain
Network
Partnership /
Alliances
/ JVs
Wal-Mart has created a consortium of CPG companies and
academics, and has invited leading competitors Target, Costco,
Tesco, and Kroger to participate
– The consortium, led by faculty at the University of Arkansas and
Arizona State, will ensure a single set of measurements is agreed
upon and will operate independently in the future

The consortium inoculates Wal-Mart against environmentalists’ attacks,
and creates a competitive atmosphere where suppliers will compete to
reduce the environmental impact and, by extension, the cost of their
products

By participating, firms can exert influence on the standards as well as
well as demonstrate a commitment to sustainability

The consortium is taking a phased approach over the next 3 to 5 years
that will collect data from Wal-Mart’s 100,000 suppliers, allow the
consortium to formulate standards based on the data, and slowly
roll-out the index to consumers
Source: New York Times, MSNBC, Arkansasbusiness.com
28
Invitees

Consortium Members
In July 2009, Wal-Mart announced the creation of a sustainability index, an effort to urge
suppliers to quantify the environmental impact of their products. The move is tied to WalMart’s broader sustainability strategy which urges suppliers to reduce energy and materials
usage in production to ultimately reduce the cost of their products
Open Partner
Platforms
Monitor Point of View
Value Chain Network: IFF
External
Challenges
R&D /
Technology
Brokering
Consortium /
Incubator
Value Chain
Network
International Flavors and Fragrances (IFF) has invested substantially to integrate
themselves up the value chain, engaging with and partnering with their customers by
providing access to IFF’s intellectual property (IP) and partnering on consumer research

To integrate up the value chain, IFF strives for partnership
with its clients
– The firm operates 32 ―creative centers‖ in 24 countries, which serve
as hubs of collaboration between IFF and
its customers and act as centers for research into local markets

Using its global reach, IFF routinely conducts analyses of consumer
products, cataloging the results, and then making this database available
to its customers to assist them in identifying trends and identifying new
solutions

Customers are also given access to IFF’s IP, including
– The Consumer Fragrance Thesaurus, a database that
links fragrance and aroma ingredients with the emotional responses
that they evoke in consumers
– IFF’s ―groundbreaking‖ research in understanding the impact of
pheromones on adult men and women
Source: SEC, IFF
29
Partnership /
Alliances
/ JVs
Open Partner
Platforms
Monitor Point of View
Partnership / Alliance: Hulu
External
Challenges
R&D /
Technology
Brokering
Consortium /
Incubator
Value Chain
Network
Partnership /
Alliances
/ JVs
Hulu, a joint venture launched by NBC and News Corp. in 2008 and joined by Disney in
2009, was an effort by traditional media companies to stake a claim in the online video-ondemand market. The site has become a hit as the corporate parents freely licensed their
core assets, but avoided interfering in management

Hulu’s independence allows the site to turn competitors into
complementors, striking partnerships to use content from Viacom,
Paramount, PBS, Sony, and Warner Brothers among others

The site embraces lending their assets to other sites, allowing
access to their content on any site via an embedded video player

Visitor engagement is best-in-class and has not been affected by
steady increases in site traffic
– Each visitor watches nearly 10 videos per month
– Unique visitors have grown over 2x since launch

Hulu charges 2x to 3x the ad rates that broadcast networks do,
although this is a cost per thousand charge not a placement fee
– Monitor analysis places annual advertising revenue at
approximately $40M
– Other estimates give Hulu a 10% stake of the $448M ad-supported
online TV market (~$45M in revenue in 2008)
Source: Fast Company, Reuters, Financial Times, Hoovers, Business Week, Forbes
30
Appendix B
The Benefits
Stretching the Boundaries of Innovation
Open innovation is a great tool to get at the “edges” where Innovation tends to be most
challenging
Ten Types of Innovation™
Finance
Business
Model
Networking
Process
Enabling
Process
Core
Process
Offering
Product
Performance
Product
System
Delivery
Service
Channel
Brand
Customer
Experience
Innovation Landscape™:
Innovation patterns for personal computers
and related devices, 1995–2005
Industry after industry will show a valley of
activity on the more challenging ―edges‖ of
the Ten Types of Innovation™, yet our
research consistently demonstrates that it is
when innovating on business models and
customer experiences that leaders create
the most sustained value
Open innovation provides a new
capability to stretch the boundaries of what’s
possible and enable a shift beyond productcentric innovation
32
Our Point of View
Challenges to Realizing the Value
Companies have been attempting open innovation for some time, but there are many
reasons why it remains so difficult . . .






The outside world thinks differently: The insights organizations gather from open innovation
may be very different from internal ―conventional wisdom.‖ How to integrate outside thinking into
inside processes and norms is a challenge every open innovator will need to face.
IP management is tricky: In any collaboration, a critical issue comes in only being as ―open‖
as necessary — on all sides of the relationship — and in ensuring that the rewards of success
are fairly distributed.
The right rewards may not be consistent between partners: Some partners may value
financial success while others focus more on non-economic rewards, for example personal
satisfaction, fame or publicity, affiliation and connection, networking, or self-expression.
The “Goldilocks Dilemma” forces a difficult balance: When reaching outside company walls
there is a critical balancing act of defining a need or challenge that is narrow enough to permit
efficient targeting and use of resources and broad enough to encompass (all) potentially
interesting solutions.
Organizations are designed for in-house innovation: Moving to an open innovation model is
not just about reorganizing and reallocating resources within the R&D department – it requires
major cultural and behavioral changes across the organization.
There are many models of open innovation: A few standout examples have grabbed the
headlines, but we have seen that one-size-fits-all tools do not work. The scope of open
innovation and the specific solutions for implementing it will differ significantly by organization.
33
Monitor Case Study
Project Approach and Outcomes
We designed an approach to enable the organization, helping the leadership of Energy Co.
construct a strategy to invest in shifting to a more open and efficient R&D function
Approach
Deliverables and Output

Diagnose


Map


Design


Implement

Assess the internal readiness, ability and
willingness for open innovation
Benchmark R&D’s utilization and efficiency of
external networks
Identify priority partnership possibilities
Develop case studies of effective open
innovation in Energy and adjacent industries
Construct a playbook for engaging partners
and external networks
Design the process and organizational map to
link internal and external innovation
Build a multi-year roadmap to roll-out pilot
initiatives and broader transformation across
BU’s and functions
Design communication plan
34

Prioritized investment around the most
pressing gaps in the current eco-system

Designed a change plan to address internal
barriers it would face as it looked to shift its
R&D model

Built a playbook for deploying a core set of
open innovation models, identifying priority
areas for experimentation

Launched a multi-year campaign to
sequence the integration of new systems and
processes
Monitor Case Study
Designing Pilots for Open Innovation
We helped the client with experiments to pilot different models of open innovation
Illustrative
Partner
Qualification
Corporate or
BU Strategy
Partnership
Strategy
Contract
Completion
Post-Partnership
Management
Partnership
Design
Scope









What are the objectives of the partnership?
How will value creation occur‖?
What are the competitive scenarios and
implications?
What will be the functions of the partnership?
What will be each partner’s involvement and
contribution?
Which assets / products will be contributed?
What are the non-compete agreements
between the parents?
Ownership of innovations?
How will shared assets / services be divided?
Organization and Decision Rights








What are the key decision rights? Are they any
veto rights?
Who has control? Joint?
What are conflict resolution mechanisms
How will entity react to possible internal /
external shocks?
What is the governance? How are decisions
made?
What is the organizational structure?
What is the budgeting and reporting process?
What are the appropriate incentives?
35
Structure and Valuation







How will the contributions be valued? Does this
affect the sharing of the outcomes?
What are the exit provisions?
What representations are warranties to be
provided?
What are the value drivers?
Will there be access to third party capital or
other funding?
How will synergies be shared?
What ownership structure to choose? Will this
change over time?