The case for open services innovation: The commodity trap

California Management Review

Volumn 53, Issue 3, 2011, Pages 5-20

  Chesbrough, Henry ^a  

^a UNIVERSITY OF CALIFORNIA   (United States)

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[No Author keywords available]

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EID: 80054030203     PISSN: 00081256     EISSN: None     Source Type: Journal    
DOI: 10.1525/cmr.2011.53.3.5     Document Type: Article

References (19)

1. See Richard D'Aveni's book Beating the Commodity Trap (Boston, MA: Harvard Business School Press, 2010) for a discussion of the commodity trap. The key idea behind the trap is that the innovative process that companies followed in the past will no longer take them into a prosperous future. As the saying goes, "What got you here won't get you there." D'Aveni identifies four types of the trap: from deterioration to proliferation to escalation, and finally evaporation. The discussion here is closest to the deterioration trap.
2. National Academy of Engineering, The Impact of Academic Research on Industrial Performance (Washington, D. C.: National Academies Press, 2003).
3. Organization for Economic Cooperation and Development, "The Service Economy", Organization for Economic Cooperation and Development, Paris, 2000, .
4. The facts in this paragraph about the Motorola Razr are from Wikipedia, .
5. An analyst estimates that Motorola's market share in cell phones has fallen from 16 percent in 2005, during the success of the Razr, to under 5 percent. "Motorola's Stock Extremely Sensitive to Changes in Mobile Phone Share", Seeking Alpha, July 26, 2010, .
6. See Inder Sidhu's book Doing Both: How Cisco Captures Today's Profit and Drives Tomorrow's Growth (Upper Saddle River, NJ: FT Press, 2010) as one documented case where Cisco manages both parts of this trade-off with some success.
7. As Andrew Davies, Michael Hobday, and Andrea Prencipe have shown in "Systems Integration: A Core Capability of the Modern Corporation", Industrial and Corporate Change, 14/6(December 2006):1109-1143, the proportion of standardized and customized elements in a solution will vary according to the nature of the market (for example, lower-volume industrial products or high-volume consumer goods). In high-volume industries, the product is usually offered as only a standardized bundle, including a predefined set of services. In complex industrial settings, the solution offered varies considerably depending on the needs, capabilities, and sophistication of the customer organizations. Less experienced customers with limited internal systems-related capabilities often demand solutions consisting entirely of standardized offerings. More experienced or sophisticated customers, by contrast, may find that their needs are not met by a standardized solution.
8. Professor Ikujiro Nonaka has led the way in connecting the importance of tacit knowledge to innovation. See his excellent book with Hirotaki Takeuchi, The Knowledge Creating Company (New York, NY: Oxford University Press, 1995). In their formulation, codified knowledge represents information that is well understood by providers and customers, such as specifications and standards. Companies can develop their offerings according to these specs and be confident that their customers will be able to use their offerings so long as the customers follow the same specs. Examples of such technical standards include the html and http protocols for the Internet and the digital video disk format for movies. Such widely shared information cannot be the basis for competitive advantage. Instead, it is the ability to elicit tacit knowledge that provides a competitive edge for firms.
9. See Susumu Ogawa and Frank Pillar's excellent article on Threadless: "Reducing the Risks of New Product Development", Sloan Management Review, 47/2(Winter 2006):65-71.
10. S. Cook, "The Contribution Revolution", Harvard Business Review, 86/10(October 2008):60-69. Scott Cook is one of the most thoughtful entrepreneurs. He not only founded and grew Intuit to its current success but fought off Bill Gates and Microsoft in doing so. He now sits on the board of Procter & Gamble. He is well worth reading on user contributions and other topics.
11. See the prescient book by Joseph Pine and James Gilmore, The Experience Economy (Boston, MA: Harvard Business School Press, 1999), for an early articulation of the role that subjective experiences play in advanced economies. They also develop the concept of experience points: points of contact between customers and suppliers in the exchange of services, where each entity's respective processes interact in order to accomplish the exchange. At each of these experience points, customers select paths from sets of choices constructed by suppliers, and the exchanges branch into different areas depending on the customer's choice. They can be thought of as moments of truth, where customers see what the service is really like for them at that moment.
12. See my book, Open Innovation: The New Imperative for Creating and Profiting from Technology (Boston, MA: Harvard Business School Press, 2003), for a discussion on the value of open innovation approaches in research and development.
13. My later book, Open Business Models: How to Thrive in the New Innovation Landscape (Boston, MA: Harvard Business School Press, 2006)
14. extends open innovation to business model innovation and intellectual property as well. Daniel Fasnacht wrote his doctoral dissertation on how open innovation influences financial services; it has been published with the catchy title Open Innovation in Financial Services (New York: Springer, 2009).
15. From a user perspective, Eric von Hippel's work is also instructive about the value users add to the innovation process. His classic work is The Sources of Innovation (New York, NY: Oxford University Press, 1988)
16. which is significantly updated and extended in Democratizing Innovation (Cambridge, MA: MIT Press, 2005).
17. I am indebted to my colleague Andrew Davies at Imperial College, London, for the example of the BBC documented here. See his article with John Bessant, "Managing Service Innovation", in J. Bessant and others, eds., Innovation in Services (London: Department of Trade and Industry, 2007).
18. Carliss Baldwin and Kim Clark's book Design Rules (Cambridge, MA: MIT Press, 2000) develops an elegant argument along these lines. This book is well worth the time required to grasp the authors' presentation of the idea of modularity in systems.
19. Velcade's innovative pricing is documented in A. Pollack, "Pricing Pills by the Results", New York Times, July 14, 2007, .