Absorbing the different messages coming out of Professor Henry Chesbrough’s new book has been interesting. The book “Open Services Innovation: Rethinking your business to grow and compete in a new era”, published by Jossey-Bass was just launched in January 2011.
The book can go the way of a lightning rod to bringing service innovation up in many people’s thinking both in academic research and corporate agendas. Professor Chesbrough is absolutely right, services are critical to developed countries economies and within our organizations. It is time to move service innovation up in our thinking by combining the internal capabilities within organizations and by enlisting the efforts of many others in support of their business. The challenge is to combine the customer and the supplier on the same platform for Open Services Innovation to work. It is thinking through platforms more that catches my interest and what this means in generating new, innovative business models.
Taking services into a more open approach is not so easy.
Service innovation is distinctly different. Just take the opportunity to read “Service Innovation” by Lance A Bettencourt, published by McGraw Hill to get a really detailed understanding of this or read my book review I provided to InnovationManagement.se (http://bit.ly/9mCXmO).
Chesbrough’s book has four foundation steps. You can see these in my last blog “Taking the Open Services Innovation Road (http://bit.ly/h5mbAV). The two aspects that I felt were worth focusing upon here are 1) transforming and redesigning your business model and 2) the suggestion of an open innovation business model platform to work from.
Transforming your Business model
The chapter that deals with these two aspects (chapter 5) opens with “while openness can be quite helpful to improve service innovation, it becomes far more powerful when joined to the task of designing or redesigning a business model.” This is the pivotal chapter for me.
For me business model generation is very much something we all have to build into our thinking. I’ve blogged on different occasions about this in many of my September & October 2010 posts on this site- I encourage you to take a look back to refresh on these if needed.
Opening up organizations thinking to focus more on service innovation will certainly challenge existing business model design. Distribution channels, interactions with customers will dramatically alter; extracting more out of the value chain, deepening after sale service will all need to be reviewed. Professor Chesbrough does suggest many current business models are full of inertia by their very logic as one choice can constrain other alternatives and cites Dell as a good example of this.
Also I would recommend Alexander Osterwalders excellent book on Business Model Generation, my review (http://bit.ly/i6W3HV) or Mark Johnson’s “Seizing the White space”, review here (http://bit.ly/bwKNkS) for gaining really good understanding of Business model needs as Professor Chesbrough’s book touches on the Business model as you do need to supplement this chapter significantly.
Open Innovation Business Model Platform
“The ultimate goal for a service business is to become a platform for other businesses to build upon”
According to Professor Chesbrough “the crowning achievement of a platform business model is that it attracts external companies to invest in business activities that enhance the value of your platform. Stated differently, a platform business model leverages other people’s money and resources at it grows”
Now this gets to the interesting part of the book for me. Professor Chesbrough suggests a two-sided market platform between suppliers and customers both contributing into the ‘hosted’ platform numerous choices for customers to chose from and lots of customers looking for items to choose to form a virtuous cycle. It is the architecture, the platform developer who connects the internal and external elements to achieve this.
In this open platform business model where key suppliers and customers enter into a ‘relationship’ and become business partners to share technical and business risk with customer need and experience understanding. Getting to this sense of spiritual ‘Nevada’ is the really big ‘bite’ from this book.
“This requires opening up your organization’s business model to harness the energy and investment of third parties in the business”
The book does broaden the business model still further and suggests third parties be encouraged to participate in the company’s future business plans with even independent evaluators to rate and review services on this sharing platform. By sharing tools, standards, intellectual property and know-how needed is part of the open equation, the platform not only coordinates business directions it now shapes future direction alongside the customer.
Extending what is presently going on and applying it across industries is the challenge.
This platform approach is nothing new for many business-to-business activities that have technology as central, and or, have long lead times and require industry standardisation where they need to build out on agreed platforms or through a roadmap approach. Also for selected industries that have achieved this greater connection with suppliers and customers such as Apple (well covered in the book) for its iPod, iTunes, iPhone & iPad where applications are open and customers participate but can this go more broadly across other industries might be more fraught and questionable?
Can the combination of fresh thinking of your business as more a service business, allowing co-creation with customers getting more involved through opening up innovation to a broader ecosystem based on platform business models be our next big ‘wave’ in innovation?
It will be interesting to participate in the debate and see if it gains a broader acceptance. I feel we might have a long road to travel though, to tackle this conceptual framework suggested by Professor Chesbrough and resolve the many issues and challenges it tends to ‘brush over’.