Companies that don't innovate die. This is one certainty your company faces in a complex world. But how should your company innovate? While the key to successful innovation once lay in the controlled environment of the corporate laboratory, today the widespread distribution of useful knowledge makes such control unfeasible. Competitive advantage now often comes from leveraging the discoveries of others.
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Rather than relying entirely on internal ideas to advance the business, an "open" approach to innovation leverages internal and external sources of ideas. Rather than restricting innovations to a single path to market, open innovation inspires companies to find the most appropriate business model to commercialize a new offering -- whether that model exists within the firm or must be sought through external licensing, partnering, or venturing.

This pathbreaking approach -- based on the author's extensive field research, academic study, and longtime professional experience in Silicon Valley -- calls for very different organizing principles for managing research and innovation. Through rich descriptions of the innovation processes of Xerox, IBM, Intel, Procter & Gamble, Lucent, Merck, and other firms, Chesbrough illustrates the principles of open innovation in practice:

• Not all the smart people work for you
• External ideas can help create value, but it takes internal R&D to claim a portion of that value for you
• It is better to build a better business model than to get to market first
• If you make the best use of internal and external ideas, you will win
• Not only should you profit from others' use of your intellectual property, you should also buy others' IP whenever it advances your own business model
• You should expand R&D's role to include not only knowledge generation, but knowledge brokering as well

Chesbrough argues that no innovation holds value until a viable business model successfully commercializes it. Open Innovation will unlock the economic value latent in your company's ideas and technologies. If you don't unlock this value, chances are someone else will. Author Henry Chesbrough is Assistant Professor and the Class of 1961 Fellow at Harvard Business School.

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