In Open Business Models (2003), Henry Chesbrough observes, “An open business model uses a new division of innovation labor – both in the creation of value and in the capture of a portion of that value. Open models create value by leveraging many more ideas, due to their inclusion of a variety of external concepts. Open models can also enable greater value capture, by using a key asset, resource, or position not only in the company’s own business model but also in other companies businesses.” Then in Open Innovation (2005), he develops this concept in much greater depth. As Chesbrough explains, what he characterizes as “Closed Innovation” has a number of implicit rules such as “The company that gets an innovation to market first will usually win” and “We should control our intellectual property, so that our competitors don’t profit from our ideas.” As a result of several “erosion factors” that have undermined its logic, the Closed Innovation paradigm is rapidly becoming obsolete. (Please see Table 1-4, “Contrasting Principles of Closed and Open Innovation,” on Page xxvi in the Introduction.) “When the innovation context shifts from Closed to Open, the process of innovation must change as well.”

Today, the Closed Innovation paradigm has (for the most part) become obsolete and during the years since Chesbrough’s pioneering works began to appear in print, adoption of the Open Innovation model has become wide (i.e. global) and deep (i.e. enterprise-wide and even federation-wide). In what could be viewed as a “State of the Global Marketplace” analysis,  brilliantly explain how and why global networks of highly specialized expertise create value in the challenge driven enterprise.

I especially appreciate the provision of a case study at the conclusion of Chapters 2-9. Each focuses on achievement of high-impact results. For example, HOW

2: Orchestration Creates Value for Li and Fung
3: NASA Expanded Its Innovation Framework to Find New Solutions to Old Problems
4: The Oil Spill Recovery Institute Tapped the Crowd to Be Better Prepared for Arctic Spills
5: Eli Lilly and Company Is Changing from a Closed Company to an Open Network to Provide Medicines for the Twenty-First Century
6: How Procter & Gamble Is Innovating Through Connect + Develop
7: Virtual Software Development: How TopCoder is Rewriting the Code
8: The Prize4Life Foundation Is Crowdsourcing ALS Research
9: President Obama’s Open Government Initiative Is Reinventing Government and Changing Culture

Obviously, the nature and extent of success of these open innovation initiatives vary and all of the organizations are large and have complicated operations. However, valuable lessons cam be learned from success as well as from failure and as the case studies suggest, decision-makers in almost any organization (regardless of size or nature) can apply many of these lessons when responding to their own challenges. Li and Fung, for example, is renowned for its leadership and management of a global supply chain more extensive than almost any other. Leaders within the hundreds of companies within that chain would be well-advised to read the case study in Chapter 2. In fact, I think the entire book is “must reading.”

Bingham and Dwayne Spradlin devote Part I to explaining Challenge Driven Innovation (CDI) and then Part II to the Challenge Driven Enterprise (CDE). More specifically, they explain “how a marketplace of innovation allows us to reframe the innovation model, improve performance, and manage risk (Chapters 2-5) and then “virtualizing the business model to drive innovation, agility, and value creation” (Chapters 6-9). Appropriately, they focus on “The Challenge Driven Enterprise Playbook” in Chapter 8, reviewing and correlating many of their key points, then focus on “Leadership” in the final chapter because the success or failure of any open innovation initiatives will depend almost entirely on the leadership (at all levels and in all areas) of the given enterprise.

These are among the dozens of passages that caught my eye:

o “Exploration Versus Exploitation (Pages 13-14)
o “Chat Rooms Versus Expert Help Desks” (29)
o “Open Innovation’s Unique Potential” (40-42)
o “Seven Stages of Challenge Driven Innovation” (49-52)
o “”Tackling the Long Tail” (74-77)
o “A Thousand and One3 Explorers or How to Find a Star” (78-79)
o “Innovation Channels” (95-101)”Project Model Archetypes” (102-109)
o “Hallmarks of the Challenge Driven Enterprise” (128-129)
o “The Challenge Driven Enterprise as Business Strategy” (144-147)
[Note: Be sure to check out Enterprise Architecture As Strategy: Creating a Foundation for Business Execution, co-authored by Jeanne W. Ross, Peter Weill, David Robertson.]
o “Key Points of the Book” (200-203)
o “The CEOs Journey: Five Essential Waypoints” (206-208)

No brief commentary such as mine can do full justice to the scope and depth of the material (information, insights, and counsel) that Alpheus Bingham and Dwayne Spradlin provide in such abundance. However, I hope these remarks will encourage business leaders, indeed all who are entrusted with the leadership of any enterprise, to read and then re-read this book with appropriate care. In years to come, success or failure in the open innovation marketplace will be determined by those who do – or don’t – create value in the challenge driven enterprise.